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SECURITIES AND EXCHANGE COMMISSION
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, 1999
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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
- ------------------------------- -------------------------------
(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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common stock, $.10 par value New York Stock Exchange
- ---------------------------- --------------------------------------
(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. [ ]
The aggregate market value as of February 23, 2000 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 $245,199,000
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 23, 2000 were: Common stock, $.10 par value 19,071,812
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 May 3, 2000 Part III
1
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 year.
Years ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Revenues
- --------
Information Technology Services $ 331,521 320,599 285,105
Technical Services 929,118 898,736 927,609
Management Recruiters 113,343 112,217 93,540
Todays Staffing 227,895 208,993 190,504
--------- --------- ---------
$ 1,601,877 1,540,545 1,496,758
========= ========= =========
Earnings from continuing
operations before income
taxes and minority interests
- ----------------------------
Operating profit
Information Technology Services $ 22,581 21,278 21,454
Technical Services 44,435 33,059 41,653
Management Recruiters 22,450 22,813 17,059
Todays Staffing 15,166 13,946 11,005
Corporate expenses (18,656) (14,986) (12,053)
--------- --------- ---------
85,976 76,110 79,118
Interest expense 2,114 1,384 2,337
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$ 83,862 74,726 76,781
========= ========= =========
Assets
- ------
Information Technology Services $ 127,778 89,693 69,583
Technical Services 268,466 237,285 193,206
Management Recruiters 54,821 36,355 25,682
Todays Staffing 58,555 52,730 40,855
Corporate 21,204 14,399 7,309
Net assets of discontinued operations 856 5,352 12,202
--------- --------- ---------
$ 531,680 435,814 348,837
========= ========= =========
2
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, application development and
maintenance support, help desk services 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 services represented only a
small component of the segment's services.
During the year ended December 31, 1999, 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 1999, 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 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. When staffing
services are provided at a customer's location, the customer retains technical
and supervisory control. When the segment provides managed staffing services,
the segment may provide additional administrative supervision for its employees.
3
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 higher 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 continuing to enhance
its benefits for these professionals. In order to enhance employee retention,
the segment has initiated career-tracking to place employees on a continuum of
assignments requiring increasing technical skills. This provides employees with
both career progression and skills that translate into higher billings to
customers over time.
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
45 sales and recruiting offices located in major markets throughout the United
States and 5 international offices.
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 $22 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.
4
In managed technical staffing, the segment not only provides the personnel
but also manages the customer's entire contract staffing requirements. 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 connects 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.
During the year ended December 31, 1999, Technical Services provided
services to approximately 2,500 customers. Much of its business is performed for
large multi-national manufacturing companies. Historically, the segment's
largest markets have been aircraft/aerospace, automotive,
hydrocarbon/petrochemical, construction, electronics, industrial equipment,
marine and telecommunications. The segment is broadening its markets to include
pharmaceuticals, specialty chemicals, biotechnology, medical devices and food
and beverage. 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.
In certain instances, the segment's services provided to its larger
customers, principally in aerospace and marine, are related to United States
Government defense and other projects. During the year ended December 31, 1999,
approximately 12% of the Registrant's consolidated revenues were related to
these projects. A small portion of the Registrant's consolidated revenues are
derived from prime contracts for United States Government work. Nearly all of
the Registrant's United States Government related work is performed by the
Technical Services segment and much of it is defense related.
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,
1999, approximately 80% of the segment's revenues were generated through
in-customer work with the remaining 20% 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 a current customer, is assigned to perform
services with another customer, or employment is terminated.
5
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.
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 customer
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 expressed
either in a dollar amount or a maximum number of worker hours to be provided.
Technical Services operates through a network of approximately 135 sales
and recruiting offices and in-house facilities located in major markets
throughout the United States and 19 international offices.
Marketing activities are conducted by divisional and regional management to
ascertain opportunities for Technical Services in specific geographic areas.
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.
6
Industry analysts estimate the market for the Technical/Information
Technology sector of the staffing industry to be approximately $22 billion. The
Company's Technical Services and 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 can be 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, 1999, Management Recruiters had 954 franchised offices
and 47 company-owned offices providing services to both large and small
employers in virtually all industries. Of the franchised offices, 798 are
located throughout the United States with 156 offices located internationally.
All company-owned offices are located in the United States. The broad geographic
scope of operations enables franchisees and company-owned offices to provide
nationwide recruiting and matching of employers with job candidates in the
United States. 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. Management Recruiters established a direct
international presence in 1999 when it acquired a business headquartered in the
United Kingdom.
Franchisees pay an initial fee approximating $72,500 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 Internet
presence, national marketing, public relations support 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, Internet and intranet systems, manuals and
forms.
7
A large number of companies are engaged in the recruitment business and
Management Recruiters encounters significant competition. 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, 1999, 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 operations.
Pricing is based on prevailing hourly rates of pay, and arrangements 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 111 sales and
recruiting offices, 9 of which are franchised, situated in the United States and
12 offices in Canada. 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.
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 $19 billion.
8
EMPLOYEES
At December 31, 1999 the Registrant had approximately 31,600 employees. The
Registrant believes that its relations with its employees are generally good.
Item 2. PROPERTIES.
The Information Technology Services operating segment has approximately 45
facilities throughout the United States and 5 facilities internationally,
occupying a total of approximately 100,000 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 135 facilities
throughout the United States and 19 facilities internationally, occupying a
total of approximately 900,000 square feet of space. Approximately 250,000
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 47 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 954
franchised offices. Franchisees enter into their own leases for which the
segment assumes no obligation.
The Todays Staffing operating segment occupies approximately 200,000 square
feet of office space at approximately 114 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 9 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.
9
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, 1999 and 1998. The Registrant's common stock
is traded on the New York Stock Exchange.
1999 1998
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High Low High Low
-------- -------- -------- --------
First quarter 27 19-1/2 47-15/16 40-3/8
Second quarter 34-7/8 22-11/16 43-5/8 26-1/4
Third quarter 36 25-3/4 27-1/16 21-15/16
Fourth quarter 30 22-1/8 26-7/8 15
No cash dividends were declared during the years ended December 31, 1999
and 1998. The Company has no present intention of paying cash dividends during
the year ending December 31, 2000.
Shareholders of record on February 23, 2000 numbered 527. This count
includes 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 4,500.
10
Item 6. SELECTED FINANCIAL DATA.
