##### 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 March 31, 2004 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 001-5519 CDI CORP. 
 (Exact name of Registrant as specified in its charter)
 Pennsylvania
    
    23-2394430(State or other jurisdic-
tion of incorporation or
organization)
    
    (I.R.S. Employer
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 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 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 April 28, 2004 were:  Common stock, $.10 par value
    
    19,634,384 sharesClass B common stock, $.10 par value
    
    None




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CDI CORP. Table of Contents Part I:     FINANCIAL INFORMATIONItem 1.     Consolidated Financial StatementsConsolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003
    
    
    1Consolidated Statements of Earnings for the three months ended March 31, 2004 and
2003 (unaudited)
    
    
    3Consolidated Statements of Shareholders Equity for the three months ended March
31, 2004 and 2003 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2004
and 2003 (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2.     Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.     Quantitative and Qualitative Disclosures about Market Risks
    
    
    16Item 4.     Controls and Procedures
    
    
    16Part II:     OTHER INFORMATIONItem 6.     Exhibits and Reports on Form 8-K
    
    
    17SIGNATURES
    
    
    18INDEX TO EXHIBITS
    
    
    19CERTIFICATION CEO,SECTION 302CERTIFICATION CFO, SECTION 302CERTIFICATIONS CEO & CFO, SECTION 906




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##### Table of Contents



PART 1. FINANCIAL INFORMATION 
   
  (In thousands, except share data)
 March 31,
    
    December 31,2004
    
    2003(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    39,440
    
    
    
    50,230Accounts receivable, less allowance for
doubtful accounts of $5,812 - March
31, 2004; $5,496- December 31, 2003
    
    
    202,674
    
    
    
    199,630Short-term investments
    
    
    39,219
    
    
    
    22,606Prepaid expenses
    
    
    10,767
    
    
    
    8,744Deferred income taxes
    
    
    7,591
    
    
    
    8,484Total current assets
    
    
    299,691
    
    
    
    289,694Property and equipment, at cost:Computers and systems
    
    
    86,576
    
    
    
    85,426Equipment and furniture
    
    
    26,446
    
    
    
    26,256Leasehold improvements
    
    
    13,355
    
    
    
    13,297126,377
    
    
    
    124,979Accumulated depreciation
    
    
    (96,253
    )
    
    
    (93,858
    )Property and equipment, net
    
    
    30,124
    
    
    
    31,121Deferred income taxes
    
    
    6,496
    
    
    
    7,133Goodwill, net
    
    
    68,211
    
    
    
    68,211Other assets
    
    
    3,972
    
    
    
    5,403Total assets
    
    $
    408,494
    
    
    
    401,562
 See accompanying notes to consolidated financial statements. 1




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##### Table of Contents



CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets(In thousands, except share data) March 31,
    
    December 31,2004
    
    2003(unaudited)Liabilities and Shareholders EquityCurrent liabilities:Obligations not liquidated because of
outstanding checks
    
    $
    3,612
    
    
    
    5,848Accounts payable
    
    
    26,562
    
    
    
    23,824Withheld payroll taxes
    
    
    4,086
    
    
    
    2,596Accrued compensation and related expenses
    
    
    49,062
    
    
    
    44,343Other accrued expenses
    
    
    14,311
    
    
    
    18,191Income taxes payable
    
    
    1,034
    
    
    
    464Total current liabilities
    
    
    98,667
    
    
    
    95,266Deferred compensation
    
    
    7,662
    
    
    
    8,945Total liabilities
    
    
    106,329
    
    
    
    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
20,576,760 shares  March 31, 2004;
20,535,835 shares  December 31, 2003
    
    
    2,058
    
    
    
    2,054Class B common stock, $.10 par value -
authorized 3,174,891 shares; none issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    29,157
    
    
    
    28,205Retained earnings
    
    
    289,637
    
    
    
    286,466Accumulated other comprehensive income
    
    
    4,097
    
    
    
    3,467Unamortized value of restricted stock issued
    
    
    (474
    )
    
    
    (544
    )Less common stock in treasury, at cost -
963,934 shares  March 31, 2004;
963,465 shares  December 31, 2003
    
    
    (22,310
    )
    
