UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2002
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from TO
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Commission file number 1-5519
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CDI Corp.
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2394430
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1717 Arch Street, 35th Floor, Philadelphia, PA 19103-2768
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(Address of principal executive offices)
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
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(Title of each class) (Name of exchange on which registered)
Indicate whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
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. Indicate whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2).
Yes [X] No [ ]
The aggregate market value as of the last business day of the Registrant's
most recently completed second fiscal quarter 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 $386,824,949
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 17, 2003 were:
Common stock, $.10 par value 19,358,844 shares
Class B common stock, $.10 par value None
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed with the
Securities and Exchange Commission for the Registrant's 2003 Annual Meeting
are incorporated by reference in Part III.
PART I
Item 1. BUSINESS
The Company - Overview
CDI Corp. (the "Company" or "CDI") is a professional services and outsourcing
company, with core competencies in engineering and information technology
(staffing and outsourcing) and related technical staffing, permanent placement,
and specialized and administrative staffing. The Company's principal executive
offices are located in Philadelphia, Pennsylvania. CDI concentrates its market
focus on several vertical sectors, including aerospace, financial services,
construction, pharmaceutical/biotech, petrochemicals, government and computer
services and derives the majority of its revenues from Fortune 1000 companies
serviced primarily in the United States. There was no single customer from whom
the Company derived 10% or more of its consolidated revenues, during 2002, 2001
or 2000. All of the Company's segments operate in highly-competitive
multi-billion dollar markets with no single market being dominant.
In the fourth quarter of 2001, the Company announced a multi-phased plan to
restructure and reorganize its operations and systems and support
infrastructure. Key elements of this "Plan of Restructure" included:
o Reducing staff headcount by approximately 33 percent and operating
offices by approximately 25 percent;
o Reorganizing the remaining business into four operating segments:
Professional Services ("PS"), Project Management ("PM"), Management
Recruiters International ("MRI") and Todays Staffing ("Todays");
o Exiting under-performing contracts and businesses;
o Streamlining and simplifying core information systems; and
o Consolidating and relocating back-office services.
The ability to recruit talent is a core competency for the Company. In every
segment of the Company, personnel are recruited by the Company and assigned to
work for customers at either customer locations or in the Company's own offices.
Such recruited personnel are employees of CDI. In some cases, the Company may
assume risk with respect to the performance of its services and the
acceptability of its employees to its customers.
In certain cases, particularly in the PS segment, the services of personnel
("supplier associates employees") supplied by other staffing companies or
contractors ("supplier associates") are used to fulfill customer contract
requirements. In these cases, the Company receives an administrative fee for
arranging for, billing for and collecting the billings related to the supplier
associates. Typically, the customer is responsible for assessing the work of the
supplier associates who have the responsibility for the performance
acceptability of their personnel to the customer.
In the PM segment, the Company recruits and hires engineering, information
technology and other technical professionals to work on a project basis either
on-site at customer locations or in CDI's own offices. Such recruited personnel
are employees of the Company. This segment also performs outsourcing
particularly with respect to customers' internal systems operations. In this
segment, the Company may assume risk with respect to the performance of its
services. The Company may also assume responsibility for the quality of the
project or deliverable and the terms, particularly the cost and length of time,
under which the Company agrees to deliver the project.
MRI is in the business of providing permanent placement services through a
network of approximately 1,145 franchised offices throughout the world. MRI also
provides specialized staffing services primarily focused on shorter term
middle-management executive assignments through its franchise network and
Company-owned offices and temporary health care professionals through its
Company-owned offices. This operating segment derives its revenue from initial
franchise fees, continuing franchise royalties, placement fees and specialized
staffing services.
Todays primarily provides temporary, administrative and office support staff, as
well as legal and finance professionals. The segment recruits and hires
employees and provides these personnel to the customer on a contract or project
basis. In managed staffing, the segment not only provides the employees but also
manages the customer's entire contract staffing needs in identified areas.
CDI's staffing services are designed to help customers meet a variety of needs
in a flexible, efficient, and cost-effective manner. Typically, the demand for
CDI's staffing services is driven by one or a combination of the following
customer needs: to acquire staff quickly, efficiently, and often in large
volumes; to acquire special skills and talent; and to reduce costs while
improving efficiency by outsourcing certain human resources functions.
CDI's project management and outsourcing services are designed to give customers
a strategic advantage by enabling them to outsource whole projects or functions
that are essential but not necessarily core to the customers' business. By
outsourcing these projects or functions, customers can deploy capital more
efficiently; achieve cost savings and enhance their return on capital
investment; accelerate expansion; react more quickly to change and opportunity;
maintain stability in their workforce while preserving the ability to scale up
to meet increases in demand; and benefit from the talents of highly specialized,
skilled and experienced professionals without carrying them as permanent staff.
For financial information about geographic areas, see Note 17 - Operating
Segments to the Company's consolidated financial statements.
Operating Segments
The following table sets forth (in thousands) the revenues and pre- tax earnings
from 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,
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2002 2001 2000
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Revenues:
Professional Services $ 622,931 809,549 911,775
Project Management 311,256 352,210 388,020
Management Recruiters 85,901 103,167 136,752
Todays Staffing 149,387 193,666 238,908
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$ 1,169,475 1,458,592 1,675,455
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Earnings (loss) from continuing operations before income taxes, minority
interests and cumulative effect of accounting change:
Operating profit (loss)
Professional Services $ 6,880 (3,984) 20,148
Project Management 9,423 (10,957) 12,582
Management Recruiters 6,902 12,746 30,716
Todays Staffing 1,486 2,616 15,153
Corporate expenses (17,990) (23,448) (25,260)
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6,701 (23,027) 53,339
Interest (income) expense, net (115) 3,065 5,189
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$ 6,816 (26,092) 48,150
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Assets:
Professional Services $ 155,650 212,148 272,933
Project Management 89,996 120,032 154,013
Management Recruiters 44,779 47,247 52,029
Todays Staffing 38,934 50,171 62,199
Corporate 103,415 28,134 9,491
Net assets of discontinued operations - 14,840 21,364
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$ 432,774 472,572 572,029
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The items reported above for 2001 and 2000 have been restated to reflect the
Company's reorganization.
Professional Services ("PS")
PS offers information technology, engineering, and technical staffing solutions
to customers in targeted vertical markets, including financial services,
pharmaceuticals, information services and government. The segment's service
delivery is tailored to the unique needs of the customer, its most basic being
to provide skilled professionals to work at a single customer location on a
temporary basis. The segment's highest value to customers is in the provision of
customized managed staffing solutions, which may include serving as the lead
recruiter among several vendors, the procurement of hundreds of professional
employees across a broad geographic area, the provision of on-site management of
staffing requirements and certain human resources functions and the utilization
of web-based technology to support these functions. The Company's PS segment
also includes AndersElite, a major provider of building and construction
professionals based in the United Kingdom. Approximately 75 percent of the
segment's revenue is derived domestically with the balance coming from foreign
operations.
In providing its staffing services, this segment recruits and hires employees or
secures supplier associate employees and provides these personnel to customers
for assignments that, on average, last six to nine months. The vast majority of
services are performed in the customers' facilities ("in-customer"). Customers
use the segment's employees or supplier associate employees to meet peak period
personnel needs, to fill in for employees who are ill or on vacation, to provide
additional capabilities in times of expansion and change, and to work on
projects requiring specialized skills.
In managed staffing, this segment not only provides employees but may also
manage the customer's entire contract staffing needs, as well as certain human
resource functions required to manage the customer's contract workforce. When
providing managed staffing services, the segment frequently establishes on-site
offices at one or more of the customer's facilities, staffs it with employees
from the segment and ties that office into the segment's business systems. In
some instances, managed staffing services also include the coordination of
supplier associates employees assigned to the customer from other staffing
companies. The segment may add value to its managed staffing services with
web-based technology that helps to accelerate and streamline the procurement and
management of contract employees and the coordination and supervision of
supplier associates.
During the year ended December 31, 2002, PS provided services to approximately
2,100 customers. Historically, much of its business has been performed for large
multi-national manufacturing and industrial corporations, but the segment has
begun to penetrate non-industrial fields such as financial services,
pharmaceuticals, information services and government. In 2002, one large
industrial corporation comprised 15 percent of PS' total revenues while the top
10 customers accounted for less than 50 percent. Customers are geographically
dispersed. Managed staffing services are concentrated among a small number of
these customers, which tend to be among the largest U.S. corporations.
In providing staffing services, employees are hired by the segment and assigned
to work for a customer. The duration of an assignment depends upon the
customer's needs for the skills of an individual employee. At the end of an
assignment, the employee is either reassigned within a current customer,
assigned to perform services with another customer, or employment is terminated.
Supplier associates employees are employed by another staffing company or
contractor and are assigned to work for a customer. At the end of an assignment
the services of supplier associates are usually terminated.
Pricing under substantially all contracts between PS and its customers is based
on mark-ups on prevailing rates of pay. Contracts generally do not obligate the
customer to pay for any fixed number of hours. Segment revenues are recorded on
a gross basis as services are performed and associated costs have been incurred.
The segment records an administrative fee as revenue where supplier associates
are used. Generally the customer has the right to terminate the contract,
usually on short notice. PS maintains the right to terminate its staffing
employees at will.
PS' personnel are attracted to this type of employment by the opportunity to
work on "state-of-the-art" projects and by the geographic and industrial
diversity of the assignments. In addition, they are generally compensated at
very competitive rates. In some cases, employees view these contract assignments
as a bridge to permanent employment. PS' employees 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. Supervisory personnel
at managed programs are generally long-term employees and are important to the
continuing relationship with customers.
The ability of PS to find and hire employees 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 PS 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. Similarly, wage rates
typically decline in periods of lower demand for such skills. To assist in
fulfilling its personnel needs, a computerized retrieval system facilitates the
rapid selection of resumes on file so that customers' requirements may be filled
quickly.
PS operates through a network of approximately 63 sales and recruiting offices
located in major markets throughout the United States and 9 international
offices. Marketing activities are conducted by divisional and regional
management to ascertain opportunities in specific geographical 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, PS' 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.
Project Management ("PM")
PM provides engineering and information technology consulting, project
management, outsourcing and related staffing services to customers in high
technology and capital intensive markets. The segment provides high value-added
services and solutions to customers with contractual engagements that generally
are more than a year in duration and focuses on the vertical markets to which it
delivers high-value services: aerospace technologies, biotech & pharmaceutical,
chemical & industrial, and government. In addition, PM provides information
technology outsourcing solutions. Substantially, all of the segment's revenue is
derived from domestic operations.
PM's services typically involve managing a discrete portion or portions of a
customer's capital project, including, but not limited to, preliminary or
detailed plant design and construction management; validation and commissioning
of a facility; and lifecycle support. To the extent such activities entail
design and planning work, they are typically performed in-house. However,
construction management, validation, commissioning and lifecycle support
activities are generally performed on-site. The segment also provides
engineering consulting services such as, feasibility studies, turnaround
management, validation services and technical publications. The segment also
delivers information technology outsourced solutions such as infrastructure
management, enterprise support services and technology advisory services.
In both engineering and information technology outsourcing, this segment usually
takes over a customer's entire technical department, staffing the department
with employees, 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. In this case,
this segment may need to maintain a stand-alone operation that provides
technology systems to support the operations for single or multiple customers.
During the year ended December 31, 2002, PM provided services to approximately
330 customers. In 2002, one large multinational corporation comprised
approximately 10% of PM's total revenues. Customers and project locations are
geographically dispersed. Services are performed in customers' facilities
on-site and in PM's own facilities ("in-house") depending upon industry practice
and the needs and preferences of customers.
PM's personnel are attracted to this type of employment by the opportunity to
work on "state-of-the-art" projects and by the geographic and industrial
diversity of the projects. In addition, they are generally compensated at very
competitive rates.
When performing services on an in-customer basis, PM's employees are on PM's
payroll and are subject to its administrative control. When services are
performed in-house, PM generally provides supervision for employees, and may
have increased responsibility for the performance of work that is generally
monitored in conjunction with customer personnel. This segment is not reliant on
supplier associates to any significant degree.
The ability of PM to find and hire employees with the capabilities required by
its customers is critical to its operations. Such personnel usually have prior
experience in their field of expertise. During periods of high demand for
specific skills, it is not uncommon for PM 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. Similarly, wage rates
typically decline in periods of lower demand for such skills.
Pricing under the majority of contracts between PM and its customers is based on
mark-ups on prevailing hourly rates of pay, whereby revenues are recorded on a
gross basis. Contracts generally do not obligate the customer to pay for any
fixed number of hours. However, less than 15% of PM's revenue was derived from
fixed-price and outsourcing contracts. In these instances, the Company
recognizes revenue using the percentage of completion method. Generally the
customer has the right to terminate the contract, usually on short notice. PM
maintains the right to terminate its employees at will.
PM maintains approximately 34 offices across the United States and has 5
international offices. Marketing activities are conducted by divisional and
regional management to ascertain opportunities for PM in specific vertical
markets. Each office assists in identifying the potential markets and develops
that market through personal contact with prospective and existing customers.
Additionally, PM's operating management stays abreast of emerging demand for
services so that efforts can be expanded or redirected to take advantage of
potential business in either established or new marketing areas. Customers
typically invite several companies to bid for contracts, which are awarded
primarily on the basis of price, technological capability, value-added services,
and prior performance.
Management Recruiters International ("MRI")
MRI recruits executive, management, professional, technical, sales, and clerical
personnel for permanent employment positions with its customers. Candidates are
recruited for many different capacities including accounting, finance,
information technology, engineering, managerial, personnel, production, research
and development, sales, supervision, and technical. This segment derives revenue
mainly through its franchised operations.
Fees paid by the customer for placement services are generally a percentage of
the annual compensation to be paid to the new employee. Fees are paid on a
retainer basis or on a contingent basis after a qualified candidate has been
hired and remains employed for a trial period, generally 30 days. On large,
multiple placement projects, MRI can be engaged on a retainer basis for up to a
year in duration. MRI also provides certain specialty staffing on a temporary
basis, at times with the objective of permanently placing such personnel with
the customer-employer. MRI employs these temporary personnel.
As of December 31, 2002, MRI had approximately 1,145 franchised offices and 13
company-owned specialty staffing offices providing services to both large and
small employers in virtually all industries. The segment closed 21 company-owned
permanent placement offices during 2002 and sold 11 company-owned permanent
placement offices during the third quarter of 2002. Of the offices, 931 are
located throughout the United States with 227 offices located internationally.
All company-owned offices are located in the United States. The broad geographic
scope of operations enables franchisees 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. The
segment provided services to approximately 1,000 customers.
