CDI Corp
CDI CORP (Form: 10-Q, Received: 11/09/2004 14:59:34)    
 
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 from                    to                   

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. Employer
of 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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                               Yes þ            No o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Section 12b-2 of the Exchange Act.)

                               Yes þ            No o

      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 shares
Class B common stock, $.10 par value
  None

 


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CDI CORP.

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PART 1. FINANCIAL INFORMATION

 
 
Item 1.
CONSOLIDATED FINANCIAL STATEMENTS
CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
                 
    September 30,    
    2004   December 31,
    (unaudited)
  2003
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 34,410       50,230  
Accounts receivable, less allowance for doubtful accounts of $4,786- September 30, 2004; $5,496- December 31, 2003
    203,683       199,630  
Short-term investments
          22,606  
Income taxes receivable
    1,224        
Prepaid expenses
    6,305       8,744  
Deferred income taxes
    5,364       8,484  
 
   
 
     
 
 
Total current assets
    250,986       289,694  
Property and equipment, at cost:
               
Computers and systems
    87,599       85,426  
Equipment and furniture
    26,618       26,256  
Leasehold improvements
    13,597       13,297  
 
   
 
     
 
 
 
    127,814       124,979  
Accumulated depreciation
    (99,033 )     (93,858 )
 
   
 
     
 
 
Property and equipment, net
    28,781       31,121  
                 
Deferred income taxes
    6,418       7,133  
Goodwill, net
    68,211       68,211  
Other assets
    4,184       5,403  
 
   
 
     
 
 
Total assets
  $ 358,580       401,562  
 
   
 
     
 
 

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)

                 
    September 30,    
    2004   December 31,
    (unaudited)
  2003
Liabilities and Shareholders’ Equity
               
Current liabilities:
               
Obligations not liquidated because of outstanding checks
  $ 1,590       5,848  
Accounts payable
    21,377       23,824  
Withheld payroll taxes
    3,552       2,596  
Accrued compensation and related expenses
    43,304       44,343  
Other accrued expenses
    12,694       18,191  
Income taxes payable
          464  
 
   
 
     
 
 
Total current liabilities
    82,517       95,266  
                 
Deferred compensation
    7,814       8,945  
 
   
 
     
 
 
Total liabilities
    90,331       104,211  
 
   
 
     
 
 
Shareholders’ 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       2,054  
Class B common stock, $.10 par value - authorized 3,174,891 shares; none issued
           
Additional paid-in capital
    31,567       28,205  
Retained earnings
    253,799       286,466  
Accumulated other comprehensive income
    3,467       3,467  
Unamortized 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       297,351  
 
   
 
     
 
 
Total liabilities and shareholders’ equity
  $ 358,580       401,562  
 
   
 
     
 
 

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

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

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

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

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Unaudited) (In thousands)
                 
    Nine months ended
    September 30,
    2004
  2003
Operating activities:
               
Net earnings
  $ 12,432       17,536  
Adjustments to reconcile net earnings to cash provided by operating activities:
               
Depreciation
    7,250       9,458  
Deferred income tax expense
    3,835       6,678  
Non-cash provision for restructure expense
          69  
Gain on sale of assets
    (1,295 )      
Tax benefit from stock plans
    429       112  
Change in assets and liabilities, net of effects of divestitures:
               
Accounts receivable, net
    (4,053 )     (19,766 )
Prepaid expenses
    415       333  
Accounts payable
    (2,448 )     (7,179 )
Accrued expenses other current liabilities
    (6,111 )     (6,034 )
Other assets, long-term liabilities and other
    625       3,220  
 
   
 
     
 
 
Net cash flow provided by operating activities
    11,079       4,427  
 
   
 
     
 
 
Investing activities:
               
Purchases of property and equipment
    (5,054 )     (11,776 )
Sales of short-term investments, net
    22,606       28,479  
Proceeds from sale of assets
    2,162        
Proceeds from notes receivable
          3,050  
Other
    144       606  
 
   
 
     
 
 
Net cash flow provided by investing activities
    19,858       20,359  
 
   
 
     
 
 
Financing activities:
               
Dividends paid to shareholders
    (45,099 )     (40,660 )
Obligations not liquidated because of outstanding checks
    (4,258 )     3,056  
Proceeds from exercises of employee stock options
    2,616       1,459  
 
   
 
     
 
 
Net 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       41,148  
 
   
 
     
 
 
Cash and cash equivalents, end of period
  $ 34,410       29,688  
 
   
 
     
 
 
Supplemental 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.

