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EX-10.1 - EX-10.1 - CDI CORPa101exhibit.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
Form 10-Q
 
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2014
or
¨
Transition Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
for the Transition Period from                       to                      .

Commission file number: 001-05519 
 
CDI Corp.
(Exact name of registrant as specified in its charter)
 
 
Pennsylvania
(State of incorporation)
23-2394430
(I.R.S. Employer Identification Number)
 
 
1717 Arch Street, 35th Floor,
Philadelphia, PA 19103-2768
(Address of principal executive offices) (Zip Code)
 
 
(215) 569-2200
(Registrant's telephone number, including area code)


Indicate by check mark 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. x YES ¨ NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). x YES ¨ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
x
Non-accelerated filer 
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ YES x NO   
The number of shares outstanding of each of the registrant's classes of common stock as of August 4, 2014 was as follows:
Common stock, $0.10 par value:
Class B common stock, $0.10 par value:
19,614,952 Shares
None

 




CDI CORP.
Form 10-Q
For the Quarterly Period Ended June 30, 2014

TABLE OF CONTENTS

 
 
 
Page No.
Part I:
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
Part II:
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.


1




Note About Forward-Looking Statements
 
This quarterly report on Form 10-Q (including Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that address expectations or projections about the future, including, but not limited to, statements about our strategies for growth and future financial results (such as revenue, gross profit, operating profit, cash flow, and tax rate), are forward-looking statements. Some of the forward-looking statements can be identified by words like anticipates, believes, expects, may, will, could, should, intends, plans, estimates and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: weakness in general economic conditions and levels of capital spending by customers in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our customers' capital projects or the inability of our customers to pay our fees; the inability to successfully execute on our chief executive officer leadership transition, strategic plan or restructuring announced in December 2013; the termination of a major customer contract or project; delays or reductions in U.S. government spending; credit risks associated with our customers; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training, and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on customer contracts; negative outcome of pending and future claims and litigation; and government policies, legislation or judicial decisions adverse to our businesses. More detailed information about some of these and other risks and uncertainties may be found in our filings with the SEC, particularly in the “Risk Factors” section in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law.
Unless the context otherwise requires, all references herein to “CDI,” the "Registrant,” the "Company,” “we,” “us” or “our” are to CDI Corp. and its consolidated subsidiaries.


2




PART 1. FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS (Unaudited)

CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
(Unaudited)
 
June 30,
2014
 
December 31,
2013
 
 
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
32,418

 
$
45,479

Accounts receivable, net of allowances of $2,607 and $2,893
238,702

 
230,613

Prepaid expenses and other current assets
12,462

 
8,033

Prepaid income taxes
1,799

 
2,378

Deferred income taxes
4,813

 
4,724

Total current assets
290,194

 
291,227

Property and equipment, net of accumulated depreciation of $86,619 and $82,512
21,035

 
20,528

Deferred income taxes
5,036

 
5,260

Goodwill
62,808

 
62,280

Other intangible assets, net
14,408

 
15,157

Other non-current assets
11,144

 
11,355

Total assets
$
404,625

 
$
405,807

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
1,618

 
$
2,812

Accounts payable
32,883

 
38,019

Accrued compensation and related expenses
51,159

 
46,123

Other accrued expenses and other current liabilities
12,381

 
16,037

Income taxes payable
530

 
245

Total current liabilities
98,571

 
103,236

Deferred compensation
8,759

 
9,393

Deferred income tax
4,277

 
2,994

Other non-current liabilities
4,800

 
5,010

Total liabilities
116,407

 
120,633

Commitments and contingencies

 

Equity:
 
 
 
Preferred stock, $0.10 par value - authorized 1,000 shares; none issued

 

Common stock, $0.10 par value - authorized 100,000 shares; issued 22,063 and 21,958 shares
2,206

 
2,196

Class B common stock, $0.10 par value - authorized 3,175 shares; none issued

 

Additional paid-in-capital
70,970

 
70,104

Retained earnings
266,596

 
265,207

Accumulated other comprehensive income (loss)
38

 
(712
)
Common stock in treasury, at cost - 2,463 shares
(52,487
)
 
(52,487
)
Total CDI shareholders' equity
287,323

 
284,308

Noncontrolling interest
895

 
866

Total equity
288,218

 
285,174

Total liabilities and equity
$
404,625

 
$
405,807


See accompanying notes to consolidated financial statements.

3


CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Revenue
$
284,282

 
$
263,363

 
$
560,554

 
$
532,829

Cost of services
231,485

 
211,818

 
456,994

 
431,133

Gross profit
52,797

 
51,545

 
103,560

 
101,696

Operating and administrative expenses
46,107

 
46,303

 
91,815

 
91,541

Restructuring and other related costs
(298
)
 

 
72

 

Operating profit
6,988

 
5,242

 
11,673

 
10,155

Other income (expense), net
8

 
(62
)
 
(74
)
 
(113
)
Income before income taxes
6,996

 
5,180

 
11,599

 
10,042

Income tax expense
2,544

 
1,683

 
5,106

 
3,992

Net income
4,452

 
3,497

 
6,493

 
6,050

Less: Income attributable to the noncontrolling interest
25

 
59

 
29

 
121

Net income attributable to CDI
$
4,427

 
$
3,438

 
$
6,464

 
$
5,929

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.18

 
$
0.33

 
$
0.31

Diluted
$
0.22

 
$
0.17

 
$
0.33

 
$
0.30



See accompanying notes to consolidated financial statements.

4

CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
(Unaudited)


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net income
$
4,452

 
$
3,497

 
$
6,493

 
$
6,050

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
2,075

 
(1,519
)
 
750

 
(3,690
)
Total comprehensive income
6,527

 
1,978

 
7,243

 
2,360

Less: Comprehensive income attributable to the noncontrolling interest
25

 
10

 
29

 
120

Total comprehensive income attributable to CDI
$
6,502

 
$
1,968

 
$
7,214

 
$
2,240

 

See accompanying notes to consolidated financial statements.

5

CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)


 
Six Months Ended
 
June 30,
 
2014
 
2013
 
 
 
 
Operating activities:
 
 
 
Net income
$
6,493

 
$
6,050

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation
4,734

 
4,310

Amortization
749

 
813

Deferred income taxes
1,401

 
1,026

Share-based compensation
1,053

 
1,385

Gain on disposal of assets, net
(11
)
 
(18
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(7,242
)
 
(11,836
)
Prepaid expenses and other current assets
(3,782
)
 
(2,105
)
Accounts payable
(3,558
)
 
(6,322
)
Accrued expenses and other current liabilities
777

 
(1,443
)
Income taxes prepaid/payable
778

 
(3,413
)
Other non-current assets
(636
)
 
1,376

Deferred compensation
(33
)
 
(33
)
Other non-current liabilities
(220
)
 
(1,797
)
Net cash provided by (used in) operating activities
503

 
(12,007
)
 
 
 
 
Investing activities:
 
 
 
Additions to property and equipment
(5,218
)
 
(3,023
)
Other
57

 
74

Net cash used in investing activities
(5,161
)
 
(2,949
)
 
 
 
 
Financing activities:
 
 
 
Dividends paid to shareholders
(5,075
)
 
(2,524
)
Borrowings on credit facility
103,587

 
52,611

Repayments on credit facility
(104,817
)
 
(55,112
)
Common shares withheld for taxes
(368
)
 
(512
)
Payment of acquisition related earn out
(187
)
 

Change in book overdraft
(1,709
)
 
894

Excess tax benefit from share-based compensation awards
123

 
79

Net cash used in financing activities
(8,446
)
 
(4,564
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
43

 
(723
)
Net decrease in cash and cash equivalents
(13,061
)
 
(20,243
)
Cash and cash equivalents at beginning of period
45,479

 
43,652

Cash and cash equivalents at end of period
$
32,418

 
$
23,409

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
66

 
$
69

Cash paid for income taxes, net
$
2,713

 
$
6,593


See accompanying notes to consolidated financial statements.

