|
|
Item 1.
|
FINANCIAL STATEMENTS
(Unaudited
)
|
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
December 31,
2016
|
|
|
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
19,186
|
|
|
$
|
3,165
|
|
Accounts receivable, net of allowances of $1,297 and $1,220
|
167,762
|
|
|
178,365
|
|
Prepaid expenses and other current assets
|
10,754
|
|
|
10,148
|
|
Prepaid income taxes
|
4,059
|
|
|
4,690
|
|
Total current assets
|
201,761
|
|
|
196,368
|
|
Property and equipment, net of accumulated depreciation of $90,938 and $88,859
|
16,627
|
|
|
18,189
|
|
Deferred income taxes
|
2,875
|
|
|
2,729
|
|
Goodwill
|
45,532
|
|
|
45,428
|
|
Other intangible assets, net
|
14,762
|
|
|
15,976
|
|
Other non-current assets
|
10,628
|
|
|
10,602
|
|
Total assets
|
$
|
292,185
|
|
|
$
|
289,292
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
Current liabilities:
|
|
|
|
Credit facility
|
$
|
15,885
|
|
|
$
|
—
|
|
Accounts payable
|
36,319
|
|
|
34,923
|
|
Accrued compensation and related expenses
|
30,109
|
|
|
30,545
|
|
Other accrued expenses and other current liabilities
|
13,495
|
|
|
15,008
|
|
Income taxes payable
|
336
|
|
|
394
|
|
Total current liabilities
|
96,144
|
|
|
80,870
|
|
Deferred compensation
|
6,775
|
|
|
7,727
|
|
Deferred income tax
|
5,656
|
|
|
4,495
|
|
Other non-current liabilities
|
6,949
|
|
|
7,224
|
|
Total liabilities
|
115,524
|
|
|
100,316
|
|
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 22,443 and 22,326 shares
|
2,244
|
|
|
2,233
|
|
Class B common stock, $0.10 par value - authorized 3,175 shares; none issued
|
—
|
|
|
—
|
|
Additional paid-in-capital
|
77,820
|
|
|
76,726
|
|
Retained earnings
|
164,574
|
|
|
179,302
|
|
Accumulated other comprehensive loss
|
(8,235
|
)
|
|
(9,543
|
)
|
Common stock in treasury, at cost - 3,653 and 3,653 shares
|
(59,742
|
)
|
|
(59,742
|
)
|
Total equity
|
176,661
|
|
|
188,976
|
|
Total liabilities and equity
|
$
|
292,185
|
|
|
$
|
289,292
|
|
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,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
169,468
|
|
|
$
|
226,693
|
|
|
$
|
357,033
|
|
|
$
|
460,217
|
|
Cost of services
|
137,184
|
|
|
184,598
|
|
|
290,630
|
|
|
374,847
|
|
Gross profit
|
32,284
|
|
|
42,095
|
|
|
66,403
|
|
|
85,370
|
|
Operating and administrative expenses
|
38,541
|
|
|
48,315
|
|
|
78,519
|
|
|
95,362
|
|
Restructuring and other related costs
|
—
|
|
|
240
|
|
|
—
|
|
|
289
|
|
Operating loss
|
(6,257
|
)
|
|
(6,460
|
)
|
|
(12,116
|
)
|
|
(10,281
|
)
|
Other income (expense), net
|
(309
|
)
|
|
(452
|
)
|
|
(722
|
)
|
|
(601
|
)
|
Loss before income taxes
|
(6,566
|
)
|
|
(6,912
|
)
|
|
(12,838
|
)
|
|
(10,882
|
)
|
Income tax expense
|
1,325
|
|
|
572
|
|
|
1,890
|
|
|
1,419
|
|
Net loss
|
$
|
(7,891
|
)
|
|
$
|
(7,484
|
)
|
|
$
|
(14,728
|
)
|
|
$
|
(12,301
|
)
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.42
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.63
|
)
|
Diluted
|
$
|
(0.42
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.63
|
)
|
See accompanying notes to consolidated financial statements.
4
CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(7,891
|
)
|
|
$
|
(7,484
|
)
|
|
$
|
(14,728
|
)
|
|
$
|
(12,301
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax of $0
|
958
|
|
|
155
|
|
|
1,308
|
|
|
2,675
|
|
Total comprehensive loss
|
$
|
(6,933
|
)
|
|
$
|
(7,329
|
)
|
|
$
|
(13,420
|
)
|
|
$
|
(9,626
|
)
|
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,
|
|
2017
|
|
2016
|
|
|
|
|
Operating activities:
|
|
|
|
Net loss
|
$
|
(14,728
|
)
|
|
$
|
(12,301
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
Depreciation and amortization
|
4,156
|
|
|
5,707
|
|
Deferred income taxes
|
986
|
|
|
5,130
|
|
Share-based compensation
|
1,283
|
|
|
1,156
|
|
Loss on disposal of assets, net
|
133
|
|
|
120
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable, net
|
11,342
|
|
|
(13,048
|
)
|
Prepaid expenses and other current assets
|
(325
|
)
|
|
133
|
|
Accounts payable
|
3,313
|
|
|
5,478
|
|
Accrued compensation and related expenses
|
(774
|
)
|
|
2,725
|
|
Accrued expenses and other current liabilities
|
(1,541
|
)
|
|
(3,925
|
)
|
Income taxes receivable/payable
|
580
|
|
|
(2,937
|
)
|
Other non-current assets
|
(259
|
)
|
|
2,985
|
|
Other non-current liabilities
|
(500
|
)
|
|
1,035
|
|
Net cash provided by (used in) operating activities
|
3,666
|
|
|
(7,742
|
)
|
|
|
|
|
Investing activities:
|
|
|
|
Additions to property and equipment
|
(1,306
|
)
|
|
(4,475
|
)
|
Acquisition-related payment
|
—
|
|
|
(2,108
|
)
|
Proceeds from disposition of business interests
|
—
|
|
|
120
|
|
Proceeds from sale of assets
|
15
|
|
|
7
|
|
Net cash used in investing activities
|
(1,291
|
)
|
|
(6,456
|
)
|
|
|
|
|
Financing activities:
|
|
|
|
Stock repurchased under stock repurchase program
|
—
|
|
|
(5,608
|
)
|
Borrowings on credit facilities
|
200,031
|
|
|
80,592
|
|
Repayments on credit facilities
|
(184,146
|
)
|
|
(73,322
|
)
|
Payment of debt issuance costs
|
—
|
|
|
(28
|
)
|
Common shares withheld for taxes
|
(192
|
)
|
|
(48
|
)
|
Change in book overdraft
|
(2,236
|
)
|
|
160
|
|
Net cash provided by financing activities
|
13,457
|
|
|
1,746
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
189
|
|
|
195
|
|
Net increase (decrease) in cash and cash equivalents
|
16,021
|
|
|
(12,257
|
)
|
Cash and cash equivalents at beginning of period
|
3,165
|
|
|
16,932
|
|
Cash and cash equivalents at end of period
|
$
|
19,186
|
|
|
$
|
4,675
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
421
|
|
|
$
|
308
|
|
Cash paid (received) for income taxes, net of refunds
|
$
|
237
|
|
|
$
|
(862
|
)
|
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 (Loss) Income
|
|
Total
Equity
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
22,163
|
|
|
$
|
2,216
|
|
|
$
|
(52,487
|
)
|
|
$
|
74,774
|
|
|
$
|
210,875
|
|
|
$
|
(14,135
|
)
|
|
$
|
221,243
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,301
|
)
|
|
—
|
|
|
(12,301
|
)
|
Translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,675
|
|
|
2,675
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
1,156
|
|
|
—
|
|
|
—
|
|
|
1,156
|
|
Reclassification of equity awards from liabilities, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
(53
|
)
|
Vesting and exercise of equity awards
|
96
|
|
|
10
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Common shares withheld for taxes
|
(9
|
)
|
|
(1
|
)
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
Stock repurchased under stock repurchase program
|
—
|
|
|
—
|
|
|
(5,608
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,608
|
)
|
June 30, 2016
|
22,250
|
|
$
|
2,225
|
|
|
$
|
(58,095
|
)
|
|
$
|
75,820
|
|
|
$
|
198,574
|
|
|
$
|
(11,460
|
)
|
|
$
|
207,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
22,326
|
|
|
$
|
2,233
|
|
|
$
|
(59,742
|
)
|
|
$
|
76,726
|
|
|
$
|
179,302
|
|
|
$
|
(9,543
|
)
|
|
$
|
188,976
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,728
|
)
|
|
—
|
|
|
(14,728
|
)
|
Translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,308
|
|
|
1,308
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
1,283
|
|
|
—
|
|
|
—
|
|
|
1,283
|
|
Reclassification of equity awards from liabilities, net
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Vesting and exercise of equity awards
|
144
|
|
|
14
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Common shares withheld for taxes
|
(27
|
)
|
|
(3
|
)
|
|
—
|
|
|
(189
|
)
|
|
—
|
|
|
—
|
|
|
(192
|
)
|
June 30, 2017
|
22,443
|
|
$
|
2,244
|
|
|
$
|
(59,742
|
)
|
|
$
|
77,820
|
|
|
$
|
164,574
|
|
|
$
|
(8,235
|
)
|
|
$
|
176,661
|
|
See accompanying notes to consolidated financial statements.