Franchisees located in the U.S. pay an initial fee approximating $77,000 to
acquire a franchise. The fee is charged for 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 MRI's
expertise in the business, from its Internet presence, national marketing,
public relations support, purchasing leverage and advertising campaigns.
Further, they receive extensive pre-opening training and start-up assistance on
site. Franchisees also have the right to use MRI's 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.
A large number of companies are engaged in the recruitment business and MRI
encounters significant competition. Employers commonly offer more than one
company the opportunity to find qualified candidates for a position making
competition for qualified individuals intense. MRI's ability to obtain
placements with employers is determined more on its ability to find qualified
candidates than on its fee structure.
Todays Staffing ("Todays")
The Company's Todays operating segment primarily provides temporary,
administrative and office support staff, as well as legal and finance
professionals. The segment recruits and hires employees and provides these
personnel to the customer on a contract or project basis. In managed staffing,
the segment not only provides the employees but also manages the customer's
entire contract staffing needs. This segment is not reliant on supplier
associates to any significant degree.
Customers retain Todays to meet peak period manpower needs, to temporarily
replace personnel on vacation and to staff special projects. During the year
ended December 31, 2002, these services were provided to approximately 5,700
customers. This segment focuses on small to medium-sized customers including
banks, mortgage and insurance companies, investment companies, utilities,
hospitals, law firms and universities with no one customer exceeding 4% of total
revenue.
Services are performed in customers' facilities by Todays employees who are
hired to work on customers' projects. The period of assignment depends on the
need for the skills of the individual employee. At the end of an assignment, an
employee is either reassigned within the current customer, assigned to perform
services with another customer, or employment is terminated. The average
assignment duration is approximately nine weeks. Todays personnel are on Todays
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 to locate and hire personnel with
customer-specific capabilities is critical to its operations.
Pricing is based on mark-ups on prevailing rates of pay, and arrangements with
the customer generally do not obligate the customer to pay for any fixed number
of hours. Segment revenues are recorded on a gross basis as in the PS segment.
Generally the customer has the right to terminate services, usually on short
notice. Todays maintains the right to terminate its staffing employees at will.
Todays operates through a network of approximately 93 sales and recruiting
offices, of which 10 are franchised and situated in the United States and 13
offices are located in Canada. As part of the Plan of Restructure, the segment
closed 15 company-owned offices during 2002. 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 employs all of the temporary personnel, including those
recruited by the franchised offices, and also bears the responsibility for
billing services to customers. Franchisees are responsible for selling services
to customers, recruiting temporary personnel and for administrative costs. The
franchisee receives a portion of the gross profit on the franchised accounts.
Employees
At December 31, 2002 the Registrant had approximately 18,000 employees. The
Registrant believes that its relations with its employees are generally good.
Access to Company Information
CDI Corp. electronically files its annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and all amendments to those reports
with the Securities and Exchange Commission (SEC). The public may read and copy
any of the reports that are filed with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that
contains reports, proxy, information statements, and other information regarding
issuers that file electronically.
CDI makes available, free of charge, through its website or by responding to
requests addressed to the Company's Vice President of Corporate Communications,
its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports filed by the Company with the
SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act, as
amended. This report is available as soon as reasonably practicable after such
material is electronically filed with or furnished to the Securities and
Exchange Commission. CDI's website address is: "http://www.cdicorp.com". The
information contained on the Company's website, or on other websites linked to
the Company's website, is not part of this document.
Item 2. PROPERTIES
The Company has closed or sold approximately 100 operating sites, primarily in
the United States, as a result of its restructuring and cost reduction efforts.
Many of these facilities are under non-cancelable operating leases. Accordingly,
the Company has negotiated lease buy-outs or subleases to minimize the cash
outflow requirements. In connection with the Company's office closings, reserves
were established to reflect the net estimated future cash outlays related to
closed office leases. There exists some risk that actual future cash outlays
could exceed these reserves in the event of sublease defaults. Refer to Note 16
(Leases) of the Notes to Consolidated Financial Statements for further
information concerning operating lease obligations and related sublease
arrangements.
As part of the Company's restructuring and reorganization efforts, some of the
Company's offices accommodate more than one operating segment. In such cases,
square-foot usage is allocated among the segments based on planned utilization.
The PS operating segment has approximately 63 active facilities throughout the
United States and 9 facilities internationally, occupying a total of
approximately 230,000 square feet of space. Most of the active 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 PM operating segment has approximately 34 active facilities throughout the
United States and 5 facilities internationally, occupying a total of
approximately 372,000 square feet of space. Most of the space is devoted to
in-house services and the balance to sales, marketing and administrative
functions. The facilities are leased under terms generally extending up to five
years.
The MRI operating segment occupies approximately 82,000 square feet of office
space at 13 active locations, primarily for franchise-support back-office
functions. The active facilities are leased for varying terms, the majority of
which extend up to five years. MRI also has approximately 1,145 franchised
offices. Generally, franchisees enter into their own leases for which this
segment assumes no obligation.
The Todays operating segment occupies approximately 156,000 square feet of
office space in approximately 83 active locations for its company-owned
temporary services offices. The active facilities are leased for varying terms
generally extending up to five years. Todays' also has 10 franchised offices.
Franchisees enter into their own leases for which this segment assumes no
obligation.
The Company's corporate headquarters is located in Philadelphia, Pennsylvania
occupying approximately 64,000 square feet of office space. CDI's shared
services center occupies approximately 37,000 square feet of office space in
Philadelphia for back-office functions. CDI's shared services center is being
transitioned from Philadelphia to West Virginia. The Philadelphia facilities
have remaining lease terms of less than five years.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Stock price and other information regarding the Company's common stock is for
the years ended December 31, 2002 and 2001, and can be found in the table below.
CDI's common stock is traded on the New York Stock Exchange.
2002 2001
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High Low High Low
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First quarter $23.78 18.58 17.00 12.00
Second quarter 32.55 22.06 18.20 12.50
Third quarter 32.49 22.90 18.45 11.05
Fourth quarter 29.30 23.43 20.50 13.82
No cash dividends were declared during the years ended December 31, 2002 and
2001. The Company has no present intention of paying cash dividends during the
year ending December 31, 2003.
Shareholders of record on March 14, 2003 numbered 488. This number counts each
street name account as only one shareholder, when, in fact, such an account may
represent multiple owners. Taking into account such multiple owners, the total
number of shareholders approximated 3,800.
On October 14, 2002, the Company issued 10,000 restricted shares of the
Company's common stock to Jay G. Stuart, the Company's Chief Financial Officer,
as part of an arrangement made to induce Mr. Stuart to join the Company. On
November 18, 2002, the Company issued 3,000 restricted shares to an officer of a
subsidiary of the Company, as part of an arrangement made to induce that officer
to join the subsidiary. On June 17, 2002, 1,309 shares of common stock were
issued by the Company to an officer of another subsidiary of the Company upon
vesting of units awarded to that officer under the Company's Stock Unit Plan. In
all three cases, the shares were issued in consideration for services performed
or to be performed by the recipient. Each of those issuances was made in
reliance on the exemption from registration found in section 4(2) of the
Securities Act of 1933.
Item 6. SELECTED FINANCIAL DATA
Following is Selected Financial Data for the years ended December 31, 2002,
2001, 2000, 1999 and 1998. The data presented is in thousands, except for per
share data.
2002 2001 2000 1999 1998
-------------- --------------- --------------- ---------------- ----------------
Earnings Data:
Revenues $ 1,169,475 1,458,592 1,675,455 1,552,831 1,477,479
============== =============== =============== ================ ================
Earnings (loss) from $ 4,082 (16,704) 28,811 45,514 42,906
continuing operations
before cumulative effect
of accounting change
Discontinued operations 527 1,094 4,192 6,933 2,671
Cumulative effect of
accounting change, net of
tax (13,968) - - - -
-------------- --------------- --------------- ---------------- ----------------
Net (loss) earnings $ (9,359) (15,610) 33,003 52,447 45,577
============== =============== =============== ================ ================
Basic (loss) earnings per share:
Earnings (loss) from
continuing operations $ 0.21 (0.88) 1.51 2.39 2.18
Discontinued operations $ 0.03 0.06 0.22 0.36 0.14
Cumulative effect of
accounting change $ (0.73) - - - -
Net (loss) earnings $ (0.49) (0.82) 1.73 2.76 2.32
Diluted (loss) earnings per share:
Earnings (loss) from
continuing operations $ 0.21 (0.88) 1.51 2.38 2.18
Discontinued operations $ 0.03 0.06 0.22 0.36 0.14
Cumulative effect of
accounting change $ (0.71) - - - -
Net (loss) earnings $ (0.48) (0.82) 1.73 2.74 2.32
Cash dividends $ - - - - -
Balance Sheet Data:
Total assets 432,774 472,572 572,029 $ 531,680 435,814
Long-term debt
(including current
portion) 480 7,913 49,623 $ 65,651 35,059
Shareholders' equity $ 307,801 310,650 325,795 293,844 240,369
The financial data listed above has been restated to reflect 1) Emerging Issues
Task Force Consensus No. 01-14, which deals with the recognition of certain
direct expenses as a component of revenue and 2) SFAS 144, which required that
Modern Engineering's operations be treated as a discontinued operation as a
result of divestiture in 2002. Refer to Note 1 - Significant Account Policies of
Notes to the Consolidated Financial Statements for further information.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYASIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
CDI participates in a market that is cyclical in nature and extremely sensitive
to economic changes. As a result, the impact of economic changes on revenues and
operations can be volatile. The Company's consolidated revenues have declined
30.2% since 2000. The most significant portion of that decline occurred in the
past year. Prior to 2001, CDI had established significant personnel and complex
system infrastructures to support a high-growth strategy through broad-based
market penetration and acquisitions. The dramatic slowdown in the United States
economy, which began during 2000, prompted management to reconsider its
strategy. In that regard, the Company initiated non-strategic reductions in its
staff personnel and office requirements in response to the drop in sales volume
during mid-year 2001. At the same time, strategic reviews were conducted to
develop a comprehensive new strategy.
In October of 2001, a new Chief Executive Officer began to address the Company's
operating challenges and developed a Plan of Restructure, which was approved by
the Company's Board of Directors in December 2001. Under this multi-phased Plan,
CDI commenced a process in December 2001 that continued into the fourth quarter
of 2002 to exit lower-margin customer contracts, re-deploy assets (by selling
its Modern Engineering subsidiary and certain MRI permanent placement offices),
support growth in higher-margin businesses and lower its break-even point
through structural cost reductions. This Plan of Restructure was announced in
three phases. Phase 1, announced in December 2001, focused primarily on the
Company's newly reorganized PS segment as well as simplification of the
Company's core information systems. Phase 2, announced in March 2002, focused
primarily on the Company's PM segment and Phase 3, announced in September 2002,
focused primarily on Todays, MRI and back-office services. The Company also
achieved cost reductions through the streamlining of its information technology
and financial systems, as well as operations management and support structures.
Management reorganized its businesses into four operating segments: Professional
Services, Project Management, Management Recruiters International and Todays
Staffing. In conjunction with the Plan of Restructure, the Company recorded
provisions for restructure in both 2002 and 2001 as noted below:
Years ended December 31,
---------------------------------
(in millions)
---------------------------------
2002 2001
--------------- -------------
Asset impairments $ 3.2 13.8
Provision for severance 3.5 4.7
Provision for termination of operating leases 5.9 3.5
--------------- -------------
$ 12.6 22.0
=============== =============
The breakdown of these costs by operating segment is as follows:
Years ended December 31,
--------------------------------
(in millions)
--------------------------------
2002 2001
--------------- ------------
Professional Services $ 2.5 11.6
Project Management 4.0 7.1
Todays Staffing 3.9 0.6
Management Recruiters 1.6 1.9
Corporate 0.6 0.8
--------------- ------------
$ 12.6 22.0
=============== ============
The provisions for asset impairment primarily relate to the write-down of the
Company's Enterprise Resource Planning (ERP) System that was fully
decommissioned on June 30, 2002. The Company has been migrating to systems that
are targeted to meet specific business needs with lower complexity and
investment requirement, and support costs. During the decommissioning period,
the Company recorded approximately $7.0 million of accelerated depreciation to
reflect the revised carrying cost of the ERP System over its revised service
life. These depreciation costs were recorded as a component of operating and
administrative expenses in 2002.
The provisions for severance relate to the involuntary termination of
approximately 570 staff, which were granted discretionary severances by the
Company. To the extent certain critical employees were granted stay-on bonuses,
such costs were charged to operations as services were rendered. Substantially
all employee terminations were completed by December 2002.
The provisions for the termination of operating leases relate to the Company's
decision to close approximately 100 offices under the Plan of Restructure. Such
provisions consider estimated sublease rentals and anticipated lease buyouts.
Substantially all office closures were completed by December 2002.
Collectively, the Company recorded pre-tax provisions for restructuring of $34.6
million ($22.0 million in December 2001, $4.1 million in March 2002, and $8.5
million in September 2002). Phase 1 was fully implemented by December 2002 and
Phases 2 and 3 were substantially completed by that date. The Plan of
Restructure, together with other cost containment initiatives launched in both
2001 and 2002 has resulted in significant reductions in CDI's cost structure. In
addition, there has been an ongoing focus on working capital management and cash
flows. These efforts have resulted in an improvement in customer repayment
terms, debt reduction, and improved cash flows. More importantly, the Company
has improved discipline in its marketing and sales strategies and now focuses on
growth in targeted vertical markets and in service offerings providing the
greatest opportunities to maximize returns. Key service offerings in ascending
order of returns and value to customers include: administrative staffing,
technical (engineering) staffing, information technology staffing, managed
solutions, engineering and information technology outsourcing, and management
recruiting.
In 2002, implementation of the Plan of Restructure resulted in year-over-year
cost reductions of approximately $42.0 million. In 2003, the Company anticipates
additional cost savings, related to its Plan of Restructure, of approximately
$18 million. At December 31, 2002, the Company has a residual restructuring
liability of $8.9 million, which relates primarily to lease termination costs.
The severance component of this liability will be liquidated in 2003 and the
lease component will be substantially liquidated by 2005, although it is
management's intent to liquidate the lease obligations as soon as possible.
In addition to charges related to the Company's Plan of Restructure, the sale of
Modern Engineering, and certain Company-owned permanent placement offices, the
Company has recorded certain other charges in each of the years in the
three-year period ended December 31, 2002 that are reflected in operating and
administrative costs. These amounts totaled $7.5 million in 2002, $8.8 million
in 2001, and $11.7 million in 2000. Such charges relate primarily to accelerated
depreciation of the Company's ERP system, various accounts receivable
adjustments, non-strategic reductions in both staff personnel and offices, and
the settlement of a dispute with the Company's health insurance provider.
