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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

CDI Corp.

1717 Arch Street, 35th Floor, Philadelphia, PA 19103-2768

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Indicate 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 [X]    No [  ]

Indicate if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes [X]     No [  ]

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, on the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the New York Stock Exchange.

The outstanding shares of each of the Registrant’s classes of common stock as of February 22, 2004 were:

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission for the Registrant’s 2004 Annual Meeting are incorporated by reference in Part III.

TABLE OF CONTENTS

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,” “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. 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. Certain other risk factors are discussed more fully under “Risk Factors” in Part I, Item 1 of this filing.

Item 1. BUSINESS

The Company — Overview

CDI Corp. (the “Company” or “CDI”) (NYSE: CDI) is a provider of engineering and information technology outsourcing solutions, professional services, specialized staffing and permanent placement services. CDI concentrates on several vertical markets, including aerospace, government services, information technology, life sciences, process and industrial and construction. The Company derives the majority of its revenues from Fortune 1000 companies serviced primarily in the United States. There was no single customer from whom the Company derived 10% or more of its consolidated revenues, during 2003, 2002 or 2001. All of the Company’s segments operate in highly competitive multi-billion dollar markets with no single competitor being dominant.

During 2003, the Company substantially completed its previously announced multi-phased plan to restructure and reorganize its operations, systems, and support infrastructure. The key elements of this Plan of Restructure (the “Plan”) included:

	•		Reducing staff headcount by approximately 33 percent and operating offices by approximately 25 percent;
	•		Reorganizing the business into four reporting segments: Professional Services (“PS”), Project Management (“PM”), Management Recruiters International (“MRI”) and Todays Staffing (“Todays”);
	•		Exiting under-performing contracts and businesses;
	•		Streamlining and simplifying core information systems; and
	•		Consolidating back-office services.

As a result of the foregoing restructuring and reorganization efforts, the Company was able to reduce its fixed operating costs. This reduction has significantly lowered CDI’s breakeven point and provides enhanced economies of scale. Further, the Company has generated significant cash flows and was able to pay a special dividend of $2.00 per share to its shareholders in 2003.

The ability to recruit talent is a core competency for the Company. In PS, PM and Todays and, to a limited extent, MRI, personnel are recruited by the Company and assigned to work for customers at either customer locations or in the Company’s own offices. Such recruited personnel are employees of CDI. In some cases, the Company may assume risk with respect to the performance of its services and the acceptability of its employees to its customers.

1

Market Opportunity and Growth Strategy

CDI’s primary services are intended to meet the engineering and information technology solutions and professional staffing needs of a broad spectrum of Fortune 1000 customers. The Company is well positioned to benefit from business trends favoring outsourcing of non-core, highly skilled functions and operations. CDI offers a broad range of services from high-value engineering, design, consulting, information technology staffing and project management solutions, in addition to traditional staffing and permanent placement services. With this broad level of service offerings, CDI can address demand in the marketplace for more cost effective, single-source providers of engineering and information technology solutions, and professional staffing.

CDI’s growth strategy is to capitalize on its market position and core competencies in six key vertical markets: aerospace (commercial and military), government services (defense and federal information technology), information technology services, life sciences (pharmaceutical and biotechnology), process and industrial (chemical, oil, gas, power generation, telecommunications) and the United Kingdom infrastructure market (construction). Key elements of CDI’s strategy are:

Capture market share in key verticals and permanent placement business.

The Company is implementing a new business development organization in vertical markets to capture new accounts, enhance cross-selling and incremental business opportunities and secure long-term customer relationships. In addition, CDI is executing initiatives to improve productivity in two key revenue generating areas: recruiter productivity and account management. MRI, the Company’s permanent placement business, is expanding into new international markets such as Japan.

Continue to execute vertical strategy and deliver tailored products to customers.

The Company will remain focused on its six key vertical markets and leverage the experience of its industry specialists to provide tailored products to customers – offering project specific expertise or a cost effective, single-source, provider to fulfill their multiple needs.

Continue to increase skill and scale to enhance core capabilities and expand existing range of services.

The Company intends to pursue strategic acquisitions, when prudent, to increase scale, skill and service offerings to key verticals.

2

Reporting Segments

The following table sets forth (in thousands) the revenues and pre-tax earnings from continuing operations of the reporting segments of the Company and its consolidated subsidiaries during the years indicated and the assets attributable to each segment as of the end of each year.

During the second half of 2003, the Company initiated a new growth and business integration plan to more closely align the Company with the key vertical markets it serves. This growth strategy and integration plan is designed to better serve the Company’s customers, generate higher revenues and achieve greater operating efficiencies. As a result of this plan, in January 2004, the Company made certain organization and reporting changes in support of its vertical go-to-market strategy. The new organizational structure will have four reporting segments: Business Solutions, AndersElite, Todays Staffing and MRI. Management has realigned its PS and PM segments to form a new segment called Business Solutions. Business Solutions will focus on specific vertical markets – aerospace, government services, information technology services, life sciences, and process and industrial. AndersElite, previously part of the PS reporting segment, is a major provider of building and construction professionals on a permanent and temporary basis in the United Kingdom. Todays and MRI segments remain unchanged. Refer to Notes 17 and 18 of the Consolidated Financial Statements for information concerning the Company’s segments and new reporting structure.

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The following segment discussion reflects the reporting structure of the Company as it existed in 2003.

Professional Services (“PS”)

Markets

PS offers information technology, engineering and technical staffing solutions to customers in targeted vertical markets, including:

	•		Financial services,
	•		Pharmaceuticals,
	•		Industrials,
	•		Information services and
	•		Government.

The Company’s PS segment also includes AndersElite, a major provider of building and construction professionals on a permanent and temporary basis in the United Kingdom. Approximately 66 percent of the segment’s revenue is derived domestically with the balance coming from foreign operations.

Services

The segment’s service delivery is tailored to the unique needs of the customer. The most basic service is providing skilled professionals to work at a single customer location on a temporary or permanent basis. The segment’s highest value to customers is in the provision of customized managed staffing solutions, which may include serving as the lead recruiter among several vendors, the procurement of hundreds of professional employees across a broad geographic area, the provision of on-site management of staffing requirements and certain human resources functions and the utilization of web-based technology to support these functions.

In certain cases, the services of personnel (“supplier associates employees”) supplied by other staffing companies or contractors (“supplier associates”) are used to fulfill customer contract requirements. In these cases, the Company receives an administrative fee for arranging for, billing for and collecting the billings related to the supplier associates. Typically, the customer is responsible for assessing the work of the supplier associates, who have the responsibility for the performance acceptability of their personnel to the customer.

When providing staffing services the segment recruits and hires employees and provides these personnel to customers for assignments that domestically, on average, last approximately one year. The vast majority of these services are performed in the customers’ facilities (“in-customer”). Customers use the segment’s employees or supplier associates employees to meet peak period personnel needs, to fill in for employees who are ill or on vacation, to provide additional capabilities in times of expansion and change, and to work on projects requiring specialized skills.

When supplying staffing services the segment provides not only employees but may also manage all of the customer’s contract staffing needs, as well as certain human resource functions required to manage the customer’s contract workforce. When providing managed staffing services, the segment frequently establishes on-site offices at one or more of the customer’s facilities, staffs it with employees from the segment and ties that office into the segment’s business systems. Managed staffing services include the coordination of supplier associates employees assigned to the customer from other staffing companies. If desired, managed staff services utilizes web-based technology to help accelerate and streamline the procurement and management of contract employees and the coordination and supervision of supplier associates.

