1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission file number 1-5519
------
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
----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (215) 569-2200
--------------
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 April 30, 2002 were:
Common stock, $.10 par value 19,217,739 shares
Class B common stock, $.10 par value None
2
PART 1. FINANCIAL INFORMATION
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31,
2002 December 31,
Assets (unaudited) 2001
- ------ ----------- ------------
Current assets:
Cash $ 49,727 26,255
Accounts receivable, less allowance
for doubtful accounts of $ 7,940 -
March 31, 2002; $8,162 - December 31,
2001 242,482 252,721
Prepaid expenses 6,561 6,577
Deferred income taxes 16,731 16,786
Assets of discontinued operations 11,427 14,840
------- -------
Total current assets 326,928 317,179
Fixed assets, at cost:
Computers and systems 98,724 97,545
Equipment and furniture 28,582 30,382
Leasehold improvements 12,027 12,207
------- -------
139,333 140,134
Accumulated depreciation (97,098) (90,145)
------- -------
Net fixed assets 42,235 49,989
Deferred income taxes 6,216 5,709
Goodwill, net 87,682 87,469
Other assets 12,102 12,226
------- -------
$ 475,163 472,572
======= =======
3
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
March 31,
2002 December 31,
Liabilities and Shareholders' Equity (unaudited) 2001
- ------------------------------------ ----------- ------------
Current liabilities:
Obligations not liquidated because
of outstanding checks $ 16,939 10,304
Accounts payable 31,679 29,684
Withheld payroll taxes 6,482 5,597
Accrued expenses 85,415 88,628
Income taxes payable 602 2,512
Current portion of long-term debt 7,228 7,913
Liabilities of discontinued operations 5,267 3,513
------- -------
Total current liabilities 153,612 148,151
Deferred compensation 11,501 12,396
Minority interests 1,097 1,375
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
20,133,876 shares - March 31, 2002;
20,078,972 shares - December 31,
2001 2,013 2,008
Class B common stock, $.10 par value -
authorized 3,174,891 shares; none
issued - -
Additional paid-in capital 18,745 17,629
Retained earnings 313,240 315,698
Accumulated other comprehensive loss (2,445) (2,038)
Unamortized value of restricted stock
issued (633) (690)
Less common stock in treasury, at cost -
950,965 shares - March 31, 2002;
950,502 shares - December 31, 2001 (21,967) (21,957)
------- -------
Total shareholders' equity 308,953 310,650
------- -------
$ 475,163 472,572
======= =======
4
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data; unaudited)
Three months ended
March 31,
------------------
2002 2001
------- -------
Revenues $ 313,134 395,074
Cost of services 233,810 289,720
------- -------
Gross profit 79,324 105,354
Operating and administrative costs 79,639 99,096
Provision for restructure 4,053 -
------- -------
Operating (loss) profit (4,368) 6,258
Interest expense, net 85 938
------- -------
(Loss) earnings from continuing operations
before income taxes and minority interests (4,453) 5,320
Income tax benefit (expense) 1,593 (2,038)
------- -------
(Loss) earnings from continuing operations
before minority interests (2,860) 3,282
Minority interests 66 105
------- -------
(Loss) earnings from continuing operations (2,926) 3,177
Discontinued operations 468 568
------- -------
Net (loss) earnings $ (2,458) 3,745
======= =======
(Loss) earnings per share:
Basic
Continuing operations $ (.15) .17
Discontinued operations $ .02 .03
Net (loss) earnings $ (.13) .20
Diluted
Continuing operations $ (.15) .17
Discontinued operations $ .02 .03
Net (loss) earnings $ (.13) .20
5
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands; unaudited)
Three Months Ended
March 31,
------------------
2002 2001
Common stock ------- -------
Beginning of period $ 2,008 2,002
Exercise of stock options 3 -
Stock Purchase Plan 2 -
------- -------
End of period $2,013 2,002
======= =======
Additional paid-in capital
Beginning of period $ 17,629 16,677
Exercise of stock options 672 -
Restricted stock issued - 86
Restricted stock-vesting/forfeiture 4 -
Restricted stock- change in value 8 (4)
Stock Purchase Plan 432 -
------- -------
End of period $ 18,745 16,759
======= =======
Retained earnings
Beginning of period $ 315,698 331,308
Net (loss) earnings (2,458) 3,745
------- -------
End of period $ 313,240 335,053
======= =======
Accumulated other comprehensive loss
Beginning of period $ (2,038) (1,999)
Translation adjustment (407) (1,138)
Loss on investment recognized in earnings - 543
