CDI 10Q 2016 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)


x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2016


¨	Transition Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

for the Transition Period from to .

Commission file number: 001-05519

CDI Corp.

(Exact name of registrant as specified in its charter)



Pennsylvania (State of incorporation)	23-2394430 (I.R.S. Employer Identification Number)

1735 Market Street, Suite 200, Philadelphia, PA 19103 (Address of principal executive offices) (Zip Code)

(215) 569-2200 (Registrant's telephone number, including area code)

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. x YES ¨ NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). x YES ¨ NO

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	x
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 Exchange Act). ¨ YES x NO

The number of shares outstanding of each of the registrant's classes of common stock as of October 31, 2016 was as follows:



Common stock, $0.10 par value: Class B common stock, $0.10 par value:	18,655,958 Shares None

CDI CORP.

Form 10-Q

For the Quarterly Period Ended September 30, 2016

TABLE OF CONTENTS



			Page No.
Note About Forward-Looking Statements			2
Part I:	FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets—September 30, 2016 and December 31, 2015	3
		Consolidated Statements of Operations—Three and nine months ended September 30, 2016 and 2015	4
		Consolidated Statements of Comprehensive Income (Loss)—Three and nine months ended September 30, 2016 and 2015	5
		Consolidated Statements of Cash Flows—Nine months ended September 30, 2016 and 2015	6
		Consolidated Statements of Equity—Nine months ended September 30, 2016 and 2015	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4.	Controls and Procedures	31
Part II:	OTHER INFORMATION
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 3.	Defaults Upon Senior Securities	32
	Item 4.	Mine Safety Disclosures	33
	Item 5.	Other Information	33
	Item 6.	Exhibits	33
SIGNATURES			34
INDEX TO EXHIBTS			35

Table of Contents

Note About Forward-Looking Statements

This quarterly report on Form 10-Q (including Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, from time to time, we and our representatives may make statements that are forward-looking. All statements that address expectations or projections about the future, including, but not limited to, statements about our plans, strategies, adequacy of resources and future financial results (such as revenue, gross profit, operating profit, cash flow, and tax rate), are forward-looking statements. Some of the forward-looking statements can be identified by words like “anticipates,” “believes,” “expects,” “may,” “will,” “could,” “should,” “intends,” “plans,” “estimates” and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: weakness or volatility in general economic conditions and levels of capital spending by clients in the industries we serve, including as a result of the U.S. elections; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our clients' projects or the inability of our clients to pay our fees; the termination of one or more major client contracts or projects; the uncertain timing and funding of new contract awards and renewals; a high concentration of our business with a few large clients; the failure to achieve the anticipated benefits of acquisitions, and difficulties in integrating acquired businesses with CDI; the inability to obtain favorable price and other terms for any acquisitions and divestitures we may do; delays or reductions in U.S. government spending; credit risks associated with our clients; competitive market pressures; foreign currency fluctuations; restrictions on the availability of funds and on our activities under our asset-based, secured credit facility; the availability, retention and cost of qualified labor; our level of success in attracting, training, and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our professional employees and our temporary employees; our performance on client contracts; negative outcome of pending and future claims and litigation; improper disclosure or loss of sensitive or confidential company, client, government, employee or candidate information, including personal data; and government policies, legislation or judicial decisions adverse to our businesses. More detailed information about these and other risks and uncertainties may be found in our filings with the United States Securities and Exchange Commission (SEC), particularly in the “Risk Factors” section in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2015. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law.

Unless the context otherwise requires, all references herein to “CDI,” the "Registrant,” the "Company,” “we,” “us” or “our” are to CDI Corp. and its consolidated subsidiaries.

Table of Contents

PART 1. FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS (Unaudited)

CDI CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)

(Unaudited)



	September 30, 2016			December 31, 2015

Assets
Current assets:
Cash and cash equivalents	$	10,210		$	16,932
Accounts receivable, net of allowances of $1,126 and $1,942	192,391			205,494
Prepaid expenses and other current assets	11,809			12,768
Prepaid income taxes	4,467			5,126
Total current assets	218,877			240,320
Property and equipment, net of accumulated depreciation of $87,666 and $84,941	19,372			18,728
Deferred income taxes	3,017			3,228
Goodwill	45,525			45,794
Other intangible assets, net	16,610			20,427
Other non-current assets	10,540			10,600
Total assets	$	313,941		$	339,097

Liabilities and Equity
Current liabilities:
Credit facility	$	15,000		$	18,831
Accounts payable	34,824			30,262
Accrued compensation and related expenses	36,241			34,464
Other accrued expenses and other current liabilities	15,894			19,903
Income taxes payable	306			323
Total current liabilities	102,265			103,783
Deferred compensation	7,505			7,723
Deferred income tax	6,002			1,530
Other non-current liabilities	7,332			4,818
Total liabilities	123,104			117,854
Commitments and contingencies
Equity:
Preferred stock, $0.10 par value - authorized 1,000 shares; none issued	—			—
Common stock, $0.10 par value - authorized 100,000 shares; issued 22,273 and 22,163 shares	2,227			2,216
Class B common stock, $0.10 par value - authorized 3,175 shares; none issued	—			—
Additional paid-in-capital	76,175			74,774
Retained earnings	180,756			210,875
Accumulated other comprehensive loss	(8,579		)	(14,135		)
Common stock in treasury, at cost - 3,653 and 2,463 shares	(59,742		)	(52,487		)
Total CDI shareholders' equity	190,837			221,243
Total equity	190,837			221,243
Total liabilities and equity	$	313,941		$	339,097

See accompanying notes to consolidated financial statements.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015

Revenue	$	220,260		$	244,662		$	680,477		$	748,941
Cost of services	179,727			197,835			554,574			608,697
Gross profit	40,533			46,827			125,903			140,244
Operating and administrative expenses	43,675			46,853			139,037			137,570
Restructuring and other related costs	3,478			566			3,767			613
Impairment	—			21,537			—			21,537
Loss on disposition of business interests	11,301			—			11,301			310
Operating loss	(17,921		)	(22,129		)	(28,202		)	(19,786		)
Other income (expense), net	(112		)	683			(713		)	599
Loss before income taxes	(18,033		)	(21,446		)	(28,915		)	(19,187		)
Income tax expense	(215		)	(1,244		)	1,204			785
Net loss	(17,818		)	(20,202		)	(30,119		)	(19,972		)
Less: Loss attributable to noncontrolling interests	—			—			—			(83		)
Net loss attributable to CDI	$	(17,818	)	$	(20,202	)	$	(30,119	)	$	(19,889	)

Earnings (loss) per common share:
Basic	$	(0.96	)	$	(1.03	)	$	(1.57	)	$	(1.01	)
Diluted	$	(0.96	)	$	(1.03	)	$	(1.57	)	$	(1.01	)

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015

Net loss	$	(17,818	)	$	(20,202	)	$	(30,119	)	$	(19,972	)
Other comprehensive income (loss):
Foreign currency translation adjustments	(824		)	(3,266		)	1,851			(6,404		)
Reclassification of foreign currency translation adjustment	3,705			—			3,705			362
Total comprehensive loss	(14,937		)	(23,468		)	(24,563		)	(26,014		)
Comprehensive income attributable to noncontrolling interests	—			—			—			15
Total comprehensive loss attributable to CDI	$	(14,937	)	$	(23,468	)	$	(24,563	)	$	(26,029	)

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



	Nine Months Ended
	September 30,
	2016			2015

Operating activities:
Net loss	$	(30,119	)	$	(19,972	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	8,111			7,311
Landlord contribution for tenant improvements	2,628			—
Deferred income taxes	4,790			873
Share-based compensation	1,511			1,703
Impairment	—			21,537
Loss on disposition of business interests	11,301			310
Loss on disposal of assets, net	95			(779		)
Changes in operating assets and liabilities:
Accounts receivable, net	(4,788		)	(14,368		)
Prepaid expenses and other current assets	258			(4,108		)
Accounts payable	5,072			(3,031		)
Accrued compensation and related expenses	6,194			16,488
Accrued expenses and other current liabilities	(1,994		)	557
Income taxes receivable/payable	617			(3,369		)
Other non-current assets	2,688			(42		)
Other non-current liabilities	131			(684		)
Net cash provided by operating activities	6,495			2,426

Investing activities:
Additions to property and equipment	(6,908		)	(6,482		)
Acquisition-related payment	(2,108		)	—
Proceeds from disposition of business interests, net of cash disposed	5,849			360
Proceeds from sale of assets	36			1,220
Net cash used in investing activities	(3,131		)	(4,902		)

Financing activities:
Dividends paid to shareholders	—			(7,675		)
Stock repurchased under stock repurchase program	(7,255		)	—
Borrowings on credit facilities	105,917			19,768
Repayments on credit facilities	(109,559		)	(17,981		)
Payment of debt issuance costs	(28		)	—
Common shares withheld for taxes	(111		)	(301		)
Change in book overdraft	706			—
Excess tax benefit from share-based compensation awards	—			52
Net cash used in financing activities	(10,330		)	(6,137		)

Effect of exchange rate changes on cash and cash equivalents	244			(1,278		)
Net decrease in cash and cash equivalents	(6,722		)	(9,891		)
Cash and cash equivalents at beginning of period	16,932			36,324
Cash and cash equivalents at end of period	$	10,210		$	26,433

Supplemental disclosure of cash flow information:
Cash paid for interest	$	528		$	114
Cash paid (received) for income taxes, net	$	(4,289	)	$	3,163

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Equity

(in thousands, except per share amounts)

(Unaudited)



	Common Stock					Treasury Stock			Additional Paid-In-Capital			Retained Earnings			Accum-ulated Other Compre-hensive Loss			Total CDI Share-holders' Equity			Non-Controlling Interest			Total Equity
	Shares		Amount			Treasury Stock			Additional Paid-In-Capital			Retained Earnings			Accum-ulated Other Compre-hensive Loss			Total CDI Share-holders' Equity			Non-Controlling Interest			Total Equity