Following is Selected Financial Data for the years ended December 31, 1999,
1998, 1997, 1996 and 1995. The data presented is in thousands, except for per
share data.
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
Earnings Data
- -------------
Revenues $ 1,601,877 1,540,545 1,496,758 1,374,881 1,202,936
Earnings from continuing
operations $ 49,679 44,239 46,934 42,470 31,185
Discontinued operations 2,768 1,338 (9,322) (11,072) (26,046)
--------- --------- --------- --------- ---------
Net earnings $ 52,447 45,577 37,612 31,398 5,139
========= ========= ========= ========= =========
Basic earnings per share:
Earnings from
continuing
operations $ 2.61 2.25 2.36 2.14 1.58
Discontinued
operations $ .15 .07 (.47) (.56) (1.32)
Net earnings $ 2.76 2.32 1.89 1.58 .26
Diluted earnings
per share:
Earnings from
continuing
operations $ 2.60 2.25 2.36 2.14 1.57
Discontinued
operations $ .14 .07 (.47) (.56) (1.31)
Net earnings $ 2.74 2.32 1.89 1.58 .26
Cash dividends $ - - - - -
Balance Sheet Data
- ------------------
Total assets $ 531,680 435,814 348,837 340,174 323,563
Long-term debt $ 65,651 35,059 - 48,866 67,865
Shareholders' equity $ 293,844 240,369 215,585 176,986 145,233
11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of operations, year ended December 31, 1999 vs. year ended
December 31, 1998
- --------------------------------------------------------------------------------
Consolidated revenues advanced 4% over the prior year. Operating profit
margins from continuing operations were 5.4% in 1999 compared to 4.9% in 1998.
Information Technology Services segment revenues, which in 1999 represented
21% of the Company's consolidated revenues, advanced 3% from the prior year.
Operationally, the segment completed its first full year as a stand-alone
business unit. Prior to mid-1998, the Company's Information Technology Services
business was integrated with the Company's Technical Services segment.
Information Technology Services' customer base consists principally of large,
multi-national manufacturing companies, much like the customer base of the
Company's Technical Services segment. In 1999 and 1998, one large industrial
corporation comprised approximately 30% of the segment's total revenues. As a
stand-alone business unit, the segment has begun to broaden its customer and
industry base and already has achieved a measure of success in the financial
services industry.
Demand began to moderate in the second half of 1998 within the segment's
manufacturing-oriented customer base as those customers faced global challenges
in their markets. During 1999, many customers concerned with achieving Year 2000
("Y2K") compliance responded by delaying discretionary information technology
projects. This softness was particularly evident during the fourth quarter of
1999. Additionally, a tight labor supply, particularly for highly skilled
information technology specialists, became even more acute in 1999 and this
condition is not expected to subside substantially.
Operating profit margins for Information Technology Services were 6.8% in
1999 compared to 6.6% in 1998. During 1998, the Company anticipated strong
revenue growth which did not keep pace with costs to build its management and
support structure. Throughout 1999, management carefully monitored its costs and
transitioned from a regional management to a unified management structure and
began implementation of standardized recruiting and career progression practices
in all offices. This effective emphasis on cost control, particularly during the
second half of 1999 produced stronger operating profit margins than in 1998.
Technical Services segment revenues, which in 1999 represented 58% of the
Company's consolidated revenues, increased 3% from the prior year. The segment's
customer base consists principally of large, multi-national manufacturing
companies. Historically, its largest markets have been aerospace, automotive,
construction, electronics, industrial equipment, petrochemicals, marine and
telecommunications. The segment has begun to penetrate the pharmaceuticals
market, expand its level of business within telecommunications and is focusing
on other new markets such as biotechnology, medical devices and food and
beverage.
Technical Services' 1999 revenue growth was moderated, in part, by
continuing cyclical softness in the aerospace industry, reduced spending by
certain key customers in the process of merger and increased contract
selectivity and screening by Technical Services management.
Operating profit margins for Technical Services were 4.8% in 1999 compared
to 3.7% in 1998. The operating profit margins for 1999 are considered more
reflective of this segment's overall historical performance. In the second
12
quarter of 1998, Technical Services operating profit margin was impacted by
reorganization costs and other non-recurring charges of $2.3 million. Excluding
these charges in 1998, the segment's operating profit margins would have been
3.9%. In addition, throughout 1998, many Technical Services' customers
experienced a difficult business environment due to turbulent international
market conditions, delayed new product introductions and investment imbalances.
This was particularly pronounced in the electronics and
hydrocarbon/petrochemicals customer base. The improved results in 1999 reflect
the higher margins associated with strengths in managed engineering services,
targeted new market and product growth, increased contract selectivity and
ongoing cost containment efforts.
Information Technology Services' and Technical Services' many contracts are
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.
Management Recruiters' revenues, which in 1999 represented 7% of the
Company's consolidated revenues, advanced 1% over the prior year. Although
positive, the segment's growth rate in 1999 was below the segment's rates of
growth over the past several years. The most important cause of this slowing of
growth is the severe shortage of middle management and professional personnel
candidates for permanent employment positions. These shortages are expected to
continue into 2000. Additionally, a certain amount of disintermediation is
taking place as candidates and employers bypass recruiting organizations in
favor of direct contact via the Internet. This latter effect cannot be
quantified with certainty.
Operating profit margins for Management Recruiters were 19.8% in 1999 and
20.3% in 1998. The decline in the margin reflects a shift in fulfillment mix
from large client project placement work to more labor-intensive
single-transaction searches. Further, 1999 operating margins also declined as a
result of start-up costs for four new staffing offices.
Todays Staffing segment revenues, which in 1999 represented 14% of the
Company's consolidated revenues, advanced 9% over the prior year. Todays
Staffing's customer base consists of a large number of "retail" accounts and a
small number of large, "wholesale" accounts. 1999 was a transitional year for
this latter category of accounts. In recent years, these large, multi-location
accounts have become more price sensitive, and the segment elected not to
continue to pursue certain of these accounts when pricing began to erode.
Conversely, the segment identified and won new, large contracts with a category
of emerging middle-market customers. Demand for office/clerical and professional
temporary services in 1999 remained strong. Legal staffing is a small but
growing component of the segment's services.
Todays Staffing's operating profit margins were 6.7% in both 1999 and 1998.
Operating profit in 1999 was adversely impacted by integration costs associated
with Today's acquisition of Staffing Consultants, Inc. and increased recruiting
costs.