7
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
1. Business
CDI Corp. and its subsidiaries (the “Company” or “CDI”) are providers of solutions based on skilled technical and professional talent. CDI’s business is comprised of
four
segments: Enterprise Talent, Specialty Talent and Technology Solutions, Engineering Solutions and Management Recruiters International (MRI). The Company provides to clients engineering and information technology solutions encompassing managed, project and talent services. CDI's clients are in multiple industries, including energy, chemicals, infrastructure, aerospace, industrial equipment, technology, as well as municipal and state governments, and the United States (U.S.) Department of Defense. CDI has offices and delivery centers in the U.S. and Canada. In addition, CDI provides recruiting and staffing services through its global MRINetwork
®
of franchisees.
On July 31, 2017, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Nova Intermediate Parent, LLC, and Nova Merger Sub, Inc., providing for the acquisition of the Company in an all cash transaction, pursuant to a tender offer followed by a back-end merger. See Note 14
—
Subsequent Event.
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 8, 2017. Results for the
six months ended
June 30, 2017
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 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 July 9, 2015, the FASB approved a one-year deferral of the effective date that allows the Company to defer the effective date to January 1, 2018. In 2016, the FASB issued two amendments that are effective as of the effective date selected for the original standard. The Company has begun to evaluate the impact that adoption of this guidance will have on its consolidated financial statements but has not completed the evaluation and implementation process. The Company has not yet selected a transition method but has determined that it will utilize the deferred effective date of January 1, 2018 to adopt the standard.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which supersedes ASC 840,
Leases
(ASU 2016-02). ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. ASU 2016-02 does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, ASU 2016-02 expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach. The guidance is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company has not determined the impact that adoption of this guidance will have on its consolidated financial statements.
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(ASU 2016-13). ASU 2016-13 changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The standard is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The Company has not determined the impact that adoption of this guidance will have on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows
(Topic 320):
Classification of Certain Cash Receipts and Cash Payments
(ASU 2016-15)
.
ASU 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for interim and annual reporting periods with retrospective application for all periods presented. The Company has not determined the impact that adoption of this guidance will have on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning period of adoption. Early adoption is permitted in the first interim period of an annual reporting period for which financial statements have not been issued. The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
This ASU clarifies the definition of a business and provides a framework to evaluate when an input and a substantive process are present in an acquisition to be considered a business. The standard is effective for annual periods beginning after December 15, 2017. The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other
(Topic 350), which will simplify the goodwill impairment calculation. The standard eliminates the second step of the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted the provision of ASU 2017-04 prospectively during the second quarter of 2017.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting
(ASU 2017-09). ASU 2017-09 clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company has not determined the impact that adoption of this guidance will have on its consolidated financial statements.
4. Acquisition and Dispositions
EdgeRock Technologies, LLC Acquisition
On October 6, 2015, the Company acquired EdgeRock Technologies, LLC (EdgeRock), a provider of ERP and other specialist IT staffing services, including business intelligence and data analytics, for cash consideration of
$33.4 million
, including a working capital adjustment that was paid in 2016. EdgeRock currently comprises the entirety of Specialty Talent within the Specialty Talent and Technology Solutions reporting segment. During the
first three months
of 2016, the Company recorded a benefit of
$0.8 million
to "Operating and administrative expenses" in the consolidated statements of operations related to the reversal of the estimated contingent earnout liability.
CDI AndersElite Limited Disposition
On September 16, 2016, the Company completed the sale of CDI AndersElite Limited (Anders), the Company's UK-based staffing and recruitment business in the Enterprise Talent reporting segment, to AndersElite Holdings Ltd. (Holdings), an entity controlled by certain members of Anders' management. The Company received purchase consideration that included
£4.5 million
cash,
£1.75 million
subordinated debt in Holdings and warrants representing
19.99%
of the fully diluted equity in Holdings. The Company valued the non-cash purchase consideration at
£0.5 million
and recorded it to "Other non-current assets" in the consolidated balance sheets. In the third quarter of 2016, the Company recorded a loss of
$11.3 million
to "Loss on disposition of business interests" in the consolidated statements of operation related to the disposition of Anders. Anders did not meet the
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
criteria to be reported as a discontinued operation under ASU 2014-08; accordingly, Anders' results are reflected in the Consolidated Statements of Operations within continuing operations. See Note 13
—
Reporting Segments, for Anders summarized results included in the consolidated statements of operations for the
three and six months ended
June 30, 2016.
5. 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, 2017 Using
|
|
|
Fair Value Measurements at June 30, 2017
|
|
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
|
|
$
|
1,484
|
|
|
$
|
1,484
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Large cap
|
|
2,808
|
|
|
2,808
|
|
|
—
|
|
|
—
|
|
International
|
|
1,055
|
|
|
1,055
|
|
|
—
|
|
|
—
|
|
Mid cap
|
|
1,009
|
|
|
1,009
|
|
|
—
|
|
|
—
|
|
Small cap
|
|
711
|
|
|
711
|
|
|
—
|
|
|
—
|
|
REIT Fund
|
|
228
|
|
|
228
|
|
|
—
|
|
|
—
|
|
Money market funds
|
|
732
|
|
|
732
|
|
|
—
|
|
|
—
|
|
Total assets
(1)
|
|
$
|
8,027
|
|
|
$
|
8,027
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
As of
June 30, 2017
,
$1.2 million
and
$6.8 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, 2016 Using
|
|
|
Fair Value Measurements at December 31, 2016
|
|
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
|
|
$
|
1,925
|
|
|
$
|
1,925
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Large cap
|
|
2,630
|
|
|
2,630
|
|
|
—
|
|
|
—
|
|
International
|
|
1,034
|
|
|
1,034
|
|
|
—
|
|
|
—
|
|
Mid cap
|
|
1,013
|
|
|
1,013
|
|
|
—
|
|
|
—
|
|
Small cap
|
|
655
|
|
|
655
|
|
|
—
|
|
|
—
|
|
REIT Fund
|
|
252
|
|
|
252
|
|
|
—
|
|
|
—
|
|
Money market funds
|
|
884
|
|
|
884
|
|
|
—
|
|
|
—
|
|
Total assets
(1)
|
|
$
|
8,393
|
|
|
$
|
8,393
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
As of December 31, 2016,
$0.9 million
and
$7.5 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.
|
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
6. 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, 2016
|
|
|
|
June 30, 2017
|
|
Gross
Balance
|
|
Accumulated Impairment Losses
|
|
Translation
|
|
Gross
Balance
|
|
Accumulated Impairment Losses
|
|
|
|
|
|
|
|
|
|
|
Enterprise Talent
|
$
|
22,491
|
|
|
$
|
(16,868
|
)
|
|
$
|
—
|
|
|
$
|
23,110
|
|
|
$
|
(17,487
|
)
|
Specialty Talent and Technology Solutions
|
16,445
|
|
|
—
|
|
|
—
|
|
|
16,445
|
|
|
—
|
|
Engineering Solutions
|
35,713
|
|
|
(21,431
|
)
|
|
—
|
|
|
35,713
|
|
|
(21,431
|
)
|
MRI
|
14,360
|
|
|
(5,282
|
)
|
|
104
|
|
|
14,755
|
|
|
(5,573
|
)
|
Total goodwill
|
$
|
89,009
|
|
|
$
|
(43,581
|
)
|
|
$
|
104
|
|
|
$
|
90,023
|
|
|
$
|
(44,491
|
)
|
The Company performs its annual assessment for impairment of goodwill and other indefinite-lived intangible assets using a measurement date of July 1 of each fiscal year. In addition, the Company performs an assessment for impairment of goodwill and other indefinite-lived intangible assets 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.
Based on a number of events occurring during the quarter ended June 30, 2017, including, but not limited to, the Company's decline in operating performance and pursuit of strategic alternatives that has resulted in the execution of the Merger Agreement (see Note 14
—
Subsequent Event), management concluded that an interim assessment for goodwill impairment was required. The Company performed an interim assessment and determined that the fair values for each of the Company's reporting units were in excess of their carrying values. The analysis was based on an allocation of the aggregate consideration expected to be received under the Merger Agreement to the Company's reporting units based on management’s preliminary estimate of relative fair value for each 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, or such estimates and assumptions change, the Company may have to incur 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, 2016
|
|
|
|
June 30, 2017
|
|
Gross
Balance
|
|
Accumulated Amortization
|
|
Amortization
|
|
Gross
Balance
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
19,190
|
|
|
$
|
(10,667
|
)
|
|
$
|
(929
|
)
|
|
$
|
19,190
|
|
|
$
|
(11,596
|
)
|
Trademarks
|
6,440
|
|
|
(1,528
|
)
|
|
(236
|
)
|
|
6,440
|
|
|
(1,764
|
)
|
Non-compete
|
150
|
|
|
(150
|
)
|
|
—
|
|
|
150
|
|
|
(150
|
)
|
Reacquired franchise rights
|
972
|
|
|
(596
|
)
|
|
(49
|
)
|
|
972
|
|
|
(645
|
)
|
Total intangible assets subject to amortization
|
26,752
|
|
|
(12,941
|
)
|
|
(1,214
|
)
|
|
26,752
|
|
|
(14,155
|
)
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
2,165
|
|
|
—
|
|
|
—
|
|
|
2,165
|
|
|
—
|
|
Total other intangible assets
|
$
|
28,917
|
|
|
$
|
(12,941
|
)
|
|
$
|
(1,214
|
)
|
|
$
|
28,917
|
|
|
$
|
(14,155
|
)
|
7. Restructuring and Other Related Costs
In September 2016, the Company approved a restructuring plan (the “2016 Restructuring Plan”) to further align its organizational structure, facilities and resource utilization with business volumes and strategic direction. Restructuring actions under the 2016 Restructuring Plan are expected to be completed during 2017 with certain payments related to the consolidation of facilities expected through 2018.
