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SECURITIES AND EXCHANGE COMMISSION 1
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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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 jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1717 Arch Street, 35th Floor, Philadelphia, PA 19103-2768
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 569-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common stock, $.10 par value New York Stock Exchange
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(Title of each class) (Name of exchange on which registered)
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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Indicate if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value as of February 22, 1999 of voting stock of the
Registrant held by shareholders other than executive officers, directors or
known beneficial owners of 10% or more of such stock of the Registrant was:
Common stock, $.10 par value $231,717,000
Class B common stock, $.10 par value Not applicable
The outstanding shares of each of the Registrant's classes of
common stock as of February 22, 1999 were:
Common stock, $.10 par value 19,013,842 shares
Class B common stock, $.10 par value None
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into
Documents which incorporated
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Proxy Statement for Annual Meeting
of Shareholders to be Held April 29, 1999 Part III
2
PART I
Item 1. BUSINESS.
OPERATING SEGMENTS
The following table sets forth (in thousands) the revenues and earnings
from continuing operations before income taxes and minority interests
attributable to the continuing operations of the operating segments of the
Registrant and its consolidated subsidiaries during
the years indicated and the assets attributable to each segment as of the end of
each such year.
Years ended December 31,
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1998 1997 1996
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Revenues
- --------
Information Technology Services $ 320,599 285,105 211,766
Technical Services 898,736 927,609 920,955
Management Recruiters 112,217 93,540 78,954
Todays Staffing 208,993 190,504 163,206
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$ 1,540,545 1,496,758 1,374,881
========= ========= =========
Earnings from continuing
operations before income
taxes and minority interests
- ----------------------------
Operating profit
Information Technology Services $ 21,278 21,454 15,216
Technical Services 33,059 41,653 47,322
Management Recruiters 22,813 17,059 11,003
Todays Staffing 13,946 11,005 8,552
Corporate expenses (14,986) (12,053) (8,398)
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76,110 79,118 73,695
Interest expense 1,384 2,337 3,451
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$ 74,726 76,781 70,244
========= ========= =========
Assets
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Information Technology Services $ 89,693 69,583 57,629
Technical Services 237,285 193,206 185,744
Management Recruiters 36,355 25,682 20,370
Todays Staffing 52,730 40,855 33,690
Corporate 14,399 7,309 5,484
Net assets of discontinued
operations 5,352 12,202 37,257
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$ 435,814 348,837 340,174
========= ========= =========
3
The automotive developmental engineering division of a subsidiary and the
automotive manufacturing technology division of the subsidiary have been
substantially disposed of pursuant to plans of disposition. These divisions are
classified as discontinued operations in the Company's financial statements.
INFORMATION TECHNOLOGY SERVICES
The Registrant's Information Technology Services operating segment provides
staffing, managed staffing, project outsourcing and functional outsourcing
services in the information technology markets.
In providing its staffing services, the segment recruits and hires
personnel and provides these personnel to customers on a contract or project
basis. Customers use the segment's personnel to develop, design and maintain
information systems.
In managed information technology staffing, the segment not only provides
the personnel but also manages the customer's entire information technology
contract staffing needs. When providing managed staffing services, the segment
frequently establishes a branch office at one or more of the customer's local
facilities, staffs it with management personnel from the segment, and ties that
branch into the segment's business systems. In some instances, managed
information technology staffing services also include the coordination of
contract employees assigned to the customer from other staffing companies.
In information technology outsourcing, the segment assumes certain
responsibilities for a service or a deliverable. Outsourcing services are
focused on distributed systems management, applications development and
maintenance support, help desk solutions and PC support. In most instances,
these outsourcing services are located on site at the customer's premises.
The segment's activities related to Year 2000 issues represent only a small
component of the segment's services.
During the year ended December 31, 1998, Information Technology Services
provided services to several hundred customers. Historically, much of its
business has been performed for large industrial corporations, but the segment
has begun to penetrate non-industrial fields such as banking and financial
services. Customers are geographically dispersed. Managed staffing and
outsourcing services are concentrated among a small number of these customers,
which tend
to be among the largest U.S. corporations. In 1998 and 1997, one large
industrial corporation comprised approximately 30% of Information Technology
Services' total revenues.
The segment's employees are hired by the segment and assigned to work for a
customer. The period of assignment depends upon the duration of the need for
the skills of an individual employee. At the
4
end of an assignment, an employee is either reassigned within the
current customer, is assigned to perform services with another customer, or
employment is terminated.
Information Technology personnel are attracted to this type of employment
by the opportunity to work on "state-of-the-art" projects and by the geographic
and industry diversity of projects. In addition, personnel may be compensated
at higher hourly rates than the hourly rate equivalent paid to personnel with
similar backgrounds and experience employed by the segment's customers.
Information Technology Services personnel are on Information Technology
Services' payroll and are subject to its administrative
control. The customer retains technical and supervisory control. When the
segment provides managed staffing services, the segment may provide additional
administrative supervision for its employees.
The ability of Information Technology Services to find and hire personnel
with the capabilities required by customers is critical to its operations.
During periods of high demand for specific skills,
it is not uncommon for Information Technology Services to experience pressure to
pay higher wage rates or lose employees to competitors
who will pay such rates in an attempt to attract personnel with the required
skills. To assist in fulfilling its personnel needs, a computerized retrieval
system facilitates the rapid selection of resumes on file so that customers'
requirements are filled quickly.
Information Technology personnel of virtually every skill level are
currently in high demand. This level of demand is expected to remain high for
the next several years. The segment's greatest challenge is finding and
retaining qualified information technology professionals. Consequently, the
segment is employing aggressive recruiting methods and is enhancing its benefits
for these professionals.
Pricing under most contracts between Information Technology Services and
its customers is based on prevailing hourly rates of pay. Contracts generally do
not obligate the customer to pay for any
number of hours. Both the customer and the segment have the right to terminate
the contract, usually on short notice. Similarly, Information Technology
Services maintains the right to terminate employees at will. Some customer
contracts contain limitations on the maximum cost to the customer expressed
either in a dollar amount or a maximum number of worker hours to be provided.
Information Technology Services operates through a network of approximately
44 sales and recruiting offices located in major markets throughout the United
States.
5
Customers typically invite several companies to bid for contracts, which
are awarded primarily on the basis of price, value added services and prior
performance. Many times customers grant multi-vendor contracts.
Industry analysts estimate the market for the Technical/Informa-tion
Technology sector of the staffing industry to be approximately $18 billion. The
Company's Information Technology Services and Technical Services segments
operate in this sector of the staffing industry. No single company or small
group of companies is dominant. Competition in the industry is intense from
national, regional and local companies, some of which serve only selected
markets.
TECHNICAL SERVICES
The Registrant's Technical Services operating segment provides staffing,
managed staffing, outsourcing and consulting services in engineering and other
technical fields.
In providing its staffing services, the segment recruits and hires
personnel and provides these personnel to customers on a contract or project
basis. Customers use the segment's personnel for expansion programs, to staff
special projects and to meet peak period manpower needs.
In managed technical staffing, the segment not only provides the personnel
but also manages the customer's entire contract staffing needs. When providing
managed staffing services, the segment frequently establishes a branch office at
one or more of the customer's facilities, staffs it with management personnel
from the segment, and ties that branch into the segment's business systems. In
some
instances, managed staffing services also include the coordination of contract
employees assigned to the customer from other staffing companies.
In technical outsourcing, the segment usually takes over a customer's
entire technical department, staffing the department with technical personnel
and managing the production of the department's output. In most instances, the
managed department is located on site at the customer's premises, but in some
cases the customer may prefer an off-site location, and in this case the segment
might be called upon to furnish the site as well as to furnish the computer
systems needed to support the operations. The segment sometimes maintains
stand-alone operations which provide off-site services to multiple customers.
Technical Services also performs engineering consulting, providing services
such as project planning and feasibility studies, conceptual engineering, detail
engineering and design, procurement and project management. These services
generally are directed toward the
implementation of a customer's previously conceived ideas and programs. These
activities typically take place at the segment's own facilities where the
segment furnishes the computer systems support.
6
During the year ended December 31, 1998, Technical Services provided
services to approximately 3,000 customers. Much of its
business is performed for large multi-national manufacturing companies
in the aircraft/aerospace, automotive, hydrocarbon/petrochemical,
construction, electronics, industrial equipment, marine, telecommunications,
pharmaceuticals and other fields. Customers are geographically dispersed.
Managed staffing, outsourcing and consulting services are concentrated among a
small number of these customers, which tend to be among the largest U.S.
industrial corporations.
During the year ended December 31, 1998, approximately 2% of the
Registrant's consolidated revenues were derived directly from prime contracts
with the United States Government, and an additional approximately 15% of the
consolidated revenues were derived from subcontracts on United States Government
work. Much of the Government business is defense related. Nearly all of the
Registrant's United States Government related work is performed by the Technical
Services segment.
Services are performed in customers' facilities ("in-customer") and in
Technical Services' own facilities ("in-house") depending upon
industry practice and the needs and preferences of customers. During the year
ended December 31, 1998, approximately 85% of the segment's
revenues were generated through in-customer work with the remaining 15%
generated in-house.
In-customer staffing employees are hired by the segment and assigned to
work for a customer. The period of assignment depends upon the duration of the
need for the skills of an individual employee. At
the end of an assignment, an employee is either reassigned within the
current customer, is assigned to perform services with another customer, or
employment is terminated.
Technical personnel are attracted to this type of employment by the
opportunity to work on "state-of-the-art" projects and by the geographic and
industry diversity of projects. In addition, personnel may be compensated at
higher hourly rates than the hourly rate
equivalent paid to personnel with similar backgrounds and experience employed by
the segment's customers.
When performing services on an in-customer basis, Technical Services
personnel are on Technical Services' payroll and are subject to its
administrative control. The customer retains technical and supervisory
control. When the segment provides managed staffing services, the segment may
provide additional administrative supervision for its employees.
When services are performed in-house, Technical Services
generally provides supervision for employees, and may have increased
responsibility for the performance of work which is generally monitored in
conjunction with customer personnel.
7
The demand for managed services and in-house services is generally more
constant than for in-customer staffing services. Consequently, the duration of
employment of employees working in managed services and
in-house services is usually longer than for employees working in
in-customer staffing. Supervisory personnel at managed programs and at in-house
facilities are generally long-term employees and are important to the continuing
relationship with customers.
The ability of Technical Services to find and hire personnel with the
capabilities required by customers is critical to its operations. Such
personnel usually have prior experience in their area of expertise. During
periods of high demand for specific skills, it is
not uncommon for Technical Services to experience pressure to pay higher wage
rates or lose employees to competitors who will pay such rates in an attempt to
attract personnel with the required skills.
To assist in fulfilling its personnel needs, a computerized retrieval system
facilitates the rapid selection of resumes on file so that customers'
requirements may be filled quickly.
Pricing under most contracts between Technical Services and its customers
is based on prevailing hourly rates of pay. Contracts
generally do not obligate the customer to pay for any fixed number of hours.
Both the customer and the segment have the right to terminate
the contract, usually on short notice. Similarly, Technical Services maintains
the right to terminate employees at will. Some customer contracts contain
limitations on the maximum cost to the customer expressed either in a dollar
amount or a maximum number of worker hours to be provided.
Technical Services operates through a network of approximately 179 sales
and recruiting offices and in-house facilities located in major
markets throughout the United States (160 offices) and in Canada (6 offices) and
the United Kingdom (13 offices).
Marketing activities are conducted by divisional and regional management to
ascertain opportunities for Technical Services in specific geographic loca-
tions. Each office assists in identifying the potential markets for services
in its geographic area, and develops that market through personal contact with
prospective and existing customers. Additionally, Technical Services' operating
management stays abreast of emerging demand for services so that efforts can be
expanded or redirected to take advantage of potential business either in
established or new marketing areas.