December 31, 2014	22,084		$	2,208		$	(52,487	)	$	72,023		$	258,113		$	(6,207	)	$	273,650		$	703		$	274,353
Net loss	—		—			—			—			(19,889		)	—			(19,889		)	(83		)	(19,972		)
Translation adjustments	—		—			—			—			—			(6,140		)	(6,140		)	98			(6,042		)
Share-based compensation expense	—		—			—			1,703			—			—			1,703			—			1,703
Reclassification of equity awards from liabilities, net	—		—			—			632			—			—			632			—			632
Vesting and exercise of equity awards	98		10			—			(10		)	—			—			—			—			—
Common shares withheld for taxes	(19	)	(2		)	—			(299		)	—			—			(301		)	—			(301		)
Disposition of controlling interest	—		—			—			—			—			—			—			(718		)	(718		)
Cash dividends declared ($0.39 per common share)	—		—			—			—			(7,675		)	—			(7,675		)	—			(7,675		)
September 30, 2015	22,163		$	2,216		$	(52,487	)	$	74,049		$	230,549		$	(12,347	)	$	241,980		$	—		$	241,980

December 31, 2015	22,163		$	2,216		$	(52,487	)	$	74,774		$	210,875		$	(14,135	)	$	221,243		$	—		$	221,243
Net loss	—		—			—			—			(30,119		)	—			(30,119		)	—			(30,119		)
Translation adjustments	—		—			—			—			—			5,556			5,556			—			5,556
Share-based compensation expense	—		—			—			1,511			—			—			1,511			—			1,511
Reclassification of equity awards from liabilities, net	—		—			—			12			—			—			12			—			12
Vesting and exercise of equity awards	130		13			—			(13		)	—			—			—			—			—
Common shares withheld for taxes	(20	)	(2		)	—			(109		)	—			—			(111		)	—			(111		)
Stock repurchased under stock repurchase program	—		—			(7,255		)	—			—			—			(7,255		)	—			(7,255		)
September 30, 2016	22,273		$	2,227		$	(59,742	)	$	76,175		$	180,756		$	(8,579	)	$	190,837		$	—		$	190,837

See accompanying notes to consolidated financial statements.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

1. Business

CDI Corp. and its subsidiaries (the “Company” or “CDI”) seek to create extraordinary outcomes with its clients by delivering solutions based on highly skilled and professional talent. CDI’s business is comprised of four segments: Enterprise Talent, Specialty Talent and Technology Solutions, Engineering Solutions and Management Recruiters International (MRI). CDI’s client offerings include an array of engineering design project solutions, information technology project solutions and managed services, specialty technology staff augmentation, and program and managed staffing services. CDI's clients are corporations in multiple industries, including energy, chemicals, infrastructure, aerospace, industrial equipment, technology, as well as municipal and state governments, and the United States (U.S.) Department of Defense. CDI has offices and delivery centers in the U.S. and Canada. In addition, CDI provides recruiting and staffing services through its global MRINetwork^® of franchisees.

In September 2016, the Company approved a restructuring plan to further align its organizational structure, facilities and resource utilization with business volumes and strategic direction. See Note—6 Restructuring and Other Related Costs.

On September 16, 2016, CDI completed the sale of CDI AndersElite Limited, the Company's United Kingdom (UK) staffing and recruitment business included in the Enterprise Talent reporting segment. The Consolidated Statement of Operations for the three and nine months ended September 30, 2016 include the results of CDI AndersElite Limited for the period prior to disposition. See Note—7 Acquisitions and Dispositions.

On September 16, 2016, the Company announced that Scott Freidheim, President and Chief Executive Officer (CEO), resigned from the Company effective September 15, 2016, and Michael Castleman, CDI’s Chief Financial Officer, was elected as President of the Company and agreed to serve as interim CEO.

2. Principles of Consolidation and Basis of Presentation

Principles of Consolidation - The consolidated financial statements include the accounts of CDI Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Basis of Presentation - The accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America (GAAP), the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (SEC) for interim financial reporting. These statements should be read in conjunction with the Company's Form 10-K filed with the SEC on March 3, 2016. Results for the nine months ended September 30, 2016 are not necessarily indicative of results that may be expected for the full year.

3. Summary of Significant Accounting Policies

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in the financial statements and accompanying notes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the assumptions used in the determination of the allowance for doubtful accounts receivable, impairment assessment of goodwill, determination of the recoverability of long-lived assets, assessment of legal contingencies and calculation of income taxes.

Reclassifications - Certain historical financial information in the prior period consolidated financial statements has been reclassified to conform to the current period presentation. Historical segment financial information has been reclassified as a result of an operational realignment plan adopted in December 2015. This reclassification did not impact any previously reported consolidated revenues, gross profit or results of operations. See Note 12-Reporting Segments.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 (Topic 606) Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue guidance in addition to some cost guidance. ASU 2014-09 establishes a five-step model under the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company may apply this guidance using either a full retrospective approach, subject to certain practical expedients, or a modified retrospective approach with a cumulative effect adjustment as of the date of initial application. On July 9, 2015, the FASB approved a one-year deferral of the effective date that allows the Company to defer the effective date to January 1, 2018 but still permit the Company to adopt the standard as of the original January 1, 2017 effective date. In 2016, the FASB issued two amendments that are effective as of the effective date selected for the original standard. The Company has not yet selected a transition method nor has it determined the impact that adoption of this guidance will have on its consolidated financial statements, but has determined that it will utilize the deferred effective date of January 1, 2018 to adopt the standard.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02). The standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The Company adopted ASU 2015-02 during the first quarter of 2016, which adoption did not have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases (ASU 2016-02). ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. ASU 2016-02 does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, ASU 2016-02 expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach. The guidance is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company has not determined the impact that adoption of this guidance will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) (ASU 2016-09). ASU 2016-09 makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The Company adopted ASU 2016-09 during the first quarter of 2016, which adoption did not have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The standard is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The Company has not determined the impact that adoption of this guidance will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 320): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for interim and annual reporting periods with retrospective application for all periods presented. The Company has not determined the impact that adoption of this guidance will have on its consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

4. Fair Value Disclosures

The Company maintains a non-qualified Deferred Compensation Plan for highly compensated employees. The assets of the plan are held in the name of CDI at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those deferred amounts. The assets of the plan are held in publicly traded mutual funds. The fair value of the plan assets is calculated using the market price of the mutual funds as of the end of the period.

The following tables summarize the assets and liabilities measured at fair value on a recurring basis by level of the fair value hierarchy for the indicated periods:



			Fair Value Measurements as of September 30, 2016 Using
	Fair Value Measurements at September 30, 2016		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Fair Value Measurements at September 30, 2016		(Level 1)		(Level 2)		(Level 3)

Mutual funds:
Bond	$	1,700	$	1,700	$	—	$	—
Large cap	2,406		2,406		—		—
International	1,482		1,482		—		—
Mid cap	990		990		—		—
Small cap	561		561		—		—
Balanced	536		536		—		—
Money market funds	759		759		—		—
Total assets ⁽¹⁾	$	8,434	$	8,434	$	—	$	—


⁽¹⁾	As of September 30, 2016, $1.2 million and $7.2 million are included in “Prepaid expenses and other current assets” (liability offset in “Other accrued expenses and other current liabilities”) and “Other non-current assets” (liability offset in “Deferred compensation”), respectively, in the consolidated balance sheets reflecting the non-qualified Deferred Compensation Plan assets.



			Fair Value Measurements as of December 31, 2015 Using
	Fair Value Measurements at December 31, 2015		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Fair Value Measurements at December 31, 2015		(Level 1)		(Level 2)		(Level 3)

Mutual funds:
Bond	$	1,772	$	1,772	$	—	$	—
Large cap	2,686		2,686		—		—
International	1,449		1,449		—		—
Mid cap	530		530		—		—
Small cap	425		425		—		—
Balanced	450		450		—		—
Money market funds	1,041		1,041		—		—
Total assets ⁽¹⁾	$	8,353	$	8,353	$	—	$	—


⁽¹⁾	As of December 31, 2015, $0.9 million and $7.5 million are included in “Prepaid expenses and other current assets” (liability offset in “Other accrued expenses and other current liabilities”) and “Other non-current assets” (liability offset in “Deferred compensation”), respectively, in the consolidated balance sheets reflecting the non-qualified Deferred Compensation Plan assets.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

5. Goodwill and Other Intangible Assets

The following table summarizes the changes in the Company's carrying value of goodwill by reporting segment for the indicated periods:



	December 31, 2015										September 30, 2016
	Gross Balance		Accumulated Impairment Losses			Additions		Translation			Gross Balance		Accumulated Impairment Losses

Enterprise Talent	$	40,134	$	(34,511	)	$	—	$	—		$	22,890	$	(17,267	)
Specialty Talent and Technology Solutions	16,445		—			—		—			16,445		—
Engineering Solutions	35,713		(21,431		)	—		—			35,713		(21,431		)
MRI	15,749		(6,305		)	—		(269		)	14,726		(5,551		)
Total goodwill	$	108,041	$	(62,247	)	$	—	$	(269	)	$	89,774	$	(44,249	)

The Company performs its annual assessment for impairment of goodwill and other indefinite-lived intangible assets using a measurement date of July 1 of each fiscal year. The Company performs an assessment for impairment of goodwill and other indefinite-lived intangible assets whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is below its carrying value.