In December 2015, the Company approved a restructuring plan (the “2015 Restructuring Plan”) to better align its organization and operations with the Company's strategy. The 2015 Restructuring Plan was substantially complete by December 31, 2016 with certain payments related to employee severance and the consolidation of facilities expected through 2017 and 2022, respectively.
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
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
|
|
Accrued restructuring liability
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
$
|
2,202
|
|
|
$
|
2,935
|
|
|
$
|
5,137
|
|
Cash payments
|
(1,009
|
)
|
|
(1,020
|
)
|
|
(2,029
|
)
|
Charges
|
72
|
|
|
217
|
|
|
289
|
|
Balance as of June 30, 2016
|
$
|
1,265
|
|
|
$
|
2,132
|
|
|
$
|
3,397
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
$
|
1,147
|
|
|
$
|
3,314
|
|
|
$
|
4,461
|
|
Cash payments
|
(849
|
)
|
|
(1,032
|
)
|
|
(1,881
|
)
|
Charges
|
—
|
|
|
—
|
|
|
—
|
|
Balance as of June 30, 2017
|
$
|
298
|
|
|
$
|
2,282
|
|
|
$
|
2,580
|
|
The consolidated balance sheets as of
June 30, 2017
and
December 31, 2016
include provisions related to the foregoing restructuring plans of
$2.0 million
and
$3.5 million
in “Other accrued expenses and other current liabilities”, and
$0.6 million
and
$1.0 million
in "Other non-current liabilities", respectively.
8. Credit Facility
On October 30, 2015, the Company and certain domestic subsidiaries (collectively with the Company, the “U.S. Borrowers”), certain Canadian subsidiaries of the Company (collectively, the "Canadian Borrowers"), and certain UK subsidiaries of the Company (collectively, the "UK Borrowers"), collectively (the "Borrowers") entered into an agreement for a secured lending facility (the "Credit Agreement") with Bank of America, N.A. and other lenders. The Credit Agreement established a
$150.0 million
revolving line of credit facility which also includes an option to expand the facility by up to
$75.0 million
subject to agreement by the lenders, with a
five
-year term ending on
October 30, 2020
. In connection with the sale of Anders, the Company executed an amendment to the Credit Agreement to release all liens and security interests on the UK collateral and allocate the available UK borrowings to the U.S. Borrowers. As of
June 30, 2017
, the facility is comprised of two subfacilities with
$135.0 million
available to the U.S. Borrowers and
$15.0 million
available to the Canadian Borrowers. It also includes a
$25.0 million
sublimit for swing line loans and a
$15.0 million
sublimit for letters of credit.
On July 28, 2017, the Company entered into a waiver with Bank of America, as administrative agent, to the Credit Agreement. Under the Credit Agreement, the execution of the Merger Agreement would, after the passage of thirty days, have been deemed a change in control requiring the repayment of borrowed amounts under the Credit Agreement. The waiver has the effect of deeming the occurrence of a change in control upon the closing of the Merger Agreement as opposed to the execution of the Merger Agreement.
Availability under the Credit Agreement is tied to a borrowing base, measured by
85%
of eligible billed accounts receivable, plus
80%
of eligible unbilled accounts receivable, less customary reserve amounts; provided however that the portion of the borrowing base consisting of
80%
of eligible unbilled accounts receivable may not exceed
30%
of the sum of (i)
85%
of the eligible billed accounts receivable, plus (ii)
80%
of the eligible unbilled accounts receivable. Borrowings under the Credit Agreement may be used by the Company and the other Borrowers for general business purposes including capital expenditures and permitted acquisitions and investments. Accounts receivable, used in the determination of the borrowing base, are subject to lender discretion and, in certain circumstances, the lender may use cash balances in a dominion account established with the administrative agent to repay outstanding balances. As a result, amounts borrowed under the Credit Agreement are presented as current in the consolidated balance sheets.
The Borrowers’ obligations under the Credit Agreement are secured by a first lien security interest in all of the Borrowers’ personal property (subject to customary exceptions), including, among other things, accounts receivable, equity interests, deposit accounts, intellectual property, and leased properties where books and records are kept.
As of
June 30, 2017
, the Company had total outstanding borrowings of
$15.9 million
, letters of credit outstanding of
$3.3 million
and
$95.3 million
available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of
June 30, 2017
. Interest was payable at rates ranging from
2.33%
to
4.25%
per annum for outstanding borrowings as of
June 30, 2017
.
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
As of
December 31, 2016
, the Company had
no
outstanding borrowings, letters of credit outstanding of
$3.3 million
and
$122.3 million
available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of
December 31, 2016
.
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 results.
A valuation allowance has been recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including past losses. In the fourth quarter of 2015, the company booked a valuation allowance against federal deferred tax assets due to cumulative losses.
In connection with the sale of Anders, the Company recorded a
$19.1 million
worthless stock deduction associated with CDI AndersElite Limited on its 2016 U.S. federal income tax return, which was treated as an ordinary loss for tax purposes. This loss resulted in a deferred tax asset of
$7.4 million
, which can be carried forward for up to 20 years and used against future taxable income. There is no net income tax benefit related to this item due to the full valuation allowance against federal deferred tax assets.
The Company's ability to deduct its net operating loss Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an ownership change has occurred. The pending acquisition of the Company by Nova Intermediate Parent, LLC should constitute an ownership change.
The effective tax rates for the
six months ended
June 30, 2017
and
2016
were
(14.7)%
and
(13.0)%
, respectively. The effective tax rate for the
six months ended
June 30, 2017
is a negative rate due to taxes on profits in Canada and in certain states, while tax benefits for United States Federal and certain state losses are not recognized due to valuation allowances. The effective tax rate for the six months ended June 30, 2016 is a negative rate due to taxes on profits in Canada and in certain states, while tax benefits for United States Federal, certain state losses and United Kingdom losses were not recognized due to valuation allowances.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets, including net operating loss carryforwards. Management’s assessment is made for each taxpayer on a jurisdiction by jurisdiction basis. A full valuation allowance has been recorded against the deferred tax asset related to federal taxes and certain U.S. state taxes due to cumulative losses over the prior three years. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or decreased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
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
|
|
Six months ended
|
|
June 30,
|
|
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(7,891
|
)
|
|
$
|
(7,484
|
)
|
|
$
|
(14,728
|
)
|
|
$
|
(12,301
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Basic weighted-average shares
|
18,739
|
|
|
19,174
|
|
|
18,709
|
|
|
19,427
|
|
Dilutive effect of share-based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted weighted-average shares
|
18,739
|
|
|
19,174
|
|
|
18,709
|
|
|
19,427
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.42
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.63
|
)
|
Diluted
|
$
|
(0.42
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.63
|
)
|
There were
0.4 million
shares and
0.6 million
shares excluded from the computation of EPS for the
three months ended
June 30, 2017
and
2016
, respectively, because their inclusion would have been anti-dilutive. There were
0.3 million
shares and
0.6 million
shares excluded from the computation of EPS for the
six months ended
June 30, 2017
and
2016
, respectively, because their inclusion would have been anti-dilutive.
12. Related Party Transactions
A member of the Company's Board of Directors is a senior partner of a law firm that provides legal services to the Company. Transactions with this law firm for legal services approximated
$1.2 million
during the
six months ended
June 30, 2017
.