6

CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Equity
(in thousands, except per share amounts)
(Unaudited)


 
Common Stock
 
Treasury Stock
 
Additional Paid-In-Capital
 
Retained Earnings
 
Accum-ulated Other Compre-hensive Income (Loss)
 
Total CDI Share-holders' Equity
 
Non-Controlling Interest
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
21,822

 
$
2,182

 
$
(52,487
)
 
$
67,863

 
$
259,912

 
$
1,501

 
$
278,971

 
$
809

 
$
279,780

Net income

 

 

 

 
5,929

 

 
5,929

 
121

 
6,050

Translation adjustments

 

 

 

 

 
(3,689
)
 
(3,689
)
 
(1
)
 
(3,690
)
Share-based compensation expense

 

 

 
1,385

 

 

 
1,385

 

 
1,385

Share-based compensation tax shortfall, net

 

 

 
(50
)
 

 

 
(50
)
 

 
(50
)
Reclassification of equity awards from liabilities, net

 

 

 
187

 

 

 
187

 

 
187

Vesting of equity awards
134

 
13

 

 
(13
)
 

 

 

 

 

Common shares withheld for taxes
(31
)
 
(3
)
 

 
(509
)
 

 

 
(512
)
 

 
(512
)
Cash dividends declared ($0.13 per common share)

 

 

 

 
(2,524
)
 

 
(2,524
)
 

 
(2,524
)
June 30, 2013
21,925
 
$
2,192

 
$
(52,487
)
 
$
68,863

 
$
263,317

 
$
(2,188
)
 
$
279,697

 
$
929

 
$
280,626

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
21,958

 
$
2,196

 
$
(52,487
)
 
$
70,104

 
$
265,207

 
$
(712
)
 
$
284,308

 
$
866

 
$
285,174

Net income

 

 

 

 
6,464

 

 
6,464

 
29

 
6,493

Translation adjustments

 

 

 

 

 
750

 
750

 

 
750

Share-based compensation expense

 

 

 
1,053

 

 

 
1,053

 

 
1,053

Reclassification of equity awards from liabilities, net

 

 

 
191

 

 

 
191

 

 
191

Vesting and exercise of equity awards
126

 
13

 

 
(13
)
 

 

 

 

 

Common shares withheld for taxes
(21
)
 
(3
)
 

 
(365
)
 

 

 
(368
)
 

 
(368
)
Cash dividends declared ($0.26 per common share)

 

 
 
 

 
(5,075
)
 

 
(5,075
)
 

 
(5,075
)
June 30, 2014
22,063
 
$
2,206

 
$
(52,487
)
 
$
70,970

 
$
266,596

 
$
38

 
$
287,323

 
$
895

 
$
288,218

 

See accompanying notes to consolidated financial statements.

7

CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)


1.
Business

CDI Corp. and its Subsidiaries (the Company or CDI) is an integrated engineering and technology services organization providing customer-focused solutions in select global industries. The Company provides engineering and information technology (IT) solutions and staffing services to customers in the Oil, Gas and Chemical (OGC), Aerospace and Industrial Equipment (AIE), and Hi-Tech industry verticals as well as in "Other" industry verticals that primarily include the infrastructure, U.S. defense, transportation and financial services industries. The Company derives most of its revenue by providing these services to large and mid-sized companies located primarily in the United States (U.S.), Canada and the United Kingdom (UK).

2.
Principles of Consolidation and Basis of Presentation

Principles of Consolidation - The consolidated financial statements include the accounts of CDI Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Basis of Presentation - The accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America (GAAP), the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (SEC) for interim financial reporting. These statements should be read in conjunction with the Company's Form 10-K filed with the SEC on March 6, 2014. Results for the six months ended June 30, 2014 are not necessarily indicative of results that may be expected for the full year.

3.
Summary of Significant Accounting Policies

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in the financial statements and accompanying notes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the assumptions used in the determination of the allowance for doubtful accounts receivable, impairment assessment of goodwill, determination of the recoverability of long-lived assets, assessment of legal contingencies and calculation of income taxes.

Reclassifications - For comparative purposes, certain amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 (Topic 606) Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue guidance in addition to some cost guidance. ASU 2014-09 establishes a five-step model under the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company beginning January 1, 2017 and the Company may apply this guidance using either a full retrospective approach, subject to certain practical expedients, or a modified retrospective approach with a cumulative effect adjustment as of the date of initial application. Early adoption is not permitted. The Company is evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12). The amendments in ASU 2014-12 require that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. ASU 2014-12 is effective for the Company beginning January 1, 2016 and the Company may apply the amendments either prospectively to all awards granted or modified after the effective date; or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Early adoption is permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.



8



CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)

4.
Fair Value Disclosures

The Company maintains a non-qualified Deferred Compensation Plan for highly compensated employees. The assets of the plan are held in the name of CDI at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those deferred amounts. The assets of the plan are held in publicly traded mutual funds. The fair value of the plan assets is calculated using the market price of the mutual funds as of the end of the period.

The following tables summarize the assets and liabilities measured at fair value on a recurring basis by level of the fair value hierarchy for the indicated periods:
 
 
 
 
Fair Value Measurements as of June 30, 2014 Using
 
 
Fair Value Measurements at June 30, 2014
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
 
 
 
 
 
 
 
Mutual funds:
 
 
 
 
 
 
 
 
Bond
 
$
1,940

 
$
1,940

 
$

 
$

Large cap
 
2,704

 
2,704

 

 

International
 
1,419

 
1,419

 

 

Mid cap
 
594

 
594

 

 

Small cap
 
558

 
558

 

 

Balanced
 
374

 
374

 

 

Money market funds
 
1,607

 
1,607

 

 

Total assets (1)
 
$
9,196

 
$
9,196

 
$

 
$

 
(1) 
As of June 30, 2014, $0.9 million and $8.3 million are included in “Prepaid expenses and other current assets” (liability offset in “Other accrued expenses and other current liabilities”) and “Other non-current assets” (liability offset in “Deferred compensation”), respectively, in the consolidated balance sheets reflecting the non-qualified Deferred Compensation Plan assets.
 
 
 
 
Fair Value Measurements as of December 31, 2013 Using
 
 
Fair Value Measurements at December 31, 2013
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
 
 
 
 
 
 
 
Mutual funds:
 
 
 
 
 
 
 
 
Bond
 
$
1,495

 
$
1,495

 
$

 
$

Large cap
 
2,925

 
2,925

 

 

International
 
1,227

 
1,227

 

 

Mid cap
 
750

 
750

 

 

Small cap
 
738

 
738

 

 

Balanced
 
348

 
348

 

 

Money market funds
 
1,512

 
1,512

 

 

Total assets (1)
 
$
8,995

 
$
8,995

 
$

 
$

 
(1) 
As of December 31, 2013, $0.3 million and $8.7 million are included in “Prepaid expenses and other current assets” (liability offset in “Other accrued expenses and other current liabilities”) and “Other non-current assets” (liability offset in “Deferred compensation”), respectively, in the consolidated balance sheets reflecting the non-qualified Deferred Compensation Plan assets.


