1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from TO
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Commission file number 1-5519
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CDI CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2394430
- ------------------------- -----------------------
(State or other jurisdic- (I.R.S. Employer
tion of incorporation or Identification Number)
organization)
1717 Arch Street, 35th Floor, Philadelphia, PA 19103-2768
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(Address of principal executive offices)
Registrant's telephone number, including area code: (215) 569-2200
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Indicate whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Outstanding shares of each of the Registrant's classes of common
stock as of October 29, 1997 were:
Common stock, $.10 par value 19,916,785 shares
Class B common stock, $.10 par value None
2
PART 1. FINANCIAL INFORMATION
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
September 30,
1997 December 31,
Assets (Unaudited) 1996
- ------ ------------- ------------
Current assets:
Cash $ 10,587 6,066
Accounts receivable, less allowance
for doubtful accounts of $4,670 -
September 30, 1997; $4,094 -
December 31, 1996 271,851 233,455
Prepaid expenses 4,802 3,908
Deferred income taxes 7,428 7,288
Net assets of discontinued operations 24,296 37,257
------- -------
Total current assets 318,964 287,974
Fixed assets, at cost:
Computers 39,959 34,526
Equipment and furniture 26,445 26,119
Leasehold improvements 8,909 8,151
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75,313 68,796
Accumulated depreciation 49,144 43,292
------- -------
Net fixed assets 26,169 25,504
Deferred income taxes 5,002 4,180
Goodwill and other intangible assets, net 17,587 15,611
Other assets 9,279 6,905
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$ 377,001 340,174
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3
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
September 30,
1997 December 31,
Liabilities and Shareholders' Equity (Unaudited) 1996
- ------------------------------------ ------------- ------------
Current liabilities:
Obligations not liquidated because
of outstanding checks $ 9,030 6,834
Accounts payable 16,809 12,423
Withheld payroll taxes 4,474 4,950
Accrued expenses 91,912 75,637
Currently payable income taxes 7,684 7,006
------- -------
Total current liabilities 129,909 106,850
Long-term debt 22,800 48,866
Deferred compensation 8,396 6,934
Minority interests 1,483 592
Shareholders' equity:
Preferred stock, $.10 par value -
authorized 1,000,000 shares; none
issued - -
Common stock, $.10 par value -
authorized 100,000,000 shares;
issued 19,943,650 shares - September
30, 1997; 19,853,983 shares -
December 31, 1996 1,994 1,985
Class B common stock, $.10 par value -
authorized 3,174,891 shares; none
issued - -
Additional paid-in capital 15,533 12,866
Retained earnings 199,100 162,669
Unamortized value of restricted stock
issued (1,533) -
Less common stock in treasury, at cost -
27,365 shares - September 30, 1997;
24,921 shares - December 31, 1996 (681) (588)
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Total shareholders' equity 214,413 176,932
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$ 377,001 340,174
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4
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data; unaudited)
Quarter ended Nine months ended
September 30, September 30,
---------------- --------------------
1997 1996 1997 1996
------- ------- --------- ---------
Revenues $ 383,073 353,676 1,121,678 1,023,330
Cost of services 293,582 271,506 861,223 790,956
------- ------- --------- ---------
Gross profit 89,491 82,170 260,455 232,374
Operating and administrative
expenses 67,412 59,805 198,575 175,823
------- ------- --------- ---------
Operating profit 22,079 22,365 61,880 56,551
Interest expense 694 900 2,186 2,761
------- ------- --------- ---------
Earnings from continuing
operations before income
taxes and minority
interests 21,385 21,465 59,694 53,790
Income taxes 6,833 8,589 22,195 21,573
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Earnings from continuing
operations before
minority interests 14,552 12,876 37,499 32,217
Minority interests 777 58 1,068 102
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Earnings from continuing
operations 13,775 12,818 36,431 32,115
Discontinued operations - (2,579) - (3,955)
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Net earnings $ 13,775 10,239 36,431 28,160
======= ======= ========= =========
Earnings per share:
Earnings from continuing
operations $ .69 .65 1.83 1.62
Discontinued operations $ - (.13) - (.20)
Net earnings $ .69 .52 1.83 1.42
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CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands; unaudited)
Nine months ended
September 30,
-----------------
1997 1996
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Continuing Operations
Operating activities:
Earnings from continuing operations $ 36,431 32,115
Minority interests 1,068 102
Depreciation 7,474 6,756
Amortization of intangible assets 1,848 1,426
Income tax provision greater (less)
than tax payments (284) (12,944)
Change in assets and liabilities,
net of effects from acquisitions:
Increase in accounts receivable (38,396) (27,022)
Increase in payables and accrued
expenses 20,185 25,532
Other (2,433) 403
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25,893 26,368
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Investing activities:
Purchases of fixed assets (8,340) (11,498)
Acquisitions net of cash acquired (3,245) (2,763)
Other 228 509
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(11,357) (13,752)
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Financing activities:
Borrowings long-term debt 10,724 12,474
Payments long-term debt (36,790) (12,272)
Obligations not liquidated because
of outstanding checks 2,196 (1,120)
Exercises of stock options 894 152
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(22,976) (766)
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Net cash flows from continuing operations (8,440) 11,850
Net cash flows from discontinued operations 12,961 (6,085)
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Increase in cash 4,521 5,765
Cash at beginning of period 6,066 4,495
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Cash at end of period $ 10,587 10,260
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CDI CORP. AND SUBSIDIARIES
Comments to Financial Statements
Earnings per share of common stock are based on the weighted
average number of shares of common stock and dilutive common share
equivalents, which arise from stock options, outstanding during the
periods. No further dilution resulted from a computation of fully
diluted earnings per share. The number of shares used to compute
earnings per share for the third quarter and nine months of 1997 was
19,954,584 and 19,937,685 shares, respectively. For the third quarter
and nine months of 1996, 19,859,328 and 19,870,938 shares, respectively,
were used.
Revenues and operating profit attributable to the business segments
of the Company for the third quarter and nine months ended September 30,
1997 and 1996 follow ($000s):
Third quarter Nine months
---------------- --------------------
1997 1996 1997 1996
------- ------- --------- ---------
Revenues:
Technical Services $ 309,814 290,499 912,745 845,091
Temporary Services 49,295 41,791 140,265 119,695
Management Recruiters 23,964 21,386 68,668 58,544
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$ 383,073 353,676 1,121,678 1,023,330
======= ======= ========= =========
Operating profit:
Technical Services $ 17,731 18,250 49,233 47,760
Temporary Services 3,264 2,775 8,269 6,187
Management Recruiters 4,561 3,166 12,357 8,633
Corporate expenses (3,477) (1,826) (7,979) (6,029)
------- ------- --------- ---------
$ 22,079 22,365 61,880 56,551
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During the nine months ended September 30, 1997, there were
44,167 shares of common stock issued upon the exercises of stock options
granted under the Company's non-qualified stock option and stock
appreciation rights plan. In payment for certain of the option shares,
optionees surrendered 2,544 shares of common stock already owned which
the Company placed in treasury stock. As a result of the option
exercises, common stock was increased by $4,000, additional paid-in
capital was increased by $986,000 and treasury stock was increased by
$96,000.
During the nine months ended September 30, 1997, there were
45,500 shares of restricted common stock issued to officers of the
Company under their employment agreements. Of these shares 25,750
shares will vest over periods of time ranging from three years to ten
years. The remaining 19,750 shares will vest depending upon the
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percentage achievement of predetermined goals covering periods of time
ranging from three years to five years. Shares which do not vest are
forfeited.
The 25,750 shares that will vest over time have a fixed value of
$941,000, the market value of the shares when issued. The value for the
19,750 shares that will vest based upon performance will fluctuate with
changes in their market value until there is a determination as
to their vesting. As of September 30, 1997, these performance-based
shares were valued at $745,000. Of the total value of $1,686,000
ascribed to these restricted shares as of September 30, 1997, $5,000
increased common stock and $1,681,000 increased additional paid-in
capital.
Over the periods of time that these shares may become vested, there
will be charges to earnings for the value related to the aggregate
number of these shares that become vested. As such earnings charges
occur, unamortized value of restricted stock issued reflected in
shareholders equity will be reduced. Through September 30, 1997,
$153,000 has been charged to earnings. To the extent that shares are
forfeited, unamortized value of restricted stock issued will also be
reduced and the forfeited shares will be placed in treasury stock.
During 1997, 100 shares of common stock held in treasury were
reissued. These shares had a cost of $3,000.
The automotive developmental engineering division of a subsidiary
and the automotive manufacturing technology division of the subsidiary
are classified as discontinued operations in the Company's financial
statements. As of December 31, 1996 a reserve remained for estimated
costs and losses associated with disposing of these businesses and for
operating losses through dates of disposition. Costs and losses
incurred during the nine months ended September 30, 1997 of $14.1
million relating to the discontinued businesses were charged against the
reserve. The charges to the reserve (primarily for operating losses and
the loss on disposing of the portion of the automotive manufacturing
technology division that provided production quality prototypes) were
for items that corresponded to those considered in establishing the
reserve. The net assets of the discontinued operations at September 30,
1997 were $24 million, compared to $37 million at December 31, 1996.
The financial statements included in this report are unaudited and
reflect all adjustments which, in the opinion of management, are
necessary for a fair statement of the results for the periods presented.
All such adjustments are of a normal recurring nature.
These comments contain only the information which is required by
Form 10-Q. Further reference should be made to the comprehensive
disclosures contained in the Company's annual report on Form 10-K for
the year ended December 31, 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discontinued Operations
-----------------------
The automotive developmental engineering division of a subsidiary
and the automotive manufacturing technology division of the subsidiary
are being disposed of pursuant to plans of disposition. These divisions
are classified as discontinued operations in the Company's financial
statements.
Results of Operations
---------------------
Consolidated revenues for the nine months and quarter ended
September 30, 1997 were 10% and 8% higher, respectively, compared to the
same periods a year ago. Operating profit for the nine months and third
quarter in 1997 was 5.5% and 5.8% of revenues, respectively, compared to
5.5% and 6.3% for the nine months and third quarter in 1996. Operating
results from continuing operations for the nine months and third quarter
of 1997 include a net gain of $2.1 million ($200,000 after tax,
including minority interests impact of $600,000) from the sale of a
small business and estimated losses anticipated on the sale of two other
small business units. In addition, earnings from continuing operations
for the nine months and third quarter of 1997 include a credit of $2
million from the reduction of income tax reserves no longer required.
Operating results from continuing operations for the nine months and
third quarter of 1996 include a favorable $2 million adjustment ($1.2
million after tax) based on an actuarial study of workers' compensation
liabilities.
Technical Services' revenues for the nine months and third quarter
of 1997 grew 8% and 7%, respectively, from last year's comparable
periods. Operating profit margins for the nine months and third quarter
of 1997 were 5.4% and 5.7%, respectively. Operating profit margins for
last year's comparable periods were 5.7% and 6.3%, respectively.
Operating results for Technical Services in 1997 include the net $2.1
million gain related to the disposal of business units described above
and for 1996 the $2 million adjustment related to workers' compensation
also described above.
Technical Services continued to have strong demand for information
technology and Year 2000 related staffing services. Revenues for the IT
sector were up 31% for the third quarter of 1997 over last year's third
quarter and are running at an annual rate of $280 million.
Offsetting gains from IT is the impact from the protracted weakness in
the petrochemical/hydrocarbons industry.
Temporary Services' revenues for the nine months and third quarter
of 1997 were 17% and 18% higher, respectively, compared to the same
periods a year ago. Operating profit margins for the nine months and
third quarter of 1997 were 5.9% and 6.6%, respectively, vs. 5.2% and
6.6% for last year's comparable periods. The Temporary Services
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segment continues to build a strong presence in existing target markets
and to identify new markets that offer high growth opportunities. In
addition, the segment is expanding in its services for legal temporary
staffing.
Management Recruiters' revenues were up 17% for the nine months of
this year and up 12% compared to last year's third quarter. Operating
profit margins for the nine months and third quarter of 1997 were 18.0%
and 19.0%, respectively, compared to 14.7% and 14.8%, respectively, for
the same periods in 1996. Demand for Management Recruiters' services
has remained strong, in part, due to lower unemployment rates and a
scarcity of qualified managers and other professionals. In addition,
the segment has had growth in its contracts for multiple position
assignments with new customers and has expanded its retained business.
During the third quarter of 1997 the disposition of the automotive
manufacturing technology division, included in discontinued operations,
was completed with the sale of the unit that provided production quality
prototypes. Existing contracts in the automotive developmental
engineering division (also included in discontinued operations) continue
to run off and are expected to be concluded in the near term.
Disposition of residual assets pertaining to the discontinued operations
is expected to occur in 1998. Costs and losses incurred during the nine
months ended September 30, 1997 of $14.1 million, primarily for
operating losses and the loss on the sale of the prototype unit of the
automotive manufacturing technology division, were charged against a
reserve for discontinued operations previously established for such
costs and losses. A significant customer receivable included in
discontinued operations is in dispute and resolution could be
protracted.
Financial Condition
-------------------
The ratio of current assets to current liabilities was 2.5 to 1
as of September 30, 1997 compared to 2.7 to 1 as of December 31, 1996.
The ratio of long-term debt to total capital (long-term debt plus
shareholders' equity) was 10% for September 30, 1997 and 22% for
December 31, 1996. The Company believes that capital resources
available from operations and financing arrangements are adequate to
support the Company's businesses.
New Accounting Standards
------------------------
In February, 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share. Statement 128 supersedes Accounting Principles
Board Opinion No. 15, Earnings Per Share, and introduces new methods
of calculating earnings per share. Statement 128 is effective for
financial statements for both interim and annual periods ending after
December 15, 1997. Therefore, reported earnings per share for the
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periods ended September 30, 1997 and 1996 have been determined using the
principles prescribed by Opinion No. 15. If the methods prescribed by
Statement 128 were applied for these quarterly periods, there would be
no difference in the reported per share amounts.
In June, 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. Statement 130 is effective for both interim
and annual periods beginning after December 15, 1997. This Statement
affects reporting in financial statements only and will not have impact
upon results of operations, financial condition or long-term liquidity.
It is expected that the reporting of comprehensive income will not apply
to the Company.
In June, 1997, the FASB also issued Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. Statement No. 131 supersedes
Statement of Financial Accounting Standards No. 14, Financial Reporting
for Segments of a Business Enterprise, and establishes new standards for
reporting information about operating segments in annual financial
statements and requires selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for
related disclosures about products and services, geographic areas
and major customers. Statement 131 is effective for periods beginning
after December 15, 1997. This Statement affects reporting in financial
statements only and will not have impact upon results of operations,
financial condition or long-term liquidity. The Company will adopt the
standards established by this Statement as required.
Forward-looking Information
---------------------------
Certain information in this report, including Management's
Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Certain factors such as competitive
market pressures, material changes in demand from larger customers,
availability of labor, the Company's performance on contracts, changes
in customers' attitudes toward outsourcing, government policies adverse
to the staffing industry, changes in economic conditions, and unfore-
seen events associated with divestiture of discontinued operations,
including resolution of a disputed customer receivable could cause
actual results to differ materially from those in the forward-looking
statements.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.(i) Articles of incorporation of the Registrant,
incorporated herein by reference to the
Registrant's report on Form 10-Q for the
quarter ended June 30, 1990 (File No. 1-5519).
(ii) Bylaws of the Registrant, incorporated herein
by reference to the Registrant's report on
Form 10-Q for the quarter ended June 30, 1990
(File No. 1-5519).
10.a. CDI Corp. Non-Qualified Stock Option and Stock
Appreciation Rights Plan, incorporated herein
by reference to the Registrant's report on
Form 10-Q for the quarter ended June 30, 1997
(File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
b. Employment Agreement dated April 30, 1973 by
and between Comprehensive Designers, Inc. and
Edgar D. Landis, incorporated herein by
reference to Exhibit 10.g. to Registrant's
registration statement on Form 8-B (File No.
1-5519). (Constitutes a management contract
or compensatory plan or arrangement)
c. Supplemental Pension Agreement dated April 11,
1978 between CDI Corporation and Walter R.
Garrison, incorporated herein by reference to
the Registrant's report on Form 10-K for the
year ended December 31, 1989 (File No. 1-5519).
(Constitutes a management contract or compensa-
tory plan or arrangement)
d. Non-competition and Consulting Agreement by and
between Registrant and Christian M. Hoechst
dated October 17, 1995, incorporated herein by
reference to Registrant's report on Form 10-K
for the year ended December 31, 1995 (File No.
