Executive Overview

During the first half of 2008, the Company experienced a gradual weakening in permanent placement hiring at its Management Recruiters International ("MRI") and CDI AndersElite ("Anders") segments as customer uncertainty led to delayed hiring decisions. Additionally, late in the third quarter and throughout the fourth quarter, the Company experienced market disruptions driven by the global credit market crisis and a steep decline in commodity chemical and oil prices. These late-year factors caused cancellations and project delays in some previously awarded engineering contracts, particularly in chemicals, specialty chemicals, alternative energy and refining. These factors also caused sharp declines in permanent placement hiring in MRI and Anders.

As a result of these late-year hiring and capital investment cutbacks, the Company's revenue decreased by 5.8% for the full year 2008 compared to the prior year and the Company's net earnings from continuing operations declined by 39.0% compared to the prior year. The decline in net earnings from continuing operations was driven by the decline in revenue and worsened by an unfavorable revenue mix shift in the Company's service categories. The economic slowdown most impacted revenues from the Company's highest margin category, professional services, which decreased by 27.6% compared to the prior year. The Company's high margin project outsourcing revenue category decreased by 9.5% compared to the prior year, while its lowest margin revenue category, staffing services, decreased by 2.2% compared to the prior year.

This revenue mix shift adversely affected the Company's ability to make progress on one of its core strategic goals during the year-to continue to shift services delivered up the value continuum to higher margin services. The Company remains committed to this strategic goal and expects to resume the shift as the current economic cycle improves.

During the fourth quarter, the Company observed sharp deterioration in the general business environment, increasing instability of the credit markets and the resulting adverse effect on the industries that the Company serves. Additionally, the Company's stock price declined significantly during the fourth quarter of 2008, causing its market capitalization to decline below its book value at December 31, 2008. These adverse changes were determined to be a triggering event, which indicated that a potential goodwill impairment may have occurred and the Company needed to update its impairment analysis. Therefore, the Company conducted another impairment test and determined that there was no impairment of goodwill as of December 31, 2008.

Despite these macroeconomic factors, CDI did achieve certain strategic milestones during the year:

† Acquired TK Engineering - broadening the Company's capabilities in delivering jet turbine engineering services for clients in aerospace and wind power industries;

† Formed a joint venture in Kuwait - providing access to engineering project work in Middle Eastern industrial and commercial infrastructure projects;

† Secured a contract expansion of the Company's largest IT Solutions ("ITS") client; and

† Secured a five-year contract, which has a maximum value of $139 million over the five year period, with The Naval Surface Warfare Center - supporting growth in the Government Services vertical of the Company's Engineering Solutions ("ES") segment.

The Company remains focused on its long-term strategic plan to continue to shift services up the value continuum, to continue global expansion, to expand engineering project business in a recovering capital spending cycle and to increase higher margin permanent placement business. However, the Company remains cognizant of the short to mid-term challenges presented by the global economic slowdown and is committed to prudent cost and net asset management through this financial cycle. Throughout 2008 and in particular during the fourth quarter, the Company took steps to right-size the organization in the face of the continuing economic downturn. These steps have created a leaner operating structure better aligned with current business levels, which should position the Company to continue to focus on its long-term strategic plan.

Between the issuance of the Company's press release announcing the 2008 results of operations and the filing of this Annual Report on Form 10-K, the Company determined that income tax expense was $0.4 million more and net earnings from continuing operations was $0.4 million less than reported in the press release. The $0.4 million represents the net effect of certain income tax adjustments, which includes $1.2 million of expense pertaining to prior years and the recognition of $0.7 million of a US tax benefit in relation to an international tax matter. The financial statements, footnotes and any relevant financial ratios in this report on Form 10-K have been updated accordingly. Basic and diluted earnings per share for the quarter and year ended December 31, 2008 decreased by $0.02 per share as a result of these adjustments. See Footnote 13 - Income Taxes in the notes to the consolidated financial statements.

Investigation by the UK Office of Fair Trading

In June 2006, the United Kingdom's Office of Fair Trading ("OFT") opened an investigation into alleged anti-competitive behavior by Anders and a number of its competitors in the UK construction recruitment industry. The Company has fully cooperated with the OFT in the investigation under the OFT's corporate leniency program. On October 21, 2008, the OFT issued a Statement of Objections in which the OFT proposes to

make a finding that Anders violated the UK Competition Act of 1998. In response to the Statement of Objections, on January 16, 2009 the Company submitted written representations to the OFT and on February 18, 2009 the Company made an oral presentation to the OFT. Although the Statement of Objections does not propose a specific fine, based on the contents of the Statement of Objections, the Company continues to believe that a fine will be imposed and that the amount of such fine could be material. The Company believes it is reasonably possible that the OFT will levy a fine in the near term. The Company does not believe the Statement of Objections provides sufficient new information for the Company to determine, with any reliability, the amount of the fine or an estimated range of the fine, nor does the document make it clear when the Company might be able to reach a reliable estimate. The Company has not made any provisions for any fine or other liabilities relating to this matter in its consolidated financial statements as of December 31, 2008.