13. Reporting Segments
The Company's reporting segments are as follows:
|
|
•
|
Enterprise Talent
- Enterprise Talent provides staff augmentation, placement and other staffing-related services to support its clients’ access to engineering and technology personnel on a temporary or permanent basis. Enterprise Talent focuses on delivering its services to medium and larger sized enterprises that have ongoing needs for skilled and technical labor. The duration of individual client engagements can range from several months to multiple years based on a client’s project, seasonal or business cycle needs. In addition, Enterprise Talent offers enterprise clients managed staffing program services, vendor management solutions, certification management solutions, and recruitment process outsourcing solutions. Enterprise Talent currently operates in North America under the CDI
®
brand name. On September 16, 2016, CDI completed the sale of Anders, the Company's UK staffing and recruitment business. See Note 4
—
Acquisition and Dispositions.
|
|
|
•
|
Specialty Talent and Technology Solutions
- Specialty Talent and Technology Solutions provides clients with specialized technology talent and solutions through a multi-faceted delivery model that spans staff augmentation and placement services, project execution and management services, and outsourced managed services. Specialty Talent, currently comprised entirely of EdgeRock, provides staff augmentation services focused on specialized information technology skillsets, including enterprise resource planning, business intelligence, analytics, infrastructure and application management and development. Technology Solutions provides a range of information technology professional services in a consult, integrate and operate model. These services include IT strategy and consulting, assessments, execution of IT infrastructure and IT engineering solutions, business application solutions, digital marketing services, service management, quality assurance and testing, and program management.
|
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
|
|
•
|
Engineering Solutions
- Engineering Solutions provides engineering design, as well as complete physical asset and product delivery solutions for its clients. Engineering design principally involves the production of construction and/or technical documentation and specifications performed at a CDI facility or at a client's facility under the supervision of CDI personnel. Complete physical asset and product delivery solutions involve services that manage the integration of all supply chain contributors to a new or upgraded industrial production or infrastructure asset, naval asset or in support of aerospace and industrial original equipment manufacturers. Engineering Solutions is organized around the following business verticals: Energy, Chemicals and Infrastructure (EC&I), Aerospace and Industrial Equipment (AIE) and Government Services.
|
|
|
◦
|
EC&I serves producers and operators of energy, chemicals, industrial, education and civil infrastructures with a full range of engineering solutions. Specific services include up-front planning, engineering design, industrial and commercial architecture, design/build, transportation and civil engineering, site services, procurement, construction management, start up and commissioning.
|
|
|
◦
|
AIE serves commercial and defense aviation, as well as industrial original equipment manufacturers, with design and manufacturing engineering services, including mechanical and electrical systems design, drafting, engineering analysis, software design and verification, validation and testing, and tooling design and development.
|
|
|
◦
|
Government Services primarily serves the U.S. Department of Defense and, in particular the U.S. Navy, with a variety of design and engineering services, including naval architecture, ship alteration, systems modification and installation, technical documentation and training, logistics management, marine manufacturing and aviation engineering.
|
Within each of the verticals, Engineering Solutions provides these solutions through a services delivery model consisting of skill-based centers of excellence, together with regional offices to serve more localized project or client needs.
|
|
•
|
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 clients. The MRI franchisees provide permanent placement services primarily under the brand names MRINetwork
®
, Management Recruiters
®
and Sales Consultants
®
. MRI also provides training and support, implementation and back-office services to enable franchisees to pursue contract staffing opportunities.
|
Inter-segment revenue is eliminated in consolidation and is not significant. 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, certain prepaid expenses, other current assets, certain property and equipment and certain other non-current assets.
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, 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,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Enterprise Talent
(1)
|
$
|
86,820
|
|
|
$
|
133,480
|
|
|
$
|
188,981
|
|
|
$
|
273,129
|
|
Specialty Talent and Technology Solutions
|
17,208
|
|
|
19,129
|
|
|
35,122
|
|
|
37,522
|
|
Engineering Solutions
|
54,316
|
|
|
61,153
|
|
|
110,512
|
|
|
124,407
|
|
MRI
|
11,124
|
|
|
12,931
|
|
|
22,418
|
|
|
25,159
|
|
Total revenue
|
$
|
169,468
|
|
|
$
|
226,693
|
|
|
$
|
357,033
|
|
|
$
|
460,217
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
Enterprise Talent
(1)
|
$
|
8,779
|
|
|
$
|
15,434
|
|
|
$
|
19,093
|
|
|
$
|
31,915
|
|
Specialty Talent and Technology Solutions
|
4,683
|
|
|
5,510
|
|
|
9,638
|
|
|
10,822
|
|
Engineering Solutions
|
13,490
|
|
|
14,776
|
|
|
26,971
|
|
|
30,253
|
|
MRI
|
5,332
|
|
|
6,375
|
|
|
10,701
|
|
|
12,380
|
|
Total gross profit
|
$
|
32,284
|
|
|
$
|
42,095
|
|
|
$
|
66,403
|
|
|
$
|
85,370
|
|
|
|
|
|
|
|
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
Enterprise Talent
(1), (2)
|
$
|
764
|
|
|
$
|
(458
|
)
|
|
$
|
2,544
|
|
|
$
|
677
|
|
Specialty Talent and Technology Solutions
(3)
|
(1,163
|
)
|
|
(436
|
)
|
|
(2,205
|
)
|
|
9
|
|
Engineering Solutions
(2), (4)
|
(3,420
|
)
|
|
(2,943
|
)
|
|
(6,021
|
)
|
|
(4,878
|
)
|
MRI
|
1,520
|
|
|
1,081
|
|
|
1,769
|
|
|
1,664
|
|
Corporate
(2)
|
(3,958
|
)
|
|
(3,704
|
)
|
|
(8,203
|
)
|
|
(7,753
|
)
|
Total operating loss
|
(6,257
|
)
|
|
(6,460
|
)
|
|
(12,116
|
)
|
|
(10,281
|
)
|
Other income (expense), net
|
(309
|
)
|
|
(452
|
)
|
|
(722
|
)
|
|
(601
|
)
|
Loss before income taxes
|
$
|
(6,566
|
)
|
|
$
|
(6,912
|
)
|
|
$
|
(12,838
|
)
|
|
$
|
(10,882
|
)
|
|
|
(1)
|
On September 16, 2016, the Company completed the sale of Anders which is included in Enterprise Talent. During the third quarter of 2016, the Company recorded a charge in the amount of
$11.3 million
related to the disposition. Anders results are presented in the following table for the indicated periods (excluding allocation of corporate costs):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2016
|
|
2016
|
|
|
|
|
Revenue
|
$
|
20,502
|
|
|
$
|
43,467
|
|
Gross Profit
|
3,453
|
|
|
7,312
|
|
Operating and administrative expenses
|
4,300
|
|
|
8,668
|
|
Operating loss
|
(847
|
)
|
|
(1,356
|
)
|
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
|
|
(2)
|
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,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Restructuring and other related costs:
|
|
|
|
|
|
|
|
Enterprise Talent
|
$
|
—
|
|
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
102
|
|
Engineering Solutions
|
—
|
|
|
149
|
|
|
—
|
|
|
186
|
|
Corporate
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total restructuring and other related costs
|
$
|
—
|
|
|
$
|
240
|
|
|
$
|
—
|
|
|
$
|
289
|
|
|
|
(3)
|
In the first quarter of 2016, the Company's Specialty Talent and Technology Solutions segment recorded a benefit to "Operating and administrative expenses" of
$0.8 million
related to the reversal of the EdgeRock acquisition earnout liability.
|
|
|
(4)
|
In the second quarter of 2017, the Company's Engineering Solutions segment recorded an expense to "Operating and administrative expenses" of
$1.2 million
related to real estate exit and related charges.
|
Reporting segment asset data is presented in the following table for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Assets:
|
|
|
|
|
Enterprise Talent
|
|
$
|
99,272
|
|
|
$
|
102,770
|
|
Specialty Talent and Technology Solutions
|
|
37,438
|
|
|
38,505
|
|
Engineering Solutions
|
|
85,806
|
|
|
93,067
|
|
MRI
|
|
21,374
|
|
|
22,558
|
|
Corporate
|
|
48,295
|
|
|
32,392
|
|
Total assets
|
|
$
|
292,185
|
|
|
$
|
289,292
|
|
Reporting segment depreciation and amortization data is presented in the following table for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
Enterprise Talent
(1)
|
$
|
152
|
|
|
$
|
315
|
|
|
$
|
307
|
|
|
$
|
631
|
|
Specialty Talent and Technology Solutions
|
436
|
|
|
652
|
|
|
876
|
|
|
1,654
|
|
Engineering Solutions
|
978
|
|
|
1,197
|
|
|
1,992
|
|
|
2,468
|
|
MRI
|
68
|
|
|
66
|
|
|
136
|
|
|
132
|
|
Corporate
|
412
|
|
|
395
|
|
|
845
|
|
|
822
|
|
Total Depreciation and amortization
|
$
|
2,046
|
|
|
$
|
2,625
|
|
|
$
|
4,156
|
|
|
$
|
5,707
|
|
|
|
(1)
|
On September 16, 2016, the Company completed the sale of Anders which is included in Enterprise Talent. Anders depreciation and amortization included in the three and six months ended June 30, 2016 was
$0.2 million
and
$0.3 million
, respectively.
|
CDI CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in tables are in thousands, except per share amounts and percentages, unless otherwise indicated)
(Unaudited)
14. Subsequent Event
Merger Agreement
On July 31, 2017, the Company entered into the Merger Agreement with Nova Intermediate Parent, LLC, a Delaware limited liability company (“Parent”), and Nova Merger Sub, Inc., a Pennsylvania corporation and a wholly owned subsidiary of Parent (“Merger Sub”), providing for the acquisition of the Company by Parent in an all cash transaction, pursuant to a tender offer (the “Offer”), followed by a subsequent back-end merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will commence the Offer for each share of common stock of the Company (“Company Common Shares”). Subject to the terms and conditions of the Merger Agreement, the Offer will initially remain open for
20
business days from the date of commencement of the Offer. If at the scheduled expiration time of the Offer any of the conditions to the Offer have not been satisfied or waived, then the Offer may be extended on one or more occasions to permit the satisfaction of all Offer conditions. One of the conditions, the expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, was satisfied on August 7, 2017. At the effective time of the Merger, each Company Common Share issued and outstanding immediately prior to the effective time of the Merger, will be canceled and converted into the right to receive
$8.25
in cash, without interest, other than Company Common Shares held by Parent, Merger Sub or the Company or any of their respective direct or indirect wholly owned subsidiaries and Company Common Shares held by a holder who has properly exercised dissenters’ rights with respect to such Company Common Shares in accordance with Subchapter D of Chapter 15 of the Pennsylvania Entity Transactions Law. For more information regarding the Merger Agreement, the Offer and the Merger, see the Current Report on Form 8-K which was filed by the Company with the SEC on August 1, 2017.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
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 seeks to create extraordinary outcomes with its clients by delivering solutions based on skilled technical and professional talent. CDI’s business is comprised of four segments: Enterprise Talent, Specialty Talent and Technology Solutions, Engineering Solutions and Management Recruiters International (MRI). The Company provides to clients engineering and information technology solutions encompassing managed, project and talent services. CDI's clients are in multiple industries, including energy, chemicals, infrastructure, aerospace, industrial equipment, technology, as well as municipal and state governments, and the United States (U.S.) Department of Defense. CDI has offices and delivery centers in the U.S. and Canada. In addition, CDI provides recruiting and staffing services through its global MRINetwork
®
of franchisees.
