CDI 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2012

or

¨ Transition Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

for the Transition Period from to .

Commission file number: 001-05519

CDI Corp.

(Exact name of registrant as specified in its charter)

Pennsylvania (State of incorporation)	23-2394430 (I.R.S. Employer Identification Number)
1717 Arch Street, 35th Floor, Philadelphia, PA 19103-2768 (Address of principal executive offices) (Zip Code)
(215) 569-2200 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES ¨ NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). x YES ¨ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨		Accelerated filer	x
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ YES x NO   

The number of shares outstanding of each of the registrant's classes of common stock as of October 26, 2012 was as follows:

Common stock,	$0.10 par value:		19,339,169 Shares
Class B common stock,		$0.10 par value:	None

CDI CORP.

Form 10-Q

For the Quarterly Period Ended September 30, 2012

TABLE OF CONTENTS

			Page No.
Note About Forward-Looking Statements			2
Part I:	FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets—September 30, 2012 and December 31, 2011	3
		Consolidated Statements of Income—Three and nine months ended September 30, 2012 and 2011	4
		Consolidated Statements of Comprehensive Income—Three and nine months ended September 30, 2012 and 2011	5
		Consolidated Statements of Equity—Nine months ended September 30, 2012 and 2011	6
		Consolidated Statements of Cash Flows—Nine months ended September 30, 2012 and 2011	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
Part II:	OTHER INFORMATION
	Item 1.	Legal Proceedings	25
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 3.	Defaults Upon Senior Securities	25
	Item 4.	Mine Safety Disclosures	25
	Item 5.	Other Information	25
	Item 6.	Exhibits	25
SIGNATURE			26
INDEX TO EXHIBTS			27

1

Note About Forward-Looking Statements

This quarterly report on Form 10-Q (including Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that address expectations or projections about the future, including, but not limited to, statements about our strategies for growth and future financial results (such as revenue, gross profit, operating profit, cash flow, and tax rate), are forward-looking statements. Some of the forward-looking statements can be identified by words like “anticipates,” “believes,” “expects,” “may,” “will,” “could,” “should,” “intends,” “plans,” “estimates” and similar references to future periods. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: weakness in general economic conditions and levels of capital spending by clients in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our clients' capital projects or the inability of our clients to pay our fees; the inability to successfully implement our new strategic plan; the termination of a major client contract or project; our ability to expand or replace our existing bank credit facility on terms comparable to, or more favorable than, those currently in place; credit risks associated with our clients; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training, and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on client contracts; negative outcome of pending and future claims and litigation; and government policies, legislation or judicial decisions adverse to our businesses.More detailed information about some of these and other risks and uncertainties may be found in our filings with the SEC, particularly in the “Risk Factors” section in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2011. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law.

Unless the context otherwise requires, all references herein to “CDI,” “the Registrant,” “the Company,” “we,” “us” or “our” are to CDI Corp. and its consolidated subsidiaries.

2

PART 1. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CDI CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

(Unaudited)

	September 30, 2012			December 31, 2011
Assets
Current assets:
Cash and cash equivalents	$	17,074		$	26,644
Accounts receivable, net of allowances of $2,152 and $3,698	248,822			222,889
Prepaid expenses and other current assets	9,472			10,322
Prepaid income taxes	1,675			2,182
Deferred income taxes	9,175			9,693
Total current assets	286,218			271,730
Property and equipment, net of accumulated depreciation of $73,625 and $75,914	22,963			25,295
Deferred income taxes	1,156			5,522
Goodwill	62,068			61,527
Other intangible assets, net	17,108			18,023
Other non-current assets	8,818			8,599
Total assets	$	398,331		$	390,696
Liabilities and Equity
Current liabilities:
Cash overdraft	$	2,279		$	3,363
Accounts payable	34,493			36,170
Accrued compensation and related expenses	47,087			41,943
Other accrued expenses and other current liabilities	17,686			25,278
Income taxes payable	1,802			3,207
Short-term borrowings	2,800			—
Total current liabilities	106,147			109,961
Deferred compensation	8,754			9,324
Other non-current liabilities	3,607			4,380
Total liabilities	118,508			123,665
Commitments and contingencies
Equity:
Preferred stock, $0.10 par value - authorized 1,000 shares; none issued	—			—
Common stock, $0.10 par value - authorized 100,000 shares; issued 21,800 and 21,642 shares	2,180			2,164
Class B common stock, $0.10 par value - authorized 3,175 shares; none issued	—			—
Additional paid-in-capital	66,865			63,860
Retained earnings	259,951			253,344
Accumulated other comprehensive income (loss)	2,546			(306		)
Common stock in treasury, at cost - 2,463 shares	(52,487		)	(52,487		)
Total CDI shareholders' equity	279,055			266,575
Noncontrolling interest	768			456
Total equity	279,823			267,031
Total liabilities and equity	$	398,331		$	390,696

See accompanying notes to consolidated financial statements.

3

CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Income

(in thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenue	$	279,390		$	272,474		$	834,415		$	791,849
Cost of services	224,670			214,732			668,482			622,817
Gross profit	54,720			57,742			165,933			169,032
Operating and administrative expenses	45,711			53,321			141,671			148,154
Operating profit	9,009			4,421			24,262			20,878
Other income (expense), net	(47		)	(63		)	(165		)	(222		)
Income before income taxes	8,962			4,358			24,097			20,656
Income tax expense	3,556			1,496			9,706			5,038
Net income	5,406			2,862			14,391			15,618
Less: Income attributable to the noncontrolling interest	57			48			267			128
Net income attributable to CDI	$	5,349		$	2,814		$	14,124		$	15,490
Earnings per common share:
Basic	$	0.27		$	0.15		$	0.73		$	0.81
Diluted	$	0.27		$	0.15		$	0.72		$	0.80

See accompanying notes to consolidated financial statements.

4

CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2012		2011			2012		2011
Net income	$	5,406	$	2,862		$	14,391	$	15,618
Other comprehensive income:
Foreign currency translation adjustments	3,143		(2,471		)	2,897		(1,184		)
Total comprehensive income	8,549		391			17,288		14,434
Less: Comprehensive income (loss) attributable to the noncontrolling interest	112		(15		)	312		80
Total comprehensive income attributable to CDI	$	8,437	$	406		$	16,976	$	14,354

See accompanying notes to consolidated financial statements.