Customers

During the year ended December 31, 2003, PS provided services to approximately 3,600 customers worldwide. Historically, much of its business has been performed for large multi-national manufacturing, industrial and construction corporations, but the segment has continued to penetrate non-industrial fields such as financial services, pharmaceuticals, information services, and government. In 2003, one large industrial corporation comprised 10 percent of PS’ total revenues while the top 10 customers accounted for less than 27 percent of PS’s total revenues. Managed staffing services are concentrated among a small number of these customers, which tend to be among the largest U.S. and U.K. corporations.

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Pricing

Pricing under substantially all contracts between PS and its customers is based on mark-ups on contractual rates of pay and agreed-upon fees for permanent placements. Contracts generally do not obligate the customer to pay for any fixed number of hours. Segment revenues are recorded on a gross basis as services are performed and associated costs have been incurred. The segment records an administrative fee as revenue when supplier associates are used. Generally the customer has the right to terminate the contract, usually on short notice. PS maintains the right to terminate its staffing employees at will.

Marketing

PS operates through a network of approximately 42 sales and recruiting offices located in major markets throughout the United States and 15 international offices that are primarily located in the U.K. and Canada. Marketing activities are conducted by divisional and regional management to ascertain opportunities in specific geographical areas. Each office assists in identifying the potential markets for services in its geographic area, and develops that market through personal contact with prospective and existing customers. Customers typically invite several companies to bid for contracts, which are awarded primarily on the basis of price, value-added services and prior performance. Many times customers grant multi-vendor contracts.

Recruitment

The ability of PS to find and hire employees with the capabilities required by customers is critical to its operations. Such personnel usually have prior experience in their area of expertise. During periods of high demand for specific skills, it is not uncommon for PS to experience pressure to pay higher wage rates or lose employees to competitors who will pay such rates in an attempt to attract personnel with the required skills. Similarly, wage rates typically decline in periods of lower demand for such skills. To assist in fulfilling its personnel needs, a computerized retrieval system facilitates the rapid selection of resumes on file so that customers’ requirements may be filled quickly.

Project Management (“PM”)

Markets

PM offers a wide range of project management, outsourcing services, and technical consulting services to customers in high technology and capital-intensive vertical markets such as:

	•		Aerospace technologies,
	•		Biotechnology,
	•		Pharmaceuticals,
	•		Chemical and specialty chemical,
	•		Manufacturing and industrial, and
	•		Government.

Substantially all of the segment’s revenue is derived from domestic operations.

Services

The segment provides high value-added engineering and consulting services and solutions to customers with contractual engagements that generally are more than a year in duration. These services include feasibility studies, turnaround management, validation services and technical publications. In addition, PM provides information technology outsourcing services such as infrastructure management, enterprise support services and technology advisory services.

PM’s services typically involve managing a discrete portion or portions of a customer’s capital project, including, but not limited to, preliminary or detailed plant design and construction management; validation and commissioning of a facility; and lifecycle support. To the extent such activities entail design and planning work, they are typically performed in-house. However, construction management, validation, commissioning and lifecycle support activities are generally performed on-site.

5

In providing information technology outsourcing services, this segment usually takes over a customer’s technical department, staffing the department with its employees, and managing the production of the department’s output. In most instances, the managed department is located on-site at the customer’s premises, but in some cases the customer may prefer an off-site location. In this case, this segment may need to maintain a stand-alone operation.

PM’s employees are on PM’s payroll and are subject to its administrative control. When services are performed in-house, PM generally provides supervision for employees, and may have increased responsibility for the performance of work that is generally monitored in conjunction with customer personnel. In addition, PM also provides technical staffing services on an in-customer basis. This segment is not reliant on supplier associates to any significant degree.

Customers

During the year ended December 31, 2003, PM provided services to approximately 220 customers. In 2003, one large multinational corporation comprised approximately 11% of PM’s total revenues. Customers and project locations are geographically dispersed.

Pricing

Pricing under the majority of contracts between PM and its customers is based on mark-ups on contractual hourly rates of pay, whereby revenues are recorded on a gross basis. Contracts generally do not obligate the customer to pay for any fixed number of hours. To a lesser extent, PM’s revenues are derived from fixed-price and outsourcing contracts. In these instances, the Company recognizes revenue using the percentage of completion method. Generally, the customer has the right to terminate the contract, usually on short notice. PM maintains the right to terminate its employees at will. Customers typically invite several companies to bid for contracts, which are awarded primarily on the basis of price, technological capability, value-added services, and prior performance.

Marketing

PM maintains approximately 25 offices across the United States and has 2 international offices. Marketing activities are conducted by divisional and regional management to ascertain opportunities for PM in specific vertical markets. Each office assists in identifying the potential markets and develops that market through personal contact with prospective and existing customers. Additionally, PM’s operating management stays abreast of emerging demand for services so that efforts can be expanded or redirected to take advantage of potential business in either established or new marketing areas.

Recruitment

The ability of PM to find and hire employees with the capabilities required by its customers is critical to its operations. Such personnel usually have prior experience in their field of expertise. During periods of high demand for specific skills, it is not uncommon for PM to experience pressure to pay higher wage rates or lose employees to competitors who will pay such rates in an attempt to attract personnel with the required skills. Similarly, wage rates typically decline in periods of lower demand for such skills.

Other

In mid-2002, the Company sold the net operating assets of its Modern Engineering, Inc. (“Modern”) subsidiary that operated within the PM segment. Modern provided technical staffing services to the automotive industry. Refer to Note 11 to the Consolidated Financial Statements for information concerning this discontinued operation.

Todays Staffing (“Todays”)

Markets

Todays provides temporary and permanent administrative, clerical, and legal staffing as well as managed staffing services through company-owned offices and a small number of franchised offices. The segment recruits and hires employees and provides these personnel to the customer. In managed staffing, the segment not only provides the employees but also manages the customer’s entire contract staffing needs. Most of the segment’s revenue is derived from the United States with the balance coming from Canada.

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Services

Services are performed in customers’ facilities by Todays employees who are hired to work on customers’ projects. The period of assignment depends on the need for the skills of the individual employee and can range from several days to several months. The average assignment duration is approximately five weeks. At the end of an assignment, an employee is either reassigned within the current customer, assigned to perform services with another customer, or employment is terminated. Todays’ personnel are on Todays’ payroll and are subject to its administrative control. The customer retains supervisory control and responsibility for the performance of the employee’s services.

Todays also supports franchised offices and employs all of the temporary personnel, including those recruited by the franchised offices, and also bears the responsibility for billing services to customers. Franchisees are responsible for selling services to customers, recruiting temporary personnel and for administrative costs. The franchisee receives a portion of the gross profit on the franchised accounts.

Customers

Customers retain Todays to meet peak manpower needs, to temporarily replace personnel on vacation and to staff special projects. During the year ended December 31, 2003, these services were provided to approximately 3,500 customers. This segment focuses on small to medium-sized customers including banks, mortgage and insurance companies, investment companies, utilities, hospitals, law firms and universities, as well as larger national accounts. In 2003, no one customer exceeded 6% of total segment revenue.