The Company performed its annual assessment as of July 1, 2016 and determined that the fair values for each of the Company's reporting units were substantially in excess of their related carrying values. The Company estimated the fair values of all reporting units using a discounted cash flow model based on significant unobservable inputs or level 3 inputs of the fair value hierarchy. The key assumption used to determine the fair values was management's estimate of future earnings. The Company believes it has made reasonable estimates and used reasonable assumptions to calculate the fair value of its reporting units and indefinite-lived intangible assets. If actual future results are not consistent with management's estimates and assumptions, the Company may have to take impairment charges in the future.

The following tables summarize the changes in the Company's carrying value of other intangible assets during the indicated periods:



	December 31, 2015														September 30, 2016
	Gross Balance		Accumulated Amortization			Amortization			Disposition			Translation			Gross Balance		Accumulated Amortization

Intangible assets subject to amortization:
Customer relationships	$	20,376	$	(7,974	)	$	(2,441	)	$	(841	)	$	(106	)	$	19,190	$	(10,176	)
Trademarks	6,440		(1,054		)	(355		)	—			—			6,440		(1,409		)
Non-compete	150		(150		)	—			—			—			150		(150		)
Reacquired franchise rights	972		(498		)	(74		)	—			—			972		(572		)
Total intangible assets subject to amortization	27,938		(9,676		)	(2,870		)	(841		)	(106		)	26,752		(12,307		)
Indefinite-lived intangible assets:
Trademarks	2,165		—			—			—			—			2,165		—
Total other intangible assets	$	30,103	$	(9,676	)	$	(2,870	)	$	(841	)	$	(106	)	$	28,917	$	(12,307	)

6. Restructuring and Other Related Costs

In September 2016, the Company approved a restructuring plan (the “2016 Restructuring Plan”) to further align its organizational structure, facilities and resource utilization with business volumes and strategic direction. The 2016 Restructuring Plan is expected to be substantially completed by the end of 2016 with certain payments related to the consolidation of facilities expected through 2018.

In December 2015, the Company approved a restructuring plan (the “2015 Restructuring Plan”) to better align its organization and operations with the Company's strategy. The 2015 Restructuring Plan was substantially completed during 2016 with certain payments related to the consolidation of facilities expected through 2022.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

In December 2014, the Company approved a restructuring plan (the “2014 Restructuring Plan”) to optimize its operations and facility footprint. The 2014 Restructuring Plan was substantially complete during 2015 with certain payments related to the consolidation of facilities expected through 2019 and certain employee severance expected through 2016.

The following table summarizes the provision, activity and balances related to the Restructuring Plans by cost type for the indicated periods:



	Employee severance and related costs			Real estate exit and related costs			Asset write-offs			Accrued restructuring liability

Balance as of December 31, 2014	$	2,031		$	2,600		$	—		$	4,631
Cash payments	(1,455		)	(1,060		)	—			(2,515		)
Charges	—			599			14			613
Non-cash	—			—			(14		)	(14		)
Adjustments	(30		)	30			—			—
Balance as of September 30, 2015	$	546		$	2,169		$	—		$	2,715

Balance as of December 31, 2015	$	2,202		$	2,935		$	—		$	5,137
Cash payments	(1,487		)	(1,812		)	—			(3,299		)
Charges	1,353			2,301			113			3,767
Non-cash	—			—			(113		)	(113		)
Adjustments	(300		)	300			—			—
Balance as of September 30, 2016	$	1,768		$	3,724		$	—		$	5,492

The consolidated balance sheets as of September 30, 2016 and December 31, 2015 include provisions related to the foregoing restructuring plans of $4.2 million and $4.1 million in “Other accrued expenses and other current liabilities”, and $1.3 million and $1.0 million in "Other non-current liabilities", respectively.

7. Acquisition and Dispositions

EdgeRock Technologies, LLC Acquisition

On October 6, 2015, the Company acquired EdgeRock Technologies, LLC (EdgeRock), a provider of ERP and other specialist IT staffing, including business intelligence and data analytics, for cash consideration of $33.4 million, including a working capital adjustment that was paid in 2016, plus up to an additional $4.0 million of cash contingent on EdgeRock's operating performance for the twelve months ending October 31, 2016. EdgeRock currently comprises the Specialty Talent business within the Specialty Talent and Technology Solutions reporting segment. During the first three months of 2016, the Company recorded a benefit of $0.8 million to "Operating and administrative expenses" in the consolidated statements of operations related to the reversal of the estimated contingent earnout liability.

CDI AndersElite Limited Disposition

On September 16, 2016, the Company completed the sale of CDI AndersElite Limited (Anders), the Company's UK-based staffing and recruitment business in the Enterprise Talent reporting segment, to AndersElite Holdings Ltd. (Holdings), an entity controlled by certain members of Anders' management. The Company received purchase consideration that included £4.5 million cash, £1.75 million subordinated debt in Holdings and warrants representing 19.99% of the fully diluted equity in Holdings. The Company valued the non-cash purchase consideration at £0.5 million and recorded it to "Other non-current assets" in the consolidated balance sheets. The Company recorded a loss of $11.3 million to "Loss on disposition of business interests" in the consolidated statements of operation related to the disposition of Anders. Anders does not meet the criteria to be reported as a discontinued operation under ASU 2014-08; accordingly, Anders' results are reflected in the Consolidated Statements of Operations within continuing operations. See Note 12—Reporting Segments, for Anders summarized results included in the consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015.

CDI-Pycopsa Disposition

On March 20, 2015, the Company completed the sale of its 67% interest in CDI-Pycopsa Ingeniería y Construcción, S. de R.L. de C.V. (“CDI-Pycopsa”), a Mexico-based engineering design company in the Engineering Solutions (formerly GETS) reporting segment. CDI-Pycopsa does not meet the criteria to be reported as a discontinued operation under ASU 2014-08, which was adopted by the Company on January 1, 2015. Accordingly, CDI-Pycopsa's results are reflected in the Consolidated Statements of Operations within continuing operations. Excluding the $0.3 million loss on disposition, CDI-Pycopsa's pretax results

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

attributable to CDI were not material for the nine months ended September 30, 2015. During the nine months ended September 30, 2016, the Company received $0.1 million of proceeds related to the sale.

8. Credit Facility

On October 30, 2015, the Company and certain domestic subsidiaries (collectively with the Company, the “U.S. Borrowers”), certain Canadian subsidiaries of the Company (collectively, the "Canadian Borrowers"), and certain UK subsidiaries of the Company (collectively, the "UK Borrowers"), collectively (the "Borrowers") entered into an agreement for a secured lending facility (the "Credit Agreement") with Bank of America, N.A. and other lenders. The Credit Agreement established a $150.0 million revolving line of credit facility which also includes an option to expand the facility by up to $75.0 million subject to agreement by the lenders, with a five-year term ending on October 30, 2020. In connection with the sale of Anders, the Company executed an amendment to the Credit Agreement to release all liens and security interests on the UK collateral and allocate the available UK borrowings to the U.S. Borrowers. As of September 30, 2016, the facility is comprised of two subfacilities with $135.0 million available to the U.S. Borrowers and $15.0 million available to the Canadian Borrowers. It also includes a $25.0 million sublimit for swing line loans and a $15.0 million sublimit for letters of credit.

Availability under the Credit Agreement is tied to a borrowing base, measured by 85% of eligible billed accounts receivable, plus 80% of eligible unbilled accounts receivable, less customary reserve amounts; provided however that the portion of the borrowing base consisting of 80% of eligible unbilled accounts receivable may not exceed 30% of the sum of (i) 85% of the eligible billed accounts receivable, plus (ii) 80% of the eligible unbilled accounts receivable. Borrowings under the Credit Agreement may be used by the Company and the other Borrowers for general business purposes including capital expenditures and permitted acquisitions and investments. Accounts receivable, used in the determination of the borrowing base, are subject to lender discretion and, in certain circumstances, the lender may use cash balances in a dominion account established with the administrative agent to repay outstanding balances. As a result, amounts borrowed under the Credit Agreement are presented as current in the consolidated balance sheets.

The Borrowers’ obligations under the Credit Agreement are secured by a first lien security interest in all of the Borrowers’ personal property (subject to customary exceptions), including, among other things, accounts receivable, equity interests, deposit accounts, intellectual property, and leased properties where books and records are kept.

As of September 30, 2016, the Company had total outstanding borrowings of $15.0 million, letters of credit outstanding of $3.3 million and $110.4 million available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of September 30, 2016. Interest was payable at a rate of 1.77% per annum for outstanding borrowings as of September 30, 2016.

As of December 31, 2015, the Company had total outstanding borrowings of $18.8 million, letters of credit outstanding of $3.3 million and $120.7 million available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of December 31, 2015.

9. Commitments and Contingencies

Legal Proceedings

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although management cannot predict the timing or outcome of these matters with certainty, management does not believe that the final resolution of these matters, individually or in the aggregate, would have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

10. Income Taxes

The Company calculates an effective income tax rate each quarter using the estimated annual effective rate method based upon forecasted annual income by jurisdiction, statutory tax rates and other tax-related items. The impact of discrete items is recognized in the interim period in which they occur. Discrete items and the mix of domestic and foreign pre-tax income and losses with no tax benefit may significantly impact the interim period income tax provision and increase the volatility of the interim period effective tax rate at low levels of pre-tax results.

A valuation allowance has been recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. In the fourth quarter of 2015 the company booked a valuation allowance against federal deferred tax assets due to cumulative losses.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

In connection with the sale of Anders, the Company will take a $19.1 million worthless stock deduction associated with CDI AndersElite Limited on its 2016 U.S. federal income tax return, which will be treated as an ordinary loss for tax purposes. This loss will result in a deferred tax asset of $6.6 million, which can be carried forward for up to 20 years and used against future taxable income. There is no net income tax benefit related to this item due to the full valuation allowance against federal deferred tax assets.