    
    (22,297
    )Total shareholders equity
    
    
    302,165
    
    
    
    297,351Total liabilities and shareholders equity
    
    $
    408,494
    
    
    
    401,562
 See accompanying notes to consolidated financial statements. 2




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CDI CORP. AND SUBSIDIARIES 
  (Unaudited)
(In thousands, except per share data)
 Three months endedMarch 31,2004
    
    2003Revenues
    
    $
    255,987
    
    
    
    269,526Cost of services
    
    
    194,739
    
    
    
    201,150Gross profit
    
    
    61,248
    
    
    
    68,376Operating and administrative expenses
    
    
    53,852
    
    
    
    60,014Operating profit
    
    
    7,396
    
    
    
    8,362Interest income, net and other
    
    
    (268
    )
    
    
    (374
    )Earnings before income taxes
    
    
    7,664
    
    
    
    8,736Income tax expense
    
    
    2,728
    
    
    
    3,276Net earnings
    
    $
    4,936
    
    
    
    5,460Basic earnings per share
    
    $
    0.25
    
    
    
    0.28Diluted earnings per share
    
    $
    0.25
    
    
    
    0.28
 See accompanying notes to consolidated financial statements. 3




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##### Table of Contents



CDI CORP. AND SUBSIDIARIES 
  (Unaudited)
(In thousands)
 Three months endedMarch 31,2004
    
    2003Common stockBeginning of period
    
    $
    2,054
    
    
    
    2,031Exercise of stock options
    
    
    4
    
    
    
    1Stock purchase plan
    
    
    
    
    
    
    2End of period
    
    $
    2,058
    
    
    
    2,034Additional paid-in capitalBeginning of period
    
    $
    28,205
    
    
    
    22,975Exercise of stock options
    
    
    869
    
    
    
    139Restricted stock-change in value
    
    
    (2
    )
    
    
    (6
    )Stock purchase plan
    
    
    85
    
    
    
    316End of period
    
    $
    29,157
    
    
    
    23,424Retained earningsBeginning of period
    
    $
    286,466
    
    
    
    306,339Net earnings
    
    
    4,936
    
    
    
    5,460Dividends paid to shareholders
    
    
    (1,765
    )
    
    
    End of period
    
    $
    289,637
    
    
    
    311,799Accumulated other comprehensive income (loss)Beginning of period
    
    $
    3,467
    
    
    
    (610
    )Translation adjustment
    
    
    630
    
    
    
    (200
    )End of period
    
    $
    4,097
    
    
    
    (810
    )Unamortized value of restricted stock issuedBeginning of period
    
    $
    (544
    )
    
    
    (800
    )Restricted stock-forfeiture
    
    
    13
    
    
    
    Restricted stock-change in value
    
    
    2
    
    
    
    6Restricted stock-amortization value
    
    
    55
    
    
    
    57End of period
    
    $
    (474
    )
    
    
    (737
    )Treasury stockBeginning of period
    
    $
    (22,297
    )
    
    
    (22,134
    )Restricted stock-forfeiture
    
    
    (13
    )
    
    
    End of period
    
    $
    (22,310
    )
    
    
    (22,134
    )Comprehensive incomeNet earnings
    
    $
    4,936
    
    
    
    5,460Translation adjustment
    
    
    630
    
    
    
    (200
    )$
    5,566
    
    
    
    5,260
 See accompanying notes to consolidated financial statements. 4




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##### Table of Contents



CDI CORP. AND SUBSIDIARIES 
  Unaudited
(In thousands)
 Three months endedMarch 31,2004
    
    2003Continuing OperationsOperating activities:Net earnings
    
    $
    4,936
    
    
    
    5,460Depreciation
    
    
    2,425
    
    
    
    3,085Deferred income taxes
    
    
    1,530
    
    
    
    1,652Change in assets and liabilities:Accounts receivable, net
    
    
    (2,836
    )
    
    
    (14,487
    )Prepaid and other current assets
    
    
    (2,000
    )
    
    
    (1,912
    )Accounts payable
    
    
    2,849
    
    
    
    (1,782
    )Accrued expenses and other current liabilities
    
    
    3,045
    
    
    
    (4,750
    )Other assets, non-current liabilities and other
    
    
    566
    
    
    
