CDI-2012.6.30-10Q

10-Q 1 cdi-2012630x10q.htm FORM 10-Q CDI-2012.6.30-10Q

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 June 30, 2012


¨	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)

(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 July 27, 2012 was as follows:



Common stock,	$0.10 par value:		19,328,086 Shares
Class B common stock,		$0.10 par value:	None

CDI CORP.

Form 10-Q

For the Quarterly Period Ended June 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—June 30, 2012 and December 31, 2011	3
		Consolidated Statements of Income—Three and six months ended June 30, 2012 and 2011	4
		Consolidated Statements of Comprehensive Income—Three and six months ended June 30, 2012 and 2011	5
		Consolidated Statements of Equity—Six months ended June 30, 2012 and 2011	6
		Consolidated Statements of Cash Flows—Six months ended June 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

Table of Contents

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, 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 maintain or expand our existing bank credit facility on satisfactory terms; 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.

Table of Contents

PART 1. FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS (Unaudited)

CDI CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

(Unaudited)



	June 30, 2012			December 31, 2011

Assets
Current assets:
Cash and cash equivalents	$	6,325		$	26,644
Accounts receivable, net of allowances of $2,502 and $3,698	244,652			222,889
Prepaid expenses and other current assets	8,318			10,322
Prepaid income taxes	1,960			2,182
Deferred income taxes	6,883			9,693
Total current assets	268,138			271,730
Property and equipment, net of accumulated depreciation of $71,076 and $75,914	23,602			25,295
Deferred income taxes	4,980			5,522
Goodwill	61,524			61,527
Other intangible assets, net	17,436			18,023
Other non-current assets	8,299			8,599
Total assets	$	383,979		$	390,696

Liabilities and Equity
Current liabilities:
Cash overdraft	$	—		$	3,363
Accounts payable	32,847			36,170
Accrued compensation and related expenses	45,430			41,943
Other accrued expenses and other current liabilities	19,946			25,278
Income taxes payable	627			3,207
Total current liabilities	98,850			109,961
Deferred compensation	8,174			9,324
Other non-current liabilities	3,822			4,380
Total liabilities	110,846			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 21,791 and 21,642 shares	2,179			2,164
Class B common stock, $0.10 par value - authorized 3,175 shares; none issued	—			—
Additional paid-in-capital	66,212			63,860
Retained earnings	257,115			253,344
Accumulated other comprehensive loss	(542		)	(306		)
Common stock in treasury, at cost - 2,463 shares	(52,487		)	(52,487		)
Total CDI shareholders' equity	272,477			266,575
Noncontrolling interest	656			456
Total equity	273,133			267,031
Total liabilities and equity	$	383,979		$	390,696

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Income

(in thousands, except per share data)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

Revenue	$	274,398		$	262,739		$	555,025		$	519,375
Cost of services	218,870			205,779			443,812			408,085
Gross profit	55,528			56,960			111,213			111,290
Operating and administrative expenses	47,664			43,256			95,960			94,833
Operating profit	7,864			13,704			15,253			16,457
Other income (expense), net	(80		)	(116		)	(118		)	(159		)
Income before income taxes	7,784			13,588			15,135			16,298
Income tax expense	2,713			1,572			6,150			3,542
Net income	5,071			12,016			8,985			12,756
Less: Income attributable to the noncontrolling interest	119			34			210			80
Net income attributable to CDI	$	4,952		$	11,982		$	8,775		$	12,676

Earnings per common share:
Basic	$	0.26		$	0.62		$	0.46		$	0.66
Diluted	$	0.25		$	0.62		$	0.45		$	0.66

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

Net income	$	5,071		$	12,016		$	8,985		$	12,756
Other comprehensive income:
Foreign currency translation adjustments	(1,637		)	(335		)	(246		)	1,287
Total comprehensive income	3,434			11,681			8,739			14,043
Less: Comprehensive income attributable to the noncontrolling interest	64			36			200			95
Total comprehensive income attributable to CDI	$	3,370		$	11,645		$	8,539		$	13,948

See accompanying notes to consolidated financial statements.