The effective tax rates for the nine months ended September 30, 2016 and 2015 were (4.2)% and (4.1)%, respectively. The effective tax rate for the nine months ended September 30, 2016 was impacted by U.S. and certain foreign losses that do not generate tax benefits in the current period as the benefits are fully offset by valuation allowances. The effective tax rate for the nine months ended September 30, 2015 was (4.1)% was impacted by discrete items, the mix of domestic and foreign pre- tax income and certain foreign losses with no tax benefit.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets, including net operating loss carryforwards. Management’s assessment is made for each taxpayer on a jurisdiction by jurisdiction basis. A full valuation allowance has been recorded against the deferred tax asset related to federal taxes and part of the group’s U.S. state taxes as these are not more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or decreased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

11. Basic and Diluted Earnings Per Share (EPS) Data

The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the indicated periods:



	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015

Numerator:
Net loss attributable to CDI	$	(17,818	)	$	(20,202	)	$	(30,119	)	$	(19,889	)
Denominator:
Basic weighted-average shares	18,627			19,695			19,158			19,668
Dilutive effect of share-based awards	—			—			—			—
Diluted weighted-average shares	18,627			19,695			19,158			19,668
Earnings (loss) per common share:
Basic	$	(0.96	)	$	(1.03	)	$	(1.57	)	$	(1.01	)
Diluted	$	(0.96	)	$	(1.03	)	$	(1.57	)	$	(1.01	)

There were 0.5 million shares and 0.7 million shares excluded from the computation of EPS for the three months ended September 30, 2016 and 2015, respectively, because their inclusion would have been anti-dilutive. There were 0.5 million shares and 0.4 million shares excluded from the computation of EPS for the nine months ended September 30, 2016 and 2015, respectively, because their inclusion would have been anti-dilutive.

12. Reporting Segments

During December 2015, the Company adopted a plan to deliver improved performance and efficiencies through increased strategic focus and operational realignment. As a result of this realignment, certain historical segment financial information has been reclassified to conform to the current period segment presentation that became effective during the first quarter of 2016. This reclassification did not impact any previously reported consolidated revenues, gross profit or results of operations.

The Company's reporting segments are as follows:

•

Enterprise Talent - Enterprise Talent provides staff augmentation, placement and other staffing-related services to support its clients’ access to engineering and technology personnel on a temporary or permanent basis. Enterprise Talent focuses on delivering its services to medium and larger sized enterprises that have ongoing needs for skilled and technical labor. The duration of individual client engagements can range from several months to multiple years based on a client’s project, seasonal or business cycle needs. In addition, Enterprise Talent offers enterprise clients managed staffing program services, vendor management solutions, certification management solutions, and recruitment process outsourcing solutions. Enterprise Talent currently operates in North America under the CDI^® brand name. On

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

September 16, 2016, CDI completed the sale of Anders, the Company's UK staffing and recruitment business. See Note—7 Acquisitions and Dispositions.

•

Specialty Talent and Technology Solutions - Specialty Talent and Technology Solutions provides clients with specialized technology talent and solutions through a flexible delivery model that spans staff augmentation and placement services, project execution and management services, and outsourced managed services. Specialty Talent, currently comprised entirely of EdgeRock, provides staff augmentation services focused on highly specialized information technology skillsets, including enterprise resource planning, business intelligence, analytics, infrastructure and application management and development. Technology Solutions provides a range of information technology professional services in a consult, integrate and operate model. These services include IT strategy and consulting, assessments, execution of IT infrastructure and IT engineering solutions, business application solutions, digital marketing services, service management, quality assurance and testing, and program management.

•

Engineering Solutions - Engineering Solutions provides engineering design, as well as complete physical asset and product delivery solutions for its clients. Engineering design principally involves the production of construction and/or technical documentation and specifications performed at a CDI facility or at a client's facility under the supervision of CDI personnel. Complete physical asset and product delivery solutions involve services that manage the integration of all supply chain contributors to a new or upgraded industrial production or infrastructure asset, naval asset or in support of aerospace and industrial original equipment manufacturers. Engineering Solutions is organized around the following business verticals: Energy, Chemicals and Infrastructure (EC&I), Aerospace and Industrial Equipment (AIE) and Government Services.


◦	EC&I serves producers and operators of energy, chemicals, industrial, education and civil infrastructures with a full range of engineering solutions. Specific services including up-front planning, engineering design, industrial and commercial architecture, design/build, transportation and civil engineering, site services, procurement, construction management, start up and commissioning.


◦	AIE serves commercial and defense aviation, as well as industrial original equipment manufacturers, with design and manufacturing engineering services, including mechanical and electrical systems design, drafting, engineering analysis, software design and verification, validation and testing, and tooling design and development.


◦	Government Services primarily serves the U.S. Department of Defense and, in particular the U.S. Navy, with a variety of design and engineering services, including naval architecture, ship alteration, systems modification and installation, technical documentation and training, logistics management, marine manufacturing and aviation engineering.

Within each of the verticals, Engineering Solutions provides these solutions through a services delivery model consisting of skill-based centers of excellence, together with regional offices to serve more localized project or client needs.

•

Management Recruiters International (MRI) - MRI is a global franchisor that does business as MRINetwork^® and provides the use of its trademarks, business systems and training and support services to its franchisees, who engage in the search and recruitment of executive, technical, professional and managerial personnel for employment by their clients. The MRI franchisees provide permanent placement services primarily under the brand names MRINetwork^®, Management Recruiters^®and Sales Consultants^®. MRI also provides training and support, implementation and back-office services to enable franchisees to pursue contract staffing opportunities.

Inter-segment revenue is eliminated in consolidation and is not significant. For purposes of performance measurement, the Company charges certain expenses directly attributable to the reporting segments and allocates certain other expenses and support costs. Support costs consist principally of employee benefits administration, accounting support, IT services and shared service center costs. Operating and administrative expenses that are not directly attributable to the reporting segments are classified as corporate. Identifiable assets of the reporting segments exclude corporate assets. Corporate assets consist principally of all cash and cash equivalents, all current and deferred income tax assets, certain prepaid expenses, other current assets, certain property and equipment and certain other non-current assets.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

Reporting segment operations data is presented in the following table for the indicated periods:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015

Revenue:
Enterprise Talent ⁽¹⁾	$	127,488		$	146,863		$	400,617		$	457,681
Specialty Talent and Technology Solutions ⁽²⁾	18,938			7,724			56,460			23,315
Engineering Solutions	60,852			76,570			185,259			227,937
MRI	12,982			13,505			38,141			40,008
Total revenue	$	220,260		$	244,662		$	680,477		$	748,941

Gross profit:
Enterprise Talent ⁽¹⁾	$	13,848		$	18,165		$	45,763		$	55,751
Specialty Talent and Technology Solutions ⁽²⁾	5,626			2,422			16,448			7,579
Engineering Solutions	14,859			19,624			45,112			57,257
MRI	6,200			6,616			18,580			19,657
Total gross profit	$	40,533		$	46,827		$	125,903		$	140,244

Operating profit (loss):
Enterprise Talent ^{(1), (3), (4)}	$	(10,299	)	$	(8,955	)	$	(9,622	)	$	(1,686	)
Specialty Talent and Technology Solutions ^{(2), (4), (5)}	(575		)	188			(566		)	1,357
Engineering Solutions^{(3), (4), (6)}	(3,856		)	(10,123		)	(8,734		)	(9,613		)
MRI ⁽⁴⁾	1,102			1,927			2,766			4,957
Corporate^{(4), (7)}	(4,293		)	(5,166		)	(12,046		)	(14,801		)
Total operating loss	(17,921		)	(22,129		)	(28,202		)	(19,786		)
Other income (expense), net	(112		)	683			(713		)	599
Loss before income taxes	$	(18,033	)	$	(21,446	)	$	(28,915	)	$	(19,187	)


⁽¹⁾	On September 16, 2016, the Company completed the sale of Anders, the Company's UK staffing and recruitment business, which is included in Enterprise Talent, and recorded a charge of $11.3 million on disposition. Anders results are presented in the following table for the indicated periods (excluding allocation of corporate costs):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015

Revenue	$	15,835		$	25,812		$	59,302		$	79,972
Gross Profit	2,446			4,504			9,758			13,507
Operating and administrative expenses	2,874			4,755			11,542			14,545
Operating loss	(428		)	(251		)	(1,784		)	(1,058		)


⁽²⁾	On October 6, 2015, the Company acquired EdgeRock, which is included in Specialty Talent and Technology Solutions.


⁽³⁾	In the third quarter of 2015, the Company recorded an aggregate charge of $21.5 million related to the impairment of goodwill and certain fixed assets, comprised of Enterprise Talent $10.7 million and Engineering Solutions $10.9 million.


⁽⁴⁾	The following table summarizes the amount of restructuring and other related costs recognized by reporting segment for the indicated periods:

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015

Restructuring and other related costs:
Enterprise Talent	$	331	$	331	$	433	$	378
Specialty Talent and Technology Solutions	215		—		215		—
Engineering Solutions	2,504		235		2,690		235
MRI	206		—		206		—
Corporate	222		—		223		—
Total restructuring and other related costs	$	3,478	$	566	$	3,767	$	613


⁽⁵⁾	In the first quarter of 2016, the Company's Specialty Talent and Technology Solutions segment recorded a benefit to "Operating and administrative expenses" of $0.8 million related to the reversal of the EdgeRock acquisition earnout liability.


⁽⁶⁾	In the first quarter of 2015, the Company's Engineering Solutions segment recorded a charge of $0.3 million related to the loss on disposition of the Company's controlling interest in a Mexico-based engineering design company.


⁽⁷⁾	In the third quarter of 2015, the Company recorded a pre-tax gain of $0.8 million for a sale of a non-operating corporate asset. Proceeds from the sale were $1.2 million.

Reporting segment asset data is presented in the following table for the indicated periods:



	September 30,		December 31,
	2016		2015

Assets:
Enterprise Talent ⁽¹⁾	$	121,862	$	137,695
Specialty Talent and Technology Solutions	39,531		40,127
Engineering Solutions	88,294		93,810
MRI	23,023		23,273
Corporate	41,231		44,192
Total assets	$	313,941	$	339,097


⁽¹⁾	On September 16, 2016, the Company completed the sale of Anders, the Company's UK staffing and recruitment business, which is included in Enterprise Talent.

Reporting segment depreciation and amortization data is presented in the following table for the indicated periods:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015

Depreciation and amortization:
Enterprise Talent ⁽¹⁾	$	278	$	259	$	909	$	925
Specialty Talent and Technology Solutions ⁽²⁾	522		88		2,176		233
Engineering Solutions	1,117		1,431		3,585		4,447
MRI	73		65		205		227
Corporate	414		456		1,236		1,479
Total Depreciation and amortization	$	2,404	$	2,299	$	8,111	$	7,311

⁽¹⁾

On September 16, 2016, the Company completed the sale of Anders, the Company's UK staffing and recruitment business, which is included in Enterprise Talent. Anders depreciation and amortization included in the three months ended September 30, 2016 and 2015 was $0.1 million and $0.1 million. Anders depreciation and amortization included in the nine months ended September 30, 2016 and 2015 was $0.4 million and $0.5 million.


⁽²⁾	On October 6, 2015, the Company acquired EdgeRock, which is included in Specialty Talent and Technology Solutions.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Form 10-Q Report as well as the Note About Forward-Looking Statements.

Executive Overview

Business Overview

CDI seeks to create extraordinary outcomes with its clients by delivering solutions based on highly skilled and professional talent. CDI’s business is comprised of four segments: Enterprise Talent, Specialty Talent and Technology Solutions, Engineering Solutions and Management Recruiters International (MRI). CDI’s client offerings include an array of engineering design project solutions, information technology project solutions and managed services, specialty technology staff augmentation, and program and managed staffing services. CDI's clients are corporations in multiple industries, including energy, chemicals, infrastructure, aerospace, industrial equipment, technology, as well as municipal and state governments, and the United States (U.S.) Department of Defense. CDI has offices and delivery centers in the U.S. and Canada. In addition, CDI provides recruiting and staffing services through its global MRINetwork^® of franchisees.

Enterprise Talent provides staff augmentation, placement and other staffing-related services to support its clients’ access to professional engineering and technology personnel on a temporary or permanent basis. Specialty Talent and Technology Solutions provides clients with specialized technology talent as well as solutions that include staff augmentation and placement services, project execution and management services, and outsourced managed services. Engineering Solutions provides engineering design, as well as deliverable work products or services performed at a CDI facility or at a client's facility under the supervision of CDI personnel. MRI is a global franchisor that provides the use of its trademarks, business systems and training and support services to its franchisees who engage in the search and recruitment of executive, technical, professional and managerial personnel for employment by their clients. See Note 12—Reporting Segments, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report.

The Company is undertaking a strategic transformation and operational turnaround. As a result, the Company will make select investments and take other actions to improve business results and may experience volatility in financial performance. Historical trends may not be indicative of future trends.

Third Quarter 2016 Overview

Revenue during the third quarter of 2016 decreased by $24.4 million or 10.0% as compared to the third quarter of 2015 primarily due to decreases in Enterprise Talent and Engineering Solutions, partially offset by an increase in Specialty Talent and Technology Solutions. Enterprise Talent revenue decreased primarily due to reduced staffing volumes at a large information technology client as well as reduced UK staffing revenue in part associated with the disposition of CDI AndersElite Limited prior to the end of the quarter and the negative impact of foreign currency exchange rates. Engineering Solutions revenue decreased primarily due to decreases in EC&I and, to a lesser extent, AIE. Specialty Talent and Technology Solutions revenue increased primarily due to the inclusion of EdgeRock, which was acquired on October 6, 2015. Gross profit decreased by $6.3 million primarily due to the decrease in revenue and, to a lesser extent, a reduction in gross profit margin in each reporting segment, partially offset by a shift in revenue mix to higher margin Specialty Talent and Technology Solutions business as a result of the inclusion of EdgeRock. Operating and administrative expenses were reduced in response to lower business volumes and reduced corporate costs partially offset by the inclusion of EdgeRock. For the third quarter of 2016, the Company reported an operating loss of $17.9 million compared to an operating loss of $22.1 million in the prior year period and a net loss attributable to CDI of $17.8 million compared to $20.2 million in the prior year period, respectively.

In September 2016, the Company approved a restructuring plan (the “2016 Restructuring Plan”) to further align its organizational structure, facilities and resource utilization with business volumes and strategic direction. During the third quarter of 2016, the Company recorded a charge of $3.5 million to "Restructuring and other related costs" in the consolidated statement of operations. The 2016 Restructuring Plan is expected to be substantially completed by the end of 2016 with certain payments related to the consolidation of facilities expected through 2018.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Results of Operations

Consolidated Discussion

Three months ended September 30, 2016 as compared to the three months ended September 30, 2015

The following table presents changes in revenue by segment along with selected financial information for the indicated periods:



	Three Months Ended
	September 30,
	2016					2015					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%

Revenue:
Enterprise Talent	$	127,488		57.9	%	$	146,863		60.0	%	$	(19,375	)	(13.2	)%
Specialty Talent and Technology Solutions	18,938			8.6		7,724			3.2		11,214			145.2
Engineering Solutions	60,852			27.6		76,570			31.3		(15,718		)	(20.5	)
MRI	12,982			5.9		13,505			5.5		(523		)	(3.9	)
Total Revenue	$	220,260		100.0		$	244,662		100.0		$	(24,402	)	(10.0	)
Gross profit	$	40,533		18.4		$	46,827		19.1		$	(6,294	)	(13.4	)
Operating and administrative expenses	$	43,675		19.8		$	46,853		19.2		$	(3,178	)	(6.8	)
Restructuring and other related costs	$	3,478		1.6		$	566		0.2		$	2,912		NM
Impairment	$	—		—		$	21,537		8.8		$	(21,537	)	NM
Loss on disposition of business interest	$	11,301		5.1		$	—		—		$	11,301		NM
Operating loss	$	(17,921	)	(8.1	)	$	(22,129	)	(9.0	)	$	4,208		(19.0	)
Net loss attributable to CDI	$	(17,818	)	(8.1	)	$	(20,202	)	(8.3	)	$	2,384		(11.8	)
Effective income tax rate	1.2		%			5.8		%

NM - Not meaningful.

Revenue decreased primarily due to a decrease in Enterprise Talent and Engineering Solutions, partially offset by an increase in Specialty Talent and Technology Solutions. Enterprise Talent revenue decreased primarily due to reduced staffing volumes at a large information technology client, reduced Canadian pipeline staffing and the negative impact of foreign currency exchange rates, as well as reduced UK staffing revenue in part associated with the disposition of Anders prior to the end of the quarter. Engineering Solutions revenue decreased primarily due to decreases in EC&I and, to a lesser extent, AIE. Specialty Talent and Technology Solutions revenue increased primarily due to the inclusion of EdgeRock, which was acquired on October 6, 2015, and, to a lesser extent, an increase in Technology Solutions. MRI revenues decreased primarily due to a decrease in royalties and, to a lesser extent, contract staffing revenue, partially offset by an increase in franchise fees.

Gross profit decreased primarily due to the decrease in revenue and, to a lesser extent, a reduction in overall gross profit margin in each of the reporting segments, partially offset by a shift in revenue mix to higher margin Specialty Talent and Technology Solutions business as a result of the inclusion of EdgeRock.

Excluding the $11.3 million loss on disposition in 2016 and $21.5 million impairment charge in 2015, operating results decreased primarily due to the decrease in gross profit and an increase in restructuring and other related costs, partially offset by reductions in operating and administrative expenses. Operating and administrative expenses decreased primarily due to actions taken by the company to reduce personnel-related and other costs in response to lower business volumes, reduced corporate costs, and the disposition of the UK Staffing business on September 16, 2016, partially offset by the inclusion of EdgeRock. Corporate operating costs decreased primarily due to reduction in prior costs associated with international business development activities.

Income tax expense increased $1.0 million during the third quarter of 2016 as compared to the third quarter of 2015. The effective income tax rate for the third quarter of 2016 was impacted by U.S. and certain foreign losses that do not generate tax benefits in the current period as the benefits are fully offset by valuation allowances. The effective income tax rate for the third quarter of 2015 was impacted by discrete items, the mix of domestic and foreign pre-tax income and certain foreign losses with no benefit. As such, comparison of effective tax rates for the third quarter of 2016 as compared to the third quarter of 2015 is not meaningful. See Note 10—Income taxes, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report for more information.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Consolidated Discussion - Continued

Nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015

The following table presents changes in revenue by segment along with selected financial information for the indicated periods:



	Nine Months Ended
	September 30,
	2016					2015					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%

Revenue:
Enterprise Talent	$	400,617		58.9	%	$	457,681		61.1	%	$	(57,064	)	(12.5	)%
Specialty Talent and Technology Solutions	56,460			8.3		23,315			3.1		33,145			142.2
Engineering Solutions	185,259			27.2		227,937			30.4		(42,678		)	(18.7	)
MRI	38,141			5.6		40,008			5.3		(1,867		)	(4.7	)
Total Revenue	$	680,477		100.0		$	748,941		100.0		$	(68,464	)	(9.1	)
Gross profit	$	125,903		18.5		$	140,244		18.7		$	(14,341	)	(10.2	)
Operating and administrative expenses ⁽¹⁾	$	139,037		20.4		$	137,570		18.4		$	1,467		1.1
Restructuring and other related costs	$	3,767		0.6		$	613		0.1		$	3,154		NM
Impairment	$	—		—		$	21,537		2.9		$	(21,537	)	NM
Loss on disposition of business interests	$	11,301		1.7		$	310		—		$	10,991		NM
Operating loss	$	(28,202	)	(4.1	)	$	(19,786	)	(2.6	)	$	(8,416	)	42.5
Net loss attributable to CDI	$	(30,119	)	(4.4	)	$	(19,889	)	(2.7	)	$	(10,230	)	51.4
Effective income tax rate	(4.2		)%			(4.1		)%

NM - Not meaningful.

Revenue decreased due to a decrease in Enterprise Talent, Engineering Solutions and MRI, partially offset by an increase in Specialty Talent and Technology Solutions. Enterprise Talent revenue decreased primarily due to reduced staffing at a large information technology client, reduced Canadian pipeline staffing, the negative impact of foreign currency exchange rates and reduced UK Staffing revenue, in part due to the disposition of the UK Staffing business on September 16, 2016. Engineering Solutions revenue decreased primarily due to decreases in EC&I and AIE, partially offset by an increase in Government Services. Specialty Talent and Technology Solutions revenue increased primarily due to the inclusion of EdgeRock and, to a lesser extent, an increase in Technology Solutions. MRI revenue decreased due to a decrease in royalties and contract staffing revenue, partially offset by an increase in franchise fees.

Gross profit decreased primarily due to the decrease in revenue as overall gross profit margin remained flat. Overall gross profit margin remained flat as decreases in Enterprise Talent, Engineering Solutions and Technology Solutions gross profit margins were offset by a shift in revenue mix to higher margin Specialty Talent and Technology Solutions business, primarily as a result of the inclusion of EdgeRock.

Excluding the $11.3 million loss on disposition in 2016 and $21.5 million impairment charge in 2015, operating results decreased primarily due to the decrease in gross profit and an increase in restructuring and other related costs and operating and administrative expenses. Operating and administrative expenses increased primarily due to the inclusion of EdgeRock. Excluding EdgeRock, operating and administrative expenses decreased primarily due to actions taken by the company to reduce personnel-related and other costs in response to lower business volumes, reduced corporate costs, and the disposition of the UK Staffing business on September 16, 2016. Corporate operating costs decreased primarily due to a reduction in prior costs associated with international business development activities.

Income tax expense increased $0.4 million during the first nine months of 2016 as compared to the first nine months of 2015. The effective income tax rate for the first nine months of 2016 was impacted by U.S. and certain foreign losses that do not generate tax benefits in the current period as the benefits are fully offset by valuation allowances. The effective income tax rate for the first nine months of 2015 was impacted by discrete items, the mix of domestic and foreign pre-tax income and certain foreign losses with no tax benefit. As such, comparison of effective tax rates for the first nine months of 2016 as compared to the first nine months of 2015 is not meaningful. See Note 10—Income taxes, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report for more information.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Segment Results of Operations

Enterprise Talent

Three months ended September 30, 2016 as compared to the three months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Three Months Ended
	September 30,
	2016					2015					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%

Revenue:
North America Staffing	$	111,653		87.6	%	$	121,051		82.4	%	$	(9,398	)	(7.8	)%
UK Staffing	15,835			12.4		25,812			17.6		(9,977		)	(38.7	)
Total revenue	127,488			100.0		146,863			100.0		(19,375		)	(13.2	)
Cost of services	113,640			89.1		128,698			87.6		(15,058		)	(11.7	)
Gross profit	13,848			10.9		18,165			12.4		(4,317		)	(23.8	)
Operating and administrative expenses	12,515			9.8		16,136			11.0		(3,621		)	(22.4	)
Restructuring and other related costs	331			0.3		331			0.2		—			—
Impairment ⁽¹⁾	—			—		10,653			7.3		(10,653		)	NM
Loss on disposition of business interest ⁽²⁾	11,301			8.9		—			—		11,301			—
Operating loss	$	(10,299	)	(8.1	)	$	(8,955	)	(6.1	)	$	(1,344	)	15.0


⁽¹⁾	In the third quarter of 2015, the Company recorded a charge of 10.7 million related to the impairment of goodwill in the Company's UK staffing business.


⁽²⁾	On September 16, 2016, the Company completed the sale of Anders, the Company's UK staffing business, and recorded a loss of $11.3 million on disposition. See Note—7 Acquisitions and Dispositions and Note 12—Reporting Segments, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report.

NM - Not meaningful.

Revenue decreased in both the North America and UK Staffing businesses. North America Staffing revenue decreased primarily due to reduced staffing volumes at a large information technology client, reduced spend at several large U.S. staffing programs and discrete client projects, partially offset by growth at a large engineering client. UK Staffing revenue decreased primarily due to the negative impact of foreign currency exchange rates, the disposition of the UK Staffing business on September 16, 2016 and reductions across the engineering and construction sectors, in part associated with the uncertainty following the Brexit referendum.

Gross profit decreased primarily due to the decrease in revenue and, to a lesser extent, a reduction in gross profit margin. Gross profit margin decreased primarily due to a shift in mix to North American Staffing, in part associated with the disposition of the UK Staffing business on September 16, 2016, as well as negative pricing pressure, particularly in Canadian pipeline staffing.

Operating and administrative expenses decreased primarily due to actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes, the disposition of the UK Staffing business on September 16, 2016 and, to a lesser extent, the reversal of bad debt reserves from earlier in 2016.

Excluding the $11.3 million loss on disposition in 2016 and $10.7 million impairment charge in 2015, both related to the UK staffing business, operating results decreased due to the reduction in gross profit, partially offset by the decrease in operating and administrative expenses.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Enterprise Talent - Continued

Nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Nine Months Ended
	September 30,
	2016					2015					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%

Revenue:
North America Staffing	$	341,315		85.2	%	$	377,709		82.5	%	$	(36,394	)	(9.6	)%
UK Staffing	59,302			14.8		79,972			17.5		(20,670		)	(25.8	)
Total revenue	400,617			100.0		457,681			100.0		(57,064		)	(12.5	)
Cost of services	354,854			88.6		401,930			87.8		(47,076		)	(11.7	)
Gross profit	45,763			11.4		55,751			12.2		(9,988		)	(17.9	)
Operating and administrative expenses	43,651			10.9		46,406			10.1		(2,755		)	(5.9	)
Restructuring and other related costs	433			0.1		378			0.1		55			14.6
Impairment ⁽¹⁾	—			—		10,653			2.3		(10,653		)	NM
Loss on disposition of business interest ⁽²⁾	11,301			2.8		—			—		11,301			NM
Operating loss	$	(9,622	)	(2.4	)	$	(1,686	)	(0.4	)	$	(7,936	)	470.7


⁽¹⁾	In the third quarter of 2015, the Company recorded a charge of 10.7 million related to the impairment of goodwill in the Company's UK staffing business.


⁽²⁾	On September 16, 2016, the Company completed the sale of Anders, the Company's UK staffing business, and recorded a loss of $11.3 million on disposition. See Note—7 Acquisitions and Dispositions and Note 12—Reporting Segments, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report.

NM - Not meaningful.

Revenue decreased in both the North America and UK Staffing businesses. North America Staffing revenue decreased primarily due to reduced staffing volumes at a large information technology client, reduced Canadian pipeline staffing volumes, and the negative impact of foreign currency exchange rates. UK Staffing revenue decreased primarily due to the negative impact of foreign currency exchange rates, the disposition of the UK Staffing business on September 16, 2016, and reductions across engineering and construction sectors, in part associated with the uncertainty preceding and following the Brexit referendum.

Gross profit decreased primarily due to the decrease in revenue and, to a lesser extent, a decrease in gross profit margin. Gross profit margin decreased slightly primarily due to a shift in geographic and service mix and negative pricing pressure.

Operating and administrative expenses decreased primarily due to actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes and the disposition of the UK Staffing business on September 16, 2016.

Excluding the $11.3 million loss on disposition in 2016 and $10.7 million impairment charge in 2015, both related to the UK staffing business, operating results decreased primarily due to the reduction in gross profit, partially offset by the decrease in operating and administrative expenses.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Specialty Talent and Technology Solutions

Three months ended September 30, 2016 as compared to the three months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Three Months Ended
	September 30,
	2016					2015				Increase (Decrease)
	$			% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Specialty Talent	$	10,461		55.2	%	$	—	—	%	$	10,461		NM
Technology Solutions	8,477			44.8		7,724		100.0		753			9.7
Total revenue	18,938			100.0		7,724		100.0		11,214			145.2
Cost of services	13,312			70.3		5,302		68.6		8,010			151.1
Gross profit	5,626			29.7		2,422		31.4		3,204			132.3
Operating and administrative expenses ⁽¹⁾	5,986			31.6		2,234		28.9		3,752			167.9
Restructuring and other related costs	$	215		1.1		$	—	—		$	215		NM
Operating profit (loss)	$	(575	)	(3.0	)	$	188	2.4		$	(763	)	(405.9	)


⁽¹⁾	The third quarter of 2016 includes $0.4 million of amortization of intangible assets identified as part of acquisition accounting for EdgeRock.

NM - Not meaningful.

Revenue increased primarily due to the acquisition of EdgeRock on October 6, 2015, which currently comprises the entirety of Specialty Talent, and, to a lesser extent, an increase in Technology Solutions. Technology Solutions revenue increased primarily due to increased spending by certain clients, including new projects, partially offset by the impact of other clients' program reductions as part of their overall cost savings initiatives.

Gross profit increased primarily due to the inclusion of EdgeRock, partially offset by a reduction in gross profit margin. Gross profit margin decreased due to the inclusion of EdgeRock.

Operating and administrative expenses increased primarily due to the inclusion of EdgeRock, related to both direct operating expenses and the allocation of certain corporate expenses to EdgeRock.

