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EX-31.2 - EXHIBIT 31.2 - CDI CORPa312-cdix20150331.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 March 31, 2015
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 May 1, 2015 was as follows:
Common stock, $0.10 par value:
Class B common stock, $0.10 par value:
19,645,679 Shares
None

 




CDI CORP.
Form 10-Q
For the Quarterly Period Ended March 31, 2015

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 plans, strategies, adequacy of resources 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 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 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, 2014. 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)
 
March 31,
2015
 
December 31,
2014
 
 
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
28,127

 
$
36,324

Accounts receivable, net of allowances of $2,010 and $1,950
227,669

 
219,578

Prepaid expenses and other current assets
14,606

 
8,302

Prepaid income taxes
1,287

 
753

Deferred income taxes
3,666

 
4,138

Total current assets
275,355

 
269,095

Property and equipment, net of accumulated depreciation of $88,166 and $86,813
19,588

 
20,350

Deferred income taxes
8,729

 
9,203

Goodwill
49,988

 
50,630

Other intangible assets, net
12,116

 
12,424

Other non-current assets
9,943

 
10,518

Total assets
$
375,719

 
$
372,220

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
2,971

 
$
1,250

Accounts payable
27,304

 
30,071

Accrued compensation and related expenses
50,888

 
36,005

Other accrued expenses and other current liabilities
11,818

 
14,502

Income taxes payable
1,138

 
1,015

Total current liabilities
94,119

 
82,843

Deferred compensation
8,617

 
9,094

Deferred income tax
989

 
1,034

Other non-current liabilities
4,654

 
4,896

Total liabilities
108,379

 
97,867

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 22,108 and 22,084 shares
2,211

 
2,208

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

 

Additional paid-in-capital
72,474

 
72,023

Retained earnings
256,029

 
258,113

Accumulated other comprehensive loss
(10,887
)
 
(6,207
)
Common stock in treasury, at cost - 2,463 shares
(52,487
)
 
(52,487
)
Total CDI shareholders' equity
267,340

 
273,650

Noncontrolling interest

 
703

Total equity
267,340

 
274,353

Total liabilities and equity
$
375,719

 
$
372,220


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
 
 
March 31,
 
 
2015
 
2014
 
 
 
 
 
Revenue
 
$
257,458

 
$
276,272

Cost of services
 
210,688

 
225,509

Gross profit
 
46,770

 
50,763

Operating and administrative expenses
 
45,273

 
45,708

Restructuring and other related costs
 
47

 
370

Loss on disposition
 
310

 

Operating profit
 
1,140

 
4,685

Other income (expense), net
 
13

 
(82
)
Income before income taxes
 
1,153

 
4,603

Income tax expense
 
766

 
2,562

Net income
 
387

 
2,041

Less: Income attributable to the noncontrolling interest
 
(83
)
 
4

Net income attributable to CDI
 
$
470

 
$
2,037

 
 
 
 
 
Earnings per common share:
 
 
 
 
Basic
 
$
0.02

 
$
0.10

Diluted
 
$
0.02

 
$
0.10



See accompanying notes to consolidated financial statements.

4

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


 
 
Three Months Ended
 
 
March 31,
 
 
2015
 
2014
 
 
 
 
 
Net income
 
$
387

 
$
2,041

Other comprehensive income:
 
 
 
 
Foreign currency translation adjustments
 
(4,944
)
 
(1,325
)
Reclassification foreign currency translation adjustment
 
362

 

Total comprehensive income
 
(4,195
)
 
716

Less: Comprehensive income attributable to the noncontrolling interest
 
15

 
4

Total comprehensive income attributable to CDI
 
$
(4,210
)
 
$
712

 

See accompanying notes to consolidated financial statements.

5

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


 
Three Months Ended
 
March 31,
 
2015
 
2014
 
 
 
 
Operating activities:
 
 
 
Net income
$
387

 
$
2,041

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
2,254

 
2,316

Amortization
308

 
374

Deferred income taxes
934

 
1,905

Share-based compensation
537

 
575

Loss on disposition
310

 

(Gain)/loss on disposal of assets, net
48

 
(1
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(14,669
)
 
(38,258
)
Prepaid expenses and other current assets
(5,660
)
 
(5,763
)
Accounts payable
(1,127
)
 
(7,114
)
Accrued expenses and other current liabilities
12,940

 
2,703

Income taxes prepaid/payable
(809
)
 
387

Other non-current assets
332

 
274

Deferred compensation
1

 
(35
)
Other non-current liabilities
(432
)
 
(157
)
Net cash used in operating activities
(4,646
)
 
(40,753
)
 
 
 
 
Investing activities:
 
 
 
