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 March 31, 2001
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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.
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2394430
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(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
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Outstanding shares of each of the Registrant's classes of common stock as
of April 27, 2001 were:
Common stock, $.10 par value 19,070,809 shares
Class B common stock, $.10 par value None
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PART 1. FINANCIAL INFORMATION
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31,
2001 December 31,
Assets (unaudited) 2000
- ------ ----------- ------------
Current assets:
Cash $ 6,439 11,432
Accounts receivable, less allowance
for doubtful accounts of $3,516 -
March 31, 2001; $3,694 - December 31,
2000 372,357 371,088
Prepaid expenses 8,069 8,267
Deferred income taxes 10,337 11,969
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Total current assets 397,202 402,756
Fixed assets, at cost:
Computers and systems 98,619 95,999
Equipment and furniture 38,410 37,537
Leasehold improvements 12,515 11,640
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149,544 145,176
Accumulated depreciation (83,690) (79,066)
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Net fixed assets 65,854 66,110
Goodwill and other intangible assets, net 91,002 90,281
Other assets 11,161 12,882
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$ 565,219 572,029
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CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
March 31,
2001 December 31,
Liabilities and Shareholders' Equity (unaudited) 2000
- ------------------------------------ ----------- ------------
Current liabilities:
Obligations not liquidated because
of outstanding checks $ 21,019 22,568
Accounts payable 40,887 44,266
Withheld payroll taxes 2,467 3,343
Accrued expenses 92,751 96,128
Income taxes payable 5,843 12,746
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Total current liabilities 162,967 179,051
Long-term debt 57,896 49,623
Deferred income taxes 1,313 1,272
Deferred compensation 11,726 13,144
Minority interests 2,328 3,144
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 20,021,811 shares - March 31,
2001; 20,015,561 shares - December 31,
2000 2,002 2,002
Class B common stock, $.10 par value -
authorized 3,174,891 shares; none
issued - -
Additional paid-in capital 16,759 16,677
Retained earnings 335,053 331,308
Accumulated other comprehensive loss (2,594) (1,999)
Unamortized value of restricted stock
issued (245) (230)
Less common stock in treasury, at cost -
951,752 shares - March 31, 2001;
950,135 shares - December 31, 2000 (21,986) (21,963)
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Total shareholders' equity 328,989 325,795
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$ 565,219 572,029
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CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data; unaudited)
Three months ended
March 31,
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2001 2000
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Revenues $ 405,166 421,400
Cost of services 295,262 307,378
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Gross profit 109,904 114,022
Operating and administrative costs 102,726 93,108
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Operating profit 7,178 20,914
Interest expense 938 1,048
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Earnings before income taxes and
minority interests 6,240 19,866
Income taxes 2,390 7,827
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Earnings before minority interests 3,850 12,039
Minority interests 105 235
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Net earnings $ 3,745 11,804
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Earnings per share:
Basic $ .20 .62
Diluted $ .20 .62
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CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands; unaudited)
Three Months Ended
March 31,
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2001 2000
Common stock ------- -------
Beginning and end of period $ 2,002 2,000
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Additional paid-in capital
Beginning of period $ 16,677 16,539
Restricted stock issued 86 -
Restricted stock-vesting/forfeiture - (16)
Restricted stock-change in value (4) (85)
Stock Purchase Plan - 34
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End of period $ 16,759 16,472
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Retained earnings
Beginning of period $ 331,308 298,305
Net earnings 3,745 11,804
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End of period $ 335,053 310,109
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Accumulated other comprehensive loss
Beginning of period $ (1,999) (611)
Translation adjustment (1,138) (31)
Loss on investment recognized in earnings 543 -
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End of period $ (2,594) (642)
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Unamortized value of restricted stock issued
Beginning of period $ (230) (945)
Restricted stock issued (70) -
Restricted stock-vesting/forfeiture 23 104
Restricted stock-change in value 4 85
Restricted stock-amortization of value 28 33
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End of period $ (245) (723)
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Treasury stock
Beginning of period $ (21,963) (21,444)
Restricted stock-forfeiture (23) (104)
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End of period $ (21,986) (21,548)
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Comprehensive income
Net earnings $ 3,745 11,804
Translation adjustment (1,138) (31)
Loss on investment recognized in earnings 543 -
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$ 3,150 11,773
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CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three months ended
March 31,
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2001 2000
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Operating activities:
Net earnings $ 3,745 11,804
Minority interests 105 235
Depreciation 5,298 3,993
Amortization of intangible assets 1,476 1,405
Income tax provision (less than) greater than
tax payments (5,449) 1,991
Change in assets and liabilities net of effects
from acquisitions:
(Increase) in accounts receivable (855) (41,665)
(Decrease) increase in payables and accrued
expenses (2,775) 17,206
Other (20) (2,849)
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1,525 (7,880)
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Investing activities:
Purchases of fixed assets (5,167) (8,862)
Acquisitions net of cash acquired (8,143) (5,185)
Other 68 (560)
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(13,242) (14,607)
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Financing activities:
Borrowings long-term debt 8,273 30,448
Payments long-term debt - (1)
Obligations not liquidated because of
outstanding checks (1,549) (4,350)
Other - (16)
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6,724 26,081
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(Decrease) increase in cash (4,993) 3,594
Cash at beginning of period 11,432 11,429
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Cash at end of period $ 6,439 15,023
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CDI CORP. AND SUBSIDIARIES
Comments to Financial Statements
Earnings used to calculate both basic and diluted earnings per share are
the reported earnings in the Company's consolidated statements of earnings.
