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 March 31, 1997
--------------
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, 1997 were:
Common stock, $.10 par value 19,860,118 shares
Class B common stock, $.10 par value None
<PAGE>
2
PART 1. FINANCIAL INFORMATION
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
Assets 1997 1996
- ------ --------- ------------
Current assets:
Cash $ 15,561 6,066
Accounts receivable, less allowance
for doubtful accounts of $4,439 -
March 31, 1997; $4,094 - December 31,
1996 257,268 233,455
Prepaid expenses 5,225 3,908
Deferred income taxes 6,693 7,288
Net assets of discontinued operations 37,867 37,257
------- -------
Total current assets 322,614 287,974
Fixed assets, at cost:
Computers 36,887 34,526
Equipment and furniture 25,303 26,119
Leasehold improvements 9,193 8,151
------- -------
71,383 68,796
Accumulated depreciation 45,324 43,292
------- -------
Net fixed assets 26,059 25,504
Deferred income taxes 4,421 4,180
Goodwill and other intangible assets, net 15,299 15,611
Other assets 6,911 6,905
------- -------
$ 375,304 340,174
======= =======
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3
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
March 31, December 31,
Liabilities and Shareholders' Equity 1997 1996
- ------------------------------------ --------- ------------
Current liabilities:
Obligations not liquidated because
of outstanding checks $ 8,867 6,834
Accounts payable 13,777 12,423
Withheld payroll taxes 3,278 4,950
Accrued expenses 82,172 75,637
Currently payable income taxes 12,398 7,006
------- -------
Total current liabilities 120,492 106,850
Long-term debt 59,166 48,866
Deferred compensation 7,265 6,934
Minority interests 703 592
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 19,884,983 shares - March 31,
1997; 19,853,983 shares - December 31,
1996 1,988 1,985
Class B common stock, $.10 par value -
authorized 3,174,891 shares; none
issued - -
Additional paid-in capital 13,973 12,866
Retained earnings 173,410 162,669
Unamortized value of restricted stock
issued (1,088) -
Less common stock in treasury, at cost -
25,465 shares - March 31, 1997; 24,921
shares - December 31, 1996 (605) (588)
------- -------
Total shareholders' equity 187,678 176,932
------- -------
$ 375,304 340,174
======= =======
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4
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
Three months ended March 31,
----------------------------
1997 1996
------- -------
Revenues $ 360,461 330,808
Cost of services 278,519 256,929
------- -------
Gross profit 81,942 73,879
Operating and administrative costs 63,150 58,354
------- -------
Operating profit 18,792 15,525
Interest expense 704 864
------- -------
Earnings from continuing operations
before income taxes and minority
interests 18,088 14,661
Income taxes 7,236 5,919
------- -------
Earnings from continuing operations
before minority interests 10,852 8,742
Minority interests 111 9
------- -------
Earnings from continuing operations 10,741 8,733
Discontinued operations - (237)
------- -------
Net earnings $ 10,741 8,496
======= =======
Earnings per share:
Earnings from continuing operations $ .54 .44
Discontinued operations $ - (.01)
Net earnings $ .54 .43
<PAGE>
5
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Three months ended March 31,
----------------------------
1997 1996
------ ------
Continuing Operations
Operating activities:
Earnings from continuing operations $ 10,741 8,733
Minority interests 111 9
Depreciation 2,301 2,047
Amortization of intangible assets 389 464
Income tax provision greater (less)
than tax payments 5,746 (9,229)
Change in assets and liabilities
net of effects from acquisitions:
Increase in accounts receivable (23,813) (12,684)
Increase in payables and accrued
expenses 6,217 12,230
Other (1,004) 337
------ ------
688 1,907
------ ------
Investing activities:
Purchases of fixed assets (2,860) (4,164)
Acquisition net of cash acquired (65) (2,500)
Other 4 31
------ ------
(2,921) (6,633)
------ ------
Financing activities:
Borrowings long-term debt 10,313 5,466
Payments long-term debt (13) (20)
Obligations not liquidated because
of outstanding checks 2,033 435
Exercises of stock options 5 98
------ ------
12,338 5,979
------ ------
Net cash flows from continuing operations 10,105 1,253
Net cash flows from discontinued operations (610) (2,142)
------ ------
Increase (decrease) in cash 9,495 (889)
Cash at beginning of period 6,066 4,495
------ ------
Cash at end of period $ 15,561 3,606
====== ======
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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 was 19,899,509 for the three months ended March 31,
1997 and 19,871,616 for the three months ended March 31, 1996.