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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 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
  2003
Cash
  $ 9,604       5,139  
Cash equivalents
    24,806       45,091  
 
   
 
     
 
 
Total cash and cash equivalents
    34,410       50,230  
Short-term investments
          22,606  
 
   
 
     
 
 
Total 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.

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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 months
    ended
    September 30, 2003
Business Solutions
  $ 218  
Todays Staffing
    (222 )
Management Recruiters International
    130  
Corporate
    (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 at
    December 31,           September 30,
    2003
  Payments
  2004
Severance
  $ 633       (578 )     55  
Lease 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:

 
                         
                     
    Business            
    Solutions
  MRI
  Totals
Balance as of December 31, 2003
  $              
Charge for real estate exit costs
    834       164       998  
Payments/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.

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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 ended
    September 30,
  September 30,
    2004
  2003
  2004
  2003
Basic
                               
Average shares outstanding
    19,699,470       19,449,668       19,646,233       19,405,753  
Restricted shares issued not vested
    (30,900 )     (45,000 )     (31,025 )     (45,125 )
 
   
 
     
 
     
 
     
 
 
 
    19,668,570       19,404,668       19,615,208       19,360,628  
 
   
 
     
 
     
 
     
 
 
Diluted
                               
Shares used for basic calculation
    19,668,570       19,404,668       19,615,208       19,360,628  
Dilutive effect of stock options
    191,934       228,913       277,407       198,758  
Dilutive effect of restricted shares issued not vested — time based
    12,068       14,278       10,803       11,075  
Dilutive effect of restricted shares issued not vested -performance based
    375       375       250       250  
Dilutive effect of units issuable under stock purchase plans
    101,840       100,393       100,032       109,999  
 
   
 
     
 
     
 
     
 
 
 
    19,974,787       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 ended
    September 30,
  September 30,
    2004
  2003
  2004
  2003
Net earnings, as reported
  $ 2,287       5,973     $ 12,432       17,536  
Stock-based employee and director compensation cost included in reported earnings, net of income tax effect
    175       49       426       484  
Stock-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       16,931  
 
   
 
     
 
     
 
     
 
 
Net earnings per share:
                               
Basic – as reported
  $ 0.12       0.31     $ 0.63       0.91  
Basic – pro forma
    0.10       0.29       0.58       0.85  
Diluted – as reported
  $ 0.11       0.30     $ 0.62       0.89  
Diluted – 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.

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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 ended
    September 30,
  September 30,
    2004
  2003
  2004
  2003
Revenues:
                               
Business Solutions
  $ 176,930       177,819     $ 529,016       545,424  
AndersElite
    43,052       39,422       122,954       108,547  
Todays
    29,131       34,069       90,255       105,082  
MRI
    14,136       13,045       41,850       44,822  
 
   
 
     
 
     
 
     
 
 
 
  $ 263,249       264,355     $ 784,075       803,875  
 
   
 
     
 
     
 
     
 
 
Earnings before income taxes:
                               
Operating profit:
                               
Business Solutions
  $ 4,417       6,430     $ 16,382       20,710  
AndersElite
    687       2,685       3,056       6,515  
Todays
    440       1,972       1,730       5,509  
MRI
    2,719       905       8,838       3,457  
Corporate expenses
    (4,655 )     (2,872 )     (11,455 )     (9,991 )
 
   
 
     
 
     
 
     
 
 
 
    3,608       9,120       18,551       26,200  
Interest income, net and other
    39       170       443       796  
 
   
 
     
 
     
 
     
 
 
 
  $ 3,647       9,290     $ 18,994       26,996  
 
   
 
     
 
     
 
     
 
 

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    September 30,   December 31,
    2004
  2003
Assets:
               
Business Solutions
  $ 200,690       198,890  
AndersElite
    53,501       50,949  
Todays
    40,783       40,495  
MRI
    28,630       37,838  
Corporate
    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.

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Item 2.  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Information
Certain 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 ended
    September 30,
  September 30,
(dollars in millions)   2004
  2003
  2004
  2003
Revenues
  $ 263.3       264.4     $ 784.1       803.9  
Gross profit as a percentage of revenue
    23.7 %     24.0 %     23.8 %     24.5 %
Operating and administrative expenses
  $ 58.8       54.3     $ 169.5       170.7  
Operating 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       59.7  
Cash flow provided by operations
                  $ 11.1       4.4  
Pre-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.

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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

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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 ended
                    Percent                   Percent
    September 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.