5

CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Equity

(in thousands, except per share amounts)

(Unaudited)

	Common Stock					Treasury Stock			Additional Paid-In-Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total CDI Shareholders' Equity			Non-Controlling Interest			Total Equity
	Shares		Amount
Balance at December 31, 2010	21,531		$	2,153		$	(52,487	)	$	60,338		$	248,467		$	111		$	258,582		$	345		$	258,927
Net income	—		—			—			—			15,490			—			15,490			128			15,618
Translation adjustments	—		—			—			—			—			(1,136		)	(1,136		)	(48		)	(1,184		)
Stock-based compensation			—			—			2,291			—			—			2,291			—			2,291
Reclassification of equity awards from liabilities, net	—		—			—			1,139			—			—			1,139			—			1,139
Vesting of equity awards	146		15			—			(15		)	—			—			—			—			—
Common shares withheld for taxes	(36	)	(4		)	—			(536		)	—			—			(540		)	—			(540		)
Cash dividends paid ($0.39 per common share)	—		—			—			—			(7,463		)	—			(7,463		)	—			(7,463		)
Balance at September 30, 2011	21,641		$	2,164		$	(52,487	)	$	63,217		$	256,494		$	(1,025	)	$	268,363		$	425		$	268,788
Balance at December 31, 2011	21,642		$	2,164		$	(52,487	)	$	63,860		$	253,344		$	(306	)	$	266,575		$	456		$	267,031
Net income	—		—			—			—			14,124			—			14,124			267			14,391
Translation adjustments	—		—			—			—			—			2,852			2,852			45			2,897
Stock-based compensation	—		—			—			2,549			—			—			2,549			—			2,549
Reclassification of equity awards from liabilities, net	—		—			—			1,205			—			—			1,205			—			1,205
Vesting of equity awards	203		20			—			(20		)	—			—			—			—			—
Common shares withheld for taxes	(45	)	(4		)	—			(729		)	—			—			(733		)				(733		)
Cash dividends paid ($0.39 per common share)	—		—			—			—			(7,517		)	—			(7,517		)	—			(7,517		)
Balance at September 30, 2012	21,800		$	2,180		$	(52,487	)	$	66,865		$	259,951		$	2,546		$	279,055		$	768		$	279,823

See accompanying notes to consolidated financial statements.

6

CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2012			2011
Operating activities:
Net income	$	14,391		$	15,618
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	6,687			7,319
Amortization	980			1,024
Deferred income taxes	4,968			2,881
Stock-based compensation	2,549			2,291
Non-cash reduction in legal reserves	—			(9,698		)
Loss on disposal of assets, net	266			—
Changes in operating assets and liabilities:
Accounts receivable, net	(24,492		)	(21,558		)
Prepaid expenses and other current assets	871			(2,280		)
Accounts payable	(1,775		)	(2,748		)
Accrued expenses and other current liabilities	(2,615		)	4,310
Income taxes prepaid/payable	(898		)	1,354
Other non-current assets	(32		)	1,223
Deferred compensation	634			(1,076		)
Other non-current liabilities	(352		)	(537		)
Net cash provided by (used in) operating activities	1,182			(1,877		)
Investing activities:
Additions to property and equipment	(4,609		)	(4,946		)
Reacquired franchise rights	(65		)	(114		)
Other	97			(137		)
Net cash used in investing activities	(4,577		)	(5,197		)
Financing activities:
Dividends paid to shareholders	(7,517		)	(7,463		)
Net proceeds from short-term borrowings	2,800			3,571
Common shares withheld for taxes	(733		)	(540		)
Payment of acquisition-related contingent consideration	(370		)	—
Cash overdraft	(1,084		)	1,337
Net cash used in financing activities	(6,904		)	(3,095		)
Effect of exchange rate changes on cash and cash equivalents	729			(374		)
Net decrease in cash and cash equivalents	(9,570		)	(10,543		)
Cash and cash equivalents at beginning of period	26,644			28,746
Cash and cash equivalents at end of period	$	17,074		$	18,203
Supplemental disclosure of cash flow information:
Cash paid for interest	$	151		$	242
Cash paid for income taxes, net	$	5,802		$	1,018

See accompanying notes to consolidated financial statements.

7

CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

1. Business

CDI Corp. and subsidiaries (the “Company” or “CDI”) is an integrated engineering and technology services organization providing differentiated, client-focused solutions in select global industries. The Company derives most of its revenue by providing these services to large and mid-sized companies located primarily in the United States (“U.S.”), Canada and the United Kingdom (“UK”).

2. Principles of Consolidation and Basis of Presentation

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of CDI Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Basis of Presentation

The accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America (“GAAP”), the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. These statements should be read in conjunction with the Company's Form 10-K filed with the SEC on March 6, 2012. Results for the nine months endedSeptember 30, 2012 are not necessarily indicative of results that may be expected for the full year.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in the financial statements and accompanying notes. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates.

Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include the assumptions used in the determination of the allowance for doubtful accounts receivable, impairment assessment of goodwill and indefinite-lived intangible assets, determination of the recoverability of long-lived assets, assessment of legal contingencies and calculation of income taxes.

Reclassifications

Certain historical financial information in the prior period consolidated financial statements has been reclassified to conform to the current period presentation. Historical segment financial information has been reclassified as a result of the organizational changes announced in December 2011 to reflect the realignment of the Company's reporting segments and centralization of certain support functions previously contained in the reporting segments (see Note 12).

4. Recent Accounting Pronouncements

Effective January 1, 2013, the Company is required to adopt the provisions of Accounting Standards Update (“ASU”) No. 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, (“ASU 2012-02”), which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test. ASU 2012-02 is effective for fiscal years beginning after September 15, 2012 and early adoption is permitted. The adoption of ASU 2012-02 will not have an impact on the Company's consolidated financial position, results of operations or cash flows.

8

CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

5. Fair Value Disclosures

The Company maintains a non-qualified Deferred Compensation Plan for highly compensated employees. The assets of the plan are held in the name of CDI at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those deferred amounts. The assets of the plan are held in publicly traded mutual funds. The fair value of the plan assets is calculated using the market price of the mutual funds as of the end of the period.

The following tables summarize the assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011 by level of the fair value hierarchy:

			Fair Value Measurements at September 30, 2012 Using
	Fair Value Measurements at September 30, 2012		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description			(Level 1)		(Level 2)		(Level 3)
Mutual Funds:
Bond	$	2,132	$	2,132	$	—	$	—
Large Cap	1,667		1,667		—		—
International	858		858		—		—
Mid Cap	370		370		—		—
Small Cap	485		485		—		—
Balanced	302		302		—		—
Total Mutual Funds	5,814		5,814		—		—
Money Market Funds	1,956		1,956		—		—
Total Assets (1)	$	7,770	$	7,770	$	—	$	—

⁽¹⁾  At September 30, 2012, $0.4 million and $7.4 million are included in “Prepaid expenses and other current assets” (liability offset in “Other accrued expenses and other current liabilities”) and “Other non-current assets” (liability offset in “Deferred compensation”), respectively, in the consolidated balance sheet reflecting the non-qualified Deferred Compensation Plan assets.