Because of the Company's capital structure, all reported earnings pertain to
common shareholders and no other assumed adjustments are necessary. The number
of shares used to calculate basic and diluted earnings per share for the
quarters ended March 31, 2001 and 2000 were determined as follows:
2001 2000
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Basic
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Average shares outstanding 19,070,304 19,071,193
Restricted shares issued not vested - (38,696)
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19,070,304 19,032,497
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Diluted
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Shares used for basic 19,070,304 19,032,497
Dilutive effect of stock options - 2,503
Dilutive effect of restricted shares
issued not vested - 1,250
Dilutive effect of shares issuable
under Stock Purchase Plan 90,695 69,095
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19,160,999 19,105,345
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Operating segment data for the first quarter ended March 31, 2001 and 2000
are as follows ($000s):
2001 2000
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Revenues:
Information Technology Services $ 92,878 84,642
Technical Services 227,847 246,751
Management Recruiters 30,375 32,017
Todays Staffing 54,066 57,990
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$ 405,166 421,400
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2001 2000
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Earnings before income taxes and minority interests:
Operating profit
Information Technology Services $ 3,706 5,162
Technical Services 2,260 10,536
Management Recruiters 5,740 7,053
Todays Staffing 1,926 4,291
Corporate expenses (6,454) (6,128)
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7,178 20,914
Interest expense 938 1,048
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$ 6,240 19,866
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During the period ended March 31, 2001, the amounts and composition among
operating segments of assets did not materially change from December 31, 2000.
Intersegment activity is not significant. Therefore, revenues reported for
each operating segment are substantially all from external customers.
During the quarter ended March 31, 2001, the Company made investments in
acquired businesses totaling $8,143,000, which included an acquisition that
occurred in 2001, payments related to a previously accrued liability for an
additional interest in a majority-owned subsidiary and contingent consideration
for prior acquisitions. Acquisitions are accounted for using the purchase
method. The 2001 acquisition did not have a significant effect on the results of
operations for the quarter ended March 31, 2001.
The unaudited financial statements included in this report reflect all
adjustments that, 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. Results for interim periods are not necessarily
indicative of results to be expected for the full year.
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, 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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Overview and Consolidated Results
During the first quarter ended March 31, 2001, the Company achieved
revenues of $405.2 million, down $16.2 million (4%) from last year. Revenues
declined in each operating segment except Information Technology Services, in
which revenues increased 10% over a year ago. The economic slowdown in the
United States has added to the challenges in the marketplace and is a primary
factor contributing to the decline in revenues. Gross profit of $109.9 million
was down $4.1 million (4%) from $114.0 million last year. The gross profit
margin remained the same at 27.1% of revenues in each period.
Operating and administrative costs were $102.7 million, an increase of $9.6
million (10%) over last year. The Company has invested in additional recruiters,
management and infrastructure to support planned business growth and to attract
new talent, promote retention and increase productivity. Additionally, the
Company recorded $2.2 million of charges in operating and administrative costs
related to the following:
Write-down of strategic investment $1.0 million
Provision for termination of contract 0.6 million
Provision for severance for former executive 0.6 million
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$2.2 million
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The write-down of a strategic investment related to an investment in an
e-business solutions provider for which management believed the impairment of
value was other than temporary. The provision for termination of a contract
related to the cancellation during the first quarter of 2001 of an agreement
with a web-based staffing solutions provider. Each of these amounts has been
included in Corporate expenses in the Company's operating segment disclosures.
The provision for severance for a former executive related to the former
president of the Company's Information Technology Services division and has been
reflected in the Information Technology Services operating segment's results.
Operating profit was $7.2 million, a decrease of $13.7 million (66%) from
last year, which reflected the combination of lower revenues and corresponding
gross profit and an increase in operating and administrative costs, including
the charges described above. Operating profit declined in each operating
segment.
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The Company's effective income tax rate was 38.3% in the first quarter of
2001, down from 39.4% a year ago, principally due to the implementation of state
tax minimization strategies.
Interest expense was $0.9 million compared to $1.0 million in the first
quarter last year, as lower average debt outstanding in the first quarter of
2001 compared to last year was partially offset by the absence of last year's
capitalization of approximately $0.2 million of interest related to the
Company's information systems.