Customers typically invite several companies to bid for contracts, which
are awarded primarily on the basis of price, value added services and prior
performance. Many times customers grant multi-vendor contracts.
Industry analysts estimate the market for the Technical/ Information
Technology sector of the staffing industry to be approximately $18 billion. The
Company's Technical Services and
8
Information Technology Services segments operate in this sector of
the staffing industry. The Registrant believes that it is one of the largest
companies providing technical services in this sector of the market, but that
neither it nor any small group of companies is dominant. Competition in the
industry is intense from national, regional and local companies, some of which
serve only selected markets.
MANAGEMENT RECRUITERS
The Registrant's Management Recruiters operating segment recruits
executive, management, professional, technical, sales and clerical personnel for
permanent employment positions. Candidates are recruited for many different
capacities including accounting, finance, administrative, information
technology, engineering, managerial, personnel, production, research and
development, sales, supervision and technical.
Fees for placement services paid by the employers are generally a
percentage of the annual compensation to be paid to the new employee. Fees are
paid on a retainer basis or after a qualified candidate has been hired and
remains employed for a trial period, generally 30 days. On large, multiple
placement projects, Management Recruiters is engaged on a retainer basis for up
to a year in duration.
Management Recruiters also provides professional, executive, middle
management and clerical personnel on a temporary basis, at times with the
objective of permanently placing such personnel with the customer-employer.
Management Recruiters employs these temporary personnel.
As of December 31, 1998 Management Recruiters had 733 franchised offices
and 46 company-owned offices providing services to both large and small
employers in virtually all industries. The broad geographic scope of operations
enables franchisees and company-owned offices to provide nationwide recruiting
and matching of employers with job candidates. The network utilizes an inter-
office referral system on both national and regional levels which enables
offices to cooperate
in fulfilling a customer's requirements.
Franchisees pay an initial fee approximating $60,000 to acquire a
franchise. The fee is designed to cover the cost of establishing and bringing a
new franchise into the system. Franchisees also pay ongoing
royalties based on a percentage of the franchisee's placement fees. Franchisees
benefit from Management Recruiters' expertise in the business, and from its
national marketing, public relations and advertising campaigns. Further, they
receive extensive pre-opening training and start-up assistance on site.
Franchisees also have the right to use Management Recruiters' trade names,
trademarks, the
inter-office referral system, operating techniques, advertising materials, sales
programs, video and live interactive training programs, computer programs,
intranet system, manuals and forms.
9
A large number of companies are engaged in the recruitment business and
Management Recruiters encounters competition from many
of these. Employers commonly offer to more than one company the
opportunity to find qualified candidates for a position making competition for
qualified individuals intense. Management Recruiters'
ability to obtain placements with employers is determined more on its ability to
find qualified candidates than on its fee structure.
TODAYS STAFFING
The Registrant's Todays Staffing operating segment provides clerical,
secretarial, office support, legal, financial and a small number of semi-skilled
light industrial personnel to customers on a temporary basis. Direct hire
services are offered in the professional segment of legal and financial. The
segment recruits and hires the personnel and provides these personnel to the
customer on a contract or project basis. In managed staffing, the segment not
only provides the personnel but also manages the customer's entire contract
staffing needs.
Customers retain Todays Staffing to meet peak period manpower needs, to
temporarily replace employees on vacation and to staff special projects. During
the year ended December 31, 1998, these services were provided to over 10,000
customers.
Services are performed in customers' facilities by Todays Staffing
employees who are hired to work on customers' projects. The period of
assignment depends upon the duration of the need for the skills possessed by an
individual employee. At the end of an assignment, an employee is either
reassigned within the current customer, is assigned to perform services with
another customer, or employment is terminated. Todays Staffing personnel are on
Todays Staffing payroll and are subject to its administrative control. The
customer retains supervisory control and responsibility for the performance of
the employee's services. The ability of Todays Staffing to locate and hire
personnel with capabilities required by customers is critical to its opera-
tions.
Pricing is based on prevailing hourly rates of pay, and arrange-ments with
the customer generally do not obligate the customer to pay for any fixed number
of hours. Both the customer and the segment have the right to terminate
services, usually on short notice. Similarly, Todays Staffing maintains the
right to terminate employees at will.
Todays Staffing operates through a network of approximately
126 sales and recruiting offices, 16 of which are franchised,
situated in the United States (114 offices) and Canada (12 offices). Each
office is responsible for determining the potential market for services in its
geographic area and developing that market through personal contact with
prospective and existing customers.
10
Revenues from both company and franchised offices are reflected
in the segment's revenues. Todays Staffing employs all of the
temporary personnel, including those recruited by the franchised
offices, and also bears the responsibility for billing services to
customers and for collection of billings. Franchisees are responsible
for selling services to customers, recruiting temporary personnel and
for administrative costs. Franchisees are paid by Todays Staffing
a portion of the gross profit on their accounts.
The segment competes with large national companies and many smaller
companies in regional and local markets. The market for the Todays Staffing
segment is estimated by industry analysts to be approximately $17 billion.
EMPLOYEES
At December 31, 1998 the Registrant had approximately 31,000 employees.
The Registrant believes that its relations with its employees are generally
good.
Item 2. PROPERTIES.
The Information Technology Services operating segment has approximately 44
facilities throughout the United States, occupying a total of approximately
150,000 square feet of space. Most of the space is devoted to sales, marketing
and administrative functions, and a small portion is used for in-house
operations. The facilities are leased under terms generally extending up to
five years.
The Technical Services operating segment has approximately 179 facilities
throughout the United States (160 offices) and in Canada (6 offices) and
overseas (13 offices), occupying a total of approximately 900,000 square feet of
space. Approximately 300,000 square feet is devoted to in-house technical
services and the balance to sales, marketing and administrative functions. The
facilities are leased under terms generally extending up to five years.
The Management Recruiters operating segment occupies approximately 150,000
square feet of office space at 46 locations, primarily for its company-owned
permanent placement offices. These facilities are leased for varying terms, the
majority of which extend up to five years. Management Recruiters also had 733
franchised offices. Franchisees enter into their own leases for which the
segment assumes no obligation.
11
The Todays Staffing operating segment occupies approximately 200,000 square
feet of office space at approximately 110 locations for its company-owned
temporary services offices. These facilities are leased for varying terms
generally extending up to eight years. Todays Staffing also has 16 franchised
offices. Franchisees enter into their own leases for which the segment assumes
no obligation.
The Registrant's corporate headquarters are located in Philadelphia,
Pennsylvania where office space of approximately 50,000 square feet is leased.
Item 3. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Stock price and other information regarding the Registrant's common stock
is for the years ended December 31, 1998 and 1997. The Registrant's common
stock is traded on the New York Stock Exchange.
1998 1997
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High Low High Low
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First quarter 47-15/16 40-3/8 37-3/8 27-3/4
Second quarter 43-5/8 26-1/4 43-3/4 35
Third quarter 27-1/16 21-15/16 42-11/16 33-1/4
Fourth quarter 26-7/8 15 45-3/4 36-15/16
No cash dividends were declared during the years ended December 31, 1998
and 1997. The Company has no present intention of paying
cash dividends during the year ending December 31, 1999.
Shareholders of record on February 22, 1999 numbered 562. The
562 counts each street name account as one shareholder, when, in fact, such an
account may represent multiple owners. Taking into account such multiple
owners, the total number of shareholders approximated 6,000.
13
Item 6. SELECTED FINANCIAL DATA.
Following is Selected Financial Data for the years ended December 31, 1998,
1997, 1996, 1995 and 1994. The data presented is in thousands, except for per
share data.
1998 1997 1996 1995 1994
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Earnings Data
- -------------
Revenues $ 1,540,545 1,496,758 1,374,881 1,202,936 952,583
Earnings from
continuing
operations $ 44,239 46,934 42,470 31,185 17,570
Discontinued
operations 1,338 (9,322) (11,072) (26,046) 4,801
--------- --------- --------- --------- -------
Net earnings $ 45,577 37,612 31,398 5,139 22,371
========= ========= ========= ========= =======
Basic earnings per
share:
Earnings from
continuing
operations $ 2.25 2.36 2.14 1.58 .89
Discontinued
operations $ .07 (.47) (.56) (1.32) .24
Net earnings $ 2.32 1.89 1.58 .26 1.13
Diluted earnings
per share:
Earnings from
continuing
operations $ 2.25 2.36 2.14 1.57 .89
Discontinued
operations $ .07 (.47) (.56) (1.31) .24
Net earnings $ 2.32 1.89 1.58 .26 1.13
Cash dividends $ - - - - -
Balance Sheet Data
- ------------------
Total assets $ 435,814 348,837 340,174 323,563 278,969
Long-term debt $ 35,059 - 48,866 67,865 58,798
Shareholders' equity $ 241,089 215,792 176,932 145,369 138,877
14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of operations, year ended December 31, 1998 vs. year ended December 31,
1997
- ------------------------------------------------------------------
Consolidated revenues advanced 3% over the prior year. Results in 1997
included the operations of non-strategic businesses divested in the third
quarter of 1997. Excluding the revenues of the divested businesses in 1997,
which totaled $36 million, revenues in 1998 increased 5%. Operating profit
margin from continuing operations was 4.9% in 1998 compared to 5.3% in 1997.
Operating results of the non-strategic businesses did not have a material impact
on operating margin in 1997.
Technical Services' revenues, which in 1998 represented 58% of the
Company's consolidated revenues, decreased 3% from the prior year. Results in
1997 included the operations of non-strategic businesses divested in the third
quarter of 1997. Excluding the revenues of the divested businesses in 1997,
revenues in 1998 increased 1%. Technical Services' customer base consists
principally of large multi-national manufacturing companies in a variety of
industries including aircraft/ aerospace, automotive,
hydrocarbon/petrochemicals, construction, electronics, industrial equipment,
marine, telecommunications and pharmaceuticals. Beginning in late 1997 and
continuing throughout 1998, many of Technical Services' customers experienced
difficult business conditions due to factors ranging from turbulent
international market conditions to delayed new product introductions and
inventory imbalances. Demand from electronics and hydrocarbon/ petrochemical
customers in particular was down in 1998, offset by growth in automotive,
construction and industrial equipment.
Operating profit margins for Technical Services were 3.7% in 1998 compared
to 4.5% in 1997. Entering 1998, the Company's support structure related to
technical staffing reflected anticipated growth in demand for services in 1998.
When increased demand did not materialize in the first quarter, 1998, the
Company took steps to realign the technical staffing support structure. These
steps included downsizing the Technical Services overhead structure. In the
second quarter of 1998, Technical Services' operating profit included
reorganization costs and other non-recurring charges of $2.3 million. Of the
total $2.3 million, reorganization costs were $1.4 million and were associated
with realigning and downsizing the Technical Services support structure. The
reorganization costs included separation costs of $500,000 for personnel
reductions and $900,000 for the disposition of leasehold obligations for real
estate no longer needed in the engineering business. The remaining $900,000 in
non-recurring charges related to healthcare costs associated with a self-insured
medical program, which has been replaced with an indemnity program, and vacation
pay costs resulting from the implementation of a new compensation program.
Substantially all of the reorganization and
15
non-recurring costs were paid during 1998. Technical Services operating profit
in 1997 included a net gain of $2.1 million from the divestiture of non-
strategic businesses in the third quarter, 1997.
Information Technology Services segment revenue, which represented 21% of
the Company's consolidated revenues, grew 12% over the prior year. Prior to
1998, the Company's Information Technology Services business was operationally
integrated with, and served the same customer base as Technical Services. While
continuing to grow, the Information Technology Services growth rate slowed in
1998 as its manufacturing-oriented customer base experienced a slow-down in
business during the year. To facilitate development of a distinct business
strategy and to better serve its customers, during the second and third quarters
of 1998, the Company created a discrete operating unit for Information
Technology Services to focus on a more diverse customer base to include new IT-
intensive industries and to increase sales of its value-added project and
functional outsourcing.