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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			Treasury Stock			Additional Paid-In-Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total CDI Shareholders' Equity			Non-Controlling Interest			Total Equity

Balance at December 31, 2010	21,531		$	2,153		$	(52,487	)	$	60,338		$	248,467		$	111		$	258,582		$	345		$	258,927
Net income	—		—			—			—			12,676			—			12,676			80			12,756
Translation adjustments	—		—			—			—			—			1,272			1,272			15			1,287
Stock-based compensation			—			—			1,543			—			—			1,543			—			1,543
Reclassification of equity awards from liabilities, net	—		—			—			1,264			—			—			1,264			—			1,264
Vesting of equity awards	134		13			—			(13		)	—			—			—			—			—
Common shares withheld for taxes	(34	)	(3		)	—			(503		)	—			—			(506		)	—			(506		)
Cash dividends declared ($0.26 per common share)	—		—			—			—			(4,971		)	—			(4,971		)	—			(4,971		)
Balance at June 30, 2011	21,631		$	2,163		$	(52,487	)	$	62,629		$	256,172		$	1,383		$	269,860		$	440		$	270,300

Balance at December 31, 2011	21,642		$	2,164		$	(52,487	)	$	63,860		$	253,344		$	(306	)	$	266,575		$	456		$	267,031
Net income	—		—			—			—			8,775			—			8,775			210			8,985
Translation adjustments	—		—			—			—			—			(236		)	(236		)	(10		)	(246		)
Stock-based compensation	—		—			—			1,736			—			—			1,736			—			1,736
Reclassification of equity awards from liabilities, net	—		—			—			1,289			—			—			1,289			—			1,289
Vesting of equity awards	190		19			—			(19		)	—			—			—			—			—
Common shares withheld for taxes	(41	)	(4		)	—			(654		)	—			—			(658		)				(658		)
Cash dividends declared ($0.26 per common share)	—		—			—			—			(5,004		)	—			(5,004		)	—			(5,004		)
Balance at June 30, 2012	21,791		$	2,179		$	(52,487	)	$	66,212		$	257,115		$	(542	)	$	272,477		$	656		$	273,133

See accompanying notes to consolidated financial statements.

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CDI CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



	Six Months Ended
	June 30,
	2012			2011

Operating activities:
Net income	$	8,985		$	12,756
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation	4,449			4,874
Amortization	652			681
Deferred income taxes	3,344			1,862
Stock-based compensation	1,736			1,543
Non-cash reduction in legal reserves	—			(9,698		)
Loss on sale of assets	249			—
Changes in operating assets and liabilities:
Accounts receivable, net	(22,022		)	(13,257		)
Prepaid expenses and other current assets	1,996			788
Accounts payable	(3,303		)	1,075
Accrued expenses and other current liabilities	(1,594		)	(2,074		)
Income taxes prepaid/payable	(2,358		)	1,149
Other non-current assets	296			(318		)
Deferred compensation	137			553
Other non-current liabilities	(399		)	(130		)
Net cash used in operating activities	(7,832		)	(196		)

Investing activities:
Additions to property and equipment	(3,095		)	(3,528		)
Reacquired franchise rights	(65		)	(47		)
Other	95			(142		)
Net cash used in investing activities	(3,065		)	(3,717		)

Financing activities:
Dividends paid to shareholders	(5,004		)	(4,971		)
Net proceeds from short-term debt	—			5,324
Common shares withheld for taxes	(658		)	(506		)
Payment of acquisition-related contingent consideration	(370		)	—
Cash overdraft	(3,363		)	(487		)
Net cash used in financing activities	(9,395		)	(640		)

Effect of exchange rate changes on cash and cash equivalents	(27		)	499
Net decrease in cash and cash equivalents	(20,319		)	(4,054		)
Cash and cash equivalents at beginning of period	26,644			28,746
Cash and cash equivalents at end of period	$	6,325		$	24,692

Supplemental disclosure of cash flow information:
Cash paid for interest	$	119		$	130
Cash paid for income taxes, net	$	5,293		$	461

See accompanying notes to consolidated financial statements.

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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 six months ended June 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 valuation of accounts receivable, goodwill, intangible assets, other long-lived assets, legal contingencies and assumptions used in the calculations 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 11-Reporting Segments, in the notes to the consolidated financial statements included in this Form 10-Q Report).