Each of CDI's business segments has been an active and aggressive user of
the Internet as a candidate source since the inception of the very earliest of
the "job boards." During 1999, CDI formalized and broadened its relationship
13
with leading Internet staffing providers. In recent years, the Company has
utilized its own corporate Internet sites to generate candidate traffic. In
1999, CDI's Management Recruiters segment launched its own proprietary Internet
staffing site, Brilliant People.com, and early results are encouraging.
During the second and fourth quarters of 1999, the Company recorded gains
from discontinued operations of $2,015,000 and $753,000, respectively, net of
applicable income taxes. These gains primarily reflected settlement of a
disputed receivable which was fully reserved and adjustments of certain
estimates. In the fourth quarter of 1998, a gain of $1,338,000, net of
applicable income taxes, was recorded reflecting lower than anticipated costs
related to the wind-down of the discontinued operations and greater realization
on disposal of assets than expected. The liquidation of the discontinued
operations is complete.
Interest expense was $2.1 million in 1999 compared to $1.4 million in 1998
reflecting higher average levels of debt outstanding.
During the year ended December 31, 1999, each of the Company's business
segments made acquisitions for which the Company invested collectively
$50,012,000. The acquisitions were accounted for using the purchase method.
Goodwill acquired amounted to $44,736,000 and is being amortized on the
straight-line method over periods of 15 and 20 years. These acquisitions did not
have a significant effect upon reported earnings for 1999.
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
margins from continuing operations were 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 margins in 1997.
Information Technology Services segment revenues, 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.
Technical Services segment 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,
14
revenues in 1998 increased 1%. 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, partially 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, 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, the segment's 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
segment's 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 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.
Management Recruiters segment 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
including large-scale permanent placement assignments with certain customers.
Operating profit margins for Management Recruiters were 20.3% in 1998 compared
to 18.2% in 1997, reflecting strong demand for search and recruiting services
and performance improvements at the company-owned operations.
Todays Staffing segment 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 margins reflects a reduction in the
percentage of high volume, low margin managed staffing business, and an increase
in higher margin legal and financial staffing.
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 the 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 of 1997, an addition to the loss reserve for
discontinued operations of $14 million ($9 million after taxes) was recorded.
This adjustment primarily reflected a full reserve for 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.
15
In the fourth quarter of 1998, a gain of $2 million ($1 million after
taxes) related to discontinued operations 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.
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 of 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 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 15 and 20 years. These
acquisitions did not have a significant effect upon reported earnings for 1998.
Year 2000
---------
The Company's year 2000 ("Y2K") inventory, assessment and solutions
implementations programs leading up to the year 2000, appear to have been
largely successful. The Company entered the year 2000 substantially fully Y2K
compliant, and there have been no meaningful interruptions of services within
the Company or with its external constituencies.
However, inasmuch as only a few months have gone by in the year 2000,
albeit potentially the most revealing ones, there can still be no assurance that
there will be no material impact as a result of Y2K issues, particularly
considering the dependence and interdependence that exists with third parties.
The cost of the Company's Y2K program was approximately $2.3 million, all
of which was charged against operations. Of this amount, approximately $1.3
million was incurred in 1998 and the balance in 1999.
The costs of Y2K compliance do not include costs associated with new
financial systems or new personnel recruiting and human resource systems. These
systems already were scheduled for implementation and their implementation was
not accelerated because of year 2000 issues.
Inflation
- ---------
The Technical Services, Information Technology Services and Todays Staffing
segments' services are priced generally in close relationship 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 1999 because of an increase in the
collection cycle for accounts receivable and an increase in the levels of
16
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 2.4
to 1, 2.3 to 1 and 2.4 to 1, as of December 31 1999, 1998, and 1997,
respectively. The ratio of long-term debt to total capital (long-term debt plus
shareholders' equity) as of December 31, 1999 and 1998 was 18.3% and 12.7%,
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. No shares were purchased in 1999.
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 subject to
market risks as interest rates change. Considering the most restrictive of the
limitations placed on bank borrowings by the agreements at December 31, 1999,
the Company had borrowing capacity under the revolving credit agreement of an
additional $34 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.
New Accounting Standards
- ------------------------
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, 2000. The Company will determine the extent to which Statement
No. 133 applies and adopt the standards established as required. Currently the
Company has no derivatives or hedging activities.
17
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, delays or unexpected costs associated with
implementation of computer systems 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.
18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1999, 1998 and 1997
(In thousands, except per share data)
1999 1998 1997
--------- --------- ---------
Revenues $ 1,601,877 1,540,545 1,496,758
Cost of services 1,177,250 1,149,849 1,144,061
--------- --------- ---------
Gross profit 424,627 390,696 352,697
Operating and administrative costs 338,651 314,586 273,579
--------- --------- ---------
Operating profit 85,976 76,110 79,118
Interest expense 2,114 1,384 2,337
--------- --------- ---------
Earnings from continuing operations
before income taxes and minority
interests 83,862 74,726 76,781
Income taxes 32,960 29,470 28,652
--------- --------- ---------
Earnings from continuing operations
before minority interests 50,902 45,256 48,129
Minority interests 1,223 1,017 1,195
--------- --------- ---------
Earnings from continuing operations 49,679 44,239 46,934
Discontinued operations 2,768 1,338 (9,322)
--------- --------- ---------
Net earnings $ 52,447 45,577 37,612
========= ========= =========
Basic earnings per share:
Earnings from continuing operations $ 2.61 2.25 2.36
Discontinued operations $ .15 .07 (.47)
Net earnings $ 2.76 2.32 1.89
Diluted earnings per share:
Earnings from continuing operations $ 2.60 2.25 2.36
Discontinued operations $ .14 .07 (.47)
Net earnings $ 2.74 2.32 1.89
See accompanying notes to consolidated financial statements.