Operating profit margins for Information Technology Services were 6.6% in
1998 compared to 7.5% in 1997. Entering 1998, the Company's support structure
related to information technology staffing reflected anticipated growth in
demand for services in 1998. Revenue growth in 1998 did not keep pace with the
additional support cost structure resulting in a deterioration in operating
margin.
Each of the Technical Services segment's and Information Technology
Services segment's many contracts is individually price negotiated, and as a
result the price-to-direct cost mix is constantly changing. The cost structure
of both segments is generally variable. In periods of substantial increases in
revenues, operating profit margins can widen because the segments can take
advantage of certain economies of scale in the support cost structure.
Conversely, in periods of declining demand, operating results can deteriorate
quickly because realization of cost savings typically lags implementation of
downsizing and cost reduction programs.
Todays Staffing's revenues, which in 1998 represented 14% of the Company's
consolidated revenues, grew 10% over the prior year in response to continued
demand for office/clerical and professional temporary services. Operating
profit margins for Todays Staffing were 6.7% in 1998 compared to 5.8% in 1997.
The improvement in operating profit margin reflects a reduction in the
percentage of high volume, low margin managed staffing business, and an increase
in higher margin legal and financial staffing. The Todays Staffing segment is
not capital intensive.
Management Recruiters' revenues, which in 1998 represented 7% of the
Company's consolidated revenues, grew 20% over the prior year in response to
continued strong demand for middle management search and recruiting services.
Operating profit margins for Management Recruiters were 20.3% in 1998 compared
to 18.2% in 1997 reflecting
16
strong demand for search and recruiting services and performance improvements at
the company-owned operations. The segment is generally not price sensitive and
it is not capital intensive.
At the end of 1996, after investigating strategic alternatives for the
automotive developmental engineering division of a subsidiary, the Company
adopted a plan to dispose of that division. During 1997 the Company attempted
to sell this division but was unsuccessful due to deteriorating market
conditions. As a consequence, the Company undertook to liquidate the division
by winding down contracts with customers and disposing of assets.
In the fourth quarter, 1997, an addition to the loss reserve for
discontinued operations of $14 million ($9 million after taxes) was recorded.
This adjustment primarily reflected fully reserving a disputed receivable
related to a major automotive developmental engineering contract on which work
was terminated in late 1996. Additional reserves were also provided for
operating losses through the final wind-down of the business. Liquidation of
the division was substantially complete at the end of 1998.
In the fourth quarter, 1998 a gain of $2 million ($1 million after taxes),
was recorded reflecting lower than anticipated costs related to the wind-down of
the discontinued operations and greater realization in disposal of assets than
expected. Negotiations to settle the disputed receivable that was fully
reserved in 1997 are ongoing and may result in some recovery.
Interest expense was $1.4 million in 1998 compared to $2.3 million in 1997
reflecting lower levels of debt outstanding.
Full year 1997 results reflect a credit of $2 million, recorded in the
third quarter, 1997, from the reduction of income tax reserves no longer
required.
During the year ended December 31, 1998 the Company made a number of
acquisitions in Technical Services, Todays Staffing and Management Recruiters in
which it invested $39,138,000. The acquisitions were accounted for using the
purchase method. Goodwill acquired amounted to $36,322,000 and is being
amortized on the straight-line method over fifteen and twenty years. These
acquisitions did not have a significant effect upon reported earnings for 1998.
Results of Operations, year ended December 31, 1997 vs. year ended December 31,
1996
- ------------------------------------------------------------------
Consolidated revenues increased 9% over the prior year. Operating profit
margin from continuing operations was 5.3% in 1997 compared to 5.4% in 1996.
17
Technical Services' revenues, which in 1997 represented 62% of
the Company's consolidated revenues, increased 1% from the prior year.
Technical Services' growth in project and managed staffing revenue during the
year was driven primarily by strength in the aircraft/ aerospace and electronics
markets offset by lower revenue from telecommunications. Technical Services
staffing revenue growth was offset by weakness in the Company's engineering
business, which was focused primarily on the petrochemical sector, and the
impact of the divestiture of non-strategic operations including the Company's
aircraft maintenance staffing business, wastewater treatment business
and the light industrial staffing operations of the Company's United Kingdom
based subsidiary. The annualized revenue from divested operations totaled $36
million.
Operating profit margins for Technical Services were 4.5% in 1997 compared
to 5.1% in 1996. The decline in operating margins primarily reflected weakness
in the Company's engineering business. Technical
Services' operating profit in 1997 included an approximately $2 million pre-tax
gain, recorded in the third quarter, from the divestiture of non-strategic
operations. The after tax impact on earnings from continuing operations of the
gain was approximately $300,000 and included a charge of approximately $600,000
for the minority interests' participation in the gain.
Information Technology Services segment revenue, which represented 19% of
the Company's consolidated revenues, grew 35% over the prior year in response to
continued strong demand for information technology professionals throughout
American business. Operating profit margins for Information Technology Services
were 7.5% in 1997 compared to 7.2% in 1996.
Todays Staffing revenues, which in 1997 represented 13% of consolidated
revenue, grew 17% over the prior year in response to strong demand for
office/clerical temporary services. As a result, operating profit margins for
Todays Staffing were 5.8% in 1997 compared to 5.2% in 1996.
Management Recruiters' revenues, which in 1997 represented 6% of
consolidated revenue, grew 18% over the prior year in response to strong demand
for middle management search and recruiting services. Operating profit
margins for Management Recruiters were 18.2% in 1997 compared to 13.9% in 1996
due to the strong demand for search and recruiting services and performance
improvements at the company-owned operations.
Fourth quarter 1996 discontinued operations included a reserve of $16
million ($11 million after taxes) for estimated losses on discontinuing the
automotive developmental engineering division and for estimated losses from
operations of that discontinued business.
Offsetting the fourth quarter 1996 reserve was a gain of $7 million ($5 million
after taxes) resulting from revisions of certain reserves set
18
aside at the end of 1995 for estimated losses associated with discontinuing the
automotive manufacturing technology division. In the fourth quarter 1997, an
addition to the loss reserve for discontinued operations of $14 million ($9
million after taxes) was recorded. This adjustment primarily resulted from an
additional reserve related to a major automotive developmental engineering
contract on which work was terminated in late 1996. Negotiations to settle this
project continued throughout 1997. The adjustment also included additional
reserves for operating losses through the final wind-down of the businesses.
Year 2000
---------
Many existing computer systems use two digits to identify a year with the
assumption that the first two digits of a year are "19." With the year 2000
approaching, computer systems that are not Year 2000 compliant will read the
year 2000 as 1900 and malfunction. The Company's program to assess the extent
of issues related to Year 2000 compliance and to develop and implement solutions
for those issues is being directed by senior management with the Company's Chief
Information Officer having primary responsibility for the coordination,
remediation and implementation efforts. Designated personnel at the Company's
headquarters and at each of the Company's operating locations have been assigned
Year 2000 compliance responsibilities.
The program is focused on internal information technology systems,
computer-aided design systems, non-IT systems (purchased systems with embedded
logic chips), facilities and the status of compliance by larger customers,
suppliers and other key third parties. The program involves the following
phases:
Inventory
Assessment and planning
Remediation or replacement and testing
Implementation
The internal IT systems compliance issues are most critical and relate to
the Company's financial systems, computer networks and communications systems
and personnel recruiting and human resource systems. Corporate level personnel
have responsibility to insure that these systems will be Year 2000 compliant as
well as determining the status of compliance by larger customers, suppliers and
other key third parties.
Year 2000 compliance related to internal financial systems is being
addressed in two ways. First, the Company is replacing its primary financial
system with a state-of-the-art integrated enterprise-wide system. The new
system will provide enhanced processing, control and reporting capabilities.
The new system will be Year 2000 compliant and is expected to be operational by
third quarter, 1999. Second, the existing primary system and other satellite
systems are being evaluated for Year 2000 compliance and required remediation,
testing and implementation are underway. These efforts are scheduled to be
concluded by mid-1999.
19
A Company-wide expansion and upgrade of its computer networks and
communications systems has been underway since mid-1997. The roll out and
implementation of the new platform, which is Year 2000 compliant, is scheduled
to be completed by the end of first quarter, 1999.
Personnel recruiting and human resource systems are being replaced by new
systems which were developed prior to the end of 1997. These new systems are
Year 2000 compliant and are in the process of being installed in the operating
locations. The roll-out is scheduled to be completed during the second quarter,
1999.
With respect to larger customers, suppliers and other key third parties,
questionnaire surveys have been distributed for use in assessing their state of
compliance in order to develop plans in case of non-compliance. Customers with
whom there is electronic interchange of data are of primary focus to ensure that
both the Company and those customers are Year 2000 compliant with the standards
established for such interchange.
The approximate status for each of these areas follows:
Remediation Implementation
Assessment or and
and replacement projected
Inventory planning and testing completion
------------- ------------- ------------- --------------
Financial Substantially Substantially Approximately
systems complete complete 67% complete Q3, 1999
Computer
networks
and
communi-
cations Substantially Substantially Approximately
systems complete complete 95% complete Q1, 1999
Personnel
recruit-
ing and
human
resource Substantially Substantially Substantially
systems complete complete complete Q2, 1999
Larger Substantially Approximately Not
customers complete 70% complete applicable Q2, 1999
Larger
suppliers
and Substantially Approximately Not
others complete 50% complete applicable Q2, 1999
20
The responsibility for identifying, assessing compliance issues and then
implementing solutions for computer-aided design systems,
non-IT systems, facilities and the status of compliance by local suppliers and
third parties rests primarily with each operating office. Solutions for Year
2000 issues related to computer-aided design systems, non-IT systems and
facilities will, of necessity, come from vendors and others providing the
related services. The Company,
however, needs to identify compliance issues and insure that remediation or
replacement is accomplished. With respect to local suppliers and third parties,
the Company has also distributed questionnaire surveys in order to assess their
state of compliance in order to develop plans in case of non-compliance. The
identification and assessment process is well underway with the expectation that
solutions will be in place by second quarter, 1999.
The cost of the Company's Year 2000 program is expected to be approximately
$2 million, all of which will be charged against operations. This amount does
not include costs associated with the new financial system or the new personnel
recruiting and human resource
systems described above. These systems already were scheduled for
implementation and their implementation was not accelerated because of Year 2000
issues. As of December 31, 1998 approximately $1.3 million has been spent on
the Year 2000 program, most of which relates to the remediation effort
associated with the existing financial systems.
Expenditures through December 31, 1998 on the new financial system and the new
personnel recruiting and human resource systems were $11.6 million. It is
anticipated that an additional $7 million will be invested in these new systems
during 1999.
The Company believes that its program to address Year 2000 compliance is on
schedule for completion before the end of 1999. However, there can be no
assurance that there will be no material impact as a result of Year 2000 issues,
particularly considering the dependence and interdependence that exists with
third parties and that resources for remediation and replacement may not be
available in the time frame required. Since the Company has a greater level of
control over implementing solutions to Year 2000 issues relating to its internal
systems, it is more likely that adverse impacts on the Company could originate
with third parties rather than with the Company's inability to have its internal
systems Year 2000 compliant. If issues related to internal systems or those
related to third parties are not resolved before the end of 1999, the
consequences to the Company would be material.
The Company will develop a most reasonably likely worst case Year 2000
scenario when additional information and insight is obtained, primarily from
third parties. The Company will determine the extent to which contingency plans
are required no later than mid-1999.
Inflation
- ---------
The Technical Services, Information Technology Services and Todays Staffing
segments' services are priced generally in close relationship
21
with direct labor costs. Management Recruiters' middle management
search services are priced as a function of salary levels of job candidates. In
recent years inflation has not been a meaningful factor.