9



CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)

5.
Goodwill and Other Intangible Assets

The following table summarizes the changes in the Company's carrying value of goodwill by reporting segment for the indicated periods:
 
December 31, 2013
 
 
 
 
 
June 30, 2014
 
Gross
Balance
 
Accumulated Impairment Losses
 
Additions
 
Translation and Other Adjustments
 
Gross
Balance
 
Accumulated Impairment Losses
 
 
 
 
 
 
 
 
 
 
 
 
GETS
$
35,713

 
$
(164
)
 
$

 
$

 
$
35,713

 
$
(164
)
PSS
47,075

 
(30,057
)
 

 
432

 
47,916

 
(30,466
)
MRI
16,765

 
(7,052
)
 

 
96

 
17,128

 
(7,319
)
Total goodwill
$
99,553

 
$
(37,273
)
 
$

 
$
528

 
$
100,757

 
$
(37,949
)

The Company performed its annual assessment for impairment of goodwill and other indefinite-lived intangible assets as of July 1, 2013 and determined there was no impairment. The Company's assessment determined that the fair values for each of the Company's reporting units, with the exception of PSS EMEA, comprised primarily of the CDI AndersElite Limited business, were substantially in excess of their related carrying values as of July 1, 2013. The PSS EMEA reporting unit had a fair value in excess of its carrying value of 15% and goodwill of $10.5 million. The Company believes it has made reasonable estimates and assumptions to calculate the fair value of its reporting units and indefinite-lived intangible assets. If actual future results are not consistent with management's estimates and assumptions, the Company may have to take an impairment charge in the future related to its goodwill and other indefinite-lived intangible assets. There were no triggering events subsequent to July 1, 2013 that required additional testing for any reporting units or indefinite-lived intangible assets.

The following tables summarize the changes in the Company's carrying value of other intangible assets during the indicated periods:
 
December 31, 2013
 
 
 
 
 
June 30, 2014
 
Gross
Balance
 
Accumulated Amortization
 
Additions
 
Amortization
 
Gross
Balance
 
Accumulated Amortization
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
11,960

 
$
(4,625
)
 
$

 
$
(469
)
 
$
11,960

 
$
(5,094
)
Trademarks
5,200

 
(440
)
 

 
(170
)
 
5,200

 
(610
)
Developed technology
460

 
(276
)
 

 
(46
)
 
460

 
(322
)
Non-compete
150

 
(105
)
 

 
(15
)
 
150

 
(120
)
Reacquired franchise rights
972

 
(304
)
 

 
(49
)
 
972

 
(353
)
Total intangible assets subject to amortization
18,742

 
(5,750
)
 

 
(749
)
 
18,742

 
(6,499
)
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Trademarks
2,165

 

 

 

 
2,165

 

Total other intangible assets
$
20,907

 
$
(5,750
)
 
$

 
$
(749
)
 
$
20,907

 
$
(6,499
)



10



CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)

6.
Restructuring and Other Related Costs

In December 2013, the Company announced that it would undertake a corporate restructuring in the first quarter of 2014 (the “2013 Restructuring Plan”) to improve operational effectiveness and further optimize the Company's cost structure. The 2013 Restructuring Plan included a workforce reduction and the consolidation of facilities and was substantially completed by June 30, 2014. The majority of the payments are expected to be made during 2014 with certain payments related to the consolidation of facilities expected through 2019. During the three months ended June 30, 2014, the Company adjusted its total restructuring liability due to lower than expected severance costs.

The following table summarizes the provision, activity and balances related to the Restructuring Plan by cost type for the indicated periods:
 
Employee severance and related costs
 
Real estate exit and related costs
 
Asset write-offs
 
Accrued restructuring liability
 
 
 
 
 
 
 
 
Balance as of December 31, 2013
$
4,568

 
$
769

 
$

 
$
5,337

Cash payments
(2,032
)
 
(271
)
 

 
(2,303
)
Charges
37

 
492

 
30

 
559

Non cash

 

 
(30
)
 
(30
)
   Adjustments
(487
)
 

 

 
(487
)
Balance as of June 30, 2014
$
2,086

 
$
990

 
$

 
$
3,076


The consolidated balance sheets as of June 30, 2014 and December 31, 2013 include $2.7 million and $4.7 million in “Other accrued expenses and other current liabilities”, and $0.4 million and $0.6 million in "Other non-current liabilities", respectively.

7.
Short-Term Borrowings

On November 30, 2012, CDI Corp., its direct wholly-owned subsidiary, CDI Corporation, and its indirect subsidiary, CDI AndersElite Limited (each a “Borrower”), entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. (the “Bank”). The Credit Agreement established a $75.0 million revolving line of credit facility (including a $5.0 million UK overdraft facility) that expires on November 29, 2017. The Company intends to repay borrowings under the Credit Agreement within twelve months of borrowing and as a result has recorded these borrowings in "Short-term borrowings" in the consolidated balance sheets. Borrowings under this line of credit may be used by the Company and the other Borrowers for general business purposes or for letters of credit.
 
As of June 30, 2014, the Company had $1.6 million of borrowings, letters of credit outstanding of $3.2 million and $70.2 million available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of June 30, 2014. Interest was payable at a rate of 1.65% per annum for outstanding borrowings as of June 30, 2014. As of June 30, 2014, the Company had an unsecured $0.4 million letter of credit outstanding under an agreement with TD Bank, N.A. that expires on July 1, 2015.

As of December 31, 2013, the Company had outstanding borrowings of $2.8 million, letters of credit outstanding of $3.1 million and $69.1 million available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of December 31, 2013. As of December 31, 2013, the Company had an unsecured $0.4 million letter of credit outstanding under an agreement with TD Bank, N.A.


11



CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)

8.
Commitments and Contingencies
Legal Proceedings
The Company has litigation and other claims pending which have arisen in the ordinary course of business. Management believes there are substantive defenses and/or insurance and specific accounting reserves established such that the outcome of these pending matters should not have a material adverse effect on the business, financial condition or results of operations of the Company.

9.
Income Taxes

The Company calculates an effective income tax rate each quarter using the estimated annual effective rate method based upon forecasted annual income by jurisdiction, statutory tax rates and other tax-related items. The impact of discrete items is recognized in the interim period in which they occur. Discrete items and the mix of domestic and foreign pre-tax income and losses with no tax benefit may significantly impact the interim period income tax provision and increase the volatility of the interim period effective tax rate at low levels of pre-tax income.
The effective tax rates for the three months ended June 30, 2014 and 2013 were 36.4% and 32.5%, respectively. The effective tax rates for the six months ended June 30, 2014 and 2013 were 44.0% and 39.8%, respectively. During the six months ended June 30, 2014, the Company recorded a $0.5 million charge for the write-off of deferred tax assets related to the forfeiture of the outstanding equity awards due to the separation of the Company's former CEO.