4.	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 June 30, 2012 and December 31, 2011 by level of the fair value hierarchy:

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(Unaudited)



			Fair Value Measurements At June 30, 2012 Using
	Fair Value Measurements at June 30, 2012		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Fair Value Measurements at June 30, 2012		(Level 1)		(Level 2)		(Level 3)

Mutual Funds:
Bond	$	1,639	$	1,639	$	—	$	—
Large Cap	1,753		1,753		—		—
International	937		937		—		—
Mid Cap	343		343		—		—
Small Cap	437		437		—		—
Balanced	337		337		—		—
Total Mutual Funds	5,446		5,446		—		—
Money Market Funds	1,822		1,822		—		—
Total Assets ⁽¹⁾	$	7,268	$	7,268	$	—	$	—


⁽¹⁾	At June 30, 2012, $0.4 million and $6.9 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	Fair Value Measurements at December 31, 2011		(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.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(Unaudited)


5.	Goodwill and Other Intangible Assets

The following table summarizes the changes in the Company's carrying value of goodwill by reporting segment during the six months ended June 30, 2012:



	December 31, 2011										June 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		)	—		(3		)	24,712		(8,312		)
MRI	15,805		(6,230		)	—		—			15,805		(6,230		)
Total goodwill	$	91,240	$	(29,713	)	$	—	$	(3	)	$	91,237	$	(29,713	)

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



	December 31, 2011										June 30, 2012
	Gross Balance		Accumulated Amortization			Additions		Amortization			Gross Balance		Accumulated Amortization

Intangible assets subject to amortization:
Trademarks	$	100	$	(33	)	$	—	$	(17	)	$	100	$	(50	)
Developed Technology	460		(92		)	—		(46		)	460		(138		)
Client relationships	11,960		(2,537		)	—		(527		)	11,960		(3,064		)
Non-Compete	150		(46		)	—		(14		)	150		(60		)
Reacquired franchise rights	907		(111		)	65		(48		)	972		(159		)
Total intangible assets subject to amortization	13,577		(2,819		)	65		(652		)	13,642		(3,471		)
Indefinite-lived intangible assets:
Trademarks	7,265		—			—		—			7,265		—
Total other intangible assets	$	20,842	$	(2,819	)	$	65	$	(652	)	$	20,907	$	(3,471	)


6.	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 June 30, 2012 by cost type:



	December 31, 2011		Cash Payments			June 30, 2012

Employee severance and related costs	$	5,372	$	(3,299	)	$	2,073
Real estate exit and related costs	831		(359		)	472
Total	$	6,203	$	(3,658	)	$	2,545


7.	Short-Term Borrowings

At June 30, 2012 and December 31, 2011, there were no outstanding borrowings and $45.7 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 was in compliance with all covenants under the Credit Agreement as of June 30, 2012.

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(Unaudited)


8.	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 six months ended June 30, 2012 and June 30, 2011:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011

Numerator:
Net income attributable to CDI	$	4,952	$	11,982	$	8,775	$	12,676
Denominator:
Basic weighted-average shares	19,285		19,145		19,243		19,114
Dilutive effect of stock-based awards	422		203		397		224
Diluted weighted-average shares	19,707		19,348		19,640		19,338
Earnings per common share:
Basic	$	0.26	$	0.62	$	0.46	$	0.66
Diluted	$	0.25	$	0.62	$	0.45	$	0.66

There were 309 thousand shares and 707 thousand shares excluded from the computation of EPS for the three months ended June 30, 2012 and June 30, 2011, respectively, because their inclusion would have been anti-dilutive. There were 495 thousand shares and 725 thousand shares excluded from the computation of EPS for the six months ended June 30, 2012 and June 30, 2011, respectively, because their inclusion would have been anti-dilutive.


9.	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.


10.	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 ended June 30, 2012 and June 30, 2011 were 34.9% and 11.6%, 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. In addition, the effective income tax rate for the three months ended June 30, 2011 was favorably impacted primarily by a reduction in the reserve for the UK Office of Fair Trading ("OFT") matter.

The effective tax rates for the six months ended June 30, 2012 and June 30, 2011 were 40.6% and 21.7%, respectively. The effective income tax rate for the six months ended June 30, 2011 was favorably impacted primarily by a reduction in the reserve for the OFT matter.


11.	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

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(Unaudited)

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 for the Company's geographic regions 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.