Liquidity and Capital Resources
- -------------------------------
Expansions and contractions in the levels at which the Company's businesses
operate directly affect consolidated working capital, which
in turn has a direct relationship to total capital employed because of the high
concentration of total assets represented by current assets. Working capital,
associated with continuing operations, increased in 1998 because of an increase
in the collection cycle for accounts receivable and an increase in the levels of
business at which the Company was operating. This level of business activity
includes increased billings to customers for subcontract labor for which the
Company does not reflect revenues. However, such billings are included in
accounts receivable. The ratio of current assets to current liabilities was 2.3
to 1, 2.4 to 1, and 2.7 to 1 as of December 31 1998, 1997, and 1996,
respectively. The ratio of long-term debt to total capital (long-term debt plus
shareholders' equity) as of December 31, 1998 and 1996 was 13% and 22%,
respectively. The Company had no long-term debt as of December 31, 1997.
In August, 1998 the Company initiated a program to repurchase up to 5% of
its outstanding shares of common stock over a one-year period. Through December
31, 1998, 889,700 shares were purchased under the program. Aggregate cost for
the shares repurchased was $20,478,000.
The Company's main sources of liquidity have been from operations and from
borrowings, including a revolving credit agreement and short-term lines of
credit with banks. The revolving credit agreement provides for borrowings of up
to $100 million. Since the revolving credit agreement and short-term lines of
credit are all priced at floating rates of interest, the Company is subjected to
market risks
as interest rates change. Considering the most restrictive of the limitations
placed on bank borrowings by the agreements at December 31, 1998 the Company had
borrowing capacity under the revolving credit agreement of an additional $65
million. These sources have been adequate to support growth opportunities in
the Company's businesses.
The Company does not have any off-balance sheet financial instruments or
derivatives.
Current assets represent a high portion of consolidated total assets and
are an important source of liquidity. This source could be tapped voluntarily
by reducing the volume of business accepted, thereby
turning a portion of working capital into cash. Similarly, when the
Company's business levels contract, such as during periods of economic decline,
a portion of working capital is turned into cash. The Company believes that the
public and private debt and equity markets would be currently available as
sources of additional capital.
22
New Accounting Standards
- ------------------------
The Company has adopted Statement of Position 98-1, Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use. Cost capitalized
was approximately $11.6 million through December 31, 1998.
In June, 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities.
Statement No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities and is effective
for years beginning after June 15, 1999. The Company will determine the extent
to which Statement No. 133 applies and adopt the standards established as
required.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See discussion on Liquidity and Capital Resources in Item 7.
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, unforeseen events
associated with divestiture of discontinued operations and
delays or unexpected costs in making modifications to existing software and
converting to new software to resolve issues related to Year 2000
and failure of third parties to provide Year 2000 compliant products and
services. 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.
23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1998, 1997 and 1996
(In thousands, except per share data)
1998 1997 1996
--------- --------- ---------
Revenues $ 1,540,545 1,496,758 1,374,881
Cost of services 1,149,849 1,144,061 1,062,409
--------- --------- ---------
Gross profit 390,696 352,697 312,472
Operating and administrative costs 314,586 273,579 238,777
--------- --------- ---------
Operating profit 76,110 79,118 73,695
Interest expense 1,384 2,337 3,451
--------- --------- ---------
Earnings from continuing operations
before income taxes and minority
interests 74,726 76,781 70,244
Income taxes 29,470 28,652 27,607
--------- --------- ---------
Earnings from continuing operations
before minority interests 45,256 48,129 42,637
Minority interests 1,017 1,195 167
--------- --------- ---------
Earnings from continuing operations 44,239 46,934 42,470
Discontinued operations 1,338 (9,322) (11,072)
--------- --------- ---------
Net earnings $ 45,577 37,612 31,398
========= ========= =========
Basic earnings per share:
Earnings from continuing
operations $ 2.25 2.36 2.14
Discontinued operations $ .07 (.47) (.56)
Net earnings $ 2.32 1.89 1.58
Diluted earnings per share:
Earnings from continuing
operations $ 2.25 2.36 2.14
Discontinued operations $ .07 (.47) (.56)
Net earnings $ 2.32 1.89 1.58
See accompanying notes to financial statements.
24
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
------- ------- -------
Balance at beginning of year $ 200,281 162,669 131,271
Net earnings 45,577 37,612 31,398
------- ------- -------
Balance at end of year $ 245,858 200,281 162,669
======= ======= =======
See accompanying notes to financial statements.
25
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands, except share data)
Assets 1998 1997
- ------ ------- -------
Current assets:
Cash $ 6,962 6,998
Accounts receivable, less allowance for
doubtful accounts of $6,000-1998;
$4,995-1997 307,261 259,415
Prepaid expenses 7,156 3,980
Deferred income taxes 6,038 6,990
Net assets of discontinued operations 5,352 12,202
------- -------
Total current assets 332,769 289,585
Fixed assets, at cost:
Computers 55,156 41,963
Equipment and furniture 28,761 26,127
Leasehold improvements 8,421 8,015
------- -------
92,338 76,105
Accumulated depreciation 52,885 49,718
------- -------
Net fixed assets 39,453 26,387
Deferred income taxes 4,148 5,759
Goodwill and other intangible assets, net 48,844 16,220
Other assets 10,600 10,886
------- -------
$ 435,814 348,837
======= =======
26
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands, except share data)
Liabilities and Shareholders' Equity 1998 1997
- ------------------------------------ ------- -------
Current liabilities:
Obligations not liquidated because of
outstanding checks $ 21,428 13,139
Accounts payable 34,978 25,127
Withheld payroll taxes 3,734 5,256
Accrued compensation and related costs 52,931 52,650
Other accrued expenses 27,187 18,933
Currently payable income taxes 5,346 6,203
------- -------
Total current liabilities 145,604 121,308
Long-term debt 35,059 -
Deferred compensation 11,258 10,127
Minority interests 2,804 1,610
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 19,951,300 shares - 1998;
19,950,800 shares - 1997 1,995 1,995
Class B common stock, $.10 par value -
authorized 3,174,891 shares; none issued - -
Additional paid-in capital 15,534 16,014
Retained earnings 245,858 200,281
Unamortized value of restricted stock issued (1,117) (1,819)
Less common stock in treasury, at cost -
917,458 shares - 1998; 27,265 shares - 1997 (21,181) (679)
------- -------
Total shareholders' equity 241,089 215,792
------- -------
$ 435,814 348,837
======= =======
See accompanying notes to financial statements.
27
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
------ ------ ------
Continuing Operations
Operating activities:
Earnings from continuing operations $ 44,239 46,934 42,470
Minority interests 1,017 1,195 167
Depreciation 12,242 10,427 9,198
Amortization of intangible assets 2,237 1,706 1,969
Gain on dispositions of businesses - (938) -
Income tax provision greater (less)
than tax payments 1,617 (2,042) (12,778)
Change in assets and liabilities
net of effects from acquisitions:
(Increase) in accounts receivable (40,874) (29,223) (21,060)
Increase in payables and accrued
expenses 12,218 9,568 19,206
Other (1,325) (2,216) 48
------ ------ ------
31,371 35,411 39,220
------ ------ ------
Investing activities:
Purchases of fixed assets (23,099) (11,932) (13,545)
Acquisitions net of cash acquired (39,138) (3,270) (2,765)
Dispositions of businesses - 6,034 -
Other 389 532 471
------ ------ ------
(61,848) (8,636) (15,839)
------ ------ ------
Financing activities:
Borrowings long-term debt 46,006 10,724 12,498
Payments long-term debt (11,580) (59,590) (31,497)
Obligations not liquidated
because of outstanding checks 8,289 6,305 (2,810)
Share repurchase program (20,478) - -
Other 16 985 165
------ ------ ------
22,253 (41,576) (21,644)
------ ------ ------
Net cash flows from continuing
operations (8,224) (14,801) 1,737
Net cash flows from discontinued
operations 8,188 15,733 (166)
------ ------ ------
Increase (decrease) in cash (36) 932 1,571
Cash at beginning of year 6,998 6,066 4,495
------ ------ ------
Cash at end of year $ 6,962 6,998 6,066
====== ====== ======
See accompanying notes to financial statements.
28
CDI CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Significant Accounting Policies
- -------------------------------
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries after elimination of
intercompany balances and transactions.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fixed Assets - Depreciation of fixed assets is provided generally on the
straight-line method at rates calculated to provide for retirement of assets at
the end of their estimated useful lives. The annual rates generally are 14% to
25% for computers, 10% to 25% for equipment and furniture and the lesser of the
life of the lease or asset for leasehold improvements.
Goodwill and Other Intangible Assets - The net assets of businesses acquired,
which were accounted for as purchases, have been reflected at their fair values
at dates of acquisition. The excess of acquisition costs over such net assets
is reflected in the consolidated balance
sheets as goodwill - $47,661,000 at December 31, 1998 and $13,007,000 at
December 31, 1997. Goodwill is being amortized on the straight-line method
generally over fifteen and twenty years. Amortization of goodwill in 1998 and
1997 was $1,669,000 and $1,128,000, respectively. Accumulated amortization was
$6,563,000 as of December 31, 1998 and $4,895,000 as of December 31, 1997.
Other intangible assets include agreements with individuals not to enter into
competing businesses with the Company, the value for an established customer
base and the value for acquired temporary services franchise arrangements.
Other intangible assets, net of amortization, of $1,183,000 and $3,213,000 at
December 31, 1998 and 1997, respectively, are being amortized on the straight-
line method over five to twelve years. Amortization of other intangible assets
in 1998 and 1997 was $568,000 and $578,000, respectively. Accumulated
amortization was $4,354,000 as of December 31, 1998 and $3,786,000 as of
December 31, 1997.
Long-Lived Assets, Goodwill and Other Intangible Assets - The Company reviews
long-lived assets, goodwill and other identifiable intangibles to be held, used
or disposed of for impairment based on the
29
undiscounted cash flows from the related assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Stock-Based Compensation - The Company uses the intrinsic value based method of
accounting for stock options and similar instruments granted to employees and
directors. The Company has not adopted the fair value based method as
encouraged by Statement No. 123, Accounting for Stock-Based Compensation, issued
by the Financial Accounting Standards Board. If the fair value based method of
accounting were applied to grants of stock options additional compensation cost
would have been recorded. Giving effect to such additional cost in 1998, 1997
and 1996, pro forma earnings from continuing operations would have been
$42,921,000, $46,211,000, and $42,330,000, respectively and pro forma diluted
earnings per share from continuing operations would have been $2.18,
$2.32, and $2.13, respectively. The pro forma effects on basic earnings per
share from continuing operations would be similar.
In estimating the fair value of stock option grants in 1998, 1997 and 1996, the
Black-Scholes option pricing model was used incorporating the following
weighted-average assumptions: 1998-risk free interest rate of
4.65%; expected life of 9 years; and expected volatility of 40%; 1997-risk free
interest rate of 6.52%; expected life of 7 years; and expected volatility of
44%; 1996-risk free interest rate of 6.26%; expected life of 4 years; and
expected volatility of 45%. There was no expected dividend yield assumed in any
of the years.
Pro forma earnings from continuing operations presented above only considers the
impact of stock options granted in 1998, 1997, 1996 and 1995. The full impact
of compensation cost for those stock options under Statement 123 is not
reflected in the pro forma earnings because compensation cost is recognized over
the vesting periods of the options. Furthermore, compensation cost for options
granted prior to January 1, 1995 is not considered.
Income Taxes - The Company and its wholly-owned U.S. subsidiaries file a
consolidated federal income tax return. Deferred income taxes are recorded for
taxes estimated to be payable in future years based upon
differences between the financial reporting and tax bases of assets and
liabilities and for operating loss carryforwards. Deferred tax assets
and liabilities are determined using enacted tax rates expected to apply to
taxable income in the years the temporary differences are expected to be
recovered or settled.