			Fair Value Measurements At December 31, 2011 Using
	Fair Value Measurements at December 31, 2011		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description			(Level 1)		(Level 2)		(Level 3)
Mutual Funds:
Bond	$	1,967	$	1,967	$	—	$	—
Large Cap	1,463		1,463		—		—
International	1,053		1,053		—		—
Mid Cap	915		915		—		—
Small Cap	560		560		—		—
Balanced	234		234		—		—
Total Mutual Funds	6,192		6,192		—		—
Money Market Funds	1,765		1,765		—		—
Total Assets (1)	$	7,957	$	7,957	$	—	$	—

⁽¹⁾  At December 31, 2011, $0.8 million and $7.1 million are included in “Prepaid expenses and other current assets” (liability offset in “Other accrued expenses and other current liabilities”) and “Other non-current assets” (liability offset in “Deferred compensation”), respectively, in the consolidated balance sheet reflecting the non-qualified Deferred Compensation Plan assets.

9

CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

6. Goodwill and Other Intangible Assets

The Company performed its annual assessment for impairment of goodwill and other indefinite-lived intangible assets as of July 1, 2012 and determined there was no impairment. The Company's assessment determined that the fair values for each of the Company's reporting units, with the exception of PSS EMEA (formerly referred to as CDI AndersElite), were substantially in excess of their related carrying values as of July 1, 2012. The PSS EMEA reporting unit had a fair value in excess of its carrying value of 6% and goodwill of $10.8 million. In addition, the Company's assessment of the indefinite-lived trademark acquired as part of the acquisition of substantially all of the assets and certain liabilities of L. Robert Kimball & Associates, Inc. and two affiliated companies during 2010 determined that its fair value was 5% in excess of its $5.1 million carrying value as of July 1, 2012. The Company believes it has made reasonable estimates and assumptions to calculate the fair value of its reporting units and indefinite-lived intangible assets. If actual future results are not consistent with management's estimates and assumptions, the Company may have to take an impairment charge in the future related to its goodwill or other indefinite-lived intangible assets.

The following table summarizes the changes in the Company's carrying value of goodwill by reporting segment (see Note 12) during the nine months endedSeptember 30, 2012:

	December 31, 2011									September 30, 2012
	Gross Balance		Accumulated Impairment Losses			Additions		Translation and Other Adjustments		Gross Balance		Accumulated Impairment Losses
GETS	$	50,720	$	(15,171	)	$	—	$	—	$	50,720	$	(15,171	)
PSS	24,715		(8,312		)	—		442		25,157		(8,312		)
MRI	15,805		(6,230		)	—		99		15,904		(6,230		)
Total goodwill	$	91,240	$	(29,713	)	$	—	$	541	$	91,781	$	(29,713	)

The following tables summarize the changes in the Company's carrying value of other intangible assets during the nine months endedSeptember 30, 2012:

	December 31, 2011										September 30, 2012
	Gross Balance		Accumulated Amortization			Additions		Amortization			Gross Balance		Accumulated Amortization
Intangible assets subject to amortization:
Trademarks	$	100	$	(33	)	$	—	$	(25	)	$	100	$	(58	)
Developed technology	460		(92		)	—		(69		)	460		(161		)
Client relationships	11,960		(2,537		)	—		(792		)	11,960		(3,329		)
Non-compete	150		(46		)	—		(21		)	150		(67		)
Reacquired franchise rights	907		(111		)	65		(73		)	972		(184		)
Total intangible assets subject to amortization	13,577		(2,819		)	65		(980		)	13,642		(3,799		)
Indefinite-lived intangible assets:
Trademarks	7,265		—			—		—			7,265		—
Total other intangible assets	$	20,842	$	(2,819	)	$	65	$	(980	)	$	20,907	$	(3,799	)

10

CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

7. Restructuring and Other Related Costs

In December 2011, the Company announced a strategic growth initiative. As part of this initiative, the Company approved a restructuring plan (“the Restructuring Plan”) designed to reduce costs and improve efficiencies. Implementation of the Restructuring Plan started in December 2011 and is expected to be completed in 2012 with certain cash payments expected through the first half of 2013.

The following table summarizes the Restructuring Plan provision, activity and ending balances in “Other accrued expenses and other current liabilities” in the consolidated balance sheets during the period ended September 30, 2012 by cost type:

	December 31, 2011		Cash Payments			September 30, 2012
Employee severance and related costs	$	5,372	$	(4,090	)	$	1,282
Real estate exit and related costs	831		(551		)	280
Total	$	6,203	$	(4,641	)	$	1,562

8. Short-Term Borrowings

At September 30, 2012, there were $2.8 million of outstanding borrowings, $3.6 million of letters of credit outstanding, and $43.6 million available to borrow under the Credit Agreement with JPMorgan Chase Bank, N.A., the term of which expires on November 30, 2012. The Company is evaluating options to address the expiration of the Credit Facility including refinancing with a new credit facility. At December 31, 2011 there were no outstanding borrowings. The Company was in compliance with all covenants under the Credit Agreement as of September 30, 2012.

9. Basic and Diluted Earnings Per Share (“EPS”) Data

The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the three and nine months endedSeptember 30, 2012 and September 30, 2011:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Numerator:
Net income attributable to CDI	$	5,349	$	2,814	$	14,124	$	15,490
Denominator:
Basic weighted-average shares outstanding	19,541		19,170		19,342		19,133
Dilutive effect of stock-based awards	429		168		408		205
Diluted weighted-average shares outstanding	19,970		19,338		19,750		19,338
Earnings per common share:
Basic	$	0.27	$	0.15	$	0.73	$	0.81
Diluted	$	0.27	$	0.15	$	0.72	$	0.80

There were 287 thousand shares and 984 thousand shares excluded from the computation of EPS for the three months endedSeptember 30, 2012 and September 30, 2011, respectively, because their inclusion would have been anti-dilutive. There were 426 thousand shares and 812 thousand shares excluded from the computation of EPS for the nine months endedSeptember 30, 2012 and September 30, 2011, respectively, because their inclusion would have been anti-dilutive.