Additions to property and equipment
(1,808
)
 
(2,296
)
Other

 
46

Net cash used in investing activities
(1,808
)
 
(2,250
)
 
 
 
 
Financing activities:
 
 
 
Dividends paid to shareholders
(2,554
)
 
(2,536
)
Borrowings on credit facility
5,813

 
34,130

Repayments on credit facility
(3,972
)
 
(26,655
)
Common shares withheld for taxes
(257
)
 
(361
)
Change in book overdraft

 
(1,054
)
Excess tax benefit from share-based compensation awards
53

 
101

Net cash (used in) provided by financing activities
(917
)
 
3,625

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(826
)
 
56

Net decrease in cash and cash equivalents
(8,197
)
 
(39,322
)
Cash and cash equivalents at beginning of period
36,324

 
45,479

Cash and cash equivalents at end of period
$
28,127

 
$
6,157

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
37

 
$
33

Cash paid for income taxes, net
$
554

 
$
112


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, 2013
21,958

 
$
2,196

 
$
(52,487
)
 
$
70,104

 
$
265,207

 
$
(712
)
 
$
284,308

 
$
866

 
$
285,174

Net income

 

 

 

 
2,037

 

 
2,037

 
4

 
2,041

Translation adjustments

 

 

 

 

 
(1,325
)
 
(1,325
)
 

 
(1,325
)
Share-based compensation expense

 

 

 
575

 

 

 
575

 

 
575

Reclassification of equity awards from liabilities, net

 

 

 
115

 

 

 
115

 

 
115

Vesting and exercise of equity awards
59

 
6

 

 
(6
)
 

 

 

 

 

Common shares withheld for taxes
(20
)
 
(2
)
 

 
(359
)
 

 

 
(361
)
 

 
(361
)
Cash dividends declared ($0.13 per common share)

 

 

 

 
(2,536
)
 

 
(2,536
)
 

 
(2,536
)
March 31, 2014
21,997
 
$
2,200

 
$
(52,487
)
 
$
70,429

 
$
264,708

 
$
(2,037
)
 
$
282,813

 
$
870

 
$
283,683

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
22,084

 
$
2,208

 
$
(52,487
)
 
$
72,023

 
$
258,113

 
$
(6,207
)
 
$
273,650

 
$
703

 
$
274,353

Net income

 

 

 

 
470

 

 
470

 
(83
)
 
387

Translation adjustments

 

 

 

 

 
(4,680
)
 
(4,680
)
 
98

 
(4,582
)
Share-based compensation expense

 

 

 
537

 

 

 
537

 

 
537

Reclassification of equity awards from liabilities, net

 

 

 
174

 

 

 
174

 

 
174

Vesting and exercise of equity awards
39

 
4

 

 
(4
)
 

 

 

 

 

Common shares withheld for taxes
(15
)
 
(1
)
 

 
(256
)
 

 

 
(257
)
 

 
(257
)
Disposition of controlling interest

 

 

 

 

 

 

 
(718
)
 
(718
)
Cash dividends declared ($0.13 per common share)

 

 
 
 

 
(2,554
)
 

 
(2,554
)
 

 
(2,554
)
March 31, 2015
22,108
 
$
2,211

 
$
(52,487
)
 
$
72,474

 
$
256,029

 
$
(10,887
)
 
$
267,340

 
$

 
$
267,340

 

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) provide customer-focused engineering, information technology and staffing solutions. The Company's customers operate in a variety of industries, ranging from Oil, Gas and Chemical to Aerospace and Industrial Equipment, and High Technology, and include corporate, federal, state and municipal entities.  The Company serves customers through offices and delivery centers in the United States (U.S.), Canada and the United Kingdom (UK).  The Company also provides staffing services through its global MRINetwork® of franchisees.

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 5, 2015. Results for the three months ended March 31, 2015 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.

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. On April 1, 2015, the FASB proposed a one-year deferral of the effective date that, if approved, would allow the Company to defer the effective date to January 1, 2018 but still permit the Company to adopt the standard as of the original effective date. The Company has not yet selected a transition method nor has it determined the impact that adoption of this guidance will have on its consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). The standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014. The Company's adoption of ASU 2014-08 effective January 1, 2015 did not have a material impact on its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02). The standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for the Company beginning January 1, 2017. Early adoption is permitted. The Company is evaluating the impact that adoption of this guidance will have 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)

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and will be effective for us beginning in our first quarter of 2017. 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.