Fair Value of Financial Instruments - The carrying value of significant
financial instruments approximates fair value. The Company's financial
instruments are accounts receivable, accounts payable, accrued expenses and
long-term debt. The Company does not have any off-balance sheet financial
instruments or derivatives.
30
Per Share Data - Earnings used to calculate both basic and diluted earnings per
share for all periods are the reported earnings in the Company's consolidated
statement of earnings. Because of the Company's capital structure, all reported
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 1998, 1997 and 1996 was determined as follows:
1998 1997 1996
---------- ---------- ----------
Basic
Average shares outstanding 19,689,349 19,904,888 19,825,900
Restricted shares issued
not vested (45,937) (50,900) -
---------- ---------- ----------
19,643,412 19,853,988 19,825,900
Diluted
Shares used for basic 19,643,412 19,853,988 19,825,900
Dilutive effect of stock
options 38,601 71,672 46,505
Dilutive effect of
restricted shares issued
not vested 1,400 3,581 -
---------- ---------- ----------
19,683,413 19,929,241 19,872,405
Comprehensive Income - The Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income, which requires that all items to be
recognized under accounting standards as components of comprehensive income be
reported in a separate financial statement. The component of comprehensive
income that applies to the Company for 1998, 1997 and 1996 is earnings as
reported in the consolidated statement of earnings. Accordingly, a separate
financial statement reflecting comprehensive income is not necessary.
Acquisitions
- ------------
During the year ended December 31, 1998 the Company made a number of
acquisitions in Technical Services, Todays Staffing and Management Recruiters.
Investments in the businesses acquired totalled $39,138,000. The acquisitions
were accounted for using the purchase method. Assets (including goodwill of
$36,322,000) of $45,011,000 were acquired along with liabilities of $5,696,000
and minority interests of $177,000. Goodwill is being amortized on the
straight-line method over fifteen and twenty years. The consolidated statements
of earnings include the results of operations for the acquired businesses from
their dates of acquisition. The acquisitions did not have a significant effect
upon reported earnings for the year ended December
31, 1998 and earnings for 1998 would not have been significantly different from
reported earnings had the acquisitions occurred January 1, 1998.
31
Spending on acquisitions during the years ended December 31, 1997 and 1996
was not significant.
Accounts Receivable
- -------------------
The Company's principal asset is accounts receivable. Receivables arise
from services provided pursuant to contracts or agreements with customers for
such services. Historically, losses due to customers' inability to comply with
the payment terms of their contracts or agreements with the Company have not
been significant. The primary users of the Company's services are large U.S.
based industrial and commercial concerns, many of which are Fortune 500
companies.
Accounts receivable as of December 31, 1998 for Information Technology
Services, Technical Services, Management Recruiters and Todays Staffing were
$86,308,000, $182,098,000, $12,263,000 and $26,592,000, respectively, and as of
December 31, 1997 were
$67,145,000, $154,624,000, $11,621,000 and $26,025,000, respectively.
As of December 31, 1998 receivables from customers in the electronics/
information processing industries comprised approximately 25% of
consolidated receivables, and receivables from customers in the
aircraft/aerospace industries comprised approximately 15% of consolidated
receivables. As of December 31, 1997 receivables from customers in the
electronics/information processing industries comprised approximately 25% of
consolidated receivables, and receivables from customers in the
aircraft/aerospace and hydrocarbon/ petrochemical industries each comprised
approximately 15% of consolidated receivables. It is not Company or industry
practice to require collateral or other security for receivables because of the
nature of the customer base involved.
Long-term Debt
- --------------
Long-term debt at December 31, 1998 and 1997 was as follows ($000s):
1998 1997
------ ------
Notes payable to banks under revolving
credit agreement with interest at 6% $ 20,000 -
Notes payable to banks under short-term
lines of credit with interest at 6-1/16% 14,000 -
Other 1,059 -
------ ------
$ 35,059 -
====== ======
A revolving credit agreement with a syndicate of banks provides for
borrowings up to $100 million through March 31, 2000. Borrowings outstanding on
March 31, 2000 may be converted into term debt which would mature in quarterly
installments payable over four years.
There is an annual facility fee equal to 3/10% of the banks'
commitments. Interest rate alternatives are available whereby the
32
Company can elect to have interest be at either (i) rates quoted
competitively by the syndicate banks on a transactional basis with borrowings
awarded to the lowest bidder(s), (ii) rates quoted on the Interbank Eurodollar
Market ("LIBOR") (adjusted for reserve require-ments) plus a LIBOR margin that
can range from 1/2% to 1-1/2% depending upon the ratio of all of the Company's
borrowings to its cash flow, or (iii) rates determined by the greater of either
(a) the prime rate or
(b) the overnight Federal Funds rate plus 1/2%. The ratio for the LIBOR margin
is determined each quarter using borrowings outstanding at the end of the
quarter and cash flow for the four quarters then ended.
The resulting ratio is used to determine the applicable LIBOR margin for the
ensuing quarter.
Uncommitted short-term lines of credit with four banks are also available
under which interest rates are quoted on a transactional basis and are related
to the banks' costs of funds.
All borrowings at December 31, 1998 are classified long-term because the
Company intends to finance maturities as they become due with borrowings under
the revolving credit agreement. As of December 31, 1998 long-term debt of
$6,571,000 will mature in 2000 with $8,761,000 maturing in 2001, $8,761,000
maturing in 2002 and $8,760,000 maturing in 2003.
The revolving credit agreement requires that a consolidated current ratio
of at least 1.5 be maintained. In addition, the ratio of consolidated
indebtedness to EBITDA shall not exceed 2.5 and the ratio of EBIT to interest
expense shall not be less than 2.5. EBIT is earnings from continuing operations
before minority interests, income taxes and interest expense. EBITDA is EBIT
plus depreciation and amortization. The Company was in compliance with the
terms of the revolving credit agreement through December 31, 1998.
Capital Stock
- -------------
Common stock and Class B common stock have equal rights except that
dividends, other than stock dividends, may be declared and paid on common stock
in excess of amounts declared and paid on Class B common stock. The Class B
common stock is convertible on a share-for-share basis into common stock and
Class B shares so converted shall be cancelled.
At December 31, 1998, 1,428,333 shares of common stock were reserved for
issuance under the Non-Qualified Stock Option and Stock Appreciation Rights Plan
and the CDI Corp. 1998 Non-Qualified Stock Option Plan.
During the year ended December 31, 1998 there were 500 shares of common
stock issued upon the exercise of a stock option granted under the Company's
Non-Qualified Stock Option and Stock Appreciation Rights Plan. As a result of
the option exercise, additional paid-in capital was increased by $14,000.
33
During the year ended December 31, 1998, 6,884 shares of restricted common
stock issued in 1997 vested and 531 shares related to performance-based vesting
did not vest and were forfeited. The vesting of the shares resulted in
additional paid-in capital increasing by $2,000 because of income tax benefits
related to the vesting. The forfeited shares were put in treasury increasing
treasury stock by $25,000 and decreasing unamortized value of restricted stock
issued by the same amount. Also during the year ended December 31, 1998,
additional paid-in capital and unamortized value of restricted stock issued were
each decreased by $495,000 for market price changes related to the shares that
will vest based upon performance. In addition,
unamortized value of restricted stock issued was decreased by $182,000 for
charges to earnings associated with the amortization of the value of the
restricted shares.
In August, 1998 the Company initiated a program to repurchase up to 5% of
its outstanding shares of common stock over a one-year period. Through December
31, 1998, 889,700 shares were purchased under the program. These shares were
placed in treasury and increased treasury stock by $20,478,000.
Also during 1998, 38 shares of common stock held in treasury were
reissued. These shares had a cost of $1,000 and their reissuance reduced
additional paid-in capital and treasury stock by that amount.
During the year ended December 31, 1997 there were 45,917 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
certain of the option shares, optionees surrendered 2,544 shares of common stock
already owned which the Company placed in treasury stock. As a result of the
option exercises, common stock was increased by $5,000, additional paid-in
capital was increased by $1,076,000 and treasury stock was increased by
$96,000.
During the year ended December 31, 1997, there were 50,900 shares of
restricted common stock issued to officers of the Company under their employment
agreements. Of these shares, 28,450 shares will vest over periods of time
ranging from three years to ten years. The remaining 22,450 shares will vest
depending upon the percentage
achievement of predetermined goals covering periods of time ranging from three
years to five years. Shares which do not vest are forfeited.
The 28,450 shares that will vest over time have a fixed value of
$1,050,000, the market value of the shares when issued. The value for
the 22,450 shares that will vest based upon performance will fluctuate with
changes in their market value until there is a determination as to their
vesting. As of December 31, 1997, these performance-based shares were valued at
$1,027,000. Of the total value of $2,077,000 ascribed to these restricted
shares as of December 31, 1997, $5,000 increased common stock and $2,072,000
increased additional paid-in capital.
34
Over the periods of time that these shares may become vested, there will be
charges to earnings for the value related to the aggregate number of these
shares that become vested. As such earnings charges occur, unamortized value of
restricted stock issued reflected in shareholders' equity will be reduced.
During 1997, $258,000 was charged to earnings. To the extent that shares are
forfeited, unamortized value of restricted stock issued will also be reduced and
the forfeited shares will be placed in treasury stock.
During 1997, 200 shares of common stock held in treasury were reissued.
These shares had a cost of $5,000.
During the year ended December 31, 1996, 8,500 shares of common stock were
issued pursuant to the exercises of stock options under the
Company's Non-Qualified Stock Option and Stock Appreciation Rights Plan. The
issuance of these shares increased additional paid-in
capital by $165,000. In addition, 134 shares of common stock held in treasury
were reissued. These shares had a cost of $2,000 and their reissuance reduced
additional paid-in capital by that amount.
Stock Plans
- -----------
During 1998 the Company adopted the CDI Corp. 1998 Non-Qualified Stock
Option Plan ("1998 Plan") as a replacement for the Non-Qualified Stock Option
and Stock Appreciation Rights Plan ("Old Plan"). All options granted during
1998 were granted under the 1998 Plan. Options outstanding under the Old Plan
were granted through December 31, 1997. There are no stock appreciation rights
that have been outstanding under the Old Plan. No options or stock appreciation
rights may be granted under the Old Plan in the future. There are 1,428,333
shares of common stock that may be purchased under both plans as of December 31,
1998.
Non-qualified stock options under the 1998 Plan may be granted to
employees, directors and consultants. Grants under the 1998 Plan, except for
grants to certain non-employee directors whose retainer fees are in part paid
via stock options, are determined by the Compensation and Stock Option Committee
appointed by the Board of Directors. The price at which options are to be
exercised may not be less than 100% of the fair market value per share of the
Company's common stock on the date of grant and, unless otherwise determined by
the Committee, options granted under the 1998 Plan will expire in ten years from
the date of grant.
Under the terms of the Old Plan, non-qualified stock options and stock
appreciation rights could be granted separately or in tandem to salaried
employees, directors and consultants. Grants under the plan, except for grants
to certain non-employee directors whose retainer fees were in part paid via
stock options, were determined by the Compensation and Stock Option Committee
appointed by the Board of Directors. The price at which options or stock
appreciation rights may
be exercised were not to be less than 50% of the market value per share
35
of the Company's common stock on the date of grant and, unless otherwise
determined by the Committee, options or rights granted under the plan were not
to be exercised after five years from date of grant.
During the years ended December 31, 1998, 1997 and 1996, options were
granted under both plans to purchase 284,314 shares, 422,700 shares and 40,000
shares, respectively, at weighted average option prices per share of $32.51,
$35.69 and $28.56, respectively. All such options granted have option prices
equal to the per share market price of the Company's common stock on the dates
of grant. Therefore, no compensation cost was recognized for any of these
options granted. No stock appreciation rights were granted during any of these
years.