Reporting segment data is presented in the following table:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

Revenue:
GETS	$	80,762		$	80,169		$	162,037		$	159,166
PSS	175,275			165,170			357,008			327,110
MRI	18,361			17,400			35,980			33,099
Total revenue	$	274,398		$	262,739		$	555,025		$	519,375

Gross profit:
GETS	$	23,454		$	24,699		$	46,701		$	48,644
PSS	23,761			23,876			48,199			46,611
MRI	8,313			8,385			16,313			16,035
Total gross profit	$	55,528		$	56,960		$	111,213		$	111,290

Operating profit:
GETS	$	6,021		$	4,137		$	11,959		$	8,119
PSS	5,069			12,995			10,863			15,193
MRI	2,738			2,477			4,991			4,238
Corporate	(5,964		)	(5,905		)	(12,560		)	(11,093		)
Total operating profit	7,864			13,704			15,253			16,457
Other income (expense), net	(80		)	(116		)	(118		)	(159		)
Income before income taxes	$	7,784		$	13,588		$	15,135		$	16,298

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

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CDI CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(Unaudited)

Reporting segment asset data is presented in the following table:



	June 30,		December 31,
	2012		2011

Assets:
GETS	$	132,019	$	130,730
PSS	181,478		162,835
MRI	29,172		28,697
Corporate	41,310		68,434
Total assets	$	383,979	$	390,696

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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 second quarter ended June 30, 2012 increased by $11.7 million or 4.4% as compared to the second quarter of 2011, driven by growth in all three segments, particularly PSS, despite continued tightening of government spending. Gross profit decreased by $1.4 million as gross margin decreased to 20.2% from 21.7%, 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 $7.9 million during the second quarter of 2012 as compared to $13.7 million during the second quarter ended 2011. The second quarter of 2011 operating profit includes a benefit of $9.7 million related to the successful legal appeal of the UK Office of Fair Trading (OFT) matter and a charge of $0.7 million associated with the severance of certain senior-level executives. Excluding the impact of the OFT matter and severance charge, operating profit improved primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011. Net income attributable to CDI was $5.0 million during the second quarter of 2012 as compared to $12.0 million in the second quarter of 2011. In addition to the second quarter 2011 items discussed above, net income during the second quarter of 2012 included higher income tax expense as compared to the second quarter of 2011 primarily due to the non-taxable benefit related to the OFT matter.

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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 ended June 30, 2012 as compared to the three months ended June 30, 2011

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



	Three Months Ended
	June 30,
	2012					2011					Increase (Decrease)
	$			% of Total Revenue		$			% of Total Revenue		$			%

Revenue:
GETS	$	80,762		29.4	%	$	80,169		30.5	%	$	593		0.7	%
PSS	175,275			63.9		165,170			62.9		10,105			6.1
MRI	18,361			6.7		17,400			6.6		961			5.5
Total Revenue	$	274,398		100.0		$	262,739		100.0		$	11,659		4.4
Gross profit	$	55,528		20.2		$	56,960		21.7		$	(1,432	)	(2.5	)
Operating and administrative expenses ⁽¹⁾	$	47,664		17.4		$	43,256		16.5		$	4,408		10.2
Operating profit	$	7,864		2.9		$	13,704		5.2		$	(5,840	)	(42.6	)
Pre-tax profit	$	7,784		2.8		$	13,588		5.2		$	(5,804	)	(42.7	)
Net income attributable to CDI	$	4,952		1.8		$	11,982		4.6		$	(7,030	)	(58.7	)
Cash flow provided by (used in) operations	$	7,005				$	(2,175	)
Effective income tax rate	34.9		%			11.6		%
After-tax return on CDI shareholders' equity ⁽²⁾	4.0		%			(0.2		)%
Pre-tax return on net assets ⁽³⁾	7.4		%			4.0		%


⁽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.


⁽²⁾	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.


⁽³⁾	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 and income tax accounts.

Revenue increased for the second quarter of 2012 as compared to the second quarter of 2011 driven by growth in all segments, but predominantly in PSS. The OGC industry vertical was the primary driver of growth in both PSS and GETS. PSS revenue also increased in the AIE and Hi-Tech industry verticals. These increases were partially offset by the declining revenues in the "Other" industry verticals in GETS due primarily to reduced spending by state and local governments on infrastructure projects and in PSS due primarily to the completion of a major long-term project in 2011.

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

Operating profit for the three months ended June 30, 2011 includes a benefit of $9.7 million related to the successful legal appeal of the OFT matter and a charge of $0.7 million associated with the severance of certain senior-level executives. Excluding the impact of the OFT matter and severance charge, operating profit improved primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011.

