Executives
Vince Webb - Vice President of Investor Relations
Roger Ballou – Chief Executive Officer
Mark Kerschner – Chief Financial Officer
Analysts
Jim Janesky - Stifel Nicolaus
Jeff Silber – BMO Capital Market
Bill Sutherland - Boenning & Scattergood
Ty Govatos - CL King
James Janesky - Stifel Nicolaus
CDI Corporation (CDI) Q4 2007 Earnings Call February 28, 2008 11:00 AM ET
Operator
Good morning ladies and gentlemen. At this time I would like to welcome everyone to the CDI Corporation CDI Corporation fourth quarter results conference call. (Operator Instructions). It is now my pleasure to turn the floor over to your host, Mr. Vince Webb, Vice President of Investor Relations. Sir, you may begin your conference.
Vincent Webb
Good morning and thank you for joining us today. At this point you should have a copy of the fourth quarter and full year 2007 press release. If not, please call our office at 215 636 1185 and we’ll be happy to send you one immediately after the call. A replay of today’s call will begin one hour after we’re finished and will run for two weeks. It can be accessed by dialing 706 645 9291 and entering the pass code 33035505. In addition, a live broadcast will be made available on the internet at our website cdicorp.com for the next 14 days. On the line with us today are CDI President and Chief Executive Officer Roger Ballou and our Executive Vice President and Chief Financial Officer Mark Kerschner. We will begin with some remarks by Roger and then the line will be opened for some questions. Before we begin however, we would like to point out the cautionary language regarding forward-looking statements contained in the news release and remind everyone that that same language applies to any comments made during this morning’s conference call.
Now at this time I’d like to turn things over to Roger Ballou. Please go ahead Roger.
Roger Ballou
Thanks Vince, and thanks to all of you for joining us this morning. Following my opening remarks, Mark and I’ll be happy to answer your questions.
I’m pleased to report that we had very solid performance in the fourth quarter and to the full year of 2007. During the quarter we had solid revenue growth in our highest margin businesses. On a year-over-year basis engineering solutions grew by 12.8%, MRI increased by 21.2% and Anders revenue grew by 7.6%, 4.8% on a constant currency basis. Overall year-over-year revenue growth from continuing operations was moderated by continued weakness on our IT solution segment reflecting declines in local account staffing as well as the continued effect of a client specific reduction that we reported in the second quarter. Revenue in ITS however, was essentially flat sequentially leading us to believe that we have stabilized the revenue erosion. We’re hopeful that investments, and sales and recruiting talent will produce better results in 2008.
Much of the incremental revenue in the quarter, and in fact throughout the entire year came from higher margin services provided to clients, particularly in the engineering solutions segment and from permanent placement revenue. A core strategic principle that’s guided our business has been to move our client relationships and services delivery up to value continuum to capture higher value, higher margin, longer cycle business to reliance relationships with clients.
Now I’m pleased with the ongoing results of this strategy as reflected in our strong profit performance during the fourth quarter. Direct margin increased by 130 basis points over the prior year quarter to 25% reflecting this higher margin business. Operating profit margin was 3.9% versus 3.3% in the fourth quarter of 2006. For the full year, direct margin increased to 24.2% versus the prior year and operating profit margin was 3.9% versus 3% for the full year 2006. Variable contribution margin, a key metric which measures our business’ ability to translate incremental top line revenue into pre-tax operating profit increased to 17% for the quarter as our business model generated an incremental $2.39 million in pre-tax operating profit on $14 million in quarter-over-quarter revenue growth. This was in spite of the fact that we incurred a charge of $360,000 due to the bankruptcy of the Vendor Management System.
Additional critical metrics which measure operating efficiency of our business model are net cash provided from operating activities and free cash flow, which we define as net cash from operating activities less capital expenditures and less dividends paid. For the fourth quarter, we generated $20 million in that cash from operating activities and free cash flow of $15.4 million.
Our long-term goal is to achieve operating profit margins in excess of 5%. Now we feel this goal is achievable and we’ve made significant progress over the past year with a previously noted 60 basis point improvement in year-over-year fourth quarter operating profit margin.