Consolidated Discussion

CDI's strategic objective is to be a leading global provider of engineering and information technology outsourcing solutions and professional staffing. These services enable CDI's customers to focus on their core competencies and drive profitable growth and return on capital investment.

The Company seeks to achieve its strategic objectives by focusing on three core goals. These goals are:

† Continue to shift service delivery up the value continuum, which requires the Company to focus business development efforts among existing and new customers on higher value, higher margin and higher skill services.

† Build international reach and global services delivery capabilities, particularly in engineering outsourcing, engineering project management and professional services.

† Leverage the long-term capital spending cycle by building skill sets and business scale in targeted ES verticals and Anders.

Key Performance Indicators

The Company manages and assesses its performance through various means, with the primary financial and operational measures including revenue, contract renewals, new contract wins, gross profit dollars and gross profit margin, operating profit, return on net assets and variable contribution margin.

Revenue is impacted by, among other things, levels of capital spending by customers, particularly in the ES and Anders business segments. Other external factors, such as the general business environment and employment levels, impact the Company's staffing business. Economic growth or decline typically impacts the demand for labor. In periods of increasing unemployment and slowing GDP growth, CDI customers tend to first cut-back on their contract workforce. As economic weakness continues, CDI customers then tend to decrease permanent headcount. In a recovering economy, CDI customers tend first to increase their contract employee headcount and to delay hiring permanent employees until later in the recovery cycle, when they are more certain that the recovery will continue. Operationally, CDI's ability to capitalize on opportunities created by the economy, its performance on new and existing accounts, new contract and account wins and its ability to mitigate competitive pricing pressures affect the Company's revenue.

Gross profit dollars and gross profit margin reflect CDI's ability to realize pricing consistent with value provided, to address changes in market demand and to control and pass through direct costs. Gross profit margin will shift as a result of the mix of business. The Company is focused on improving margins over time through efforts to grow new higher margin business and to cycle out of lower margin business. Professional services revenue, consisting of permanent placement and franchise related services, has an impact on gross profit margin. Since there are no direct costs associated with professional services revenue, increases or decreases in such revenue can have a disproportionate impact on gross profit margin.

Operating profit is gross profit less operating and administrative expenses. Operating profit margin reflects the Company's ability to adjust overhead costs to changing business volumes.

Return on net assets ("RONA") reflects CDI's ability to generate earnings while optimizing assets deployed in the business. RONA means the pre-tax earnings for the current year, divided by the average net assets at the beginning and end of that year. Net assets include total assets minus total liabilities excluding cash and income tax accounts. A key metric to drive RONA is Accounts Receivable Days Sales Outstanding ("DSO"). Reduction in DSO will contribute to improvement in RONA.

Variable contribution margin ("VCM") is a measure of the amount of profit that flows to the operating profit line for each dollar of revenue growth. VCM is calculated as the year-over-year change in operating profit divided by the year-over-year change in revenue.

The Company has established the following long-term performance goals:

† Produce pre-tax RONA of 20% and redeploy assets unable to meet this target;

† Generate operating profit margin of 5% through gross margin expansion, financial discipline and lean headquarters operations; and

† Generate VCM in the 12% to 14% range on incremental revenue.

During 2008, the Company achieved a RONA of 14.0%, as compared to 23.4% during 2007, primarily reflecting reduced profit levels. Operating profit margin declined from 3.9% during 2007 to 2.3% during 2008 due to lower business volumes and the inability to reduce infrastructure costs as rapidly as the decline in revenue. The VCM calculation is not meaningful in this instance because both revenue and operating profit declined.

Consolidated Results of Operations

Results of Operations

The following table presents revenue by service type along with several key
metrics (in percentages) for 2008 and 2007:



Consolidated                                           2008                           2007         Increase (Decrease)
                                                 % of Total                     % of Total
(in thousands)                             $        Revenue               $        Revenue                $          %
Revenue (1)
Staffing services                $   771,955           69.0 %   $   789,460           66.5 %   $    (17,505 )     (2.2 )%
Project outsourcing services         293,058           26.2         323,823           27.3          (30,765 )     (9.5 )
Professional services                 53,584            4.8          74,016            6.2          (20,432 )    (27.6 )
                                 $ 1,118,597          100.0 %   $ 1,187,299          100.0 %   $    (68,702 )     (5.8 )%
Gross profit                     $   255,447           22.8 %   $   286,940           24.2 %   $    (31,493 )    (11.0 )%
Operating and administrative
expenses                             230,089           20.6         240,104           20.2          (10,015 )     (4.2 )
Operating profit                      25,358            2.3          46,836            3.9          (21,478 )    (45.9 )
Net earnings from continuing
operations                       $    19,415            1.7 %   $    31,828            2.7 %   $    (12,413 )    (39.0 )%

Cash and cash equivalents        $    61,761                    $   127,059                    $    (65,298 )    (51.4 )%
Cash flow provided by
operations                       $    14,791                    $    56,819                    $    (42,028 )       NM

Effective income tax rate               32.4 %                         35.2 %
After-tax return on
shareholders' equity (2)                 6.2 %                         10.0 %
Pre-tax return on net assets
(3)                                     14.0 %                         23.4 %
Variable contribution margin
(4)                                       NM                           18.6 %

(1) Revenue for 2007 has been reclassified to conform to the current year's presentation.