10. Commitments, Contingencies and Legal Proceedings

Legal Proceedings

The Company has litigation and other claims pending which have arisen in the ordinary course of business. Management believes there are substantive defenses and/or insurance and specific accounting reserves established such that the outcome of these pending matters should not have a material adverse effect on the business, financial condition or results of operations of the Company.

11

CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

11. Income Taxes

The Company calculates an effective income tax rate each quarter based upon forecasted annual income by jurisdiction, statutory tax rates and other tax-related items. The impact of discrete items is recognized in the interim period in which they occur.

The effective tax rates for the three months endedSeptember 30, 2012 and September 30, 2011 were 39.7% and 34.3%, respectively. The effective income tax rate for both periods was unfavorably impacted by losses in foreign jurisdictions on which no tax benefit has been recognized. The rate for the three months endedSeptember 30, 2011 was favorably impacted primarily by Federal income tax credits under the Hiring Incentives to Restore Employment ("HIRE") Act .

The effective tax rates for the nine months endedSeptember 30, 2012 and September 30, 2011 were 40.3% and 24.4%, respectively. The effective income tax rate for both periods was unfavorably impacted by losses in foreign jurisdictions and reductions to deferred tax assets for stock-based compensation grants that expired with no corresponding tax benefit. In addition, the 2011 rate was favorably impacted by a reduction in the fine reserve for the United Kingdom's Office of Fair Trading ("OFT") matter and Federal income tax credits under the HIRE Act.

12. Reporting Segments

The Company has three reportable segments as follows:

• Global Engineering and Technology Solutions (“GETS”) - The Company provides engineering and information technology solutions for its clients that involve the production of deliverable work products or services performed at a CDI facility or at a client's facility under the supervision of CDI personnel. These solutions typically include analysis of a client's engineering or information technology needs and the development of a solution that generally range in duration from several months to multiple years. Depending on the industry, engineering services can include such functions as feasibility studies, technology assessment, conceptual design, cost estimating, preliminary design, execution planning, procurement optimization, detailed design, testing and validation of regulatory compliance, technology integration and operating and maintenance support. Information technology services can include assessments, execution of business application services, web development, help desk support, quality assurance and testing and program management. GETS provides these solutions through a delivery model consisting of: centers of excellence, with concentrated skill sets required for larger, more complex projects; regional centers to service local needs of clients; client-centered offices to deliver site-specific services; and off-shore and near-shore centers to leverage low-cost design resources.

• Professional Services Staffing (“PSS”) - The Company provides skilled technical and professional personnel to its clients for discrete periods of time to augment the client's workforce in times of project, seasonal, peak period or business cycle needs. These engagements can range from several months to multiple years in duration. The Company also provides permanent placement services. The Company provides professional staffing services to targeted industries that include managed services and managed staffing programs, functional staffing outsourcing and business advisory services. The Company delivers these services through its PSS delivery organization which provides centralized global staffing delivery focused on select engineering and technology skill sets and competencies.

• Management Recruiters International, Inc. (“MRI”) - MRI is a global franchisor that does business as MRINetwork^® and provides the use of its trademarks, business systems and training and support services to its franchisees who engage in the search and recruitment of executive, technical, professional and managerial personnel for employment by their clients. The MRI franchisees provide permanent placement services primarily under the brand names Management Recruiters^®, Sales Consultants^®, CompuSearch^® and OfficeMates 5^®. MRI also provides training and support, implementation services and back-office services to enable franchisees to pursue contract staffing opportunities.

For purposes of performance measurement, the Company charges certain expenses directly attributable to the reporting segments and allocates certain expenses and support costs. Support costs consist principally of employee benefit administration, accounting support, IT services and shared service center costs. Operating and administrative expenses that are not directly attributable to the reporting segments are classified as corporate. Identifiable assets of the reporting segments exclude corporate assets. Corporate assets consist principally of cash and certain prepaid expenses, non-trade accounts receivable, deferred tax assets attributable to the reporting segments, property and equipment and other assets.

12

CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Amounts in thousands, except per share amounts, unless otherwise indicated)

(Unaudited)

Reporting segment data is presented in the following table:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenue:
GETS	$	83,550		$	83,229		$	245,587		$	242,395
PSS	178,372			171,539			535,380			498,649
MRI	17,468			17,706			53,448			50,805
Total revenue	$	279,390		$	272,474		$	834,415		$	791,849
Gross profit:
GETS	$	24,241		$	24,586		$	70,942		$	73,230
PSS	22,679			24,875			70,878			71,486
MRI	7,800			8,281			24,113			24,316
Total gross profit	$	54,720		$	57,742		$	165,933		$	169,032
Operating profit:
GETS	$	7,515		$	5,768		$	19,474		$	13,887
PSS (1)	4,525			4,125			15,388			19,318
MRI	2,727			2,461			7,718			6,699
Corporate	(5,758		)	(7,933		)	(18,318		)	(19,026		)
Total operating profit	9,009			4,421			24,262			20,878
Other income (expense), net	(47		)	(63		)	(165		)	(222		)
Income before income taxes	$	8,962		$	4,358		$	24,097		$	20,656

⁽¹⁾  In the second quarter of 2011, the Company's PSS segment recorded a $9.7 million benefit related to the successful legal appeal of the United Kingdom's Office of Fair Trading matter.

Inter-segment activity is not significant; therefore, revenue reported for each operating segment is substantially from external clients.

Reporting segment asset data is presented in the following table:

	September 30,		December 31,
	2012		2011
Assets:
GETS	$	142,561	$	130,730
PSS	173,724		162,835
MRI	26,739		28,697
Corporate	55,307		68,434
Total assets	$	398,331	$	390,696

13

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Executive Overview

CDI is an integrated engineering and technology services organization providing differentiated, client-focused solutions in select global industries.

The Company's three reportable segments are: Global Engineering and Technology Solutions (“GETS”), Professional Services Staffing (“PSS”), and Management Recruiters International, Inc. (“MRI”). GETS and PSS provide a range of integrated engineering and technology solutions and professional staffing services to clients in the Oil, Gas and Chemical (“OGC”), Aerospace and Industrial Equipment (“AIE”), and Hi-Tech industry verticals as well as in "Other" industry verticals that include the U.S. defense, infrastructure, transportation, financial services, and mining and extraction industries. MRI derives revenues by providing contract staffing services and generating royalty and franchise fee income. The Company's principal objectives are to grow the Company's solutions business, optimize the Company's professional staffing operations and prioritize the geographic markets and industries to which the Company will deliver engineering and technology solutions. The Company is focused on offering services through three geographic regions: the Americas; Europe, the Middle East and Africa (“EMEA”); and Asia Pacific (“APAC”).