------- -------
End of period $ (2,445) (2,594)
======= =======
Unamortized value of restricted stock issued
Beginning of period $ (690) (230)
Restricted stock issued - (70)
Restricted stock-vesting/forfeiture 10 23
Restricted stock-change in value (8) 4
Restricted stock-amortization of value 55 28
------- -------
End of period $ (633) (245)
======= =======
Treasury stock
Beginning of period $ (21,957) (21,963)
Restricted stock-vesting/forfeiture (10) (23)
------- -------
End of period $ (21,967) (21,986)
======= =======
Comprehensive income
Net (loss) earnings $ (2,458) 3,745
Translation adjustment (407) (1,138)
Loss on investment recognized in earnings - 543
------- -------
$ (2,865) 3,150
======= =======
6
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three months ended
March 31,
------------------
2002 2001
Continuing Operations ------ ------
Operating activities:
(Loss) earnings from continuing operations $ (2,926) 3,177
Minority interests 66 105
Depreciation 8,343 5,210
Amortization of goodwill - 1,426
Provision for restructure 4,053 -
Income tax benefit (expense)(less) than
tax payments (2,362) (6,048)
Change in assets and liabilities
Decrease in accounts receivable 10,239 2,366
(Decrease) in payables and accrued expenses (3,268) (3,483)
Other (723) (183)
------ ------
13,422 2,570
------ ------
Investing activities:
Purchases of fixed assets (2,671) (5,115)
Acquisitions net of cash acquired (791) (8,143)
Other 1,240 (6)
------ ------
(2,222) (13,264)
------ ------
Financing activities:
Borrowings on long-term debt - 8,273
Payments on long-term debt (685) -
Obligations not liquidated because of
outstanding checks 6,635 (1,549)
Proceeds from stock plans 687 -
------ ------
6,637 6,724
------ ------
Net cash flows from continuing operations 17,837 (3,970)
Net cash flows from discontinued operations 5,635 (1,023)
------ ------
Increase (decrease) in cash 23,472 (4,993)
Cash at beginning of period 26,255 11,432
------ ------
Cash at end of period $ 49,727 6,439
====== ======
7
CDI Corp.
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(In thousands, except share data)
(unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of CDI Corp.
(CDI or the Company) are unaudited. The balance sheet as of December 31, 2001 is
condensed from the audited balance sheet of the Company at that date. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and should be read in conjunction with
the Company's consolidated financial statements and the notes thereto for the
year ended December 31, 2001 reported in Form 10-K. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of CDI's
management, the condensed consolidated financial statements for the unaudited
interim periods presented include all adjustments (consisting of only normal,
recurring adjustments except for restructuring and event-driven items as noted)
necessary for a fair presentation of financial position, results of operations
and cash flows for such interim periods. Certain amounts in prior periods have
been reclassified to conform to the current period classification.
Results for the three months ended March 31, 2002 are not necessarily
indicative of results that may be expected for the full year or any portion
thereof.
Effective January 1, 2002, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 142 - "Goodwill and Other Intangible
Assets" (SFAS 142). The Company ceased amortizing goodwill effective January 1,
2002. During the three months ended March 31, 2001, the Company recorded $1,426
of goodwill amortization. The Company has commenced a study of its recorded
goodwill as of January 1, 2002 to determine any potential impairment per SFAS
142. This study will be completed by June 30, 2002 and impairments, if any, will
be determined and recorded no later than December 31, 2002 (see note 6).
Effective January 1, 2002, the Company also implemented Emerging Issues
Task Force Consensus No. 01-14 "Income Statement Characterization of
Reimbursements Received for `Out-of-Pocket' Expenses Incurred" (the Consensus).
The Consensus requires that certain reimbursable costs incurred and rebilled to
customers be included in both revenues and cost of services, rather than
"netting" these amounts in revenues. The effect of the Consensus was to increase
revenues and cost of services by $11,677 in the first quarter of 2002 compared
to the Company's prior methodology, with no effect on gross profit or net (loss)
earnings. Revenues and cost of services for the first quarter ended March 31,
2001 were reclassified, with each being increased by $14,350 to conform to the
new presentation.