Further, the Company ceased amortizing its goodwill as of January 1, 2002.
Goodwill amortization for the years ended December 31, 2001 and 2000 was $5.7
million and $5.5 million, respectively.
While the economic environment was challenging in 2002, as evidenced by the
decline in revenue, CDI began to reap the benefits of the actions noted above.
In 2002, the Company improved its overall financial condition in both its income
statement and balance sheet by increasing its operating margins, lowering its
costs structure, and collecting its receivables. CDI has established a financial
foundation and strategy that management believes can support both profit and
growth when the economy begins to improve.
Results of Operations, year ended December 31, 2002 vs. year ended December 31,
2001
Consolidated Results
The Company recorded consolidated revenues of $1,169.5 million in 2002, down
$289.1 million or 19.8% from last year, as each operating segment reported lower
revenues. Approximately 50% of this decline is attributable to the following
three items: 1) the decision to exit lower-margin contracts primarily in the PS
segment; 2) the sale of the company-owned offices in MRI; and 3) the dramatic
decline in telecommunications work that is part of the PM segment. The remaining
decline is primarily attributable to the challenging business climate in the
U.S. economy, particularly in the information technology sector within PS and in
the Todays segment. MRI is also operating in a difficult job placement market as
employers delay hiring. However, AndersElite in the U.K., which operates in the
PS segment, experienced strong growth in 2002. Excluding all the revenue from
telecommunications work in both 2002 and 2001, PM revenues actually increased
5.6 % in 2002 as compared to 2001. This growth was primarily driven by revenues
in the biopharmaceutical and chemical sectors.
The Company's gross profit of $304.8 million in 2002 is lower by $62.2 million
or 17.0% as compared to 2001, primarily due to lower sales volume, partially
offset by the consolidated gross profit margin increase from 25.2% in 2001 to
26.1% in 2002. This margin improvement reflects the shift from lower-margin
contracts to higher-margin and longer-cycle assignments. With the exception of
MRI, all operating segments showed improved gross profit margins in 2002 as
compared to 2001.
In 2002, operating and administrative expenses of $284.3 million are $83.8
million or 22.8% lower than operating and administrative expenses incurred in
2001. Approximately $42.0 million or 50.0% of this reduction is directly
attributable to savings from the aforementioned Plan of Restructure and other
actions taken to reduce personnel requirements, office locations, and systems
infrastructure. In addition, due to a combination of declines in revenue and
enhanced financial discipline, expenses were reduced by $35.0 million
year-over-year. Finally, operating expenses in 2001 included almost $6 million
of goodwill amortization.
As previously discussed, the Company instituted a multi-phased Plan of
Restructure in 2001. The first phase of the Plan of Restructure resulted in a
pre-tax charge in 2001 of $22.0 million. Follow-up phases of the Plan of
Restructure were defined, planned and approved by management in 2002 and
resulted in pre-tax charges of $12.6 million.
In the third quarter of 2002, the Company recorded a loss on the sale of its MRI
company-owned permanent placement offices of $1.3 million. This transaction was
completed to focus MRI on its franchise operations and provide capital to
re-deploy toward franchise support.
Operating profit for the year ended 2002 was $6.7 million, a $29.7 million
improvement over 2001. Despite the significant decline in gross profit of $62.2
million, primarily as a result of the reduction in revenue, the Company was able
to achieve significant reductions in its operating and administrative expenses
of $83.8 million. In addition, restructuring provisions were $9.4 million lower
in 2002, which were partially offset by a loss on sale of assets of $1.3 million
associated with its MRI company-owned permanent placement offices.
Net interest income was $0.1 million in 2002 as compared to net interest expense
of $3.1 million in 2001. This was due to the elimination of all bank borrowings,
as well as interest income from invested cash.
The Company's effective income tax rate was 38.1% in 2002, 37.5% in 2001, and
38.4% in 2000.
In June 2002, the Company sold the net operating assets of its subsidiary Modern
Engineering, Inc. ("Modern"), which operated in its PM operating segment.
Accordingly, Modern's activity is reflected as discontinued operations in the
accompanying financial statements in accordance with the requirements of
SFAS-144. All financial statements have been restated accordingly.
In 2002, the Company recorded impairment charges of $21.4 million, ($14.0
million after-tax) for the write-off of goodwill. These charges primarily relate
to a former acquisition in the PS segment, and are presented as a change in
accounting as of January 1, 2002, in accordance with the provisions of SFAS-142.
The Company's net loss per diluted share in 2002 was $0.48 compared to a net
loss per diluted share of $0.82 in 2001. Acquisition activity in 2002 or 2001
was not significant and therefore did not have any meaningful effect on
operations.
Segment Discussion
Professional Services ("PS")
PS's revenues of $622.9 million decreased $186.6 million in 2002 or 23.1%
compared to 2001. A significant reason for this segment's year-over-year decline
in revenue is attributable to the planned exit of approximately $85.0 million of
certain lower-margin contracts as part of the Company's newly implemented
strategy. The remaining decline is related to softening demand in both technical
services and information technology sectors, a weakening economy, offshore
competition, and pricing pressures particularly within the information
technology sector. Partially offsetting this revenue trend in 2002, was a strong
revenue improvement in the U.K. operations of AndersElite. AndersElite's market,
professional services in the construction trades, has remained largely immune to
the general declines in the U.K. staffing market.
PS's operating profit was $6.9 million in 2002 compared to an operating loss of
$4.0 million in 2001. Primarily as a result of aggressive restructuring efforts
in 2002, the most significant factor in this improvement in profitability was a
reduction in operating and administrative expenses of approximately $27.1
million. In addition, improved segment performance was due to lower
restructuring charges in 2002 of $9.1 million. Partially offsetting these
improvements in operating profit was a $25.3 million reduction in gross profit
($34.4 million of the decline was related to the fall-off in revenue partially
offset by a $9.1 million improvement in the gross profit rate). This segment's
gross profit rate improved 150 basis points on a year-over-year basis due
primarily to having exited very low margin business during the first half of
2002.
Project Management ("PM")
PM's revenues of $311.3 million in 2002 decreased $40.9 million or 11.6%
compared to 2001. This segment includes the telecommunications sector, which
experienced significant declines due to the dramatic issues facing that
industry. Excluding the impact of the telecommunications business fall-off, the
PM segment experienced 5.6% revenue growth year-over-year.
PM's operating profit was $9.4 million in 2002 compared to an operating loss of
$11.0 million in 2001. Several factors contributed to the improvement in 2002
operating profit. The most significant improvement in profitability was the
reduction in operating and administrative expenses of $20.7 million, primarily
as a result of restructuring efforts implemented in early 2002. In addition,
reductions in restructuring provisions of $3.1 million further improved the
operating results. As a result of the decline in revenue, this segment's
year-over-year gross profit declined $3.4 million. This decline is comprised of
$9.2 million related to reduction in revenue, which was substantially offset by
a $5.8 million improvement in gross profit margin. The segment's gross profit
margin performance improved by 180 basis points, on a year-over-year basis, due
to the segment's focus on high-margin value-added business particularly within
the pharmaceuticals and biotechnology sectors.
Todays Staffing ("Todays")
Todays' revenues of $149.4 million in 2002 decreased $44.3 million or 22.9%
compared to 2001. Todays' volume of business declined steadily throughout 2002
and 2001. Two primary factors that contributed to Todays' revenue declines are
the softening of the U.S. economy and severe competitive pressures on pricing
that resulted in lost customers. In response, the Company implemented a
restructuring plan in the third quarter of 2002. This plan was designed to lower
costs while improving Todays' business model. As a result, Todays is now more
competitive, as evidenced by the improvements in its revenue pattern.
Todays' operating profit was $1.5 million as compared to $2.6 million in 2001.
The restructuring and cost-saving initiatives in 2002 and 2001 resulted in a
reduction in operating and administrative expenses of $13.8 million compared to
2001, which was partially offset by an increase in restructuring provisions of
$3.4 million . These actions resulted in a lower fixed cost base. These savings
were offset by a $11.5 million reduction in gross profit that was primarily
attributable to the revenue decline noted above. Gross profit margins were
relatively comparable year-over-year.
Management Recruiters ("MRI")
MRI's revenues of $85.9 million in 2002 decreased $17.3 million or 16.8%
compared to 2001, primarily as the result of a sluggish economy, which reduced
demand for its services. Approximately 30.0% of this revenue decline is
attributable to the company-owned permanent placement offices that were sold in
the third quarter of 2002. The overall decline in revenue was experienced in
both MRI's company-owned specialty staffing offices and its franchised
locations.
Operating profit in 2002 was $6.9 million as compared to $12.7 million in 2001.
The lower operating profit in 2002 was primarily due to the reduction in
revenues, which were partially offset by the elimination of goodwill
amortization. In 2001, goodwill amortization was approximately $1.3 million.
Corporate
Corporate expenses totaled $18.0 million in 2002 as compared to $23.4 million in
2001. The reduction in corporate expenses resulted from reduced spending on
information technology infrastructure and tighter cost controls. Further,
operating and administrative expenses in 2001 included $3.1 million of
event-driven charges that were primarily attributable to various
corporate-controlled investment write-offs.
Results of Operations, year ended December 31, 2001 vs. year ended December 31,
2000
Consolidated Results
The Company recorded consolidated revenues of $1,458.6 million in 2001, down
$216.9 million or 12.9% as compared to 2000, as each operating segment reported
lower revenues. The continuing economic slowdown in the United States throughout
2001 adversely affected the staffing industry and was the primary contributing
factor to the decline in revenues.
Consolidated gross profit of $367.0 million in 2001 was down $78.8 million, or
17.7% as compared to 2000. This reduction was primarily driven by the 12.9%
reduction in volume and deterioration in the consolidated gross profit margin
that was 25.2% of revenues in 2001 compared to 26.6% in 2000. This reduction in
the gross profit rate primarily reflected higher employee costs and a less
favorable mix of business as the economy softened in virtually every operating
segment.
Operating and administrative expenses of $368.1 million in 2001 were $24.4
million or 6.2% lower than expenses incurred in 2000. Contributing to the
decrease in operating and administrative expenses in 2001 were several factors
including reductions related to the decline in sales volume and approximately
$9.1 million of savings from various initiatives implemented throughout the
year.
As previously stated, the Company instituted a multi-phased Plan of Restructure
in 2001. The first phase of the Plan of Restructure resulted in a pre-tax charge
in 2001 of $22.0 million. The Company did not conduct similar restructuring
activities in 2000.
The operating loss for the year ended 2001 was $23.0 million, reflecting a $76.4
million decline from 2000. The largest factor contributing to this decline is
directly related to a $78.8 million reduction in gross profit resulting from the
significant fall-off in year-over-year revenues noted above. Also contributing
to the loss was the aforementioned restructuring charge of $22.0 million, which
was offset slightly by volume-related declines in operating and administrative
expenses.
Interest expense of $3.1 million in 2001 declined $2.1 million or 40.9% from the
prior year, due to reduced average borrowings during the year as well as lower
interest rates.
The Company's effective income tax rate was 37.5% in 2001 and 38.4% in 2000.
In June 2002, the Company sold the net operating assets of its subsidiary Modern
Engineering, Inc. ("Modern"), which operated in its PM operating segment.
Accordingly, Modern's activity is reflected as discontinued operations in the
accompanying financial statements in accordance with the requirements of
SFAS-144. All enclosed financial statements have been restated accordingly.
The Company's net loss per share in 2001 was $0.82 compared to earnings per
diluted share of $1.73 in the prior year. Acquisition activity in 2001 and 2000
was not significant.
Segment Discussion
Professional Services ("PS")
PS' revenues of $809.5 million decreased $102.2 million in 2001 or 11.2% as
compared to 2000. This segment experienced lower revenues in 2001 primarily due
to softening demand in both technical services and information technology
sectors; a weakening economy, off shore competition and pricing pressures
particularly within the information technology sector. Virtually all of the
segment's business lines, with the exception of its AndersElite U.K. operations,
were adversely impacted.
The segment reported an operating loss of $4.0 million in 2001 as compared to an
operating profit of $20.1 million in 2000. The most significant factor impacting
2001 operating profit was the significant decline in year-over-year gross profit
of $18.6 million. This segment's 2001 results were also adversely impacted by an
$11.6 million charge related to the Plan of Restructure, partially offset by a
reduction in operating and administrative expenses of $6.1 million, primarily
due to reductions in other charges. The most significant component of such
charges was related to a settlement of a dispute with the Company's health
insurance provider in 2000.
Project Management ("PM")
PM's revenues of $352.2 million in 2001 decreased $35.8 million or 9.2% as
compared to 2000. The segment includes the telecommunications sector, which
experienced significant declines due to the issues facing that industry.
Excluding the decline in its telecommunications business, PM's revenues in 2001
were flat compared to 2000.
PM's operating loss was $11.0 million in 2001 as compared to an operating profit
of $12.6 million in 2000. Government Services and Innovantage experienced an
increase in operating profit in 2001 as compared to 2000; while the aerospace
business, the Engineering Group and telecommunications experienced a decline in
operating profit, with the latter two businesses incurring operating losses. The
primary factor contributing to the decline in operating profit was related to a
$11.4 million reduction in gross profit ($8.3 million of the decline related to
the fall-off in volume and $3.1 million was attributable to erosion in the gross
profit margin). The decline in the year-over-year gross profit margin was
related to a less favorable mix of business as the economy softened. In
addition, PM incurred $7.1 million of restructuring charges during 2001 (none in
2000) and an increase of $5.1 million in operating and administrative expenses
including event-driven items.
Todays Staffing ("Todays")
Todays' revenues of $193.7 million in 2001 decreased $45.2 million or 18.9% as
compared to 2000, as the slowing economy particularly impacted Todays'
administrative staffing business. The segment also experienced an unfavorable
change in its business mix.
Todays had an operating profit of $2.6 million in 2001 compared to an operating
profit of $15.2 million in 2000. This decline in operating profit was primarily
related to a $14.5 million decline in gross profit. Of the $14.5 million decline
in gross profit, approximately $12.8 million was attributable to the decline in
revenue with the balance relating to a 90 basis point decline in the gross
profit margin, which was the result of the change in its business mix. The
balance of the decline is primarily attributable to various restructuring and
other charges.
Management Recruiters ("MRI")
MRI's revenues of $103.2 million in 2001 decreased $33.6 million or 24.6% as
compared to 2000 reflecting the slowing economy and its impact on demand for
permanent placement services. Revenues declined in both MRI-owned and franchised
operations.