In 2008, our management team will continue to focus on the three strategic principles form the basis of our operating plan. First, we will continue business development efforts to capture higher margin, high client value, longer cycle business. These services include engineering outsourcing in the process industries, alternative energy, aerospace, life sciences, and defense sectors. Additionally, we’re targeting our efforts in the areas of IT outsourcing, and project management, and permanent placement growth.
Second, CDI will continue to focus on increasing its global service delivery capabilities to ensure that we can continue to meet our client’s global engineering and talent acquisition needs.
And third, CDI will strive to build both our skill sets and business scale in those industries that we’ve identified as having attractive long-term economic drivers, and which could remain relatively unaffected by short-term conditions in the financial markets. We believe that sustained high oil prices, concern with global warming and rapid growth in the BRIC economies will continue to drive capital investments and infrastructure build out, alternative energy development, specialty chemical production, oil refinery capacity expansion, new aircraft development, and in the life sciences sector.
Now let’s look at fourth quarter performance in each of our business units. Engineering solutions reported a strong quarter with year-over-year revenue growth of 12.8% driven by continued strength in the process and industrial and government services segments as they saw revenues increase by 18.1% and 20.1% respectively. Defense sector spending continues to drive performance in government services while the demand pipeline and alternative energy, particularly in the area of solar energy continues to positively impact our process and industrial segment. Our life sciences verticals saw revenue decline 23.8% primarily as we cycled out of completed projects and began ramp up on new assignments. Aerospace experienced revenue declines of 15.3% on a year-over-year basis for the quarter as we continued to see delays in bidding activities from a large client. Recent investments and business development resources in aerospace should provide this vertical with a broader client base in 2008.
As noted earlier, virtually all of the revenue growth and engineering solutions was in higher margin services, thus driving operating profit margins to 6 1/2% versus the prior year rate of 4.4% in the fourth quarter. Now we expect to see a decline in some lower margin staffing business and engineering solutions early in 2008 but we expect to cycle into new higher margin engineering design projects. This could resolve to some deceleration of top-line revenue growth and engineering solutions, but we anticipate continued improvement in direct margin and operating profit margin, reflecting an increased mix of high margin business.
Management Recruiters Int’l reported solid revenue growth of 21.2% driven by continued strength in contract staffing revenue and year-over-year growth in franchise sales. Royalties were essentially flat compared to the year-ago quarter. Operating profit increased to $3.9 million while operating profit margin declined to 18.3% due to the increase in contract staffing which yield somewhat lower margins.
We’re acutely aware of the uncertainty that exists regarding the economic growth trajectory in the US. We’re working with our MRI office owners to increase their level of business development activity, but basic demand may be moderated somewhat by increases in cycle time as clients take a longer time to make hiring decisions due to the economic uncertainty. It’s worth noting that MRI has a significantly base of business than it did in the 2001 recession. In 2001, approximately 30% of MRI permanent placement activity was in telecom, dot com and Y2K assignments, which were affected the most significantly by the downturn. MRIs 2007 makes the placements as much broader and more diverse with its largest base of placements approximately 17% in the rapidly growing healthcare and pharmaceutical fields. This leads us to believe that if there is any recession-based downturn, its effect on MRI should be significantly less severe than experienced in 2001.
UK-based Anders Elite had year-over-year revenue growth of 7.6% for the fourth quarter or 0.8% on a constant currency basis reflecting steady demand for skilled professional staff in the UK and Australia construction market places. Anders did see some late fourth quarter softness in permanent placement activity at specific Anders offices. We have however, seen permanent placement bounce back in the early weeks of 2008.
During the quarter, operating profit margin increased to 3.7% versus 3.3% for the prior year quarter reflecting effective expense controls and continued improvements in recruit or productivity. Now there’s no change in status since our last update on the ongoing UK Office of Fair Trading investigation into alleged anti-competitive behavior by a number of UK companies including Anders. We’re still unable to estimate any potential liability. We will of course disclose any liability or estimate of liability when we have sufficient information from the OFT.
IT solutions revenue declined 17.8% versus the prior year quarter as noted earlier in my comments. The revenue short fall caused operating profit margins to decline to 0.4% compared to 2.2% in the prior year quarter.