Enterprise Talent provides staff augmentation, placement and other staffing-related services to support its clients’ access to professional engineering and technology personnel on a temporary or permanent basis. Specialty Talent and Technology Solutions provides clients with specialized technology talent, staff augmentation and solutions including project assessment execution and management services, and outsourced managed services. Engineering Solutions provides engineering and architectural design, as well as deliverable work products and services performed at a CDI facility or at a client's facility under the supervision of CDI personnel. 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 clients. See Note 13
—Reporting Segments
, in the notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q Report.
On July 31, 2017, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Nova Intermediate Parent, LLC, and Nova Merger Sub, Inc., providing for the acquisition of the Company in an all cash transaction, pursuant to a tender offer. See Note 14
—
Subsequent Event, in the notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q Report.
Second Quarter 2017 Overview
Revenue during the
second
quarter of
2017
decreased by
$57.2 million
or
25.2%
as compared to the
second
quarter of
2016
primarily due to declines in Enterprise Talent. Enterprise Talent revenue decreased due to reduced staffing volumes at multiple large clients in North America Staffing and the disposition of CDI AndersElite Limited, the Company's UK staffing business, on September 16, 2016. Gross profit
decreased
by
$9.8 million
primarily due to the reduction in revenue, partially offset by an increase in overall gross profit margin due to a shift in revenue mix away from the lower margin Enterprise Talent business. Operating and administrative expenses decreased primarily due to the disposition of the Company's UK staffing business and actions taken by the company to reduce personnel-related and other costs in response to lower business volumes, partially offset by a
$1.2 million
charge in the second quarter of 2017 related to real estate exit and related costs and by Corporate costs associated with the Company's pursuit of strategic alternatives and activities leading to the Merger Agreement. For the
second
quarter of
2017
, the Company reported an operating loss of
$6.3 million
compared to an operating loss of
$6.5 million
in the prior year period and a net loss of
$7.9 million
compared to
$7.5 million
in the prior year period, respectively.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Results of Operations
Consolidated Discussion
Three months ended
June 30, 2017
as compared to the
three months ended
June 30, 2016
The following table presents changes in revenue by segment along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Talent
|
$
|
86,820
|
|
|
51.2
|
%
|
|
$
|
133,480
|
|
|
58.9
|
%
|
|
$
|
(46,660
|
)
|
|
(35.0
|
)%
|
Specialty Talent and Technology Solutions
|
17,208
|
|
|
10.2
|
|
|
19,129
|
|
|
8.4
|
|
|
(1,921
|
)
|
|
(10.0
|
)
|
Engineering Solutions
|
54,316
|
|
|
32.1
|
|
|
61,153
|
|
|
27.0
|
|
|
(6,837
|
)
|
|
(11.2
|
)
|
MRI
|
11,124
|
|
|
6.6
|
|
|
12,931
|
|
|
5.7
|
|
|
(1,807
|
)
|
|
(14.0
|
)
|
Total Revenue
|
$
|
169,468
|
|
|
100.0
|
|
|
$
|
226,693
|
|
|
100.0
|
|
|
$
|
(57,225
|
)
|
|
(25.2
|
)
|
Gross profit
|
$
|
32,284
|
|
|
19.1
|
|
|
$
|
42,095
|
|
|
18.6
|
|
|
$
|
(9,811
|
)
|
|
(23.3
|
)
|
Operating and administrative expenses
|
$
|
38,541
|
|
|
22.7
|
|
|
$
|
48,315
|
|
|
21.3
|
|
|
$
|
(9,774
|
)
|
|
(20.2
|
)
|
Restructuring and other related costs
|
$
|
—
|
|
|
—
|
|
|
$
|
240
|
|
|
0.1
|
|
|
$
|
(240
|
)
|
|
(100.0
|
)
|
Operating loss
|
$
|
(6,257
|
)
|
|
(3.7
|
)
|
|
$
|
(6,460
|
)
|
|
(2.8
|
)
|
|
$
|
203
|
|
|
(3.1
|
)
|
Net loss
|
$
|
(7,891
|
)
|
|
(4.7
|
)
|
|
$
|
(7,484
|
)
|
|
(3.3
|
)
|
|
$
|
(407
|
)
|
|
5.4
|
|
Net cash provided by (used in) operating activities
|
$
|
11,541
|
|
|
|
|
|
$
|
(7,065
|
)
|
|
|
|
$
|
18,606
|
|
|
NM
|
|
Effective income tax rate
|
(20.2
|
)%
|
|
|
|
(8.3
|
)%
|
|
|
|
|
|
|
NM - Not meaningful.
Revenue decreased due to reduced revenue across all segments. Enterprise Talent revenue decreased primarily due to reduced staffing volumes at multiple large clients in North America Staffing and the disposition of CDI AndersElite Limited, the Company's UK staffing business, on September 16, 2016. Engineering Solutions revenue decreased primarily due to declines in EC&I. Specialty Talent and Technology Solutions revenue decreased primarily due to declines in both Specialty Talent and Technology Solutions. MRI revenues decreased primarily due to a decrease in contract staffing revenue and, to a lesser extent, franchise fees and royalties.
Gross profit decreased primarily due to the decrease in revenue, partially offset by an increase in overall gross profit margin. Gross profit margin increased primarily due to a shift in revenue mix away from the lower margin Enterprise Talent business.
Operating loss decreased slightly as the reduction in gross profit was more than offset by the reduction in operating and administrative expenses. Operating and administrative expenses decreased primarily due to the disposition of the Company's UK staffing business and actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes, partially offset by a
$1.2 million
charge in the second quarter of 2017 related to real estate exit and related costs and by Corporate costs of $0.9 million associated with the Company's pursuit of strategic alternatives and activities leading to the Merger Agreement.
Income tax expense
increased
$0.8 million
during the
second
quarter of
2017
as compared to the
second
quarter of
2016
. The effective income tax rate for the
second
quarter of
2017
is a negative rate due to taxes on profits in Canada and in certain states, while tax benefits for United States Federal and certain state losses are not recognized due to valuation allowances. The effective income tax rate for the
second
quarter of
2016
is a negative rate due to taxes on profits in Canada and in certain states, while tax benefits for United States Federal, certain state losses and United Kingdom losses were not recognized due to valuation allowances. As such, comparison of effective tax rates for the
second
quarter of
2017
as compared to the
second
quarter of
2016
is not meaningful. See Note 10
—Income taxes
, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report for more information.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Consolidated Discussion - Continued
Six months ended
June 30, 2017
as compared to the
six months ended
June 30, 2016
The following table presents changes in revenue by segment along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Talent
|
$
|
188,981
|
|
|
52.9
|
%
|
|
$
|
273,129
|
|
|
59.3
|
%
|
|
$
|
(84,148
|
)
|
|
(30.8
|
)%
|
Specialty Talent and Technology Solutions
|
35,122
|
|
|
9.8
|
|
|
37,522
|
|
|
8.2
|
|
|
(2,400
|
)
|
|
(6.4
|
)
|
Engineering Solutions
|
110,512
|
|
|
31.0
|
|
|
124,407
|
|
|
27.0
|
|
|
(13,895
|
)
|
|
(11.2
|
)
|
MRI
|
22,418
|
|
|
6.3
|
|
|
25,159
|
|
|
5.5
|
|
|
(2,741
|
)
|
|
(10.9
|
)
|
Total Revenue
|
$
|
357,033
|
|
|
100.0
|
|
|
$
|
460,217
|
|
|
100.0
|
|
|
$
|
(103,184
|
)
|
|
(22.4
|
)
|
Gross profit
|
$
|
66,403
|
|
|
18.6
|
|
|
$
|
85,370
|
|
|
18.5
|
|
|
$
|
(18,967
|
)
|
|
(22.2
|
)
|
Operating and administrative expenses
|
$
|
78,519
|
|
|
22.0
|
|
|
$
|
95,362
|
|
|
20.7
|
|
|
$
|
(16,843
|
)
|
|
(17.7
|
)
|
Restructuring and other related costs
|
$
|
—
|
|
|
—
|
|
|
$
|
289
|
|
|
0.1
|
|
|
$
|
(289
|
)
|
|
(100.0
|
)
|
Operating loss
|
$
|
(12,116
|
)
|
|
(3.4
|
)
|
|
$
|
(10,281
|
)
|
|
(2.2
|
)
|
|
$
|
(1,835
|
)
|
|
17.8
|
|
Net loss
|
$
|
(14,728
|
)
|
|
(4.1
|
)
|
|
$
|
(12,301
|
)
|
|
(2.7
|
)
|
|
$
|
(2,427
|
)
|
|
19.7
|
|
Net cash provided by (used in) operating activities
|
$
|
3,666
|
|
|
|
|
$
|
(7,742
|
)
|
|
|
|
$
|
11,408
|
|
|
(147.4
|
)
|
Effective income tax rate
|
(14.7
|
)%
|
|
|
|
(13.0
|
)%
|
|
|
|
|
|
|
NM - Not meaningful.
Revenue
decreased
due to reduced revenue across all segments. Enterprise Talent revenue decreased primarily due to the disposition of CDI AndersElite Limited, the Company's UK staffing business, on September 16, 2016 and reduced staffing volumes at multiple large clients in North America Staffing. Engineering Solutions revenue decreased primarily due to a decrease in EC&I. MRI revenue decreased primarily due to a decrease in contract staffing revenue. Specialty Talent and Technology Solutions revenue decreased due to declines in both Technology Solutions and Specialty Talent.
Gross profit
decreased
primarily due to the reduction in revenue as overall gross profit margin remained relatively flat.
Operating loss increased primarily due to the decrease in gross profit, partially offset by the reduction in operating and administrative expenses. Operating and administrative expenses decreased primarily due to the disposition of the Company's UK staffing business and actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes, partially offset by a
$1.2 million
charge in the second quarter of 2017 related to real estate exit and related costs, Corporate costs of $1.4 million associated with the Company's pursuit of strategic alternatives and activities leading to the Merger Agreement, and investments in business development in Specialty Talent and Technology Solutions.
Income tax expense
increased
$0.5 million
during the
first six months
of
2017
as compared to the
first six months
of
2016
. The effective income tax rate for the
first six months
of
2017
is a negative rate due to taxes on profits in Canada and in certain states, while tax benefits for United States Federal and certain state losses are not recognized due to valuation allowances. The effective income tax rate for the
first six months
of
2016
is a negative rate due to taxes on profits in Canada and in certain states, while tax benefits for United States Federal, certain state losses and United Kingdom losses were not recognized due to valuation allowances. As such, comparison of effective tax rates for the
first six months
of
2017
as compared to the
first six months
of
2016
is not meaningful. See Note 10
—Income taxes
, in the notes to the consolidated financial statements included in Item 1 of this Form 10-Q Report for more information.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Segment Results of Operations
Enterprise Talent
Three months ended
June 30, 2017
as compared to the
three months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
North America Staffing
|
$
|
86,820
|
|
|
100.0
|
%
|
|
$
|
112,978
|
|
|
84.6
|
%
|
|
$
|
(26,158
|
)
|
|
(23.2
|
)%
|
UK Staffing
(1)
|
—
|
|
|
—
|
|
|
20,502
|
|
|
15.4
|
|
|
(20,502
|
)
|
|
(100.0
|
)
|
Total revenue
|
86,820
|
|
|
100.0
|
|
|
133,480
|
|
|
100.0
|
|
|
(46,660
|
)
|
|
(35.0
|
)
|
Cost of services
|
78,041
|
|
|
89.9
|
|
|
118,046
|
|
|
88.4
|
|
|
(40,005
|
)
|
|
(33.9
|
)
|
Gross profit
|
8,779
|
|
|
10.1
|
|
|
15,434
|
|
|
11.6
|
|
|
(6,655
|
)
|
|
(43.1
|
)
|
Operating and administrative expenses
|
8,015
|
|
|
9.2
|
|
|
15,802
|
|
|
11.8
|
|
|
(7,787
|
)
|
|
(49.3
|
)
|
Restructuring and other related costs
|
—
|
|
|
—
|
|
|
90
|
|
|
0.1
|
|
|
(90
|
)
|
|
(100.0
|
)
|
Operating profit (loss)
|
$
|
764
|
|
|
0.9
|
|
|
$
|
(458
|
)
|
|
(0.3
|
)
|
|
$
|
1,222
|
|
|
NM
|
|
|
|
(1)
|
On September 16, 2016, the Company completed the sale of Anders, the Company's UK staffing business. See Note 4
—
Acquisition and Dispositions and Note 13
—Reporting Segments
, in the notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q Report.
|
NM - Not meaningful.
Revenue
decreased
in both the North America and UK Staffing businesses. North America Staffing revenue decreased primarily due to reduced staffing volumes at multiple large clients and, to a lesser extent, lower pricing at certain clients. UK Staffing revenue decreased due to the disposition of CDI AndersElite Limited, the Company's UK staffing business, on September 16, 2016.
Gross profit and gross profit margin
decreased
primarily due to the disposition of the Company's UK staffing business and, to a lesser extent, the decrease in revenue and impact of lower pricing at certain clients in the North America Staffing business.
Operating and administrative expenses
decreased
primarily due to the disposition of the Company's UK staffing business and, to a lesser extent, actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes.
Operating results improved primarily due to the disposition of the Company's UK staffing business and, to a lesser extent, an increase in North America Staffing's operating profit as a result of lower operating and administrative expenses.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Enterprise Talent - Continued
Six months ended
June 30, 2017
as compared to the
six months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
North America Staffing
|
$
|
188,981
|
|
|
100.0
|
%
|
|
$
|
229,662
|
|
|
84.1
|
%
|
|
$
|
(40,681
|
)
|
|
(17.7
|
)%
|
UK Staffing
(1)
|
—
|
|
|
—
|
|
|
43,467
|
|
|
15.9
|
|
|
(43,467
|
)
|
|
(100.0
|
)
|
Total revenue
|
188,981
|
|
|
100.0
|
|
|
273,129
|
|
|
100.0
|
|
|
(84,148
|
)
|
|
(30.8
|
)
|
Cost of services
|
169,888
|
|
|
89.9
|
|
|
241,214
|
|
|
88.3
|
|
|
(71,326
|
)
|
|
(29.6
|
)
|
Gross profit
|
19,093
|
|
|
10.1
|
|
|
31,915
|
|
|
11.7
|
|
|
(12,822
|
)
|
|
(40.2
|
)
|
Operating and administrative expenses
|
16,549
|
|
|
8.8
|
|
|
31,136
|
|
|
11.4
|
|
|
(14,587
|
)
|
|
(46.8
|
)
|
Restructuring and other related costs
|
—
|
|
|
—
|
|
|
102
|
|
|
—
|
|
|
(102
|
)
|
|
(100.0
|
)
|
Operating profit
|
$
|
2,544
|
|
|
1.3
|
|
|
$
|
677
|
|
|
0.2
|
|
|
$
|
1,867
|
|
|
NM
|
|
|
|
(1)
|
On September 16, 2016, the Company completed the sale of Anders, the Company's UK staffing business. See Note 4
—
Acquisition and Dispositions and Note 13
—Reporting Segments
, in the notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q Report.
|
NM - Not meaningful.
Revenue
decreased
in both the North America and UK Staffing businesses. UK Staffing revenue decreased due to the disposition of CDI AndersElite Limited, the Company's UK staffing business, on September 16, 2016. North America Staffing revenue decreased primarily due to reduced staffing volumes at multiple large clients and, to a lesser extent, lower pricing at certain clients.
Gross profit and gross profit margin
decreased
primarily due to the disposition of the Company's UK staffing business and, to a lesser extent, the decrease in revenue and lower pricing pressure at certain clients in the North America Staffing business.
Operating and administrative expenses
decreased
primarily due to the disposition of the Company's UK staffing business and, to a lesser extent, actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes.
Operating profit increased primarily due to the disposition of the Company's UK staffing business and, to a lesser extent, an increase in North America Staffing's operating profit as a result of lower operating and administrative expenses.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Specialty Talent and Technology Solutions
Three months ended
June 30, 2017
as compared to the
three months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Talent
|
$
|
9,864
|
|
|
57.3
|
%
|
|
$
|
10,951
|
|
|
57.2
|
%
|
|
$
|
(1,087
|
)
|
|
(9.9
|
)
|
Technology Solutions
|
7,344
|
|
|
42.7
|
|
|
8,178
|
|
|
42.8
|
|
|
(834
|
)
|
|
(10.2
|
)
|
Total revenue
|
17,208
|
|
|
100.0
|
|
|
19,129
|
|
|
100.0
|
|
|
(1,921
|
)
|
|
(10.0
|
)
|
Cost of services
|
12,525
|
|
|
72.8
|
|
|
13,619
|
|
|
71.2
|
|
|
(1,094
|
)
|
|
(8.0
|
)
|
Gross profit
|
4,683
|
|
|
27.2
|
|
|
5,510
|
|
|
28.8
|
|
|
(827
|
)
|
|
(15.0
|
)
|
Operating and administrative expenses
(1)
|
5,846
|
|
|
34.0
|
|
|
5,946
|
|
|
31.1
|
|
|
(100
|
)
|
|
(1.7
|
)
|
Operating profit (loss)
|
$
|
(1,163
|
)
|
|
(6.8
|
)
|
|
$
|
(436
|
)
|
|
(2.3
|
)
|
|
$
|
(727
|
)
|
|
166.7
|
|
|
|
(1)
|
In the second quarter of 2017 and 2016, the Company recorded
$0.3 million
and
$0.6 million
of amortization of EdgeRock acquisition-related intangible assets.
|
Revenue decreased in both the Specialty Talent and Technology Solutions businesses. Specialty Talent revenue decreased primarily due to fewer active consultants and reduced bill rates. Technology Solutions revenue decreased primarily due to the completion of projects and reduced spending from existing clients.