19
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share data)
Assets 1999 1998
- ------ ------- -------
Current assets:
Cash $ 11,429 6,962
Accounts receivable, less allowance for
doubtful accounts of $4,203-1999; $6,000-1998 352,458 307,261
Prepaid expenses and other 5,322 12,508
Deferred income taxes 4,448 6,038
------- -------
Total current assets 373,657 332,769
Fixed assets, net 53,256 39,453
Deferred income taxes 86 4,148
Goodwill and other intangible assets, net 89,328 48,844
Other assets 15,353 10,600
------- -------
$ 531,680 435,814
======= =======
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Obligations not liquidated because of outstanding checks $ 21,446 21,428
Accounts payable 32,575 35,698
Withheld payroll taxes 3,211 3,734
Accrued compensation and related costs 57,458 52,931
Other accrued expenses 31,517 27,187
Income taxes payable 8,774 5,346
------- -------
Total current liabilities 154,981 146,324
Long-term debt 65,651 35,059
Deferred compensation 13,916 11,258
Minority interests 3,288 2,804
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 19,999,463
shares-1999; 19,951,300 shares-1998 2,000 1,995
Class B common stock, $.10 par value
authorized 3,174,891 shares; none issued - -
Additional paid-in capital 16,539 15,534
Retained earnings 298,305 245,858
Accumulated other comprehensive loss (611) (720)
Unamortized value of restricted stock issued (945) (1,117)
Less common stock in treasury, at cost -
927,651 shares-1999; 917,458 shares-1998 (21,444) (21,181)
------- -------
Total shareholders' equity 293,844 240,369
------- -------
$ 531,680 435,814
======= =======
See accompanying notes to consolidated financial statements.
20
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
------ ------ ------
Continuing Operations
Operating activities:
Earnings from continuing operations $ 49,679 44,239 46,934
Minority interests 1,223 1,017 1,195
Depreciation 14,040 12,242 10,427
Amortization of intangible assets 4,304 2,237 1,706
Gain on dispositions of businesses - - (938)
Income tax provision greater (less)
than tax payments 8,521 1,617 (2,042)
Change in assets and liabilities
net of effects from acquisitions:
(Increase) in accounts receivable (35,129) (40,874) (29,223)
Increase (decrease) in payables
and accrued expenses (5,966) 12,731 9,829
Other 2,121 (1,838) (2,477)
------ ------ ------
38,793 31,371 35,411
------ ------ ------
Investing activities:
Purchases of fixed assets (27,585) (23,099) (11,932)
Acquisitions net of cash acquired (42,622) (39,138) (3,270)
Dispositions of businesses - - 6,034
Other (589) 389 532
------ ------ ------
(70,796) (61,848) (8,636)
------ ------ ------
Financing activities:
Borrowings long-term debt 34,704 46,006 10,724
Payments long-term debt (6,096) (11,580) (59,590)
Obligations not liquidated
because of outstanding checks 18 8,289 6,305
Share repurchase program - (20,478) -
Other 580 16 985
------ ------ ------
29,206 22,253 (41,576)
------ ------ ------
Net cash flows from continuing
operations (2,797) (8,224) (14,801)
Net cash flows from discontinued
operations 7,264 8,188 15,733
------ ------ ------
Increase (decrease) in cash 4,467 (36) 932
Cash at beginning of year 6,962 6,998 6,066
------ ------ ------
Cash at end of year $ 11,429 6,962 6,998
====== ====== ======
See accompanying notes to consolidated financial statements.
21
CDI CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
Years ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
Common stock ------- ------- -------
Beginning of year $ 1,995 1,995 1,985
Exercise of stock options 4 - 5
Restricted stock issued 1 - 5
------- ------- -------
End of year $ 2,000 1,995 1,995
======= ======= =======
Additional paid-in capital
Beginning of year $ 15,534 16,014 12,866
Exercise of stock options 672 14 1,076
Restricted stock-issued 278 - 2,072
Restricted stock-vesting/forfeiture (25) 2 -
Restricted stock-change in value 76 (495) -
Treasury stock issued - (1) -
Management Stock Purchase Plan 4 - -
------- ------- -------
End of year $ 16,539 15,534 16,014
======= ======= =======
Retained earnings
Beginning of year $ 245,858 200,281 162,669
Net earnings 52,447 45,577 37,612
------- ------- -------
End of year $ 298,305 245,858 200,281
======= ======= =======
Accumulated other comprehensive loss
Beginning of year $ (720) (207) 54
Translation adjustment 109 (513) (261)
------- ------- -------
End of year $ (611) (720) (207)
======= ======= =======
Unamortized value of restricted stock issued
Beginning of year $ (1,117) (1,819) -
Restricted stock-issued (279) - (2,077)
Restricted stock-vesting/forfeiture 188 25 -
Restricted stock-change in value (76) 495 -
Restricted stock-amortization of value 339 182 258
------- ------- -------
End of year $ (945) (1,117) (1,819)
======= ======= =======
Treasury stock
Beginning of year $ (21,181) (679) (588)
Issued - 1 5
Purchased - (20,478) -
Exercise of stock options (75) - (96)
Restricted stock-forfeiture (188) (25) -
------- ------- -------
End of year $ (21,444) (21,181) (679)
======= ======= =======
Comprehensive income
Net earnings $ 52,447 45,577 37,612
Translation adjustment 109 (513) (261)
------- ------- -------
$ 52,556 45,064 37,351
======= ======= =======
See accompanying notes to consolidated financial statements.
22
CDI CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except shares, per share data and ratios)
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. Certain prior year
amounts have been reclassified to conform to current year presentation.
Use of Estimates and Uncertainties - 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.
The Company operates in a dynamic industry, and accordingly, can be
affected by a variety of factors including future regulatory changes,
uncertainty relating to the performance of the U.S. economy, competition, demand
for the Company's services, adverse litigation and claims and the hiring,
training and retention of key employees.
Fixed Assets - Fixed assets are stated at cost and are depreciated 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 computer hardware, 14% to 33% for computer software and 10% to 25% for
equipment and furniture. Leasehold improvements are amortized over the shorter
of the estimated life of the asset or the lease term.
Goodwill and Other Intangible Assets - Goodwill of $88,644 as of December
31, 1999 and $47,661 as of December 31, 1998 representing the cost in excess of
the fair value of net assets acquired related to acquisitions is being amortized
on a straight-line basis generally over 15 and 20 years. For the year ended
December 31, 1999, 1998 and 1997 amortization expense was $3,748, $1,669 and
$1,128, respectively. Accumulated amortization was $10,311 as of December 31,
1999 and $6,563 as of December 31, 1998.
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 $684 and $1,183
at December 31, 1999 and 1998, respectively, are being amortized on the
straight-line method over five to twelve years. Amortization of other intangible
assets in 1999, 1998 and 1997 was $556, $568 and $578, respectively. Accumulated
amortization was $4,910 as of December 31, 1999 and $4,354 as of December 31,
1998.
The Company reviews long-lived assets, goodwill and other identifiable
intangibles to be held, used or disposed of for impairment based on the
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.