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 March 31, 2015 Using
 
 
Fair Value Measurements at March 31, 2015
 
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
 
$
1,710

 
$
1,710

 
$

 
$

Large cap
 
2,739

 
2,739

 

 

International
 
1,441

 
1,441

 

 

Mid cap
 
604

 
604

 

 

Small cap
 
483

 
483

 

 

Balanced
 
353

 
353

 

 

Money market funds
 
1,247

 
1,247

 

 

Total assets (1)
 
$
8,577

 
$
8,577

 
$

 
$

 
(1) 
As of March 31, 2015, $0.8 million and $7.8 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, 2014 Using
 
 
Fair Value Measurements at December 31, 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
 
$
1,879

 
$
1,879

 
$

 
$

Large cap
 
2,852

 
2,852

 

 

International
 
1,405

 
1,405

 

 

Mid cap
 
606

 
606

 

 

Small cap
 
470

 
470

 

 

Balanced
 
339

 
339

 

 

Money market funds
 
1,235

 
1,235

 

 

Total assets (1)
 
$
8,786

 
$
8,786

 
$

 
$

 
(1) 
As of December 31, 2014, $0.7 million and $8.1 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, 2014
 
 
 
 
 
March 31, 2015
 
Gross
Balance
 
Accumulated Impairment Losses
 
Additions
 
Translation and Other Adjustments
 
Gross
Balance
 
Accumulated Impairment Losses
 
 
 
 
 
 
 
 
 
 
 
 
GETS
$
35,713

 
$
(11,051
)
 
$

 
$

 
$
35,713

 
$
(11,051
)
PSS
44,298

 
(27,904
)
 

 
(525
)
 
41,729

 
(25,860
)
MRI
16,240

 
(6,666
)
 

 
(117
)
 
15,798

 
(6,341
)
Total goodwill
$
96,251

 
$
(45,621
)
 
$

 
$
(642
)
 
$
93,240

 
$
(43,252
)

The Company performs its annual assessment for impairment of goodwill and other indefinite-lived intangible assets as of July 1 of each fiscal year. The Company performed its annual assessment as of July 1, 2014 and determined there was no impairment. As a result of its annual assessment, the Company identified the following reporting units with fair values that were not substantially in excess of their carrying values: PSS EMEA, GETS Infrastructure and GETS Aerospace and Industrial Equipment (GETS AIE). The Company performs an assessment for impairment of goodwill and other indefinite-lived intangible whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is below its carrying value.

During the fourth quarter of 2014, the Company recorded a $10.9 million impairment of goodwill in the Company’s GETS Infrastructure reporting unit. The goodwill impairment charge was based on the implied fair value measured as the difference between the fair value of the reporting unit and the fair value of the identified net assets.

During the fourth quarter of 2014, the Company recorded a $1.2 million charge for the impairment of definite-lived intangibles assets in the Company's data acquisition and analysis systems business within the GETS AIE reporting unit.

The Company believes it has made reasonable estimates and used reasonable 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 additional impairment charges in the future.

The following tables summarize the changes in the Company's carrying value of other intangible assets during the indicated periods:
 
December 31, 2014
 
 
 
 
 
March 31, 2015
 
Gross
Balance
 
Accumulated Amortization
 
Additions
 
Amortization
 
Gross
Balance
 
Accumulated Amortization
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
10,300

 
$
(5,047
)
 
$

 
$
(191
)
 
$
10,300

 
$
(5,238
)
Trademarks
5,100

 
(680
)
 

 
(85
)
 
5,100

 
(765
)
Developed technology

 

 

 


 

 

Non-compete
150

 
(135
)
 

 
(8
)
 
150

 
(143
)
Reacquired franchise rights
972

 
(401
)
 

 
(24
)
 
972

 
(425
)
Total intangible assets subject to amortization
16,522

 
(6,263
)
 

 
(308
)
 
16,522

 
(6,571
)
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Trademarks
2,165

 

 

 

 
2,165

 

Total other intangible assets
$
18,687

 
$
(6,263
)
 
$

 
$
(308
)
 
$
18,687

 
$
(6,571
)



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 2014, the Company approved a restructuring plan (the “2014 Restructuring Plan”) to optimize its operations and facility footprint. The 2014 Restructuring Plan included a workforce reduction and the consolidation of facilities and is expected to be completed during 2015. Substantially all remaining payments are expected to be made during 2015 with certain payments related to the consolidation of facilities expected through 2019. Additional charges of approximately $0.3 million to $1.7 million are expected to be recognized during 2015 primarily related to the consolidation of facilities, which charges include estimates for remaining lease obligations less sub-lease proceeds, facility relocation and 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. Substantially all payments were made in 2014, with certain payments related to the consolidation of facilities expected through 2019.