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    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 ended
                    Percent                   Percent
    September 30,
  Change
  September 30,
  Change
    2004
  2003
  (%)
  2004
  2003
  (%)
Revenues
  $ 43.1       39.4       9.2     $ 123.0       108.5       13.3  
Gross profit
  $ 10.6       10.0       6.2     $ 30.4       27.5       10.5  
Gross profit margin
    24.7 %     25.4 %             24.7 %     25.3 %        
Operating and administrative expenses
  $ 9.9       7.3       35.7     $ 27.3       21.0       30.2  
Operating 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 ended
                    Percent                   Percent
    September 30,
  Change
  September 30,
  Change
(British pounds in millions)   2004
  2003
  (%)
  2004
  2003
  (%)
Revenues
  £ 23.9       24.4       (2.2 )   £ 67.9       67.4       0.8  
Gross 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       15.8  
Operating 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.

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Todays Staffing (“Todays”)

                                                 
     
For the three months ended
  For the nine months ended
                    Percent                   Percent
    September 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 ended
                    Percent                   Percent
    September 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

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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 ended
    September 30,
(in millions)   2004
  2003
Cash provided by (used in):
               
Operating Activities
  $ 11.1     $ 4.4  
Investing Activities
  $ 19.9     $ 20.4  
Financing 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

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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

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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.

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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.
 
 
November 8, 2004  By:   /s/ Jay G. Stuart

 
  Jay G. Stuart   
  Executive Vice President and Chief Financial Officer
(Principal Financial Officer) 
 

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Table of Contents

         
 

INDEX TO EXHIBITS

 
     
Number
  Exhibit
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.

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Exhibit 10.

CDI CORP.
STOCK OPTION AGREEMENT

Section 1. Grant of Option.

     The CDI Corp. Board of Directors’ Compensation Committee, pursuant to the authority granted to it by the CDI Corp. Board of Directors to administer the CDI Corp. 2004 Omnibus Stock Plan (the “Plan”), hereby grants to [INSERT NAME] (“Optionee”) an option (the “Option” when reference is made to the right to purchase all of the Shares) to purchase up to [INSERT NUMBER OF SHARES] shares of CDI Corp. common stock (the “Shares” when reference is made to all or a portion of the shares subject to the Option), according to the terms and conditions set forth herein and in the Plan.

Section 2. Other Definitions.

               (a) “Board” means the Board of Directors of the Company.

               (b) “Cause” shall have the same meaning as is set forth in an employment or engagement agreement between Optionee and the Company. If there is no such agreement, then Cause shall mean:

  (i)   Optionee’s rendering services while under the influence of alcohol or illegal drugs;
 
  (ii)   Optionee’s performing any act of dishonesty, other than an act of immaterial consequences, in rendering services to the Company, including without regard to materiality, falsification of records, expense accounts or other reports;
 
  (iii)   Optionee’s conviction, whether by judgment or plea, of any crime which constitutes a felony or which constitutes a misdemeanor involving violence, fraud, embezzlement or theft;
 
  (iv)   Optionee’s violation of any law or agreement which results in the entry of a judgment or order enjoining or preventing Optionee from such activities as are essential for Optionee to perform services for the Company;
 
  (v)   Optionee’s violation of any of the Company’s policies which provide for termination of employment as a possible consequence of such violation;
 
  (vi)   Optionee’s engaging in conduct which is injurious (other than to an immaterial extent) to the Company;

 


 

  (vii)   the Company’s receipt of reliable information from any source of Optionee’s entering into or intending to enter into competition with the Company; or
 
  (viii)   refusal to perform such duties as may be delegated or assigned to Optionee, consistent with Optionee’s position, by his or her supervisor.

               (c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

               (d) “Committee” means the Compensation Committee of the Board, or its successor.

               (e) “Company”, as the context requires, means CDI Corp., CDI Corp. and its subsidiaries or the individual subsidiary of CDI Corp. which employs or retains Optionee. As applied to a director of the Company, the term “Company” means CDI Corp. except for purposes of Section 9.

               (f) “Date of Exercise” means the date on which the notice required by Section 10 below is received by the Company or its agent.

               (g) “Date of Grant” means [INSERT DATE], the date on which the Option is granted.

               (h) “Disability” shall mean a physical, mental or other impairment within the meaning of section 22(e)(3) of the Code.

               (i) “Fair Market Value” means an amount equal to the closing price of actual sales of Stock on the New York Stock Exchange composite tape on a given date or, if there are no such sales on such date, the closing price of Stock on such Exchange on the last preceding date on which there was a sale.

               (j) “Option Price” means [INSERT PRICE].

               (k) “Retirement” means Optionee’s leaving the employ of the Company:

  (i)   on or after the date that Optionee satisfies one of the following combinations of age and years of service with the Company:

    60 years of age and 20 years of service;
 
    62 years of age and 15 years of service; or
 
    65 years of age and 5 years of service; or

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  (ii)   at such earlier date as may be approved by the Committee, in its sole discretion.

               (l) “Stock” means CDI Corp. common stock, par value $.10 per share.

               (m) “Termination Date” means the earliest of the following:

  (i)   [the date seven years following the Date of Grant];
 
  (ii)   in the event Optionee’s employment or engagement with the Company is terminated by the Company for Cause, the date of such termination;
 
  (iii)   in the event Optionee’s employment or engagement with the Company is terminated through Optionee’s resignation or by the Company for reasons other than for Cause, two weeks following the date of such termination;
 
  (iv)   in the event Optionee’s employment or engagement with the Company is terminated as a result of Optionee’s death, Disability or Retirement, six months following such event;
 
  (v)   such other date as may be determined by the Committee.
 
  A transfer of employment between the Company and an affiliate of the Company shall not be deemed a termination of employment.

Section 3. Time of Exercise.

               No Option shall be exercisable with respect to any Shares unless the Option has vested with respect to such Shares in accordance with Section 4 hereof. If vested, the Option may be exercised at any time after vesting until the Termination Date in whole or in part.

Section 4. Option Vesting

               (a) Subject to the accelerated vesting provision of Section 4 (b), and unless otherwise determined by the Committee, the Option will vest at the rate of 20% per year on each of the first five anniversaries of the Date of Grant.

               (b) If Optionee’s employment with the Company terminates as a result of death, Disability or Retirement, the Option will vest as to all unvested shares as of the date of such event.

Section 5. Withholding.

               Optionee shall be responsible for making appropriate provisions for all taxes, including, without limitation, federal, state, local or foreign income or payroll taxes, required by law to be withheld in connection with the Option, including the exercise of the Option. Optionee

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shall pay the necessary amount to the Company in cash or agree to accept in full satisfaction of the Option hereunder the net number of Shares remaining after provision for the withholding taxes. Optionee’s failure to tender the required withholding amount within three days of the Company’s request for that amount shall constitute agreement to accept the net number of Shares remaining after provision for withholding taxes, plus cash in lieu of any remaining fractional share. The portion of any Shares withheld pursuant to the applicable federal, state and local tax laws shall be determined by using the Fair Market Value of the Stock on the last trading day immediately preceding the date that such Stock is received pursuant to the exercise of the Option.

Section 6. Payment for Shares by Optionee .

               The Option Price of the shares of Stock to be received upon the exercise of the Option shall be paid within three days of the Date of Exercise: (i) in cash, or, (ii) with the consent of the Committee which shall be granted only if the Committee is satisfied that the proposed arrangement is consistent with the requirements of section 402 of the Sarbanes-Oxley Act of 2002, with the proceeds received from a broker-dealer whom the Optionee has authorized to sell all or a portion of the Stock covered by the Option, or (iii) with the consent of the Committee, in whole or in part in Stock held by the Optionee for at least six months and valued at Fair Market Value on the Date of Exercise. With the consent of the Committee, payment upon the exercise of a non-qualified option may be made in whole or in part by restricted stock which has been held by the Optionee for at least six months (based on the Fair Market Value of the restricted stock on the Date of Exercise, as determined by the Committee). In such case, the Stock to which the Option relates shall be subject to the same forfeiture restrictions originally imposed on the Restricted Stock exchanged therefor.

Section 7. Nontransferability of Option.

               The Option may not be pledged, assigned or transferred, in whole or in part, unless the Option is transferred (i) by will or the applicable laws of descent and distribution or (ii) with the prior written approval of the Committee, to the spouse or descendant of the Optionee or a trust for the benefit of the spouse or descendants (but any such transfer shall, in all cases, be subject to the provisions of this Agreement).

Section 8. Stock Ownership Standards.

               If Optionee is subject to any stock ownership standards imposed by the Company, those standards may affect Optionee’s ability to sell or otherwise transfer some or all of the Shares purchased by Optionee through the exercise of this Option.

Section 9. Cancellation of Options and Repayment of Gains.

               Notwithstanding any other provision of this Agreement, if the Committee determines that Optionee has entered into or intends to enter into competition with the Company or its Subsidiaries, the Committee may, in its discretion, at any time during the term of the non-competitive covenant, if any, in the employment agreement or engagement agreement between Optionee and the Company which is being violated by such competition, cancel the outstanding Options granted to Optionee and/or require Optionee to pay to the Company an amount equal to

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any gains derived from the exercise of any Options previously granted to and exercised by Optionee during the one year period prior to the termination of Optionee’s employment or engagement with the Company.

Section 10. Manner of Exercise.

               The Option can be exercised by logging on to www.mellon-investor.com or by calling (888) 767-0102. Optionee will need his or her PIN number.

Section 11. Securities Laws.

               The Committee may from time to time impose any conditions on the exercise of the Option as it deems necessary or advisable to ensure that all options granted under the Plan, and the exercise thereof, satisfy Rule 16b-3 (or any similar rule) of the Securities and Exchange Commission. Such conditions may include, without limitation, the partial or complete suspension of the right to exercise the Option.

Section 12. Issuance of Certificates; Payment of Taxes.

               (a) The Option can only be exercised as to a whole number of shares of Stock. Upon exercise of the Option and payment of the Option Price, a certificate for the number of shares of Stock purchased through the exercise will be issued and delivered by the Company to Optionee, provided that Optionee has remitted to the Company an amount, determined by the Company, sufficient to satisfy the applicable requirements to withhold federal, state, and local taxes, or made other arrangements with the Company for the satisfaction of such withholding requirements.

               (b) Subject to the provisions of Section 11 above, the Company may also condition delivery of certificates for shares of Stock upon the prior receipt from Optionee of any undertakings that it determines are required to ensure that the certificates are being issued in compliance with federal and state securities laws.

Section 13. Rights Prior to Issuance of Certificates.

               Neither Optionee nor the person to whom Optionee’s rights shall have passed by will or by the laws of descent and distribution shall have any of the rights of a shareholder with respect to any shares of Stock issuable upon exercise of the Option until the date of issuance to Optionee of a certificate for such shares as provided in Section 12 above.

Section 14. Option Not to Affect Employment Relationship.

               The Option shall not confer upon Optionee any right to continue in the employ or service of the Company, nor shall the Option interfere in any way with the right of the Company to terminate the employment or engagement of Optionee at any time.

Section 15. Adjustment Upon Changes in Capitalization.

               In the event of a reorganization, recapitalization, stock split, spin-off, split-off, split-up, stock dividend, issuance of stock rights, combination of shares, merger, consolidation or

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any other change in the corporate structure of the Company affecting the Stock, or any distribution to stockholders other than a cash dividend, the Board shall make such adjustments to the aggregate number of Shares subject to, and the Option Price of, any then outstanding Options as it determines appropriate. No fractional shares of Stock shall be issued pursuant to such an adjustment. The Fair Market Value of any fractional shares resulting from adjustments pursuant to this Section shall, where appropriate, be paid in cash to the Optionee.

Section 16. Interpretation.

               The Committee shall have the sole power to interpret this Agreement and to resolve any disputes arising hereunder.

               The undersigned acknowledges receipt of this Stock Option Agreement and agrees to its terms:

   
 
Optionee
 
 
 

 
    [INSERT NAME]

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Exhibit 31.a

CERTIFICATION

I, Roger H. Ballou, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of CDI Corp.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
 
  c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2004

         
  By:   /s/ Roger H. Ballou

 
  Roger H. Ballou   
  President and Chief Executive Officer   

 

 
 
 

         

 
Exhibit 31.b

CERTIFICATION

I, Jay G. Stuart, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of CDI Corp.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
 
  c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2004

         
  By:   /s/ Jay G. Stuart    
  Jay G. Stuart   
  Executive Vice President and Chief Financial
Officer 
 
 

 

 
 
 

EXHIBIT 32.  

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CDI Corp. (the “Company”) on Form 10-Q for the three-month period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

         
     
  By:   /s/ Roger H. Ballou    
    Roger H. Ballou   
    President and Chief Executive Officer   
 

Dated: November 8, 2004

         
     
  By:   /s/ Jay G. Stuart    
    Jay G. Stuart   
    Executive Vice President and
Chief Financial Officer 
 
 

Dated: November 8, 2004

A signed original of this written statement required by Section 906 has been provided to CDI Corp. and will be retained by CDI Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

 



End of Filing


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