The Company's results of operations can be affected by economic conditions, including macroeconomic conditions, credit market conditions and levels of business confidence. There continues to be significant volatility in markets in the U.S. and around the world, as well as economic and geopolitical uncertainty in many of the markets where we operate, particularly in Europe. The Company will continue to monitor this volatility and uncertainty to position itself to respond to changing conditions.

In December 2011, the Company announced a strategic growth initiative and implemented a restructuring plan that reduced operating and administrative expenses during 2012.

Revenue during the third quarter ended September 30, 2012 increased by $6.9 million or 2.5% as compared to the third quarter of 2011, primarily due to growth in PSS. Gross profit decreased by $3.0 million and gross margin decreased to 19.6% from 21.2%, primarily reflecting higher growth in the lower margin PSS staffing business and a decrease in higher margin infrastructure engineering projects in GETS. Operating profit was $9.0 million during the third quarter of 2012 as compared to $4.4 million during the third quarter of 2011. The third quarter of 2011 operating profit included a charge of $0.6 million associated with the severance of certain senior-level executives. Operating profit improved primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts. Net income attributable to CDI was $5.3 million during the third quarter of 2012 as compared to $2.8 million in the third quarter of 2011. The third quarter of 2011 net income includes the benefit of a Hiring Incentives to Restore Employment (HIRE) Act Federal income tax credit of $0.3 million.

14

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Results of Operations

Consolidated Discussion

Three months endedSeptember 30, 2012 as compared to the three months endedSeptember 30, 2011

The table that follows presents changes in revenue by segment along with selected financial information and key metrics for the three months endedSeptember 30, 2012 and 2011:

	Three Months Ended
	September 30,
	2012					2011					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%
Revenue:
GETS	$	83,550		29.9	%	$	83,229		30.5	%	$	321		0.4	%
PSS	178,372			63.8		171,539			63.0		6,833			4.0
MRI	17,468			6.3		17,706			6.5		(238		)	(1.3	)
Total Revenue	$	279,390		100.0		$	272,474		100.0		$	6,916		2.5
Gross profit	$	54,720		19.6		$	57,742		21.2		$	(3,022	)	(5.2	)
Operating and administrative expenses	$	45,711		16.4		$	53,321		19.6		$	(7,610	)	(14.3	)
Operating profit	$	9,009		3.2		$	4,421		1.6		$	4,588		103.8
Pre-tax profit	$	8,962		3.2		$	4,358		1.6		$	4,604		105.6
Net income attributable to CDI	$	5,349		1.9		$	2,814		1.0		$	2,535		90.1
Cash flow provided by (used in) operations	$	9,014				$	(1,681	)
Effective income tax rate	39.7		%			34.3		%
After-tax return on CDI shareholders' equity (1)	4.9		%			0.2		%
Pre-tax return on net assets (2)	9.1		%			3.9		%

⁽¹⁾  Net Income (loss) attributable to CDI divided by the average of the beginning and ending balances of CDI shareholder's equity for the prior 12 consecutive months.

⁽²⁾  Income (loss) before income taxes for the year, divided by the average net assets at the beginning and end of the year for the prior 12 consecutive months. Net assets include total assets minus total liabilities excluding cash and cash equivalents, income tax accounts and debt.

Revenue increased for the third quarter of 2012 as compared to the third quarter of 2011 primarily due to growth in PSS. GETS and PSS increased revenues in each of the three strategic industry verticals. The increase in GETS revenue was predominantly offset by a decrease in the "Other" industry verticals due primarily to reduced spending by state and local governments on infrastructure engineering projects. The increase in PSS revenue was partially offset by a decrease in the "Other" industry verticals due primarily to the completion of several projects.

Gross profit dollars and gross profit margin decreased for the third quarter of 2012 as compared to the third quarter of 2011. The decrease was primarily due to the growth in lower margin PSS business and a decrease in higher margin infrastructure engineering projects in GETS.

Operating profit improved primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts.

The effective income tax rate for both periods was unfavorably impacted by losses in foreign jurisdictions on which no tax benefit has been recognized. The rate for the three months ended September 30, 2011 was favorably impacted by Federal income tax credits under the HIRE Act.

15

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Consolidated Discussion - Continued

Nine months endedSeptember 30, 2012 as compared to the nine months endedSeptember 30, 2011

The table that follows presents changes in revenue by segment along with selected financial information and key metrics for the nine months endedSeptember 30, 2012 and 2011:

	Nine Months Ended
	September 30,
	2012					2011					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%
Revenue:
GETS	$	245,587		29.4	%	$	242,395		30.6	%	$	3,192		1.3	%
PSS	535,380			64.2		498,649			63.0		36,731			7.4
MRI	53,448			6.4		50,805			6.4		2,643			5.2
Total Revenue	$	834,415		100.0		$	791,849		100.0		$	42,566		5.4
Gross profit	$	165,933		19.9		$	169,032		21.3		$	(3,099	)	(1.8	)
Operating and administrative expenses (1)	$	141,671		17.0		$	148,154		18.7		$	(6,483	)	(4.4	)
Operating profit	$	24,262		2.9		$	20,878		2.6		$	3,384		16.2
Pre-tax profit	$	24,097		2.9		$	20,656		2.6		$	3,441		16.7
Net income attributable to CDI	$	14,124		1.7		$	15,490		2.0		$	(1,366	)	(8.8	)
Cash flow provided by (used in) operations	$	1,182				$	(1,877	)
Effective income tax rate	40.3		%			24.4		%

⁽¹⁾  In the second quarter of 2011, the Company's PSS segment recorded a $9.7 million benefit related to the successful legal appeal of the OFT matter.

Revenue increased for the first nine months of 2012 as compared to the first nine months of 2011 driven by growth in all segments, particularly PSS. The OGC industry vertical was the primary driver of growth in both PSS and GETS. These increases were partially offset by the declining revenues in the "Other" industry verticals due primarily to reduced spending by state and local governments on infrastructure engineering projects in GETS and the completion of several projects in PSS.

Gross profit dollars and gross profit margin decreased for the first nine months of 2012 as compared to the first nine months of 2011 due primarily to the decrease in higher margin infrastructure projects in GETS and the higher growth in lower margin business in PSS and MRI.

Operating profit for the first nine months of 2011 includes a benefit of $9.7 million related to the successful legal appeal of the United Kingdom's Office of Fair Trading ("OFT") matter. Excluding the impact of the OFT matter, operating profit improved primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts.

The effective income tax rate for both periods was unfavorably impacted by losses in foreign jurisdictions and reductions to deferred tax assets for stock-based compensation grants that expired with no corresponding tax benefit. In addition, the 2011 rate was favorably impacted by a reduction in the fine reserve for the OFT matter and Federal income tax credits under the HIRE Act.

16

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Segment Discussion

Global Engineering and Technology Solutions ("GETS ")

Three months endedSeptember 30, 2012 as compared to the three months endedSeptember 30, 2011

The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for GETS for the three months endedSeptember 30, 2012 and 2011:

	Three Months Ended
	September 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%
Revenue:
Oil, Gas and Chemicals ("OGC")	$	27,713	33.2	%	$	26,026	31.3	%	$	1,687		6.5	%
Aerospace and Industrial Equipment ("AIE")	19,500		23.3		18,094		21.7		1,406			7.8
Hi-Tech	8,502		10.2		7,381		8.9		1,121			15.2
Other	27,835		33.3		31,728		38.1		(3,893		)	(12.3	)
Total revenue	83,550		100.0		83,229		100.0		321			0.4
Cost of services	59,309		71.0		58,643		70.5		666			1.1
Gross profit	24,241		29.0		24,586		29.5		(345		)	(1.4	)
Operating and administrative expenses	16,726		20.0		18,818		22.6		(2,092		)	(11.1	)
Operating profit	$	7,515	9.0		$	5,768	6.9		$	1,747		30.3

GETS' revenue increased during the third quarter of 2012 as compared to the third quarter of 2011 due to the growth in the OGC, AIE and Hi-Tech industry verticals partially offset by a decrease in the "Other" industry verticals. The increase in OGC revenue was driven by strong growth within existing clients partially offset by the loss of certain non-strategic clients. AIE revenue growth was beneficially impacted by strong growth in commercial aviation business, partially offset by declines in government-related spending and defense-related projects. Hi-Tech revenue increased in the third quarter of 2012 as compared to the third quarter of 2011 due primarily to an increase in project revenue. The "Other" industry verticals experienced continued weakness in state and local government spending on infrastructure engineering projects partially offset by increased naval defense spending.

GETS' gross profit dollars and gross profit margin decreased for the third quarter of 2012 as compared to the third quarter of 2011 primarily due to the decline in higher margin infrastructure engineering projects.

GETS' operating and administrative expenses decreased during the third quarter of 2012 as compared to the third quarter of 2011 primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts.

GETS' operating profit increased for the third quarter of 2012 as compared to the third quarter of 2011 driven by lower operating and administrative expenses primarily due to the ongoing cost savings from the restructuring initiative and savings from additional cost containment efforts partially offset by the decline in higher margin infrastructure engineering projects.

17

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Global Engineering and Technology Solutions - Continued

Nine months endedSeptember 30, 2012 as compared to the nine months endedSeptember 30, 2011

The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for GETS for the nine months endedSeptember 30, 2012 and 2011:

	Nine Months Ended
	September 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%
Revenue:
Oil, Gas and Chemicals ("OGC")	$	83,908	34.2	%	$	72,942	30.1	%	$	10,966		15.0	%
Aerospace and Industrial Equipment ("AIE")	53,918		22.0		54,431		22.5		(513		)	(0.9	)
Hi-Tech	24,653		10.0		22,163		9.1		2,490			11.2
Other	83,108		33.8		92,859		38.3		(9,751		)	(10.5	)
Total revenue	245,587		100.0		242,395		100.0		3,192			1.3
Cost of services	174,645		71.1		169,165		69.8		5,480			3.2
Gross profit	70,942		28.9		73,230		30.2		(2,288		)	(3.1	)
Operating and administrative expenses	51,468		21.0		59,343		24.5		(7,875		)	(13.3	)
Operating profit	$	19,474	7.9		$	13,887	5.7		$	5,587		40.2

GETS' revenue increased during the first nine months of 2012 as compared to the first nine months of 2011 primarily due to the growth in the OGC and Hi-Tech industry verticals partially offset by a decrease in the "Other" industry verticals. The increase in OGC revenue was primarily driven by the growth within existing clients in the gas and chemical industries. Hi-Tech revenue increased in the first nine months of 2012 as compared to the first nine months of 2011 due primarily to the growth within existing clients. The "Other" industry verticals experienced continued weakness in state and local government spending on infrastructure engineering projects partially offset by increased naval defense spending.

GETS' gross profit dollars and gross profit margin decreased for the first nine months of 2012 as compared to the first nine months of 2011 primarily due to the decline in higher margin infrastructure engineering projects.

GETS' operating and administrative expenses decreased during the first nine months of 2012 as compared to the first nine months of 2011 primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts.

GETS' operating profit increased for the first nine months of 2012 as compared to the first nine months of 2011 driven by lower operating and administrative expenses primarily due to the ongoing cost savings from the restructuring plan and savings from additional cost containment efforts partially offset by the decline in higher margin infrastructure engineering projects.

18

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Professional Services Staffing ("PSS")

Three months endedSeptember 30, 2012 as compared to the three months endedSeptember 30, 2011

The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for PSS for the three months endedSeptember 30, 2012 and 2011:

	Three Months Ended
	September 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%
Revenue:
Oil, Gas and Chemicals ("OGC")	$	31,551	17.7	%	$	22,855	13.3	%	$	8,696		38.0	%
Aerospace and Industrial Equipment ("AIE")	21,555		12.1		16,351		9.5		5,204			31.8
Hi-Tech	72,136		40.4		69,930		40.8		2,206			3.2
Other	53,130		29.8		62,403		36.4		(9,273		)	(14.9	)
Total revenue	178,372		100.0		171,539		100.0		6,833			4.0
Cost of services	155,693		87.3		146,664		85.5		9,029			6.2
Gross profit	22,679		12.7		24,875		14.5		(2,196		)	(8.8	)
Operating and administrative expenses	18,154		10.2		20,750		12.1		(2,596		)	(12.5	)
Operating profit	$	4,525	2.5		$	4,125	2.4		$	400		9.7

PSS' revenue increased for the third quarter of 2012 as compared to the third quarter of 2011 driven by growth in the OGC, AIE and Hi-Tech industry verticals, partially offset by a decrease in revenue in the "Other" industry verticals. OGC revenue growth was primarily due to increased demand for pipeline-related inspection activities at existing clients. AIE revenue growth was primarily due to the impact of new clients. Hi-Tech revenue growth was primarily due to increased demand at existing clients and to lesser extent the impact of new clients. Revenue in the "Other" industry verticals decreased due primarily to the impact of the completion of several projects for clients in the financial services and construction industries.

PSS' gross profit dollars decreased for the third quarter of 2012 as compared to the third quarter of 2011. PSS' gross profit margin declined primarily due to a higher percentage of revenue being derived from lower margin business.

PSS' operating and administrative expenses decreased during the third quarter of 2012 as compared to the third quarter of 2011 primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts.

PSS' operating profit increased for the third quarter of 2012 as compared to the third quarter of 2011 driven by lower operating and administrative expenses primarily due to the ongoing cost savings from the restructuring initiative and savings from additional cost containment efforts partially offset by a higher percentage of revenue being derived from lower margin business.

19

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Professional Services Staffing - Continued

Nine months endedSeptember 30, 2012 as compared to the nine months endedSeptember 30, 2011

The following table presents changes in revenue by industry vertical, cost of services, gross profit, operating and administrative expenses and operating profit for PSS for the nine months endedSeptember 30, 2012 and 2011:

	Nine Months Ended
	September 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%
Revenue:
Oil, Gas and Chemicals ("OGC")	$	85,589	16.0	%	$	56,508	11.3	%	$	29,081		51.5	%
Aerospace and Industrial Equipment ("AIE")	62,743		11.7		46,264		9.3		16,479			35.6
Hi-Tech	222,869		41.6		213,785		42.9		9,084			4.2
Other	164,179		30.7		182,092		36.5		(17,913		)	(9.8	)
Total revenue	535,380		100.0		498,649		100.0		36,731			7.4
Cost of services	464,502		86.8		427,163		85.7		37,339			8.7
Gross profit	70,878		13.2		71,486		14.3		(608		)	(0.9	)
Operating and administrative expenses (1)	55,490		10.4		52,168		10.5		3,322			6.4
Operating profit	$	15,388	2.9		$	19,318	3.9		$	(3,930	)	(20.3	)

⁽¹⁾  In the second quarter of 2011, the Company's PSS segment recorded a $9.7 million benefit related to the successful legal appeal of the OFT matter.

PSS' revenue increased for the first nine months of 2012 as compared to the first nine months of 2011 driven by growth in the OGC, AIE and Hi-Tech industry verticals, partially offset by the revenue decrease in the "Other" industry verticals. OGC revenue growth was primarily due to increased demand for pipeline-related inspection activities. AIE revenue growth was primarily due to the impact of new clients. Hi-Tech revenue growth was primarily due to increased demand at existing clients. Revenue in the "Other" industry verticals decreased due primarily to the impact of the completion of several projects for clients in the financial services and construction industries.

PSS' gross profit dollars remained relatively flat in the first nine months of 2012 as compared to the first nine months of 2011. PSS' gross profit margin declined primarily due to a higher percentage of revenue being derived from lower margin business.

PSS's operating and administrative expenses for the first nine months of 2011 includes a benefit of $9.7 million related to the successful legal appeal of the OFT matter. Excluding the impact of the OFT matter, operating and administrative expenses decreased primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts.

Operating profit for the first nine months of 2011 includes a benefit of $9.7 million related to the successful legal appeal of the OFT matter. Without the impact of the OFT matter, operating profit improved primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts.

20

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Management Recruiters International ("MRI")

Three months endedSeptember 30, 2012 as compared to the three months endedSeptember 30, 2011

The following table presents changes in revenue by service type, cost of services, gross profit, operating and administrative expenses and operating profit for MRI for the three months endedSeptember 30, 2012 and 2011:

	Three Months Ended
	September 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%
Revenue:
Contract Staffing	$	13,430	76.9	%	$	13,436	75.9	%	$	(6	)	—	%
Royalties and Franchise Fees	4,038		23.1		4,270		24.1		(232		)	(5.4	)
Total revenue	17,468		100.0		17,706		100.0		(238		)	(1.3	)
Cost of services	9,668		55.3		9,425		53.2		243			2.6
Gross profit	7,800		44.7		8,281		46.8		(481		)	(5.8	)
Operating and administrative expenses	5,073		29.0		5,820		32.9		(747		)	(12.8	)
Operating profit	$	2,727	15.6		$	2,461	13.9		$	266		10.8

MRI's revenue decreased for the third quarter of 2012 as compared to the third quarter of 2011 due primarily to the decline in royalty revenue related to reduced placements at MRI franchises. Contract staffing revenue remained flat compared to the third quarter of 2011.

MRI's gross profit dollars and margin decreased due to the decline in royalties and lower margins in the contract staffing business in the third quarter of 2012 as compared to the third quarter of 2011.

MRI's operating and administrative expenses decreased during the third quarter of 2012 as compared to the third quarter of 2011 primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011.

MRI's operating profit increased for the third quarter of 2012 as compared to the third quarter of 2011 driven primarily by the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 and savings from additional cost containment efforts partially offset by the decline in royalties and lower margins in the contract staffing business.

21

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Management Recruiters International - Continued

Nine months endedSeptember 30, 2012 as compared to the nine months endedSeptember 30, 2011

The following table presents changes in revenue by service type, cost of services, gross profit, operating and administrative expenses and operating profit for MRI for the nine months endedSeptember 30, 2012 and 2011:

	Nine Months Ended
	September 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%
Revenue:
Contract Staffing	$	41,240	77.2	%	$	38,385	75.6	%	$	2,855		7.4
Royalties and Franchise Fees	12,208		22.8		12,420		24.4		(212		)	(1.7	)
Total revenue	53,448		100.0		50,805		100.0		2,643			5.2
Cost of services	29,335		54.9		26,489		52.1		2,846			10.7
Gross profit	24,113		45.1		24,316		47.9		(203		)	(0.8	)
Operating and administrative expenses	16,395		30.7		17,617		34.7		(1,222		)	(6.9	)
Operating profit	$	7,718	14.4		$	6,699	13.2		$	1,019		15.2

MRI's revenue increased for the first nine months of 2012 as compared to the first nine months of 2011 due primarily to growth in contract staffing revenue related to MRI franchises.

MRI's gross profit dollars and margin decreased in the first nine months of 2012 as compared to the first nine months of 2011 due to a shift in mix to lower margin contract staffing business compared to royalty and franchise fee revenue.

MRI's operating and administrative expenses decreased for the first nine months of 2012 as compared to the first nine months of 2011 primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011.

MRI's operating profit increased for the first nine months of 2012 as compared to the first nine months of 2011 primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011.

22

CDI CORP. AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Amounts in thousands, except per share amounts, unless otherwise indicated)

Liquidity and Capital Resources

The Company's principal sources of liquidity are cash flows from operations, borrowings under our credit facilities and access to credit markets. The Company's principal uses of cash are operating expenses, capital expenditures, working capital requirements, dividends, and debt service. Management expects that the Company's current cash balances, cash generated from operations and unused borrowing capacity will be sufficient to support the Company's planned operating and capital requirements for the foreseeable future and at least the next twelve months.

At September 30, 2012, the Company had cash and cash equivalents of $17.1 million. At September 30, 2012, there were $2.8 million of outstanding borrowings, $3.6 million of letters of credit outstanding and $43.6 million available to borrow under the Credit Agreement with JPMorgan Chase Bank, N.A., the term of which expires on November 30, 2012. The Company is evaluating options to address the expiration of the Credit Facility on November 30, 2012, including refinancing with a new credit facility. The Credit Agreement contains customary affirmative covenants. In addition, the Credit Agreement contains certain negative covenants, including requirements to maintain a minimum liquidity balance (unrestricted cash and cash equivalents plus the amount of the unused credit line) of $20.0 million at the end of each fiscal quarter and $25.0 million before CDI Corp. can pay a dividend. The Company was in compliance with all financial covenants under the Credit Agreement as of September 30, 2012.

As of September 30, 2012, approximately 99% of the Company's cash and cash equivalents are held by certain non-U.S. subsidiaries, principally a Canadian entity, as well as being denominated in foreign currencies, principally Canadian dollars. The repatriation of cash and cash equivalent balances from non-U.S. subsidiaries could have adverse tax consequences; however, such cash and cash equivalent balances are generally available, without legal restrictions, to fund ordinary business operations at the local level. Deferred income taxes have not been provided on the unremitted earnings of such non-U.S. subsidiaries, because it is management's intention to reinvest such earnings in non-U.S. subsidiaries for the foreseeable future.

The following table summarizes the net cash provided by (used in) for the major captions from the Company's consolidated statements of cash flows:

	Nine Months Ended
	September 30,
	2012			2011			Change
Operating Activities	$	1,182		$	(1,877	)	$	3,059
Investing Activities	(4,577		)	(5,197		)	620
Financing Activities	(6,904		)	(3,095		)	(3,809		)

Operating Activities

For the first nine months of 2012, the Company provided $1.2 million net cash from operating activities, which was a $3.1 million improvement from the comparable period in 2011. Cash flow provided by operating activities increased due to the improvement in net income, after adjusting for non-cash items, partially offset by $4.6 million in payments during 2012 related to the restructuring announced in 2011 and an increase in working capital requirements due to the growth of the Company's business.

Investing Activities

For the first nine months of 2012, the Company used $4.6 million net cash in investing activities or $0.6 million less than the comparable period in 2011, which is primarily a result of less capital expenditures.

Financing Activities

For the first nine months of 2012, the Company used $6.9 million net cash in financing activities or $3.8 million more cash as compared to the comparable period in 2011 primarily due to the decrease in net short-term borrowings.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts disclosed in this Form 10-Q Report. Estimates, by their nature, are based on judgment and available information. Actual results could differ materially from those estimates. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the consolidated financial statements and because of the possibility that future events affecting them may differ from current judgments.

The critical accounting estimates and assumptions identified in the Company's 2011 Annual Report on Form 10-K filed on March 6, 2012 with the Securities and Exchange Commission have not materially changed.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to risks associated with foreign currency fluctuations and changes in interest rates.

Foreign Currency Risk

The Company's exposure to foreign currency fluctuations relates primarily to its operations denominated in Canadian dollars and British pounds sterling. Exchange rate fluctuations impact the U.S. dollar value of reported earnings derived from these foreign operations as well as the Company's investment in the net assets related to these operations. The Company utilizes derivative financial instruments from time to time to reduce its exposure to certain foreign currency fluctuations.

Interest Rate Risk

The interest rate risk associated with the Company's borrowing activities as of September 30, 2012 is not material in relation to its consolidated financial position, results of operations or cash flows. While it may do so in the future, the Company has not used derivative financial instruments to alter the interest rate characteristics of its debt instruments. At September 30, 2012 there was $2.8 million of outstanding borrowings, $3.6 million of letters of credit outstanding, and $43.6 million available to borrow under the Credit Agreement with JPMorgan Chase Bank, N.A., the term of which expires on November 30, 2012. The Company's cash balances are primarily invested in money market funds at variable rates and fixed term deposits. Due to the Company's cash balance, interest rate fluctuations will affect the Company's return on its investments.

Item 4.Controls and Procedures 

Evaluation of disclosure controls and procedures

The management of the Company, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2012. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of that date to provide reasonable assurance that information reported in this Form 10-Q Report is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There were no changes in the Company's internal control over financial reporting during the Company's third quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

24

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

The Company has litigation and other claims pending which have arisen in the ordinary course of business. Management believes there are substantive defenses and/or insurance and specific accounting reserves established such that the outcome of these pending matters should not have a material adverse effect on the business, financial condition or results of operations of the Company.

Item 1A.    Risk Factors

There have been no material changes from the risk factors disclosed in the “Risk Factors” section (Part I, Item 1A) of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.Unregistered Sales of Equity and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information 

None.

Item 6.Exhibits

The list of exhibits in the Index to Exhibits to this report is incorporated herein by reference.

25

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CDI Corp.
Date:	October 31, 2012	By:	/s/ Robert M. Larney
			Robert M. Larney
			Executive Vice President and
			Chief Financial Officer
			(Duly Authorized Officer and
			Principal Financial Officer)

26

INDEX TO EXHIBITS

Exhibit No.	Description
10.1	Form of 2012 Executive Incentive Program Overview distributed to executive officers.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
(101.INS)	XBRL Instance Document
(101.SCH)	XBRL Taxonomy Extension Schema Document
(101.CAL)	XBRL Taxonomy Extension Calculation Linkbase Document
(101.DEF)	XBRL Taxonomy Extension Definition Linkbase Document
(101.LAB)	XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)	XBRL Taxonomy Extension Presentation Linkbase Document

* Pursuant to Regulation S-T, these interactive data files are deemed not filed or incorporated in any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

27