10.
Basic and Diluted Earnings Per Share (EPS) Data

The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the indicated periods:
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income attributable to CDI
$
4,427

 
$
3,438

 
$
6,464

 
$
5,929

Denominator:
 
 
 
 
 
 
 
Basic weighted-average shares
19,565

 
19,436

 
19,536

 
19,407

Dilutive effect of share-based awards
202

 
307

 
227

 
326

Diluted weighted-average shares
19,767

 
19,743

 
19,763

 
19,733

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.18

 
$
0.33

 
$
0.31

Diluted
$
0.22

 
$
0.17

 
$
0.33

 
$
0.30


There were 354 thousand shares and 468 thousand shares excluded from the computation of EPS for the three months ended June 30, 2014 and 2013, respectively, because their inclusion would have been anti-dilutive. There were 249 thousand shares and 421 thousand shares excluded from the computation of EPS for the six months ended June 30, 2014 and 2013, respectively, because their inclusion would have been anti-dilutive.


12



CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)

11.
Reporting Segments
The Company has the following three reporting segments:
Global Engineering and Technology Solutions (GETS) - GETS provides engineering and information technology solutions for its customers that involve the production of deliverable work products or services performed at a CDI facility or at a customer's facility under the supervision of CDI personnel. These solutions typically include analysis of a customer's engineering or information technology needs and the development of a solution that generally ranges in duration from several months to multiple years. Depending on the industry, engineering services can include such functions as feasibility studies, technology assessment, conceptual design, cost estimating, preliminary design, execution planning, procurement optimization, detailed design, testing and validation of regulatory compliance, technology integration and operating and maintenance support. Information technology services can include assessments, execution of business application services, web development, service-desk support, quality assurance and testing and program management. GETS provides these solutions through a delivery model consisting of: centers of excellence, with concentrated skill sets required for larger, more complex projects; regional centers to service local needs of customers; customer-centered offices to deliver site-specific services; and a near-shore center to leverage low-cost design resources.
Professional Staffing Services (PSS) - PSS provides skilled technical and professional personnel to its customers for discrete periods of time to augment the customer's workforce in times of project, seasonal, peak period or business cycle needs. These engagements can range from several months to multiple years in duration. PSS also provides permanent placement services. PSS provides professional staffing services to targeted industries that include managed services and managed staffing programs, functional staffing outsourcing and business advisory services. PSS delivers these services through a delivery model that provides global staffing delivery focused on select engineering and technology skill sets and competencies.
Management Recruiters International, Inc. (MRI) - MRI is a global franchisor that does business as MRINetwork® and provides the use of its trademarks, business systems and training and support services to its franchisees who engage in the search and recruitment of executive, technical, professional and managerial personnel for employment by their customers. The MRI franchisees provide permanent placement services primarily under the brand names Management Recruiters®, Sales Consultants® and OfficeMates 5®. MRI also provides training and support, implementation services and back-office services to enable franchisees to pursue contract staffing opportunities.

For purposes of performance measurement, the Company charges certain expenses directly attributable to the reporting segments and allocates certain other expenses and support costs. Support costs consist principally of employee benefits administration, accounting support, IT services and shared service center costs. Operating and administrative expenses that are not directly attributable to the reporting segments are classified as corporate. Identifiable assets of the reporting segments exclude corporate assets. Corporate assets consist principally of all cash and cash equivalents, all current and deferred income tax assets, and certain corporate assets not directly associated with the reporting segments including certain property and equipment and certain prepaid expenses and other current assets and certain other non-current assets.


13



CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)

Reporting segment operations data is presented in the following table for the indicated periods:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
GETS
$
84,288

 
$
79,951

 
$
166,542

 
$
157,988

PSS
184,730

 
168,759

 
364,869

 
345,867

MRI
15,264

 
14,653

 
29,143

 
28,974

Total revenue
$
284,282

 
$
263,363

 
$
560,554

 
$
532,829

 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
GETS
$
22,805

 
$
22,755

 
$
45,205

 
$
44,279

PSS
22,809

 
21,873

 
44,755

 
44,143

MRI
7,183

 
6,917

 
13,600

 
13,274

Total gross profit
$
52,797

 
$
51,545

 
$
103,560

 
$
101,696

 
 
 
 
 
 
 
 
Operating profit:
 
 
 
 
 
 
 
GETS (1)
$
2,215

 
$
2,842

 
$
3,771

 
$
4,722

PSS (1)
6,867

 
5,169

 
13,012

 
11,334

MRI
1,752

 
2,060

 
3,012

 
3,689

Corporate (2)
(3,846
)
 
(4,829
)
 
(8,122
)
 
(9,590
)
Total operating profit
6,988

 
5,242

 
11,673

 
10,155

Other income (expense), net
8

 
(62
)
 
(74
)
 
(113
)
Income before income taxes
$
6,996

 
$
5,180

 
$
11,599

 
$
10,042

 
(1) 
During the three and six months ended June 30, 2014, the Company recorded pre-tax amounts of $(0.3) million and $0.1 million, respectively, to "Restructuring and other related costs" related to the 2013 Restructuring Plan. The following table summarizes the amount of restructuring and other related costs recognized by reporting segment for the indicated periods:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
GETS
$
86

 
$

 
$
419

 
$

PSS
(286
)
 

 
(249
)
 

MRI

 

 

 

Corporate
(98
)
 

 
(98
)
 

Restructuring and other related costs
$
(298
)
 
$

 
$
72

 
$


(2) 
In the first quarter of 2014, the Company recorded an aggregate $0.9 million after tax charge to net income related to the separation of the Company's former CEO that is comprised of a $0.7 million pre-tax charge ($0.4 million after tax) to operations associated with the former CEO's separation arrangement and an additional $0.5 million charge to income tax expense for the write-off of deferred tax assets related to the forfeiture of outstanding equity awards.


14



CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except per share amounts, unless otherwise indicated)
(Unaudited)

Reporting segment asset data is presented in the following table for the indicated periods:
 
June 30,
 
December 31,
 
2014
 
2013
 
 
 
 
Assets:
 
 
 
GETS
$
136,421

 
$
130,269

PSS
175,103

 
168,786

MRI
27,403

 
28,098

Corporate
65,698

 
78,654

Total assets
$
404,625

 
$
405,807


Inter-segment activity is not significant; therefore, revenue reported for each operating segment is substantially from external customers.



15



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Form 10-Q Report as well as the Note About Forward-Looking Statements.

Executive Overview
Business Overview
CDI is an integrated engineering and technology services organization providing differentiated, customer-focused solutions in select global industries. The Company provides engineering and information technology (IT) solutions and staffing services to customers in the Oil, Gas and Chemical (OGC), Aerospace and Industrial Equipment (AIE), and Hi-Tech industry verticals as well as in "Other" industry verticals that primarily include the infrastructure, U.S. defense, transportation and financial services industries.
The Company operates through its three reporting segments: Global Engineering and Technology Solutions (GETS), Professional Staffing Services (PSS) and Management Recruiters International (MRI). GETS provides engineering and IT solutions for its customers that involve the production of deliverable work products or services performed at a CDI facility or at a customer's facility under the supervision of CDI personnel. PSS provides skilled technical and professional personnel to its customers for discrete periods of time to augment the customer's workforce in times of project, seasonal, peak period or business cycle needs. MRI is a global franchisor that provides the use of its trademarks, business systems and training and support services to its franchisees who engage in the search and recruitment of executive, technical, professional and managerial personnel for employment by their customers.
The Company's strategic growth plan includes focusing on high-potential growth opportunities in the strategic industry verticals and selective expansion of the Company's geographic footprint to meet the global needs of the Company's core customers.
Second Quarter 2014 Overview
Revenue during the second quarter of 2014 increased by $20.9 million or 7.9% as compared to the second quarter of 2013 due primarily to increases in PSS and, to a lesser extent, GETS. Gross profit increased by $1.3 million primarily due to the increase in revenue partially offset by a decrease in gross profit margins in GETS and PSS. Gross profit margin decreased primarily due to a shift in mix to lower margin business within PSS and margin deterioration on certain GETS fixed-price projects. The shift in mix to lower gross profit margin business within PSS is primarily due to increased demand for program staffing services which generally provide higher than average operating profit margins but lower than average gross profit margins. Operating and administrative expenses decreased slightly. Operating profit increased to $7.0 million during the second quarter of 2014 as compared to $5.2 million during the second quarter of 2013 primarily due to the increase in gross profit. Net income attributable to CDI increased to $4.4 million during the second quarter of 2014 as compared to $3.4 million in the second quarter of 2013.