During the years ended December 31, 1998, 1997 and 1996, stock options were
exercised under both plans for 500 shares, 45,917 shares and 8,500 shares,
respectively, at weighted average option prices per share of $16.88, $13.08 and
$14.85, respectively. No stock appreciation rights were exercised during the
years ended December 31, 1998, 1997 and 1996.
During the years ended December 31, 1998, 1997 and 1996, stock options
lapsed or were forfeited under both plans for 9,253 shares, 20,333 shares and
6,750 shares, respectively, which had weighted average option prices per share
of $36.66, $25.67 and $17.73, respectively.
At December 31, 1998, 1997, 1996 and 1995 options were outstanding to
purchase 809,961, 535,400, 178,950 and 154,200 shares of common
stock, respectively, at weighted average prices of $32.18, $32.10, $17.83 and
$14.88 per share, respectively. Options to purchase 139,020 shares, 73,010
shares and 67,200 shares were exercisable at December 31, 1998, 1997 and 1996,
respectively, at weighted average prices of
$27.16, $21.14 and $17.17, respectively. No stock appreciation rights were
outstanding as of December 31, 1998, 1997, 1996 and 1995.
For options outstanding on December 31, 1998 option prices ranged from
$13.00 per share to $46.31 per share and the weighted average remaining life for
such options as of December 31, 1998 was approximately 6.7 years.
Under the terms of a Management Stock Purchase Plan ("MSPP") adopted in
1998 designated employees have the opportunity to purchase the Company's common
stock on a pre-tax basis. Participants use a
portion of their annual bonus awards to purchase MSPP units. Certain
senior management personnel are required to participate and have 25% of their
annual bonus awards used to purchase MSPP units. Participants who participate
voluntarily may have up to 25% of their annual bonus awards used to purchase
MSPP units. Senior management personnel required to participate may also
voluntarily have up to an additional 25% of their annual bonus awards also
used to purchase MSPP units.
36
The number of MSPP units credited to a participant is determined by
dividing the amount of the annual bonus used to purchase MSPP units by the fair
market value of a share of the Company's common stock on the date that the
participants account is credited with the MSPP units. The Company also makes a
matching contribution of one MSPP unit for every three MSPP units purchased by a
participant on a voluntary basis.
Each MSPP unit represents the participant's right to receive one share of
the Company's common stock upon the satisfaction of the vesting period
applicable to the MSPP unit. Vesting takes place over a period of three to ten
years as chosen by the participant. If a participant's employment terminates
for any reason after three years from the start of a vesting period (regardless
of the vesting period chosen), the participant will receive shares of the
Company's common stock for all the MSPP units credited to his account pertaining
to the vesting period. If employment terminates within the first three years of
a vesting period, the participant, under certain circumstances, may receive cash
in lieu of shares of the Company's common stock in an amount that does not take
into account any appreciation in the value of such shares.
There are 20,479 MSPP units outstanding (including Company matching units)
that relate to bonus awards earned for the year ended December 31, 1998. These
MSPP units were determined using a market price of $22.56 per share.
Compensation cost of $375,000 was recognized during 1998 related to this plan.
Under the terms of a Performance Shares Plan adopted in 1998 members of the
Company's senior management designated by the Compensation and Stock Option
Committee of the Board of Directors are eligible to receive shares of the
Company's common stock at the expiration of a performance period if specified
performance goals have been achieved during the period. The Committee will
determine the performance goals, length of performance periods and the frequency
of awards. Initially awards will be made every two years and performance
periods applicable to each award will be three years in length. Awards made in
1998 were for 20,200 shares. The performance goal applicable to these awards is
based on the price of the Company's common stock and requires that the Company's
stock price outperform the Standard and Poor's 500 Index by two percentage
points over the three-year performance period on a compound annual growth rate
in order for the participants to receive any shares under the plan. If actual
performance during the performance period exceeds the performance goal by up to
an additional two percentage points, the number of shares of
stock to be issued will increase proportionately by up to an additional
fifty percent. The Company's stock performance during 1998 was less than that
of the Standard and Poor's 500 Index and, accordingly, no cost was reflected for
this plan in 1998.
37
Income Taxes
- ------------
The provision for income taxes relating to continuing operations for the
years ended December 31, 1998, 1997 and 1996 was comprised of the following
($000s):
Total Federal State Foreign
------- ------- ------ -------
1998
- ----
Current $ 26,542 20,957 3,591 1,994
Deferred 2,928 2,507 486 (65)
------ ------ ----- -----
$ 29,470 23,464 4,077 1,929
====== ====== ===== =====
1997
- ----
Current $ 30,062 23,986 4,066 2,010
Deferred (1,410) (1,258) (219) 67
------ ------ ----- -----
$ 28,652 22,728 3,847 2,077
====== ====== ===== =====
1996
- ----
Current $ 26,033 22,760 2,873 400
Deferred 1,574 1,124 535 (85)
------ ------ ----- -----
$ 27,607 23,884 3,408 315
====== ====== ===== =====
The tax effects of the principal components creating net deferred income
tax assets as of December 31, 1998 and 1997 were as follows ($000s):
1998 1997
------ ------
Components creating deferred tax liabilities
Deferral of revenues and accounts receivable $ 8,746 6,951
Basis differences for fixed assets 1,994 -
Other 1,560 1,155
------ ------
12,300 8,106
Components creating deferred tax assets
Expenses not currently deductible (20,585) (18,787)
Intangible assets amortization (1,617) (1,640)
Other (65) (432)
Operating loss carryforwards (257) -
------ ------
(22,524) (20,859)
Valuation allowances 38 4
------ ------
$(10,186) (12,749)
====== ======
38
The net change in the valuation allowance for the year ended December 31,
1998 was an increase of $34,000 and for the year ended December 31, 1997 was a
decrease of $86,000. In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some portion or all of
the benefits of the deferred tax assets will not be achieved. The ultimate
realization of deferred tax assets is dependent upon a number of things,
including past and future taxable income. Based upon the assessment of the
prospects for achieving the benefits of the deferred tax assets, net of existing
valuation allowances, the Company believes it is more likely than not that such
benefits will be realized.
The effective income tax rates relating to continuing operations for the
years ended December 31, 1998, 1997 and 1996 differed from the applicable
federal rate as follows:
1998 1997 1996
---- ---- ----
Federal rate 35% 35% 35%
State income taxes 4% 3% 3%
Expenses permanently nondeductible
for tax purposes 1% 1% 1%
Income tax reserve no longer required - (3%) -
Other (1%) 1% -
--- --- ---
Effective income tax rate 39% 37% 39%
=== === ===
Certain subsidiaries have operating loss carryforwards for tax purposes the
realization of which is dependent upon the respective subsidiaries having
sufficient taxable income in future years to use the carryforwards. At December
31, 1998 for federal income tax purposes, these carryforwards aggregated
approximately $400,000 and expire in varying amounts from 2002 through 2009.
The tax benefits of these carryforwards reduce goodwill and have been recognized
for financial reporting purposes.
At December 31, 1998 for state income tax purposes, there were operating
loss carryforwards aggregating approximately $1,400,000 expiring in varying
amounts from 1999 through 2013. Benefits relating to approximately $300,000
have been recognized for financial reporting purposes. Benefits relating to
approximately $700,000 of these carry-forwards reduce goodwill and have been
recognized for financial reporting purposes. Benefits for the remaining
$400,000 have not been recognized and are included in the valuation allowances
as of December 31, 1998.
Retirement Plans
- ----------------
Trusteed contributory and non-contributory defined contribution retirement
plans have been established for the benefit of eligible
39
employees. Costs of the plans are charged to earnings and are based
on either a formula using a percentage of compensation or an amount determined
by the board of directors of a company. Costs of the plans that are qualified
for income tax purposes are funded. Costs of plans that are not qualified are
not funded. Charges to earnings for these retirement plans for the years ended
December 31, 1998, 1997 and 1996 were $5,003,000, $3,718,000 and $2,859,000,
respectively.
Except for retirement plans, the Company provides no other postretirement
benefits. Further, the Company does not provide postemployment benefits.
Leases
- ------
Offices used for sales, recruiting and administrative functions and
facilities used for in-house engineering, design and drafting are occupied under
numerous leases which expire through 2011. In addition, there are leases for
computers and office equipment. Rentals under all leases for the years ended
December 31, 1998, 1997 and 1996 were $20,703,000, $21,650,000 and $15,087,000,
respectively.
For periods after December 31, 1998, approximate minimum annual rentals
under non-cancelable leases aggregate $46,377,000 with rentals of $14,389,000
due in 1999, $10,749,000 due in 2000, $7,009,000 due in 2001, $5,010,000 due in
2002 and $2,390,000 due in 2003.
Operating Segments
- ------------------
The Company's internal reporting structure is based upon type of services
provided and, in the case of certain services having similar characteristics,
upon management responsibility. Internal operating segments that have similar
characteristics have been aggregated and are reported as the Technical Services
segment.
Information Technology Services provides a full range of staffing services
and outsourcing services utilizing personnel with expertise
in distributed systems management, applications development and maintenance
support, help desk services and personal computer support.
Technical Services provides staffing and outsourcing services engaging
personnel who provide engineering, engineering support, technical and
telecommunications services through its specialized divisions.
Management Recruiters provides a search and recruiting service for the
permanent employment of management personnel. It also provides temporary
management staffing services through several specialized divisions.
Todays Staffing provides temporary legal, financial, administrative and
clerical staffing services.
40
Operating segment data for the years ended December 31, 1998, 1997 and 1996
follows ($000s):
1998 1997 1996
--------- --------- ---------
Revenues
- --------
Information Technology Services $ 320,599 285,105 211,766
Technical Services 898,736 927,609 920,955
Management Recruiters 112,217 93,540 78,954
Todays Staffing 208,993 190,504 163,206
--------- --------- ---------
$ 1,540,545 1,496,758 1,374,881
========= ========= =========
Earnings from continuing
operations before income
taxes and minority interests
- -----------------------------
Operating profit
Information Technology Services $ 21,278 21,454 15,216
Technical Services 33,059 41,653 47,322
Management Recruiters 22,813 17,059 11,003
Todays Staffing 13,946 11,005 8,552
Corporate expenses (14,986) (12,053) (8,398)
--------- --------- ---------
76,110 79,118 73,695
Interest expense 1,384 2,337 3,451
--------- --------- ---------
$ 74,726 76,781 70,244
========= ========= =========
Depreciation and amortization
- -----------------------------
Information Technology Services $ 1,432 1,260 1,044
Technical Services 7,829 7,061 6,925
Management Recruiters 1,699 1,065 847
Todays Staffing 3,132 2,569 2,291
Corporate 387 178 60
--------- --------- ---------
$ 14,479 12,133 11,167
========= ========= =========
Assets
- ------
Information Technology Services $ 89,693 69,583 57,629
Technical Services 237,285 193,206 185,744
Management Recruiters 36,355 25,682 20,370
Todays Staffing 52,730 40,855 33,690
Corporate 14,399 7,309 5,484
Net assets of discontinued
operations 5,352 12,202 37,257
--------- --------- ---------
$ 435,814 348,837 340,174
========= ========= =========
41
1998 1997 1996
--------- --------- ---------
Purchases of fixed assets
- -------------------------
Information Technology Services $ 1,881 1,093 1,368
Technical Services 8,051 7,188 6,234
Management Recruiters 2,809 1,021 4,339
Todays Staffing 1,308 2,109 1,426
Corporate 9,050 521 178
--------- --------- ---------
$ 23,099 11,932 13,545
========= ========= =========
Intersegment activity is not significant. Therefore, revenues reported for
each operating segment is substantially all from external customers.