The effective income tax rate for both periods was unfavorably impacted by losses in foreign jurisdictions on which no tax benefit has been recognized. In addition, the effective income tax rate for the three months ended June 30, 2011 was favorably impacted primarily by the benefit related to the OFT matter.

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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)

Six months ended June 30, 2012 as compared to the six months ended June 30, 2011

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



	Six Months Ended
	June 30,
	2012					2011						Increase (Decrease)
	$			% of Total Revenue		$				% of Total Revenue		$			%

Revenue:
GETS	$	162,037		29.2	%	$	159,166		159,166	30.6	%	$	2,871		1.8	%
PSS	357,008			64.3		327,110				63.0		29,898			9.1
MRI	35,980			6.5		33,099				6.4		2,881			8.7
Total Revenue	$	555,025		100.0		$	519,375			100.0		$	35,650		6.9
Gross profit	$	111,213		20.0		$	111,290			21.4		$	(77	)	(0.1	)
Operating and administrative expenses ⁽¹⁾	$	95,960		17.3		$	94,833			18.3		$	1,127		1.2
Operating profit	$	15,253		2.7		$	16,457			3.2		$	(1,204	)	(7.3	)
Pre-tax profit	$	15,135		2.7		$	16,298			3.1		$	(1,163	)	(7.1	)
Net income attributable to CDI	$	8,775		1.6		$	12,676			2.4		$	(3,901	)	(30.8	)
Cash flow used in operations	$	(7,832	)			$	(196	)
Effective income tax rate	40.6		%			21.7		%


⁽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 six months of 2012 as compared to the first six 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. PSS revenue also increased in AIE and Hi-Tech industry verticals. These increases were partially offset by the declining revenues in the "Other" industry verticals in GETS due primarily to reduced spending by state and local governments on infrastructure projects and in PSS due primarily to the completion of a major long-term project in 2011.

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

Operating profit for the first six months of 2011 includes a benefit of $9.7 million related to the successful legal appeal of the OFT matter and a charge of $0.7 million associated with the severance of certain senior-level executives. Excluding the impact of the OFT matter and severance charge, operating profit improved primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011.

The effective income tax rate for the six months ended June 30, 2011 was favorably impacted primarily by the non-taxable benefit related to the OFT matter.

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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 ended June 30, 2012 as compared to the three months ended June 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 ended June 30, 2012 and 2011:



	Three Months Ended
	June 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Oil, Gas and Chemicals ("OGC")	$	27,931	34.6	%	$	23,775	29.7	%	$	4,156		17.5	%
Aerospace and Industrial Equipment ("AIE")	17,506		21.7		18,646		23.3		(1,140		)	(6.1	)
Hi-Tech	8,086		10.0		7,353		9.2		733			10.0
Other	27,239		33.7		30,395		37.9		(3,156		)	(10.4	)
Total revenue	80,762		100.0		80,169		100.0		593			0.7
Cost of services	57,308		71.0		55,470		69.2		1,838			3.3
Gross profit	23,454		29.0		24,699		30.8		(1,245		)	(5.0	)
Operating and administrative expenses	17,433		21.6		20,562		25.6		(3,129		)	(15.2	)
Operating profit	$	6,021	7.5		$	4,137	5.2		$	1,884		45.5

GETS' revenue increased during the second quarter of 2012 as compared to the second quarter of 2011 primarily due to the growth in the OGC and Hi-Tech industry verticals partially offset by a decrease in the AIE and "Other" industry verticals. The increase in OGC revenue was driven by the addition of new clients and growth within existing clients. AIE revenue was negatively impacted by reduced government funding in defense-related projects partially offset by an increase in commercial aviation business. The "Other" industry verticals experienced continued weakness in state and local government spending on infrastructure projects, partially offset by improved performance in defense-related projects due to increased naval defense spending.