The following table summarizes the provision, activity and balances related to the Restructuring Plans 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
(1,169
)
 
(88
)
 

 
 
Charges
37

 
303

 
30

 
 
Non-cash

 

 
(30
)
 
 
Balance as of March 31, 2014
$
3,436

 
$
984

 
$

 
$
4,420

 
 
 
 
 
 
 
 
Balance as of December 31, 2014
$
2,031

 
$
2,600

 
$

 
$
4,631

Cash payments
(907
)
 
(293
)
 

 
 
Charges

 
33

 
14

 
 
Non-cash

 

 
(14
)
 
 
Balance as of March 31, 2015
$
1,124

 
$
2,340

 
$

 
$
3,464


The consolidated balance sheets as of March 31, 2015 and December 31, 2014 include $2.5 million and $3.4 million in “Other accrued expenses and other current liabilities”, and $1.0 million and $1.2 million in "Other non-current liabilities", respectively.

7.
Disposition

On March 20, 2015, the Company completed the sale of its 67% interest in CDI-Pycopsa Ingeniería y Construcción, S. de R.L. de C.V. (“CDI-Pycopsa”), a Mexico-based engineering design company that is reported in the GETS reporting segment. CDI-Pycopsa does not meet the criteria to be reported as discontinued operations under ASU 2014-08, which was adopted by the Company on January 1, 2015. Accordingly, CDI-Pycopsa's results are reflected in the Consolidated Statements of Operations within continuing operations. Excluding the $0.3 million loss on disposition, CDI-Pycopsa's pretax results attributable to CDI were not material for three months ended March 31, 2015 and 2014, respectively.

8.
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 outstanding borrowings under the Credit Agreement as of March 31, 2015 during the next twelve months 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.
 

11



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

As of March 31, 2015, the Company had outstanding borrowings of $3.0 million, letters of credit outstanding of $3.2 million and $68.8 million available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of March 31, 2015. Interest was payable at a rate of 1.81% per annum for outstanding borrowings as of March 31, 2015. As of March 31, 2015, 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, 2014, the Company had outstanding borrowings of $1.3 million, letters of credit outstanding of $3.2 million and $70.5 million available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of December 31, 2014. As of December 31, 2014, the Company had an unsecured $0.4 million letter of credit outstanding under an agreement with TD Bank, N.A.

9.
Commitments and Contingencies

Legal Proceedings
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although management cannot predict the timing or outcome of these matters with certainty, management does not believe that the final resolution of these matters, individually or in the aggregate, would have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

10.
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 March 31, 2015 and 2014 were 66.4% and 55.7%, respectively. During the three months ended March 31, 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.

11.
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
 
 
March 31,
 
 
2015
 
2014
 
 
 
 
 
Numerator:
 
 
 
 
Net income attributable to CDI
 
$
470

 
$
2,037

Denominator:
 
 
 
 
Basic weighted-average shares
 
19,634

 
19,507

Dilutive effect of share-based awards
 
228

 
296

Diluted weighted-average shares
 
19,862

 
19,803

Earnings per common share:
 
 
 
 
Basic
 
$
0.02

 
$
0.10

Diluted
 
$
0.02

 
$
0.10


There were 142 thousand shares and 405 thousand shares excluded from the computation of EPS for the three months ended March 31, 2015 and 2014, 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)

12.
Reporting Segments
The Company has the following three reporting segments:
Global Engineering and Technology Solutions (GETS) - GETS provides for its customers engineering and information technology solutions that involve principally 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 feasibility studies, architectural and structural designs, technology assessments, conceptual designs, pricing studies, preliminary designs, execution planning, procurement optimization, detailed designs, testing and validations 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; and customer-centered offices to deliver site-specific services.
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 and professional staffing services to targeted industries that include managed services and managed staffing programs, and functional staffing outsourcing.
Management Recruiters International (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
 
 
March 31,
 
 
2015
 
2014
 
 
 
 
 
Revenue:
 
 
 
 
GETS
 
$
82,521

 
$
82,254

PSS
 
161,426

 
180,139

MRI
 
13,511

 
13,879

Total revenue
 
$
257,458

 
$
276,272

 
 
 
 
 
Gross profit:
 
 
 
 
GETS
 
$
20,942

 
$
22,400

PSS
 
19,259

 
21,946

MRI
 
6,569

 
6,417

Total gross profit
 
$
46,770

 
$
50,763

 
 
 
 
 
Operating profit:
 
 
 
 
GETS (1), (2)
 
$
348

 
$
1,556

PSS (1)
 
4,156

 
6,145

MRI
 
1,456

 
1,260

Corporate (3)
 
(4,820
)
 