    816Net cash flow from (used in) operating activities
    
    
    10,515
    
    
    
    (11,918
    )Investing activities:Purchases of property and equipment
    
    
    (1,391
    )
    
    
    (4,207
    )Purchases of short-term investments
    
    
    (16,613
    )
    
    
    (6,879
    )Proceeds from note receivable
    
    
    
    
    
    
    3,050Other
    
    
    (37
    )
    
    
    577Net cash flow used in investing activities
    
    
    (18,041
    )
    
    
    (7,459
    )Financing activities:Dividends paid to shareholders
    
    
    (1,765
    )
    
    
    Payments on long-term debt
    
    
    
    
    
    
    (201
    )Obligations not liquidated because of
outstanding checks
    
    
    (2,236
    )
    
    
    6,356Proceeds from exercises of employee stock options
    
    
    713
    
    
    
    125Net cash flow (used in) from financing activities
    
    
    (3,288
    )
    
    
    6,280Effect of exchange rate changes on cash
    
    
    24
    
    
    
    (38
    )Net decrease in cash and cash equivalents
    
    
    (10,790
    )
    
    
    (13,135
    )Cash and cash equivalents at beginning of period
    
    
    50,230
    
    
    
    41,148Cash and cash equivalents at end of period
    
    $
    39,440
    
    
    
    28,013Supplemental disclosure of cash flow information:Cash paid during the period for income taxes, (net of refunds)
    
    $
    195
    
    
    
    910
 See accompanying notes to consolidated financial statements. 5




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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
investing activities for the three months ended March 31, 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 month period ended March 31, 2004 are not necessarily
indicative of results that may be expected for the full year or any portion
thereof. 2. New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities(FIN
46). FIN 46 was revised in December of 2003. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. FIN 46 also requires disclosures about
variable interest entities that a company is not required to consolidate but in
which it has a significant variable interest. The consolidation requirements of
FIN 46 apply immediately to variable interest entities created after January
31, 2003 and to all entities in the first fiscal year beginning after December
15, 2003. Certain of the disclosure requirements apply to all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. Based on its assessment of FIN 46, the Company
has concluded that there are currently no variable interest entities requiring
consolidation by the Company. 3. Cash, Cash Equivalents and Short-Term Investments Cash, cash equivalents and short-term investments as of March 31, 2004 and
December 31, 2003 were comprised of the following: March 31,
    
    December 31,2004
    
    2003Cash
    
    $
    4,836
    
    
    
    5,139Cash equivalents
    
    
    34,604
    
    
    
    45,091Total cash and cash equivalents
    
    
    39,440
    
    
    
    50,230Short-term investments
    
    
    39,219
    
    
    
    22,606Total cash, cash equivalents and
short-term investments
    
    $
    78,659
    
    
    
    72,836
 6




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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-month period ended March 31, 2004 were immaterial. All of the Companys short-term investments are held as available-for-sale
securities, and reflect investments in corporate bonds, various government
agencies and commercial paper. Available-for-sale securities as of March 31, 2004 of $39.2 million include
$22.6 million for securities maturing in one year or less and $16.6 million for
securities maturing in one to three years. 4. Restructuring There were no restructuring charges during the first three months of 2003 and
2004. The table presented below shows the current year activity related to other
restructurings from a balance sheet perspective: Net Accrual at
    
    
    
    
    
    Net Accrual atDecember 31,
    
    Cash
    
    March 31,2003
    
    Expenditures
    
    2004Severance
    
    $
    633
    
    
    
    (430
    )
    
    
    203Lease obligations
    
    
    2,934
    
    
    
    (503
    )
    
    
    2,431$
    3,567
    
    
    
    (933
    )
    
    
    2,634
 The remaining liability for severance will be substantially paid during 2004.
The Company anticipates that the remaining liability for the termination of
operating leases will be substantially paid by December 31, 2005. Management
intends to liquidate the Companys remaining lease obligations as soon as
possible. The accrual for the provision for restructure is included in 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. The number of common shares used to calculate basic and diluted earnings per
share for three months ended March 31, 2004 and 2003 was determined as follows: Three months endedMarch 31,2004
    