The Company is domiciled in the United States and its segments operate
primarily in the United States. Revenues derived from services provided in the
United States for 1998, 1997 and 1996 were $1,446,295,000, $1,411,899,000 and
$1,312,976,000, repectively. Revenues attributable to services provided in
foreign countries for 1998, 1997 and 1996 were $94,250,000, $84,859,000 and
$61,905,000, respectively.
Fixed assets located in the United States as of December 31, 1998, 1997 and
1996 were $37,819,000, $24,824,000 and $24,130,000, respectively. Fixed assets
located in foreign countries as of December 31, 1998, 1997 and 1996 were
$1,634,000, $1,563,000 and $1,374,000, respectively.
There was no single customer from whom the Company derived 10% or more of
its consolidated revenues during 1998, 1997 or 1996.
Operating profit in 1997 for Technical Services included an approximately
$2 million pre-tax gain from the divestiture of non-strategic operations
including the Company's aircraft maintenance staffing business, wastewater
treatment business and the light industrial staffing operations of the Company's
United Kingdom based subsidiary. The after-tax impact on earnings from
continuing operations of the gain was approximately $300,000 and included a
charge of approximately $600,000 for the minority interests' participation in
the gain.
Discontinued Operations
- -----------------------
On December 28, 1995 the Company adopted a plan to dispose of the
automotive manufacturing technology division of a subsidiary. This division
provided production quality prototypes and production tooling fixtures.
42
On December 30, 1996 the Company adopted a plan to dispose of the
automotive developmental engineering division of a subsidiary. This
division provided developmental and experimental engineering and design of
automotive vehicles, components and assembly processes.
Each of these divisions had been a separate line of business within the
Technical Services segment and, accordingly, each has been classified as a
discontinued operation in the Company's reported results of operations.
The manufacturing technology division has been either liquidated or sold.
The Company undertook to liquidate the automotive develop-mental engineering
division starting in 1997 after unsuccessfully attempting to sell it. The
liquidation of this division is complete except for the resolution of a
receivable related to a major contract that was terminated in late 1996 and for
which an additional reserve was recorded in 1997 as settlement negotiations
became protracted and intensified.
Summary results of the discontinued operations for the years ended December
31, 1998, 1997 and 1996 are as follows ($000s):
1998 1997 1996
------ ------ ------
Revenues - Developmental engineering $ - - 79,273
Operating (loss) - Developmental
engineering $ - - (7,212)
Interest expense - Developmental
engineering - - 749
Losses before income taxes and
before provisions related to
phase-out periods and disposals
and subsequent adjustments of such
provisions - Developmental
engineering - - (7,961)
Income taxes - Developmental
engineering - - (2,826)
Losses before provisions related to
phase-out periods and disposals
and subsequent adjustments of such
provisions - Developmental
engineering - - (5,135)
Estimated losses during phase-out
periods, net of income tax benefits
of ($680) - Developmental
engineering, - - (1,264)
Estimated losses on disposal of
operations, net of income tax
benefits of ($4,146) - Developmental
engineering - - (9,517)
43
1998 1997 1996
------ ------ ------
Adjustments to prior years' provisions
related to phase-out periods and
disposals, net of income taxes of
$721 - 1998, ($4,998)-1997 and
$2,608-1996 1,338 (9,322) 4,844
------ ------ ------
$ 1,338 (9,322)(11,072)
====== ====== ======
Adjustments were made to prior year provisions in 1998 primarily for lower
than anticipated costs related to the wind-down of the discontinued operations
and greater realization on disposal of assets than expected. Adjustments were
made in 1997 primarily for an additional reserve related to a major automotive
developmental engineering contract on which work was terminated in late 1996.
Negotiations to settle this dispute intensified around the end of 1997.
Negotiations are ongoing. The adjustments also include additional reserves for
operating losses through the final wind-down of the businesses. Adjustments
were made in 1996 related to manufacturing technology because demand for
services recovered substantially faster and stronger than anticipated and costs
associated with a specialized leased facility were substantially less than
previously anticipated.
Summary balance sheet accounts of the discontinued operations as of
December 31, 1998 and 1997 are as follows ($000s):
1998 1997
------ ------
Working capital $ 2,229 (3,909)
Net fixed assets - 6,570
Other assets - 84
Deferred income taxes 3,123 9,457
------ ------
$ 5,352 12,202
====== ======
Net assets associated with the developmental engineering division as of
December 31, 1998 and 1997 were approximately $1 million and $9 million,
respectively, and net assets for the manufacturing technology division were
approximately $4 million and $3 million, respectively.
Deferred income taxes relate primarily to the loss reserves recorded for the
discontinued operations and will be realized as the losses become deductible for
income tax purposes.
Interest expense that was allocated to the discontinued operations was
based upon their proportionate share of consolidated net assets.
44
Contracts with customers for the discontinued operations included fixed
price based contracts. Accordingly, revenues were recognized using the
percentage of completion method of accounting for those contracts.
Effective income tax rates for the discontinued operations differed from
the federal statutory rate primarily because of expenses permanently non-
deductible for tax purposes.
Legal Proceedings and Claims
- ----------------------------
There are litigation and other claims pending which arise in the ordinary
course of business. There are substantive defenses and/or insurance available
such that the outcome of these items should not have a material adverse effect
on the financial condition or results
of operations of the Company.
45
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of CDI Corp.:
We have audited the accompanying consolidated balance sheets of CDI Corp.
and subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of earnings, retained earnings, and cash flows for each of the years
in the three-year period ended December 31, 1998. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule listed under the heading "Financial statement schedules" on
page 48. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CDI Corp.
and subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
Philadelphia, PA /s/ KPMG LLP
February 19, 1999 ---------------------------------
KPMG LLP
46
CDI CORP. AND SUBSIDIARIES
Quarterly Earnings
Years ended December 31, 1998 and 1997
(In thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
1998
- ----
Revenues $ 378,766 388,847 389,535 383,397 1,540,545
Gross profit 92,009 96,717 101,114 100,856 390,696
Operating profit 17,762 16,096 21,661 20,591 76,110
Interest expense 6 425 421 532 1,384
Earnings from
continuing operations 10,709 9,369 12,334 11,827 44,239
Discontinued operations - - - 1,338 1,338
Net earnings $ 10,709 9,369 12,334 13,165 45,577
Basic earnings per share:
Earnings from
continuing operations $ .54 .47 .63 .62 2.25
Discontinued operations $ - - - .07 .07
Net earnings $ .54 .47 .63 .69 2.32
Diluted earnings
per share:
Earnings from
continuing operations $ .54 .47 .63 .62 2.25
Discontinued operations $ - - - .07 .07
Net earnings $ .54 .47 .63 .69 2.32
1997
- ----
Revenues $ 360,461 378,144 383,073 375,080 1,496,758
Gross profit 81,942 89,022 89,491 92,242 352,697
Operating profit 18,792 21,009 22,079 17,238 79,118
Interest expense 704 788 694 151 2,337
Earnings from
continuing operations 10,741 11,915 13,775 10,503 46,934
Discontinued operations - - - (9,322) (9,322)
Net earnings $ 10,741 11,915 13,775 1,181 37,612
Basic earnings per share:
Earnings from
continuing operations $ .54 .60 .69 .53 2.36
Discontinued operations $ - - - (.47) (.47)
Net earnings $ .54 .60 .69 .06 1.89
Diluted earnings
per share:
Earnings from
continuing operations $ .54 .60 .69 .53 2.36
Discontinued operations $ - - - (.47) (.47)
Net earnings $ .54 .60 .69 .06 1.89
47
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Part III of this form is omitted by the Registrant since it will file with
the Commission a definitive proxy statement pursuant to Regulation 14A involving
the election of directors not later than 120 days after the close of the fiscal
year.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Documents filed as part of this report
Financial statements
The consolidated balance sheets of the Registrant as of
December 31, 1998 and 1997, the related consolidated
statements of earnings, retained earnings and cash flows
for each of the years ended December 31, 1998, 1997 and
1996, the footnotes thereto and the report of KPMG LLP,
independent auditors, are filed herein.
48
Financial statement schedules
Schedule submitted for the years ended December 31, 1998,
1997 and 1996.
II - Valuation and Qualifying Accounts
(b) Registrant has not filed a Form 8-K during the quarter ended
December 31, 1998.
(c) Exhibits
3.(i) Articles of incorporation of the Registrant,
incorporated herein by reference to the
Registrant's report on Form 10-Q for the
quarter ended June 30, 1990 (File No. 1-5519).
(ii) Bylaws of the Registrant, incorporated herein
by reference to the Registrant's report on
Form 10-Q for the quarter ended June 30, 1990
(File No. 1-5519).
10.a. CDI Corp. Non-Qualified Stock Option and Stock
Appreciation Rights Plan, incorporated herein
by reference to the Registrant's report on
Form 10-Q for the quarter ended June 30, 1997
(File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
b. CDI Corp. 1998 Non-Qualified Stock Option Plan
incorporated herein by reference to the EDGAR
filing made by the Registrant on April 3, 1998
in connection with the Registrant's definitive
Proxy Statement for its annual meeting of
shareholders held on May 5, 1998 (File No.
1-5519). (Constitutes a management contract
or compensatory plan or arrangement)
c. CDI Corp. Performance Share Plan, incorporated
herein by reference to the Registrant's report
on Form 10-Q for the quarter ended March 31,
1998 (File No. 1-5519). (Constitutes a
management contract or compensatory plan or
arrangement)
d. CDI Corp. Management Stock Purchase Plan,
incorporated herein by reference to the
Registrant's report on Form 10-Q for the
quarter ended March 31, 1998 (File No. 1-5519).
(Constitutes a management contract or
compensatory plan or arrangement)
49
e. 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)
f. Consulting Agreement dated as of April 7, 1997
by and between Registrant and Walter R. Garrison,
incorporated herein by reference to Registrant's
report on Form 10-Q for the quarter ended June 30,
1997 (File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
g. Employment Agreement 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)
h. Supplemental Retirement Agreement dated as of
April 7, 1997 by and between Registrant and
Mitchell Wienick, incorporated herein by
reference to the Registrant's report on Form
10-K for the year ended December 31, 1997
(File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
i. Employment Agreement, Restricted Stock Agreement
and Non-Qualified Stock Option Agreement all
dated August 4, 1997, by and between Registrant
and Robert J. Mannarino, incorporated herein by
reference to Registrant's report on Form 10-Q
for the quarter ended September 30, 1997. (File
No. 1-5519). (Constitutes a management contract
or compensatory plan or arrangement)
j. Supplemental Retirement Agreement dated as of
November 18, 1997 by and between Registrant and
Robert J. Mannarino, incorporated herein by
reference to the Registrant's report on Form
10-K for the year ended December 31, 1997.
(File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
50
k. Employment Agreement dated October 29, 1997,
Restricted Stock Agreement dated November 10,
1997 and Non-Qualified Stock Option Agreement
dated November 10, 1997 each by and between
Registrant and John D. Sanford, incorporated
by reference to the Registrant's report on Form
10-K for the year ended December 31, 1997 (File
No. 1-5519). (Constitutes a management contract
or compensatory plan or arrangement)
l. Supplemental Retirement Agreement dated as of
November 20, 1997 by and between Registrant and
John D. Sanford, incorporated herein by reference
to the Registrant's report on Form 10-K for the
year ended December 31, 1997. (File No. 1-5519).
(Constitutes a management contract or
compensatory plan or arrangement)
m. Employment Agreement dated July 8, 1997,
including Restricted Stock Agreement and Non-
Qualified Stock Option Agreement, by and between
Registrant and Brian J. Bohling, incorporated
herein by reference to the Registrant's report
on Form 10-Q for the quarter ended March 31,
1998 (File No. 1-5519). (Constitutes a
management contract or compensatory plan or
arrangement)
n. Supplemental Retirement Agreement dated November
18, 1997 by and between Registrant and Brian J.