Pricing

Pricing is based on mark-ups on contractual rates of pay, and arrangements with the customer generally do not obligate the customer to pay for any fixed number of hours. Segment revenues are recorded on a gross basis. Generally the customer has the right to terminate services, usually on short notice. Todays maintains the right to terminate its staffing employees at will.

Marketing

Todays operates through a network of approximately 79 sales and recruiting offices, with 69 offices in the United States, of which 7 are franchised, and 10 offices in Canada. Each office is responsible for determining the potential market for services in its geographic area and developing that market through personal contact with prospective and existing customers.

Recruitment

The ability of Todays to locate and hire personnel with customer-specific capabilities is critical to its operations.

Management Recruiters International (“MRI”)

Markets

MRI is a franchisor providing support services to its franchisees who engage in the search, recruitment and employment of management and sales personnel. MRI also provides temporary management and specialty staffing services.

Services/Customers/Pricing

Franchisees located in the U.S. pay an initial fee approximating $79,000 to acquire a franchise, while franchises located internationally pay an initial fee approximating $63,000. The fee is charged for establishing and bringing a new franchisee into the franchise system and for the franchisees participation in a comprehensive training program and providing office software and hardware. Franchisees also pay royalties based on a percentage of the franchisee’s placement fees. Franchisees benefit from MRI’s expertise in the business, from its Internet presence, national marketing and sales campaigns, public relations support and purchasing leverage. Franchisees also have the right to use MRI’s trade names, trademarks, the inter-office referral system, operating techniques, advertising materials, sales programs, video and live interactive training programs, computer programs, Internet and intranet systems, manuals and forms. MRI does not control the business operations of its franchisees.

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Marketing

As of December 31, 2003, MRI had approximately 1,000 franchised offices providing services to both large and small employers in virtually all industries. There are approximately 800 offices located throughout the United States with approximately 200 offices located internationally. Support for MRI’s franchise network is provided by administrative offices in Cleveland, Ohio and Philadelphia, Pennsylvania for domestic operations, and in the U.K for international franchise operations. The broad geographic scope of operations enables franchisees to provide international recruiting and matching of employers with job candidates. The network utilizes an inter-office referral system on both national and regional levels, which enables offices to cooperate in fulfilling a customer’s requirements.

Recruitment

Employers commonly offer more than one company the opportunity to find qualified candidates for a position making competition for qualified individuals intense. Franchisees’ ability to obtain placements with employers is determined more on their ability to find qualified candidates than on their fee structure.

Other

In the latter part of 2001, management decided to divest MRI of its company-owned permanent placement offices. MRI exited a majority of such offices in 2002. In 2003, MRI signed a contract to exit the remaining company-owned offices. Refer to Note 15 to the Consolidated Financial Statements for information concerning these dispositions.

Other Information

Safeguards – Business, Disaster and Contingency Planning

CDI has a number of safeguards to protect the Company from various system-related risks. Given the significant amount of data generated in the Company’s key processes including recruiting, payroll and customer invoicing, CDI on a daily basis, has established redundant processing capability within the Company’s primary data center. This redundancy mitigates the risks related to hardware failure. Additionally, CDI has contracted with a third-party provider to restore its primary data center operations in the event of a disruption. Finally, the Company maintains site disaster plans for a majority of its operating offices as well as maintaining data back-up requirements throughout the Company.

Competition

All segments of the Company’s operations face competition in attracting both clients and high-quality specialized employment candidates. The temporary and permanent placement businesses are highly competitive, with limited barriers to entry. CDI competes in global, national and local markets with numerous temporary staffing and permanent placement companies. In many areas the local companies are the strongest competitors. In 2003, some of CDI’s largest competitors included Kelly Services, Inc., Adecco, S.A., Spherion Corporation, Volt Information Sciences, Inc., and Jacobs Engineering Group, Inc.

The most significant competitive factors in the temporary, project-based and permanent placement businesses are price and the reliability of service, both of which are often a function of the availability and quality of personnel. The Company believes it derives a competitive advantage from its long experience in and commitment to the specialized employment market, its national presence, and its various marketing activities.

Seasonality

The Company’s temporary, project-based and permanent staffing services operations are generally less active in the first and fourth quarters of a calendar year. This seasonality is due to customers’ plant closures, vacation and holiday schedules.

Employees

At December 31, 2003 the Company had approximately 16,600 employees. The Company believes that its relations with its employees are generally good.

8

Risk Factors

The Company’s business involves a number of risks, some of which are beyond its control. The risk and uncertainties described below are not the only ones the Company faces. Management believes that the most significant of these risks and uncertainties are as follows:

Economic Trends - The Company’s growth and earnings prospects are influenced by broad economic trends. The pace of customer capital spending programs, new product launches and similar activities have a direct impact on the need for temporary and permanent employees. The Company believes that its fiscal discipline and strategic focus on targeted vertical markets provides some insulation from adverse trends. However, further declines in the economy would adversely affect the Company’s operating performance and could result in the need for future cost reductions or changes in strategy.

Government Regulations - Changes in government regulations could result in prohibition or restriction of certain types of employment services or the imposition of new or additional benefits, licensing or tax requirements with respect to the provision of employment services that may reduce CDI’s future earnings. There can be no assurance that CDI would be able to increase the fees charged to its clients in a timely manner or in a sufficient amount to cover increased costs as a result of any of the foregoing.

Highly Competitive Business - The staffing services and outsourcing markets are highly competitive and have limited barriers to entry. CDI competes in global, national, regional and local markets with numerous temporary staffing and permanent placement companies. Price competition in the staffing industry is significant, particularly for the provision of office clerical and light industrial personnel, and pricing pressures from competitors and customers are increasing. In addition, there is increasing pressure on companies to outsource certain areas of their business to low cost offshore outsourcing firms. CDI expects that the level of competition will remain high in the future, which could limit CDI’s ability to maintain or increase its market share or profitability.

Dependence Upon Personnel - The Company’s operations depend on the continued efforts of its officers and executive management. The loss of key officers and members of executive management may cause a significant disruption to the Company’s business. CDI also depends on the performance and productivity of its local managers and field personnel. The Company’s ability to attract and retain new business is significantly affected by local relationships and the quality of service rendered. The loss of key managers and field personnel may also jeopardize existing client relationships with businesses that continue to use our services based upon past relationships with local managers and field personnel, which could cause future revenues to decline in that event.

Foreign Currency Fluctuations and Changes in Exchange Rates – The Company is exposed to risks associated with foreign currency fluctuations and changes in exchange rates. CDI’s exposure to foreign currency fluctuations relates to operations in foreign countries conducted through subsidiaries 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 our investment in the net assets related to these operations. The Company generally does not engage in hedging activities with respect to foreign operations except for isolated situations involving inter-company payments that have not been material. The effects of foreign currency exchange fluctuations have been immaterial on CDI’s consolidated earnings.

Concentration of Stock Ownership – Certain of CDI’s Board of Directors, and trusts for which some of the Company’s directors serve as trustees, own, in the aggregate, a substantial portion of the Company’s outstanding common stock. By virtue of this stock ownership, such shareholders have the power to significantly influence CDI’s affairs and are able to influence the outcome of matters required to be submitted to shareholders for approval, including the election of members of the Board of Directors and the amendment of the Company’s Articles of Incorporation or Bylaws. Management cannot guarantee that such shareholders will not exercise influence over the Company in a manner detrimental to the interests of CDI’s other shareholders.