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

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

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

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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)

Six months ended June 30, 2012 as compared to the six months ended June 30, 2011



	Six Months Ended
	June 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Oil, Gas and Chemicals ("OGC")	$	56,195	34.7	%	$	46,916	29.5	%	$	9,279		19.8	%
Aerospace and Industrial Equipment ("AIE")	34,418		21.2		36,337		22.8		(1,919		)	(5.3	)
Hi-Tech	16,151		10.0		14,782		9.3		1,369			9.3
Other	55,273		34.1		61,131		38.4		(5,858		)	(9.6	)
Total revenue	162,037		100.0		159,166		100.0		2,871			1.8
Cost of services	115,336		71.2		110,522		69.4		4,814			4.4
Gross profit	46,701		28.8		48,644		30.6		(1,943		)	(4.0	)
Operating and administrative expenses	34,742		21.4		40,525		25.5		(5,783		)	(14.3	)
Operating profit	$	11,959	7.4		$	8,119	5.1		$	3,840		47.3

GETS' revenue increased during the first six months of 2012 as compared to the first six months of 2011 primarily due to the growth in OGC and Hi-Tech partially offset by a decrease in AIE and "Other" industry verticals. The increase in OGC revenue was driven by the addition of new clients and growth within existing clients. "Other" industry verticals experienced continued weakness in state and local government spending on infrastructure projects. AIE was negatively impacted by reduced government funding in defense-related projects partially offset by an increase in commercial aviation business.

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

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

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

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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 ended June 30, 2012 as compared to the three months ended June 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 ended June 30, 2012 and 2011:



	Three Months Ended
	June 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Oil, Gas and Chemicals ("OGC")	$	23,044	13.1	%	$	16,434	9.9	%	$	6,610		40.2	%
Aerospace and Industrial Equipment ("AIE")	21,397		12.2		15,383		9.3		6,014			39.1
Hi-Tech	76,426		43.6		73,089		44.3		3,337			4.6
Other	54,408		31.0		60,264		36.5		(5,856		)	(9.7	)
Total revenue	175,275		100.0		165,170		100.0		10,105			6.1
Cost of services	151,514		86.4		141,294		85.5		10,220			7.2
Gross profit	23,761		13.6		23,876		14.5		(115		)	(0.5	)
Operating and administrative expenses ⁽¹⁾	18,692		10.7		10,881		6.6		7,811			71.8
Operating profit	$	5,069	2.9		$	12,995	7.9		$	(7,926	)	(61.0	)


⁽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 second quarter of 2012 as compared to the second 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 due to increased demand for pipeline-related inspection and maintenance activities for new and existing clients. Revenue in the "Other" industry verticals decreased due primarily to the completion of a major long-term project in 2011.

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

Operating profit for the second quarter 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.

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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)

Six months ended June 30, 2012 as compared to the six months ended June 30, 2011



	Six Months Ended
	June 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Oil, Gas and Chemicals ("OGC")	$	54,038	15.1	%	$	33,653	10.3	%	$	20,385		60.6	%
Aerospace and Industrial Equipment ("AIE")	41,188		11.5		29,913		9.1		11,275			37.7
Hi-Tech	150,733		42.2		143,855		44.0		6,878			4.8
Other	111,049		31.1		119,689		36.6		(8,640		)	(7.2	)
Total revenue	357,008		100.0		327,110		100.0		29,898			9.1
Cost of services	308,809		86.5		280,499		85.8		28,310			10.1
Gross profit	48,199		13.5		46,611		14.2		1,588			3.4
Operating and administrative expenses ⁽¹⁾	37,336		10.5		31,418		9.6		5,918			18.8
Operating profit	$	10,863	3.0		$	15,193	4.6		$	(4,330	)	(28.5	)


⁽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 six months of 2012 as compared to the first six months of 2011 driven by growth in the OGC and AIE industry verticals and to a lesser extent, the Hi-Tech industry vertical, partially offset by the revenue decrease in the "Other" industry verticals. OGC revenue was driven by unseasonably mild weather conditions in the northern U.S. and Canadian oil regions and increased demand for pipeline-related inspection and maintenance activities for new and existing clients. AIE and Hi-Tech revenue was favorably impacted by the addition of new clients and growth within existing clients. Revenue in the "Other" industry verticals decreased primarily due to the completion of a major long-term project in 2011.

PSS' gross profit dollars increased for the first six months of 2012 as compared to the first six months of 2011 primarily due to the growth in revenue. PSS' gross profit margin declined primarily due to a higher percentage of revenue being derived from lower margin business.

Operating profit for the first six 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 growth in revenue.

