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 presente