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, 1996
------------------
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 October 31, 1996 were:
Common stock, $.10 par value 19,828,562 shares
Class B common stock, $.10 par value None
<PAGE>
2
PART 1. FINANCIAL INFORMATION
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
Assets 1996 1995
- ------ ------------- ------------
Current assets:
Cash $ 10,257 4,490
Accounts receivable, less allowance
for doubtful accounts of $5,698 -
September 30, 1996; $4,059 -
December 31, 1995 276,719 235,445
Prepaid expenses 5,101 4,587
Deferred income taxes 8,218 9,280
Net assets of discontinued operations 6,659 18,011
------- -------
Total current assets 306,954 271,813
Fixed assets, at cost:
Land 757 764
Buildings 3,847 3,846
Computers 57,827 53,016
Equipment and furniture 37,745 31,444
Leasehold improvements 14,530 12,211
------- -------
114,706 101,281
Accumulated depreciation 80,191 70,804
------- -------
Net fixed assets 34,515 30,477
Deferred income taxes 5,830 4,418
Goodwill and other intangible assets 17,994 16,605
Other assets 6,333 5,463
------- -------
$ 371,626 328,776
======= =======
<PAGE>
3
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
September 30, December 31,
Liabilities and Shareholders' Equity 1996 1995
- ------------------------------------ ------------- ------------
Current liabilities:
Obligations not liquidated because
of outstanding checks $ 8,524 9,644
Accounts payable 12,821 8,179
Withheld payroll taxes 3,099 1,569
Accrued expenses 90,349 69,269
Currently payable income taxes 8,405 21,417
------- -------
Total current liabilities 123,198 110,078
Long-term debt 68,067 67,865
Deferred compensation 6,153 5,039
Minority interests 527 425
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 19,853,483 shares - September
30, 1996; 19,845,483 shares -
December 31, 1995 1,985 1,985
Class B common stock, $.10 par value -
authorized 3,174,891 shares; none
issued - -
Additional paid-in capital 12,855 12,703
Retained earnings 159,431 131,271
Less 25,055 shares of common stock
in treasury, at cost (590) (590)
------- -------
Total shareholders' equity 173,681 145,369
------- -------
$ 371,626 328,776
======= =======
<PAGE>
4
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
Quarter ended Nine months ended
September 30, September 30,
---------------- ------------------
1996 1995 1996 1995
------- ------- --------- -------
Revenues $ 374,673 331,485 1,083,296 936,450
Cost of operations 340,561 303,126 986,011 858,545
------- ------- --------- -------
Gross profit 34,112 28,359 97,285 77,905
General and administrative
expenses 15,504 12,119 46,292 35,450
------- ------- --------- -------
Operating profit 18,608 16,240 50,993 42,455
Interest expense 1,142 1,059 3,334 3,404
------- ------- --------- -------
Earnings from continuing
operations before income
taxes and minority
interests 17,466 15,181 47,659 39,051
Income taxes 7,169 6,229 19,397 15,965
------- ------- --------- -------
Earnings from continuing
operations before minority
interests 10,297 8,952 28,262 23,086
Minority interests 58 80 102 38
------- ------- --------- -------
Earnings from continuing
operations 10,239 8,872 28,160 23,048
Discontinued operations - (5,732) - (5,007)
------- ------- --------- -------
Net earnings $ 10,239 3,140 28,160 18,041
======= ======= ========= =======
Earnings per share:
Earnings from continuing
operations $ .52 .45 1.42 1.16
Discontinued operations $ - (.29) - (.25)
Net earnings $ .52 .16 1.42 .91
<PAGE>
5
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Nine months ended
September 30,
-----------------
1996 1995
------ ------
Continuing Operations
Operating activities:
Earnings from continuing operations $ 28,160 23,048
Minority interests 102 38
Depreciation 9,092 7,600
Amortization of intangible assets 1,434 1,394
Income tax provision greater (less)
than tax payments (13,362) (369)
Change in assets and liabilities,
net of effects from acquisitions:
Increase in accounts receivable (41,274) (58,692)
Increase in payables and accrued
expenses 27,252 11,796
Other (340) (287)
------ ------
11,064 (15,472)
------ ------
Investing activities:
Purchases of fixed assets (13,185) (11,148)
Acquisitions net of cash acquired (2,763) -
Other 65 368
------ ------
(15,883) (10,780)
------ ------
Financing activities:
Borrowings long-term debt 220 9,494
Payments long-term debt (18) (42)
Obligations not liquidated because
of outstanding checks (1,120) 4,372
Exercises of stock options 152 1,270
------ ------
(766) 15,094
------ ------
Net cash flows from continuing operations (5,585) (11,158)
Net cash flows from discontinued operations 11,352 9,833
------ ------
Increase (decrease) in cash 5,767 (1,325)
Cash at beginning of period 4,490 5,155
------ ------
Cash at end of period $ 10,257 3,830
====== ======
<PAGE>
6
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 1996 was
19,859,328 and 19,870,938 shares, respectively. For the third quarter
and nine months of 1995, 19,838,623 and 19,829,130 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, 1996 and 1995 follow ($000s):
Third quarter Nine months
---------------- ------------------
1996 1995 1996 1995
------- ------- --------- -------
Revenues:
Technical Services $ 311,496 277,799 905,057 783,697
Temporary Services 41,791 36,399 119,695 102,822
Management Recruiters 21,386 17,287 58,544 49,931
------- ------- --------- -------
$ 374,673 331,485 1,083,296 936,450
======= ======= ========= =======
Operating profit:
Technical Services $ 14,493 13,275 42,202 35,465
Temporary Services 2,775 2,239 6,187 4,965
Management Recruiters 3,166 2,553 8,633 7,492
Corporate expenses (1,826) (1,827) (6,029) (5,467)
------- ------- --------- -------
$ 18,608 16,240 50,993 42,455
======= ======= ========= =======
During the nine months ended September 30, 1996, there were 8,000
shares of common stock issued upon the exercise of stock options
granted under the Company s non-qualified stock option and stock
appreciation rights plan. The issuance of these shares resulted in an
increase in additional paid-in capital of $152,000.
