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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from              to             

Commission file number 001-5519

CDI CORP.

(Exact name of Registrant as specified in its charter)

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

(Address of principal executive offices)

Registrant’s telephone number, including area code: (215) 569-2200

Indicate whether the Registrant (1) has filed all reports required to be filed by Section 13 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 whether the Registrant is an accelerated filer (as defined in Section 12b-2 of the Exchange Act.)    Yes  x    No  ¨

Outstanding shares of each of the Registrant’s classes of common stock as of May 4, 2005 were:

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CDI CORP.

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PART 1. FINANCIAL INFORMATION

Item 1.

CDI CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share data)

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share data)

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)

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(In thousands)

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

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, 2004 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, 2004 reported in Form 10-K, filed March 31, 2005. 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.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Results for the three month period ended March 31, 2005 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 has recorded accounts receivable of $2.4 million and $1.7 million at March 31, 2005 and December, 31, 2004, respectively, reflecting the anticipated recovery of costs incurred on contracts for which related change orders have not yet been approved by customers. Management believes that it is probable that these claims will be collectible from the customers.

2. Restatement of Financial Statements

As discussed in the Company’s Form 10-K for 2004, the Company has restated its consolidated financial statements for 2003 and for the first three quarters of 2004. All applicable financial information contained in this Form 10-Q gives effect to these restatements. Accordingly, the consolidated financial statements of the Company for these periods and the segment data for the Business Solutions segment for these periods (which was the only segment affected by the restatement) included in filings prior to the filing of the Company’s Form 10-K for 2004 with the Securities and Exchange Commission (“SEC”) should no longer be relied upon.

The Company’s Form 10-K for 2004 filed with the SEC on March 31, 2005, contains restated information for all of the above periods to which the restatement applies and other information relating to the restatement, in the Form 10-K Item 6 “Selected Financial Data,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Restatement of Financial Statements,” Note 2 of the Notes to Consolidated Financial Statements and Quarterly Results (Unaudited) Supplementary Data included in Item 8, and Item 9A, “Controls and Procedures.”

The net effect of all of the restatement adjustments for the three months ended March 31, 2004 was to decrease the Company’s pre-tax earnings by $0.3 million from that previously reported for such period. The Company’s consolidated statements of cash flows and shareholders’ equity have been restated to reflect the reclassification of changes in assets and liabilities during the period discussed above.

3. New Accounting Pronouncements

In December 2004, the FASB issued its final standard on accounting for share-based payments, SFAS 123R (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires companies to expense the fair value of employee stock options and other similar awards. When measuring the fair value of these awards,

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companies can choose from two different pricing models that reflect their specific circumstances and the economics of their transactions. In addition, the Company is in the process of selecting one of three transition methods available under SFAS 123R. Accordingly, the Company has not yet determined the impact on its consolidated financial statements of adopting SFAS 123R. In April 2005, the SEC adopted a new rule which delayed the date for compliance with SFAS 123R. The new effective date for the Company was delayed from July 1, 2005 until January 1, 2006.

In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 (“FAS 109-1”), “Application of FASB Statement No. 109, “Accounting for Income Taxes,” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” (“AJCA”). The AJCA introduces a special 9% tax deduction on qualified production activities. FAS 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with Statement 109. The Company does not expect the adoption of these new tax provisions to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

4. Cash and Cash Equivalents

Cash and cash equivalents as of March 31, 2005 and December 31, 2004 were comprised of the following:

Cash equivalents are in very liquid, high-quality debt securities with diversification among the investments based upon Company established guidelines.

5. Restructuring

There were no restructuring charges during the first three months of 2004 and 2005.

The table presented below shows the current year activity related to other restructurings from a balance sheet perspective:

The Company anticipates that the remaining liability for severance will be paid in 2005. The remaining liability for operating leases will be substantially paid by December 31, 2005. The liability for the provision for restructure is included in other accrued expenses in the accompanying consolidated balance sheets.

6. Real Estate Exit Costs

During 2004, the Company experienced continued declines in demand in its Life Sciences vertical within the Business Solutions segment. As a result, management evaluated certain office space and determined that there

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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 during the second and fourth quarters of 2004 resulting in the Company recording pre-tax charges of $2.9 million for real estate exit costs, of which $0.6 million related to leasehold improvements written off during those periods.