    2003BasicAverage shares outstanding
    
    
    19,591,107
    
    
    
    19,366,692Restricted shares issued not vested
    
    
    (31,275
    )
    
    
    (45,375
    )19,559,832
    
    
    
    19,321,317DilutedShares used for basic calculation
    
    
    19,559,832
    
    
    
    19,321,317Dilutive effect of stock options
    
    
    270,636
    
    
    
    109,688Dilutive effect of restricted shares issued
not vested  time based
    
    
    8,206
    
    
    
    6,258Dilutive effect of restricted shares issued
not vested  performance based
    
    
    125
    
    
    
    125Dilutive effect of units issuable under
stock purchase plans
    
    
    98,166
    
    
    
    116,85019,936,965
    
    
    
    19,554,238
 7




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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 and Stock Unit Plan. In December 2002, the FASB issued
Statement of Financial Accounting Standard No. 148 (SFAS 148), Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of FASB
Statement No. 123. The Company has elected to continue with its current
practice of applying the recognition and measurement principles of APB 25. The
Company has adopted the disclosure requirements of SFAS 148. 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 month periods ended March 31, 2004 and 2003 if the Company had adopted
the fair value recognition provisions of SFAS No. 123: Three months endedMarch 31,2004
    
    2003Net income, as reported
    
    $
    4,936
    
    
    
    5,460Stock-based employee and director compensation
cost included in reported earnings, net of
income tax effect
    
    
    163
    
    
    
    234Stock-based employee and director compensation
cost under fair value-based method, net of
income tax effect
    
    
    (507
    )
    
    
    (584
    )Pro forma net income
    
    $
    4,592
    
    
    
    5,110Net earnings per share:Basic  as reported
    
    $
    0.25
    
    
    
    0.28Basic  pro forma
    
    
    0.23
    
    
    
    0.26Diluted  as reported
    
    $
    0.25
    
    
    
    0.28Diluted  pro forma
    
    
    0.23
    
    
    
    0.26
 7. Reporting Segments In January 2004, the Company implemented a new structure and leadership
alignment. As a result, the Company is reporting new 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 with the new reporting segments. Business Solutions includes most of the former professional services and
project management reporting segments. It operates through five key verticals:
CDI-Aerospace, CDI-Government Services, CDI-Information Technology (IT)
Services, CDI-Life Sciences and CDI-Process & Industrial.  
    
    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. 8




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##### Table of Contents




    
    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-Process & Industrial 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 covers firms in power generation and energy
transmission, telecommunications and heavy manufacturing. 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 services. MRI is a franchisor providing support services to its franchisees who engage in
the search, recruitment and employment of management and sales personnel. It
also provides temporary management and specialty staffing services. Operating segment data is presented in the following tables: Three months endedMarch 31,2004
    
    2003Revenues:Business Solutions
    
    $
    172,452
    
    
    
    185,559AndersElite
    
    
    39,515
    
    
    
    33,722Todays
    
    
    29,901
    
    
    
    34,572MRI
    
    
    14,119
    
    
    
    15,673$
    255,987
    
    
    
    269,526Earnings before income taxes:Operating profit:Business Solutions
    
    $
    6,224
    
    
    
    7,950AndersElite
    
    
    1,518
    
    
    
    1,766Todays
    
    
    456
    
    
    
    1,392MRI
    
    
    2,326
    
    
    
    683Corporate
    
    
    (3,128
    )
    
    
    (3,429
    )7,396
    
    
    
    8,362Interest income, net and other
    
    
    (268
    )
    
    
    (374
    )$
    7,664
    
    
    
    8,736
 9




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March 31,
    
    December 31,2004
    
    2003Assets:Business Solutions
    
    $
    205,127
    
    
    
    198,890AndersElite
    
    
    51,246
    
    
    
    50,949Todays
    
    
    40,900
    
    
    
    40,495MRI
    
    
    31,999
    
    
    
    37,838Corporate
    
    
    79,222
    
    
    
    73,390$
    408,494
    
    
    