At the end of 1995 the Company adopted a plan to sell the
manufacturing technology division of a subsidiary which serves the
automotive market. That division is classified as a discontinued
operation in the Company s financial statements. The operations of a
small portion of the discontinued business were terminated by March 31,
1996. The remainder of the discontinued business continues to operate
and will be sold pursuant to the plan. A reserve was established at
December 31, 1995 for estimated costs and losses to be incurred through
termination and sale of the discontinued business. During the nine
<PAGE>
7
months ended September 30, 1996 costs charged against the reserve
amounted to $1,800,000 and were for items that corresponded to those
used in establishing the reserve. Operating results for the
discontinued operations, on the other hand, have been above
expectations. For the nine months ended September 30, 1996 the
discontinued operations had pre-tax operating earnings of $2,100,000
which increased the reserve. The net assets for discontinued
operations of $7 million as of September 30, 1996 were comprised
primarily of working capital and fixed assets.
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, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discontinued Operations
-----------------------
At the end of 1995 the Company adopted a plan to sell the
manufacturing technology division of a subsidiary which serves the
automotive market. That division is classified as a discontinued
operation in the Company s financial statements.
Results of Operations
---------------------
Consolidated revenues for the nine months and quarter ended
September 30, 1996 were 16% and 13% higher, respectively, compared to
the same periods a year ago. Operating profit for the nine months and
third quarter in 1996 was 4.7% and 5.0% of revenues, respectively,
compared to 4.5% and 4.9% for the nine months and third quarter in
1995.
Technical Services' revenues for the nine months and third quarter
of 1996 grew 15% and 12%, respectively, from last year s comparable
periods. Operating profit margins for both the nine months and third
quarter of 1996 were 4.7%, vs. 4.5% and 4.8% for last year s comparable
periods.
The Company previously reported that it will sell the
manufacturing technology division of its automotive business,
designated as a discontinued operation, and that it is exploring ways
to maximize the value of the remaining continuing Technical Services
business serving the automotive market. In 1996, the discontinued
business has performed above expectations. On the other hand, the
continuing automotive business has had disappointing results that
<PAGE>
8
included a loss relating to a marginally priced contract that was
terminated and the settlement of which is currently being negotiated.
CDI s information technology revenues have grown significantly
over the past few years to a current third quarter annualized run-rate
of over $200 million. Substantially all of this growth has been
internal.
CDI has been taking a less aggressive approach to expanding its
managed technical staffing business because of a tighter margin
environment in certain types of that business. Most all of CDI s
existing managed staffing contracts with its blue-chip customer roster
are performing well, but the mix of profitability is a bit lean
compared with traditional staffing and especially compared with current
and potential information technology margins. Accordingly, managed
staffing has settled down to a more modest growth rate and a third
quarter annualized run-rate of $260 million.
CDI s telecommunications markets remained strong during the third
quarter, but chemicals/petrochemicals growth rates have eased back
during the second and third quarters.
Temporary Services' revenues for the nine months and third quarter
of 1996 were 16% and 15% higher, respectively, compared to the same
periods a year ago. Operating profit margins for the nine months and
third quarter of 1996 were 5.2% and 6.6%, respectively, vs. 4.8% and
6.2% for last year s comparable periods. The Temporary Services
segment is continuing to be favorably affected by the trends in U.S.
business and industry toward outsourcing.
Management Recruiters' revenues were up 17% for the nine months of
this year and up 24% compared to last year s third quarter. Operating
profit margins for the nine months and third quarter of 1996 were 14.7%
and 14.8%, respectively, compared to 15.0% and 14.8%, respectively, for
the same periods in 1995. Management Recruiters is also continuing to
be favorably affected by the trends in U.S. business and industry
toward outsourcing.
The operations of a small portion of the discontinued business
were terminated by March 31, 1996. The remainder of the discontinued
business continues to operate and will be sold pursuant to the plan
adopted in 1995. A reserve was established as of December 31, 1995 for
costs and losses to be incurred relating to the discontinued business.