The table presented below shows the current year activity related to real estate exit costs from a balance sheet perspective by reportable segments:

The future payments related to the above lease obligations are expected to extend through 2011. The accrual for real estate exit costs is included in other accrued expenses in the accompanying consolidated balance sheets.

7. Earnings Per Share

Both basic and diluted earnings per share for all periods are calculated based on the reported earnings in the Company’s consolidated statements of earnings.

The number of common shares used to calculate basic and diluted earnings per share for the three months ended March 31, 2005 and 2004 was determined as follows:

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8. Stock Based Plans

During 2004, shareholders of the Company approved the CDI Corp. 2004 Omnibus Stock Plan (the “Omnibus Plan”). The Omnibus Plan replaced the 1998 Non-Qualified Stock Option Plan and the earlier Non-Qualified Stock Option and Stock Appreciation Rights Plan.

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 both the Stock Purchase Plan and the Omnibus Plan.

In December 2002, the FASB issued Statement of Financial Accounting Standard No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123”. The Company has elected to continue with its current practice of applying the recognition and measurement principles of APB 25. The Company has adopted the disclosure requirements of SFAS 148.

SFAS No. 123, “Accounting for Stock Based Compensation”, uses a fair value based method of accounting for stock-based compensation. The following table reflects the pro-forma effect on net earnings and earnings per share for the three month periods ended March 31, 2005 and 2004 if the Company had adopted the fair value recognition provisions of SFAS No. 123:

9. Reporting Segments

The Company has four reporting segments: Business Solutions (“BS”), AndersElite (“Anders”), Todays Staffing (“Todays”) and Management Recruiters International (“MRI”).

BS operates principally through the following five key verticals:

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BS also provides services to businesses in the automotive and financial services industries.

Anders is a leading United Kingdom firm specializing in providing 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, permanent placement, and managed staffing services for customers seeking office administrative, legal professionals, and financial staff.

MRI is a franchisor providing support services to its network of franchisees, who engage in the search and recruitment of technical, professional, management and sales personnel for employment by the franchisee’s customers. It also provides temporary management staffing services.

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Operating segment data is presented in the following tables:

Inter-segment activity is not significant; therefore, revenues reported for each operating segment are substantially all from external customers.

10. Legal Proceedings and Claims

The Company has litigation and other claims pending which have arisen in the ordinary course of business. The Company is a party to two arbitration proceedings involving disputes regarding amounts due under two separate fixed-price contracts with customers. The amounts claimed by the Company total $6.9 million, a portion of which has been recorded in accounts receivable as of March 31, 2005. The amounts claimed by the customers total approximately $10.0 million, none of which has been reserved as a liability. While management anticipates a favorable resolution of these disputes, a favorable resolution cannot be assured, and an unfavorable resolution of these disputes could be material to the Company’s consolidated financial statements.

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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,” “could,” “seeks,” “approximately,” “hopes,” “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 and the outcome of contracts in dispute, 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 2004 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 (“SEC”). 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.

Restatement of Financial Statements

As discussed in the Company’s Form 10-K for 2004, the Company restated its consolidated financial statements for 2003 and for the first three quarters of 2004. Financial information contained in this Form 10-Q gives effect to these restatements. Accordingly, the consolidated financial statements of the Company for these periods and the segment data for the Business Solutions segment for these periods (which was the only segment affected by the restatement) included in prior filings with the SEC should no longer be relied upon.

The Company’s Form 10-K for 2004 filed with the SEC on March 31, 2005 contains restated information for all of the above periods to which the restatement applies and other information relating to the restatement, in the Form 10-K Item 6 “Selected Financial Data,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Restatement of Financial Statements,” Note 2 of the Notes to Consolidated Financial Statements and Quarterly Results (Unaudited) Supplementary Data included in Item 8, and Item 9A, “Controls and Procedures.”

The net effect of all of the restatement adjustments for the three months ended March 31, 2004 was to decrease the Company’s pre-tax earnings by $0.3 million from that previously reported for such period. The Company’s consolidated statements of cash flows and shareholders’ equity have been restated to reflect the reclassification of changes in assets and liabilities during the period discussed above.

The Company is in the process of adopting and implementing a number of remedial measures that were recommended or identified in the course of the restatement process. These measures are summarized in Part I, Item 4, “Controls and Procedures.”