16



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Results of Operations

Consolidated Discussion

Three months ended June 30, 2014 as compared to the three months ended June 30, 2013

The table that follows presents changes in revenue by segment along with selected financial information and key metrics for the three months ended June 30, 2014 and 2013:
 
Three Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
GETS
$
84,288

 
29.6
 %
 
$
79,951

 
30.4
%
 
$
4,337

 
5.4
 %
PSS
184,730

 
65.0

 
168,759

 
64.1

 
15,971

 
9.5

MRI
15,264

 
5.4

 
14,653

 
5.6

 
611

 
4.2

Total Revenue
$
284,282

 
100.0

 
$
263,363

 
100.0

 
$
20,919

 
7.9

Gross profit
$
52,797

 
18.6

 
$
51,545

 
19.6

 
$
1,252

 
2.4

Operating and administrative expenses
$
46,107

 
16.2

 
$
46,303

 
17.6

 
$
(196
)
 
(0.4
)
Restructuring and other related costs
$
(298
)
 
(0.1
)
 
$

 

 
$
(298
)
 
NM

Operating profit
$
6,988

 
2.5

 
$
5,242

 
2.0

 
$
1,746

 
33.3

Net income attributable to CDI
$
4,427

 
1.6

 
$
3,438

 
1.3

 
$
989

 
28.8

Effective income tax rate
36.4
%
 
 
 
32.5
%
 
 
 
 
 
 
Pre-tax return on net assets (1)
8.9
%
 
 
 
10.7
%
 
 
 
 
 
 
 
(1) 
Income (loss) before income taxes for the year, divided by the average net assets at the beginning and end of the year for the prior 12 consecutive months. Net assets include total assets minus total liabilities excluding cash and cash equivalents, income tax accounts and debt.
NM - Not meaningful.
Revenue increased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to increases in PSS and, to a lesser extent, GETS. PSS revenue increased primarily due to increased pipeline staffing demand in the OGC vertical and to a lesser extent increases in the "Other" and AIE industry verticals, partially offset by reduced staffing at a large existing customer in the Hi-Tech vertical. GETS revenue increased primarily due to increased growth in the OGC and AIE verticals, partially offset by reductions in government services and infrastructure spending in the "Other" industry vertical. MRI's revenue increased primarily due to increased contract staffing.
Gross profit increased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increases in revenue partially offset by a decrease in gross profit margin in GETS and PSS. Gross profit margin decreased primarily due to a shift in mix to lower margin business within PSS and margin deterioration on certain GETS fixed-price projects. The shift in mix to lower gross profit margin business within PSS is primarily due to increased demand for program staffing services which generally provide higher than average operating profit margins but lower than average gross profit margins.
Operating profit increased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in gross profit and to a lesser extent, a favorable adjustment to the restructuring liability as a result of lower than anticipated severance costs and a decrease in operating costs in 2014 compared to 2013.
The effective income tax rates for both periods were impacted by insignificant discrete items, the mix of domestic and foreign pre-tax income and certain foreign losses with no tax benefit that had a significant impact on the effective income tax rates due to the levels of pre-tax income for both periods. As such, comparison of effective tax rates for the second quarter of 2014 as compared to the second quarter of 2013 is not meaningful.
Corporate
Corporate expenses consist of operating and administrative expenses that are not allocated to the reporting units under segment reporting. Corporate expenses were $3.9 million for the second quarter of 2014 compared to $4.8 million for the second quarter of 2013. The reduction in corporate expenses are primarily due to cost savings as a result of the restructuring undertaken in the first quarter of 2014.

17



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Consolidated Discussion - Continued

Six months ended June 30, 2014 as compared to the six months ended June 30, 2013

The table that follows presents changes in revenue by segment along with selected financial information and key metrics for the six months ended June 30, 2014 and 2013:
 
Six Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
GETS
$
166,542

 
29.7
%
 
$
157,988

 
29.7
%
 
$
8,554

 
5.4
%
PSS
364,869

 
65.1

 
345,867

 
64.9

 
19,002

 
5.5

MRI
29,143

 
5.2

 
28,974

 
5.4

 
169

 
0.6

Total Revenue
$
560,554

 
100.0

 
$
532,829

 
100.0

 
$
27,725

 
5.2

Gross profit
$
103,560

 
18.5

 
$
101,696

 
19.1

 
$
1,864

 
1.8

Operating and administrative expenses (1)
$
91,815

 
16.4

 
$
91,541

 
17.2

 
$
274

 
0.3

Restructuring and other related costs
$
72

 

 
$

 

 
$
72

 
NM

Operating profit
$
11,673

 
2.1

 
$
10,155

 
1.9

 
$
1,518

 
14.9

Net income attributable to CDI (1)
$
6,464

 
1.2

 
$
5,929

 
1.1

 
$
535

 
9.0

Effective income tax rate
44.0
%
 
 
 
39.8
%
 
 
 
 
 
 
 
(1) 
In the first quarter of 2014, the Company recorded an aggregate $0.9 million after tax charge to net income related to the separation of the Company's former CEO that is comprised of a $0.7 million pre-tax charge ($0.4 million after tax) to operations associated with the former CEO's separation arrangement and an additional $0.5 million charge to income tax expense for the write-off of deferred tax assets related to the forfeiture of outstanding equity awards.
NM - Not meaningful.
Revenue increased for the first six months of 2014 as compared to the first six months of 2013 due to increases in PSS and, to a lesser extent, GETS. PSS revenue increased primarily due to increased pipeline staffing demand in the OGC vertical and to a lesser extent increases in the "Other" industry vertical, partially offset by reduced staffing at a large existing customer in the Hi-Tech vertical. GETS revenue increased primarily due to increased growth in the OGC and AIE verticals, partially offset by reductions in government services and infrastructure spending in the "Other" industry vertical. MRI revenue increased slightly.
Gross profit increased for the first six months of 2014 as compared to the first six months of 2013 primarily due to the increases in revenue partially offset by a decrease in gross profit margins in GETS and PSS. Gross profit margin decreased primarily due to a shift in mix to lower margin business within PSS and margin deterioration on certain GETS fixed-price projects. The shift in mix to lower gross profit margin business within PSS is primarily due to increased demand for program staffing services which generally provide higher than average operating profit margins but lower than average gross profit margins.
Operating profit increased for the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in gross profit. The 2014 operating results include a $0.7 million pre-tax charge related to the separation of the Company's former CEO.
The effective income tax rates for both periods were impacted by insignificant discrete items, the mix of domestic and foreign pre-tax income and certain foreign losses with no tax benefit. The first six months of 2014 included the $0.5 million charge for the write-off of deferred tax assets related to the forfeiture of the outstanding equity awards of the Company's former CEO.
Corporate
Corporate expenses consist of operating and administrative expenses that are not allocated to the reporting units under segment reporting. Corporate expenses were $8.2 million for the first six months of 2014 compared to $9.6 million for the first six months of 2013. Included in corporate expenses for the first six months of 2014 is a $0.7 million pre-tax charge related to the separation of the Company's former CEO. The reduction in corporate expenses are primarily due to cost savings as a result of the restructuring undertaken in the first quarter of 2014.