Revenues and operating profit attributable to the continuing
operations of the business segments of the Company for the three months
ended March 31, 1997 and 1996 follow ($000s):
1997 1996
------- -------
Revenues:
Technical Services $ 295,771 274,589
Temporary Services 43,727 38,312
Management Recruiters 20,963 17,907
------- -------
$ 360,461 330,808
======= =======
Operating profit:
Technical Services $ 15,481 13,640
Temporary Services 2,246 1,678
Management Recruiters 3,210 2,534
Corporate expenses (2,145) (2,327)
------- -------
$ 18,792 15,525
======= =======
During the three months ended March 31, 1997, there were 1,000
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. In payment for the option shares, the optionee surrendered
544 shares of common stock already owned which
the Company placed in treasury stock. As a result of the exercise,
additional paid-in capital was increased by $22,000 and treasury stock
was increased by $17,000.
There were 30,000 shares of common stock issued to an officer of
the Company under his employment agreement. Half of these shares will
vest over time (3,000 shares on each of the first five anniversaries of
the date of the employment agreement) and half (up to 3,000 shares per
year for five years) will vest depending upon the percentage achieve-
ment of predetermined goals established by the Company's board of
directors. Shares which do not vest are forfeited.
The 15,000 shares that will vest over time have a fixed value of
$531,000 equal to the market value of the shares when issued. The value
for the 15,000 shares that will vest based upon performance will
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7
fluctuate with changes in their market value until there is a
determination as to their vesting. As of March 31, 1997, these
performance-based shares were valued at $557,000. Of the total value of
$1,088,000 ascribed to these restricted shares as of March 31, 1997,
$3,000 increased common stock and $1,085,000 increased additional paid-
in capital.
Over the next five years 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. 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.
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 was established for
estimated costs and losses associated with disposing of these businesses
and for losses from operations for a portion of 1997. Costs and losses
incurred during the three months ended March 31, 1997 of $1.6 million,
primarily operating losses during the period, relating
to the discontinued businesses were charged against the reserve. The
charges to the reserve were for items that corresponded to those
considered in establishing the reserve. The net assets of the
discontinued operations of $38 million as of March 31, 1997 were not
significantly different from December 31, 1996 and are 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, 1996.
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.
<PAGE>
8
Results of Operations
---------------------
Consolidated revenues from continuing operations for the quarter
ended March 31, 1997 were 9% above the comparable quarter a year ago.
Operating profit margins from continuing operations were 5.2% of
revenues for the first quarter of this year compared to 4.7% for the
same period in 1996.
Technical Services' revenues from continuing operations increased
8% over the first quarter a year ago. Operating profit margins from
continuing operations for Technical Services were 5.2% in the first
quarter of 1997 compared to 5.0% for the 1996 first quarter. Technical
Services continues to benefit from broad-based trends toward
outsourcing. These trends are especially evident in information
technology staffing and services, where first quarter revenues were 35%
over the same period a year ago. First quarter IT revenues were at an
annualized run rate of $250 million, compared with full year 1996 IT
revenues of $200 million. Telecommunications revenues stabilized in the
current quarter after a fourth quarter 1996 decline in that sector.
Temporary Services' revenues were up 14% over last year's first
quarter. Operating profit margins for Temporary Services were 5.1% for
the first quarter of 1997, compared with 4.4% for the 1996 first
quarter. Temporary Services benefitted from the continued strong demand
for office/clerical services.