This segment's operating profit was $12.7 million in 2001 as compared to an
operating profit of $30.7 million in 2000. Operating profit declined by $34.3
million primarily due to the contraction in revenues, as well as a $1.9 million
restructuring charge in 2001. Partially offsetting these impacts was a $18.2
million reduction in operating and administrative expenses. This reduction is
primarily related to the contraction in year-over-year revenue.
Corporate
Corporate expenses declined to $23.4 million in 2001as compared to $25.3 million
in 2000. The reduction in corporate expenses resulted from reduced spending on
information technology infrastructure and tighter cost controls.
Inflation
PS, PM and Todays segments' services are priced generally based on mark-ups on
prevailing rates of pay, and as a result are able to generally maintain their
relationship to direct labor costs. MRI's search services are priced as a
function of salary levels of the job candidates. In 2001, employee benefit
costs, primarily health care costs, rose due to an increase in the Company's
health insurance premiums. After the significant rise in insurance costs during
2001, the Company implemented a plan to reduce these costs through higher
co-pays and pricing adjustments during 2002. This strategy allowed the Company
to offset a portion of these costs. The Company is continuing to review its
options to further reduce these costs, which the Company does not believe are
representative of general inflationary trends. Otherwise, inflation has not been
a meaningful factor in the Company's operations.
Liquidity and Capital Resources
The total cash, cash equivalents, and short-term investments at December 31,
2002 were approximately $94.0 million (adjusted for outstanding checks of $6.0
million), which is a $77.7 million increase over 2001. In addition, the Company
reduced its debt by $7.4 million and eliminated all bank borrowings. CDI feels
that this source of cash is more than adequate to support growth opportunities.
Furthermore, the favorable cash position has allowed the Company to terminate
its $75.0 million credit agreement with a syndicate of banks that was due to
expire on March 31, 2003.
At December 31, 2002, the Company had approximately $41.1 million in cash and
cash equivalents and approximately $58.5 million of additional funds invested in
short-term investments. In 2002, the Company generated $83.9 million in cash
from operating activities, a decrease of $15.0 million when compared to 2001.
The largest component of change was in accounts receivable, resulting from both
revenue declines and collection activities.
The Company's main asset is its accounts receivable of $189.6 million or
approximately 44% of total assets at the end of 2002. Receivables decreased
$63.2 million or 25.0% over 2001. CDI's days sales outstanding cycle was at 58
days, a decrease of 2 days over 2001.
In 2002, cash used in investing activities was $70.4 million. This activity
includes the purchase of $58.5 million of short-term investments. Excluding
short-term investments, investing activities in 2002 were $11.9 million as
compared to $29.2 million in 2001. The reduction of $17.3 million in investing
activities was primarily from decreases in investments in fixed assets and
acquisitions. Acquisition activity in 2002 related to the purchase of the
minority interest in a subsidiary.
During 2001, the Company liquidated all of its bank borrowings by eliminating
$55.5 million of long-term debt. As a result, cash used in financing activities
declined $49.8 million to $7.4 million in 2002. Financing activities during 2002
represents full repayment of $4.7 million relating to a loan note from a prior
acquisition and $2.7 million of payments on other debt.
Summarized below are the Company's obligations and commitments to make future
payments under lease agreements and debt obligations as of year-end 2002:
Less than 1 1-3 More than 5
Total year years 3-5 years years
--------- ----------- ---------- --------- ------------
Operating leases $ 43,650 $ 13,149 $ 19,255 $ 5,619 $ 5,627
Short-term borrowings 480 480 - - -
--------- ----------- ---------- --------- ------------
Total $ 44,130 $ 13,629 $ 19,255 $ 5,619 $ 5,627
========= =========== ========== ========= ============
Critical Accounting Policies
The financial statements were prepared in accordance with generally accepted
accounting principles, which requires management to make subjective decisions,
assessments, and estimates about the effect of matters that are inherently
uncertain. As the number of variables and assumptions affecting the judgments
increases, such judgments become even more subjective. While management believes
that its assumptions are both reasonable and appropriate, actual results may be
materially different than estimated. The Company has identified certain critical
accounting policies, described below, that are the most susceptible to judgment.
Accounting for Impairment of Goodwill
Effective January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other
Intangible Assets". Accordingly, the Company discontinued amortizing goodwill
and began applying the specific guidance contained in that Statement to evaluate
the carrying value and recoverability of its goodwill by evaluating the fair
market value of the reporting units within which goodwill resides. The process
of estimating fair value, in part, relies on the use of forecasts to estimate
future cash flows expected from a reporting unit. The estimation of future cash
flows, based on reasonable and supportable assumptions and projections, requires
management's subjective judgments. The time periods for estimating future cash
flows are lengthy, which increases the risk that actual future results could
significantly deviate from estimates. As of December 31, 2001, the Company had
net goodwill of $87.5 million of which, $21.4 million was impaired and written
off as of January 1, 2002. The valuations for certain reporting units of the
Company were substantially in excess of the carrying value of their respective
net assets including goodwill. However, the valuations for certain other units
were more closely aligned to the carrying value of their respective net assets,
which includes goodwill. Changes in future market conditions, the Company's
strategy or other factors could impact upon the future values of these reporting
units, which could result in future impairment charges.
Accounting for Income Taxes
In establishing the provision for income taxes and deferred income tax assets
and liabilities, and valuation allowances against deferred tax assets, the
Company makes judgments and interpretations based on enacted tax laws, published
tax guidance, as well as estimates of future earnings. As of December 31, 2002,
the Company has total net deferred tax assets of $24.9 million. This includes
$4.3 million, which relates primarily to state net operating loss carry
forwards, capital loss carry forwards and other miscellaneous credits.
Realization of deferred tax assets is dependent upon the likelihood that future
taxable income will be sufficient to realize these benefits over time, and the
effectiveness of tax planning strategies in the relevant tax jurisdictions. In
the event that actual results differ from these estimates and assessments,
additional valuation allowances may be required.
Allowance for Uncollectible Receivables
When determining the allowance reserves for potentially uncollectible accounts
receivable, the Company must apply judgment. Such judgments include assessments
about changes in economic conditions, concentration of receivables among clients
and industries, recent write-off trends, rates of bankruptcy, credit quality of
specific customers and risks related to the exiting of lower-margin customer
contracts. As a result of deteriorating economic conditions, large customer
mergers and other factors, the Company's allowance reserves have increased as a
percent of receivables and sales over the past few years. At December 31, 2002,
this reserve was $7.7 million or 3.9% of gross accounts receivable.
Unanticipated changes in the financial condition of customers, the resolution of
various disputes, or significant changes in the economy could impact the
reserves required.
Accounting for Stock Options
The Company has used stock options to attract, retain and reward employees for
long-term service. Generally accepted accounting principles allow alternative
methods of accounting for these awards. The Company has chosen to account for
its stock plans (including stock option plans) under APB Opinion 25, "Accounting
for Stock Issued to Employees". Since option exercise prices reflect the market
value per share of the Company's stock upon grant, no compensation expense
related to stock options is reflected in the Company's income statement. SFAS
123, "Accounting for Stock-Based Compensation", prescribes the alternative
method of accounting for stock options. Had SFAS 123 been adopted, the Company
would have recorded additional pre-tax costs of approximately $1.8 million for
the year ended December 31, 2002. The pro-forma compensation cost was calculated
using the Black-Scholes Options Pricing Model, which includes estimates based on
assumptions for the risk-free interest rate, life of options and stock price
volatility. Changes in the underlying assumptions could impact the pro-forma
compensation cost.
New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 146 (SFAS 146) "Accounting for Costs
Associated with Exit or Disposal Activities", which supersedes EITF No. 94-3,
"Liability Recognition for Certain Employees Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". SFAS 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred, rather than at the date of a
commitment to an exit or disposal plan as required by EITF No. 94-3. SFAS 146 is
effective for restructuring activities initiated after December 31, 2002. This
Statement does not require companies to adjust restructuring reserves recorded
before 2003. The Company will apply SFAS 146 to future restructurings, if
applicable. Currently, there is no intention to initiate such action. Refer to
Forward Looking Statements below.
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 148 (SFAS 148) "Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No.
123". This Statement amends FASB Statement No. 123; "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. Refer to
Note 1 of CDI`s annual financial statements for additional disclosures related
to stock-based compensation. The transition provisions of SFAS 148 are effective
for years beginning after December 15, 2002. The Company is currently assessing
the potential impact this Statement may have on the Company's financial position
or results of operations should it elect to apply the transition provisions of
this Statement.
Effective December 15, 2002, the Company adopted FIN No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The Company has assessed this Interpretation and has
provided the necessary disclosures in Note 16 of the Notes to Consolidated
Financial Statements.
Forward Looking Statements
The Company's growth prospects are influenced by broad economic trends. The pace
of customer capital spending programs, new product launches and similar
activities have a direct impact on the need for temporary and permanent
employees. Should the U.S. economy decline during 2003, the Company's operating
performance could be adversely impacted. The Company believes that its Plan of
Restructure and strategic focus on targeted vertical market sectors provides
some insulation from adverse trends. However, significant declines in the
economy could result in the need for future cost reductions or changes in
strategy.
Additionally, changes in government regulations could result in prohibition or
restriction of certain types of employment services or the imposition of new or
additional benefits, licensing or tax requirements with respect to the provision
of employment services that may reduce CDI's future earnings. There can be no
assurance that CDI will be able to increase the fees charged to its clients in a
timely manner and in a sufficient amount to cover increased costs as a result of
any of the foregoing.
The staffing services market is highly competitive with limited barriers to
entry. CDI competes in global, national, regional and local markets with
numerous temporary staffing and permanent placement companies. Price competition
in the staffing industry is significant, particularly for the provision of
office clerical and light industrial personnel, and pricing pressures from
competitors and customers are increasing. CDI expects that the level of
competition will remain high in the future, which could limit CDI's ability to
maintain or increase its market share or profitability.
Certain information in this report, including Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Certain forward-looking statements can be identified by the use of
forward-looking terminology such as, "believes", "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "estimates," or
"anticipates" or the negative thereof or other comparable terminology, or by
discussions of strategy, plans or intentions. Forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. These include risks and
uncertainties such as competitive market pressures, material changes in demand
from larger customers, availability of labor, the Company's performance on
contracts, changes in customers' attitudes toward outsourcing, government
policies or judicial decisions adverse to the staffing industry, changes in
economic conditions and delays or unexpected costs associated with
implementation of the Company's Plan of Restructure. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company assumes no obligation to update such
information.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to risks associated with foreign currency fluctuations
and changes in interest rates. The Company's exposure to foreign currency
fluctuations relates to its operations in foreign countries conducted through
subsidiaries operating primarily in the United Kingdom and Canada. Exchange rate
fluctuations impact the U. S. dollar value of reported earnings derived from
these foreign operations as well as the carrying value of the Company's
investment in the net assets related to these operations. The Company generally
does not engage in hedging activities with respect to foreign operations except
for isolated situations involving inter-company payments that have not been
material. The effects of foreign currency exchange rate fluctuations have been
immaterial.
The Company's exposure to interest rate changes is not significant. As of
December 31, 2002 and 2001, there were no bank borrowings and only immaterial
amounts of other debt outstanding, none of which was variable rate debt. The
Company's investment in money market and other short-term instruments are
primarily at variable rates.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 2002, 2001 and 2000
(In thousands, except per share data)
2002 2001 2000
---------------- --------------- ----------------
Revenues $ 1,169,475 1,458,592 1,675,455
Cost of services 864,682 1,091,575 1,229,616
---------------- --------------- ----------------
Gross profit 304,793 367,017 445,839
Operating and administrative expenses 284,282 368,086 392,500
Provision for restructure 12,551 21,958 -
Loss on the sale of assets 1,259 - -
---------------- --------------- ----------------
Operating profit (loss) 6,701 (23,027) 53,339
Interest (income) expense, net (115) 3,065 5,189
---------------- --------------- ----------------
Earnings (loss) from continuing operations before
income taxes, minority interests and cumulative
effect of accounting change 6,816 (26,092) 48,150
Income tax (expense) benefit (2,599) 9,794 (18,467)
---------------- --------------- ----------------
Earnings (loss) from continuing operations before
minority interests and cumulative effect of accounting change 4,217 (16,298) 29,683
Minority interests 135 406 872
---------------- --------------- ----------------
Earnings (loss) from continuing operations before
cumulative effect of accounting change 4,082 (16,704) 28,811
Discontinued operations 527 1,094 4,192
Cumulative effect of accounting change, net of tax (13,968) - -
---------------- --------------- ----------------
Net (loss) earnings $ (9,359) (15,610) 33,003
================ =============== ================
Basic (loss) earnings per share:
Earnings (loss) from continuing operations $ 0.21 (0.88) 1.51
Discontinued operations $ 0.03 0.06 0.22
Cumulative effect of accounting change $ (0.73) - -
Net (loss) earnings $ (0.49) (0.82) 1.73
Diluted (loss) earnings per share:
Earnings (loss) from continuing operations $ 0.21 (0.88) 1.51
Discontinued operations $ 0.03 0.06 0.22
Cumulative effect of accounting change $ (0.71) - -
Net (loss) earnings $ (0.48) (0.82) 1.73
See accompanying notes to consolidated financial statements.
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2001
(In thousands, except share data)
2002 2001
------------------- ------------------
Assets
Current Assets:
Cash and cash equivalents $ 41,148 26,255
Accounts receivable, less allowance for doubtful
accounts of $7,683 - 2002; $8,162 - 2001 189,557 252,721
Short-term investments 58,477 -
Prepaid expenses 6,403 6,577
Income taxes receivable 6,101 -
Deferred income taxes 13,195 16,786
Assets of discontinued operations - 14,840
------------------- ------------------
Total current assets 314,881 317,179
Fixed assets, net 29,134 49,989
Deferred income taxes 11,750 5,709
Goodwill, net 68,334 87,469
Other assets 8,675 12,226
------------------- ------------------
$ 432,774 472,572
=================== ==================
Liabilities and Shareholders' Equity
Current Liabilities:
Obligations not liquidated because of outstanding checks $ 5,978 10,304
Accounts payable 25,008 29,684
Withheld payroll taxes 2,773 5,597
Accrued compensation and related costs 52,914 46,008
Other accrued expenses 29,328 42,620
Income taxes payable - 2,512
Current portion of long-term debt 480 7,913
Liabilities of discontinued operations - 3,513
------------------- ------------------
Total current liabilities 116,481 148,151
Deferred compensation 8,492 12,396
Minority interests - 1,375
Shareholders' Equity:
Preferred stock, $.10 par value - authorized 1,000,000
shares; none issued - -
Common stock, $.10 par value - authorized 100,000,000
shares; issued 20,313,915 shares - 2002; 20,078,972 shares -
2001 2,031 2,008
Class B common stock, $.10 par value - authorized
3,174,891 shares; none issued - -
Additional paid-in capital 22,975 17,629
Retained earnings 306,339 315,698
Accumulated other comprehensive loss (610) (2,038)
Unamortized value of restricted stock issued (800) (690)
Less common stock in treasury, at cost - 958,465 shares -
2002; 950,502 shares - 2001 (22,134) (21,957)
------------------- ------------------
Total shareholders' equity 307,801 310,650
------------------- ------------------
$ 432,774 472,572
=================== ==================
See accompanying notes to consolidated financial statements.