23
Revenue Recognition - Revenue from contract and staffing services in the
Technical Services and Information Technology services operating segments is
recognized as services are performed. Billings to customers in these segments
for subcontract labor and other pass-through type costs are reduced by the
associated direct costs with the resultant margin included in reported revenue.
Revenue from staffing services in the Todays Staffing and Management
Recruiters operating segments is recognized as services are performed and
includes revenues from both company and franchised offices.
Revenue in the Management Recruiters operating segment from permanent
placements is recognized either upon commencement of employment of candidates or
as retainer requirements are met and includes revenue from just company offices.
The segment's revenues from its franchised offices are comprised of fees from
franchise sales and from ongoing royalties paid by franchisees related to
permanent placements achieved by franchisees. Fees from franchise sales are
recognized when a franchisee commences business. Fees from royalties are
recognized when a franchisee has the obligation to pay them.
Stock-Based Compensation - The Company uses the intrinsic value based
method of accounting for stock options and similar instruments granted to
employees and directors in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. No compensation expense has
been recognized in the financial statements for grants of stock options because
option exercise prices are not less than the fair market value of the underlying
common stock at dates of grants.
Income Taxes - The Company accounts for income taxes in accordance with
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires an asset and liability approach of accounting for income taxes. The
Company and its wholly-owned U.S. subsidiaries file a consolidated federal
income tax return.
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.
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 1999, 1998 and 1997 was determined as follows:
1999 1998 1997
---------- ---------- ----------
Basic
Average shares outstanding 19,052,110 19,689,349 19,904,888
Restricted shares issued not vested (38,605) (45,937) (50,900)
---------- ---------- ----------
19,013,505 19,643,412 19,853,988
========== ========== ==========
24
1999 1998 1997
---------- ---------- ----------
Diluted
Shares used for basic 19,013,505 19,643,412 19,853,988
Dilutive effect of stock options 63,661 38,601 71,672
Dilutive effect of units under the
Management Stock Purchase Plan 34,738 - -
Dilutive effect of restricted shares
issued not vested 4,073 1,400 3,581
---------- ---------- ----------
19,115,977 19,683,413 19,929,241
========== ========== ==========
Acquisitions
- ------------
During the years ended December 31, 1999 and 1998, the Company completed a
number of acquisitions involving each of its operating segments. Investments in
the businesses acquired totaled $50,012 and $39,138 for the years ended December
31, 1999 and 1998, respectively. All acquisitions were accounted for using the
purchase method. For 1999, assets of $55,603 were acquired (including goodwill
of $44,736) along with liabilities of $6,330. A portion of the investment in
1999 reduced minority interests by $739. For 1998, assets of $45,011 were
acquired (including goodwill of $36,322) together with liabilities and minority
interests of $5,696 and $177, respectively.
Investments in businesses acquired in 1999 amounting to $7,390 were not
paid during the year and are not included in investing activities in the
consolidated statement of cash flows for the year ended December 31, 1999. Such
amounts will be paid in 2000.
Spending on acquisitions during 1997 was not significant.
Financial results of the acquired operations are reflected in the
accompanying Consolidated Statements of Earnings from date of acquisition. The
acquisitions did not have a significant effect on reported earnings for the
years ended December 31, 1999, 1998 and 1997, and respective earnings would not
have been significantly different from reported earnings had the acquisitions
occurred at the beginning of the years.
In connection with certain acquisitions, the Company is obligated to pay
contingent consideration if the acquired businesses achieve certain earnings and
operating performance targets over periods ranging from one to five years. In
general, amounts are due based on pre-determined performance levels at the time
of the acquisition. If performance levels are attained in their entirety,
contingent consideration due after December 31, 1999 would be:
2000 $ 2,500
2001 13,200
2002 9,000
2003 1,000
2004 1,600
------
$ 27,300
======
25
Contingent consideration, when earned is generally recorded as additional
purchase consideration and would increase goodwill. Any such amounts are
uncertain until required performance levels are actually attained.
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. The primary users of the Company's services are large U.S. based
industrial and commercial concerns, many of which are Fortune 500 companies. It
is not Company or industry practice to require collateral or other security for
receivables because of the nature of the customer base involved. Historically,
losses due to customers' inability to comply with the payment terms of their
contracts or agreements with the Company have not been significant.
Significant portions of the Company's revenue base and resultant
receivables are concentrated in certain industries. As of each of December 31,
1999 and 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.
Fixed Assets
- ------------
Fixed assets at December 31, 1999 and 1998 were comprised of the following:
1999 1998
------- ------
Computers and systems $ 76,197 55,156
Equipment and furniture 32,275 28,761
Leasehold improvements 9,387 8,421
------- ------
117,859 92,338
Accumulated depreciation (64,603) (52,885)
------- ------
$ 53,256 39,453
======= ======
Long-term Debt
- --------------
Long-term debt at December 31, 1999 and 1998 was as follows:
1999 1998
------ ------
Notes payable to banks under revolving
credit agreement with interest at 6.97% $ 40,000 20,000
Notes payable to banks under short-term
lines of credit with interest at 5.71% 22,200 14,000
Other 3,451 1,059
------ ------
$ 65,651 35,059
====== ======
The Company has a revolving credit agreement with a syndicate of banks,
which provides for borrowings up to $100 million through March 31, 2001.
Borrowings outstanding at March 31, 2001 may be converted into term debt which
26
would mature in quarterly installments payable over four years. There is an
annual facility fee equal to 3/10% of the banks' commitments. During 1999 and
1998, interest on borrowings under this agreement were at variable rates based
on rates quoted on the Interbank Eurodollar Market ("LIBOR") (adjusted for
reserve requirements) plus a LIBOR margin of 1/2%. The LIBOR margin can range
from 1/2% to 1-1/2% depending upon the ratio of all of the Company's borrowings
to its cash flow. 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 three banks are also available
under which interest rates are quoted on a transactional basis and are related
to the banks' costs of funds.
The weighted average interest rate incurred on borrowings during the years
ended December 31, 1999, 1998 and 1997 was 5.68%, 5.73% and 5.79%, respectively.
All borrowings at December 31, 1999 are classified as long-term because the
Company intends to finance maturities as they become due with borrowings under
the revolving credit agreement. As of December 31, 1999, long-term debt of
$12,310 will mature in 2001 with $16,413 maturing in each of 2002, 2003 and
2004.
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, 1999.