Now let’s look at some other results for the quarter. Our balance sheet remained strong. We closed the quarter with cash and cash equivalents of $127.1 million compared $113.6 million at the end of quarter three. For the full year 2007, we sourced approximately $53 million in cash net of the approximately $40 million in cash received from the sale of the Today’s Staffing subsidiary. With no debt and over $125 million in cash on the balance sheet, we have the capacity to support organic revenue growth, fund capital spending and potential acquisitions in higher margin engineering segments, and to support a quarterly dividend of $0.13 per share. Additionally as a result of our strong cash position, our Board of Directors just approved the stock repurchase of up to %50 million of the company’s outstanding common stock. We believe that at current price levels, the repurchase of our shares represents an attractive investment opportunity.
Our long-term strategy to focus on delivering global engineering and professional staffing services, the firms in refining, oil and gas, alternative energy, aerospace, defense, life sciences, and infrastructure marketplaces, is producing solid profit momentum and is providing CDI with a broad global base for future possible growth. We remain committed to creating value for our shareholders and believe we’ll continue to be able to deliver 12% to 14% in variable contribution margin on our increasingly global business mix.
I’m also pleased to report that we generated a pre-tax return on net assets of over 23% during the quarter demonstrating our commitment to maximize our return on assets as we grow our business. During the quarter, corporate overhead increased by 28% due to increases in performance-based variable and stock-based compensation costs somewhat offset by lower compliance costs.
Our effective tax rates for the full year 2007 was 35.2%. We anticipate a tax rate of between 33% and 35% in 2008. Current economic conditions in the financial markets make it much more difficult to have clear visibility to future demand trends. While I cannot be certain what the macroeconomic climate portends for us, I’m confident that our business focus and geographic mix should minimize the financial impact of any domestic market slowdown. We’ve had the financial discipline to develop an excellent balance sheet with a much more global mix of business than we had during the last recession, and much more of our business is based on a longer-cycle demand drivers versus short-term GDP-driven business.
Alternative energy investments should continue in spite of short-term US GDP factors. For example, we today announced another alternative energy project awarded to our process and industrial segment. This contract with Dynamic Fuels involves front-end engineering and design for a new $150 million renewable synthetic fuels plant in Geismar, Louisiana. The new facility will produce renewable diesel or jet fuel with a capacity of 75 million gallons a year.
Spending will also continue on the 2012 Olympics in London, US homeland security measures, producing more energy-efficient plants, a new generation of aircraft, a new pharmaceutical and biotech production facilities. Approximately 75% of our total revenue base is in this longer-cycle capital expenditures-driven marketplace. Thus, only 25% of our business is in traditional staffing; a market place sensitive to GDP growth. It’s a position we strategically built over the past five years and we believe it provides a very strong solid base for future growth.
Looking ahead we anticipate revenue growth of 1% to 3% on a year-over-year basis during the first quarter. This slower growth is due to a decline in year-over-year revenue in lower-margin IT staffing and some shrinkage in the engineering staffing segments of our business. However, despite that decline, an expected uptick in higher margin engineering outsourcing and permanent placement business will support continued strong direct margin increases. This remix of higher-margin business could produce yearoveryear direct margin growth in the first quarter of 7% to 9%. Adjusting to the effect of the $1.6 million pre-tax reversal of a legal accrual in Q1 2007, we should be able to generate a 50% variable contribution margin on that 1% to 3% revenue growth. We anticipate that full-year revenue growth in 2008 could be in the range of 3% to 6% versus 2007 reflecting solid revenue growth in MRI, engineering solutions, and Anders offset somewhat by the aforementioned slowdown in revenue on our IT Solutions business. We could expect variable contribution margin in a range of 12% to 14% for the full year.
With that, we’d be happy to take your questions.
Question-and-Answer Session
Operator
Our first question is coming from Jim Janesky with Stifel Nicolaus.
Jim Janesky - Stifel Nicolaus
I have a couple of questions, I guess really the first is a clarification on your outlook for 2008 and the first quarter. First on the revenue growth outlook is that excluding Today’s Staffing out of the numbers so that would just be core -- you want to take the revenue numbers out of 2007 in order to determine that revenue growth figure?
Roger Ballou
Yes, that’s correct. We’re forecasting growth on the continuing operations basis.
Jim Janesky - Stifel Nicolaus
Okay.
Roger Ballou
We, we would exclude today’s. Yes.
Jim Janesky - Stifel Nicolaus
And the margin growth, was that a growth number that you gave the 7% to 9%?
Roger Ballou
That, that’s intended to, that 7% to 9% is the growth in dollar margins we anticipate in the quarter.
Jim Janesky - Stifel Nicolaus
Jim Janesky - Stifel Nicolaus
In dollar margines, again you have to take out the operating, I know it’s not--it wasn’t significant but some of the operating profit that was contributed from …
Roger Ballou
Not operating profit. What we’re talking about here is gross margin. So it’d be a 7% to 9% growth in gross margin –
Jim Janesky - Stifel Nicolaus
Oh, gross margin.
Roger Ballou
– backing out today’s. Yes.
Jim Janesky - Stifel Nicolaus
Okay got it. Okay great. That‘s very helpful. Thanks. Now moving on to permanent placement, can you give us some idea, I think if you did a good job explaining how the mix differs and there’s obviously a dramatic difference and less cyclical in healthcare and pharma, but can you give us an idea of how franchise sales might react in a tougher economy and I believe that you know, contract staffing was probably either not there or not a significant portion of revenues in the 2000-2001 time frame so maybe your expectations for that aspect of the revenues as well.
Roger Ballou
Sure. we look at a couple of things. I’ll give you a little bit of comment on royalties, and then I’ll give you a comment on what we think in franchise sales, and then, and give you a little time for our staffing color at MRI.
What we’ve seen early in the year this year is a continuing uptick in permanent placement activity through our MRI franchisees. So we are seeing growth in the middle single-digits in the MRI franchisee placement activity and billing volume early in 2008. So that would bode well for some growth in royalties this year and we, we see that continuing at this point. Secondly, from a franchise sales perspective, we expect to have a very good year in franchise sales this year. We’ve got opportunities for incremental sales in key international markets through our worldwide partners. We’ve also got significant pipeline of franchise sales activity domestically. We think we can sustain growth in franchise sales over last year.. So we believe that’s doable and we’ve done that and if you look back in the early 90s, we actually grew franchise sales through the recession. In the 2002,-2003 period we shrunk it but that was a conscious decision to de-emphasized the growth at that point. So we‘d expect to see growth in franchise sales and from contract staffing perspective our penetration is relatively low in the sense that we’ve only got a portion of our offices participating. Those offices are only ramping up, so what we’re seeing early days here in the beginning of ‘08 and we’d expect to see continue through the year is very strong momentum in contract staffing growth at MRI.
Jim Janesky - Stifel Nicolaus
Okay thanks and last question is your comments about your expectation for business solutions and IT solutions to being down, was that sequentially?
Roger Ballou
The IT solutions is not sequential. We’d expect IT solutions as we said we think it’s flattened – Q 4 is relatively flat to Q3, so what we’re forecasting there is the down tick versus Q1 last year.
Jim Janesky - Stifel Nicolaus
Okay.
Roger Ballou
Alright and then ES again we’re talking about performance versus Q1 last year. We’d expect to see some diminution of their growth but still growth in that business in Q1.
Jim Janesky - Stifel Nicolaus
Okay. Thank you.
Operator
Your next question is coming from Andrew Steinerman with Bear Stearns.
Andrew Steinerman - Bear Stearns
Could you give a little more color on 4Q operating marketing extension for the engineering solution segment? I mean I know you said that this was driven by better mix from high margin services but are you doing better on project management and is this expansion sustainable in ’08?
Roger Ballou
We certainly—just a couple of things; first, it is significantly a result of remix into a higher margin project work which we’ve continued to execute well on. So what you’re seeing is a growth that was consistent with our strategy to grow our project business in the engineering world. We do expect to see continuing margin expansion, operating margin expansion, and ES in ‘08 versus ‘07 yes and we expect to see continuing operating margin improvement in ‘08 versus ‘07 and ES as well.
Andrew Steinerman - Bear Stearns
Okay are you having any trouble finding engineers similar to a way that the engineering and construction companies are?
Roger Ballou
Yes but I think we’ve seen that coming for several years, so we’ve been very aggressive in finding solutions to it. In our cases, an example opening up lower cost onshore facilities to supplement our big centers of excellence we’ve got, so if I was to look at our process in industrial segment, we got three big centers in Houston, Baton Rouge, and Charleston, West Virginia, but we’ve also opened supplemental centers in Moss Point down in Mississippi and we’ve also got a facility up in Midland Michigan. In aerospace we’ve done a similar thing in Bosman, Montana to open up a lower cost center. And we’ve also gone offshore or near shore in this case and have a big PNI center down in Tampico, Mexico. So we’ve been very creative in finding sources of talents and in another case we actually have a college program we’re working closely with one of our big clients in our aerospace area to recruit college students in as interns so its a combination of looking to alternative communities domestically, looking at near shore off shore facilities and we’ve got a partner in India and a partner in China as well. So we’ve got a very broad base strategy to source talent through diverse markets and we’re finding the talent we need.
Andrew Steinerman - Bear Stearns
Great! That’s very really helpful, final question are wage rate increases — how are they comparing to the increases you’re seeing in bill rates for any of your solutions?
Roger Ballou
In the engineering world the good news is most of our contracts are done on a multiplier basis. So what we see is bill rates rising faster than wage rates because the multiplier ensures that they do. So we are seeing solid increases in wage rates mid single-digits and we’re seeing somewhat higher increases in margin because we’re able to use the multiplier.
Andrew Steinerman - Bear Stearns
Great! Thanks.
Operator
Your next question is coming from Jeff Silber with BMO Capital Market.
Jeff Silber – BMO Capital Market
Just a few follow-up questions – Roger, in your prepared remarks you talked about some decline in lower-margin business in the engineering solution’s area, can you give us a little bit more color which specific vertical that was in that, et cetera?
Roger Ballou
Yes, that would be in the process and industrial vertical.
Jeff Silber – BMO Capital Market
And a bit more color in terms of is it something that you’re getting out of, is it the end demand slowing down?
Roger Ballou
It’s us getting out of some relationships that were just not as attractive to us.
Jeff Silber – BMO Capital Market
Okay, that’s fair enough. In terms of just comparing your guidance for both the current quarter and the year for the company relative to some specific verticals, should we expect engineering solutions to grow inline with the overall company fast or slower, what should we be looking for?
Roger Ballou
Engineering solution should grow this year generally speaking inline with the overall company probably at the higher end of the range.
Jeff Silber – BMO Capital Market
Okay and I’ll ask the same questions on the Anders Elite section as well.
Roger Ballou
In the range – they should be in the range. MRI should be above the range and IT should be below the range.
Jeff Silber – BMO Capital Market
Great. In terms of the--you mentioned that the charge I guess for the VMS that went bankrupt again, which vertical was that in?
Roger Ballou
It actually hit us across a number of areas it hit in the IT solution’s area. It hit a little bit at MRI in contract staffing business and it hit in ES and the vertical that it hit us in there was PNI, I believe.
Jeff Silber – BMO Capital Market
Okay great! That’s helpful, and just one more numbers question, what was stock-based compensation in a quarter?
Roger Ballou
Mark has it written down over here --$877,000 in the quarter, that’s up from $512,000 the prior year.
Jeff Silber – BMO Capital Market
Alright, great and I know you don’t give specific guidance on specific line items in ‘08, but roughly what should we be expecting for both depreciation and amortization and capital spending?
Roger Ballou
Tthe depreciation amortization should trend just a little bit up from what it was in the fourth quarter and CapEx should run around $11 million. So you should have a little bit; right now a little bit of an excess. Depreciation should be a little bit higher than capital spending.
Jeff Silber – BMO Capital Market
Okay, great. When does the window open up for you to be back into the market buying shares?
Roger Ballou
What we typically do is wait for everybody until the 3rd business day after the release so that we’ve got time for the market to absorb the earnings information. So that would imply that we will be in on—we could go back into the market on I think its Monday, Friday – so we got Thursday, Friday, Monday so – Tuesday.
Jeff Silber – BMO Capital Market
Tuesday would be great.Thanks so much.
Operator
You’re next question is coming from Bill Sutherland with Boenning & Scattergood.
Bill Sutherland - Boenning & Scattergood
Thank you. Good morning. I wondered if Roger you have the growth in contract staffing in MRI in the quarter.
Roger Ballou
We do but we don’t typically report it until we do the Q.
Bill Sutherland - Boenning & Scattergood
Okay.
Roger Ballou
So that will be in the Q but it was very, very strong.
Bill Sutherland - Boenning & Scattergood
Okay. I remember that the number was 38% in Q3.
Roger Ballou
It is still very, very strong.
Bill Sutherland - Boenning & Scattergood
What is the percentage approximately of revenue at Anders that’s permanent placement?
Roger Ballou
Of revenue it runs in the– I’m going to have to interpret it--it runs in revenues terms at around 13%, somewhere 12-1/2% something like.
Bill Sutherland - Boenning & Scattergood
I’m sorry, in what terms?
Roger Ballou
Of revenue its up in the 12-1/2% range, of margin it’s more approaching 50%.
Bill Sutherland - Boenning & Scattergood
Okay and you said that basically the softness you saw in some offices exiting ’07–- that essentially disappeared in the course of Q1?
Roger Ballou
Well what we’ve seen is an uptick at the early part here of Q1, that’s what we talked and when we looked at Q4 there were selected offices that had significant under performance, others that were performing right on track. So it was not a broad based fall, it was specific to certain offices. What we saw is that in the early part of the first quarter here we‘ve seen an uptick in perm.
Bill Sutherland – Boenning & Scattergood
And last question on Anders, did that dip--was that the factor for – it seemed like the operating margin was a shade under 4% which was off from the first three quarters?
Roger Ballou
Yes. It was entirely driven by a perm slow down and selected offices.
Bill Sutherland - Boenning & Scattergood
Okay. A little – can we get a little more color on your IT solutions plan for ’08 in terms of you said you built out sales and recruiting, is there any quantification there, maybe and then maybe some color—you’ve been talking about developing some focus.
Roger Ballou
We’re still concentrating on building a solutions-orientated business there. We have had some wins in that area so we would expect to see some growth in our solutions component in IT and the--probably a slight down tick in the staffing component versus prior year which will occur here early in the year. So we’d expect to see growth IT later in the year– as we said, there’ll be some slow down still in the first quarter, should probably reach stability in the second quarter and have some growth in the second half.
Bill Sutherland - Boenning & Scattergood
Are you thinking –
Roger Ballou
And that would be more in the solutions area than in the staffing area.
Bill Sutherland - Boenning & Scattergood
The–I mean you spoke to new account wins in the Q3 conference call and relatively stable headcount, were you – so that was not for the group as a whole, that was just solutions and therefore that’s – with staffing down that kind of explains the reported number for Q4?
Roger Ballou
If you look at Q4 to Q4, they were effectively flat. I mean you’re within $800,000. I mean Q4 versus Q3 sequentially.
Bill Sutherland - Boenning & Scattergood
Right.
Roger Ballou
So you know, they’re – we have that some solutions wins, we did continue to see slight diminution in staffing but effectively you know, we think we flattened in Q4 versus Q3 and we hope to see an up turn coming quarter by quarter as we roll through the rest of this year sequentially.
Bill Sutherland - Boenning & Scattergood
And then if I could just asl one number question relative to the variable contribution guidance, the – for Q1 the operating income number in Q1 ‘07 adjusted for the reversal that would be –
Roger Ballou
10-7.
Bill Soterman
10-7?
Roger Ballou
Yes.
Bill Sutherland - Boenning & Scattergood
And the gross margin adjusted?
Roger Ballou
For Q1 ‘07 I’m not sure if the reversal went through gross margin off the top of my head or not Bill. I don’t think it did. So I think the gross margin wouldn’t change.
Bill Sutherland - Boenning & Scattergood
Okay, and then it would be the same – it would be the same alteration to the year – to the full year operating profit as far as your –
Roger Ballou
That’s correct.
Bill Sutherland - Boenning & Scattergood
That’s right, and there is no – and there is no other quarters of any impacts correct?.
Roger Ballou
Nothing we would call out.
Bill Sutherland - Boenning & Scattergood
Okay. Thanks Roger.
Roger Ballou
Okay.
Operator
Your next question is coming from Ty Govatos with CL King. Please go ahead.
Ty Govatos - CL King
Okay, technical question on the share buyback. Do you think you can do that without affecting the flow too much?
Roger Ballou
Yeah, I think we can Ty and let me give you a little bit of color on that. When–if you go back about five or six years ago, we had around 19 millions shares a little bit more than outstanding and of that the Garrison Trust and Walter owned about 7.6 million shares. If you look at the year-end filings they’re down about 6.2 million shares. So you got about a 1.4 million shares that were from the Garrison Trust into public hands. They continue to move down their shareholdings gradually every year. That’s in their hands not ours but they’ve consistently been doing that. Secondly, we’ve issued about 1.2-1.3 million incremental shares through stock options, SARS and restricted and time vested stock programs for the management team, that will continue and should put another few hundred thousand shares a year into public hands. So as you look at over a period of time what we would expect to see is 400,000-500,000 shares either moving from the Garrison Trust into public hands and to our new issuance of shares to the management teams. Combined with the buyback, I would expect to see--there will be some diminution in the short-term of public flow but it will still be above where it was four or five years ago and would then continue to grow into the future. It’s just that at this price level the value of buying back stock is so significant that our Board felt we couldn’t not take advantage of it.
Ty Govatos - CL King
It makes sense but let me rehash this – then it looks like probably a half or more might come from the trust.
Roger Ballou
That’s not in my hands. I can’t guarantee that. I mean you know the trust will do what the thrust chooses to do but as we look forward what I’d say to you is you should expect to see, once we are into the second half of this year you would expect to see the public flow continuing to rise.
Ty Govatos - CL King
Sounds good, thanks a lot.
Roger Ballou
Okay..
Operator
Your next question will be coming from James Janesky with Stifel Nicolaus.
James Janesky - Stifel Nicolaus
Mark was there–just a question about the interest income figure about twice as much as your highest rate which occurred in the third quarter, was there anything in there that would be considered one-time in nature?
Roger Ballou
No. The thing that occurred – I’ll give you a little bit of clarity on that, we had contracts run currency last year then we were expensing through the interest line, so we had a combination of things between Q3 and Q4. One is that we have only the fourth quarter hedging expenses to expense through the line and then secondly is we had The Today’s transaction at the end of Q3 and the incremental cash sourced in Q4 so there are cash on hand, if you look for Q3 -- I mean we only got the Today’s money very, very late in Q3.
James Janesky - Stifel Nicolaus
Right.
Mark Kerschner
So if you look at it from the day before the end of the quarter, we actually sourced about $60 million in cash in Q4 so you had a significantly higher balance on average through the quarter combined with a little bit lower hedging cost in the fourth quarter, that’s what drove it.So the one-one should be an ongoing kind of rate or that or above until we spend money.
James Janesky - Stifel Nicolaus
Sure, so the hedging was a small portion of the increase. That’s what I thought, it was all Today’s. Alright, thank you.
Mark Kerschner
You’re welcome.
Operator
Thank you. There appears to be no question at this time. I would now like to turn the floor back to Mr. Roger Ballou for any closing comments.
Roger Ballou
You know, we were pleased with our ability to deliver value for our shareholders in the fourth quarter and throughout 2007. We’re particularly pleased with the significant improvements in return on net assets we were able to deliver in the fourth quarter and the full year 2007 and with the level of cash we’re able to generate, while funding dividends, capital expenses, and receivables to support our organic growth. Additionally, our strategic rotation to higher margin engineering outsourcing and permanent placement business, enable us to improve operating profit margin to 3.9% for the year, up from 3% in 2006. As I stated earlier we anticipate some diminution of top line growth, we expect to still see very healthy profit margin improvements and margin improvements. So we’d expect to see solid profit growth in spite of the current economic uncertainty. Thank you for your interest in CDI and we look forward to talking to you further.
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