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
---------------- --------------- ----------------
Continuing Operations
Operating activities:
Net (loss) earnings $ (9,359) (15,610) 33,003
Net income from discontinued operations (527) (1,094) (4,192)
Cumulative effect of accounting change, net of tax 13,968 - -
---------------- --------------- ----------------
Earnings (loss) from continuing operations 4,082 (16,704) 28,811
Minority interests 135 406 872
Depreciation 24,457 21,926 17,661
Amortization of goodwill - 5,706 5,518
Non-cash provision for restructure expenses 8,530 21,409 -
Loss on sale of assets 1,259 - -
Income tax (expense) benefit less tax payments (612) (22,150) (920)
Change in assets and liabilities, net of effects from acquisitions:
Decrease (increase) in accounts receivable 62,233 103,479 (22,450)
(Decrease) increase in payables and accrued expenses (18,086) (18,381) 22,673
Other 1,852 3,145 (1,349)
---------------- --------------- ----------------
83,850 98,836 50,816
---------------- --------------- ----------------
Investing activities:
Purchases of fixed assets (10,144) (19,112) (29,792)
Purchases of short-term investments (58,477) - -
Acquisitions, net of cash acquired (4,146) (11,806) (11,677)
Other 2,415 1,742 (1,517)
---------------- --------------- ----------------
(70,352) (29,176) (42,986)
---------------- --------------- ----------------
Financing activities:
Borrowings on long-term debt - 10,581 37,661
Payments on long-term debt (7,433) (55,530) (53,689)
Obligations not liquidated because of outstanding checks (4,326) (12,264) 1,354
Proceeds from stock plans 4,476 - 231
Other (158) 4 (60)
---------------- --------------- ----------------
(7,441) (57,209) (14,503)
---------------- --------------- ----------------
Net cash flows from continuing operations 6,057 12,451 (6,673)
Net cash flows from discontinued operations 8,836 2,372 6,676
---------------- --------------- ----------------
Increase in cash and cash equivalents 14,893 14,823 3
Cash and cash equivalents at beginning of year 26,255 11,432 11,429
---------------- --------------- ----------------
Cash and cash equivalents at end of year $ 41,148 26,255 11,432
================ =============== ================
See accompanying notes to consolidated financial statements.
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
---------------- ---------------- ----------------
Common stock
Beginning of year $ 2,008 2,002 2,000
Exercise of stock options 18 - 2
Restricted stock issued 1 5 -
Stock purchase plans 4 1 -
---------------- ---------------- ----------------
End of year $ 2,031 2,008 2,002
================ ================ ================
Additional paid-in capital
Beginning of year $ 17,629 16,677 16,539
Exercise of stock options 4,069 57 250
Restricted stock-issued 338 698 -
Restricted stock-vesting/forfeiture 5 (83) (35)
Restricted stock-change in value 14 8 (147)
Stock purchase plans 920 272 70
---------------- ---------------- ----------------
End of year $ 22,975 17,629 16,677
================ ================ ================
Retained earnings
Beginning of year $ 315,698 331,308 298,305
Net (loss) earnings (9,359) (15,610) 33,003
---------------- ---------------- ----------------
End of year $ 306,339 315,698 331,308
================ ================ ================
Accumulated other comprehensive loss
Beginning of year $ (2,038) (1,999) (611)
Translation adjustment 1,428 (582) (845)
Unrealized loss on investment - 543 (543)
---------------- ---------------- ----------------
End of year $ (610) (2,038) (1,999)
================ ================ ================
Unamortized value of restricted stock issued
Beginning of year $ (690) (230) (945)
Restricted stock-issued (339) (702) -
Restricted stock-vesting/forfeiture 45 23 479
Restricted stock-change in value (14) (8) 147
Restricted stock-amortization of value 198 227 89
---------------- ---------------- ----------------
End of year $ (800) (690) (230)
================ ================ ================
Treasury stock
Beginning of year $ (21,957) (21,963) (21,444)
Restricted stock issued - 29 -
Exercise of stock options - - (40)
Restricted stock-forfeiture (45) (23) (479)
Shares repurchased (132) - -
---------------- ---------------- ----------------
End of year $ (22,134) (21,957) (21,963)
================ ================ ================
Comprehensive (loss) income
Net (loss) earnings $ (9,359) (15,610) 33,003
Translation adjustment 1,428 (582) (845)
Unrealized loss on investment - 543 (543)
---------------- ---------------- ----------------
$ (7,931) (15,649) 31,615
================ ================ ================
See accompanying notes to consolidated financial statements.
CDI CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except shares, per share data and ratios)
Note 1 - Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of CDI Corp. ("CDI" or the "Company") and all wholly-owned and
majority-owned subsidiaries after elimination of inter-company balances and
transactions.
For comparative purposes, prior period financial statements have been restated
to reflect Emerging Issues Task Force Consensus No. 01-14 "Income Statement
Characterization of Reimbursement Received for 'Out-of-Pocket' Expenses
Incurred". In connection with the implementation of Statement of Financial
Accounting Standards No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets", the Company has reflected the results of its former
subsidiary, Modern Engineering, Inc., as a discontinued operation in the
accompanying financial statements.
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, revenues and expenses and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
The Company can be affected by a variety of factors including 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.
Cash Equivalents and Short-term Investments - Cash equivalents include
investments in highly liquid securities that have a maturity within 90 days from
their date of acquisition. Short-term investments include investments with an
original maturity date greater than 90 days. All the Company's cash equivalents
and short-term investments represent investments in money market instruments or
debt securities. Short-term investments include securities classified as
available-for-sale, as well as a security classified as held-to-maturity in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Instruments".
Available-for-sale securities are carried at fair value based on quoted prices.
Cost of securities available-for-sale is adjusted for amortization of premiums
or discounts to maturity. Interest income and amortization of premiums and
discounts are included in interest (income) expense. Cost of securities sold is
based on the specific identification method. Gains and losses related to
available-for-sale securities have been immaterial.
The held-to-maturity investment was purchased during 2002 and is one of which
the Company has the intent to hold the investment until its maturity. The
investment is carried at cost that equals fair value and was purchased at par.
Interest income is included in interest (income) expense.
Fair Value of Financial Instruments - The Company's carrying value of financial
instruments approximates fair value because of the nature and characteristics of
its financial instruments. The Company does not have any off-balance sheet
financial instruments. The Company does not generally have derivative products
in place to manage risks related to foreign currency fluctuations for its
foreign operations or for interest rate changes.
Allowance for Doubtful Accounts - An allowance is provided against accounts
receivable that are not expected to be collected. This reserve is based upon
historical experience, as well as estimates based on Management's judgments in
specific matters.
Fixed Assets - Fixed assets are stated at cost and are depreciated over their
estimated useful lives, principally by the straight-line method. Estimated
useful lives range from 3 to 7 years for computers and systems and 5 to 7 years
for equipment and furniture. Generally, leasehold improvements are amortized
over the life of the lease.
Goodwill - Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 - "Goodwill and Other Intangible Assets".
Accordingly, the Company ceased amortizing goodwill effective January 1, 2002;
tested goodwill carried in its balance sheet as of January 1, 2002 for
impairment; and will test for impairment at least annually thereafter. A portion
of the goodwill carried in the Company's balance sheet as of January 1, 2002 was
impaired and has been written off. In accordance with the transition provisions
of SFAS 142, the write-off of this goodwill, net of income tax benefit, is
reflected as a change in accounting as of January 1, 2002 and is presented in
the Consolidated Statements of Earnings as such. See note 7 for additional
disclosures related to goodwill.
Long-Lived Assets - Effective January 1, 2002, the Company also adopted
Statement of Financial Accounting Standards No. 144 - "Accounting for the
Impairment or Disposal of Long-Lived Assets". The Company evaluates long-lived
assets and intangible assets with definite lives for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. When it is probable that undiscounted future cash flows will
not be sufficient to recover an asset's carrying amount, the asset is written
down to its fair value. Assets to be disposed of by sale, if any, are reported
at the lower of the carrying amount or fair value less cost to sell. See note 13
for additional disclosures related to the disposal of long-lived assets
reflected as discontinued operations in the accompanying financial statements.
Obligations Not Liquidated Because of Outstanding Checks - The Company manages
its levels of cash in banks to minimize its cash balances. Cash balances as
reflected by banks are higher than the Company's book balances because of checks
that are outstanding throughout the banking system. Cash is generally not
provided to bank accounts until checks are presented for payment. The
differences in balances created by the outstanding checks result in negative
cash balances in the Company's records. These negative balances are reflected in
current liabilities as Obligations Not Liquidated Because of Outstanding Checks.
Revenue Recognition - The Company derives its revenues from several sources. All
of the Company's segments perform staffing services. The Company's PM segment
also performs project and outsourcing services, which may involve fixed-price
contracts. MRI derives the majority of its revenue from initial franchise fees,
permanent placement fees and continuing franchise royalties.
Effective January 1, 2002, the Company implemented Emerging Issues Task Force
Consensus No. 01-14 "Income Statement Characterization of Reimbursements
Received for 'Out-of-Pocket' Expenses Incurred" (the "Consensus"). The Consensus
requires that certain reimbursable costs incurred and re-billed to customers be
included in both revenues and cost of services, rather than "netting" these
amounts in revenues. The effect of the Consensus was to increase revenues and
cost of services by $31,494, $54,806 and $63,869 in 2002, 2001 and 2000,
respectively. All financial statements presented in this document have been
reclassified to conform to this Consensus.
Staffing Services - Revenues derived from staffing services are recorded on a
gross basis as services are performed and associated costs have been incurred
using employees of the Company. In these circumstances, the Company assumes the
risk of acceptability of its employees to its customers. In certain cases, the
Company may utilize other companies and their employees to fulfill customer
requirements. In these cases the Company receives an administrative fee for
arranging for, billing for and collecting the billings related to these
companies. The customer is typically responsible for assessing the work of these
companies who have responsibility for the acceptability of their personnel to
the customer. The Company reflects revenues derived from this relationship net
of associated costs.
Project and Outsourcing Services - These services are generally provided on a
cost-plus-fixed-fee or time-and-material basis. Typically, a customer will
outsource a discrete project or activity and the Company assumes responsibility
for performance of the function or project. The Company recognizes revenues and
associated costs on a gross basis as services are performed and costs are
incurred using its employees. In instances where these services are provided on
a fixed-price basis, the Company recognizes revenues using the
percentage-of-completion method, and periodically evaluates the need to provide
for any losses on these projects. Fixed price contracts comprised approximately
4% of consolidated revenues in 2002.
Initial Franchise Fees - Fees related to sales of new franchises are deferred
until the franchise commences operations, at which time the Company has
substantially fulfilled its requirements under the franchise agreement.
Permanent Placement Fees and Continuing Franchise Royalties - The Company earns
permanent placement fees from its company-owned operations and royalties from
its franchisees. Fees for contingent searches are recognized at the time the
candidate commences employment. For retained searches, where the Company or the
franchisee receives a fee for specific services rendered, such revenues are
recognized as the related services are rendered. Revenues associated with
Company-owned operations are recorded on a gross basis and royalties from
franchisees are recorded on a net basis as a component of revenue.
Stock-Based Compensation - The Company uses the intrinsic value method of
accounting for stock options and other forms of stock-based compensation granted
to employees and directors, in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". No compensation cost
has been recognized 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 grant. Compensation cost has been recognized for restricted stock issued and
for units granted under the Stock Purchase Plan and Stock Unit Plan.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", uses a fair value based method of accounting for stock-based
compensation. The following table reflects the pro-forma effect on net (loss)
earnings and (loss) earnings per share for the years ended December 31, 2002,
2001 and 2000 if the Company had adopted the fair value recognition provisions
of SFAS No. 123:
2002 2001 2000
-------------- -------------- -------------
Net (loss) earnings, as reported $ (9,359) (15,610) 33,003
Stock-based employee and director compensation cost included in
reported net (loss) earnings, net of income tax effect 1,083 647 460
Stock-based employee and director compensation cost under fair
value-based method, net of income tax effect (2,199) (2,269) (1,959)
-------------- -------------- -------------
Pro-forma net (loss) earnings $ (10,475) (17,232) 31,504
============== ============== =============
Net (loss) earnings per share:
Basic - as reported (0.49) (0.82) 1.73
Basic - pro-forma (0.55) (0.90) 1.65
Diluted - as reported (0.48) (0.82) 1.73
Diluted - pro-forma (0.54) (0.90) 1.65
Pro-forma net (loss) earnings for the years ended December 31, 2001 and 2000
have been revised from those previously reported to give effect to impact that
cancellations of stock options would have had on costs if SFAS 123 had been
adopted.
The pro-forma compensation cost using the fair value-based method under SFAS No.
123 includes valuations related to stock options granted since January 1, 1995
using the Black-Scholes Option Pricing Model. The weighted average fair value of
options granted during 2002, 2001 and 2000 has been estimated using the
following assumptions:
2002 2001 2000
------------- ------------- --------------
Risk-free interest rate 4.72% 4.84% 6.43%
Expected life of option 7 years 10 years 10 years
Expected stock price
volatility 36% 40% 46%
Expected dividend yield - - -
Per Share Data - Earnings (loss) used to calculate both basic and diluted
earnings (loss) per share for all periods are the reported earnings (loss) in
the Company's consolidated statement of earnings. Because of the Company's
capital structure, all reported earnings (loss) 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 2002, 2001 and 2000 was determined as follows:
2002 2001 2000
------------------ ------------------ ----------------
Basic:
Average shares outstanding 19,254,504 19,086,755 19,073,267
Restricted shares issued not vested (46,031) (10,000) (29,795)
------------------ ------------------ ----------------
19,208,473 19,076,755 19,043,472
================== ================== ================
Diluted:
Shares used for basic 19,208,473 19,076,755 19,043,472
Dilutive effect of stock options 264,636 - 7,757
Dilutive effect of units under the Stock Purchase Plan 91,183 - 52,183
Dilutive effect of restricted shares issued not vested 14,586 - 1,020
------------------ ------------------ ----------------
19,578,878 19,076,755 19,104,432
================== ================== ================
In 2001 only, basic and diluted shares are the same because including the effect
of common stock equivalents such as stock options, units under the Company's
Stock Purchase Plan and restricted shares issued but not yet vested would have
been antidilutive.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes", which requires an asset and liability approach of accounting for income
taxes. SFAS 109 requires assessment of the likelihood of realizing benefits
associated with deferred tax assets for purposes of determining whether a
valuation allowance is needed for such deferred tax assets. The Company and its
wholly-owned U.S. subsidiaries file a consolidated federal income tax return.