Capital Stock
- -------------
Stock Classification - 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. Class B shares so converted are then cancelled. At December 31,
1999, 1998 and 1997 no Class B common shares were issued.
Restricted Common Stock - During the years ended December 31, 1999 and
1997, the Company issued shares of restricted common stock which vest either
with the passage of time (ranging from three to ten years) or based on the
percentage achievement of predetermined goals (covering periods ranging from
three to five years). Shares that do not vest are forfeited.
Restricted common shares that vest over time have a fixed value when
issued. The value of restricted shares that vest based on performance will
fluctuate with changes in the fair market value of the common stock until there
is a determination as to performance vesting. Over the period of time that these
shares may become vested, there will be charges to earnings for the fair value
based on the aggregate number of these shares that become vested. As such
charges occur, unamortized value of restricted stock will be reduced. To the
extent that shares are forfeited, the unamortized value of such restricted stock
will be reduced and the forfeited shares will be placed in treasury stock.
27
Treasury Stock - 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. During 1998, 889,700 shares were purchased under the program for
$20,478. There were no repurchases in 1999.
Changes in common shares outstanding for the years ended December 31, 1999,
1998 and 1997 follow:
1999 1998 1997
---------- ---------- ----------
Shares issued
Beginning of year 19,951,300 19,950,800 19,853,983
Exercise of stock options 37,000 500 45,917
Restricted stock issued 11,000 - 50,900
Management Stock Purchase Plan 163 - -
---------- ---------- ----------
End of year 19,999,463 19,951,300 19,950,800
========== ========== ==========
Treasury shares
Beginning of year 917,458 27,265 24,921
Issued - (38) (200)
Purchased - 889,700 -
Exercise of stock options 3,150 - 2,544
Restricted stock forfeiture 7,043 531 -
---------- ---------- ----------
End of year 927,651 917,458 27,265
========== ========== ==========
28
Stock Based Plans
- -----------------
As of December 31, 1999, the Company maintains two stock-based incentive
compensation plans under which the Company has granted stock options to certain
employees, directors and consultants. The Company adopted the CDI Corp. 1998
Non-Qualified Stock Option Plan (the "1998 Plan") as a replacement for the
Non-Qualified Stock Option and Stock Appreciation Rights Plan (the "Old Plan").
Coincident with the adoption of the 1998 Plan, no additional stock options or
stock appreciation rights may be granted under the Old Plan.
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 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 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 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.
As of December 31, 1999, 1,391,333 shares of common stock are reserved for
future issuance under these plans. There are and have been no stock appreciation
rights outstanding under the Old Plan.
Activity under both stock option plans is as follows:
Shares
subject Weighted average
to options exercise price
---------- ----------------
December 31, 1996 178,950 $ 17.86
Granted 422,700 $ 35.69
Exercised (45,917) $ 13.08
Cancelled (20,333) $ 25.67
---------
December 31, 1997 535,400 $ 32.10
Granted 284,314 $ 32.51
Exercised (500) $ 16.88
Cancelled (9,253) $ 36.66
---------
December 31, 1998 809,961 $ 32.18
Granted 553,747 $ 24.38
Exercised (37,000) $ 14.78
Cancelled (189,674) $ 28.48
---------
December 31, 1999 1,137,034 $ 27.56
=========
29
Additional information regarding options outstanding as of December 31,
1999, 1998 and 1997, is as follows:
1999 1998 1997
--------- --------- ---------
Range of exercise prices
Lowest $15.00 13.00 13.00
Highest $46.50 46.50 41.69
Weighted average remaining life 7.3 years 6.7 years 4.9 years
Options exercisable
Number of shares 250,609 139,020 73,010
Weighted average exercise price $31.24 27.16 21.14
The Company accounts for stock options granted to employees and directors
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost for stock options is recognized for awards granted at exercise
prices that are at or above fair market value.
SFAS No. 123, "Accounting for Stock-Based Compensation," uses a fair value
based method of accounting for stock options. Had SFAS No. 123 been adopted,
additional compensation expense would have been recorded. Compensation expense
has been determined for the Company's stock option plans based on the fair
values of awards at dates of grant. If SFAS No. 123 had been adopted, net
earnings from continuing operations and related earnings per share would have
been the pro forma amounts indicated below for the years ended December 31,
1999, 1998 and 1997:
1999 1998 1997
------ ------ ------
Earnings from continuing operations
As reported $ 49,679 44,239 46,934
Pro forma $ 47,621 42,921 46,211
Basic earnings per share
Earnings from continuing operations
As reported $ 2.61 2.25 2.36
Pro forma $ 2.50 2.19 2.33
Diluted earnings per share
Earnings from continuing operations
As reported $ 2.60 2.25 2.36
Pro forma $ 2.49 2.18 2.32
The pro forma results may not be representative of the effects on reported
earnings for future years. These results consider the impact of stock options
granted since January 1, 1995 only. The weighted average fair value of options
granted in 1999, 1998 and 1997 has been estimated on the dates of grant using
the Black-Scholes Option Pricing Model using the following weighted-average
assumptions:
1999 1998 1997
------ ------ ------
Risk-free interest rate 5.41% 4.65% 6.52%
Expected life of option 10 years 9 years 7 years
Expected stock price volatility 42% 40% 44%
Expected dividend yield - - -
30
During the year ended December 31, 1998, the Company adopted the
Management Stock Purchase Plan ("MSPP"). Under the terms of the MSPP, 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.
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
participant's 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 this 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 84,572 MSPP units outstanding (including Company matching units)
that relate to bonus awards earned through the year ended December 31, 1999.
These MSPP units were determined using a weighted average market price of $21.78
per share. Compensation cost of $1,133 and $375 was recognized during 1999 and
1998, respectively, related to this plan.
During the year ended December 31, 1998, the Company adopted the
Performance Shares Plan ("PSP"). Under the terms of the PSP, members of the
Company's senior management designated by the Compensation 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. Participation
in the plan was initiated in 1998 with the performance period extending through
December 31, 2000. As of December 31, 1999 there were 20,700 shares allocated to
participants for issuance if performance levels are attained. 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 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 1999 and 1998
was less than that of the Standard and Poor's 500 Index and, accordingly, no
cost was reflected for this plan in 1999 or 1998.