Integration of Acquisitions – The Company intends to seek acquisitions as an element of its growth strategy. The failure to successfully integrate any future acquisition may divert management’s attention from its core operations or could negatively affect the Company’s ability to timely meet the needs of its customers.

9

Data Center Capacity and Telecommunication Links - The Company’s ability to protect its data centers against damage from fire, power loss, telecommunications failure and other disasters is critical. In order to provide many of its services, CDI must be able to store, retrieve, process and manage large databases and periodically expand and upgrade its capabilities. Any damage to the Company’s data centers or any failure of the Company’s telecommunication links that interrupts its operations or results in an inadvertent loss of data could adversely affect CDI’s ability to meet its customers’ needs and their confidence in utilizing CDI for future services.

Access to Company Information

The Company electronically files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports with the Securities and Exchange Commission (SEC). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy, information statements, and other information regarding issuers that file electronically.

CDI makes available, free of charge, through its website or by responding to requests addressed to the Company’s Vice President of Corporate Communications, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed by the Company with the SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act, as amended. This report is available as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. CDI’s website address is: “http://www.cdicorp.com”. CDI posts its audit committee, compensation committee, and governance and nominating committee charters, corporate governance guidelines, and code of ethics on the Company’s website. The information contained on the Company’s website, or on other websites linked to the Company’s website, is not part of this document.

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Item 2. PROPERTIES

The Company presently maintains its principal executive offices at 1717 Arch Street, Philadelphia, Pennsylvania 19103 in approximately 21,300 square feet of leased office space under a sublease expiring in 2005. The Company also maintains corporate offices at 1801 Market Street, Philadelphia, Pennsylvania 19103 in approximately 65,000 square feet of leased office space expiring in 2006. During 2003, CDI’s shared services center was transitioned from Philadelphia to Charleston, West Virginia.

The Company has closed or sold approximately 100 operating sites since 2001, primarily in the United States, as a result of its restructuring and cost reduction efforts. Many of these facilities are under non-cancelable operating leases. Accordingly, the Company has negotiated lease buy-outs or subleases to minimize the cash outflow requirements. In connection with the Company’s office closings, reserves were established to reflect the net estimated future cash outlays related to closed office leases. Actual future cash outlays could exceed these reserves in the event of sublease defaults. Refer to Note 14 to Consolidated Financial Statements for further information concerning operating lease obligations and related sublease arrangements.

As part of the Company’s restructuring and reorganization efforts, some of the Company’s offices accommodate more than one operating segment. In such cases, square-foot usage is allocated among the segments based on planned utilization.

Each reporting segment has numerous active facilities and locations under operating lease agreements. Most of the leased space is devoted to sales, marketing and administrative functions, in-house services, and back-office functions. These facilities are leased under terms generally extending up to five years.

Item 3. LEGAL PROCEEDINGS

     Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market information

CDI’s common shares are traded on the New York Stock Exchange (trading symbol “CDI”). The following table sets forth the high and low quarterly sales prices of the Company’s common shares during the two most recent years (all as reported by The Wall Street Journal).

Shareholders

Shareholders of record on February 23, 2004 numbered 483. This number counts each street name account as only one shareholder, when, in fact, such an account may represent multiple owners. Taking into account such multiple owners, the total number of shareholders on February 23, 2004 approximated 3,500.

Dividends

On August 19, 2003, the Company paid a special dividend of $2.00 per share and a dividend of $0.09 per share, with a total of $40.7 million being distributed to shareholders on that date. On November 18, 2003, the Company paid a dividend of $0.09 per share, with a total of $1.7 million being distributed to shareholders on that date. 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.

Sales of unregistered securities

On October 1, 2001 and November 13, 2001, the Company issued a total of 40,000 restricted shares of the Company’s common stock to Roger H. Ballou, the Company’s Chief Executive Officer, as part of an arrangement made to induce Mr. Ballou to join the Company. These shares were issued in consideration for services performed or to be performed by the recipient. The issuance was made in reliance on the exemption from registration found in section 4(2) of the Securities Act of 1933.

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Item 6. SELECTED FINANCIAL DATA

The following is selected financial data derived from the Company’s audited Consolidated Financial Statements for each of the last five years. The data should be read in conjunction with the Company’s Consolidated Financial Statements (and related notes) appearing elsewhere in this report and with Item 7 of this report. The data presented below is in thousands, except for per share data.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Economic and Industry-wide Factors Relevant to CDI:

CDI participates in an industry that is cyclical in nature and extremely sensitive to economic changes in the markets where its operations are conducted. The Company’s revenue growth is largely dependent on capital spending by customers and job growth. In 2003, capital spending by customers in CDI’s key vertical markets declined significantly. The Company’s PS and PM segments were particularly impacted by this contraction. Capital spending in the process and industrial, aerospace, and information technology vertical markets declined significantly and impacted CDI’s ability to grow its revenue base during 2003. In addition, during 2003 customers postponed the hiring of both permanent and temporary workers, which adversely impacted CDI’s Todays and MRI segments.

CDI relies growth in the economy to fuel its growth. Some of the economic indicators used to gauge demand and develop forecasts, budgets and make capital deployment decisions include: U.S. GDP forecasts, capital spending forecasts in such industries and sectors as process and power, information technology, aerospace and government services, and changes in energy costs.

During the first half of 2003, there were sporadic and even conflicting indicators that made it difficult to assess whether the U.S. economy was truly improving or if job growth was sustainable. In the second half of 2003, while the overall U.S. economy showed clear signs of recovery, the GDP growth did not translate into job growth or increased capital spending. As a result, CDI did not experience an increase in its U.S. based businesses. Management believes there are several factors contributing to the Company’s lack of revenue growth in 2003. These are:

	•		To the extent there was job growth in 2003, CDI believes the majority of such growth may have been in the lower-level skill sets such as the light industrial labor market. As a result of CDI’s restructuring efforts over the past two years, the Company no longer has a meaningful presence in this portion of the staffing market.
	•		Capital spending, a key driver of demand in many of the vertical markets in which the Company participates, has been very sluggish in the Company’s key verticals.
	•		CDI has implemented aggressive restructuring and business realignment efforts. An integral part of these efforts has been the recruiting, hiring and promotion of new executives into key roles. Management believes the Company will benefit from these initiatives, once these executives are fully integrated.

Historically, during the early stages of an economic recovery, companies are quite cautious in ramping up major capital spending programs and hiring personnel to handle forecasted new demand. Therefore, in the early stages of a recovery, companies will utilize temporary employees to augment their headcount requirements. Historically, PS and Todays segments were considered “leading indicators” of demand during the early stages of recovery. So far, the 2003 economic upturn has not translated into increased order flow. Management anticipates that it will take 3 to 6 months into 2004 for CDI’s business to see the revenue growth normally associated with an economic upturn. Later, as companies gain more confidence that a recovery is underway, management expects to see more demand for permanent placement services and, therefore, increases in MRI’s revenue base. During these latter stages of a recovery, CDI would experience the profit leverage inherent in its permanent placement business where margins are substantially greater than those available in staffing or project-outsourcing services.