Foreign Currency Translation - Foreign subsidiaries of the Company use local
currency as the functional currency. Net assets are translated at year-end rates
while revenues and expenses are translated at average exchange rates.
Adjustments resulting from these translations are reflected in accumulated other
comprehensive loss in shareholders' equity. Gains and losses arising from
foreign currency transactions are reflected in the consolidated statements of
(loss) earnings.
Comprehensive Income - Comprehensive (loss) income consists of net earnings,
foreign currency translation adjustments and adjustments related to an equity
investment which was classified as an available-for-sale security.
New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 146 (SFAS 146) - "Accounting for Costs
Associated with Exit or Disposal Activities", which supersedes EITF No. 94-3,
"Liability Recognition for Certain Employees Termination Benefits and Other
Costs to Exit and Activity (including Certain Costs Incurred in a
Restructuring)". SFAS 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred, rather than at the date of a
commitment to an exit or disposal plan as required by EITF No. 94-3. SFAS 146 is
effective for restructuring activities initiated after December 31, 2002. This
Statement does not require companies to adjust restructuring reserves recorded
before 2003. The Company will apply SFAS 146 to future restructurings, if
applicable. Currently, there is no intention to initiate such action.
In December 2002, the Financial Accounting Standards board issued Statement of
Financial Accounting Standard No. 148 (SFAS 148) - "Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No.
123". This Statement amends FASB Statement No. 123; "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. For
additional disclosures related to stock-based compensation see the discussion
above and Note 11 - Stock Based Plans. The transition provisions of SFAS 148 are
effective for years beginning after December 15, 2002. The Company is currently
assessing the potential impact this Statement may have on the Company's
financial position or results of operations should it elect to apply the
transition provisions of this Statement.
Effective December 15, 2002, the Company adopted FIN No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The Company has assessed this Interpretation and has
provided the necessary disclosures in Note 16 - Leases.
Note 2 - Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments as of December 31, 2002 and
2001 were comprised of the following:
2002 2001
---------------- ----------------
Cash $ 12,659 8,155
Cash equivalents 28,489 18,100
---------------- ----------------
$ 41,148 26,255
================ ================
Short-term investments:
Available-for-sale $ 43,252 -
Held-to-maturity 15,225 -
---------------- ----------------
$ 58,477 -
================ ================
All the Company's short-term investments originated during 2002 as a result of
continuing strong cash flow during the year. These investments are in very
liquid, high quality debt securities with diversification among the investments
based upon established guidelines. Amortized cost approximates fair value. Gains
and losses during 2002 were immaterial and there were no transfers of
investments between classifications of short-term investments.
All of the Company's available-for-sale securities reflect investments in
corporate bonds, various government agencies and commercial paper. The Company's
held-to-maturity investment is a certificate of deposit, which had a one-year
maturity when purchased.
Contractual maturities of available-for-sale securities as of December 31, 2002
of $13,511 were for securities maturing in one year or less and $29,487 for
securities maturing in one to four years.
Note 3 - Accounts Receivable
The Company's principal asset is accounts receivable. Substantially all of the
Company's customers are provided trade credit. The primary users of the
Company's services are large industrial organizations, many of which are Fortune
1000 companies. The provision for doubtful accounts was $3,246 in 2002, $9,436
in 2001 and $3,863 in 2000.
Significant portions of the Company's revenue base and receivables are
concentrated in certain industries. At December 31, 2002 and 2001, receivables
from customers in the electronics/information processing industries comprised
approximately 15% and 20%, respectively, of consolidated receivables,
receivables from customers in the aircraft/aerospace industries comprised
approximately 10% and 10%, respectively, of consolidated receivables and
customers in the chemicals/pharmaceuticals industry comprised approximately 15%
and 10%, respectively, of consolidated receivables.
Note 4 - Note Receivable from Officer
In March of 2002, the Company advanced $1,800 to its President and Chief
Executive Officer in conjunction with his relocation. The loan was repayable no
later than July 31, 2002, bore interest at the prime rate, and was
collateralized by the Executive's former residence. The loan and related accrued
interest was repaid in July of 2002.
Note 5 - Acquisitions
Investments in businesses acquired totaled $4,146, $6,333 and $9,265 for the
years ended December 31, 2002, 2001 and 2000, respectively. All acquisitions
were accounted for using the purchase method. For 2002, assets of $2,636 were
acquired, all of which was goodwill. The remaining $1,510 paid in 2002, was to
acquire the interest of all remaining minority shareholders. For 2001, assets of
$4,451 were acquired (including goodwill of $4,180) along with liabilities of
$293. A portion of the investment in 2001 reduced minority interest by $2,175.
For 2000, assets of $8,297 were acquired (including goodwill of $6,825) along
with liabilities of $46. A portion of the investment in 2000 reduced minority
interests by $1,014.
Certain payments for investments in businesses in earlier years were made in a
year following the year in which the acquisition occurred. Cash used in
investing activities in the Consolidated Statements of Cash Flows reflects the
year in which the cash outlay occurred.
Financial results of the acquired operations are reflected in the accompanying
Consolidated Statements of Earnings from dates of acquisition. The acquisitions
did not have a significant effect on reported earnings in the year of
acquisition, and earnings would not have been significantly different from
reported earnings had the acquisitions occurred at the beginning of the
respective years.
Note 6 - Fixed Assets
Fixed assets at December 31, 2002 and 2001 were comprised of the following:
2002 2001
----------------- ---------------
Computers and systems $ 75,815 97,545
Equipment and furniture 27,213 30,382
Leasehold improvements 12,082 12,207
----------------- ---------------
115,110 140,134
Accumulated depreciation (85,976) (90,145)
----------------- ---------------
$ 29,134 49,989
================= ===============
Note 7- Goodwill
The adoption of SFAS 142 required testing as of January 1, 2002 to evaluate the
recoverability of goodwill carried in the Company's balance sheet as of that
date. The valuations indicated that goodwill pertaining to certain units was
impaired. The Company used current and projected earnings, cash flows and
comparable market data to determine the fair market value of each unit. The
impairment was based on the lower of the carrying cost of the underlying net
assets -vs.- their fair market value. Testing for impairment of goodwill prior
to January 1, 2002 was based upon undiscounted cash flows from the related
assets compared to the fair value approach required under SFAS 142.
Impairment charges related to the adoption of SFAS 142 for the write-off of
goodwill of $21,401 (PS - $15,007; PM - $164; MRI - $6,230) or $13,968 after
income tax effect, have been recorded and are presented in the Company's
Consolidated Statements of Earnings as the cumulative effect of a change in
accounting.
Required annual testing under SFAS 142 was conducted as of July 1, 2002. The
results of this testing indicated no further impairment to goodwill.
Under SFAS 142, amortization of goodwill ceased January 1, 2002. The following
table compares earnings (loss) from continuing operations before cumulative
effect of accounting change, discontinued operations and net (loss) earnings (as
well as per share amounts) for the years ended December 31, 2002, 2001 and 2000,
respectively, as if SFAS 142 had been if effect for 2001 and 2000:
2002 2001 2000
---------------- --------------- ----------------
Earnings (loss) from continuing operations before cumulative effect of
accounting change:
Reported $ 4,082 (16,704) 28,811
Add goodwill amortization, after tax - 4,377 4,200
---------------- --------------- ----------------
As adjusted $ 4,082 (12,327) 33,011
================ =============== ================
Discontinued operations:
Reported $ 527 1,094 4,192
Add goodwill amortization, after tax - 31 30
---------------- --------------- ----------------
As adjusted $ 527 1,125 4,222
================ =============== ================
Net (loss) earnings:
Reported $ (9,359) (15,610) 33,003
Add goodwill amortization, after-tax - 4,408 4,230
---------------- --------------- ----------------
As adjusted $ (9,359) (11,202) 37,233
================ =============== ================
Basic (loss) earnings per share:
Continuing operations - Reported $ 0.21 (0.88) 1.51
Continuing operations - As adjusted $ 0.21 (0.65) 1.73
Discontinued operations - Reported $ 0.03 0.06 0.22
Discontinued operations - As adjusted $ 0.03 0.06 0.22
Net (loss) earnings - Reported $ (0.49) (0.82) 1.73
Net (loss) earnings - As adjusted $ (0.49) (0.59) 1.96
Diluted (loss) earnings per share:
Continuing operations - Reported $ 0.21 (0.88) 1.51
Continuing operations - As adjusted $ 0.21 (0.65) 1.73
Discontinued operations - Reported $ 0.03 0.06 0.22
Discontinued operations - As adjusted $ 0.03 0.06 0.22
Net (loss) earnings - Reported $ (0.48) (0.82) 1.73
Net (loss) earnings - As adjusted $ (0.48) (0.59) 1.95
Changes in the carrying amount of goodwill for the year ended December 31, 2002
were as follows:
Professional Project Management Todays
Services Management Recruiters Staffing Total
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 2001 $ 33,220 14,526 16,199 23,524 87,469
Purchase of minority shareholder
interests 2,636 - - - 2,636
Write-off of goodwill for
impairment (15,007) (164) (6,230) - (21,401)
Other (235) - (135) - (370)
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 2002 % 20,614 14,362 9,834 23,524 68,334
============== ============== ============== ============== ==============
Note 8 - Debt
The Company generated sufficient cash flow in 2001 that permitted it to repay
all borrowings from banks. Strong cash flow continued throughout 2002 and, as a
result, there was no outstanding bank borrowings during 2002. Effective January
3, 2003 the Company terminated its unsecured revolving credit agreement with a
syndicate of banks that permitted borrowings of up to $75.0 million. This
agreement was scheduled to end March 31, 2003.
As of December 31, 2002, debt outstanding of $480 was for the purchase of
computers and systems that will mature during 2003.
Note 9 - Provision for Restructure
During 2002, the Company continued to execute the multi-phased Plan of
Restructure adopted by CDI's Board of Directors in December 2001, and as
planned, took additional actions during the first and third quarters of 2002.
Implementation of the Plan of Restructure resulted in charges of $21,958 in the
fourth quarter of 2001 and $4,053 and $8,498 in the first and third quarters of
2002, respectively. The 2001 charges related to the decommissioning of the
Company's former enterprise resource planning system, the closing of 25 regional
offices and termination of approximately 350 employees. The 2002 charges related
to the closing of approximately 75 field offices and the termination of
approximately 220 employees.
The breakdown of the restructuring charges among operating segments were as
follows:
2002 2001
------------------ ------------------
Professional Services $ 2,492 11,567
Project Management 3,978 7,069
Management Recruiters 1,595 1,936
Todays Staffing 3,861 596
Corporate 625 790
------------------ ------------------
$ 12,551 21,958
================== ==================
Details of the restructuring charges for 2001 and 2002 were outlined below:
Net Accrual at
December 31, New Reduction of Cash Net Accrual at
2000 Provision Assets Expenditures December 31, 2001
---------------- ---------- ------------ ------------ -----------------
Asset impairments $ - 13,763 (13,763) - -
Provision for severance - 4,716 - (717) 3,999
Provisions for termination
of operating leases - 3,479 - - 3,479
---------------- ---------- ------------ ------------ -----------------
$ - 21,958 (13,763) (717) 7,478
================ ========== ============ ============ =================
Net Accrual Net Accrual
at New Reduction of Cash at
December 31, 2001 Provision Assets Expenditures December 31, 2002
---------------- ---------- ------------ ------------ -----------------
Asset impairments $ - 3,217 (3,217) - -
Provision for severance 3,999 3,479 - (4,118) 3,360
Provisions for termination
of operating leases 3,479 5,855 - (3,795) 5,539
---------------- ---------- ------------ ------------ -----------------
$ 7,478 12,551 (3,217) (7,913) 8,899
================ ========== ============ ============ =================
The provision for severance in 2002 includes a credit of $730 for the reversal
of excess severance provisions recorded in 2001.
The Company anticipates that the remaining liability for operating leases will
be substantially paid by December 31, 2005. The remaining liability for
severance will be paid in 2003. It is Management's intent to liquidate its
remaining lease obligations as soon as possible. The accrual for the provision
for restructure is included in accrued expenses in the accompanying consolidated
balance sheets.
Note 10 - 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.
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, 2002 and
2001 no Class B common shares were issued.
Restricted Common Stock - The Company issued shares of restricted common stock
that vest with the passage of time (ranging from two to five years) and based on
the percentage achievement of pre-determined goals (covering a period of 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 shares until there is a
determination as to their vesting. Over the period of time that these shares may
become vested, there will be charges to earnings based upon the associated fair
value of the shares. As such charges occur, unamortized value of restricted
stock issued will be reduced. To the extent that restricted shares are
forfeited, unamortized value will also be reduced and the forfeited shares will
be placed in treasury stock.
Changes in common shares issued and treasury shares for the years ended December
31, 2002, 2001 and 2000 follow:
2002 2001 2000
------------------ ------------------ ------------------
Shares issued
Beginning of year 20,078,972 20,015,561 19,999,463
Exercise of stock options 178,548 4,000 12,622
Restricted stock issued 13,000 45,000 -
Stock purchase plans 43,395 14,411 3,476
------------------ ------------------ ------------------
End of year 20,313,915 20,078,972 20,015,561
================== ================== ==================
Treasury shares
Beginning of year 950,502 950,135 927,651
Exercise of stock options - - 2,517
Restricted stock issued - (1,250) -
Restricted stock forfeiture 2,963 1,617 19,967
5,000 - -
------------------ ------------------ ------------------
End of year 958,465 950,502 950,135
================== ================== ==================
Note 11 - Stock Based Plans
As of December 31, 2002 the Company had issued non-qualified stock options to
purchase shares of the Company's common stock under two plans, the most recent
of which was adopted in 1998 (the "1998 Plan"). Since the adoption of the 1998
Plan, no options were granted under the other plan.
Non-qualified stock options under the 1998 Plan may be granted to employees,
directors and consultants. No options have been granted to consultants. Grants
under the 1998 Plan, except for certain non-employee directors whose retainer
fees may be paid in whole or in part via stock options, are determined by the
Compensation Committee of the Board of Directors. The option 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. The terms for
which options are granted are also determined by the Committee and have
generally been for seven and ten years.