18



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Segment Results of Operations

Global Engineering and Technology Solutions (GETS)

Three months ended June 30, 2014 as compared to the three months ended June 30, 2013


The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for GETS for the three months ended June 30, 2014 and 2013:
 
Three Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Oil, Gas and Chemicals (OGC)
$
34,725

 
41.2
%
 
$
30,136

 
37.7
%
 
$
4,589

 
15.2
 %
Aerospace and Industrial Equipment (AIE)
19,807

 
23.5

 
18,514

 
23.2

 
1,293

 
7.0

Hi-Tech
8,108

 
9.6

 
7,524

 
9.4

 
584

 
7.8

Other
21,648

 
25.7

 
23,777

 
29.7

 
(2,129
)
 
(9.0
)
Total revenue
84,288

 
100.0

 
79,951

 
100.0

 
4,337

 
5.4

Cost of services
61,483

 
72.9

 
57,196

 
71.5

 
4,287

 
7.5

Gross profit
22,805

 
27.1

 
22,755

 
28.5

 
50

 
0.2

Operating and administrative expenses
20,504

 
24.3

 
19,913

 
24.9

 
591

 
3.0

Restructuring and other related costs
86

 
0.1

 

 

 
86

 
NM

Operating profit
$
2,215

 
2.6

 
$
2,842

 
3.6

 
$
(627
)
 
(22.1
)
 
NM - Not meaningful.

Revenue increased during the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in revenue in the OGC and AIE industry verticals, partially offset by the decrease in the "Other" industry vertical. The increase in OGC revenue is primarily due to a net increase in demand downstream customers and, to a lesser extent, midstream pipeline customers. The increase in AIE revenue is primarily due to increased demand by commercial aviation customers. The decrease in the "Other" industry vertical revenue is primarily due to reduced spending by the U.S. Federal government.

Gross profit was relatively flat for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in revenue being predominantly offset by the decrease in gross profit margin. Gross profit margin decreased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to margin deterioration on certain fixed-price OGC projects.

Operating and administrative expenses increased during the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in business volume and, to a lesser extent, the reduction of an acquisition-related earnout liability in the second quarter of 2013 partially offset by cost savings as a result of the restructuring undertaken in the first quarter of 2014.

Operating profit decreased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in operating and administrative expenses during the second quarter of 2014.


19



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Global Engineering and Technology Solutions (GETS) - Continued

Six months ended June 30, 2014 as compared to the six months ended June 30, 2013


The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for GETS for the six months ended June 30, 2014 and 2013:
 
Six Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Oil, Gas and Chemicals (OGC)
$
67,268

 
40.4
%
 
$
59,786

 
37.8
%
 
$
7,482

 
12.5
 %
Aerospace and Industrial Equipment (AIE)
39,653

 
23.8

 
35,383

 
22.4

 
4,270

 
12.1

Hi-Tech
16,018

 
9.6

 
15,145

 
9.6

 
873

 
5.8

Other
43,603

 
26.2

 
47,674

 
30.2

 
(4,071
)
 
(8.5
)
Total revenue
166,542

 
100.0

 
157,988

 
100.0

 
8,554

 
5.4

Cost of services
121,337

 
72.9

 
113,709

 
72.0

 
7,628

 
6.7

Gross profit
45,205

 
27.1

 
44,279

 
28.0

 
926

 
2.1

Operating and administrative expenses
41,015

 
24.6

 
39,557

 
25.0

 
1,458

 
3.7

Restructuring and other related costs
419

 
0.3

 

 

 
419

 
NM

Operating profit
$
3,771

 
2.3

 
$
4,722

 
3.0

 
$
(951
)
 
(20.1
)
 
NM - Not meaningful.

Revenue increased during the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in revenue in the OGC and AIE industry verticals, partially offset by the decrease in the "Other" industry vertical. The increase in OGC revenue is primarily due to a net increase in demand downstream customers and, to a lesser extent, midstream pipeline customers. The increase in AIE revenue is primarily due to increased demand by commercial aviation customers. The decrease in the "Other" industry vertical revenue is primarily due to reduced spending by the U.S. Federal government due to sequestration and ongoing reduced state and local government spending on infrastructure engineering activities.

Gross profit increased for the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in revenue partially offset by the decrease in gross profit margin. Gross profit margin decreased for the first six months of 2014 as compared to the first six months of 2013 primarily due to margin deterioration on certain fixed-price OGC projects and to a lesser extent, a shift in mix from the higher margin infrastructure and government services business to the lower margin business in the OGC and AIE industry verticals.

Operating and administrative expenses increased during the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in business volume and, to a lesser extent, the reduction of an acquisition-related earnout liability in the first six months of 2013 partially offset by cost savings as a result of the restructuring undertaken in the first quarter of 2014.

Operating profit decreased for the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in operating and administrative expenses and restructuring charges partially offset by the increase in gross profit during the first six months of 2014.


20



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Professional Staffing Services (PSS)

Three months ended June 30, 2014 as compared to the three months ended June 30, 2013

The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for PSS for the three months ended June 30, 2014 and 2013:
 
Three Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Oil, Gas and Chemicals (OGC)
$
44,417

 
24.0
 %
 
$
27,021

 
16.0
%
 
$
17,396

 
64.4
 %
Aerospace and Industrial Equipment (AIE)
20,583

 
11.1

 
19,363

 
11.5

 
1,220

 
6.3

Hi-Tech
59,895

 
32.4

 
71,457

 
42.3

 
(11,562
)
 
(16.2
)
Other
59,835

 
32.4

 
50,918

 
30.2

 
8,917

 
17.5

Total revenue
184,730

 
100.0

 
168,759

 
100.0

 
15,971

 
9.5

Cost of services
161,921

 
87.7

 
146,886

 
87.0

 
15,035

 
10.2

Gross profit
22,809

 
12.3

 
21,873

 
13.0

 
936

 
4.3

Operating and administrative expenses
16,228

 
8.8

 
16,704

 
9.9

 
(476
)
 
(2.8
)
Restructuring and other related costs
(286
)
 
(0.2
)
 

 

 
(286
)
 
NM

Operating profit
$
6,867

 
3.7

 
$
5,169

 
3.1

 
$
1,698

 
32.8

 
NM - Not meaningful.

Revenue increased for the second quarter of 2014 as compared to the second quarter of 2013 due to the increase in revenue primarily in the OGC and "Other" industry verticals partially offset by a decrease in the Hi-Tech industry vertical. OGC revenue growth is primarily due to increased pipeline staffing demand for site-based technicians at existing customers. Revenue in the "Other" industry vertical increased primarily due to the growth in the UK, partially offset by a decrease in non-program staffing in North America. Revenue in Hi-Tech declined primarily due to reduced staffing at a large existing customer.

Gross profit increased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in revenue partially offset by a decrease in gross profit margin. Gross profit margin decreased primarily due to a shift in mix to program staffing revenue in OGC and in the UK. Program staffing generally provides higher than average operating profit margins but lower than average gross profit margins.

Operating and administrative expenses decreased during the second quarter of 2014 as compared to the second quarter of 2013 primarily due to cost savings as a result of the restructuring undertaken in the first quarter of 2014.

Operating profit increased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in gross profit, reduction in operating and administrative expenses and benefit due to a reduction in the estimated restructuring liability.

21



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Professional Staffing Services (PSS) - Continued

Six months ended June 30, 2014 as compared to the six months ended June 30, 2013

The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for PSS for the six months ended June 30, 2014 and 2013:
 
Six Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Oil, Gas and Chemicals (OGC)
$
89,480

 
24.5
 %
 
$
60,363

 
17.5
%
 
$
29,117

 
48.2
 %
Aerospace and Industrial Equipment (AIE)
40,500

 
11.1

 
38,280

 
11.1

 
2,220

 
5.8

Hi-Tech
120,029

 
32.9

 
143,451

 
41.5

 
(23,422
)
 
(16.3
)
Other
114,860

 
31.5

 
103,773

 
30.0

 
11,087

 
10.7

Total revenue
364,869

 
100.0

 
345,867

 
100.0

 
19,002

 
5.5

Cost of services
320,114

 
87.7

 
301,724

 
87.2

 
18,390

 
6.1

Gross profit
44,755

 
12.3

 
44,143

 
12.8

 
612

 
1.4

Operating and administrative expenses
31,992

 
8.8

 
32,809

 
9.5

 
(817
)
 
(2.5
)
Restructuring and other related costs
(249
)
 
(0.1
)
 

 

 
(249
)
 
NM

Operating profit
$
13,012

 
3.6

 
$
11,334

 
3.3

 
$
1,678

 
14.8

 
NM - Not meaningful.

Revenue increased for the first six months of 2014 as compared to the first six months of 2013 due to the increase in revenue primarily in the OGC and "Other" industry vertical partially offset by a decrease in the Hi-Tech industry vertical. OGC revenue growth is primarily due to increased pipeline staffing demand for site-based technicians at existing customers. Revenue in the "Other" industry vertical increased primarily due to the growth in the UK, partially offset by a decrease in non-program staffing in North America. Revenue in Hi-Tech declined primarily due to reduced staffing at a large existing customer.

Gross profit increased for the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in revenue partially offset by the decrease in gross profit margin. Gross profit margin decreased primarily due to a shift in mix to program staffing revenue in OGC and in the UK. Program staffing generally provides higher than average operating profit margins but lower than average gross profit margins.

Operating and administrative expenses decreased during the first six months of 2014 as compared to the first six months of 2013 primarily due to cost savings as a result of the restructuring undertaken in the first quarter of 2014.

Operating profit increased for the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in gross profit, reduction in operating and administrative expenses and benefit due to a reduction in the estimated restructuring liability as a result of lower than anticipated severance costs.


22



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Management Recruiters International (MRI)

Three months ended June 30, 2014 as compared to the three months ended June 30, 2013

The following table presents changes in revenue by service type, cost of services, gross profit, operating and administrative expenses and operating profit for MRI for the three months ended June 30, 2014 and 2013:
 
Three Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Contract Staffing
$
11,808

 
77.4
%
 
$
11,208

 
76.5
%
 
$
600

 
5.4
 %
Royalties and Franchise Fees
3,456

 
22.6

 
3,445

 
23.5

 
11

 
0.3

Total revenue
15,264

 
100.0

 
14,653

 
100.0

 
611

 
4.2

Cost of services
8,081

 
52.9

 
7,736

 
52.8

 
345

 
4.5

Gross profit
7,183

 
47.1

 
6,917

 
47.2

 
266

 
3.8

Operating and administrative expenses
5,431

 
35.6

 
4,857

 
33.1

 
574

 
11.8

Operating profit
$
1,752

 
11.5

 
$
2,060

 
14.1

 
$
(308
)
 
(15.0
)

Revenue increased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to an increase in contract staffing revenue. The increase in contract staffing revenue is primarily due to increased headcount. Royalties and franchise fees increased slightly as increases in franchise fees due to the addition of new franchises were mostly offset by a reduction in permanent placement royalties.

Gross profit increased in the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in contract staffing revenue. Gross profit margin remained relatively flat.

Operating and administrative expenses increased during the second quarter of 2014 as compared to the second quarter of 2013 due primarily to higher sales expenses related to contract staffing and additional spending on professional development for new and existing franchisees.
Operating profit decreased for the second quarter of 2014 as compared to the second quarter of 2013 primarily due to the increase in operating and administrative expenses partially offset by the increase in gross profit.

23



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Management Recruiters International (MRI) - Continued

Six months ended June 30, 2014 as compared to the six months ended June 30, 2013

The following table presents changes in revenue by service type, cost of services, gross profit, operating and administrative expenses and operating profit for MRI for the six months ended June 30, 2014 and 2013:
 
Six Months Ended
 
 
 
 
 
June 30,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Contract Staffing
$
22,880

 
78.5
%
 
$
22,444

 
77.5
%
 
$
436

 
1.9
 %
Royalties and Franchise Fees
6,263

 
21.5

 
6,530

 
22.5

 
(267
)
 
(4.1
)
Total revenue
29,143

 
100.0

 
28,974

 
100.0

 
169

 
0.6

Cost of services
15,543

 
53.3

 
15,700

 
54.2

 
(157
)
 
(1.0
)
Gross profit
13,600

 
46.7

 
13,274

 
45.8

 
326

 
2.5

Operating and administrative expenses
10,588

 
36.3

 
9,585

 
33.1

 
1,003

 
10.5

Operating profit
$
3,012

 
10.3

 
$
3,689

 
12.7

 
$
(677
)
 
(18.4
)

Revenue increased for the first six months of 2014 as compared to the first six months of 2013 primarily due to an increase in contract staffing revenue partially offset by a reduction in royalty revenue. Contract staffing revenue increased due primarily to increased headcount. Royalties and franchise fees decreased primarily due to reduced permanent placement royalties partially offset by an increase in franchise fees due to the addition of new franchises.

Gross profit increased in the first six months of 2014 as compared to the first six months of 2013 primarily due to a shift to higher gross profit margin business within contract staffing partially offset by a decrease in royalties and franchise fees. Gross profit margin increased primarily due to a shift to higher margin business within contract staffing partially offset by the decrease in royalties and franchise fees.

Operating and administrative expenses increased during the first six months of 2014 as compared to the first six months of 2013 due primarily to higher sales expenses related to contract staffing and additional spending on professional development for new and existing franchisees.
Operating profit decreased for the first six months of 2014 as compared to the first six months of 2013 primarily due to the increase in operating and administrative expenses partially offset by the increase in gross profit.