As noted above, CDI has seen only limited indications of a recovery based on revenue trends throughout 2003. A prolonged “jobless recovery” and anemic capital spending in 2004 would further impede revenue growth.

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Revenue and Cash Generation:

CDI generates the majority of its revenues and resultant cash flows from several activities as outlined below:

	•		Project management, technical engineering and information technology outsourcing services to facilitate customers’ efforts to reduce costs and or support important growth initiatives
	•		Temporary staffing to meet customers’ demand for temporary staff augmentation
	•		Permanent placement activities including initial franchise fees and ongoing franchise royalties

Payrolls for billable employees are typically paid weekly and revenues for temporary staffing are recognized coincident with the payroll cycle. This schedule applies to the majority of CDI’s technical engineering business as well. In some cases, CDI provides technical engineering services under fixed-price contracts. Revenue recognition for fixed-price contracts is determined under the percentage-of-completion method. Revenue recognition for fixed-price outsourcing services contracts is recognized evenly over the contractual period. Customers are invoiced weekly, semi-monthly, or monthly for staffing services. Projects under fixed-price contracts are invoiced when specific milestones are met or based on a periodic schedule. Customers are typically invoiced for outsourcing services contracts on a monthly basis.

MRI generates revenues and cash flows from the expansion of its global franchise organization and from the collection of royalties as its franchisees collect cash from their customers for permanent placement services.

CDI’s Business Structure:

Historically, CDI has organized and managed its operations based on the technical nature of services performed or the characteristics of customer contracts. Management believes that this form of business alignment is no longer optimal because many of our customers are increasingly looking to consolidate vendors and have a broader array of services offered by a smaller number of vendors with a uniform single point-of-contact.

Accordingly, during the latter part of 2003, CDI management initiated a plan to realign the service capabilities of the Company along targeted customer verticals and to provide the array of services needed under a more consolidated management structure. Effective January 1, 2004 the Company implemented this new go-to-market strategy. This new strategy is designed to leverage CDI’s broad service capabilities to targeted vertical markets. Coincident with this change, the leadership structure of the verticals was consolidated. CDI will begin managing and reporting its results consistent with the new structure beginning in 2004. Refer to notes 17 and 18 to the Company’s Consolidated Financial Statements for further information about this internal reorganization.

Significant Opportunities, Challenges, and Risks:

CDI believes that its newly integrated vertical go-to-market strategy should improve revenue opportunities in a more robust capital spending and hiring environment. The success of this strategy is dependant on the Company’s ability to leverage its broad and integrated services offerings to its customers. In addition, during periods of growth, management must continue to focus on leveraging its existing infrastructure, maintaining cost discipline and strong control over its contracting processes and management of its working capital.

Another key opportunity for CDI is to leverage its recruiting capabilities. Management believes that substantial increases in recruiter productivity can be achieved through process re-engineering and consistent application of technology across the organization. The ability to fill open positions timely and manage the Company’s human capital in an efficient manner is important to the Company’s long-term performance.

Continued job growth should also benefit CDI’s permanent placement business, which traditionally lags an economic recovery. MRI continues its global expansion into new markets and given its profitable history during sustained economic growth, there is considerable upside potential. Ensuring that the MRI franchisee community is ready to take advantage of an upturn in the economy is also important to the Company’s growth.

The Company is subject to many risks inherent to the industry. The most significant risk is the aforementioned dependency on a robust economy to fuel the Company’s revenue growth. In addition, price competition,

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particularly for temporary office and clerical assignments, have increased throughout 2003. Management does not expect competitive pressures to lessen in the foreseeable future, which could limit the Company’s ability to grow organically.

Refer to the Risk Factors in Item 1 of this report for further information regarding risk.

Three-year Financial Overview

Key Financial Trends:

The table that follows presents a three-year trend of key performance indicators management focuses on in managing the Company:

(1)

Continuing earnings (loss) divided by average shareholders’ equity

In October 2001, CDI hired a new Chief Executive Officer who launched a multi-phased plan to restructure the Company for sustainable profitable growth. The initial phase of the plan focused on implementation of a more operationally efficient and financially disciplined business model. This required the exiting of lower-margin customer contracts, the re-deployment of assets to support higher-margin businesses and the lowering of the Company’s breakeven point through structural cost reductions. These measures extended to all segments of the Company and were substantially completed during 2003.

Approximately 50% of the revenue reduction noted over the past three years is attributable to the above referenced exit of lower-margin contracts throughout 2002. The remaining portion of the revenue decline is primarily attributable to the struggling economy over the past two plus years, which impacted all of CDI’s lines of business, as well as the sale of MRI’s company-owned permanent placement offices. While the reduction of lower-margin business did improve CDI’s gross profit margins, particularly in 2002, the decline in MRI’s high margin permanent placement revenues and the sale of MRI’s company-owned offices were the primary causes of the decline in gross profit margins in 2003.

The impact of the contraction in revenue and related gross profit margins was more than offset in 2002 and 2003 by substantial reductions in costs from the Company’s restructuring program. Beginning in 2001, CDI reduced its fixed costs for systems and back-office support, realigned its business structure, reduced redundant staffs and office facilities and imposed strict cost discipline throughout the organization. As a result, operating and administrative costs have declined 39.2% over the last three years and constitute approximately 21.1% of 2003 consolidated revenues compared to 25.2% of consolidated revenues in 2001.

Over the past three years, CDI has been successful in reducing its accounts receivable balances and has generated $205.7 million in cash flow from operations. During this time period, CDI eliminated all debt and funded its operations from internal cash generation. In addition, the Company was able to pay dividends during the second half of 2003 aggregating $42.4 million while still maintaining a strong level of cash, cash equivalents and short-term investments to fund potential growth.

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Consolidated Results of Operations
2003 versus 2002

The following table presents year-over-year changes in revenues, gross profit, and operating profit from 2002 to 2003:

Consolidated revenues for 2003 were $1,060.3 million, compared to $1,169.5 million in 2002. Revenues decreased in each of the Company’s four segments. The $109.2 million or 9.3% decrease in revenues was due primarily to the sluggish U.S. economy during 2003 and the planned exit of lower-margin accounts in 2002. As a result, a large number of CDI’s customers reduced their capital spending and staffing levels in 2003, which created weak demand for engineering staffing and permanent and temporary services. Also contributing to the decline in revenue was the exiting of company-owned offices within MRI in 2002 and 2003 and to pricing pressures within the PS and Todays segments. Partially offsetting these declines was strong revenue growth in AndersElite in PS and the chemical and industrial vertical in PM. AndersElite is a major provider of building and construction professionals on a permanent and temporary basis in the United Kingdom. Management does not expect competitive pressures to lessen for the foreseeable future.

The Company’s consolidated gross profit of $256.8 million was 15.7% lower than 2002, due largely to lower sales volume, as well as to a decrease in gross profit margins from 26.1% in 2002 to 24.2% in 2003. This gross profit margin decrease was driven principally by the exit of company-owned offices in MRI, which historically had higher margins, as well as to growth in lower margin staffing project work and shrinkage in higher margin project business within the PS and PM segments.

Operating and administrative expenses of $223.8 million decreased $60.5 million or 21.3% from last year. This improvement was due primarily to the Company’s lower cost structure resulting from the Plan of Restructure substantially completed in 2003 as well as to lower sales volume. Also included in this decline were reductions in bad debt expense of $1.4 million as the result of better than expected collection of exited lower margin accounts, primarily in the PS segment, and the implementation in the third quarter of 2003 of a new replacement policy for personal computers, which extended the useful life of these assets from three to four years. As a result of the change in useful lives, depreciation expense in 2003 was $1.0 million lower than in 2002. Included in operating and administrative expenses in 2002 were $7.5 million of event-driven charges primarily related to the accelerated depreciation of both the Company’s impaired former enterprise resource planning system and leasehold improvements of exited offices.

Operating profit for 2003 was $33.2 million, a $26.5 million increase over 2002. The significant improvement in operating profit was due largely to the reduction in operating and administrative expenses of $60.5 million, which more than offset the volume-based decline in gross profit of $48.0 million, as well as lower restructuring expense of $12.7 million and a loss from the sale of assets of $1.3 million in 2002. Included in operating and administrative expenses in 2002 were $7.5 million of event-driven charges noted above.

Net interest income was $1.1 million in 2003 as compared to net interest income of $0.1 million in 2002. This increase is the result of increased invested funds.

The Company’s effective income tax rate for continuing operations decreased from 38.1% in 2002 to 34.2% in 2003. The reduction in the effective tax rate relates primarily to favorable resolutions of prior years’ tax

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exposures. Refer to Note 10 to the Consolidated Financial Statements for further information concerning the Company’s income taxes.

Net earnings per diluted share were $1.14 in 2003 compared to a net loss per diluted share of $0.48 in 2002.

Segment Discussion

Professional Services (“PS”)

PS’ revenues of $564.8 million decreased $58.1 million or 9.3% in 2003 compared to 2002. This revenue decline was largely attributable to the continued weak demand for engineering staffing, the planned exit of lower margin accounts during 2002 and strong pricing pressures within the information technology vertical, partially offset by strong revenue growth in the U.K. based AndersElite business. AndersElite continues to experience strong demand in professional services in the construction trades.

Gross profit of $114.1 million in 2003 decreased $9.7 million or 7.8% as compared to $123.8 million in 2002. This decline in gross profit was primarily due to the lower revenues noted above, partially offset by improvement in the gross profit margin from 19.9% to 20.2%, which was due to the exit of lower margin accounts in 2002.

PS’ operating profit was $19.8 million in 2003 as compared to $6.9 million in 2002. This $12.9 million increase in operating profit was due principally to a $20.0 million improvement in operating and administrative expenses, which more than offset the volume-based decline in gross profit of $9.7 million, as well as lower restructuring expenses of $2.6 million. Included in the $20.0 million improvement in operating and administrative expenses was a $1.4 million reduction in bad debt expense in 2003 and a $5.7 million reduction of event-driven charges recorded in 2002.

Project Management Services (“PM”)

PM’s revenues of $302.9 million in 2003 decreased $8.4 million or 2.7% compared to 2002. The lower revenues were primarily attributable to reduced capital spending by customers in the aerospace and telecommunications verticals, as well as customer project delays in the pharmaceutical vertical. These declines were significantly offset by a strong performance in the chemical and industrial vertical due to additions of new customer accounts.

PM’s gross profit was $68.9 million in 2003 as compared to $75.4 million in 2002. The decline of $6.5 million or 8.6% in 2003 gross profit was principally due to a reduction in gross profit margin from 24.2% to 22.8% resulting from delays in several high margin projects in the pharmaceutical vertical as well as to growth in lower margin staffing work and shrinkage in higher margin project business within the chemical and industrial vertical. These declines in gross profit were partially offset by improved margins in both the aerospace and government services verticals as the Company continues to seek high-margin value added business.

PM’s operating profit was $16.3 million in 2003 as compared to $9.4 million in 2002. The $6.9 million improvement was primarily due to a reduction in operating and administrative expenses of $9.6 million and lower restructuring expenses of $3.8 million, which more than offset the decline in gross profit of $6.5 million. Included in the $9.6 million of improvement in operating and administrative expenses were $1.6 million of event-driven charges recorded in 2002.

Todays Staffing (“Todays”)

Todays’ revenues of $135.7 million in 2003 decreased $13.6 million or 9.1% from last year. The lower revenue was due to continued strong competitive pricing pressures and a continued challenging economic environment in the United States. The demand for temporary clerical help is particularly dependent on overall economic conditions.

Todays’ gross profit of $37.3 in 2003 was lower by $4.2 million or 10.0% as compared to 2002. The decreased gross profit was primarily due to the revenue decline discussed above and to a lesser extent to a decrease in gross profit margin of 30 basis points resulting from competitive pricing pressures and a change in the business mix from higher margin retail accounts to lower margin national accounts.

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Todays’ operating profit was $6.4 million in 2003 as compared to $1.5 million in 2002. This improvement of $4.9 million was largely attributable to the reduction in operating and administrative expenses of $4.9 million and lower restructuring expenses of $4.2 million, which more than offset the reduction in gross profit of $4.2 million. Included in the $4.9 million improvement in operating and administrative expenses was $0.2 million for an event-driven charge recorded in 2002.

Management Recruiters International (“MRI”)

MRI’s revenues of $56.9 million in 2003 declined $29.1 million or 33.8% as compared to 2002. The decrease in revenue was primarily attributable to the exit of the company-owned permanent placement offices in 2002 and 2003. In addition, franchise royalty revenue declined in 2003 due principally to the overall soft employment market.

MRI’s gross profit of $36.4 million in 2003 was lower by $27.6 million or 43.1% as compared to 2002. This decline in gross profit resulted from the exiting of company-owned offices discussed above, which also reduced the gross profit margin from 74.6% to 64.1%.

MRI’s operating profit was $3.6 million in 2003 as compared to $6.9 million in 2002. The reduction of $3.3 million in operating profit was primarily due to the decline in gross profit of $27.6 million. This decline in gross profit was significantly offset by lower operating and administrative expenses of $24.3 million. Included in the $24.3 million improvement was $1.5 million of restructuring charges and $1.3 million from loss on sale of assets in 2002.

Corporate

Corporate expenses totaled $12.9 million in 2003 as compared to $18.0 million in 2002. The reduction of $5.1 million in corporate expenses was the result of the Plan of Restructure noted above, as well as to continued spending discipline. Included in the $5.1 million improvement was $0.6 million of restructuring charges in 2002.

Consolidated Results of Operations
2002 versus 2001

The following table presents year-over-year changes in revenues, gross profits, and operating profit from 2001 to 2002.

The Company recorded consolidated revenues of $1,169.5 million in 2002, down $289.1 million or 19.8% from 2001, as each operating segment reported lower revenues. This decline was principally attributable to the following three items: 1) the decision to exit lower-margin contracts primarily in the PS segment; 2) the sale of the company-owned offices in MRI; and 3) the dramatic decline in telecommunications work that was part of the PM segment. The remaining decline was due to the weak business climate in the U.S. economy, particularly in the information technology sector within PS and in the Todays segment. However, AndersElite in the U.K., which operates in the PS segment, experienced strong growth in 2002.

The Company’s gross profit of $304.8 million in 2002 was lower by $62.2 million or 17.0% as compared to 2001, primarily due to lower sales volume, partially offset by the consolidated gross profit margin increase from

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25.2% in 2001 to 26.1% in 2002. This margin improvement reflects the shift from lower-margin contracts to higher-margin and longer-cycle assignments. With the exception of MRI, all operating segments showed improved gross profit margins in 2002 as compared to 2001.

In 2002, operating and administrative expenses of $284.3 million were $83.8 million or 22.8% lower than operating and administrative expenses incurred in 2001. This reduction was directly attributable to savings from the aforementioned Plan of Restructure and other actions taken to reduce personnel requirements, office locations, and systems infrastructure as well as declines in revenue and enhanced financial discipline. Finally, operating expenses in 2001 included $5.7 million of goodwill amortization.

As previously discussed, beginning in 2001, the Company instituted a multi-phased Plan of Restructure. The first phase of the Plan resulted in a pre-tax charge in 2001 of $22.0 million. Follow-up phases of the Plan resulted in pre-tax charges of $12.6 million in 2002.

In the third quarter of 2002, the Company recorded a loss on the sale of its MRI company-owned permanent placement offices of $1.3 million. This transaction was completed to focus MRI’s resources on its franchise operations.

Operating profit for the year ended 2002 was $6.7 million, a $29.7 million improvement over 2001. The significant decline in gross profit of $62.2 million was more than offset by significant reductions in the Company’s operating and administrative expenses of $83.8 million. In addition, restructuring provisions were $9.4 million lower in 2002, which were partially offset by a loss of $1.3 million on the sale of its MRI company-owned permanent placement offices.

Net interest income was $0.1 million in 2002 as compared to net interest expense of $3.1 million in 2001. This was due to the elimination of all bank borrowings, as well as interest income from invested cash.

The Company’s effective income tax rate was 38.1% in 2002 and 37.5% in 2001.

In June 2002, the Company sold the net operating assets of its subsidiary Modern Engineering, Inc. (“Modern”), which operated in its PM operating segment. Modern is reflected as a discontinued operation in the accompanying financial statements.

In 2002, the Company recorded impairment charges of $21.4 million, ($14.0 million after-tax) for the write-off of goodwill. These charges primarily related to a former acquisition in the PS segment, and are presented as a change in accounting as of January 1, 2002, in accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.”

The Company’s net loss per diluted share in 2002 was $0.48 compared to a net loss per diluted share of $0.82 in 2001.

Segment Discussion

Professional Services (“PS”)

PS’ revenues of $622.9 million decreased $186.6 million in 2002 or 23.1% compared to 2001. A significant reason for this segment’s year-over-year decline in revenue was the exit of certain lower-margin contracts as part of the Company’s previously described Plan of Restructure. The remaining decline was related to softening demand in both technical services and information technology sectors, a weakening economy, offshore competition, and pricing pressures particularly within the information technology sector. Partially offsetting this revenue trend in 2002, was strong revenue improvement in the U.K. operations of AndersElite. AndersElite’s market, professional services in the construction trades, has remained largely immune to the general declines in the U.K. staffing market.

PS’ operating profit was $6.9 million in 2002 compared to an operating loss of $4.0 million in 2001. The most significant factor in this improvement was the reduction in operating and administrative expenses of approximately $27.1 million that resulted from restructuring efforts in 2002. In addition, improved segment performance was due to lower restructuring charges in 2002 of $9.1 million. Partially offsetting these

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improvements in operating profit was a $25.3 million reduction in gross profit. This decline in gross profit was comprised of a $34.4 million decline related to the fall-off in revenue, partially offset by a $9.1 million improvement in the gross profit margin. This segment’s gross profit margin improved 150 basis points on a year-over-year basis due primarily to having exited very low margin business during the first half of 2002. In 2001, goodwill amortization was approximately $1.9 million.

Project Management (“PM”)

PM’s revenues of $311.3 million in 2002 decreased $40.9 million or 11.6% compared to 2001. This segment includes the telecommunications sector, which experienced significant revenue declines due to the dramatic issues that faced that industry. Excluding the impact of the telecommunications business fall-off, the PM segment experienced 5.6% revenue growth year-over-year.

PM’s operating profit was $9.4 million in 2002 compared to an operating loss of $11.0 million in 2001. Several factors contributed to the improvement in 2002 operating profit. The most significant factor in this improvement in profitability was the reduction in operating and administrative expenses of $20.7 million, primarily as a result of restructuring efforts implemented in early 2002. In addition, reductions in restructuring provisions of $3.1 million further improved the operating results. PM’s year-over-year gross profit declined $3.4 million. This decline was comprised of $9.2 million related to reduction in revenue, which was substantially offset by a $5.8 million improvement in gross profit margin. PM’s gross profit margin performance improved by 180 basis points, on a year-over-year basis, due to PM’s focus on high-margin value-added business particularly within the pharmaceuticals vertical. In 2001, goodwill amortization was approximately $0.8 million.

Todays Staffing (“Todays”)

Todays’ revenues of $149.4 million in 2002 decreased $44.3 million or 22.9% compared to 2001. Todays’ volume of business declined steadily throughout 2002 and 2001. The primary factors that contributed to Todays’ revenue declines were the softening of the U.S. economy and severe competitive pressures on pricing that resulted in lost customers.

Todays’ operating profit was $1.5 million as compared to $2.6 million in 2001. The restructuring and cost-saving initiatives in 2002 and 2001 resulted in a reduction in operating and administrative expenses of $13.8 million compared to 2001, which was partially offset by an increase in restructuring provisions of $3.4 million. These actions resulted in a lower fixed cost base. These savings were offset by an $11.5 million reduction in gross profit that was primarily attributable to the revenue decline noted above. Gross profit margins were relatively comparable year-over-year. In 2001, goodwill amortization was approximately $1.7 million.

Management Recruiters (“MRI”)

MRI’s revenues of $85.9 million in 2002 decreased $17.3 million or 16.8% compared to 2001, primarily as the result of a sluggish economy, which reduced demand for its services. Also contributing to the revenue decline was the sale of company-owned permanent placement offices that were sold in the third quarter of 2002. The overall decline in revenue was experienced in both MRI’s company-owned offices and its franchised locations.

Operating profit in 2002 was $6.9 million as compared to $12.7 million in 2001. The lower operating profit in 2002 was primarily due to the reduction in revenues, which were partially offset by the elimination of goodwill amortization. In 2001, goodwill amortization was approximately $1.3 million.

Corporate

Corporate expenses totaled $18.0 million in 2002 as compared to $23.4 million in 2001. The reduction in corporate expenses of $5.4 million resulted from reduced spending on information technology infrastructure and tighter cost controls. Further, operating and administrative expenses in 2001 included $3.1 million of event-driven charges that were primarily attributable to various investment write-offs.

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Liquidity and Capital Resources

Historically, CDI has financed its operations from its operating cash flows coupled with borrowings from a revolving credit facility. Over the past three years, CDI has improved its working capital management. This effort, along with the lowering of the CDI’s fixed cost base, has resulted in increased cash flow. As a result of this improved cash flow, the Company was able to eliminate $63.0 million in debt and pay dividends to its shareholders totaling $42.4 million.

The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows:

Operating Activities

Over the past three years, CDI has generated approximately $205.7 million of cash flows from operating activities. The most significant factors impacting the Company’s operating cash flows were improved operating earnings, discipline in the contracting process, and ongoing timely collection of accounts receivable.

During the past three years, the Company has steadily increased its operating performance as management completed its restructuring and reorganization efforts. This steady improvement in operating earnings primarily reflects the Company’s lower fixed cost and operating structure.

Discipline during the customer contracting process is important to ensure that terms and conditions are within authorized guidelines and that administrative requirements to process billings and secure collections are increasingly standardized. The Company has instituted enhanced controls and standardization over these processes, which facilitates the timely collection of receivables. Over the past three years, CDI has lowered its accounts receivable balances by approximately $158.4 million, reflecting a much steeper decline in receivables levels than the corresponding decline in revenue levels. However, in the year ended December 31, 2003 accounts receivable increased $7.3 million from year-end 2002 due primarily to the deceleration in the collection of accounts during 2003 compared to 2002. Reductions in accounts receivable during 2002 were enhanced by the successful collection from exited PS customers. Also contributing to the increase in accounts receivable in 2003 was the implementation of a new accounting system in the third quarter of 2003 that caused some disruption in the pattern of customer billings and collections. This disruption was stabilized during the fourth quarter of 2003.

During the past three years, accounts payable and accrued expenses decreased by $54.5 million. A significant portion of this decline is generally consistent with the falloff of business volume during this three-year period. Another use of cash relates to the payment of severance and operating leases in connection with the Company’s Plan of Restructure. The remaining liabilities for operating leases and severance will be substantially paid by December 31, 2005.

Another important source of cash for CDI has been the recovery of previously paid income taxes related to the realization of operating loss carry-backs from prior years, which aggregated $12.1 million in 2003.

The Company’s working capital position (current assets less current liabilities) was $194.4 million at the end of 2003, a decrease of $4.0 million from year-end 2002 and an increase of $25.4 million from year-end 2001. The current ratio improved to 3.0 at the end of 2003 from 2.7 and 2.1 at the end of 2002 and 2001, respectively.

Investing Activities

CDI’s primary investing activities include purchases of property and equipment to support the enterprise, acquisitions, and investments of excess cash in highly liquid short-term investments. The Company has gradually reduced its capital expenditure levels and anticipates further declines in future years. These lower spending levels primarily reflect the streamlining of CDI’s system infrastructure.

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During the past three years the Company has invested $17.1 million in acquisitions. Cash generated from operations has been conservatively invested and is readily available to fund Company operations and investment opportunities. During 2003, the Company sold $35.9 million of short-term investments to partially fund the payment of $42.4 million of dividends during 2003.

Financing Activities

The Company has eliminated all its debt and terminated its credit facility. The Company paid shareholders a special dividend and two quarterly dividends totaling $42.4 million in 2003. 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.

Summary

The Company’s financial condition continues to remain strong. At December 31, 2003, cash, cash equivalents, and short-term investments totaled $72.8 million and the Company had no 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.

Contractual Obligations and Commitments

Summarized below are the Company’s obligations and commitments to make future payments under lease agreements as of year-end 2003. There were no debt obligations outstanding as of December 31, 2003.

Critical Accounting Policies and Estimates

The 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 judgments increases, such judgments become even more subjective. While management believes that its assumptions are both reasonable and appropriate, actual results may be materially different than estimated. The Company has identified certain critical accounting policies, described below, that are the most susceptible to judgment and estimate.

Allowance for Uncollectible Receivables

The Company makes ongoing estimates relating to the collectibility of its accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. Estimates used in determining accounts receivable allowances are based on specific customer account reviews and historical experience. The Company also applies judgment including assessments about changes in economic conditions, concentration of receivables among clients and industries, recent write-off trends, rates of bankruptcy, credit quality of specific customers. Unanticipated changes in the financial condition of customers, the resolution of various disputes, or significant changes in the economy could impact the reserves required. At December 31, 2003, 2002, and 2001 the allowance for doubtful accounts was $5.5 million, $7.7 million and $8.2 million, respectively.

Accounting for Income Taxes

In establishing the provision for income taxes and deferred income tax assets and liabilities, and valuation allowances against deferred tax assets, the Company makes judgments and interpretations based on enacted tax laws, published tax guidance, as well as estimates of future earnings. As of December 31, 2003, the

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Company has total net deferred tax assets of $15.6 million. This includes $4.5 million, which relates primarily to state net operating loss carry forwards, capital loss carry forwards and other miscellaneous credits. Realization of deferred tax assets is dependent upon the likelihood that future taxable income will be sufficient to realize these benefits over time, and the effectiveness of tax planning strategies in the relevant tax jurisdictions. In the event that actual results differ from these estimates and assessments, additional valuation allowances may be required.

Accounting for Impairment of Goodwill

Effective January 1, 2002, the Company adopted SFAS 142, “Goodwill and Other Intangible Assets”. Accordingly, the Company discontinued amortizing goodwill and began applying the specific guidance contained in SFAS 142 to evaluate the carrying value and recoverability of its goodwill by evaluating the fair market value of the reporting units within which goodwill resides. The process of estimating fair value, in part, relies on the use of forecasts to estimate future cash flows expected from a reporting unit. The estimation of future cash flows, based on reasonable and supportable assumptions and projections, requires management’s subjective judgments. The time periods for estimating future cash flows are lengthy, which increases the risk that actual future results could significantly deviate from estimates.

The Company completed its impairment test as of the date of adoption, January 1, 2002, as required under SFAS 142 and determined that goodwill was impaired. The Company had net goodwill of $87.5 million, of which $21.4 million pre-tax was considered impaired and written off as of January 1, 2002. In both 2003 and 2002, the Company completed its impairment test during the third quarter and determined that goodwill was not further impaired.

Changes in future market conditions, the Company’s strategy, or other factors could impact upon the future values of the Company’s reporting units, which could result in future impairment charges. At December 31, 2003, total goodwill amounted to $68.2 million.

Accounting for Stock Options

The Company has used stock options to attract, retain and reward employees for long-term service. Generally accepted accounting principles allow alternative methods of accounting for these awards. The Company has chosen to account for its stock plans (including stock option plans) under APB Opinion 25, “Accounting for Stock Issued to Employees”. Since option exercise prices equaled the market value per share of the Company’s stock at the time of the grant, no compensation expense related to stock options is reflected in the Company’s income statement. SFAS 123, “Accounting for Stock-Based Compensation", prescribes the alternative method of accounting for stock options. Had SFAS 123 been adopted, the Company would have recorded additional pre-tax costs of approximately $2.2 million for the year ended December 31, 2003. The pro-forma compensation cost was calculated using the Black-Scholes Options Pricing Model, which includes estimates based on assumptions for the risk-free interest rate, life of options and stock price volatility. Changes in the underlying assumptions could impact the pro-forma compensation cost.

Item 7a.

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 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. The Company generally does not engage in hedging activities with respect to foreign operations except for isolated situations involving inter-company payments that have not been material. The effects of foreign currency exchange rate fluctuations have historically not been material.

The Company’s exposure to interest rate changes is not significant. As of December 31, 2003, there were no bank borrowings outstanding. The Company’s investment in money market and other short-term instruments are primarily at variable rates.

24

CDI CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

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