(4,276
)
Total operating profit
 
1,140

 
4,685

Other income (expense), net
 
13

 
(82
)
Income before income taxes
 
$
1,153

 
$
4,603

 
(1) 
The following table summarizes the amount of restructuring and other related costs recognized by reporting segment for the indicated periods:
 
 
Three Months Ended
 
 
March 31,
 
 
2015
 
2014
 
 
 
 
 
GETS
 
$

 
$
333

PSS
 
47

 
37

MRI
 

 

Corporate
 

 

Restructuring and other related costs
 
$
47

 
$
370


(2) 
In the first quarter of 2014, the Company's GETS segment recorded a charge of $0.3 million related to the loss on disposition of the Company's controlling interest in a Mexico-based engineering design company.
(3) 
In the first quarter of 2014, the Company recorded an aggregate $0.9 million after tax charge related to the separation of the 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 equity awards.

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


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:
 
March 31,
 
December 31,
 
2015
 
2014
 
 
 
 
Assets:
 
 
 
GETS
$
120,552

 
$
120,223

PSS
166,596

 
159,774

MRI
23,260

 
23,539

Corporate
65,311

 
68,684

Total assets
$
375,719

 
$
372,220




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 provides customer-focused engineering, information technology and staffing solutions. The Company's customers operate in a variety of industries, ranging from Oil, Gas and Chemical (OGC) to Aerospace and Industrial Equipment (AIE), and High Technology (Hi-Tech), and include corporate, federal, state and municipal entities. The Company also serves customers that operate in the infrastructure, U.S. defense, and transportation industries and such Company operations are included in the Company's "Other" industry vertical. The Company serves customers through offices and delivery centers in the United States (U.S.), Canada and the United Kingdom (UK).  The Company also provides staffing services through its global MRINetwork® of franchisees.  
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 for its customers engineering and information technology solutions 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.

In 2014, the Company announced a new Chief Executive Officer, executive team and key elements of a strategy to improve the Company's margin and growth prospects. The strategy will require the implementation of new programs and select investments for business performance improvement. In addition, the Company's results of operations can be affected by economic conditions, capital spending by customers, and business confidence. Historical trends may not be indicative of future trends.
First Quarter 2015 Overview
Revenue during the first quarter of 2015 decreased by $18.8 million or 6.8% as compared to the first quarter of 2014 primarily due to a decrease in PSS. The decrease in PSS revenue was primarily due to reduced staffing at a large existing customer in the Hi-Tech vertical, the negative impact of exchange rates and decreased pipeline staffing demand in the OGC vertical. Gross profit decreased by $4.0 million primarily due to the decrease in revenue and, to a lesser extent, 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 GETS and PSS. Excluding the separation charge for the former CEO in the first quarter of 2014, operating and administrative expenses increased for the first quarter of 2015 as compared to the first quarter of 2014 primarily due to higher corporate expenses and information technology-related costs. Operating profit decreased to $1.1 million for the first quarter of 2015 as compared to $4.7 million for the first quarter of 2014. Net income attributable to CDI decreased to $0.5 million for the first quarter of 2015 as compared to $2.0 million for the first quarter of 2014.




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 March 31, 2015 as compared to the three months ended March 31, 2014

The table that follows presents changes in revenue by segment along with selected financial information and key metrics for the three months ended March 31, 2015 and 2014:
 
Three Months Ended
 
 
 
 
 
March 31,
 
 
 
 
 
2015
 
2014
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
GETS
$
82,521

 
32.1
%
 
$
82,254

 
29.8
%
 
$
267

 
0.3
 %
PSS
161,426

 
62.7

 
180,139

 
65.2

 
(18,713
)
 
(10.4
)
MRI
13,511

 
5.2

 
13,879

 
5.0

 
(368
)
 
(2.7
)
Total Revenue
$
257,458

 
100.0

 
$
276,272

 
100.0

 
$
(18,814
)
 
(6.8
)
Gross profit
$
46,770

 
18.2

 
$
50,763

 
18.4

 
$
(3,993
)
 
(7.9
)
Operating and administrative expenses (1)
$
45,273

 
17.6

 
$
45,708

 
16.5

 
$
(435
)
 
(1.0
)
Restructuring and other related costs
$
47

 

 
$
370

 
0.1

 
$
(323
)
 
(87.3
)
Loss on disposition
$
310

 
0.1

 
$

 

 
$
310

 
NM

Operating profit
$
1,140

 
0.4

 
$
4,685

 
1.7

 
$
(3,545
)
 
(75.7
)
Net income attributable to CDI (1)
$
470

 
0.2

 
$
2,037

 
0.7

 
$
(1,567
)
 
(76.9
)
Effective income tax rate
66.4
%
 
 
 
55.7
%
 
 
 
 
 
 
 