Gross profit decreased primarily due to the decrease in revenue and, to a lesser extent, a reduction in gross profit margin. Gross profit margin decreased primarily as a result of fewer new placements to offset lower margins for consultants on contract extensions.
Operating and administrative expenses decreased due to variable performance related costs partially offset by investments primarily in sales and recruitment personnel.
Operating loss increased primarily due to the decrease in gross profit.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Specialty Talent and Technology Solutions - Continued
Six months ended
June 30, 2017
as compared to the
six months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Talent
|
$
|
20,037
|
|
|
57.0
|
%
|
|
$
|
20,971
|
|
|
55.9
|
%
|
|
$
|
(934
|
)
|
|
(4.5
|
)%
|
Technology Solutions
|
15,085
|
|
|
43.0
|
|
|
16,551
|
|
|
44.1
|
|
|
(1,466
|
)
|
|
(8.9
|
)
|
Total revenue
|
35,122
|
|
|
100.0
|
|
|
37,522
|
|
|
100.0
|
|
|
(2,400
|
)
|
|
(6.4
|
)
|
Cost of services
|
25,484
|
|
|
72.6
|
|
|
26,700
|
|
|
71.2
|
|
|
(1,216
|
)
|
|
(4.6
|
)
|
Gross profit
|
9,638
|
|
|
27.4
|
|
|
10,822
|
|
|
28.8
|
|
|
(1,184
|
)
|
|
(10.9
|
)
|
Operating and administrative expenses
(1), (2)
|
11,843
|
|
|
33.7
|
|
|
10,813
|
|
|
28.8
|
|
|
1,030
|
|
|
9.5
|
|
Operating profit (loss)
|
$
|
(2,205
|
)
|
|
(6.3
|
)
|
|
$
|
9
|
|
|
—
|
|
|
$
|
(2,214
|
)
|
|
NM
|
|
|
|
(1)
|
In the first quarter of 2016, the Company recorded a benefit of
$0.8 million
related to the reversal of the EdgeRock Technologies, LLC (EdgeRock) acquisition earnout liability.
|
|
|
(2)
|
In the first six months of 2017 and 2016, the Company recorded
$0.7 million
and
$1.4 million
of amortization of EdgeRock acquisition-related intangible assets.
|
NM - Not meaningful.
Revenue decreased in Technology Solutions and Specialty Talent. Technology Solutions revenue decreased primarily due to the completion of projects and reduced spending from existing clients. Specialty Talent revenue decreased primarily due to fewer active consultants and reduced bill rates.
Gross profit decreased primarily due to the decrease in revenue and, to a lesser extent, a reduction in gross profit margin. Gross profit margin decreased primarily due to margin compression in Specialty Talent, as a result of fewer new placements to offset lower margins for consultants on contract extensions.
Excluding the impact of the earnout reversal benefit recorded in the first quarter of 2016 and difference in EdgeRock acquisition-related amortization of intangible assets, operating and administrative expenses increased primarily due to investments primarily in sales and recruitment personnel, partially offset by variable performance related costs.
Operating results decreased due to the decrease in gross profit and increase in operating and administrative expenses.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Engineering Solutions
Three months ended
June 30, 2017
as compared to the
three months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Energy, Chemicals and Infrastructure (EC&I)
|
$
|
26,161
|
|
|
48.2
|
%
|
|
$
|
33,279
|
|
|
54.4
|
%
|
|
$
|
(7,118
|
)
|
|
(21.4
|
)%
|
Aerospace and Industrial Equipment (AIE)
|
12,030
|
|
|
22.1
|
|
|
12,525
|
|
|
20.5
|
|
|
(495
|
)
|
|
(4.0
|
)
|
Government Services
|
16,125
|
|
|
29.7
|
|
|
15,349
|
|
|
25.1
|
|
|
776
|
|
|
5.1
|
|
Total revenue
|
54,316
|
|
|
100.0
|
|
|
61,153
|
|
|
100.0
|
|
|
(6,837
|
)
|
|
(11.2
|
)
|
Cost of services
|
40,826
|
|
|
75.2
|
|
|
46,377
|
|
|
75.8
|
|
|
(5,551
|
)
|
|
(12.0
|
)
|
Gross profit
|
13,490
|
|
|
24.8
|
|
|
14,776
|
|
|
24.2
|
|
|
(1,286
|
)
|
|
(8.7
|
)
|
Operating and administrative expenses
(1)
|
16,910
|
|
|
31.1
|
|
|
17,570
|
|
|
28.7
|
|
|
(660
|
)
|
|
(3.8
|
)
|
Restructuring and other related costs
|
—
|
|
|
—
|
|
|
149
|
|
|
0.2
|
|
|
(149
|
)
|
|
(100.0
|
)
|
Operating loss
|
$
|
(3,420
|
)
|
|
(6.3
|
)
|
|
$
|
(2,943
|
)
|
|
(4.8
|
)
|
|
$
|
(477
|
)
|
|
16.2
|
|
|
|
(1)
|
In the second quarter of 2017, the Company's Engineering Solutions segment recorded an expense to "Operating and administrative expenses" of
$1.2 million
related to real estate exit and related costs in the EC&I business.
|
Revenue
decreased
in EC&I and, to a lesser extent, AIE, partially offset by an increase in Government Services. The decrease in EC&I is primarily due to reduced demand for engineering services by downstream and midstream clients as a result of the completion of several large projects as well as the impact of low capital spending by oil and gas clients. The decrease in AIE revenue is primarily due to reduced spending by a large commercial aviation client. The increase in Government Services is primarily due to growth in existing naval defense contracts.
Gross profit decreased primarily due to a reduction in revenue, partially offset by a slight increase in gross profit margin.
Operating and administrative expenses decreased primarily due to actions taken by the Company to reduce personnel-related and other costs in response to lower business volumes, partially offset by a
$1.2 million
charge in the second quarter of 2017 related to real estate exit and related costs in the EC&I business.
Excluding the restructuring charge in 2016, operating results decreased primarily due to a reduction in gross profit, partially offset by the decrease in operating and administrative expenses.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Engineering Solutions - Continued
Six months ended
June 30, 2017
as compared to the
six months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Energy, Chemicals and Infrastructure (EC&I)
|
$
|
53,584
|
|
|
48.5
|
%
|
|
$
|
67,230
|
|
|
54.0
|
%
|
|
$
|
(13,646
|
)
|
|
(20.3
|
)%
|
Aerospace and Industrial Equipment (AIE)
|
24,645
|
|
|
22.3
|
|
|
25,656
|
|
|
20.6
|
|
|
(1,011
|
)
|
|
(3.9
|
)
|
Government Services
|
32,283
|
|
|
29.2
|
|
|
31,521
|
|
|
25.3
|
|
|
762
|
|
|
2.4
|
|
Total revenue
|
110,512
|
|
|
100.0
|
|
|
124,407
|
|
|
100.0
|
|
|
(13,895
|
)
|
|
(11.2
|
)
|
Cost of services
|
83,541
|
|
|
75.6
|
|
|
94,154
|
|
|
75.7
|
|
|
(10,613
|
)
|
|
(11.3
|
)
|
Gross profit
|
26,971
|
|
|
24.4
|
|
|
30,253
|
|
|
24.3
|
|
|
(3,282
|
)
|
|
(10.8
|
)
|
Operating and administrative expenses
(1)
|
32,992
|
|
|
29.9
|
|
|
34,945
|
|
|
28.1
|
|
|
(1,953
|
)
|
|
(5.6
|
)
|
Restructuring and other related costs
|
—
|
|
|
—
|
|
|
186
|
|
|
0.1
|
|
|
(186
|
)
|
|
(100.0
|
)
|
Operating loss
|
$
|
(6,021
|
)
|
|
(5.4
|
)
|
|
$
|
(4,878
|
)
|
|
(3.9
|
)
|
|
$
|
(1,143
|
)
|
|
23.4
|
|
|
|
(1)
|
In the second quarter of 2017, the Company's Engineering Solutions segment recorded an expense to "Operating and administrative expenses" of
$1.2 million
related to real estate exit and related costs in the EC&I business.
|
Revenue
decreased
in EC&I and, to a lesser extent, AIE, partially offset by an increase in Government Services. The decrease in EC&I is primarily due to reduced demand for engineering services by downstream clients as a result of the completion of several large projects as well as the impact of low capital spending by oil and gas clients. The decrease in AIE revenue is primarily due to reduced spending by a large commercial aviation client and the wind down of the Company's data acquisition and analysis business during the first quarter of 2016, partially offset by growth in other clients. The increase in Government Services is primarily due to growth in existing naval defense contracts.
Gross profit
decreased
primarily due to a reduction in revenue while overall gross profit margin remained relatively flat.
Operating and administrative expenses
decreased
primarily due to actions taken by the Company to reduce personnel-related, facilities and other costs in response to lower business volumes, partially offset by a
$1.2 million
charge in the second quarter of 2017 related to real estate exit and related costs in the EC&I business.
Excluding the restructuring charge in 2016, operating loss increased primarily due to the decrease in gross profit, partially offset by the decrease in operating and administrative costs.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Management Recruiters International (MRI)
Three months ended
June 30, 2017
as compared to the
three months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Contract Staffing
|
$
|
8,575
|
|
|
77.1
|
%
|
|
$
|
9,752
|
|
|
75.4
|
%
|
|
$
|
(1,177
|
)
|
|
(12.1
|
)%
|
Royalties and Franchise Fees
|
2,549
|
|
|
22.9
|
|
|
3,179
|
|
|
24.6
|
|
|
(630
|
)
|
|
(19.8
|
)
|
Total revenue
|
11,124
|
|
|
100.0
|
|
|
12,931
|
|
|
100.0
|
|
|
(1,807
|
)
|
|
(14.0
|
)
|
Cost of services
|
5,792
|
|
|
52.1
|
|
|
6,556
|
|
|
50.7
|
|
|
(764
|
)
|
|
(11.7
|
)
|
Gross profit
|
5,332
|
|
|
47.9
|
|
|
6,375
|
|
|
49.3
|
|
|
(1,043
|
)
|
|
(16.4
|
)
|
Operating and administrative expenses
|
3,812
|
|
|
34.3
|
|
|
5,294
|
|
|
40.9
|
|
|
(1,482
|
)
|
|
(28.0
|
)
|
Operating profit
|
$
|
1,520
|
|
|
13.7
|
|
|
$
|
1,081
|
|
|
8.4
|
|
|
$
|
439
|
|
|
40.6
|
|
Revenue decreased due to a decrease in contract staffing revenue and, to a lesser extent, franchise fees and royalties. Contract staffing revenue decreased primarily due to a reduction in billable staffing headcount. Franchise fees decreased due to a reduction in the sale of new franchises. The decrease in royalties is primarily due a reduction in franchises.
Gross profit
decreased
primarily due to a reduction in revenue and, to a lesser extent, a reduction in gross profit margin. Gross profit margin decreased primarily due to a shift in revenue mix toward the lower margin contract staffing business.
Operating and administrative expenses decreased primarily due to lower business volumes and reduced costs related to leadership change in the first quarter of 2017.
Operating profit
increased
due to the decrease in operating and administrative expenses, offset partially by the decrease in gross profit.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Management Recruiters International (MRI) - Continued
Six months ended
June 30, 2017
as compared to the
six months ended
June 30, 2016
The following table presents changes in revenue by category along with selected financial information for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
Increase (Decrease)
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
% of Total Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Contract Staffing
|
$
|
17,447
|
|
|
77.8
|
%
|
|
$
|
18,979
|
|
|
75.4
|
%
|
|
$
|
(1,532
|
)
|
|
(8.1
|
)%
|
Royalties and Franchise Fees
|
4,971
|
|
|
22.2
|
|
|
6,180
|
|
|
24.6
|
|
|
(1,209
|
)
|
|
(19.6
|
)
|
Total revenue
|
22,418
|
|
|
100.0
|
|
|
25,159
|
|
|
100.0
|
|
|
(2,741
|
)
|
|
(10.9
|
)
|
Cost of services
|
11,717
|
|
|
52.3
|
|
|
12,779
|
|
|
50.8
|
|
|
(1,062
|
)
|
|
(8.3
|
)
|
Gross profit
|
10,701
|
|
|
47.7
|
|
|
12,380
|
|
|
49.2
|
|
|
(1,679
|
)
|
|
(13.6
|
)
|
Operating and administrative expenses
|
8,932
|
|
|
39.8
|
|
|
10,716
|
|
|
42.6
|
|
|
(1,784
|
)
|
|
(16.6
|
)
|
Operating profit
|
$
|
1,769
|
|
|
7.9
|
|
|
$
|
1,664
|
|
|
6.6
|
|
|
$
|
105
|
|
|
6.3
|
|
Revenue
decreased
primarily due to a reduction in contract staffing revenue and, to a lesser extent, royalties and franchise fees. Royalties decreased primarily due to fewer placements and franchise terminations. Contract staffing revenue decreased primarily due to a reduction in billable staffing headcount. The decrease in royalties is primarily due to a reduction in franchises. Franchise fees decreased due to a reduction in the sale of new franchises.
Gross profit decreased primarily due to a reduction in royalties, contract staffing revenue and, to a lesser extent, a reduction in gross profit margin. The overall reduction in gross profit margin is primarily due to a shift in revenue mix toward the lower margin contract staffing business.
Operating and administrative expenses decreased primarily due to lower business volumes and reduced costs related to leadership change in the first quarter of 2017.
Operating profit increased due to the decrease in operating and administrative expenses, offset by the decrease in gross profit.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from operations and borrowings under credit facilities. The Company's principal uses of cash are operating expenses, capital expenditures, working capital requirements 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.
On October 30, 2015, the Company and several of its subsidiaries (collectively, the “Borrowers”) entered into a secured lending facility (the “Credit Agreement”) with Bank of America, N.A. and other lenders. The Credit Agreement established a
$150.0 million
revolving line of credit facility which also includes an option to expand the facility by up to
$75.0 million
subject to agreement by the lenders, with a
five
-year term ending on
October 30, 2020
. In connection with the sale of Anders, the Company executed an amendment to the Credit Agreement to release all liens and security interests on the UK collateral and allocate the available UK borrowings to the U.S. Borrowers. Borrowings under the Credit Agreement may be used by the Borrowers for general business purposes including capital expenditures and permitted acquisitions and investments. See Note 8
—
Credit Facility
, in the notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q Report for more information relating to the Credit Agreement.
As of
June 30, 2017
, the Company had total outstanding borrowings of
$15.9 million
and letters of credit outstanding of
$3.3 million
under the Credit Agreement. As of
June 30, 2017
, the Company had cash and cash equivalents of
$19.2 million
and
$95.3 million
was available to borrow under the Credit Agreement. The Company was in compliance with all covenants under the Credit Agreement as of
June 30, 2017
.
As of
June 30, 2017
, approximately 99% of the Company's cash and cash equivalents were held by certain non-U.S. subsidiaries, principally by Canadian entities and denominated in Canadian dollars. 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.
Cash and cash equivalents
increased
from
$3.2 million
on
December 31, 2016
to
$19.2 million
on
June 30, 2017
.
The following table summarizes the net cash flows, by category, from the Company's consolidated statements of cash flows for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
|
|
|
|
Operating Activities
|
$
|
3,666
|
|
|
$
|
(7,742
|
)
|
|
$
|
11,408
|
|
Investing Activities
|
(1,291
|
)
|
|
(6,456
|
)
|
|
5,165
|
|
Financing Activities
|
13,457
|
|
|
1,746
|
|
|
11,711
|
|
Operating Activities
For the
first six months
of
2017
, net cash provided by operating activities was
$3.7 million
, an increase in net cash provided by operating activities of
$11.4 million
as compared to
2016
. The increase in net cash provided by operations is primarily due to reduced working capital requirements, partially offset by a decline in net operating results after adjusting for non-cash items. Working capital requirements on a comparative basis were impacted by lower business volumes.
Investing Activities
For the
first six months
of
2017
, net cash used in investing activities was
$1.3 million
, a decrease in net cash used in investing activities of
$5.2 million
as compared to
2016
. Cash payments in 2016 were higher primarily due to higher capital expenditures in 2016 and a
$2.1 million
payment in 2016 related to the EdgeRock Technologies, LLC acquisition.
CDI CORP. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(
Amounts in tables are in thousands, except percentages
)
Financing Activities
For the
first six months
of
2017
, net cash provided by financing activities was
$13.5 million
compared to net cash provided by financing activities of
$1.7 million
during the comparable period in
2016
. The increase in net cash provided by financing activities is primarily due to net borrowings in 2017 compared to net repayments in 2016 under the Company's Credit Agreement, cash paid in 2016 to purchase the Company's stock under the Stock Repurchase Program, partially offset by the 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 2016 annual report on Form 10-K filed on March 8, 2017 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. 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 sale of Anders, the Company's UK-based staffing and recruitment business, on September 16, 2106, significantly reduced the Company's exposure to foreign currency exchange rate risk with respect to transactions denominated in British pounds sterling.
Interest Rate Risk
The interest rate risk associated with the Company's borrowing activities as of
June 30, 2017
was 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, 2017
, the Company had total outstanding borrowings of
$15.9 million
with interest payable at rates ranging from
2.33%
to
4.25%
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
June 30, 2017
. 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.
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, 2017
, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.