31
Income Taxes
- ------------
The provision for income taxes relating to continuing operations for the
years ended December 31, 1999, 1998 and 1997 was comprised of the following:
Total Federal State Foreign
------- ------- ------ -------
1999
Current $ 27,311 21,080 3,012 3,219
Deferred 5,649 4,664 1,025 (40)
------ ------ ----- -----
$ 32,960 25,744 4,037 3,179
====== ====== ===== =====
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
====== ====== ===== =====
The tax effects of the principal components creating net deferred income
tax assets as of December 31, 1999 and 1998 were as follows:
1999 1998
------ ------
Components creating deferred tax assets
Expenses not currently deductible $19,058 20,585
Intangible assets amortization 1,287 1,617
Other 129 65
Operating loss carryforwards 293 257
------ ------
20,767 22,524
Valuation allowances (10) (38)
Components creating deferred tax liabilities
Deferral of revenues and accounts receivable (8,897) (8,746)
Basis differences for fixed assets (6,415) (1,994)
Other (911) (1,560)
------ ------
(16,223) (12,300)
------ ------
$ 4,534 10,186
====== ======
The net change in the valuation allowance for the year ended December 31,
1999 was a decrease of $28 and for 1998 an increase of $34. In assessing the
realizability of deferred tax assets, the Company considers whether it is more
32
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, 1999, 1998 and 1997 differed from the applicable
federal rate as follows:
1999 1998 1997
---- ---- ----
Federal rate 35% 35% 35%
State income taxes 3% 4% 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% 39% 37%
=== === ===
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, 1999 for federal income tax purposes, these carryforwards aggregated
approximately $400 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, 1999, for state income tax purposes, there were operating
loss carryforwards aggregating approximately $1,900 expiring in varying amounts
from 2002 through 2019. Benefits relating to approximately $1,800 have been
recognized for financial reporting purposes, of which benefits relating to
approximately $500 reduce goodwill. Benefits for the remaining $100 have not
been recognized and are included in the valuation allowances as of December 31,
1999.
Retirement Plans
- ----------------
Trusteed contributory and non-contributory defined contribution retirement
plans have been established for the benefit of eligible 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
the 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, 1999, 1998
and 1997 were $5,304, $5,003 and $3,718, respectively.
The Company does not provide other post-retirement benefits. Further, the
Company does not provide post-employment benefits.
33
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. Rental expense under all leases for the years
ended December 31, 1999, 1998 and 1997 were $23,918, $20,703 and $21,650,
respectively.
For periods after December 31, 1999, approximate minimum annual rental
expense under non-cancelable leases aggregate $54,987 with rentals of $16,300
due in 2000, $11,779 due in 2001, $9,076 due in 2002, $5,555 due in 2003 and
$3,802 due in 2004.
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 administrative, clerical, legal and
financial staffing services.
Operating segment data for the years ended December 31, 1999, 1998 and 1997
follows:
1999 1998 1997
--------- --------- ---------
Revenues
- --------
Information Technology Services $ 331,521 320,599 285,105
Technical Services 929,118 898,736 927,609
Management Recruiters 113,343 112,217 93,540
Todays Staffing 227,895 208,993 190,504
--------- --------- ---------
$ 1,601,877 1,540,545 1,496,758
========= ========= =========
34
1999 1998 1997
--------- --------- ---------
Earnings from continuing operations
before income taxes and minority
interests
- -----------------------------------
Operating profit
Information Technology Services $ 22,581 21,278 21,454
Technical Services 44,435 33,059 41,653
Management Recruiters 22,450 22,813 17,059
Todays Staffing 15,166 13,946 11,005
Corporate expenses (18,656) (14,986) (12,053)
--------- --------- ---------
85,976 76,110 79,118
Interest expense 2,114 1,384 2,337
--------- --------- ---------
$ 83,862 74,726 76,781
========= ========= =========
Depreciation and amortization
- -----------------------------
Information Technology Services $ 1,712 1,432 1,260
Technical Services 8,953 7,829 7,061
Management Recruiters 2,873 1,699 1,065
Todays Staffing 3,755 3,132 2,569
Corporate 1,051 387 178
--------- --------- ---------
$ 18,344 14,479 12,133
========= ========= =========
Assets
- ------
Information Technology Services $ 127,778 89,693 69,583
Technical Services 268,466 237,285 193,206
Management Recruiters 54,821 36,355 25,682
Todays Staffing 58,555 52,730 40,855
Corporate 21,204 14,399 7,309
Net assets of discontinued
operations 856 5,352 12,202
--------- --------- ---------
$ 531,680 435,814 348,837
========= ========= =========
Purchases of fixed assets
- -------------------------
Information Technology Services $ 1,334 1,881 1,093
Technical Services 11,526 8,051 7,188
Management Recruiters 2,128 2,809 1,021
Todays Staffing 1,178 1,308 2,109
Corporate 11,419 9,050 521
--------- --------- ---------
$ 27,585 23,099 11,932
========= ========= =========
Intersegment activity is not significant. Therefore, revenues reported for
each operating segment are substantially all from external customers.
35
The Company is domiciled in the United States and its segments operate
primarily in the United States. Revenues and fixed assets by geographic area for
the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
--------- --------- ---------
Revenues
- --------
United States $ 1,466,973 1,446,295 1,411,899
Canada, Europe and other 134,904 94,250 84,859
--------- --------- ---------
$ 1,601,877 1,540,545 1,496,758
========= ========= =========
Fixed assets
- ------------
United States $ 50,139 37,819 24,824
Canada, Europe and other 3,117 1,634 1,563
--------- --------- ---------
$ 53,256 39,453 26,387
========= ========= =========
There was no single customer from whom the Company derived 10% or more of
its consolidated revenues during 1999, 1998 or 1997.
In 1998, operating profit for Technical Services included reorganization
costs and other non-recurring charges of $2.3 million associated with realigning
and downsizing the Technical Services support structure.
Operating profit in 1997 for Technical Services included an approximately
$2.1 million pre-tax gain from the divestiture of non-strategic operations. The
after-tax impact on earnings from continuing operations of the gain was
approximately $300. Revenues in 1997 for the divested operations totaled $36
million.
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.
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 developmental engineering
division starting in 1997 after unsuccessfully attempting to sell it. The
liquidation of this division is complete.
36
Adjustments were made in 1999 to prior year provisions for loss from
discontinued operations resulting in a gain after taxes of $2,768 primarily from
the recovery on a disputed contract receivable and adjustment of certain
estimates. Adjustments were made in 1998 to prior year provisions for loss
resulting in a gain from discontinued operations after tax of $1,338 primarily
due to lower than anticipated costs related to the wind-down of discontinued
operations and greater than anticipated realization on the disposal of assets.