(1) 
In the first quarter of 2014, the Company recorded an aggregate $0.9 million after tax charge related to the separation of the former CEO that is comprised of a $0.7 million pre-tax charge ($0.4 million after tax) to operations associated with the 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 equity awards.
NM - Not meaningful.
Revenue decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to decreases in PSS. PSS revenue decreased primarily due to reduced staffing at a large existing customer in the Hi-Tech vertical, the negative impact of exchange rates and decreased pipeline staffing demand in the OGC vertical. GETS revenue increased slightly as increases in the OGC vertical were predominantly offset by decreases in the AIE and Other industry verticals. MRI revenue decreased slightly as decreases in contract staffing revenue partially offset increases in royalties and franchise fees.
Gross profit decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to the decrease in PSS revenue and, to a lesser extent, decreases in gross profit margins in GETS and PSS. Gross profit margin decreased in GETS primarily due to a shift in mix within GETS to lower margin OGC business. Gross profit margin in PSS decreased primarily due to a shift in mix to lower margin enterprise talent solutions.
Operating profit decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to the decrease in revenue partially offset by a decrease in operating costs. Operating costs for the first three months of 2014 included a $0.7 million pre-tax charge related to the separation of the former CEO. Excluding the separation charge for the former CEO, operating costs increased for the first three months of 2015 as compared to the first three months of 2014 primarily due to higher corporate expenses and information technology-related costs, partially offset by lower personnel costs in GETS and PSS.
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 three months of 2014 included the $0.5 million charge for the write-off of deferred tax assets related to the forfeiture of the equity awards of the 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 $4.8 million for the first three months of 2015 compared to $4.3 million for the first three months of 2014. Included in corporate expenses for the first three months of 2014 is a $0.7 million pre-tax charge related to the separation of the former CEO. Excluding the former CEO separation charge, operating costs increased the first three months of 2015 as compared to the first three months of 2014 due primarily to higher corporate development and consulting costs.

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)

Segment Results of Operations

Global Engineering and Technology Solutions (GETS)
Three months ended March 31, 2015 as compared to the three months ended March 31, 2014

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 March 31, 2015 and 2014:
 
Three Months Ended
 
 
 
 
 
March 31,
 
 
 
 
 
2015
 
2014
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Oil, Gas and Chemicals (OGC)
$
38,792

 
47.0
%
 
$
32,543

 
39.6
%
 
$
6,249

 
19.2
 %
Aerospace and Industrial Equipment (AIE)
15,697

 
19.0

 
19,846

 
24.1

 
(4,149
)
 
(20.9
)
Hi-Tech
7,690

 
9.3

 
7,910

 
9.6

 
(220
)
 
(2.8
)
Other
20,342

 
24.7

 
21,955

 
26.7

 
(1,613
)
 
(7.3
)
Total revenue
82,521

 
100.0

 
82,254

 
100.0

 
267

 
0.3

Cost of services
61,579

 
74.6

 
59,854

 
72.8

 
1,725

 
2.9

Gross profit
20,942

 
25.4

 
22,400

 
27.2

 
(1,458
)
 
(6.5
)
Operating and administrative expenses
20,284

 
24.6

 
20,511

 
24.9

 
(227
)
 
(1.1
)
Restructuring and other related costs

 

 
333

 
0.4

 
(333
)
 
(100.0
)
Loss on Disposition
310

 
0.4

 

 

 
310

 
NM

Operating profit
$
348

 
0.4

 
$
1,556

 
1.9

 
$
(1,208
)
 
(77.6
)
 
NM - Not meaningful.

Revenue increased slightly during the first three months of 2015 as compared to the first three months of 2014 primarily due to an increase in revenue in the OGC vertical, partially offset by decreases in the AIE and "Other" industry verticals. The increase in OGC revenue is primarily due to a net increase in demand from existing downstream and industrial chemical customers. The decrease in AIE revenue is primarily due to a decrease in demand and pricing by a large commercial aviation customer. The decrease in the "Other" industry vertical revenue is primarily due to reduced naval defense spending and a decline in architectural engineering business.

Gross profit decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to the decrease in gross profit margin. Gross profit margin decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to a shift in mix to lower margin OGC business, margin deterioration on certain fixed price OGC contracts, and pricing pressure from a large commercial aviation customer in the AIE industry vertical.

Operating and administrative expenses decreased during the first three months of 2015 as compared to the first three months of 2014 primarily due to lower personnel costs, partially offset by higher information technology-related costs. GETS recorded a $0.3 million loss on disposition of the Company's controlling interest in a Mexico-based OGC engineering design company in the first three months of 2015 and $0.3 million in restructuring and other related costs during the first three months of 2014.