During the nine months ended September 30, 1996 costs charged against
the reserve amounted to $1,800,000 and were for items that corresponded
to those used in establishing the reserve. Operating results for the
discontinued operations, on the other hand, have been above
expectations. For the nine months ended September 30, 1996 the
discontinued operations had pre-tax operating earnings of $2,100,000
which increased the reserve. For the nine months and quarter ended
September 30, 1995, the discontinued business had revenues of
$55,386,000 and $9,291,000, respectively. After tax losses were
<PAGE>
9
$5,007,000 for the nine months ended September 30, 1995 and $5,732,000
for the quarter then ended. These losses are included in reported
earnings for each of the periods in 1995.
Financial Condition
-------------------
The ratio of current assets to current liabilities was 2.5 to 1
for both September 30, 1996 and December 31, 1995. The ratio of long-
term debt to total capital (long-term debt plus shareholders' equity)
was 28% for September 30, 1996 and 32% for December 31, 1995. The
Company believes that capital resources available from operations and
financing arrangements are adequate to support the Company's
businesses.
<PAGE>
10
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, 1996 (File No.
1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
b. Employment Agreement dated May 1, 1973 by and
between Comprehensive Designers, Inc. and Walter
R. Garrison, incorporated herein by reference to
Exhibit 10.e. to Registrant's registration state-
ment on Form 8-B (File No. 1-5519). (Constitutes
a management contract or compensatory plan or
arrangement)
c. 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 state-
ment on Form 8-B (File No. 1-5519). (Constitutes
a management contract or compensatory plan or
arrangement)
d. 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)
e. 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)
<PAGE>
11
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, 1996.
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.
--------------------------------------
November 6, 1996 By: /s/ Edgar D. Landis
-----------------------------------
EDGAR D. LANDIS
Executive Vice President, Finance
(Duly authorized officer and
principal financial officer of
Registrant)
<PAGE>
12
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, 1996 (File No. 1-5519).
(Constitutes a management contract or compensatory
plan or arrangement)
b. Employment Agreement dated May 1, 1973 by and between
Comprehensive Designers, Inc. and Walter R. Garrison,
incorporated herein by reference to Exhibit 10.e. to
Registrant's registration statement on Form 8-B (File
No. 1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
c. 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)
d. 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)
e. 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)
11. Statement re computation of per share earnings. 13
27. Financial Data Schedule. 14
<PAGE>
13
EXHIBIT 11
Statement Re Computation of Per Share Earnings
Quarter ended Nine months ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Primary
- -------
Earnings from
continuing operations $10,239,000 8,872,000 28,160,000 23,048,000
Discontinued operations - (5,732,000) - (5,007,000)
---------- ---------- ---------- ----------
Net earnings $10,239,000 3,140,000 28,160,000 18,041,000
========== ========== ========== ==========
Common and common
equivalent shares:
Weighted average
common shares
outstanding 19,827,553 19,764,928 19,825,078 19,734,928
Assumed exercise of
stock options 31,775 73,695 45,860 94,202
---------- ---------- ---------- ----------
19,859,328 19,838,623 19,870,938 19,829,130
========== ========== ========== ==========
Earnings per share:
Earnings from
continuing operations $ .52 .45 1.42 1.16
Discontinued operations $ - (.29) - (.25)
Net earnings $ .52 .16 1.42 .91
Fully diluted
- -------------
Earnings from
continuing operations $10,239,000 8,872,000 28,160,000 23,048,000
Discontinued operations - (5,732,000) - (5,007,000)
---------- ---------- ---------- ----------
Net earnings $10,239,000 3,140,000 28,160,000 18,041,000
========== ========== ========== ==========
Common and common
equivalent shares:
Weighted average
common shares
outstanding 19,827,553 19,764,928 19,825,078 19,734,928
Assumed exercise of
stock options 31,775 77,214 51,586 106,544
---------- ---------- ---------- ----------
19,859,328 19,842,142 19,876,664 19,841,472
========== ========== ========== ==========
Earnings per share:
Earnings from
continuing operations $ .52 .45 1.42 1.16
Discontinued operations $ - (.29) - (.25)
Net earnings $ .52 .16 1.42 .91<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements of CDI Corp. and Subsidiaries and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,257
<SECURITIES> 0
<RECEIVABLES> 282,417
<ALLOWANCES> 5,698
<INVENTORY> 0
<CURRENT-ASSETS> 306,954
<PP&E> 114,706
<DEPRECIATION> 80,191
<TOTAL-ASSETS> 371,626
<CURRENT-LIABILITIES> 123,198
<BONDS> 68,067
0
0
<COMMON> 1,985
<OTHER-SE> 171,696
<TOTAL-LIABILITY-AND-EQUITY> 371,626
<SALES> 0
<TOTAL-REVENUES> 1,083,296
<CGS> 0
<TOTAL-COSTS> 986,011
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,334
<INCOME-PRETAX> 47,659
<INCOME-TAX> 19,397
<INCOME-CONTINUING> 28,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,160
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 0
</TABLE>