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Results of Operations

Overview

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

The increase in consolidated revenues is primarily due to increased demand for both staffing services and project outsourcing services as customers increased their capital spending in certain of the Company’s key vertical industries. Investments in sales-building and recruiting capabilities during 2004 and newly acquired account wins are beginning to generate positive revenue growth.

The decline in gross profit in the first quarter of 2005 as compared to 2004 was primarily due to margin pressures, particularly within the Business Solutions segment, and to higher employee benefit costs (e.g. medical and state unemployment insurance rates).

The increase in operating and administrative expenses during the first quarter of 2005 as compared to 2004 was due primarily to investments in sales and recruiting infrastructure, expenses incurred related to Sarbanes-Oxley compliance and higher accounting fees incurred in connection with the restatement of prior years’ financial restatements previously described. These increases in operating and administrative expenses were partially offset by expense reductions in the MRI segment.

Consolidated Results of Operations for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004

The following table presents quarter-over-quarter changes in revenues, gross profit, operating expenses, and operating profit from 2004 to 2005:

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The Company recorded consolidated revenues of $265.9 million in the first quarter of 2005, an increase of $9.9 million or 3.9%, as compared to the first quarter of 2004. Revenues in three of the four Company segments increased. The increase in consolidated revenues was primarily due to:

The decrease in revenue in MRI was due to lower franchise fees in the first quarter of 2005 as compared to the first quarter of 2004, which was partially offset by increases in staffing services and royalty revenues.

The Company’ s gross profit of $60.8 million in the first quarter of 2005 was down by $0.4 million, or .6%, as compared to the first quarter of 2004. The reductions in gross profit were due to gross profit margin decreases in Business Solutions and Todays which were largely attributable to continued competitive pricing pressures and increases in employee benefit costs. These decreases were partially offset by volume increases in Business Solutions, Anders and Todays.

Operating and administrative expenses were $57.7 million in the first quarter of 2005, an increase of $3.6 million or 6.6%, from first quarter of 2004. The increase in operating and administrative expenses was primarily driven by:

These increases in operating and administrative expenses were partially offset by lower operating expenses in MRI.

Operating profit was $3.5 million in the first quarter of 2005, as compared to an operating profit of $7.1 million in the first quarter of 2004. The $3.6 million reduction in operating profit was due to the $0.4 million decline in gross profit as well as the $3.6 million increase in operating and administrative expenses which was partially offset by the gain from sale of a non-operating corporate asset of $0.4 million.

The Company’s effective income tax rate for the first quarter of 2005 was 37.2% as compared to 35.5% in the same period last year. The lower effective income tax rate during the first quarter of 2004 was due primarily to realized benefits associated with refunds of state income taxes which did not recur in 2005.

The Company’s net income per diluted share was $0.12 for the first quarter of 2005, as compared to net income per diluted share of $0.24 in the first quarter of 2004.

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Segment Discussion

Business Solutions (“BS”)

The following table shows the revenue from each of the verticals within the BS segment for the first quarter of 2005 as compared to the first quarter of 2004:

The following table presents quarter-over-quarter changes in revenues, cost of services, gross profit, operating and administrative expenses, and operating profit for BS for 2005 and 2004:

BS’ revenues of $177.0 million for the quarter increased $4.5 million, or 2.6%, as compared to the first quarter of 2004. The revenue increase was due primarily to increased demand for project outsourcing primarily in the Process and Industrial vertical largely attributable to new account wins as customers begin to reinvest in their capital infrastructures.

This increase was partially offset by decreased volume in the Information Technology (“IT”), Aerospace, Government Services, and Life Science verticals. These revenue declines were primarily due to:

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Despite the higher revenue volume, BS’ gross profit of $32.5 million in the first quarter of 2005 decreased by $1.3 million, or 4.0%, as compared to the first quarter of 2004, due primarily to:

BS’ operating and administrative expenses of $29.2 million for the quarter increased $1.3 million, or 4.3%, as compared to the first quarter of 2004. This increase was due primarily to expenses associated with hiring sales and recruiting staff, including investments in strategic business development. This increase was largely offset by a reversal of a reserve of approximately $1.0 million in 2004, because the exposure it was originally established for never materialized.

AndersElite (“Anders”)

The following table presents quarter-over-quarter changes in revenues, cost of services, gross profit, operating and administrative expenses, and operating profit for Anders for 2005 and 2004 in U.S. dollars: