##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto Commission file number 001-05519 CDI CORP. 
 (Exact name of Registrant as specified in its charter)
 Pennsylvania
    
    23-2394430(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)
 1717 Arch Street, 35th Floor, Philadelphia, PA 19103-2768 
 (Address of principal executive offices)
 Registrants telephone number, including area code:                  (215)569-2200 Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or15(d)of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yesþ          Noo Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Section 12b-2 of the Exchange Act.) Yesþ          Noo Outstanding shares of each of the Registrants classes of common stock as
of October 25, 2004 were: Common stock, $.10 par value
    
    19,700,605 sharesClass B common stock, $.10 par value
    
    None




---



##### Table of Contents



CDI CORP. Table of Contents Part I: FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsConsolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003Consolidated Statements of Earnings for the three and nine months ended September 30, 2004 and 2003 (unaudited)Consolidated Statements of Shareholders Equity for the three and nine months ended September 30, 2004 and 2003 (unaudited)Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (unaudited)Notes to Consolidated Financial Statements (unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RisksItem 4. Controls and ProceduresPart II: OTHER INFORMATIONItem 6. ExhibitsSIGNATURESINDEX TO EXHIBITS




---



##### Table of Contents



PART 1. FINANCIAL INFORMATION 
    
  (In thousands, except share data)
 September 30,2004
    
    December 31,(unaudited)
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    34,410
    
    
    
    50,230Accounts receivable, less allowance for
doubtful accounts of $4,786- September
30, 2004; $5,496- December 31, 2003
    
    
    203,683
    
    
    
    199,630Short-term investments
    
    
    
    
    
    
    22,606Income taxes receivable
    
    
    1,224
    
    
    
    Prepaid expenses
    
    
    6,305
    
    
    
    8,744Deferred income taxes
    
    
    5,364
    
    
    
    8,484Total current assets
    
    
    250,986
    
    
    
    289,694Property and equipment, at cost:Computers and systems
    
    
    87,599
    
    
    
    85,426Equipment and furniture
    
    
    26,618
    
    
    
    26,256Leasehold improvements
    
    
    13,597
    
    
    
    13,297127,814
    
    
    
    124,979Accumulated depreciation
    
    
    (99,033
    )
    
    
    (93,858
    )Property and equipment, net
    
    
    28,781
    
    
    
    31,121Deferred income taxes
    
    
    6,418
    
    
    
    7,133Goodwill, net
    
    
    68,211
    
    
    
    68,211Other assets
    
    
    4,184
    
    
    
    5,403Total assets
    
    $
    358,580
    
    
    
    401,562
 See accompanying notes to consolidated financial statements. 1




---



##### Table of Contents



CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets(In thousands, except share data) September 30,2004
    
    December 31,(unaudited)
    
    2003Liabilities and Shareholders EquityCurrent liabilities:Obligations not liquidated because of
outstanding checks
    
    $
    1,590
    
    
    
    5,848Accounts payable
    
    
    21,377
    
    
    
    23,824Withheld payroll taxes
    
    
    3,552
    
    
    
    2,596Accrued compensation and related expenses
    
    
    43,304
    
    
    
    44,343Other accrued expenses
    
    
    12,694
    
    
    
    18,191Income taxes payable
    
    
    
    
    
    
    464Total current liabilities
    
    
    82,517
    
    
    
    95,266Deferred compensation
    
    
    7,814
    
    
    
    8,945Total liabilities
    
    
    90,331
    
    
    
    104,211Shareholders equity:Preferred stock, $.10 par value -
authorized 1,000,000 shares; none issued
    
    
    
    
    
    
    Common stock, $.10 par value -
authorized 100,000,000 shares; issued
20,664,539 shares  September 30, 2004;
20,535,835 shares  December 31, 2003
    
    
    2,066
    
    
    
    2,054Class B common stock, $.10 par value -
authorized 3,174,891 shares; none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    31,567
    
    
    
    28,205Retained earnings
    
    
    253,799
    
    
    
    286,466Accumulated other comprehensive income
    
    
    3,467
    
    
    
    3,467Unamortized value of restricted stock issued
    
    
    (340
    )
    
    
    (544
    )Less common stock in treasury, at cost -
963,934 shares  September 30, 2004;
963,465 shares  December 31, 2003
    
    
    (22,310
    )
    
    
    (22,297
    )Total shareholders equity
    
    
    268,249
    
    
    
    297,351Total liabilities and shareholders equity
    
    $
    358,580
    
    
    
    401,562
 See accompanying notes to consolidated financial statements. 2




---



##### Table of Contents



CDI CORP. AND SUBSIDIARIES 
  (Unaudited) (In thousands, except per share data)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    263,249
    
    
    
    264,355
    
    
    
    784,075
    
    
    
    803,875Cost of services
    
    
    200,816
    
    
    
    200,888
    
    
    
    597,361
    
    
    
    606,862Gross profit
    
    
    62,433
    
    
    
    63,467
    
    
    
    186,714
    
    
    
    197,013Operating and administrative expenses
    
    
    58,825
    
    
    
    54,278
    
    
    
    169,458
    
    
    
    170,744Provision for restructure
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    69Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (1,295
    )
    
    
    Operating profit
    
    
    3,608
    
    
    
    9,120
    
    
    
    18,551
    
    
    
    26,200Interest income, net and other
    
    
    39
    
    
    
    170
    
    
    
    443
    
    
    
    796Earnings before income taxes
    
    
    3,647
    
    
    
    9,290
    
    
    
    18,994
    
    
    
    26,996Income tax expense
    
    
    1,360
    
    
    
    3,317
    
    
    
    6,562
    
    
    
    9,460Net earnings
    
    $
    2,287
    
    
    
    5,973
    
    
    
    12,432
    
    
    
    17,536Basic earnings per share
    
    $
    0.12
    
    
    
    0.31
    
    
    
    0.63
    
    
    
    0.91Diluted earning per share
    
    $
    0.11
    
    
    
    0.30
    
    
    
    0.62
    
    
    
    0.89Cash dividends per share
    
    $
    2.11
    
    
    
    2.09
    
    
    
    2.31
    
    
    
    2.09
 See accompanying notes to consolidated financial statements. 3




---



##### Table of Contents



CDI CORP. AND SUBSIDIARIES 
  (Unaudited) (In thousands)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Common stockBeginning of period
    
    $
    2,066
    
    
    
    2,039
    
    
    
    2,054
    
    
    
    2,031Exercise of stock options
    
    
    
    
    
    
    4
    
    
    
    10
    
    
    
    8Stock purchase plans
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    4End of period
    
    $
    2,066
    
    
    
    2,043
    
    
    
    2,066
    
    
    
    2,043Additional paid-in capitalBeginning of period
    
    $
    31,501
    
    
    
    24,519
    
    
    
    28,205
    
    
    
    22,975Exercise of stock options
    
    
    64
    
    
    
    747
    
    
    
    2,606
    
    
    
    1,451Restricted stock  change in value
    
    
    (7
    )
    
    
    
    
    
    
    (8
    )
    
    
    (2
    )Stock purchase plans
    
    
    
    
    
    
    5
    
    
    
    335
    
    
    
    736Tax benefit from stock plans
    
    
    9
    
    
    
    1
    
    
    
    429
    
    
    
    112End of period
    
    $
    31,567
    
    
    
    25,272
    
    
    
    31,567
    
    
    
    25,272Retained earningsBeginning of period
    
    $
    293,079
    
    
    
    317,902
    
    
    
    286,466
    
    
    
    306,339Net earnings
    
    
    2,287
    
    
    
    5,973
    
    
    
    12,432
    
    
    
    17,536Dividends paid to shareholders
    
    
    (41,567
    )
    
    
    (40,660
    )
    
    
    (45,099
    )
    
    
    (40,660
    )End of period
    
    $
    253,799
    
    
    
    283,215
    
    
    
    253,799
    
    
    
    283,215Accumulated other comprehensive income (loss)Beginning of period
    
    $
    3,588
    
    
    
    1,546
    
    
    
    3,467
    
    
    
    (610
    )Foreign currency translation adjustment
    
    
    (184
    )
    
    
    (1,007
    )
    
    
    
    
    
    
    1,149Realized loss on sale of investments
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    End of period
    
    $
    3,467
    
    
    
    539
    
    
    
    3,467
    
    
    
    539Unamortized value of restricted stock issuedBeginning of period
    
    $
    (408
    )
    
    
    (668
    )
    
    
    (544
    )
    
    
    (800
    )Restricted stock  vesting/forfeiture
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    Restricted stock  change in value
    
    
    7
    
    
    
    
    
    
    
    8
    
    
    
    2Restricted stock  amortization of value
    
    
    61
    
    
    
    65
    
    
    
    183
    
    
    
    195End of period
    
    $
    (340
    )
    
    
    (603
    )
    
    
    (340
    )
    
    
    (603
    )Treasury stockBeginning of period
    
    $
    (22,310
    )
    
    
    (22,134
    )
    
    
    (22,297
    )
    
    
    (22,134
    )Restricted stock  forfeiture
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    End of period
    
    $
    (22,310
    )
    
    
    (22,134
    )
    
    
    (22,310
    )
    
    
    (22,134
    )Comprehensive incomeNet earnings
    
    $
    2,287
    
    
    
    5,973
    
    
    
    12,432
    
    
    
    17,536Foreign currency translation adjustment
    
    
    (184
    )
    
    
    (1,007
    )
    
    
    
    
    
    
    1,149Realized loss on sale of investments
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    End of period
    
    $
    2,166
    
    
    
    4,966
    
    
    
    12,432
    
    
    
    18,685
 See accompanying notes to consolidated financial statements. 4




---



##### Table of Contents



CDI CORP. AND SUBSIDIARIES 
  (Unaudited) (In thousands)
 Nine months endedSeptember 30,2004
    
    2003Operating activities:Net earnings
    
    $
    12,432
    
    
    
    17,536Adjustments to reconcile net earnings to cash provided by operating activities:Depreciation
    
    
    7,250
    
    
    
    9,458Deferred income tax expense
    
    
    3,835
    
    
    
    6,678Non-cash provision for restructure expense
    
    
    
    
    
    
    69Gain on sale of assets
    
    
    (1,295
    )
    
    
    Tax benefit from stock plans
    
    
    429
    
    
    
    112Change in assets and liabilities, net of effects of divestitures:Accounts receivable, net
    
    
    (4,053
    )
    
    
    (19,766
    )Prepaid expenses
    
    
    415
    
    
    
    333Accounts payable
    
    
    (2,448
    )
    
    
    (7,179
    )Accrued expenses other current liabilities
    
    
    (6,111
    )
    
    
    (6,034
    )Other assets, long-term liabilities and other
    
    
    625
    
    
    
    3,220Net cash flow provided by operating activities
    
    
    11,079
    
    
    
    4,427Investing activities:Purchases of property and equipment
    
    
    (5,054
    )
    
    
    (11,776
    )Sales of short-term investments, net
    
    
    22,606
    
    
    
    28,479Proceeds from sale of assets
    
    
    2,162
    
    
    
    Proceeds from notes receivable
    
    
    
    
    
    
    3,050Other
    
    
    144
    
    
    
    606Net cash flow provided by investing activities
    
    
    19,858
    
    
    
    20,359Financing activities:Dividends paid to shareholders
    
    
    (45,099
    )
    
    
    (40,660
    )Obligations not liquidated because of outstanding checks
    
    
    (4,258
    )
    
    
    3,056Proceeds from exercises of employee stock options
    
    
    2,616
    
    
    
    1,459Net cash used in financing activities
    
    
    (46,741
    )
    
    
    (36,145
    )Effect of exchange rate changes on cash
    
    
    (16
    )
    
    
    (101
    )Net decrease in cash and cash equivalents
    
    
    (15,820
    )
    
    
    (11,460
    )Cash and cash equivalents, beginning of year
    
    
    50,230
    
    
    
    41,148Cash and cash equivalents, end of period
    
    $
    34,410
    
    
    
    29,688Supplemental disclosure of cash flow information:Cash paid during the period for income taxes, (net of refunds)
    
    $
    3,257
    
    
    
    (5,947
    )
 See accompanying notes to consolidated financial statements. 5




---



##### Table of Contents



CDI Corp. 
 Notes to Consolidated Financial Statements
 (Dollars in thousands, except share and per share amounts, unless otherwise indicated)
 (unaudited)
 1. Basis of Presentation The accompanying consolidated financial statements of CDI Corp. (CDI or the
Company) are unaudited. The balance sheet as of December 31, 2003 is derived
from the audited balance sheet of the Company at that date. These statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission pertaining to reports on Form 10-Q and
should be read in conjunction with the Companys consolidated financial
statements and the notes thereto for the year ended December 31, 2003 reported
in Form 10-K, filed March 12, 2004. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The consolidated financial statements for the unaudited interim periods
presented include all adjustments (consisting of only normal, recurring
adjustments) necessary for a fair presentation of financial position, results
of operations and cash flows for such interim periods. Certain amounts in prior
periods have been reclassified to conform to the current period classification.
In that regard, cash flow from operations and financing activities for the nine
months ended September 30, 2003 were revised by $3.0 million and $3.1 million,
respectively, principally to reflect proceeds from a note receivable. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, revenues and expenses and disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Results for the three and nine month periods ended September 30, 2004 are not
necessarily indicative of results that may be expected for the full year or any
portion thereof. In accordance with Statement of Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, the Company recorded
revenue and accounts receivable of $0.3 million and $1.2 million for the three
and nine month periods ended September 30, 2004, respectively; reflecting the
anticipated recovery of costs incurred on a contract which is currently in
dispute. Management believes that it is probable that this claim will be
collectible from the customer. 2. Cash, Cash Equivalents and Short-Term Investments Cash, cash equivalents and short-term investments as of September 30, 2004 and
December 31, 2003 were comprised of the following: September 30,
    
    December 31,2004
    
    2003Cash
    
    $
    9,604
    
    
    
    5,139Cash equivalents
    
    
    24,806
    
    
    
    45,091Total cash and cash equivalents
    
    
    34,410
    
    
    
    50,230Short-term investments
    
    
    
    
    
    
    22,606Total cash, cash equivalents and short-term investments
    
    $
    34,410
    
    
    
    72,836
 Cash equivalents and short-term investments are in liquid, high quality debt
securities with diversification among the investments based upon the Companys
guidelines. Amortized cost approximates fair value. Gains and losses during the
three and nine month periods ended September 30, 2004 were immaterial. The
decrease in cash, cash equivalents and short-term investments from December 31,
2003 was primarily due to the Companys payments of a special dividend and
three quarterly dividends totaling $45.1 million during 2004. 6




---



##### Table of Contents



3. Restructuring During the nine months ended September 30, 2004, the Company recorded no
restructuring expenses, as compared to $0.01 million recorded in the first nine
months of 2003. The charge included severances of $0.4 million in connection
with the Companys growth strategy and leadership consolidation plan, partially
offset by a $0.3 million adjustment to a previously estimated provision
for operating lease obligations. The breakdown of the restructuring expense for 2003 among reporting segments
was as follows: Three and nine monthsendedSeptember 30, 2003Business Solutions
    
    $
    218Todays Staffing
    
    
    (222
    )Management
Recruiters International
    
    
    130Corporate
    
    
    (57
    )$
    69
 The table presented below shows the current year activity related to previous
restructurings from a balance sheet perspective: Net Accrual at
    
    
    
    
    
    Net Accrual atDecember 31,
    
    
    
    
    
    September 30,2003
    
    Payments
    
    2004Severance
    
    $
    633
    
    
    
    (578
    )
    
    
    55Lease obligations
    
    
    2,934
    
    
    
    (2,178
    )
    
    
    756$
    3,567
    
    
    
    (2,756
    )
    
    
    811
 The remaining liability for severance will be substantially paid during the
balance of 2004. The Company anticipates that the remaining liability for the
termination of operating leases will be substantially paid by December 31,
2005. The accrual for restructuring charges is included in other accrued
expenses in the accompanying consolidated balance sheets. 4. Real Estate Exit Costs During the first half of 2004, the Company experienced continued declines in
demand in its Life Sciences vertical within the Business Solutions segment. As
a result, in the second quarter of 2004, management evaluated certain office
space and determined that there was excess real estate capacity within the Life
Sciences vertical. In addition, management also determined that there was
excess real estate capacity in the MRI segment. Accordingly, certain real
estate properties were permanently vacated resulting in the Company recording a
pre-tax charge of approximately $1.0 million in the second quarter of 2004.
This charge is included in operating and administrative expenses in the
accompanying consolidated statements of earnings. The table presented below shows the current year activity by reportable
segments: BusinessSolutions
    
    MRI
    
    TotalsBalance as of December 31, 2003
    
    $
    
    
    
    
    
    
    
    
    Charge for real estate exit costs
    
    
    834
    
    
    
    164
    
    
    
    998Payments/reduction of assets
    
    
    (410
    )
    
    
    (53
    )
    
    
    (463
    )Balance as of September 30, 2004
    
    $
    424
    
    
    
    111
    
    
    
    535
 The future payments related to the above lease obligations are expected to
extend through 2006. The accrual for vacant lease obligations is included in
other accrued expenses in the accompanying consolidated balance sheets. 5. Earnings Per Share Both basic and diluted earnings per share for all periods are calculated based
on the reported earnings in the Companys consolidated statements of earnings. 7




---



##### Table of Contents



The number of common shares used to calculate basic and diluted earnings per
share for three and nine months ended September 30, 2004 and 2003 was
determined as follows: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003BasicAverage shares outstanding
    
    
    19,699,470
    
    
    
    19,449,668
    
    
    
    19,646,233
    
    
    
    19,405,753Restricted shares issued not vested
    
    
    (30,900
    )
    
    
    (45,000
    )
    
    
    (31,025
    )
    
    
    (45,125
    )19,668,570
    
    
    
    19,404,668
    
    
    
    19,615,208
    
    
    
    19,360,628DilutedShares used for basic calculation
    
    
    19,668,570
    
    
    
    19,404,668
    
    
    
    19,615,208
    
    
    
    19,360,628Dilutive effect of stock options
    
    
    191,934
    
    
    
    228,913
    
    
    
    277,407
    
    
    
    198,758Dilutive effect of restricted
shares issued not vested  time
based
    
    
    12,068
    
    
    
    14,278
    
    
    
    10,803
    
    
    
    11,075Dilutive effect of restricted
shares issued not vested
-performance based
    
    
    375
    
    
    
    375
    
    
    
    250
    
    
    
    250Dilutive effect of units issuable
under stock purchase plans
    
    
    101,840
    
    
    
    100,393
    
    
    
    100,032
    
    
    
    109,99919,974,787
    
    
    
    19,748,627
    
    
    
    20,003,700
    
    
    
    19,680,710
 6. Stock Based Plans The Company uses the intrinsic value method of accounting for stock options and
other forms of stock-based compensation granted to employees and directors, in
accordance with Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees. No compensation cost has been
recognized for grants of stock options because option exercise prices are not
less than the fair market value of the underlying common stock at dates of
grant. Compensation cost has been recognized for restricted stock issued and
for units granted under the Stock Purchase Plan. SFAS No. 123,Accounting for Stock Based Compensation", uses a fair value
based method of accounting for stock-based compensation. The following table
reflects the pro-forma effect on net earnings and earnings per share for the
three and nine month periods ended September 30, 2004 and 2003 as if the
Company had adopted the fair value recognition provisions of SFAS No. 123: Three months end
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net earnings, as reported
    
    $
    2,287
    
    
    
    5,973
    
    
    $
    12,432
    
    
    
    17,536Stock-based employee and
director compensation
cost included in
reported earnings, net
of income tax effect
    
    
    175
    
    
    
    49
    
    
    
    426
    
    
    
    484Stock-based employee and
director compensation
cost under fair
value-based method, net
of income tax effect
    
    
    (509
    )
    
    
    (425
    )
    
    
    (1,502
    )
    
    
    (1,629
    )Pro forma net earnings
    
    $
    1,953
    
    
    
    5,597
    
    
    $
    11,356
    
    
    
    16,931Net earnings per share:Basic  as reported
    
    $
    0.12
    
    
    
    0.31
    
    
    $
    0.63
    
    
    
    0.91Basic  pro forma
    
    
    0.10
    
    
    
    0.29
    
    
    
    0.58
    
    
    
    0.85Diluted  as reported
    
    $
    0.11
    
    
    
    0.30
    
    
    $
    0.62
    
    
    
    0.89Diluted  pro forma
    
    
    0.10
    
    
    
    0.28
    
    
    
    0.57
    
    
    
    0.83
 7. Reporting Segments In January 2004, the Company implemented a new structure and leadership
alignment. As a result, the Company is reporting its segments as follows:
Business Solutions, AndersElite, Todays Staffing (Todays) and Management
Recruiters International (MRI). Todays and MRI segments remain unchanged from
prior reporting periods. Prior year segment reporting has been restated to
conform to the new organizational structure. 8




---



##### Table of Contents



Business Solutions includes most of the former Professional Services and
Project Management reporting segments. It operates principally through five key
verticals: CDI-Aerospace, CDI-Government Services, CDI-Information Technology
(IT) Services, CDI-Life Sciences and CDI-Process & Industrial (P&I).  
    
    CDI-Aerospace provides a full range of engineering, design, project
management, professional IT and engineering staffing and outsourcing
solutions to both the commercial and military aerospace markets.
    
    CDI-Government Services focuses on providing engineering, design and
logistics services to the defense industry and serves as a provider of
IT and professional staffing for federal agencies.
    
    CDI-IT Services provides IT staffing and IT outsourcing solutions to
a broad range of primarily service-based industries.
    
    CDI-Life Sciences offers design validation, project management,
engineering, professional staffing and outsourcing solutions to clients
in the pharmaceutical, bio-pharmaceutical and regulated medical services
industries.
    
    CDI-P&I provides a full range of engineering, project management,
design, professional staffing and outsourcing solutions to firms in two
different sectors  the process sector which includes firms in oil, gas
and chemicals and the industrial sector which includes firms in power
generation and energy transmission, telecommunications and heavy
manufacturing. Business Solutions also provides services to businesses in the automotive and
financial services industries. AndersElite, formerly part of the Professional Services segment, is a leading
United Kingdom firm specializing in sourcing professionals from architects and
surveyors to electrical and construction engineers to information technology
professionals in private and government-funded design and construction
projects. Todays provides temporary and permanent administrative, clerical and legal
staffing services as well as managed staffing services. MRI is a franchisor providing support services to its franchisees who engage in
the search and recruitment of primarily management and sales personnel for
employment by their customers. It also provides temporary management staffing
services. Operating segment data is presented in the following tables: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues:Business Solutions
    
    $
    176,930
    
    
    
    177,819
    
    
    $
    529,016
    
    
    
    545,424AndersElite
    
    
    43,052
    
    
    
    39,422
    
    
    
    122,954
    
    
    
    108,547Todays
    
    
    29,131
    
    
    
    34,069
    
    
    
    90,255
    
    
    
    105,082MRI
    
    
    14,136
    
    
    
    13,045
    
    
    
    41,850
    
    
    
    44,822$
    263,249
    
    
    
    264,355
    
    
    $
    784,075
    
    
    
    803,875Earnings before income taxes:Operating profit:Business Solutions
    
    $
    4,417
    
    
    
    6,430
    
    
    $
    16,382
    
    
    
    20,710AndersElite
    
    
    687
    
    
    
    2,685
    
    
    
    3,056
    
    
    
    6,515Todays
    
    
    440
    
    
    
    1,972
    
    
    
    1,730
    
    
    
    5,509MRI
    
    
    2,719
    
    
    
    905
    
    
    
    8,838
    
    
    
    3,457Corporate expenses
    
    
    (4,655
    )
    
    
    (2,872
    )
    
    
    (11,455
    )
    
    
    (9,991
    )3,608
    
    
    
    9,120
    
    
    
    18,551
    
    
    
    26,200Interest income, net and other
    
    
    39
    
    
    
    170
    
    
    
    443
    
    
    
    796$
    3,647
    
    
    
    9,290
    
    
    $
    18,994
    
    
    
    26,996
 9




---



##### Table of Contents



September 30,
    
    December 31,2004
    
    2003Assets:Business Solutions
    
    $
    200,690
    
    
    
    198,890AndersElite
    
    
    53,501
    
    
    
    50,949Todays
    
    
    40,783
    
    
    
    40,495MRI
    
    
    28,630
    
    
    
    37,838Corporate
    
    
    34,976
    
    
    
    73,390$
    358,580
    
    
    
    401,562
 8. Sale of Assets During June 2004, the Company recorded a pre-tax gain of $1.3 million in
connection with a sale of certain assets and liabilities of its MRI operations.
Under the terms of the sale agreement dated June 30, 2003, the Company received
a $0.5 million non-refundable payment and a non-recourse note with a face value
of $2.2 million. Since a substantial portion of the sales price received was
in the form of a non-recourse note secured only by the business sold, and
completion of the sale was contingent upon the buyer obtaining independent
third-party financing for the remaining purchase price, the Company did not
record this transaction as a sale until the buyer obtained third party funding.
The buyer obtained such third party funding in June 2004 and paid the Company
$2.2 million. The book value of the net assets sold was $1.4 million. 10




---



##### Table of Contents



Item 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-looking
InformationCertain information in this report, including Managements Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Certain forward-looking statements can be identified by the use of
forward-looking terminology such as, believes, expects, may, will,
should,, hopes, seeks, approximately, intends, plans, estimates,
or anticipates or the negative thereof or other comparable terminology, or by
discussions of strategy, plans or intentions. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. These include risks
and uncertainties such as the effects of, and changes in general economic
conditions and capital spending by customers, competitive market pressures,
material changes in demand from larger customers, availability of labor, the
Companys performance on contracts, changes in customers attitudes toward
outsourcing, government policies or judicial decisions adverse to the staffing
industry, and other uncertainties set forth herein and in the Companys 2003
Form 10-K, and as may be set forth in the Companys subsequent press releases
and/or Forms 10-Q, 8-K and other filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
assumes no obligation to update such information. Executive Overview During the third quarter, CDI continued to be significantly negatively impacted
by sluggish capital spending by customers in several of its key vertical
markets, particularly the Process and Industrial (P&I) and Aerospace
verticals of its Business Solutions segment. This depressed capital spend has
been evidenced by ongoing delays in the ramp-up of projects associated with new
contracts wins. The Companys third quarter results were also negatively
impacted by continued softness in the Todays segments local retail business as
well as continued competitive pressures in the national accounts business.
AndersElites and MRIs revenues grew sequentially in the third quarter. The
Companys gross profits in the third quarter were also negatively affected by a
relative increase in lower-margin business compared to higher-margin business.
CDIs net earnings in the third quarter were hurt by substantial increases in
operating and administrative expenses principally due to greater investments
made in hiring recruiting, sales and management personnel, additional
Sarbanes-Oxley compliance expenses, a state unclaimed property audit covering
periods in the 1990s, increased employee-related costs stemming from higher
workers compensation liabilities and increases in state unemployment insurance
(SUI) rates in 2004. Management believes that the downward revenue trend has stabilized; however,
the Company anticipates lower sequential revenues in the fourth quarter of 2004
due largely to business seasonality. The Company is continuing to see
increased bidding activity in its Business Solutions segment. Management
anticipates that some of the delayed projects will begin in the fourth quarter,
and more of them in the first quarter of 2005. Although the Company has not
yet demonstrated growth in local and regional accounts within its Todays
segment, management continues to focus its efforts in this area where it can
achieve higher gross profit margins versus lower margin national accounts
business. In addition, management believes that its investments in new sales,
recruiting and management personnel, business development and employee
training, particularly at AndersElite, will result in future revenue growth. The table that follows presents year-over-year trends of key performance
indicators for the Company: Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,(dollars in millions)
    
    2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    263.3
    
    
    
    264.4
    
    
    $
    784.1
    
    
    
    803.9Gross profit as a percentage of revenue
    
    
    23.7
    %
    
    
    24.0
    %
    
    
    23.8
    %
    
    
    24.5
    %Operating and administrative expenses
    

    $
    58.8
    
    
    
    54.3
    
    
    $
    169.5
    
    
    
    170.7Operating and administrative expenses as a percentage of revenue
    
    
    22.3
    %
    
    
    20.5
    %
    
    
    21.6
    %
    
    
    21.2
    %Cash, cash equivalents and short-term investments
    
    
    
    
    
    
    
    
    
    $
    34.4
    
    
    
    59.7Cash flow provided by operations
    
    
    
    
    
    
    
    
    
    $
    11.1
    
    
    
    4.4Pre-tax return on equity (1)
    
    
    
    
    
    
    
    
    
    
    9.4
    %
    
    
    12.6
    %
  (1)
    
    Current quarter combined with the three preceding quarters earnings before
income taxes divided by the average shareholders equity. 11




---



##### Table of Contents



Consolidated Results Third quarter 2004 versus third quarter 2003 Revenue for the three months ended September 30, 2004 decreased by $1.1
million, or 0.4%, as compared to 2003. This decrease was primarily due to:  
    
    Ongoing competitive pricing pressures within the Todays segment for
national accounts business, as well as some shrinkage in its retail
account volume.
    
    Reduced demand in the Aerospace and P&I verticals within the Business
Solutions segment resulting from lower capital spending by customers and
to continued delays in new business ramp-up.
    
    Loss of business in the Life Sciences vertical within the Business Solutions segment. These revenue declines were partially offset by:  
    
    Favorable exchange rates associated with the AndersElite segment in the UK.
    
    Revenue growth within the MRI segment primarily due to increases in
franchise royalty revenues resulting from broad based permanent
placement hiring demand.
    
    Increased volume in the Information Technology (IT) vertical within
the Business Solutions segment. The decrease in gross profit as a percent of revenue in the third quarter of
2004, as compared to 2003 was principally due to:  
    
    Continued lower margin mix of business within the Business Solutions
segment as well as price pressures within the IT vertical.
    
    Increased employee-related costs such as SUI and workers
compensation due primarily to adverse experience on several claims
cases. The decrease in gross profit as a percentage of revenue as described above was
partially offset by higher margins within MRI due largely to the increase in
franchise royalty revenues. Operating and administrative expenses in the third quarter of 2004 increased by
$4.5 million, or 8.4%, as compared to 2003. This increase was largely
attributable to:  
    
    Increased spending of $2.6 million within AndersElite due primarily
to hiring of recruiting, sales and management personnel, driven by
higher than normal staff turnover.
    
    Increased spending related to the Companys Sarbanes-Oxley compliance program of approximately $1.0 million.
    
    Incremental expense of $0.4 million due a state unclaimed property audit covering the periods in the 1990s. The Companys effective income tax rate for the third quarter of 2004 was
37.3%, as compared to 35.7% in the same period last year. The increase was
primarily due to a favorable resolution of a state tax matter of approximately
$0.3 million, during 2003. Nine months 2004 versus nine months 2003 Revenue for the nine months ended September 30, 2004 declined by $19.8
million, or 2.5%, as compared to 2003. This decrease was primarily due to
volume declines in Todays of $14.8 million and in Business Solutions of $16.4
million as a result of continued softness in their respective markets and
competitive pricing pressures. This decline is partially offset by a
$14.5 million increase in revenue in AndersElite, almost exclusively due to favorable
exchange rates. The decline in gross profit as a percent of revenue in the first nine months of
2004 compared to the same period last year was principally due to the same
factors as noted in the third quarter year-over-year discussion above. Operating and administrative expenses in the nine months ended September 30,
2004 declined by $1.2 million, or 0.8% as compared to 2003. This improvement
was largely due to reductions in variable expenses resulting from lower
year-over-year volume and benefits from various restructuring efforts completed
during 2003. However, these reductions were partially offset by a pre-tax
charge of $1.0 million recorded in the second quarter of 2004 related to real
estate that was permanently vacated and by the same factors noted in the third
quarter year-over-year discussion above. During the second quarter of 2004, the Company recorded a $1.3 million pre-tax
gain resulting from the sale of the last 12




---



##### Table of Contents



company-owned office within the MRI segment. The Companys effective income tax rate for the first nine months of 2004 was
34.5%, as compared to 35.0% in 2003. Segment Results Business Solutions For the three months ended
    
    For the nine months endedPercent
    
    
    
    
    
    
    
    
    
    PercentSeptember 30,
    
    Change
    
    September 30,
    
    Change(dollars in millions)
    
    2004
    
    2003
    
    (%)
    
    2004
    
    2003
    
    (%)Revenues
    
    $
    176.9
    
    
    
    177.8
    
    
    
    (0.5
    )
    
    $
    529.0
    
    
    
    545.4
    
    
    
    (3.0
    )Gross profit
    
    $
    33.9
    
    
    
    35.9
    
    
    
    (5.6
    )
    
    $
    103.3
    
    
    
    111.6
    
    
    
    (7.4
    )Gross profit margin
    
    
    19.2
    %
    
    
    20.2
    %
    
    
    
    
    
    
    19.5
    %
    
    
    20.5
    %Operating and administrative expenses
    
    $
    29.5
    
    
    
    29.3
    
    
    
    0.8
    
    
    $
    86.9
    
    
    
    90.6
    
    
    
    (4.1
    )Operating profit
    
    $
    4.4
    
    
    
    6.4
    
    
    
    (31.3
    )
    
    $
    16.4
    
    
    
    20.7
    
    
    
    (20.9
    )
 Third quarter 2004 versus third quarter 2003 Business Solutions revenue for the three months ended September 30, 2004
declined by $0.9 million, or 0.5%, as compared to 2003. This decrease was
primarily due to:  
    
    Reduced volume due to loss of business within the Life Sciences
vertical.
    
    Reduced demand for engineering services in both the Aerospace and
P&I verticals due to lower capital spending by customers. The declines were partially offset by increased volume in the IT vertical due
to growth in managed staffing services. Business Solutions gross profit of $33.9 million for the third quarter of 2004
declined by $2.0 million or 5.6%, as compared to 2003. This decline was
principally due to:  
    
    Volume reductions as noted above.
    
    Customer pricing pressures as well as growth in lower margin business in both the P&I and IT verticals.
    
    Increased employee-related costs such as SUI and workers compensation. Business Solutions operating and administrative expenses in the third quarter
of 2004 increased slightly by $0.2 million or 0.8% when compared to 2003. This
increase was primarily due to:  
    
    A state unclaimed property audit covering periods in the 1990s
resulting in an expense of $0.4 million.
    
    Incremental Sarbanes-Oxley compliance expenses of $0.2 million
associated with training of field personnel across the segment.
    
    Higher workers compensation expense of $0.2 million. This increase was partially offset by benefits from restructuring efforts
completed in 2003. Nine months 2004 versus nine months 2003 Business Solutions revenue for the nine months ended September 30, 2004
declined by $16.4 million, or 3.0% as compared to 2003. This decrease was
primarily due to:  
    
    Reduced volume due to loss of business in the Life Sciences vertical, particularly during the first half of 2004.
    
    Volume reduction in both the P&I and Aerospace verticals, particularly during the first half of 2004. The declines noted above were partially offset by growth in the IT vertical. Business Solutions gross profit of $103.3 million for the first nine months of
2004 declined by $8.3 million or 7.4%, as compared to the same period in 2003.
This decline was principally due to:  
    
    Volume reductions due to loss of business in the higher-margin Life Sciences vertical. 13




---



##### Table of Contents




    
    Reduced volume and higher mix of lower margin business in the P&I vertical.
    
    Shift in the mix of business in the IT vertical to lower-margin business. Business Solutions operating and administrative expenses in the first nine
months of 2004 declined by $3.7 million, or 4.1% as compared to 2003. This
improvement was largely due to:  
    
    Reductions in variable expenses due to the lower volume.
    
    Benefits from restructuring efforts completed in 2003.
    
    The reversal of a $1.0 million reserve in the second quarter of
2004 because the exposure for which it was originally
established never materialized. These improvements were partially offset by the increases referred to in the
third quarter year-over-year discussion above. AndersElite Below are the comparative operating results of AndersElite for 2004 and 2003 in
U.S. dollars: For the three months ended
    
    For the nine months endedPercent
    
    
    
    
    
    
    
    
    
    PercentSeptember 30,
    
    Change
    
    September 30,
    
    Change2004
    
    2003
    
    (%)
    
    2004
    
    2003
    
    (%)Revenues
    
    $
    43.1
    
    
    
    39.4
    
    
    
    9.2
    
    
    $
    123.0
    
    
    
    108.5
    
    
    
    13.3Gross profit
    
    $
    10.6
    
    
    
    10.0
    
    
    
    6.2
    
    
    $
    30.4
    
    
    
    27.5
    
    
    
    10.5Gross profit margin
    
    
    24.7
    %
    
    
    25.4
    %
    
    
    
    
    
    
    24.7
    %
    
    
    25.3
    %Operating and administrative expenses
    
    $
    9.9
    
    
    
    7.3
    
    
    
    35.7
    
    
    $
    27.3
    
    
    
    21.0
    
    
    
    30.2Operating profit
    
    $
    0.7
    
    
    
    2.7
    
    
    
    (74.4
    )
    
    $
    3.1
    
    
    
    6.5
    
    
    
    (53.1
    )
 To more effectively discuss the comparative results of operations of
AndersElite for the three and nine months ended September 30, 2004 and 2003,
the following tables presents AndersElites results on a constant currency
basis (i.e., British Pounds  £): For the three months ended
    
    For the nine months endedPercent
    
    
    
    
    
    
    
    
    
    PercentSeptember 30,
    
    Change
    
    September 30,
    
    Change(British pounds in millions)
    
    2004
    
    2003
    
    (%)
    
    2004
    
    2003
    
    (%)Revenues
    
    £
    23.9
    
    
    
    24.4
    
    
    
    (2.2
    )
    
    £
    67.9
    
    
    
    67.4
    
    
    
    0.8Gross profit
    
    £
    5.9
    
    
    
    6.2
    
    
    
    (4.9
    )
    
    £
    16.8
    
    
    
    17.1
    
    
    
    (1.7
    )Gross profit margin
    
    
    24.7
    %
    
    
    25.4
    %
    
    
    
    
    
    
    24.7
    %
    
    
    25.3
    %Operating and administrative expenses
    
    £
    5.5
    
    
    
    4.5
    
    
    
    21.5
    
    
    £
    15.1
    
    
    
    13.0
    
    
    
    15.8Operating profit
    
    £
    0.4
    
    
    
    1.7
    
    
    
    (77.0
    )
    
    £
    1.7
    
    
    
    4.0
    
    
    
    (58.2
    )
 Third quarter and nine months 2004 versus third quarter 2003 and nine months
2003 On constant currency basis, AndersElites revenues and gross profit decreased
slightly for the three months ended 2004 and were essentially flat for the
first nine months of 2004, as compared to the respective comparable periods in
2003. The declines in revenue for the third quarter and gross profit for both
the third quarter and first nine months of 2004 versus 2003 were primarily due
to lower staffing revenue resulting from significant re-staffing of its
recruiting and sales personnel and the inherent delay before newly hired sales
staff generate revenue. On a constant currency basis, AndersElites operating and administrative
expenses increased 21.5% and 15.8% in the third quarter and first nine months
of 2004, respectively, over the same periods last year. This increase was
largely due to :  
    
    Investments made in hiring recruiting, sales and management
personnel due to higher-then-normal staff turnover, resulting in part
from competitive pressures.
    
    Incremental hiring to standardize and upgrade business development
and training capabilities to position AndersElite for future growth. 14




---



##### Table of Contents



Todays Staffing (Todays) For the three months ended
    
    For the nine months endedPercent
    
    
    
    
    
    
    
    
    
    PercentSeptember 30,
    
    Change
    
    September 30,
    
    Change(dollars in millions)
    
    2004
    
    2003
    
    (%)
    
    2004
    
    2003
    
    (%)Revenues
    
    $
    29.1
    
    
    
    34.1
    
    
    
    (14.5
    )
    
    $
    90.3
    
    
    
    105.1
    
    
    
    (14.1
    )Gross profit
    
    $
    8.1
    
    
    
    9.3
    
    
    
    (13.3
    )
    
    $
    24.3
    
    
    
    29.2
    
    
    
    (16.8
    )Gross profit margin
    
    
    27.7
    %
    
    
    27.3
    %
    
    
    
    
    
    
    26.9
    %
    
    
    27.8
    %Operating and
administrative
expenses
    
    $
    7.6
    
    
    
    7.6
    
    
    
    
    
    
    $
    22.6
    
    
    
    23.9
    
    
    
    (5.6
    )Operating profit
    
    $
    0.4
    
    
    
    2.0
    
    
    
    (77.7
    )
    
    $
    1.7
    
    
    
    5.5
    
    
    
    (68.6
    )
 Third quarter and nine months 2004 versus third quarter 2003 and nine months
2003 Todays revenue for the third quarter of 2004 declined by $5.0 million, or
14.5%, as compared to the third quarter 2003. For the nine months ended
September 30, 2004 revenues declined by $14.8 million or 14.1% as compared to
the same period in 2003. These decreases were primarily due to:  
    
    Continued volume declines in the higher-margin retail accounts.
    
    Ongoing pricing pressures on national accounts. In response to this trend, management has established a dedicated team to more
effectively manage and grow its national accounts while also redirecting local
office efforts to grow both high margin retail accounts and permanent placement
revenue. Todays gross profit for the third quarter of 2004 declined by $1.2 million, or
13.3 %, as compared to the third quarter 2003. For the nine months ended
September 30, 2004 gross profit declined by $4.9 million, or 16.8 %, as
compared to the same period in 2003. These decreases were primarily due to the
volume declines noted above. Todays operating and administrative expenses in the third quarter of 2004 were
flat in comparison to the same period in 2003. This was largely due to
reductions in variable expenses due to lower volume, offset by higher
investment in hiring sales and recruitment management personnel. The operating and administrative expenses in the first nine months of 2004
declined 5.6% as compared to 2003. This decline was due to reductions in
variable expenses, offset in part by increased charges for ramping up sales and
recruitment staff. Management Recruiters International (MRI) For the three months ended
    
    For the nine months endedPercent
    
    
    
    
    
    
    
    
    
    PercentSeptember 30,
    
    Change
    
    September 30,
    
    Change(dollars in millions)
    
    2004
    
    2003
    
    (%)
    
    2004
    
    2003
    
    (%)Revenues
    
    $
    14.1
    
    
    
    13.0
    
    
    
    8.4
    
    
    $
    41.9
    
    
    
    44.8
    
    
    
    (6.6
    )Gross profit
    
    $
    9.8
    
    
    
    8.2
    
    
    
    19.3
    
    
    $
    28.7
    
    
    
    28.7
    
    
    
    Gross profit margin
    
    
    69.5
    %
    
    
    63.1
    %
    
    
    
    
    
    
    68.6
    %
    
    
    64.1
    %Operating and
administrative expenses
    
    $
    7.1
    
    
    
    7.2
    
    
    
    (1.3
    )
    
    $
    21.2
    
    
    
    25.2
    
    
    
    (15.9
    )Gain on sale of asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1.3
    
    
    
    
    
    
    
    Operating profit
    
    $
    2.7
    
    
    
    0.9
    
    
    
    200.4
    
    
    $
    8.8
    
    
    
    3.5
    
    
    
    155.6
 Third quarter 2004 versus third quarter 2003 MRIs revenue for the three months ended September 30, 2004 increased by $1.1
million, or 8.4% as compared to 2003. This increase was primarily due to
increased franchise royalty revenues of 22% over last year resulting from an
increase in permanent placement activity within the MRI franchise network.
This increase was partially offset by lower temporary management and specialty
staffing revenue. MRIs gross profit of $9.8 million for the third quarter of 2004 increased by
$1.6 million or 19.3 % as compared to 2003. This 15




---



##### Table of Contents



increase was principally due to the higher margin franchise royalty revenues. MRIs operating and administrative expenses in the third quarter of 2004 were
essentially flat to 2003 largely due to expense containment measures instituted
in 2004. Nine months 2004 versus nine months 2003 MRIs revenue for the nine months ended September 30, 2004 declined by $2.9
million, or 6.6% as compared to 2003. This decrease was primarily due to:  
    
    Exit of the last of the company- owned offices in the first half of 2003.
    
    Lower temporary management and specialty staffing revenue. This decline was partially offset by higher franchise royalty revenues and
franchise sales. MRIs gross profit of $28.7 million for the first nine months of 2004 was flat
as compared to 2003 due largely to the gross profit on the increase of
franchise royalty revenues being offset by the lost gross profit from the
exiting of company-owned offices in 2003. MRIs operating and administrative expenses in the nine months ended September
30, 2004 declined by $4.0 million, or 15.9% as compared to 2003. This
improvement was largely due to :  
    
    Expense containment measures instituted in 2004.
    
    Reduction of operating expenses due to the exit of the last of company-owned offices in the first half of 2003. Corporate Expenses Corporate expenses were $4.7 million for the third quarter of 2004, as compared
to $2.9 for the third quarter of 2003. This increase was primarily due to
incremental spending for Sarbanes-Oxley compliance of $0.8 million, higher
employee expenses associated with new hires of $0.5 million and higher legal
expenses of $0.2 million related to several ongoing litigation matters. During
the first nine months of 2004, corporate expenses were $11.5 million, as
compared to $10.0 million for the same period of 2003. This increase was
primarily due to incremental spending for Sarbanes-Oxley compliance
of $1.2
million and higher legal expenses of $0.3 million, as previously noted. Liquidity and Capital Resources The following table summarizes the major captions from the Companys
Consolidated Statements of Cash Flows: Nine months endedSeptember 30,(in millions)
    
    2004
    
    2003Cash provided by (used in):Operating Activities
    
    $
    11.1
    
    
    $
    4.4Investing Activities
    
    $
    19.9
    
    
    $
    20.4Financing Activities
    
    $
    (46.7
    )
    
    $
    (36.1
    )
 Operating Activities During the first nine months of 2004, CDI generated approximately $11.1 million
of cash flows from operating activities, as compared to $4.4 million during the
same period in 2003. This increase in operating cash flow primarily reflects
the Companys continued improvement in its working capital management. Investing Activities CDI invested $5.1 million in the first nine months of 2004 for purchases of
property and equipment versus $11.8 million in the 16




---



##### Table of Contents



corresponding period of 2003. During the first nine months of 2003, the Company
incurred capital expenditures to support the acquisition, configuration and
implementation of a new back-office accounting system. Cash generated from
operating activities has been conservatively invested and is readily available
to fund Company operations and investment opportunities. During the nine month
period ended September 30, 2004, the Company sold $22.6 million of short-term
investments principally to fund the payment of dividends aggregating $45.1
million during 2004. Financing Activities The Company paid shareholders a special dividend and three quarterly dividends
totaling $45.1 million during the nine month period ended September 30, 2004.
Additionally, CDI reduced its level of obligations not liquidated because of
outstanding checks due to its ongoing focus on working capital management. Summary At September 30, 2004, cash and cash equivalents totaled $34.4 million, and the
Company had no bank debt. Management believes that its current funds and funds
generated from operations will be sufficient to meet currently anticipated
working capital, dividends and other capital requirements. Should the Company
require additional funds in the future, management believes that it will be
able to obtain these funds at competitive rates. On October 20, 2004, the Company declared a quarterly dividend of $0.11 per
share, payable on November 17, 2004. The declaration and payment of any future
dividends will be at the discretion of the Companys Board of Directors and
will depend upon many factors including the Companys earnings, financial
condition and capital requirements. Critical Accounting Policies and Estimates These financial statements were prepared in accordance with generally accepted
accounting principles, which require management to make subjective decisions,
assessments and estimates about the effect of matters that are inherently
uncertain. As the number of variables and assumptions affecting the judgment
increases, such judgments become even more subjective. While management
believes its assumptions are both reasonable and appropriate, actual results
may be materially different than estimated. The critical accounting policies,
estimates and assumptions identified in the Companys 2003 Annual Report on
Form 10-K filed March 12, 2004 with the Securities and Exchange Commission have
not materially changed. 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to risks associated with foreign currency fluctuations
and changes in interest rates. The Companys exposure to foreign currency
fluctuations relates to its operations in foreign countries conducted
principally through subsidiaries operating primarily in the United Kingdom and
Canada. Exchange rate fluctuations impact the U. S. dollar value of reported
earnings derived from these foreign operations as well as the carrying value of
the Companys investment in the net assets related to these operations. During
the first quarter of 2004, the Company entered into a foreign exchange put
option contract to hedge a portion of its U.K. foreign operations 2004
forecasted net earnings. The effects of foreign currency exchange rate
fluctuations on CDIs consolidated earnings historically have been immaterial. The Companys exposure to interest rate changes is not significant. As of
September 30, 2004, there were no bank borrowings and only immaterial amounts
of other debt outstanding, none of which was variable rate debt. The Companys
investment in money market and other short-term instruments are primarily at

variable rates. 
 Item 4. CONTROLS AND PROCEDURES The Company has conducted an evaluation of the effectiveness of its disclosure
controls and procedures under the supervision of its Chief Executive Officer
and its Chief Financial Officer as of September 30, 2004. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures are effective
in providing reasonable assurance that information required to be disclosed by
the Company in reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported upon in such reports within the
time periods specified for their filing. It should be noted that the design of
any system of controls is based in part on certain assumptions 17




---



##### Table of Contents



about the likelihood of future events. A control system, no matter how well
designed and implemented, can provide only reasonable, not absolute assurance,
that the objectives of the control system will be met. There have been no significant changes in the Companys internal control over
financial reporting that occurred during the most recently completed fiscal
quarter that materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. 
 PART II. OTHER INFORMATION 
 Item 6. EXHIBITS 10.
    
    Form of Stock Option Agreement between the Company and recipients of stock option grants,
including executive officers. (Constitutes a management contract or compensatory plan or
arrangement)31.a.
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.b.
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.
    
    Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 18




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. CDI CORP.November 8, 2004
    By:
    /s/ Jay G. StuartJay G. StuartExecutive Vice President and Chief Financial Officer
(Principal Financial Officer) 19




---



##### Table of Contents



INDEX TO EXHIBITS Number
    
    Exhibit10.
    
    Form of Stock Option Agreement between the Company and recipients of stock option grants,
including executive officers. (Constitutes a management contract or compensatory plan or
arrangement)31.a.
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.b.
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.
    
    Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 20