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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 ended June 30, 2012 as compared to the three months ended June 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 ended June 30, 2012 and 2011:



	Three Months Ended
	June 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Contract Staffing	$	14,129	77.0	%	$	13,127	75.4	%	$	1,002		7.6	%
Royalties and Franchise Fees	4,232		23.0		4,273		24.6		(41		)	(1.0	)
Total revenue	18,361		100.0		17,400		100.0		961			5.5
Cost of services	10,048		54.7		9,015		51.8		1,033			11.5
Gross profit	8,313		45.3		8,385		48.2		(72		)	(0.9	)
Operating and administrative expenses	5,575		30.4		5,908		34.0		(333		)	(5.6	)
Operating profit	$	2,738	14.9		$	2,477	14.2		$	261		10.5

MRI's revenue increased for the second quarter of 2012 as compared to the second quarter of 2011 due primarily to growth in contract staffing revenue related to new and existing clients partially offset by a decrease in royalty revenue.

MRI's gross profit dollars remained relatively flat in the second quarter of 2012 as compared to the second quarter of 2011; however, gross profit margin declined year-over-year due to the growth of lower margin contract staffing business.

MRI's operating profit increased for the second quarter of 2012 as compared to the second quarter of 2011 driven primarily by the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011.

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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)

Six months ended June 30, 2012 as compared to the six months ended June 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 six months ended June 30, 2012 and 2011:



	Six Months Ended
	June 30,
	2012				2011				Increase (Decrease)
	$		% of Total Revenue		$		% of Total Revenue		$			%

Revenue:
Contract Staffing	$	27,810	77.3	%	$	24,949	75.4	%	$	2,861		11.5	%
Royalties and Franchise Fees	8,170		22.7		8,150		24.6		20			0.2
Total revenue	35,980		100.0		33,099		100.0		2,881			8.7
Cost of services	19,667		54.7		17,064		51.6		2,603			15.3
Gross profit	16,313		45.3		16,035		48.4		278			1.7
Operating and administrative expenses	11,322		31.5		11,797		35.6		(475		)	(4.0	)
Operating profit	$	4,991	13.9		$	4,238	12.8		$	753		17.8

MRI's revenue increased for the first six months of 2012 as compared to the first six months of 2011 due primarily to growth in contract staffing revenue related to new and existing clients.

MRI's gross profit dollars increased in the first six months of 2012 as compared to the first six months of 2011 due to increased contract staffing volume. Gross profit margin declined year-over-year due to the growth of lower margin contract staffing business.

MRI's operating and administrative expenses decreased for the first six months of 2012 as compared to the first six months of 2011 primarily due to the ongoing cost savings from the restructuring plan implemented in the fourth quarter of 2011 partially offset by higher variable commission costs on increased contract staffing volume.

MRI's operating profit increased for the first six months of 2012 as compared to the first six months of 2011 driven primarily by the growth in staffing revenues and reduction in operating and administrative expenses.

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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 June 30, 2012, the Company had cash and cash equivalents of $6.3 million. At June 30, 2012, there were no outstanding borrowings, $4.3 million of letters of credit outstanding and $45.7 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 will evaluate its options prior to the expiration of the Credit Agreement. 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 June 30, 2012.

As of June 30, 2012, approximately 80% 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 used in for the major captions from the Company's consolidated statements of cash flows:



	Six Months Ended
	June 30,
	2012			2011			Change

Operating Activities	$	(7,832	)	$	(196	)	$	(7,636	)
Investing Activities	(3,065		)	(3,717		)	652
Financing Activities	(9,395		)	(640		)	(8,755		)

Operating Activities

For the first six months of 2012, the Company used $7.8 million net cash in operating activities, which was $7.6 million more cash used than in the comparable period in 2011. Net operating cash flow use increased primarily due to an increase in working capital requirements, partially offset by the $3.8 million decrease in net income. The increase in working capital requirements is primarily due to the growth in the Company's business during 2012 as compared to 2011.

Investing Activities

For the first six months of 2012, the Company used $3.1 million net cash in investing activities or $0.7 million less than the comparable period in 2011 primarily as a result of $0.4 million less capital expenditures.

Financing Activities

For the first six months of 2012, the Company used $9.4 million net cash in financing activities or $8.8 million more cash as compared to the comparable period in 2011 primarily due to Company not borrowing in the first six months of 2012 and decrease in cash overdrafts.

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 June 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 June 30, 2012, the Company did not have any borrowings under its committed, secured $50.0 million revolving line of credit. 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 June 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 second quarter ended June 30, 2012, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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.

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

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INDEX TO EXHIBITS



Exhibit No.		Description

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.