Management Recruiters' revenues for the first quarter of 1997 grew
17% over last year's first quarter. Operating profit margins were 15.3%
of revenues for the first quarter of this year and 14.2% for the first
quarter of last year. Management Recruiters' markets for middle
management search and recruiting remained strong and performance
continued its upward trend.
Discussions for the disposal of the discontinued operations have
been pursued and are ongoing. Costs and losses incurred during the
quarter ended March 31, 1997 of $1.6 million, primarily for operating
losses, were charged against the reserve for discontinued operations
established as of December 31, 1996 for such costs and losses.
Financial Condition
-------------------
The ratio of current assets to current liabilities was 2.7 to 1
as of both March 31, 1997 and December 31, 1996. The ratio of long-term
debt to total capital (long-term debt plus shareholders' equity) was 24%
for March 31, 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.
<PAGE>
9
New Accounting Standards
------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Statement 128 supersedes Accounting Principles Board Opinion No. 15,
Earnings Per Share, but is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Therefore,
reported earnings per share for the quarters ended March 31, 1997 and
1996 have been determined using the principles prescribed by Opinion No.
15. If the Standards prescribed by Statement 128 were applied for these
quarterly periods, there would be no difference in the reported per
share amounts.
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 unforeseen
events associated with divestiture of discontinued operations could
cause actual results to differ materially from those in the forward-
looking statements.
<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)
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11
f. 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 for
its annual meeting of shareholders held on April
28, 1997 (File No. 1-5519). (Constitutes a
management 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 March 31, 1997.
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.
--------------------------------------
May 12, 1997 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)
f. 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
<PAGE>
13
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)
11. Statement re computation of per share earnings. 14
27. Financial Data Schedule. 15
<PAGE>
14
EXHIBIT 11
Statement Re Computation of Per Share Earnings
Three months ended March 31,
----------------------------
1997 1996
---------- ----------
Primary
- -------
Earnings from continuing operations $ 10,741,000 8,733,000
Discontinued operations - (237,000)
---------- ----------
Net earnings $ 10,741,000 8,496,000
========== ==========
Common and common equivalent
shares outstanding:
Weighted average common
shares outstanding during
the period 19,836,904 19,821,991
Assumed exercise of stock
options 62,605 49,625
---------- ----------
19,899,509 19,871,616
========== ==========
Earnings per share:
Earnings from continuing operations $ .54 .44
Discontinued operations $ - (.01)
Net earnings $ .54 .43
Fully diluted
- -------------
Earnings from continuing operations $ 10,741,000 8,733,000
Discontinued operations - (237,000)
---------- ----------
Net earnings $ 10,741,000 8,496,000
========== ==========
Common and common equivalent
shares outstanding:
Weighted average common
shares outstanding during
the period 19,836,904 19,821,991
Assumed exercise of stock
options 82,671 59,972
---------- ----------
19,919,575 19,881,963
========== ==========
Earnings per share:
Earnings from continuing operations $ .54 .44
Discontinued operations $ - (.01)
Net earnings $ .54 .43
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,561
<SECURITIES> 0
<RECEIVABLES> 261,707
<ALLOWANCES> 4,439
<INVENTORY> 0
<CURRENT-ASSETS> 322,614
<PP&E> 71,383
<DEPRECIATION> 45,324
<TOTAL-ASSETS> 375,304
<CURRENT-LIABILITIES> 120,492
<BONDS> 59,166
0
0
<COMMON> 1,988
<OTHER-SE> 185,690
<TOTAL-LIABILITY-AND-EQUITY> 375,304
<SALES> 0
<TOTAL-REVENUES> 360,461
<CGS> 0
<TOTAL-COSTS> 278,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704
<INCOME-PRETAX> 18,088
<INCOME-TAX> 7,236
<INCOME-CONTINUING> 10,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,741
<EPS-PRIMARY> .54
<EPS-DILUTED> 0
</TABLE>