Bohling, incorporated herein by reference to the
Registrant's report on Form 10-Q for the quarter
ended March 31, 1998 (File No. 1-5519).
(Constitutes a management contract or
compensatory plan or arrangement)
o. Employment Agreement effective January 1, 1998
by and between Registrant and Joseph R. Seiders,
incorporated herein by reference to the
Registrant's report on Form 10-Q for the quarter
ended March 31, 1998 (File No. 1-5519).
(Constitutes a management contract or compensatory
plan or arrangement)
21. Subsidiaries of the Registrant.
23. Consents of experts and counsel.
27. Financial Data Schedule.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
- -------------------------------------
By: /s/ Mitchell Wienick
- -------------------------------------
Mitchell Wienick, President
and Chief Executive Officer
Date: March 9, 1999
- -------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Mitchell Wienick
- -------------------------------------
Mitchell Wienick
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: March 9, 1999
- -------------------------------------
By: /s/ John D. Sanford
- -------------------------------------
John D. Sanford
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: March 9, 1999
- -------------------------------------
52
By: /s/ Walter E. Blankley
- -------------------------------------
Walter E. Blankley
Director
Date: March 9, 1999
- -------------------------------------
By: /s/ John M. Coleman
- -------------------------------------
John M. Coleman
Director
Date: March 10, 1999
- -------------------------------------
By: /s/ Walter R. Garrison
- -------------------------------------
Walter R. Garrison
Director
Date: March 12, 1999
- -------------------------------------
By: /s/ Kay Hahn Harrell
- -------------------------------------
Kay Hahn Harrell
Director
Date: March 10, 1999
- -------------------------------------
By: /s/ Lawrence C. Karlson
- -------------------------------------
Lawrence C. Karlson
Director
Date: March 9, 1999
- -------------------------------------
53
By: /s/ Allen M. Levantin
- -------------------------------------
Allen M. Levantin
Director
Date: March 9, 1999
- -------------------------------------
By: /s/ Alan B. Miller
- -------------------------------------
Alan B. Miller
Director
Date: March 10, 1999
- -------------------------------------
By: /s/ Barton J. Winokur
- -------------------------------------
Barton J. Winokur
Director
Date: March 9, 1999
- -------------------------------------
54
Schedule II
-----------
CDI CORP. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Allowance for Uncollectible Receivables)
Years ended December 31, 1998, 1997 and 1996
Uncollectible
Additions receivables
Balance at charged written off, Balance
beginning to net of Other at end
of year earnings recoveries changes of year
---------- --------- ------------- ---------- ---------
Dec. 31, 1998 $4,995,000 2,200,000 1,295,000 100,000(a) 6,000,000
Dec. 31, 1997 $4,094,000 3,249,000 2,348,000 - 4,995,000
Dec. 31, 1996 $3,520,000 1,642,000 1,068,000 - 4,094,000
(a) Allowance of acquired business at date of acquisition.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CDI CORP.
EXHIBITS
to
Annual Report
FORM 10-K
Year ended December 31, 1998
Under
SECURITIES EXCHANGE ACT OF 1934
55
INDEX TO EXHIBITS
Number Exhibit Page
- ------- ------------------------------------------------------- ----
3.(i) Articles of incorporation of the Registrant,
incorporated herein by reference to the Registrant's
report on Form 10-Q for the quarter ended June 30, 1990
(File No. 1-5519).
(ii) Bylaws of the Registrant, incorporated herein by
reference to the Registrant's report on Form 10-Q for
the quarter ended June 30, 1990 (File No. 1-5519).
10.a. CDI Corp. Non-Qualified Stock Option and Stock
Appreciation Rights Plan, incorporated herein by
reference to the Registrant's report on Form 10-Q for
the quarter ended June 30, 1997 (File No. 1-5519).
(Constitutes a management contract or compensatory plan
or arrangement)
b. CDI Corp. 1998 Non-Qualified Stock Option Plan
incorporated herein by reference to the EDGAR filing
made by the Registrant on April 3, 1998 in connection
with the Registrant's definitive Proxy Statement for
its annual meeting of shareholders held on May 5, 1998
(File No. 1-5519). (Constitutes a management contract
or compensatory plan or arrangement)
c. CDI Corp. Performance Share Plan, incorporated herein
by reference to the Registrant's report on Form 10-Q
for the quarter ended March 31, 1998 (File No. 1-5519).
(Constitutes a management contract or compensatory plan
or arrangement)
d. CDI Corp. Management Stock Purchase Plan, incorporated
herein by reference to the Registrant's report on Form
10-Q for the quarter ended March 31, 1998 (File No.
1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
e. 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)
56
INDEX TO EXHIBITS
Number Exhibit Page
- ------- ------------------------------------------------------- ----
f. Consulting Agreement dated as of April 7, 1997 by and
between Registrant and Walter R. Garrison, incorporated
herein by reference to Registrant's report on Form 10-Q
for the quarter ended June 30, 1997 (File No. 1-5519).
(Constitutes a management contract or compensatory plan
or arrangement)
g. Employment Agreement 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)
h. Supplemental Retirement Agreement dated as of April 7,
1997 by and between Registrant and Mitchell Wienick,
incorporated herein by reference to the Registrant's
report on Form 10-K for the year ended December 31,
1997 (File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
i. Employment Agreement, Restricted Stock Agreement and
Non-Qualified Stock Option Agreement all dated August 4,
1997, by and between Registrant and Robert J. Mannarino,
incorporated herein by reference to Registrant's report
on Form 10-Q for the quarter ended September 30, 1997.
(File No. 1-5519). (Constitutes a management contract
or compensatory plan or arrangement)
j. Supplemental Retirement Agreement dated as of November
18, 1997 by and between Registrant and Robert J.
Mannarino, incorporated herein by reference to the
Registrant's report on Form 10-K for the year ended
December 31, 1997. (File No. 1-5519). (Constitutes a
management contract or compensatory plan or arrangement)
k. Employment Agreement dated October 29, 1997, Restricted
Stock Agreement dated November 10, 1997 and Non-
Qualified Stock Option Agreement dated November 10,
57
INDEX TO EXHIBITS
Number Exhibit Page
- ------- ------------------------------------------------------- ----
1997 each by and between Registrant and John D. Sanford,
incorporated by reference to the Registrant's report on
Form 10-K for the year ended December 31, 1997 (File
No. 1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
l. Supplemental Retirement Agreement dated as of November
20, 1997 by and between Registrant and John D. Sanford,
incorporated herein by reference to the Registrant's
report on Form 10-K for the year ended December 31,
1997. (File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
m. Employment Agreement dated July 8, 1997, including
Restricted Stock Agreement and Non-Qualified Stock
Option Agreement, by and between Registrant and Brian
J. Bohling, incorporated herein by reference to the
Registrant's report on Form 10-Q for the quarter ended
March 31, 1998 (File No. 1-5519). (Constitutes a
management contract or compensatory plan or arrangement)
n. Supplemental Retirement Agreement dated November 18,
1997 by and between Registrant and Brian J. Bohling,
incorporated herein by reference to the Registrant's
report on Form 10-Q for the quarter ended March 31,
1998 (File No. 1-5519). (Constitutes a management
contract or compensatory plan or arrangement)
o. Employment Agreement effective January 1, 1998 by and
between Registrant and Joseph R. Seiders, incorporated
herein by reference to the Registrant's report on Form
10-Q for the quarter ended March 31, 1998 (File No.
1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
21. Subsidiaries of the Registrant. 58
23. Consents of experts and counsel. 60
27. Financial Data Schedule. 61
EXHIBIT 21 58
Subsidiaries of the Registrant
The following are subsidiaries of the Registrant as of December 31, 1998
and the jurisdiction in which each is organized. Each of the subsidiaries
conducts its business using the names indicated except as separately set forth
herein. Certain subsidiaries are not listed. These omitted subsidiaries either
individually or in the aggregate would not constitute a significant subsidiary.
State or
Country of
Subsidiary Organization
- ---------- ------------
Subsidiary of the Registrant:
CDI Corporation (a) Pennsylvania
Subsidiaries of CDI Corporation:
CDI-Anders Glaser Wills Limited (b) United Kingdom
CDI Engineering Group, Inc. Delaware
CDI Holdings (UK) Limited United Kingdom
CDI Marine Company Florida
CDI Telecommunications, Inc. Pennsylvania
The M&T Company Pennsylvania
Management Recruiters International, Inc. (c) Delaware
Modern Engineering, Inc. Michigan
Todays Staffing, Inc. (d) Pennsylvania
1175748 Ontario Limited Canada
Subsidiary of CDI Engineering Group, Inc.:
The Herzog-Hart Group, Inc. Delaware
Subsidiaries of The Herzog-Hart Group, Inc.:
Herzog-Hart Corp. Massachusetts
Herzog-Hart Limited United Kingdom
Subsidiary of CDI Holdings (UK) Limited:
Harvard Associates Limited United Kingdom
Subsidiary of CDI Marine Company:
Band Lavis & Associates, Inc. Delaware
Subsidiaries of Management Recruiters International, Inc.:
InterExec, Inc. (e) Ohio
Management Recruiters of Cuernevaca, Inc. Ohio
Subsidiary of Modern Engineering, Inc.:
Modern Engineering (Deutschland) GmbH Germany
Subsidiaries of Todays Staffing, Inc.:
Todays Staffing, Ltd. Canada
Todays Legal Staffing, Inc. Pennsylvania
Subsidiary of 1175748 Ontario Limited:
CDI Technical Services, Ltd. (f) Canada
59
(a) CDI Corporation also conducts its business using the trade names
of CDI Technical Services, CDI Information Technology Services,
CDI CAD Services, CDI Information Services, CDI Managed CADD
Services, CDI Managed Information Services and CDI Managed
Staffing Services.
(b) CDI-Anders Glaser Wills Limited also conducts its business using
the trade name of CDI Technical Services.
(c) Management Recruiters International, Inc. also conducts its
business using the trade names of Sales Consultants, Office Mates
5, CompuSearch and ConferView.
(d) Todays Staffing, Inc. also conducts its business using the trade
names Todays Legal Staffing, Todays Financial Staffing and Todays
Office Staffing.
(e) InterExec, Inc. also conducts its business using the trade names
of DayStar and Sales Staffers.
(f) CDI Technical Services Ltd. also conducts its business using the
trade name of CDI Information Services.
60
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CDI Corp.:
We consent to incorporation by reference in Registration Statement Nos.
33-7263, 33-30357, 333-65879 and 333-69007 on Form S-8 of CDI Corp. and in
Registration Statement No. 333-9793 on Form S-3 of CDI Corp. of our report dated
February 19, 1999 relating to the consolidated balance sheets of CDI Corp. and
subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of earnings, retained earnings, and cash flows for each of the years
in the three-year period ended December 31, 1998 and the related financial
statement schedule, which report appears in the December 31, 1998 annual report
on Form 10-K of CDI Corp.
Philadelphia, PA /s/ KPMG LLP
March 11, 1999 ---------------------------
KPMG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,962
<SECURITIES> 0
<RECEIVABLES> 313,261
<ALLOWANCES> 6,000
<INVENTORY> 0
<CURRENT-ASSETS> 332,769
<PP&E> 92,338
<DEPRECIATION> 52,885
<TOTAL-ASSETS> 435,814
<CURRENT-LIABILITIES> 145,604
<BONDS> 35,059
0
0
<COMMON> 1,995
<OTHER-SE> 239,094
<TOTAL-LIABILITY-AND-EQUITY> 435,814
<SALES> 0
<TOTAL-REVENUES> 1,540,545
<CGS> 0
<TOTAL-COSTS> 1,149,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,384
<INCOME-PRETAX> 74,726
<INCOME-TAX> 29,470
<INCOME-CONTINUING> 44,239
<DISCONTINUED> 1,338
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,577
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 2.32
</TABLE>