As of December 31, 2002, 2,196,163 shares of common stock were reserved for
future issuance under these plans upon the exercise of stock options. Activity
under the plans for each of the years ended December 31, 2000, 2001 and 2002 was
as follows:
Shares subject to Weighted average
options exercise price
-------------------- ------------------
December 31, 1999 1,137,034 $ 27.56
Granted 742,141 $ 20.94
Exercised (12,622) $ 18.32
Cancelled (593,912) $ 27.46
-------------------- --------------------
December 31, 2000 1,272,641 $ 25.72
Granted 869,730 $ 15.40
Exercised (4,000) $ 14.23
Cancelled (414,658) $ 25.49
-------------------- --------------------
December 31, 2001 1,723,713 $ 20.59
Granted 345,435 $ 22.49
Exercised (178,548) $ 20.52
Cancelled (345,268) $ 23.36
-------------------- --------------------
December 31, 2002 1,545,332 $ 20.42
====================
Additional information regarding stock options outstanding as of December 31,
2002, 2001 and 2000 is as follows:
2002 2001 2000
-------------- --------------- ----------------
Range of exercise prices:
Lowest $ 14.23 14.23 15.31
Highest $ 46.50 46.50 46.50
Weighted average remaining
life 6.6 years 7.8 years 7.0 years
Options exercisable:
Number of shares 422,950 439,886 334,597
Weighted average exercise
price $ 24.15 30.71 30.46
Under the terms of a stock purchase plan ("SPP"), designated employees and
non-employee directors have the opportunity to purchase shares of the Company's
common stock on a pre-tax basis. Employee participants use a portion of their
annual bonus awards to purchase SPP units. Certain senior management personnel
are required to participate by using 25% of their annual bonus awards to
purchase SPP units and can elect participation for up to an additional 25%.
Other employee participants can elect to use up to 25%. Non-employee directors
may participate by using some or all of their retainer fees to purchase SPP
units. The Company makes a matching contribution of one SPP unit for every three
units purchased by a participant on a voluntary basis. The number of units is
determined by dividing the annual bonus or retainer fee used to purchase SPP
units by the fair market value of a share of the Company's common stock on the
date a participant's account is credited with the SPP units. Vesting of units
occurs over a period of three to ten years as chosen by the participant. If a
participant's employment or service on the Company's Board of Directors ceases
for any reason after three years from the start of the vesting period, the
participant will receive shares of the Company's common stock equal to the
number of associated units. If employment for an employee participant terminates
within the first three years of the vesting period and depending on the
circumstances related to termination, the employee could receive cash in lieu of
shares that does not take into account appreciation in value of the shares or
the Company's matching contribution. If a non-employee director does not stand
for re-election to the Board, he will receive shares of the Company's common
stock for his SPP units regardless of the vesting period chosen.
Under the terms of the stock unit plan ("SUP"), designated employees have the
opportunity to earn shares of the Company's common stock. Current grants under
the plan vest with three continuous years of service ending June 30, 2003. If
employment of a participant in the plan terminates for any reason before June
30, 2003 all benefits are forfeited.
There are 158,138 SPP and SUP units (including Company matching units)
outstanding as of December 31, 2002. The units were determined using a weighted
average market price of $20.53 per share. Costs charged to earnings during 2002,
2001 and 2000 related to these plans were $1,456, $824, and $657, respectively.
Costs charged to earnings related to employee participants include the amount of
the deferred bonus for the year used to purchase SPP units plus a portion of the
value of the Company match SPP units credited to participants' accounts. Company
match SPP units and SUP units have a fixed value determined at the time
participants accounts are credited, which value is charged to earnings over a
three-year period, the minimum period over which employee participants vest in
these units. Costs charged to earnings related to non-employee directors include
the amount of the deferred retainer fees used to purchase SPP units plus the
value of the Company match SPP units credited to a director's account. These
Company match units have a fixed value that is charged to earnings over a
one-year period.
Note 12 - Income Taxes
Pretax earnings (loss) from continuing operations for the years ended December
31, 2002, 2001 and 2000 were taxed in the following jurisdictions:
2002 2001 2000
-------------- -------------- --------------
United States $ (214) (29,537) 40,750
Foreign 7,030 3,445 7,400
-------------- -------------- --------------
$ 6,816 (26,092) 48,150
============== ============== ==============
Income tax (expense) benefit relating to continuing operations for the years
ended December 31, 2002, 2001 and 2000 was comprised of the following:
Total Federal State Foreign
------------- ------------- ------------- ----------------
2002
Current $ 2,087 5,096 (538) (2,471)
Deferred (4,686) (5,580) 958 (64)
------------- ------------- ------------- ----------------
$ (2,599) (484) 420 (2,535)
============= ============= ============= ================
2001
Current $ (4,246) (672) (1,554) (2,020)
Deferred 14,040 9,178 4,677 185
------------- ------------- ------------- ----------------
$ 9,794 8,506 3,123 (1,835)
============= ============= ============= ================
2000
Current $ (24,124) (16,713) (3,069) (4,342)
Deferred 5,657 4,356 1,322 (21)
------------- ------------- ------------- ----------------
$ (18,467) (12,357) (1,747) (4,363)
============= ============= ============= ================
The effective income tax rates relating to continuing operations for the years
ended December 31, 2002, 2001 and 2000 differed from the applicable federal rate
as follows:
2002 2001 2000
--------------- ------------ -------------
Federal rate (35%) 35% (35%)
State income taxes, net 14% 7% (2%)
Expenses permanently nondeductible for tax purposes (7%) (4%) (1%)
Foreign income taxes 3% - -
Increase in valuation allowance (16%) - -
Income tax credits 3% - -
--------------- ------------ -------------
Effective income tax rate (38%) 38% (38%)
=============== ============ =============
The tax effects of the principal components creating net deferred income tax
assets as of December 31, 2002 and 2001 were as follows:
2002 2001
---------------- -----------------
Components creating deferred tax assets:
Expenses not currently deductible (principally compensation
and payroll-related) $ 20,904 26,059
Intangible assets amortization 2,651 140
Basis differences for fixed assets 1,666 -
Other 443 429
Loss carry forwards 6,461 3,287
Credit carry forwards 744 -
Valuation allowance (1,027) (13)
---------------- -----------------
31,842 29,902
---------------- -----------------
Components creating deferred tax liabilities:
Deferral of revenues and accounts receivable (3,084) (1,524)
Basis differences for fixed assets - (2,442)
Other (3,813) (3,441)
---------------- -----------------
(6,897) (7,407)
---------------- -----------------
$ 24,945 22,495
================ =================
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the benefits of
the deferred tax assets will not be achieved. The ultimate realization of
deferred tax assets is dependent upon several factors, including past and future
taxable income. Based upon the Company's assessment of the prospects for
achieving the benefits of the deferred tax assets, the Company has determined
that it is more likely than not that such benefits will be realized.
At December 31, 2002 for state income tax purposes, there are operating loss
carryforwards aggregating approximately $87.0 million expiring in varying
amounts from 2005 through 2019.
Note 13 - Discontinued Operations
In June of 2002 the Company sold the net operating assets of its Modern
Engineering, Inc. ("Modern") subsidiary that operated in its PM segment. Modern
provided technical staffing services to the automotive industry. In conjunction
with the implementation of SFAS 144, a pre-tax loss for disposal of these assets
of $1,160 had been recognized. The operations of Modern were a component of CDI,
as that term is defined in SFAS 144, and accordingly, are reflected as
discontinued operations in the accompanying financial statements.
The earnings from discontinued operations for the years ended December 31, 2002,
2001 and 2000 and related net assets as of December 31, 2002 and 2001 are as
follows:
2002 2001 2000
---------------- ---------------- ---------------
Earnings:
Revenues $ 32,674 86,055 108,151
================ ================ ===============
Gross profit $ 5,718 15,817 20,920
Operating and administrative expenses 5,860 13,927 14,454
Provision for disposal of assets 1,160 - -
---------------- ---------------- ---------------
(Loss) earnings before income taxes (1,302) 1,890 6,466
Income tax benefit (expense) 1,829 (796) (2,274)
---------------- ---------------- ---------------
Earnings from discontinued operations $ 527 1,094 4,192
================ ================ ===============
Net Assets:
Assets (principally accounts receivable and deferred income
taxes) $ - 14,840 -
Liabilities (principally accounts payable and accrued expenses) $ - (3,513) -
---------------- ---------------- ---------------
Net assets $ - 11,327 -
================ ================ ===============
Note 14 - Legal Proceedings and Claims
The Company has litigation and other claims pending which have arisen in the
ordinary course of business. There are substantive defenses and/or insurance and
accounting reserves 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.
Note 15 - 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, 2002, 2001 and 2000 were
$4,803, $4,099 and $5,771, respectively.
The Company does not provide other post-retirement or post-employment benefits.
Note 16 - Leases
Offices used for sales, recruiting and administrative functions and facilities
used for in-house engineering, design and drafting are occupied under numerous
leases that expire through 2009. In addition, there are leases for computers and
office equipment. Due to the Plan of Restructure, CDI has entered into several
non-cancelable sublease arrangements whereby the Company is now the sublessor.
However, if the sublessee defaults, the Company will remain liable for the lease
obligation.
The rental expenses and sublease proceeds for the years ended December 31, 2002,
2001 and 2000 are as follows:
2002 2001 2000
------------- ------------- ------------
Rental expense $ 16,466 28,684 26,679
Sublease proceeds $ 708 339 -
For periods after December 31, 2002, approximate minimum annual rental payments
under non-cancelable leases and inflows under non-cancelable subleases are
presented in the table below. These amounts include accrued lease liabilities of
$5,539 included in the liability for restructure as of December 31, 2002.
2003 2004 2005 2006 2007 There-after
------------ ---------- ---------- ---------- ---------- -----------
Future minimum lease payments $ 13,149 11,372 7,883 3,746 1,873 5,627
on non-cancelable leases
Future minimum proceeds to be
received under non-cancelable
subleases $ 1,992 1,807 1,494 384 131 16
Note 17 - 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.
PS provides staffing, managed staffing and functional outsourcing services to
the technical and technological markets.
PM provides staffing and outsourcing services engaging personnel who provide
engineering, engineering support and technical services through its specialized
divisions.
MRI provides search and recruiting services for the permanent employment of
management personnel. It also provides temporary administrative, clerical and
management staffing services through several specialized divisions.
Todays provides temporary administrative, clerical and legal staffing services.
Operating segment data for the years ended December 31, 2002, 2001 and 2000
follows.
2002 2001 2000
---------------- ---------------- ------------------
Revenues:
Professional Services $ 622,931 809,549 911,775
Project Management 311,256 352,210 388,020
Management Recruiters 85,901 103,167 136,752
Todays Staffing 149,387 193,666 238,908
---------------- ---------------- ------------------
$ 1,169,475 1,458,592 1,675,455
================ ================ ==================
Earnings (loss) from continuing operations before
income taxes, minority interests and cumulative
effect of accounting change
Operating profit (loss):
Professional Services $ 6,880 (3,984) 20,148
Project Management 9,423 (10,957) 12,582
Management Recruiters 6,902 12,746 30,716
Todays Staffing 1,486 2,616 15,153
Corporate (17,990) (23,448) (25,260)
---------------- ---------------- ------------------
6,701 (23,027) 53,339
Interest (income) expense, net (115) 3,065 5,189
---------------- ---------------- ------------------
$ 6,816 (26,092) 48,150
================ ================ ==================
Depreciation and amortization:
Professional Services $ 13,060 16,214 13,040
Project Management 5,909 2,423 1,949
Management Recruiters 2,705 4,085 3,568
Todays Staffing 1,490 3,401 3,674
Corporate 1,293 1,509 948
---------------- ---------------- ------------------
$ 24,457 27,632 23,179
================ ================ ==================
Assets:
Professional Services $ 155,650 212,148 272,933
Project Management 89,996 120,032 154,013
Management Recruiters 44,779 47,247 52,029
Todays Staffing 38,934 50,171 62,199
Corporate 103,415 28,134 9,491
Assets of discontinued operations - 14,840 21,364
---------------- ---------------- ------------------
$ 432,774 472,572 572,029
================ ================ ==================
Purchases of fixed assets:
Professional Services $ 6,137 9,473 16,809
Project Management 1,698 4,412 7,551
Management Recruiters 1,145 2,200 2,604
Todays Staffing 558 958 1,781
Corporate 606 2,069 1,047
---------------- ---------------- ------------------
$ 10,144 19,112 29,792
================ ================ ==================
Inter-segment activity is not significant. Therefore, revenues reported for each
operating segment are substantially all from external customers.
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, 2002, 2001 and 2000 are as follows:
2002 2001 2000
---------------- ---------------- ---------------
Revenues:
United States $ 979,372 1,278,582 1,503,454
United Kingdom, Canada and other 190,103 180,010 172,001
---------------- ---------------- ---------------
$ 1,169,475 1,458,592 1,675,455
================ ================ ===============
Fixed assets:
United States $ 23,758 43,318 60,059
United Kingdom, Canada and other 5,376 6,671 4,741
---------------- ---------------- ---------------
$ 29,134 49,989 64,800
================ ================ ===============
There was no single customer from whom the Company derived 10% or more of its
consolidated revenues during 2002, 2001 or 2000.
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, 2002 and 2001, and the related consolidated
statements of earnings, cash flows and shareholders' equity for each of the
three years in the three year period ended December 31, 2002. In connection with
our audits of the consolidated financial statements we also have audited the
financial statement schedule. These consolidated financial statements and the
financial statement schedule are the responsibility of management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. 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.
As discussed in Note 1 to the Consolidated Financial Statements, the Company
adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets on January 1, 2002.
Philadelphia, Pennsylvania /s/ KPMG LLP
February 21, 2003 ---------------------------------------
CDI CORP. AND SUBSIDIARIES
Quarterly Results (Unaudited)
Years ended December 31, 2002 and 2001
(In thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------------- ------------- ------------- ------------- ------------
2002
Revenues $ 313,134 298,415 287,788 270,138 1,169,475
Gross profit 79,324 77,926 76,819 70,724 304,793
Operating (loss) profit (4,368) 2,357 (1,165) 9,877 6,701
Interest (income) expense, net 85 43 (111) (132) (115)
(Loss) earnings from continuing operations (2,926) 1,443 (597) 6,162 4,082
Discontinued operations 468 (70) 27 102 527
Cumulative effect of accounting change (13,968) - - - (13,968)
Net (loss) earnings $ (16,426) 1,373 (570) 6,264 (9,359)
Diluted (loss) earnings per share:
Continuing operations $ (0.15) 0.07 (0.03) 0.31 0.21
Discontinued operations $ 0.02 - - 0.01 0.03
Cumulative effect of accounting change $ (0.73) - - - (0.71)
Net (loss) earnings $ (0.86) 0.07 (0.03) 0.32 (0.48)
2001
Revenues $ 395,074 382,239 351,756 329,523 1,458,592
Gross profit 105,354 96,875 87,142 77,646 367,017
Operating profit (loss) 6,258 2,248 (2,496) (29,037) (23,027)
Interest expense, net 938 924 867 336 3,065
Earnings (loss) from continuing operations 3,177 670 (2,190) (18,361) (16,704)
Discontinued operations 568 319 220 (13) 1,094
Net earnings (loss) $ 3,745 989 (1,970) (18,374) (15,610)
Diluted earnings (loss) per share:
Continuing operations $ 0.17 0.03 (0.11) (0.96) (0.88)
Discontinued operations $ 0.03 0.02 0.01 - 0.06
Net earnings (loss) $ 0.20 0.05 (0.10) (0.96) (0.82)
There were $12.6 million of pre-tax charges ($4.1 million in the first quarter
and $8.5 million in the third quarter) in 2002 related to the Company's
provision for restructure.