Operating profit decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to the the decrease in gross profit, partially offset by the decrease in operating and administrative expenses.


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)

Professional Staffing Services (PSS)
Three months ended March 31, 2015 as compared to the three months ended March 31, 2014

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 March 31, 2015 and 2014:
 
Three Months Ended
 
 
 
 
 
March 31,
 
 
 
 
 
2015
 
2014
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Oil, Gas and Chemicals (OGC)
$
39,623

 
24.5
%
 
$
45,063

 
25.0
%
 
$
(5,440
)
 
(12.1
)%
Aerospace and Industrial Equipment (AIE)
19,351

 
12.0

 
19,917

 
11.1

 
(566
)
 
(2.8
)
Hi-Tech
51,326

 
31.8

 
60,134

 
33.4

 
(8,808
)
 
(14.6
)
Other
51,126

 
31.7

 
55,025

 
30.5

 
(3,899
)
 
(7.1
)
Total revenue
161,426

 
100.0

 
180,139

 
100.0

 
(18,713
)
 
(10.4
)
Cost of services
142,167

 
88.1

 
158,193

 
87.8

 
(16,026
)
 
(10.1
)
Gross profit
19,259

 
11.9

 
21,946

 
12.2

 
(2,687
)
 
(12.2
)
Operating and administrative expenses
15,056

 
9.3

 
15,764

 
8.8

 
(708
)
 
(4.5
)
Restructuring and other related costs
47

 

 
37

 

 
10

 
27.0

Operating profit
$
4,156

 
2.6

 
$
6,145

 
3.4

 
$
(1,989
)
 
(32.4
)
 
NM - Not meaningful.

Revenue decreased for the first three months of 2015 as compared to the first three months of 2014 due primarily to decreases in revenue in the Hi-Tech, OGC, and "Other" industry verticals. Hi-Tech revenue decreased primarily due to reduced staffing at a large existing customer. The decrease in OGC revenue is primarily due to the negative impact of exchange rates and, to a lesser extent, decreased pipeline staffing demand for site-based technicians at existing customers. Revenue in the "Other" industry vertical decreased primarily due to the negative impact of exchange rates and, to a lesser extent, decreases in staffing revenue in North America, partially offset by growth in the UK. AIE revenue decreased primarily due to the negative impact of exchange rates, partially offset by increased demand by existing customers.

Gross profit decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to the decrease in revenue and, to a lesser extent, the decrease in gross profit margin. Gross profit margin decreased slightly primarily due to enterprise talent solutions in OGC, program staffing in the UK and, to a lesser extent, higher healthcare-related estimated costs associated with certain provisions of the Affordable Care Act (ACA) that went into effect on January 1, 2015.

Operating and administrative expenses decreased during the first three months of 2015 as compared to the first three months of 2014 primarily due to lower personnel costs, partially offset by higher information technology-related costs.

Operating profit decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to the reduction in gross profit, partially offset by the decrease in operating and administrative expenses.


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)

Management Recruiters International (MRI)
Three months ended March 31, 2015 as compared to the three months ended March 31, 2014

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 March 31, 2015 and 2014:
 
Three Months Ended
 
 
 
 
 
March 31,
 
 
 
 
 
2015
 
2014
 
Increase (Decrease)
 
$
 
% of Total Revenue
 
$
 
% of Total Revenue
 
$
 
%
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Contract Staffing
$
10,318

 
76.4
%
 
$
11,072

 
79.8
%
 
$
(754
)
 
(6.8
)%
Royalties and Franchise Fees
3,193

 
23.6

 
2,807

 
20.2

 
386

 
13.8

Total revenue
13,511

 
100.0

 
13,879

 
100.0

 
(368
)
 
(2.7
)
Cost of services
6,942

 
51.4

 
7,462

 
53.8

 
(520
)
 
(7.0
)
Gross profit
6,569

 
48.6

 
6,417

 
46.2

 
152

 
2.4

Operating and administrative expenses
5,113

 
37.8

 
5,157

 
37.2

 
(44
)
 
(0.9
)
Operating profit
$
1,456

 
10.8

 
$
1,260

 
9.1

 
$
196

 
15.6


Revenue decreased for the first three months of 2015 as compared to the first three months of 2014 primarily due to a decrease in contract staffing revenue, partially offset by an increase in royalty revenue and franchise fees. Contract staffing revenue decreased primarily due to a decrease in billable staffing headcount. Royalties and franchise fees increased due to increased royalty income associated with permanent placements and the addition of new franchises.