1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
e. Employment Agreement dated March 11, 1997,
including Restricted Stock Agreement and Non-
Qualified Stock Option Agreement, by and between
Registrant and Mitchell Wienick, incorporated
herein by reference to the EDGAR filing made by
the Registrant on April 1, 1997 in connection
with the Registrant's definitive Proxy Statement
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for its annual meeting of shareholders held on
April 28, 1997 (File No. 1-5519). (Constitutes
a management contract or compensatory plan or
arrangement)
f. Consulting Agreement dated as of April 7, 1997
by and between Registrant and Walter R. Garrison,
incorporated herein by reference to Registrant's
report on Form 10-Q for the quarter ended June
30, 1997 (File No. 1-5519). (Constitutes a
management contract or compensatory plan or
arrangement)
g. Employment Agreement, Restricted Stock Agreement
and Non-Qualified Stock Option Agreement, all
dated August 4, 1997, by and between Registrant
and Robert J. Mannarino. (Constitutes a manage-
ment contract or compensatory plan or arrangement)
11. Statement re computation of per share earnings.
27. Financial Data Schedule.
(b) The Registrant has not filed a Form 8-K during the quarter
ended September 30, 1997.
13
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.
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November 5, 1997 By: /s/ Edgar D. Landis
-----------------------------------
EDGAR D. LANDIS
Executive Vice President, Finance
(Duly authorized officer and
principal financial officer of
Registrant)
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INDEX TO EXHIBITS
Number Exhibits Page
- ------ ------------------------------------------------------- ----
3.(i) Articles of incorporation of the Registrant,
incorporated herein by reference to the Registrant's
report on Form 10-Q for the quarter ended June 30,
1990 (File No. 1-5519).
(ii) Bylaws of the Registrant, incorporated herein by
reference to the Registrant's report on Form 10-Q
for the quarter ended June 30, 1990 (File No. 1-5519).
10.a. CDI Corp. Non-Qualified Stock Option and Stock
Appreciation Rights Plan, incorporated herein by
reference to the Registrant's report on Form 10-Q for
the quarter ended June 30, 1997 (File No. 1-5519).
(Constitutes a management contract or compensatory
plan or arrangement)
b. Employment Agreement dated April 30, 1973 by and
between Comprehensive Designers, Inc. and Edgar D.
Landis, incorporated herein by reference to Exhibit
10.g. to Registrant's registration statement on Form
8-B (File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
c. Supplemental Pension Agreement dated April 11, 1978
between CDI Corporation and Walter R. Garrison,
incorporated herein by reference to the Registrant's
report on Form 10-K for the year ended December 31,
1989 (File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
d. Non-competition and Consulting Agreement by and
between Registrant and Christian M. Hoechst dated
October 17, 1995, incorporated herein by reference
to Registrant's report on Form 10-K for the year
ended December 31, 1995 (File No. 1-5519).
(Constitutes a management contract or compensatory
plan or arrangement)
e. Employment Agreement dated March 11, 1997, including
Restricted Stock Agreement and Non-Qualified Stock
Option Agreement, by and between Registrant and
Mitchell Wienick, incorporated herein by reference to
the EDGAR filing made by the Registrant's definitive
Proxy Statement for its annual meeting of shareholders
held on April 28, 1997 (File No. 1-5519). (Constitutes
a management contract or compensatory plan or arrange-
ment)
15
INDEX TO EXHIBITS
Number Exhibits Page
- ------ ------------------------------------------------------- ----
f. Consulting Agreement dated as of April 7, 1997 by and
between Registrant and Walter R. Garrison, incorporated
herein by reference to the Registrant's report on Form
10-Q for the quarter ended June 30, 1997 (File No.
1-5519). (Constitutes a management contract or compen-
satory plan or arrangement)
g. Employment Agreement, Restricted Stock Agreement and 16
Non-Qualified Stock Option Agreement, all dated August
4, 1997, by and between Registrant and Robert J.
Mannarino. (Constitutes a management contract or
compensatory plan or arrangement)
11. Statement re computation of per share earnings. 38
27. Financial Data Schedule. 39