Excluding the impact of the $0.2 million restructuring charge in 2016, operating results decreased due to the increase in operating and administrative expenses partially offset by the increase in gross profit.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Specialty Talent and Technology Solutions - Continued

Nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Nine Months Ended
	September 30,
	2016					2015				Increase (Decrease)
	$			% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Specialty Talent	$	31,432		55.7	%	$	—	—	%	$	31,432		NM
Technology Solutions	25,028			44.3		23,315		100.0		1,713			7.3
Total revenue	56,460			100.0		23,315		100.0		33,145			142.2
Cost of services	40,012			70.9		15,736		67.5		24,276			154.3
Gross profit	16,448			29.1		7,579		32.5		8,869			117.0
Operating and administrative expenses ^{(1), (2)}	16,799			29.8		6,222		26.7		10,577			170.0
Restructuring and other related costs	$	215		0.4		$	—	—		$	215		NM
Operating profit	$	(566	)	(1.0	)	$	1,357	5.8		$	(1,923	)	(141.7	)


⁽¹⁾	In the first quarter of 2016, the Company recorded a benefit of $0.8 million related to the reversal of the EdgeRock acquisition earnout liability.


⁽²⁾	The first nine months of 2016 includes $1.8 million of amortization of intangible assets identified as part of acquisition accounting for EdgeRock.

NM - Not meaningful.

Gross profit increased primarily due to the inclusion of EdgeRock, partially offset by a reduction in gross profit margin. Gross profit margin decreased due to the inclusion of EdgeRock and a combination of a shift in service mix and negative pricing pressure in Technology Solutions.

Operating and administrative expenses increased primarily due to the inclusion of EdgeRock, related to both direct operating expenses and the allocation of certain corporate expenses to EdgeRock and, to a lesser extent, personnel-related investments in business development in Technology Solutions.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Engineering Solutions

Three months ended September 30, 2016 as compared to the three months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Three Months Ended
	September 30,
	2016					2015					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%

Revenue:
Energy, Chemicals and Infrastructure (EC&I)	$	32,343		53.2	%	$	45,483		59.4	%	$	(13,140	)	(28.9	)%
Aerospace and Industrial Equipment (AIE)	12,180			20.0		14,877			19.4		(2,697		)	(18.1	)
Government Services	16,329			26.8		16,210			21.2		119			0.7
Total revenue	60,852			100.0		76,570			100.0		(15,718		)	(20.5	)
Cost of services	45,993			75.6		56,946			74.4		(10,953		)	(19.2	)
Gross profit	14,859			24.4		19,624			25.6		(4,765		)	(24.3	)
Operating and administrative expenses	16,211			26.6		18,628			24.3		(2,417		)	(13.0	)
Restructuring and other related costs	2,504			4.1		235			0.3		2,269			NM
Impairment ⁽¹⁾	—			—		10,884			14.2		(10,884		)	NM
Operating loss	$	(3,856	)	(6.3	)	$	(10,123	)	(13.2	)	$	6,267		(61.9	)


⁽¹⁾	In the third quarter of 2015, the Company recorded a charge of $10.9 million related to the impairment of goodwill and certain fixed assets within the EC&I business.

NM - Not meaningful.

Revenue decreased in EC&I and AIE, partially offset by an increase in Government Services. The decrease in EC&I is primarily due to reduced demand for engineering services by downstream and midstream clients as a result of the completion of several large projects as well as the impact of the decline in oil and gas prices on new spending. The decrease in AIE revenue is primarily due to reduced spending by a large commercial aviation client and, to a lesser extent, the wind down of the Company's data acquisition and analysis business during 2015. The slight increase in Government Services is primarily due to growth in existing naval defense contracts.

Gross profit decreased primarily due to a reduction in revenue and, to a lesser extent, a reduction in gross profit margin. Gross profit margin decreased primarily due to deterioration in margin of certain fixed price contracts in EC&I and reduction in AIE margins associated with the wind down of the Company's data acquisition and analysis business during 2015.

Operating and administrative expenses decreased primarily due to actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes, partially offset by an increase in reserves for project-related disputes.

Excluding the $2.5 million restructuring charge in 2016 and $10.9 million impairment charge in 2015, operating results decreased primarily due to a reduction in gross profit, partially offset by the decrease in operating and administrative expenses.

Table of Contents

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Engineering Solutions - Continued

Nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Nine Months Ended
	September 30,
	2016					2015					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%

Revenue:
Energy, Chemicals and Infrastructure (EC&I)	$	99,573		53.7	%	$	136,344		59.8	%	$	(36,771	)	(27.0	)%
Aerospace and Industrial Equipment (AIE)	37,836			20.4		46,189			20.3		(8,353		)	(18.1	)
Government Services	47,850			25.8		45,404			19.9		2,446			5.4
Total revenue	185,259			100.0		227,937			100.0		(42,678		)	(18.7	)
Cost of services	140,147			75.6		170,680			74.9		(30,533		)	(17.9	)
Gross profit	45,112			24.4		57,257			25.1		(12,145		)	(21.2	)
Operating and administrative expenses	51,156			27.6		55,441			24.3		(4,285		)	(7.7	)
Restructuring and other related costs	2,690			1.5		235			0.1		2,455			NM
Impairment ⁽¹⁾	—			—		10,884			4.8		(10,884		)	NM
Loss on disposition⁽²⁾	—			—		310			0.1		(310		)	NM
Operating profit (loss)	$	(8,734	)	(4.7	)	$	(9,613	)	(4.2	)	$	879		(9.1	)


⁽¹⁾	In the third quarter of 2015, the Company recorded a charge of $10.9 million related to the impairment of goodwill and certain fixed assets within the EC&I business.


⁽²⁾	In the first quarter of 2015, the Company's Engineering Solutions segment recorded a charge of $0.3 million related to the loss on disposition of the Company's controlling interest in a Mexico-based engineering design company.

NM - Not meaningful.

Revenue decreased in EC&I and AIE, partially offset by an increase in Government Services. The decrease in EC&I is primarily due to reduced demand for engineering services by downstream and midstream clients as a result of the completion of several large projects as well as the impact of the decline in oil and gas prices on new spending. The decrease in AIE revenue is primarily due to reduced spending by a large commercial aviation client. The increase in Government Services is primarily due to new naval defense contracts.

Gross profit decreased primarily due to a reduction in revenue and, to a lesser extent, a slight reduction in gross profit margin. Gross profit margin decreased slightly primarily due to a reduction in AIE margins associated with the wind down of the Company's data acquisition and analysis business during 2015 and the effect of an increase in pass-through materials revenue in Government Services.

Operating and administrative expenses decreased primarily due to actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes and wind down of the Company's data acquisition and analysis business during 2015, partially offset by an increase in reserves for project-related disputes.

Excluding the $2.7 million restructuring charge in 2016 and $10.9 million impairment charge in 2015, operating results decreased primarily due to the decrease in gross profit, partially offset by the decrease in operating and administrative costs.

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CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Management Recruiters International (MRI)

Three months ended September 30, 2016 as compared to the three months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Three Months Ended
	September 30,
	2016				2015				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Contract Staffing	$	10,006	77.1	%	$	10,106	74.8	%	$	(100	)	(1.0	)%
Royalties and Franchise Fees	2,976		22.9		3,399		25.2		(423		)	(12.4	)
Total revenue	12,982		100.0		13,505		100.0		(523		)	(3.9	)
Cost of services	6,782		52.2		6,889		51.0		(107		)	(1.6	)
Gross profit	6,200		47.8		6,616		49.0		(416		)	(6.3	)
Operating and administrative expenses	4,892		37.7		4,689		34.7		203			4.3
Restructuring and other related costs	206		1.6		—		—		206			NM
Operating profit	$	1,102	8.5		$	1,927	14.3		$	(825	)	(42.8	)

NM - Not meaningful.

Revenue decreased due to a decrease in royalties and, to a lesser extent, contract staffing revenue, partially offset by an increase in franchise fees. The decrease in royalties is primarily due to fewer placements and the termination of franchises. Franchise fees increased due to an increase in the number of new franchises.

Gross profit decreased primarily due to a reduction in royalties, partially offset by the increase in franchise fees. Gross profit margin decreased primarily due to the reduction in royalties.

Operating and administrative expenses increased primarily due to an increase in legal costs and franchise-related sales costs.

Operating profit decreased due to the decrease in gross profit and, to a lesser extent, increase in operating and administrative expenses and restructuring charges.

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CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Management Recruiters International (MRI) - Continued

Nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015

The following table presents changes in revenue by category along with selected financial information for the indicated periods:



	Nine Months Ended
	September 30,
	2016				2015				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Contract Staffing	$	28,985	76.0	%	$	30,052	75.1	%	$	(1,067	)	(3.6	)%
Royalties and Franchise Fees	9,156		24.0		9,956		24.9		(800		)	(8.0	)
Total revenue	38,141		100.0		40,008		100.0		(1,867		)	(4.7	)
Cost of services	19,561		51.3		20,351		50.9		(790		)	(3.9	)
Gross profit	18,580		48.7		19,657		49.1		(1,077		)	(5.5	)
Operating and administrative expenses	15,608		40.9		14,700		36.7		908			6.2
Restructuring and other related costs	$	206	0.5		$	—	—		$	206		NM
Operating profit	$	2,766	7.3		$	4,957	12.4		$	(2,191	)	(44.2	)

NM - Not meaningful.

Revenue decreased due to the decrease in royalties and contract staffing revenue, partially offset by an increase in franchise fees. Contract staffing revenue decreased primarily due to the completion of contracts and reduction in billable staffing headcount. Royalties decreased primarily due to the departure of domestic and international franchises and fewer placements.

Gross profit decreased primarily due to a reduction in royalties and contract staffing revenue, partially offset by an increase in franchise fees as gross profit margin remained relatively flat.

Operating and administrative expenses increased primarily due to personnel-related investments in business leadership and professional development, partially offset by decreased costs associated with lower business volumes.

Operating profit decreased due to the decrease in gross profit and increases in operating and administrative expenses and restructuring charges.