There were $22.0 million of pre-tax charges in the fourth quarter of 2001
related to the Company's provision for restructure.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information related to security ownership of certain beneficial owners and
management is omitted herein as the required information will be included in a
definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A no later than 120 days after the close of
the fiscal year.
Item 11. EXECUTIVE COMPENSATION
Information related to executive compensation is omitted herein as the required
information will be included in a definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A no later than
120 days after the close of the fiscal year.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information related to security ownership of certain beneficial owners and
management is omitted herein as the required information will be included in a
definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A no later than 120 days after the close of
the fiscal year.
Equity Compensation Plan Information
The following table provides information as of December 31, 2002 for common
shares of the Company that may be issued under the CDI Corp. Non-Qualified Stock
Option and Stock Appreciation Rights Plan and the CDI Corp. 1998 Non-Qualified
Stock Option Plan that were approved by security holders. It also includes
information related to the CDI Corp. Stock Purchase Plan for Management
Employees and Non-Employee Directors ("SPP"), and the 2000 Stock Unit Plan
("SUP") that were not approved by security holders. See Note 11 in the Notes to
Consolidated Financial Statements for further information related to these
plans.
Number of
securities
remaining
available for
Number of future issuance
securities to be under equity
issued upon Weighted average compensation plans
exercise of exercise price of (excluding
outstanding outstanding securities
options, warrants options, warrants reflected in
and rights and rights column A)
-------------------- --------------------- ---------------------
A B C
-------------------- --------------------- ---------------------
Equity compensation plans approved by 1,545,332 $ 20.42 650,831
security holders
Equity compensation plans not approved by
security holders (a) 158,138 $ 20.53 -
-------------------- ---------------------
Total 1,703,470 $ 20.43 650,831
==================== =====================
(a) The number of securities in column A represent units awarded to participants
in the SPP and SUP. Upon vesting, participants in the plans are entitled to
receive an equal number of shares of the Company's common stock. Shares
authorized for issuance under the SPP are less than the number of units
outstanding under the plan as of December 31, 2002. There is no stated number of
shares authorized for issuance under the SUP. Units under the SUP have only been
granted on one occasion and it is not expected that additional units will be
issued in the future. The weighted average share price of $20.53 for the SPP and
SUP represents the weighted average market price per share of the Company's
common stock on the days when units were awarded to participants under the
plans.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information related to certain relationships and related transactions is omitted
herein as the required information will be included in a definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A no later than 120 days after the close of the fiscal year.
Item 14. CONTROLS AND PROCEDURES
The Company has conducted an evaluation of the effectiveness of its disclosure
controls and procedures under the supervision of its Chief Executive Officer and
its Chief Financial Officer within 90 days of the filing date of this annual
report on Form 10-K. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures provide reasonable assurance that information required to be
disclosed by the Company in reports filed under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported upon in such reports within
the time periods specified for their filing. It should be noted that the design
of any system of controls is based in part on certain assumptions about the
likelihood of future events. A control system, no matter how well designed and
implemented, can provide only reasonable, not absolute assurance, that the
objectives of the control system will be met.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
PART IV
Item 15. 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, 2002 and 2001, the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the years
ended December 31, 2002, 2001 and 2000, the footnotes thereto and the
report of KPMG LLP, independent auditors, are filed herewith.
Financial statement schedules
Schedule submitted for the years ended December 31, 2002, 2001 and 2000.
II - Valuation and Qualifying Accounts
(b) Registrant did not file a Form 8-K during the quarter ended December 31,
2002.
(c) Exhibits
3.a. 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, 2002 (File No. 1-5519).
b. Bylaws of the Registrant, incorporated herein by reference to the
Registrant's report on Form 10-Q for the quarter ended June 30, 2002
(File No. 1-5519).
10.a. CDI Corp. Non-Qualified Stock Option and Stock Appreciation Rights
Plan. (Constitutes a management contract or compensatory plan or
arrangement.)
b. Amended and Restated CDI Corp. 1998 Non-Qualified Stock Option Plan.
(Constitutes a management contract or compensatory plan or arrangement)
c. Amended and Restated CDI Corp. Stock Purchase Plan for Management
Employees and Non-Employee Directors, incorporated herein by reference
to the Registrant's report on Form 10-Q for the quarter ended June 30,
2000 (File No. 1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
d. CDI Corp. 2000 Stock Unit Plan. (Constitutes a management contract or
compensatory plan or arrangement)
e. Executive Severance Arrangement Approved by the CDI Corp. Compensation
Committee on September 10, 2002, incorporated by reference to the
Registrant's report on Form 10-Q for the quarter ended September 30,
2002 (File No. 1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
f. Supplemental Pension Agreement dated April 11, 1978 between CDI
Corporation and Walter R. Garrison. (Constitutes a management contract
or compensatory plan or arrangement)
g. Consulting Agreement dated as of April 7, 1997 by and between Registrant
and Walter R. Garrison, incorporated 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)
h. Amendment dated as of April 12, 2000 to Consulting Agreement dated as of
April 7, 1997 by and between Registrant and Walter R. Garrison,
incorporated herein by reference to the Registrant's report on Form 10-Q
for the quarter ended June 30, 2000 (File No. 1-5519). (Constitutes a
management contract or compensatory plan or arrangement)
i. Employment Agreement dated October 1, 2001, between Registrant and Roger
H. Ballou, incorporated by reference to the Registrant's report on Form
10-K for the year ended December 31, 2001. (File No. 1-5519).
(Constitutes a management contract or compensatory plan or arrangement)
j. Note dated March 14, 2002 from Roger Ballou and Georgeann Ballou to CDI
Corporation, incorporated by reference to the Registrant's report on
Form 10-Q for the quarter ended March 31, 2002 (File No. 1-5519).
(Constitutes a management contract or compensatory plan or agreement)
k. Agreement dated March 14, 2002 between Roger Ballou and Georgeann Ballou
and CDI Corporation regarding the sale of the Ballous' residence in
Washington, D.C., incorporated by reference to the Registrant's report
on Form 10-Q for the quarter ended March 31, 2002 (File No. 1-5519).
(Constitutes a management contract or compensatory plan or agreement)
l. Non-Qualified Stock Option Agreement dated October 14, 2002 between
Registrant and Jay G. Stuart. (Constitutes a management contract or
compensatory plan or agreement)
m. Restricted Stock Agreement dated October 14, 2002 between Registrant and
Jay G. Stuart. (Constitutes a management contract or compensatory plan
or agreement)
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, incorporated herein by reference to
Registrant's report on Form 10-K for the year ended December 31, 1999
(File No. 1-5519). (Constitutes a management contract or compensatory
plan or arrangement.)
p. Agreement between Registrant and Gregory L. Cowan effective November 15,
2002 regarding his severance agreement. (Constitutes a management
contract or compensatory plan or arrangement)
q. Consulting and Non-Competition Agreement and Release and Waiver of
Claims dated June 4, 2001 by and between the Registrant and Brian J.
Bohling, incorporated by reference to the Registrant's report on Form
10-Q for the quarter ended June 30, 2001 (File No. 1-5519). (Constitutes
a management contract or compensatory plan or agreement)
21. Subsidiaries of the Registrant
23. Consents of experts and counsel.
99.a. Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.b. Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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/ Roger H. Ballou
- -------------------------------------
President and Chief Executive
Officer
- -------------------------------------
Date: March 26, 2003
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/ Roger H. Ballou
- -------------------------------------
Roger H. Ballou
President, Chief
Executive Officer and Director
(Principal Executive Officer)
- -------------------------------------
Date: March 26, 2003
By: /s/ Jay G. Stuart
- -------------------------------------
Jay G. Stuart
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
- -------------------------------------
Date: March 26, 2003
By: /s/ Walter E. Blankley
- -------------------------------------
Walter E. Blankley
Director
Date: March 24, 2003
- -------------------------------------
By: /s/ Michael J. Emmi
- -------------------------------------
Michael J. Emmi
Director
Date: March 24, 2003
- -------------------------------------
By: /s/ Walter R. Garrison
- -------------------------------------
Walter R. Garrison
Director
Date: March 23, 2003
- -------------------------------------
By: /s/ Kay Hahn Harrell
- -------------------------------------
Kay Hahn Harrell
Director
Date: March 25, 2003
- -------------------------------------
By: /s/ Lawrence C. Karlson
- -------------------------------------
Lawrence C. Karlson
Director
Date: March 24, 2003
- -------------------------------------
By: /s/ Alan B. Miller
- -------------------------------------
Alan B. Miller
Director
Date: March 21, 2003
- -------------------------------------
By: /s/ Barton J. Winokur
- -------------------------------------
Barton J. Winokur
Director
Date: March 25, 2003
- -------------------------------------
- -------------------------------------
CERTIFICATION
I, Roger H. Ballou, certify that:
1. I have reviewed this annual report on Form 10-K of CDI Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions): a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and b) any fraud, whether or not material,
that involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 26, 2003
By: /s/ Roger H. Ballou
-------------------------------------
ROGER H. BALLOU
President and Chief Executive Officer
CERTIFICATION
I, Jay G. Stuart, certify that:
1. I have reviewed this annual report on Form 10-K of CDI Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 26, 2003
By: /s/ Jay G. Stuart
-------------------------------------
JAY G. STUART
Executive Vice President and
Chief Financial Officer
Schedule II
CDI CORP. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Allowance for Uncollectible Receivables)
Years ended December 31, 2002, 2001 and 2000
Uncollectible
receivables
Balance at Additions written off,
beginning of charged to net of Balance at end
year earnings recoveries of year
---------------- ---------------- ---------------- ----------------
December 31, 2002 $ 8,162,000 3,246,000 3,725,000 7,683,000
December 31, 2001 $ 3,480,000 9,436,000 4,754,000 8,162,000
December 31, 2000 $ 4,203,000 3,863,000 4,586,000 3,480,000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CDI CORP.
EXHIBITS
to
Annual Report
FORM 10-K
Year ended December 31, 2002
Under
SECURITIES EXCHANGE ACT OF 1934
INDEX TO EXHIBITS
Number Exhibit Page
- ------ ---------------------------------------------- -----------
3.a. 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, 2002
(File No. 1-5519).
b. Bylaws of the Registrant, incorporated herein by
reference to the Registrant's report on Form 10-Q for the
quarter ended June 30, 2002 (File No. 1-5519).
10.a. CDI Corp. Non-Qualified Stock Option and Stock Appreciation 56
Rights Plan. (Constitutes a 56 management contract or
compensatory plan or arrangement.)
b. Amended and Restated CDI Corp. 1998 Non-Qualified 61
Stock Option Plan. (Constitutes a management 61 contract
or compensatory plan or arrangement)
c. Amended and Restated CDI Corp. Stock Purchase Plan
for Management Employees and Non-Employee Directors,
incorporated herein by reference to the Registrant's report
on Form 10-Q for the quarter ended June 30, 2000 (File
No. 1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
d. CDI Corp. 2000 Stock Unit Plan. (Constitutes a 66
management contract or compensatory plan or 66 arrangement)
e. Executive Severance Arrangement Approved by the CDI Corp.
Compensation Committee on September 10, 2002, incorporated
by reference to the Registrant's report on Form 10-Q for the
quarter ended September 30, 2002 (File No. 1-5519).
(Constitutes a management contract or compensatory plan or
arrangement)
f. Supplemental Pension Agreement dated April 11, 1978 69
between CDI Corporation and Walter R. 72 Garrison. (Constitutes
a management contract or compensatory plan or arrangement)
g. 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)
h. Amendment dated as of April 12, 2000 to Consulting Agreement
dated as of April 7, 1997 by and between Registrant and
Walter R. Garrison, incorporated herein by reference to the
Registrant's report on Form 10-Q for the quarter ended June 30,
2000 (File No. 1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
i. Employment Agreement dated October 1, 2001, between Registrant
and Roger H. Ballou, incorporated by reference to the Registrant's
report on Form 10-K for the year ended December 31, 2001.
(File No. 1-5519). (Constitutes a management contract or
compensatory plan or arrangement)
j. Note dated March 14, 2002 from Roger Ballou and Georgeann Ballou
to CDI Corporation, incorporated by reference to the Registrant's
report on Form 10-Q for the quarter ended March 31, 2002 (File
No. 1-5519). (Constitutes a management contract or compensatory
plan or agreement)
k. Agreement dated March 14, 2002 between Roger Ballou and Georgeann
Ballou and CDI Corporation regarding the sale of the Ballous'
residence in Washington, D.C., incorporated by reference to the
Registrant's report on Form 10-Q for the quarter ended March 31,
2002 (File No. 1-5519). (Constitutes a management contract or
compensatory plan or agreement)
l. Non-Qualified Stock Option Agreement dated October 14, 2002 70
between Registrant and Jay G. 74 Stuart. (Constitutes a
management contract or compensatory plan or agreement)
m. Restricted Stock Agreement dated October 14, 2002 between 74
Registrant and Jay G. Stuart. 78 (Constitutes a management
contract or compensatory plan or agreement)
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, incorporated herein by
reference to the Registrant's report on Form 10-K for the year
ended December 31, 1999 (File No. 1-5519). (Constitutes a
management contract or compensatory plan or arrangement)
p. Agreement Regarding Severance between Registrant and Gregory 76
L. Cowan effective November 15, 80 2002. (Constitutes a
management contract or compensatory plan or arrangement)
q. Consulting and Non-Competition Agreement and Release and Waiver
of Claims dated June 4, 2001 by and between the Registrant and
Brian J. Bohling, incorporated by reference to the Registrant's
report on Form 10-Q for the quarter ended June 30, 2001
(File No. 1-5519). (Constitutes a management contract or
compensatory plan or agreement)
21. Subsidiaries of the Registrant
23. Consents of experts and counsel
99.a. Certification of Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 84
99.b. Certification of Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 85