    401,562
 Inter-segment activity is not significant; therefore, revenues reported for
each operating segment are substantially all from external customers. 8. Disposition of Assets On June 30, 2003, the Company entered into an agreement to sell certain assets
and liabilities of its MRI operations for $2.7 million. Under the terms of
that agreement, the Company received a $0.5 million non-refundable payment and
a non-recourse note with a face value of $2.2 million, which the buyer
anticipates refinancing by the maturity date in June 2004. Since a substantial portion of the sales price received is in the form of a
non-recourse note secured only by the business sold, and completion of the sale
is contingent upon the buyer obtaining independent third-party financing for
the remaining purchase price, the Company has not recorded this transaction as
a divestiture. Upon the buyers obtaining third party funding, the Company
will record the divestiture. When recorded, it is expected that the
transaction will result in a pre-tax gain, estimated to be $1.3 million. The assets and liabilities to be disposed of in connection with this agreement
are included in prepaid expenses ($2.0 million) and
other accrued expenses ($1.1 million) including the non-refundable deposit referred to above. 10




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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, 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, 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 ability to
successfully complete the implementation and integration of the Companys
vertical go-to-market strategy on a timely basis 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. Results of Operations Overview The table that follows presents a year-over-year trend of key performance
indicators that management focuses on in managing the Company. Three months endedMarch 31,2004
    
    2003Revenues
    
    $
    256.0
    
    
    $
    269.5Gross profit as a percentage of revenue
    
    
    23.9
    %
    
    
    25.4
    %Operating and administrative expenses
    
    $
    53.9
    
    
    $
    60.0Operating and administrative expenses as a
percentage of revenue
    
    
    21.0
    %
    
    
    22.3
    %Cash, cash equivalents and short-term investments
    
    $
    78.7
    
    
    $
    72.8Cash flow from (used in) operations
    
    $
    10.5
    
    
    $
    (11.9
    )Return on equity (1)
    
    
    7.2
    %
    
    
    4.0
    %
  (1)
    
    Current quarter combined with the three preceding quarters earnings from
continuing operations divided by the average shareholders equity. The reduction in revenues is primarily attributable to continued weak demand
for engineering staffing as well as reduced capital spending by customers in
Business Solutions, continued strong competitive pricing pressures and the
challenging economic environment within Todays and to the exit of company-owned
permanent placement offices during 2003 within MRI. These revenue declines
were partially offset by revenue growth within AndersElite due primarily to
favorable exchange rates and to strong demand in the U.K. construction and
infrastructure market. In the latter part of the first quarter of 2004, the Company experienced
improving trends in billable hours and revenues in each of its operating segments, which may continue into the second
quarter of 2004. Overall, management is cautiously optimistic about the
general strength of the economy barring unforeseen external events. 11




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##### Table of Contents



The Company has initiated its newly implemented vertical go-to-market strategy
to improve revenue opportunities as the economy rebounds by providing a more
cohesive and relevant marketing and sales approach to new and existing
customers. Additionally, the Company has reorganized its recruiting function
to improve efficiency and productivity. Finally, MRI has executed a strategy
to grow its international franchise organization through the sale of master
franchise licenses. The Company executed a master franchise deal in the first
quarter of 2004 in Japan and other opportunities are being aggressively
pursued. The decline in gross profit as a percentage of revenue in the first quarter of
2004 as compared to 2003 was primarily due to growth in lower margin staffing
work and shrinkage in higher margin project business within the Business
Solutions segment and a shift in business mix from local to lower margin
national accounts as well as lower permanent placement business in the Todays
segment. The Company also incurred substantial increases in state unemployment
insurance (SUI) rates and a settlement in excess of established reserves for a
prior year SUI dispute. The decline in revenue and related gross profit were partially offset by
substantial reductions in operating and administrative expenses due in large
part to reductions in variable expenses resulting from lower year-over-year
revenue activity and benefits from various restructuring efforts completed
during 2003 and reversing a reserve of approximately
$1.0 million, because the exposure it was originally
established for never materialized. Partially
offsetting this reduction were additional expenses incurred to support proposal
bid work in 2004. As a result, operating and administrative expenses have
declined from 22.3% to 21.0% of consolidated revenues for the three months
ended March 31, 2003 and 2004, respectively. During the first quarter of 2004 the Company improved its working capital
position as evidenced by the increase in cash and short-term investments from
$72.8 million at December 31, 2003 to $78.7 million at March 31, 2004. This
improvement is primarily due to the generation of cash flow from operations of
$10.5 million in 2004. In its efforts to increase shareholder
returns, depending on the Companys cash needs for such items as
capital expenditures and to fund organic growth, the
Company currently expects to either return excess cash to shareholders or utilize such
cash to fund carefully targeted acquisitions. At this time, management has not
established a timetable for either of the actions referred to above. Consolidated Results of Operations for the three months ended March 31, 2004 as
compared to the three months ended March 31, 2003 The following table presents year-over-year changes in revenues, gross profit,
and operating profit from 2003 to 2004: Percentage
    