Adjustments were made in 1997 to prior year provisions resulting in a loss after
tax of $9,322 primarily for an additional reserve related to a major automotive
developmental engineering contract on which work was terminated in late 1996 and
for additional reserves for operating losses through the final wind-down of the
business. Ultimately this contract dispute was settled in 1999.
Net assets of the discontinued operations as of December 31, 1999 and 1998
were $856 and $5,352, respectively. Net assets were comprised of working capital
and deferred income taxes and are included in prepaid expenses and other in the
Company's Consolidated Balance Sheets.
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.
37
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, 1999 and 1998 and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999. 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 40. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, 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 21, 2000 ---------------------------------
KPMG LLP
38
CDI CORP. AND SUBSIDIARIES
Quarterly Earnings Years ended December 31,
1999 and 1998 (In thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ---------
1999
- ----
Revenues $ 389,121 407,576 409,274 395,906 1,601,877
Gross profit 100,683 105,960 111,686 106,298 424,627
Operating profit 20,300 21,465 23,136 21,075 85,976
Interest expense 427 440 499 748 2,114
Earnings from continuing
operations 11,733 12,397 13,332 12,217 49,679
Discontinued operations - 2,015 - 753 2,768
Net earnings $ 11,733 14,412 13,332 12,970 52,447
Basic earnings per share:
Earnings from continuing
operations $ .62 .65 .70 .64 2.61
Discontinued operations $ - .11 - .04 .15
Net earnings $ .62 .76 .70 .68 2.76
Diluted earnings per share:
Earnings from continuing
operations $ .62 .65 .70 .64 2.60
Discontinued operations $ - .11 - .04 .14
Net earnings $ .62 .75 .70 .68 2.74
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
39
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, 1999 and 1998, the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the
years ended December 31, 1999, 1998 and 1997, the footnotes
thereto and the report of KPMG LLP, independent auditors, are
filed herein.
Financial statement schedules
Schedule submitted for the years ended December 31, 1999, 1998
and 1997. II - Valuation and Qualifying Accounts
(b) Registrant has not filed a Form 8-K during the quarter ended
December 31, 1999.
40
(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)
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)
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)
41
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 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)
l. 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)
m. Consulting Agreement dated as of December 3, 1997 by and
between Registrant and Edgar D. Landis, 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)
n. 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)
o. Restricted Stock Agreement dated as of October 25, 1999
between Registrant and Gregory L. Cowan. (Constitutes a
management contract or compensatory plan or arrangement)
42
21. Subsidiaries of the Registrant.
23. Consents of experts and counsel.
27.(i) Financial Data Schedule. (December 31, 1999)
(ii) Restated Financial Data Schedules. (September 30, 1999,
June 30, 1999, March 31, 1999, December 31, 1998, September
30, 1998, June 30, 1998, March 31, 1998 and December 31,
1997)
43
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 7, 2000
- -------------------------------------
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 7, 2000
- -------------------------------------
By: /s/ Gregory L. Cowan
- -------------------------------------
Gregory L. Cowan
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: March 6, 2000
- -------------------------------------
By: /s/ Walter E. Blankley
- -------------------------------------
Walter E. Blankley
Director
Date: March 8, 2000
- -------------------------------------
44
By: /s/ John M. Coleman
- -------------------------------------
John M. Coleman
Director
Date: March 8, 2000
- -------------------------------------
By: /s/ Michael J. Emmi
- -------------------------------------
Michael J. Emmi
Director
Date: March 8, 2000
- -------------------------------------
By: /s/ Walter R. Garrison
- -------------------------------------
Walter R. Garrison
Director
Date: March 8, 2000
- -------------------------------------
By: /s/ Kay Hahn Harrell
- -------------------------------------
Kay Hahn Harrell
Director
Date: March 8, 2000
- -------------------------------------
By: /s/ Lawrence C. Karlson
- -------------------------------------
Lawrence C. Karlson
Director
Date: March 8, 2000
- -------------------------------------
By: /s/ Allen M. Levantin
- -------------------------------------
Allen M. Levantin
Director
Date: March 8, 2000
- -------------------------------------
45
By: /s/ Alan B. Miller
- -------------------------------------
Alan B. Miller
Director
Date: March 8, 2000
- -------------------------------------
By: /s/ Barton J. Winokur
- -------------------------------------
Barton J. Winokur
Director
Date: March 9, 2000
- -------------------------------------
46
Schedule II
-----------
CDI CORP. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Allowance for Uncollectible Receivables)
Years ended December 31, 1999, 1998 and 1997
Uncollectible
Additions receivables
Balance at charged written off, Balance
beginning to net of Other at end
of year earnings recoveries changes of year
---------- --------- ------------- ---------- ---------
December 31, 1999 $ 6,000,000 915,000 2,807,000 95,000(a) 4,203,000
December 31, 1998 $ 4,995,000 2,200,000 1,295,000 100,000(a) 6,000,000
December 31, 1997 $ 4,094,000 3,249,000 2,348,000 - 4,995,000
(a) Allowance of acquired businesses at dates of acquisition.
47
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
CDI CORP.
------------------
EXHIBITS
to
Annual Report
FORM 10-K
Year ended December 31, 1999
Under
SECURITIES EXCHANGE ACT OF 1934
INDEX TO EXHIBITS
Number Exhibit Page
- ------- ----------------------------------------------------------------- ----
3.1(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. CDICorp. 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)
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)
48
INDEX TO EXHIBITS
Number Exhibit Page
- ------- ----------------------------------------------------------------- ----
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 manage- ment contract or
compensatory plan or arrangement)
k. 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)
l. 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)
m. Consulting Agreement dated as of December 3, 1997 by and
between Registrant and Edgar D. Landis, 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
n. 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)
o. Restricted Stock Agreement dated as of October 25, 1999, 51
between Registrant and Gregory L. Cowan. (Constitutes a
management contract or compensatory plan or arrangement)
49
INDEX TO EXHIBITS
Number Exhibit Page
- ------- ----------------------------------------------------------------- ----
21. Subsidiaries of the Registrant. 54
23. Consents of experts and counsel. 56
27.(i) Financial Data Schedule. (December 31, 1999) 57
(ii) Restated Financial Data Schedules. (September 30, 1999, June 30, 58
1999, March 31, 1999, December 31, 1998, September 30, 1998,
June 30, 1998, March 31, 1998 and December 31, 1997)
50