24



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Liquidity and Capital Resources

The Company's principal sources of liquidity are cash flows from operations and borrowings under our credit facility. The Company's principal uses of cash are operating expenses, capital expenditures, working capital requirements, dividends, and debt service. Management expects that the Company's current cash balances, cash generated from operations and available borrowing capacity will be sufficient to support the Company's planned operating and capital requirements for the foreseeable future and at least the next twelve months.
On November 30, 2012, CDI Corp., its direct wholly-owned subsidiary, CDI Corporation, and its indirect subsidiary, CDI AndersElite Limited (each a “Borrower”), entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. (the “Bank”). The Credit Agreement established a $75.0 million revolving line of credit facility (including a $5.0 million UK overdraft facility), with a five-year term ending on November 29, 2017. Borrowings under this line of credit may be used by the Borrowers for general business purposes or for letters of credit. See Note 7-Short-Term Borrowings, in the notes to the consolidated financial statements included in Item1 of this Form 10-Q Report for more information relating to the Credit Agreement.
As of June 30, 2014, the Company had cash and cash equivalents of $32.4 million. As of June 30, 2014, there were $1.6 million outstanding borrowings, $70.2 million available to borrow and $3.2 million of letters of credit outstanding under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of June 30, 2014. As of June 30, 2014, the Company also had an unsecured $0.4 million letter of credit outstanding under an agreement with TD Bank, N.A. that expires on July 1, 2015.
As of June 30, 2014, approximately 23% of the Company's cash and cash equivalents were held by certain non-U.S. subsidiaries, principally Canadian and UK entities, and denominated in foreign currencies, principally Canadian dollars and British pounds sterling. The repatriation of cash and cash equivalent balances from non-U.S. subsidiaries could have adverse tax consequences; however, such cash and cash equivalent balances are generally available, without legal restrictions, to fund ordinary business operations at the local level. Deferred income taxes have not been provided on the unremitted earnings of such non-U.S. subsidiaries, because it is management's intention to reinvest such earnings in non-U.S. subsidiaries for the foreseeable future.
The Company’s billing and cash collection cycle for the Company's largest customer is based on the customer’s monthly fiscal calendar which can cause significant fluctuations in cash receipts in any given period.
Cash and cash equivalents decreased from $45.5 million on December 31, 2013 to $32.4 million on June 30, 2014. The following table summarizes the net cash impact, by classification, from the Company's consolidated statements of cash flows for the indicated periods:
 
Six Months Ended
 
 
 
June 30,
 
 
 
2014
 
2013
 
Change
 
 
 
 
 
 
Operating Activities
$
503

 
$
(12,007
)
 
$
12,510

Investing Activities
(5,161
)
 
(2,949
)
 
(2,212
)
Financing Activities
(8,446
)
 
(4,564
)
 
(3,882
)
Effect of exchange rate changes on cash and cash equivalents
43

 
(723
)
 
766

Net decrease in cash and cash equivalents
$
(13,061
)
 
$
(20,243
)
 
$
7,182

Operating Activities
For the first six months of 2014, the Company generated $0.5 million net cash by operating activities, which is a $12.5 million increase from the comparable period in 2013. The increase in net cash generated by operations is primarily due to a reduction in working capital requirements and a decrease in income tax payments. Working capital requirements during the first six months of 2014 as compared to the first six months of 2013 decreased primarily due to improved collections from several of the Company's large customers and the timing of payments to vendors.
Investing Activities
For the first six months of 2014, the Company used $5.2 million net cash in investing activities which is a $2.2 million increase from the comparable period in 2013. The increase is primarily due to higher capital expenditures related to an increase in capital information technology spend to support billable headcount growth in GETS.

25



CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in thousands, except per share amounts, unless otherwise indicated)

Financing Activities
For the first six months of 2014, net cash used by financing activities is $8.4 million compared to $4.6 million during the comparable period in 2013. The increase in cash used in financing activities is primarily due to an increase in dividends paid and the change in overdrafts offset partially by a reduction in net repayments under the Company's short-term borrowing facility. The Company accelerated the payment of the first quarter 2013 cash dividend into December 2012.

Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in this Form 10-Q Report. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the consolidated financial statements and because of the possibility that future events affecting them may differ from current judgments.
The critical accounting estimates and assumptions identified in the Company's 2013 annual report on Form 10-K filed on March 6, 2014 with the Securities and Exchange Commission have not materially changed.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk, primarily related to changes in foreign currency exchange rates and interest rates. The Company monitors this risk to limit the effect of changes in foreign currency exchange rates and interest rates on earnings and cash flows.

Foreign Currency Risk
The Company's exposure to foreign currency exchange rate risk relates primarily to its operations denominated in Canadian dollars and British pounds sterling. Exchange rate fluctuations impact the U.S. dollar value of reported earnings derived from these foreign operations as well as the Company's investment in the net assets related to these operations. The Company utilizes derivative financial instruments from time to time to reduce its exposure to certain foreign currency fluctuations.
 
Interest Rate Risk
The interest rate risk associated with the Company's borrowing activities as of June 30, 2014 is not material in relation to its consolidated financial position, results of operations or cash flows. While it may do so in the future, the Company has not used derivative financial instruments to alter the interest rate characteristics of its debt instruments. As of June 30, 2014 the Company had outstanding borrowings of $1.6 million with interest payable at a rate of 1.65% per annum.

Item 4.    Controls and Procedures 
Evaluation of disclosure controls and procedures
The management of the Company, under the supervision and with the participation of the Company's Interim Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2014. Based on that evaluation, the Interim Chief Executive Officer and Chief Financial Officer has concluded that the Company's disclosure controls and procedures were effective as of that date to provide reasonable assurance that information reported in this Form 10-Q Report is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There were no changes in the Company's internal control over financial reporting during the Company's second quarter ended June 30, 2014, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


26




PART II. OTHER INFORMATION

Item 1.    Legal Proceedings
The Company has litigation and other claims pending which have arisen in the ordinary course of business. Management believes there are substantive defenses and/or insurance and specific accounting reserves established such that the outcome of these pending matters should not have a material adverse effect on the business, financial condition or results of operations of the Company.

Item 1A.    Risk Factors
There have been no material changes from the risk factors disclosed in the “Risk Factors” section (Part I, Item 1A) of the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2.    Unregistered Sales of Equity and Use of Proceeds
None.

Item 3.    Defaults Upon Senior Securities
None.

Item 4.    Mine Safety Disclosures
None.

Item 5.    Other Information 
None.

Item 6.    Exhibits
The list of exhibits in the Index to Exhibits to this report is incorporated herein by reference.


27




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
CDI Corp.
Date:
August 6, 2014
 
By:
/s/ Robert M. Larney
 
 
 
 
Robert M. Larney
 
 
 
 
Interim President and Chief Executive Officer;
 
 
 
 
Chief Financial Officer
 
 
 
 
(Duly Authorized Officer and
 
 
 
 
Principal Financial Officer)


28




INDEX TO EXHIBITS

Exhibit No.
 
Description
 
 
 
10.1*
 
Form of 2014 Executive Incentive Program Overview distributed to executive officers.
31.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
 
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101**
 
 
(101.INS)
 
XBRL Instance Document
(101.SCH)
 
XBRL Taxonomy Extension Schema Document
(101.CAL)
 
XBRL Taxonomy Extension Calculation Linkbase Document
(101.DEF)
 
XBRL Taxonomy Extension Definition Linkbase Document
(101.LAB)
 
XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
*
Constitutes a management contract or compensatory plan or arrangement.

**
Pursuant to Regulation S-T, these interactive data files are deemed not filed or incorporated in any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

29