Effective January 1, 2002, the Company also adopted Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144). This Statement supersedes Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of" and certain provisions of Accounting Principles Board Opinion
No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" related to the disposal of a segment of a business.
8
2. Provision for Restructure
During the three months ended March 31, 2002, the Company continued to
implement the Plan of Restructure (the Plan) adopted by CDI's Board of Directors
in December 2001 and took additional actions in conjunction with the Plan during
the first quarter of 2002. Initial implementation of the Plan resulted in a
charge of $22,426 in the fourth quarter of 2001 related to severance of
terminated employees, lease termination costs related to closed locations and
asset impairment charges related to certain elements of the management
information systems and other assets.
During the first quarter of 2002, the Company provided an additional
provision for restructure as follows:
Net Provision Net
Accrual at recorded in Cash Accrual at
December Current Reduction Expend- March 31,
31,2001 Quarter of Assets itures 2002
----------------------------------------------------------
Asset impairments $ - 848 (848) - -
Provision for
severance 3,999 991 (1,993) 2,997
Provision for
termination
of operating leases 3,479 2,214 (62) 5,631
------- ------- ------- -------- -------
$ 7,478 4,053 (848) (2,055) 8,628
======= ======== ======= ======= =======
The breakdown of the first quarter 2002 restructuring provision among
operating segments is as follows:
Professional Services $ 605
Project Management 3,411
Todays Staffing 8
Corporate 29
-------
$ 4,053
=======
The Company anticipates that the net accruals at March 31, 2002, which are
included in accrued expenses in the accompanying balance sheet, will be
substantially paid by September 30, 2002.
The additional provision for severance relates to the involuntary
termination of approximately 90 employees.
The additional provision for termination of operating leases relates to
the closure of 29 offices and support locations.
The provision for asset impairments, recognized under the provisions of
SFAS 144, relates to closed facilities.
3. Discontinued Operations
During the period, the Company made a decision to sell the net operating
assets of its Modern Engineering, Inc. (Modern) subsidiary, which operated in
its Project Management operating segment. Modern provides technical staffing
services to the automotive industry. In conjunction with the decision to sell
and the implementation of SFAS 144, assets to be sold were written down by
$1,094 (including goodwill of $289) to their estimated fair value. The Company
has signed an agreement to sell this business and expects this sale to be
completed in the second quarter of 2002. The operations of Modern were a
component of CDI, as that term is defined in SFAS 144, and accordingly are
reflected as discontinued operations in the accompanying unaudited financial
statements.
9
The earnings from discontinued operations of Modern for the three months
ended March 31, 2002 and 2001, and related net assets at March 31, 2002 and
December 31, 2001, were as follows:
Three Months Ended
March 31,
2002 2001
---- ----
Revenues $ 17,926 24,949
-------- ------
Gross profit 2,947 4,550
Operating and administrative costs 3,140 3,630
Provision for asset impairment 1,094 -
------ ------
(Loss) earnings before income taxes (1,287) 920
Income tax benefit (expense) 1,755 (352)
------ ------
Earnings from discontinued operations $ 468 568
====== ======
March 31, December 31,
Net Assets 2002 2001
---- ----
Assets (principally accounts receivable
and deferred income taxes) $ 11,427 $14,840
Liabilities (principally accounts payable
and accrued expenses) (5,267) (3,513)
------- -------
Net assets $ 6,160 11,327
======= ======
10
4. (Loss) Earnings Per Share
(Loss) earnings used to calculate both basic and diluted earnings per
share are the reported earnings in the Company's consolidated statements of
earnings. All reported (loss) earnings pertain to common shareholders and no
assumed adjustments are necessary. The number of common shares used to calculate
basic and diluted earnings per share for the three months ended March 31, 2002
and 2001 was determined as follows:
2002 2001
Basic ---------- ----------
-----
Average shares outstanding 19,155,989 19,070,304
Restricted shares issued not vested (40,000) -
---------- ----------
19,115,989 19,070,304
========== ===========
Diluted
-------
Shares used for basic 19,115,989 19,070,304
Dilutive effect of shares issuable under
Stock Purchase Plan - 90,695
---------- ----------
19,115,989 19,160,999
========== ==========
In the three months ended March 31, 2002, basic and diluted shares are the
same because including the effect of common stock equivalents such as stock
options, units under the Company's Stock Purchase Plan and restricted shares
issued but not yet vested would have been antidilutive.