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CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Liquidity and Capital Resources

The Company's principal sources of liquidity are cash flows from operations and borrowings under credit facilities. The Company's principal uses of cash are operating expenses, capital expenditures, working capital requirements and debt service. Management expects that the Company's current cash balances, cash generated from operations and available borrowing capacity will be sufficient to support the Company's working capital requirements and capital expenditures for at least the next twelve months.

On October 30, 2015, the Company and several of its subsidiaries (collectively, the “Borrowers”) entered into a secured lending facility (the “Credit Agreement”) with Bank of America, N.A. and other lenders. The Credit Agreement established a $150.0 million revolving line of credit facility which also includes an option to expand the facility by up to $75.0 million subject to agreement by the lenders, with a five-year term ending on October 30, 2020. In connection with the sale of Anders, the Company executed an amendment to the Credit Agreement to release all liens and security interests on the UK collateral and allocate the available UK borrowings to the U.S. Borrowers. Borrowings under the Credit Agreement may be used by the Borrowers for general business purposes including capital expenditures and permitted acquisitions and investments. See Note 8—Credit Facility, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report for more information relating to the Credit Agreement.

As of September 30, 2016, the Company had total outstanding borrowings of $15.0 million and letters of credit outstanding of $3.3 million under the Credit Agreement. As of September 30, 2016, the Company had cash and cash equivalents of $10.2 million and $110.4 million is available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of September 30, 2016.

As of September 30, 2016, approximately 84% of the Company's cash and cash equivalents were held by certain non-U.S. subsidiaries, principally by Canadian entities and denominated in Canadian dollars. The repatriation of cash and cash equivalent balances from non-U.S. subsidiaries could have adverse tax consequences; however, such cash and cash equivalent balances are generally available, without legal restrictions, to fund ordinary business operations at the local level. Deferred income taxes have not been provided on the unremitted earnings of such non-U.S. subsidiaries because it is management's intention to reinvest such earnings in non-U.S. subsidiaries for the foreseeable future.

Cash and cash equivalents decreased from $16.9 million on December 31, 2015 to $10.2 million on September 30, 2016.

On January 25, 2016, the Company announced that its Board of Directors approved a stock repurchase program (the "Stock Repurchase Program"). Under the Stock Repurchase Program, CDI is authorized to repurchase up to $20 million of its common stock from time to time and at prices considered appropriate by the Company. Repurchases have been and may be made via privately negotiated transactions, open market purchases, block trades or by other means at management's discretion in compliance with applicable securities laws. The timing of repurchases and number of shares of common stock to be purchased will depend upon market conditions and other factors. The Company is not required to repurchase any specific number of shares and the Stock Repurchase Program may be modified, suspended or discontinued at any time without prior notice. Through September 30, 2016, the Company repurchased 1,190,356 shares for $7.3 million in cash under the Stock Repurchase Program. As of September 30, 2016, approximately $12.7 million remained authorized for repurchase of shares. During the month of October 2016, the Company did not repurchase any shares under the Stock Repurchase Program.

The following table summarizes the net cash flows, by category, from the Company's consolidated statements of cash flows for the indicated periods:



	Nine Months Ended
	September 30,
	2016			2015			Change

Operating Activities	$	6,495		$	2,426		$	4,069
Investing Activities	(3,131		)	(4,902		)	1,771
Financing Activities	(10,330		)	(6,137		)	(4,193		)

Operating Activities

For the first nine months of 2016, net cash provided by operating activities was $6.5 million, an increase in net cash provided by operating activities of $4.1 million as compared to 2015. The increase in net cash provided by operations is primarily due to decreased working capital requirements partially offset by lower net income and non-cash items. Working capital requirements on a comparative basis were impacted by the timing of receipts and payments that include a generation of cash from accounts

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CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

receivable and accounts payable and the receipt of a federal tax refund in 2016, partially offset by payroll-related requirements due to the timing of pay cycles.

Investing Activities

For the first nine months of 2016, the Company used $3.1 million net cash in investing activities, which is a $1.8 million decrease from the comparable period in 2015. The decrease in the use of cash is due the net proceeds of $5.7 million related to the sale of the Company's UK-based staffing and recruitment business, partially offset by the payment of a working capital adjustment of $2.1 million related to the EdgeRock Technologies, LLC acquisition and, to a lesser extent, the 2015 receipt of $1.2 million in proceeds from the sale of a non-operating corporate asset.

Financing Activities

For the first nine months of 2016, net cash used in financing activities was $10.3 million compared to net cash used in financing activities of $6.1 million during the comparable period in 2015. The increase in cash used in financing activities is primarily due to the stock repurchased under the Stock Repurchase Program and the net repayments under the Company's credit facility, and is partially offset by the elimination of the Company's dividend.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in this Form 10-Q Report. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the consolidated financial statements and because of the possibility that future events affecting them may differ from current judgments.

The critical accounting estimates and assumptions identified in the Company's 2015 annual report on Form 10-K filed on March 3, 2016 with the Securities and Exchange Commission have not materially changed.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk, primarily related to changes in foreign currency exchange rates and interest rates. The Company monitors this risk to limit the effect of changes in foreign currency exchange rates and interest rates on earnings and cash flows.

Foreign Currency Risk

The Company's exposure to foreign currency exchange rate risk relates primarily to its operations denominated in Canadian dollars. Exchange rate fluctuations impact the U.S. dollar value of reported earnings derived from these foreign operations as well as the Company's investment in the net assets related to these operations. The sale of Anders, the Company's UK-based staffing and recruitment business, on September 16, 2106, significantly reduced the Company's exposure to foreign currency exchange rate risk with respect to transactions denominated in British pounds sterling.

Interest Rate Risk

The interest rate risk associated with the Company's borrowing activities as of September 30, 2016 was not material in relation to its consolidated financial position, results of operations or cash flows. While it may do so in the future, the Company has not used derivative financial instruments to alter the interest rate characteristics of its debt instruments. As of September 30, 2016, the Company had total outstanding borrowings of $15.0 million with interest payable at rates during the period of 1.77% per annum.

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Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The management of the Company, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2016. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of that date to provide reasonable assurance that information reported in this Form 10-Q Report is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There were no changes in the Company's internal control over financial reporting during the Company's third quarter ended September 30, 2016, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. Although management cannot predict the timing or outcome of these matters with certainty, management does not believe that the final resolution of these matters, individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the “Risk Factors” section (Part I, Item 1A) of the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Item 2. Unregistered Sales of Equity and Use of Proceeds

Stock Repurchase Program

On January 25, 2016, the Company announced that its Board of Directors approved a stock repurchase program (the "Stock Repurchase Program"). Under the Stock Repurchase Program, CDI is authorized to repurchase up to $20 million of its common stock from time to time and at prices considered appropriate by the Company. Repurchases have been and may be made via privately negotiated transactions, open market purchases, block trades or by other means at management's discretion in compliance with applicable securities laws. The timing of repurchases and number of shares of common stock to be purchased will depend upon market conditions and other factors. The Company is not required to repurchase any specific number of shares and the Stock Repurchase Program will remain in effect until fully utilized or until modified, suspended or discontinued.

A total of 1,190,356 shares of CDI Corp. common stock were repurchased by the Company at an average price of $6.09 during the nine months ended September 30, 2016, and there remained an outstanding authorization to repurchase approximately $12.7 million of outstanding stock as represented in the table below:



CDI Corp. Purchase of Equity Securities

Period		Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
January 1 through January 31, 2016		—	$	—	—	$	20,000,000
February 1 through February 29, 2016		—	—		—	20,000,000
March 1 through March 31, 2016		290,888	5.71		290,888	18,338,782
	Total for January 1 through March 31, 2016	290,888	$	5.71	290,888	$	18,338,782
April 1 through April 30, 2016		170,167	$	6.29	170,167	$	17,267,872
May 1 through May 31, 2016		177,401	6.06		177,401	16,193,458
June 1 through June 30, 2016		290,940	6.19		290,940	14,391,835
	Total for April 1 through June 30, 2016	638,508	$	6.18	638,508	$	14,391,835
July 1 through July 31, 2016		260,960	$	6.31	260,960	$	12,745,756
August 1 through August 31, 2016		—	—		—	12,745,756
September 1 through September 30, 2016		—	—		—	12,745,756
	Total for July 1 through September 30, 2016	260,960	$	6.31	260,960	$	12,745,756
	Total for January 1 through September 30, 2016	1,190,356	$	6.09	1,190,356	$	12,745,756

Through October 31, 2016, the Company repurchased a total of 1,190,356 shares for $7.3 million in cash under the Stock Repurchase Program.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The list of exhibits in the Index to Exhibits to this report is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		CDI Corp.
Date:	November 3, 2016	By:	/s/ Michael S. Castleman
			Michael S. Castleman
			President, Interim Chief Executive Officer and
			Chief Financial Officer
			(Duly Authorized Officer and
			Principal Financial Officer)

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INDEX TO EXHIBITS



Exhibit No.		Description

10.1		Amendment No. 2 to Credit Agreement, Waiver and Consent dated September 16, 2016 among CDI Corp. and several of its subsidiaries and Bank of America, N.A. and the other lenders under the Credit Agreement.
10.2		Change to director compensation.
31.1		Certification of Chief Executive Officer and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*
(101.INS)		XBRL Instance Document
(101.SCH)		XBRL Taxonomy Extension Schema Document
(101.CAL)		XBRL Taxonomy Extension Calculation Linkbase Document
(101.DEF)		XBRL Taxonomy Extension Definition Linkbase Document
(101.LAB)		XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)		XBRL Taxonomy Extension Presentation Linkbase Document


*	Pursuant to Regulation S-T, these interactive data files are deemed not filed or incorporated in any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

CDI Inactive 10-Q2016 Q3 Quarterly report

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