    Gross
    
    Percentage
    
    Operating(in millions)
    
    Revenue
    
    Change
    
    Profit
    
    Change
    
    ProfitFirst quarter 2003
    
    $
    269.5
    
    
    
    
    
    
    $
    68.4
    
    
    
    
    
    
    $
    8.4Business Solutions
    
    
    (13.1
    )
    
    
    (7.1
    )%
    
    
    (5.9
    )
    
    
    (14.8
    )%
    
    
    (1.7
    )AndersElite
    
    
    5.8
    
    
    
    17.1
    
    
    
    1.1
    
    
    
    12.6
    
    
    
    (0.3
    )Todays
    
    
    (4.7
    )
    
    
    (13.5
    )
    
    
    (1.9
    )
    
    
    (18.7
    )
    
    
    (0.9
    )MRI
    
    
    (1.5
    )
    
    
    (9.9
    )
    
    
    (0.5
    )
    
    
    (5.1
    )
    
    
    1.6Corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3First quarter 2004
    
    $
    256.0
    
    
    
    (5.0
    )%
    
    $
    61.2
    
    
    
    (10.4
    )%
    
    $
    7.4
 The Company recorded consolidated revenues of $256.0 million in the first
quarter of 2004, down $13.5 million or 5.0%, as compared to the first quarter
of 2003. The revenue reductions in 2004 were primarily driven by some
customer contractions in Business Solutions and reduced orders in Todays. The
reductions were offset by continued growth in AndersElite. MRIs decrease in
revenue was due to the exit of company-owned permanent placement offices in the
second quarter of 2003, partially offset by higher franchise and royalty
revenues. 12




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##### Table of Contents



The Company s gross profit of $61.2 million in the first quarter of 2004 was
down by $7.2 million or 10.4%, as compared to the first quarter of 2003. The
reductions in gross profit were caused by both volume and gross profit rate
reductions in Business Solutions and Todays. In addition, CDIs U.S. based
businesses incurred substantial increases in SUI tax rates over last year,
including a settlement in excess of established reserves for a prior year SUI
dispute. Operating and administrative expenses were $53.9 million in the first quarter
of 2004, an improvement of $6.1 million
or 10.3%, from first quarter of 2003. The significant improvement in operating
and administrative expenses is primarily driven by the lower revenue noted
above coupled with continued fiscal discipline. Operating profit was $7.4 million in the first quarter of 2004, as compared to
an operating profit of $8.4 million in the first quarter of 2003. The $1.0
million reduction in operating profit was due primarily to the $7.1 million
decline in gross profit, significantly offset by the $6.1 million reduction in
operating and administrative expenses. Net interest income and other was $0.3 million in the first quarter of 2004, in
comparison to $0.4 million in the first quarter of 2003. The decrease in net
interest income and other was due principally to lower invested cash balances
at lower interest rates in 2004 as compared to 2003. In addition, during the first quarter of 2004, the Company entered into a foreign currency
put option contract to hedge a portion of its U.K. foreign operations 2004
forecasted net earnings. Since this option contract does not meet the criteria
for hedge accounting under the provisions of Statement of Financial Accounting
Standards No. 133, Derivative Instruments and Hedging
Activities, the options
were marked-to-market at March 31, 2004, with a corresponding pre-tax gain of
$96,000 included in interest income, net and other. The Companys effective income tax rate for the first quarter of 2004 was 35.6%
as compared to 37.5% in the same period last year. This decrease in the
effective income tax rate during the first quarter of 2004 was due primarily to
realized benefits associated with refunds of state income taxes. The Companys net income per diluted share was $0.25 for the first quarter of
2004, as compared to net income per share of $0.28 in the first quarter of
2003. Segment Results Business Solutions The Business Solutions reporting segment recorded revenues of $172.5 million
for the quarter ended March 31, 2004, a decrease of $13.1 million or 7.1%, as
compared to the first quarter of 2003. The revenue decline was primarily
related to:  
    
    Reduced demand for engineering staffing in the Process
and Industrial (P & I) and Aerospace verticals due primarily to
the ongoing softness in capital spending by key customers.  
    
    Reduced project volume due to the slowdown in the rate of
capital spending within the bio-pharmaceutical industry and a
project delay by a key customer in the Life Sciences vertical. These declines were partially offset by increased volume in the Government
Services vertical. Revenue in the IT vertical was virtually unchanged from
last year. Business Solutions gross profit of $33.9 million in the first quarter of 2004
decreased by $5.9 million or 14.8% as compared to the first quarter of 2003.
The gross profit decline was primarily driven by:  
    
    Volume reductions in the P & I and Life Science verticals
noted above along with a lower margin mix of business.  
    
    Lower margin mix of business in the IT Services vertical
coupled with the SUI rate increases as previously discussed. Business Solutions operating profit declined by $1.7 million to $6.2 million
in the first quarter of 2004 as compared to the same period in 2003. This
decline was due to a $5.9 million decline in gross profit partially offset by a
reduction in operating and administrative expenses of $4.1 million, reflecting
reductions in variable expenses due to lower volume and reversing
a reserve of approximately $1.0 million, because the exposure it
was originally established for never materialized. 13




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##### Table of Contents



AndersElite AndersElite is a major provider of building and construction professionals on a
permanent and temporary basis in the United Kingdom. Below is the quarter-to-quarter comparative results of operations for 2004 and
2003 in US dollars: PercentageQ1 2004
    
    Q1 2003
    
    ChangeRevenue
    
    $
    39,515
    
    
    
    33,722
    
    
    
    17.1
    %Gross profit
    
    
    9,837
    
    
    
    8,736
    
    
    
    12.6Operating profit
    
    
    1,518
    
    
    
    1,766
    
    
    
    (14.0
    )
 To effectively discuss the comparative results of operations for the first
quarter of 2004 and 2003, the following table presents AndersElite results on a
constant currency basis (i.e. British Pounds  £): PercentageQ1 2004
    
    Q1 2003
    
    ChangeRevenue
    
    £
    21,668
    
    
    
    21,063
    
    
    
    2.9
    %Gross profit
    
    
    5,394
    
    
    
    5,456
    
    
    
    (1.1
    )Operating profit
    
    
    832
    
    
    
    1,102
    
    
    
    (24.5
    )
 AndersElite revenues on a constant currency basis increased 2.9% over 2003,
while gross profit remained relatively flat. Operating profit on a constant
currency basis declined 24.5% over last year due largely to accelerated hiring
and training costs incurred during the first quarter of 2004 to standardize and
upgrade the segments recruiting capabilities. Todays Staffing (Todays) Todays operating segment recorded revenues of $29.9 million for the quarter
ended March 31, 2004, a decrease of $4.7 million, or 13.5%, as compared to the
first quarter in 2003. The lower revenues in the first quarter of 2004 reflect
continued pricing pressure on national accounts, lower permanent placement
business and softness in demand in some local accounts. In addition,
recruiting capabilities were impacted by open positions which management is
actively filling. Finally, Todays experienced reduced volume from customers in
the mortgage industry. Todays gross profit of $8.0 million in the first quarter of 2004 was lower by
$1.9 million or 18.7%, as compared to the first quarter of 2003. The
reduction in gross profit was due to the revenue decline noted above coupled
with a reduction in gross profit margin from 28.4% to 26.7% resulting
primarily from a reduction in higher margin permanent placement and local
staffing business. Todays operating profit was $0.5 million in the first quarter of 2004, as
compared to an operating profit of $1.4 million in the first quarter of 2003.
This decline of $0.9 million was attributable to the reduction in gross profit
of $1.8 million, partially offset by reduced operating expenses of $0.9
million. Management Recruiters International (MRI) MRIs operating segment recorded revenues of $14.1 million for the quarter
ended March 31, 2004, a decrease of $1.5 million or 9.9%, as compared to the
first quarter of 2003.
The decrease in revenue was due to the exit of company-owned permanent
placement offices in the second quarter of 2003 partially offset by higher
franchise and royalty revenues. An important development in the first quarter
of 2004 was CDIs entry in the Japanese market through the signing of a master
franchise agreement with Fuji Staff, Inc., a Tokyo-based staffing business.
Ongoing franchise royalties from Japan will begin during the second quarter of
2004. MRIs gross profit of $9.6 million in the first quarter of 2004 was lower by
$0.5 million or 5.1%, as compared to the first quarter of 2003. This decrease
in gross profit margin was related to the exit of company-owned offices in 2003
partially offset by the improved profit margin from 64.2% in 2003 to 67.6% in
2004. The profit margin improvement was driven by the increase in franchise and royalty revenues in
2004. 14




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##### Table of Contents



MRIs operating profit was $2.3 million in the first quarter of 2004, as
compared to an operating profit of $0.7 million in the first quarter of 2003.
The improvement in operating profit of $1.6 million was due to a $2.1 million
reduction in operating and administrative expenses due to cost containment
measures and the exit of company-owned offices in 2003 partially offset by
lower gross profit operating profit of $0.5 million in 2004. Corporate During the three month period ended March 31, 2004, corporate expenses were
$3.1 million compared to $3.4 million for the same period in 2003, which were
in line with expectations. Liquidity and Capital Resources The following table summarizes the major captions from the Companys
Consolidated Statements of Cash Flows: Three months endedMarch 31,(in millions)
    
    2004
    
    2003Operating Activities
    
    $
    10.5
    
    
    
    (11.9
    )Investing Activities
    
    $
    (18.0
    )
    
    
    (7.5
    )Financing Activities
    
    $
    (3.3
    )
    
    
    6.3
 Operating Activities During the first quarter of 2004, CDI generated approximately $10.5 million of
cash flows from operating activities, as compared to a use of cash of $11.9
million during the same period in 2003. This increase in operating cash flow
reflects improvement in working capital management. In this regard, the
Company has instituted enhanced managerial controls and standardization over
its contracting, receivables collection and disbursement processes. Investing Activities CDI invested $1.4 million in the first quarter of 2004 for purchases of
property and equipment versus $4.2 million in the corresponding period of 2003.
During the first quarter of 2003, the Company incurred capital investment 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 three-month period ended March 31, 2004,
the Company purchased $16.6 million of short-term investments
resulting principally from
stronger operating cash flows. Financing Activities The Company paid shareholders a quarterly dividend totaling $1.8 million during
the first quarter of 2004. On April 22, 2004, the Company announced a
quarterly dividend of $0.09 per share to be paid to all shareholders of record
as of May 5, 2004. The dividend will be paid on May 19, 2004. The declaration
and payment of 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, capital requirements, and other factors.
Additionally, CDI had a reduced level of obligations not liquidated because of
outstanding checks due to improved working capital management in 2004. Summary The Companys financial condition remains strong. At March 31, 2004, cash,
cash equivalents, and short-term investments totaled $78.7 million and the
Company has no bank debt. Management believes that its current funds and funds
generated from operations will be sufficient to meet currently anticipated
working capital 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. 15




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##### Table of Contents



Critical Accounting Policies and Estimates These financial statements were prepared in accordance with generally accepted
accounting principles, which requires 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 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 have been
immaterial on CDIs consolidated earnings. The Companys exposure to interest rate changes is not significant. As of March
31, 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 March 31, 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 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. 16




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits  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.  (b)
    
    Reports on Form 8-K during the three month period ended March 31,
2004.On February 25, 2004, the Company filed a report on Form 8-K to provide a
copy of a news release announcing the Companys financial results for the
fourth fiscal quarter and year ended December 31, 2003. 17




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##### 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.May 7, 2004
    By:
    /s/ Jay G. StuartJay G. StuartExecutive Vice President and Chief
Financial Officer
(Principal Financial Officer) 18




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##### Table of Contents



INDEX TO EXHIBITS Number
    
    Exhibit31.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.
 19