5. Operating Segments
In conjunction with the Plan, the Company reorganized its management and
reporting relationships effective January 1, 2002 along four operating segments:
Professional Services, Project Management, Permanent Placement and Temporary
Staffing. The Permanent Placement and Temporary Staffing operating segments
consist of CDI's Management Recruiters International and Todays Staffing
operations, respectively. The Professional Services segment consists of the
staffing components of the former Technical Services and Information Technology
Services operating segments along with the Company's AndersElite operations in
the United Kingdom. The Project Management operating segment consists of CDI's
engineering, information technology and telecommunications project management
businesses.
11
Segment data is as follows:
Three months ended March 31,
Revenues 2002 2001
---- ----
Professional Services $ 169,550 217,378
Project Management 80,943 93,088
Management Recruiters 22,709 30,542
Todays Staffing 39,932 54,066
--------- -------
$ 313,134 395,074
========= =======
(Loss) earnings from continuing
operations before income taxes and
minority interests
Operating (loss) profit
Professional Services $ (568) 3,294
Project Management (2,140) 1,752
Management Recruiters 1,855 5,740
Todays Staffing 1,049 1,926
Corporate expenses (4,564) (6,454)
------- ------
(4,368) 6,258
Interest expense 85 938
-------- ------
$ (4,453) 5,320
======== ======
Assets March 31, 2002 December 31, 2001
-------------- -----------------
Professional Services $ 200,156 203,125
Project Management 117,014 129,055
Management Recruiters 47,112 47,247
Todays Staffing 49,162 50,171
Corporate 50,292 28,134
Assets of discontinued ops. 11,427 14,840
---------- ------
$ 475,163 472,572
========= =======
Inter-segment activity is not significant. Revenues reported for each operating
segment are substantially all from external customers.
12
6. Goodwill
As described in Note 1, CDI adopted SFAS 142 effective January 1, 2002 and
accordingly ceased amortizing goodwill. The following table compares operating
(loss) profit for each operating segment as well as (loss) earnings from
continuing operations, discontinued operations and net (loss) earnings (as well
as per share amounts) in the current period with the three months ended March
31, 2001 as if SFAS 142 had been in effect for that period as well.
Three Months Ended
March 31,
2002 2001
----- ----
Operating (loss) profit:
Professional Services $ (568) 3,294
Project Management (2,140) 1,752
Management Recruiters 1,855 5,740
Todays Staffing 1,049 1,926
Corporate expenses (4,564) (6,454)
------- -----
$(4,368) 6,258
Goodwill amortization:
Professional Services - 514
Project Management - 209
Management Recruiters - 333
Todays Staffing - 370
Corporate - -
------- -----
- 1,426
As adjusted, operating (loss) profit:
Professional Services $ (568) 3,808
Project Management (2,140) 1,961
Management Recruiters 1,855 6,073
Todays Staffing 1,049 2,296
Corporate (4,564) (6,454)
------- -----
$(4,368) 7,684
======== ======
(Loss) earnings from continuing operations:
Reported $(2,926) 3,177
Add goodwill amortization, after-tax - 1,087
------- -----
As adjusted $(2,926) 4,264
======= =====
Earnings from discontinued operations:
Reported $ 468 568
Add goodwill amortization, after-tax - 8
------- -----
As adjusted $ 468 576
======= =====
Net (loss) earnings:
Reported $(2,458) 3,745
Add goodwill amortization, after-tax - 1,095
------- -----
As adjusted net (loss) earnings $(2,458) 4,840
======= =====
13
Basic (loss) earnings per share:
Continuing operations - Reported $ (0.15) 0.17
Continuing Operations - As adjusted $ (0.15) 0.22
Discontinued operations - Reported $ 0.02 0.03
Discontinued operations - As adjusted $ 0.02 0.03
Net (loss) earnings - Reported $ (0.13) 0.20
Net (loss) earnings - As adjusted $ (0.13) 0.25
Diluted (loss) earnings per share:
Continuing operations - Reported $ (0.15) 0.17
Continuing operations - As adjusted $ (0.15) 0.22
Discontinued operations - Reported $ 0.02 0.03
Discontinued operations - As adjusted $ 0.02 0.03
Net (loss) earnings- Reported $ (0.13) 0.20
Net (loss) earnings- As adjusted $ (0.13) 0.25
Changes in the carrying amount of goodwill for the three months ended March
31, 2002 were as follows:
Professional Project Management Todays
Services Management Recruiters Staffing Total
----------- --------- ----------- --------- -----
Balance at December
31, 2001 $ 33,220 14,526 16,199 23,524 87,469
Purchase of minority
Shareholder interest 447 447
Other (234) (234)
--------- ------ ------- ------ ------
Balance at March
31, 2002 $ 33,433 14,526 16,199 23,524 87,682
========= ====== ======= ====== ======
7. Note Receivable from Officer
Accounts receivable at March 31, 2002 includes $1,804 receivable from the
Company's President and Chief Executive Officer. In March 2002 the Company
advanced $1,800 to this executive in conjunction with his relocation. The loan
bears interest at the prime rate, is collateralized by the executive's former
residence, and is repayable upon the earlier of the sale of that residence or
July 31, 2002.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
---------------------------
Overview and Consolidated Results
During the first quarter ended March 31, 2002, CDI continued to
implement its strategy of reducing costs, focusing its efforts on higher-margin
services and exiting lower-margin customer relationships. In conjunction with
this strategy, the Company recorded a provision for restructure of $4.1 million
in the first quarter of 2002 related to severance ($1.0 million), termination of
operating leases ($2.2 million) and asset impairments ($0.9 million). The
Company also decided to sell the net operating assets of its business that
provides technical staffing to the automotive industry, which conducted its
operations as part of the Project Management operating segment. An agreement for
the sale of this business has been signed and the Company expects to complete
the transaction in the second quarter of 2002. In conjunction with the decision
to sell this business and the implementation of SFAS 144, these operations are
reflected as discontinued operations in the unaudited financial statements.
Prior periods are restated to conform to this presentation.
As previously disclosed in CDI's annual report on Form 10-K, effective
January 1, 2002 the Company reorganized its management and operations along four
operating segments: Professional Services, Project Management, Temporary
Services (Todays Staffing) and Permanent Placement (Management Recruiters
International). The discussions that follow are based on the Company's new
segment reporting structure.
Revenues from continuing operations were $313.1 million in the first
quarter of 2002, down $81.9 million (21%) from the first quarter of 2001. All
operating segments recorded revenue declines as a result of a declining economy
that caused CDI's operations to contract sequentially throughout 2001 and into
2002, as well as the Company's efforts to exit lower-margin customer
relationships primarily in the Professional Services segment. The Company's
gross profit of $79.3 million in the first quarter of 2002 fell $26.0 million
(25%) principally as a result of the decline in revenues but also reflecting a
decline in gross profit margin to 25.3% in the first quarter of 2002 compared to
26.7% last year. The decline in gross profit margin principally reflects reduced
franchise revenue at Management Recruiters International (MRI) as well as an
unfavorable shift in the mix of business within the Todays Staffing and Project
Management segments.
15
Operating and administrative expenses (excluding the $4.1 million
provision for restructure) were $79.6 million, a reduction of $19.5 million
(20%) from the first quarter last year. Operating and administrative expenses in
the first quarter of 2002 and 2001 included the following event-driven items:
2002 2001
---- ----
Depreciation on the Company's Enterprise
Resource Planning (ERP)System $3.3 million -
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
Other 0.1 million -
----------- ----------
$3.4 million 2.2 million
=========== ===========
In conjunction with the Provision for Restructure of $22.4 million
recorded by the Company in the fourth quarter of 2001, the Company wrote down
its investment in its ERP system to its fair market value of $6.7 million,
including $5.3 million associated with the system software and $1.4 million
associated with the hardware on which the software resided. The Company's Plan
of Restructure adopted in December 2001 calls for the decommissioning of the ERP
system by June 30, 2002. Accordingly, CDI recorded additional depreciation of
$3.3 million in the first quarter of 2002 because the Company is depreciating
its remaining investment in this system over the six-month period ending June
30, 2002. Other costs in 2002 consist of certain costs associated with the
streamlining of the Company's Project Management operations. The event-driven
items in 2001 relate to the impairment in value of a strategic investment in an
e-business solutions provider, the termination of an agreement with a web-based
solutions provider and the termination of the former President of the Company's
Information Technology Services division within the Professional Services
segment. The breakdown of these costs among operating segments was as follows:
Professional Services $2.6 million 0.6 million
Project Management .8 million -
Corporate - 1.6 million
------------ -----------
$3.4 million 2.2 million
============ ===========
16
Operating and administrative costs in 2002 fell compared to the first
quarter of 2001 reflecting the cost savings initiatives implemented by the
Company commencing in the second quarter of 2001. Additionally, operating and
administrative costs benefited from the absence of goodwill amortization, which
ceased as of January 1, 2002 under the provisions of Statement of Financial
Accounting Standards No. 142 ("SFAS 142"). Goodwill amortization totaled $1.4
million in the first quarter of 2001.
The Company's operating loss in the first quarter of 2002 was $4.4
million, compared to an operating profit of $6.3 million in the first quarter of
2001. Excluding the 2002 provision for restructure and the event driven charges
in both quarterly periods, operating profit was $3.1 million in 2002 compared to
$8.5 million last year.
Interest expense, net was $0.1 million in the first quarter of 2002
compared to $0.9 million in the first quarter of 2001. The reduction in interest
expense resulted from the elimination of all bank borrowings in the fourth
quarter of 2001. CDI's income tax rate was 35.8% in 2002 compared to 38.3% in
the first quarter of 2001. The lower income tax rate reflects reduced state
income taxes compared to the first quarter of 2001.
During the period, the Company made a decision to sell the net operating
assets of its Modern Engineering, Inc. (Modern) subsidiary, which operated in
its Project Management operating segment. The Company has signed an agreement to
sell this business and expects this sale to be completed in the second quarter
of 2002. The operations of Modern were a component of CDI, as that term is
defined in SFAS 144, and accordingly are reflected as discontinued operations in
the accompanying unaudited financial statements.
Earnings from discontinued operations was $0.5 million in the first
quarter of 2002 compared to $0.6 million in the first quarter of 2001. Modern
recorded an operating loss of $1.3 million in 2002, compared to an operating
profit of $0.9 million in the same period last year, principally reflecting
lower sales to Modern's automotive industry customers and a write-down of the
assets to be sold. Income taxes for discontinued operations in 2002 include a
one-time credit of $1.4 million that will be realized as a result of the
disposition of Modern.
17
Segment Results
Professional Services
The Professional Services operating segment recorded revenues of $169.6
million, a reduction of $47.8 million (22%) from the first quarter of 2001. The
revenue reduction principally reflected the continued slowdown in the United
States economy, which resulted in continuing sequential declines in quarterly
revenue throughout 2001, as well as the impact of the Company's planned exit
from lower-margin customer accounts. Excluding exited customers, the Company
believes that the segment's revenues were essentially flat with the fourth
quarter of 2001. The segment's operating loss was $0.6 million compared with an
operating profit of $3.3 million last year. Excluding the provision for
restructure and event-driven items in both periods, the segment had an operating
profit of $2.7 million, or 1.6% of revenues, compared to an operating profit of
$3.9 million, or 1.8% of revenues in the first quarter of 2001.
Project Management
Project Management revenues of $80.9 million in the first quarter of
2002 fell $12.1 million (13%) from the first quarter of 2001. The lower revenues
are entirely attributable to the segment's telecommunication services
operations, which have been severely impacted by the slowdown in the
telecommunications industry. The segment's other higher-value engineering
services businesses all recorded revenue increases compared to 2001, except the
segment's Innovantage business, which was essentially flat compared to the first
quarter of 2001. Project Management revenues fell $2.0 million (2%)from
the fourth quarter of 2001. The segment had an operating loss of $2.1
million in the first quarter of 2002 compared to an operating profit of $1.8
million in the first quarter of 2001. Excluding the provision for restructure
and event-driven items in 2002 (there were none in the first quarter of 2001),
the segment had an operating profit of $2.1 million, or 2.6% of revenues,
compared with $1.8 million (noted above) or 1.9% of revenues in the first
quarter of 2001. Reductions in operating and administrative expenses in 2002
compared to the first quarter of 2001 essentially offset lower gross profit.
Management Recruiters International (MRI)
MRI's revenues of $22.7 million fell $7.8 million (26%) from the first
quarter of 2001. The revenue decrease reflects reductions in MRI's Company-owned
permanent placement operations as well as reduced franchise revenue from the
segment's franchised locations. However, revenues rose by $1.3 million (6%) from
the depressed levels of the fourth quarter of 2001. Operating profit of $1.9
million was $3.9 million (68%) lower than the first quarter of 2001, as reduced
operating and administrative costs only partially mitigated the revenue
shortfall. However, operating profit increased by $0.7 million (55%) compared to
the fourth quarter of 2001.
18
Todays Staffing
Todays Staffing revenues were $39.9 million, a reduction of $14.1
million (26.1%) compared to the first quarter of 2001. The steep revenue decline
reflects the effects of the slowdown in the economy, which has particularly
affected the segment's administrative staffing business. The unit had an
operating profit of $1.0 million, or 2.6% of revenues in the first quarter of
2002, compared to $1.9 million, or 3.6% of revenues in the first quarter of last
year. Reductions in operating and administrative costs helped mitigate the
effects of the revenue shortfall.
Corporate
Corporate expenses of $4.6 million were lower by $1.9 million (29%)
than the first quarter of 2001. Excluding restructuring and event driven items
in both periods, corporate costs fell by $0.3 million (7%) from prior year
levels.
Liquidity and Capital Resources
Cash from operations was $13.4 million in the first quarter of 2002, an
increase of $10.9 million from last year, in spite of the Company's net loss in
2002 compared to net income in the first quarter of 2001. CDI benefited from a
continuing reduction in accounts receivable of $10.2 million, partially offset
by reduced payables and accrued expenses.
Cash used in investing activities was $2.2 million in the first quarter
of 2002, compared to $13.3 million in the first quarter of 2001. Capital
expenditures of $2.7 million fell by $2.4 million, as CDI curtailed the purchase
of new assets. Acquisition spending was insignificant in the first quarter of
2002, compared to $8.1 million in the first quarter of 2001, which included one
small acquisition, payments related to prior acquisitions and the purchase of an
additional interest in a majority-owned subsidiary. Other investing activities
provided $1.2 million of cash as CDI realized cash from the sale of certain
assets.
Cash provided by financing activities was $6.6 million in the first
quarter of 2002 compared to $6.7 million in the first quarter of 2001. The
Company's obligations not liquidated because of outstanding checks increased by
$6.6 million in 2002. In 2001, CDI borrowed $8.3 million under its revolving
line of credit principally to fund working capital requirements.
At March 31, 2002, the Company had $49.7 million of cash ($32.8 million
net of the liability for outstanding checks) and had no bank borrowings. CDI
continues to liquidate its remaining debt obligations of $7.2 million, all of
which are classified as current. There have been no changes in the Company's
credit arrangements.
The Company believes that cash flows from the operations as well as
available borrowing arrangements will be sufficient to meet its cash
requirements during 2002.
New Accounting Pronouncements
Effective January 1, 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142 - "Goodwill and Other
Intangible Assets" (SFAS 142). The Company ceased amortizing goodwill effective
January 1, 2002. The Company has commenced a study of its recorded goodwill as
of January 1, 2002 to determine any potential impairment per SFAS 142. This
study will be completed by June 30, 2002 and impairments, if any, will be
determined and recorded no later than December 31, 2002. See note six to CDI's
condensed consolidated financial statements for information regarding goodwill
and the related amortization.
19
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 the Company's Plan of Restructure. 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.
20
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).
10.1. Note dated March 14, 2002 from Roger Ballou and Georgeann
Ballou to CDI Corporation.
10.2. Agreement dated March 14, 2002 between Roger Ballou and
Georgeann Ballou and CDI Corporation regarding the sale
of the Ballous' residence in Washington, D.C.
(b) The Registrant did not file a report on Form 8-K during the three month
period ended March 31, 2002.
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, 2002 By: /s/ Gregory L. Cowan
------------------------------------
GREGORY L. COWAN
Executive Vice President and Chief
Financial Officer
(Duly authorized officer and
principal financial officer of
Registrant)