Gross profit increased in the first three months of 2015 as compared to the first three months of 2014 primarily due to the increase in royalties and franchise fees, partially offset by a reduction in contract staffing revenue. Gross profit margin increased primarily due to the increase in permanent placements and addition of new franchises partially offset by higher healthcare-related estimated costs associated with certain provisions of the Affordable Care Act (ACA) that went into effect on January 1, 2015.

Operating and administrative expenses decreased slightly during the first three months of 2015 as compared to the first three months of 2014.
Operating profit increased for the first three months of 2015 as compared to the first three months of 2014 primarily due to the increase in gross profit and to a lesser extent, the decrease in operating and administrative expenses.

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)

Liquidity and Capital Resources

The Company's principal sources of liquidity are cash flows from operations, availability of borrowings under credit facilities and access to the capital markets. 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 working capital requirements and capital expenditures for at least the next twelve months. The Company's strategy may require additional financing to fund strategic acquisitions.
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. As of March 31, 2015, there were $3.0 million outstanding borrowings and $3.2 million of letters of credit outstanding under the Credit Agreement. See Note 8-Short-Term Borrowings, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report for more information relating to the Credit Agreement.
As of March 31, 2015, the Company had cash and cash equivalents of $28.1 million and $68.8 million available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of March 31, 2015. As of March 31, 2015, 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 March 31, 2015, approximately 35% 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 their monthly fiscal calendar which can cause significant fluctuations in cash receipts in any given period.
Cash and cash equivalents decreased from $36.3 million on December 31, 2014 to $28.1 million on March 31, 2015.
The following table summarizes the net cash impact, by classification, from the Company's consolidated statements of cash flows for the indicated periods:
 
Three Months Ended
 
 
 
March 31,
 
 
 
2015
 
2014
 
Change
 
 
 
 
 
 
Operating Activities
$
(4,646
)
 
$
(40,753
)
 
$
36,107

Investing Activities
(1,808
)
 
(2,250
)
 
442

Financing Activities
(917
)
 
3,625

 
(4,542
)
Effect of exchange rate changes on cash and cash equivalents
(826
)
 
56

 
(882
)
Net decrease in cash and cash equivalents
$
(8,197
)
 
$
(39,322
)
 
$
31,125

Operating Activities
For the first three months of 2015, the Company used $4.6 million net cash in operating activities, which is a $36.1 million decrease from the comparable period in 2014. The improvement in cash used for operations is primarily due to reductions in working capital requirements and, to a lesser extent, lower net income. Working capital during the first three months of 2015 as compared to the first three months of 2014 decreased primarily due to improved collections.
Investing Activities
For the first three months of 2015, the Company used $1.8 million net cash in investing activities, which is a $0.4 million decrease from the comparable period in 2014. The improvement in the use of cash is primarily due to lower capital expenditures.

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)

Financing Activities
For the first three months of 2015, net cash used in financing activities was $0.9 million compared to net cash provided by financing activities of $3.6 million during the comparable period in 2014. The increase in cash used in financing activities is primarily due to a reduction in net borrowings under the Company's short term borrowing facility, partially offset by a change in book overdrafts.

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 2014 annual report on Form 10-K filed on March 5, 2015 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 foreign subsidiaries’ operations denominated in their functional currencies, principally Canadian dollars and British pounds sterling. These foreign subsidiaries’ assets and liabilities are translated into U.S. dollars at the exchange rate in effect at the end of each reporting period and revenue and expenses are translated at the average rates of exchange during the reporting period with any translation adjustments reported in accumulated other comprehensive loss in the consolidated balance sheets. Transactions denominated in a currency other than the reporting entity's functional currency may give rise to exchange gains and losses that impact the Company’s results of operations. The Company has not historically realized significant foreign currency gains or losses on such transactions. The Company’s primary exposure to exchange gains and losses is based on intercompany loans between entities with different functional currencies. The Company utilizes short term foreign exchange forward contracts to reduce its exposure to these intercompany loans.
 
Interest Rate Risk
The interest rate risk associated with the Company's borrowing activities as of March 31, 2015 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 March 31, 2015 the Company had outstanding borrowings of $3.0 million with interest payable at a rate of 1.81% 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 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 March 31, 2015. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have 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.

22




Changes in internal control over financial reporting
There were no changes in the Company's internal control over financial reporting during the Company's first quarter ended March 31, 2015, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


23




PART II. OTHER INFORMATION

Item 1.    Legal Proceedings
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. Although management cannot predict the timing or outcome of these matters with certainty, management does not believe that the final resolution of these matters, individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows.

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, 2014.

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.


24




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:
May 7, 2015
 
By:
/s/ Michael S. Castleman
 
 
 
 
Michael S. Castleman
 
 
 
 
Executive Vice President and
 
 
 
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