Acquisition activity in the first quarter of 2001, which consisted of one
acquisition, the payment of a previously accrued liability for an additional
interest in a majority-owned subsidiary, and contingent consideration related to
prior acquisitions, did not have a significant effect on results of operations.
Net earnings of $3.7 million ($0.20 per share) were down $8.1 million (68%)
from $11.8 million ($0.62 per share) last year. Outstanding shares were
comparable in each period.
Segment Discussion
Information Technology Services
Revenues for the Information Technology Services operating segment were
$92.9 million, an increase of $8.2 million (10%) over the first quarter of 2000.
The increase in revenues reflected new contracts in the staffing portion of the
business which were signed in the last half of 2000 as well as growth in the
Company's Innovantage business, which provides professional services and
functional outsourcing for customers' information technology needs. However,
operating profit of $3.7 million fell by $1.5 million (28%) compared to last
year. The operating profit margin was 4.0% compared to 6.1% last year. The
current year includes the provision of $0.6 million for severance payments to
the former president of the segment. The remainder of the profit decline relates
to higher operating and administrative expenses, which include increased
recruiting and related costs along with higher information systems and other
back office costs established to support the additional volume.
Technical Services
Revenues for the Technical Services operating segment were $227.8 million,
a decrease of $18.9 million (8%) compared to last year. Operating profit of $2.3
million fell $8.3 million (79%) from the first quarter of 2000. The operating
profit margin was 1.0%, compared to 4.3% last year. The decline in revenues is
related to lower demand in the staffing portion of the segment's business, as a
slowing economy reduced demand from many of the segment's large industrial
customers. Additionally, the segment's
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current year results reflect higher operating and administrative costs because
of investments during the prior year in management and operations support
infrastructure.
Todays Staffing
Revenues at Todays Staffing were $54.1 million, a decrease of $3.9 million
(7%) from the first quarter of last year. Operating profit of $1.9 million fell
$2.4 million (55%) from the comparable period last year. The decline in revenues
reflected slower demand for temporary administrative services caused by the
slowing economy. Operating profit fell as the volume decline was coupled with a
less favorable mix of business and increases in operating and administrative
costs, as the segment replaced recruiting and sales personnel which had been
lost in late 1999 and early 2000.
Management Recruiters International (MRI)
Revenues at MRI were $30.4 million, a decrease of $1.6 million (5%)
compared to the first quarter of 2000 that reflected a significant slowdown in
permanent placements. Operating profit of $5.7 million was below last year by
$1.3 million (19%). The operating profit margin was 18.9% compared to 22.0% last
year. While job orders remained relatively strong, placements fell as hiring
companies took longer to evaluate candidates and candidates appeared to be more
reluctant to change jobs in the face of an uncertain economy.
Liquidity and Capital Resources
Operations during the first quarter of 2001 created cash inflows of $1.5
million despite lower net earnings in the quarter. Working capital investment in
the quarter was minimal compared to the first quarter of 2000 because of
heightened emphasis on receivables management instituted during 2000 and the
decline in revenues experienced during the quarter. Offsetting these inflows
were cash outflows for purchases of fixed assets and investments in
acquisitions. As a result, long-term debt as of March 31, 2001 increased by $8.3
million from December 31, 2000. The ratio of long-term debt to capital
(long-term debt plus shareholders' equity) as of March 31, 2001 was 15.0%
compared to 13.2% as of December 31, 2000.
The ratio of current assets to current liabilities at March 31, 2001 was
2.4 to 1, compared to 2.2 to 1 at December 31, 2000. The maturity date of the
Company's $100 million unsecured revolving credit agreement has been extended to
March 31, 2003.
The Company's Board of Directors has approved a program of share
repurchases extending into June 2001 for up to $20 million of the Company's
stock, to be repurchased in the open market or in privately negotiated
transactions. No shares have been repurchased under this program.
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The Company believes that its cash from operations and borrowing
capabilities are adequate to support the Company's business.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, as amended by
Statements of Financial Accounting Standards Nos. 137 and 138 (collectively,
SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" became
effective in the first quarter of 2001. SFAS 133 did not impact the Company
because the Company does not have any derivative instruments or hedging
transactions.
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 forward-looking statements can be identified by the use of
forward-looking terminology such as, "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "estimates," or
"anticipates" or the negative thereof or other comparable terminology, or by
discussions of strategy, plans or intentions. Forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. These include risks and
uncertainties 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 or judicial decisions adverse to the staffing industry, changes in
economic conditions and delays or unexpected costs associated with
implementation of computer systems. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company assumes no obligation to update such information.
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).
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(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).
(b) The Registrant filed a Form 8-K on January 4, 2001 announcing the Board
of Directors approval of a program to repurchase up to $20 million of the
company's stock over a six-month period extending into June 2001 through open
market purchases or privately negotiated transactions.
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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May 15, 2001 By: /s/ Gregory L. Cowan
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GREGORY L. COWAN
Executive Vice President and Chief
Financial Officer
(Duly authorized officer and
principal financial officer of
Registrant)
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