(2) The year's earnings divided by the average shareholders' equity.

(3) Pre-tax earnings for the year, divided by the average net assets at the beginning and end of the year. Net assets include total assets minus total liabilities excluding cash and income tax accounts.

(4) Year-over-year change in operating profit divided by year-over-year change in revenues. The calculation for the 2008 year is not meaningful (NM) because both revenue and operating profit declined.

Revenue by service type includes the following:

† Staffing services-Staffing services include assigning the Company's skilled engineering, information technology, project management, architecture, construction and other professionals to work at a customer's location under the supervision of customer personnel on a contractual basis for assignments that could range from several months to over one year. The Company also provides managed staffing services where the Company assumes overall management of a customer's contract staffing functions. All of the Company's four business segments provide customers with staffing services.

† Project outsourcing services-Project outsourcing services include engineering and information technology projects, usually performed at a CDI facility, which provide a deliverable work product or service to the customer. These services are performed in the Company's ES and ITS segments.

† Professional services-Professional services include search, recruitment and permanent placement of technical, professional and managerial personnel; sales of new franchises; and services provided to franchisees to help them generate permanent placements. All of the Company's four business segments provide customers with professional services.

Revenue for 2008 declined 5.8% versus the prior year period. Anders and MRI experienced declines in professional services revenue due to a drop in permanent placement hiring as a result of declining employment markets in North America and the UK. Anders also experienced declines in staffing services revenue, primarily due to declines in the commercial, property development and residential housing construction markets in the UK. Additionally, the effects of changes in foreign exchange rates between the British pound sterling and the US dollar negatively impacted Anders' revenue. ES experienced decreases in revenues primarily due to delayed and reduced projects in the Aerospace and P&I

verticals, as a result of decreases in capital spending by petrochemical, chemical and industrial customers and the Gulf Coast hurricanes. ITS experienced revenue declines due to reduced demand for contract staffing, primarily in the automotive sector.

While all revenue service types declined in 2008, staffing services revenue declined at a much lower rate than project outsourcing services and professional services revenue. While the Company's strategy is to increase revenue from the higher-margin services, the downturn in capital spending and the global economy more significantly impacted the higher-margin project outsourcing services and professional services than the lower-margin staffing services. The Company was able to increase certain business relationships in Canada and the Government Services vertical.

Gross profit and gross profit margin decreased at a faster pace than the decline in revenue, primarily due to the reduction of higher margin permanent placement activity at Anders and MRI, the reduction of higher-margin project outsourcing in ES and increases in ES's lower-margin staffing business.

Consolidated operating and administrative expenses decreased due to lower variable compensation costs and cost control measures.

Operating profit declined 45.9% compared to 2007 and operating profit margin decreased from 3.9% during 2007 to 2.3% during 2008 due to lower business volumes and infrastructure costs declining at a slower pace than revenue.

Included in net earnings from continuing operations is other income and expense of $3.8 million. This increased by $1.5 million in 2008 due primarily to $1.1 million of realized gains from zero cost collar option contracts entered into to hedge portions of the earnings of the Company's foreign operations. The Company realized an immaterial loss from foreign exchange options in 2007.

Cash and cash equivalents of $61.8 million at December 31, 2008 was $65.3 million lower than the prior year balance. The decrease in cash was primarily driven by the purchase of TK Engineering for $17.6 million, and the repurchase of $30.0 million of the Company's common stock. Cash flow provided by operations of $14.8 million was driven by earnings, partially offset by higher working capital requirements.

The Company's effective income tax rate was 32.4% for the year ended December 31, 2008 compared to 35.2% for the year ended December 31, 2007. The tax rate in 2008 was favorably impacted by Canadian research credits and investments in tax-exempt instruments partially offset by the impact of state income taxes and certain adjustments to correct current taxes receivable. The tax rate in 2007 was negatively impacted by an increase in state taxes partially offset by the favorable impact of Canadian research credits, investments in tax-exempt instruments and a higher proportion of foreign earnings taxed at lower rates. Prior to the third quarter of 2008, the Company did not record the benefit of the Canadian research credits until its claims were approved by the Canadian government due to the uncertain nature of the claims and related inability to estimate the amount of the credit. Because the Canadian government has accepted the claims for several years, the Company believes it can reliably estimate the credit and now accounts for these credits using the accrual method of accounting. The Company, however, expects that the Canadian research credit will be lower in future years because of a decrease in qualifying business activities.

Segment Discussion

Business Strategy

ES's business strategy is to pursue the development of long-term alliances with its customers as a cost-effective, single-source provider of engineering services and professional staffing. By working as a core supplier and partner with its customers, ES is able to develop an understanding of its customers' overall business needs as well as the unique technical needs of their projects. This approach creates the opportunity for ES to provide a greater and more integrated range of services to its customers to facilitate efficient project management, procurement, overall program integration and execution. This strategy requires ES to develop capabilities to provide services to its customers who have global requirements. Success of the ES business strategy is dependent upon maintaining and renewing its existing customers or contracts, continued capital spending by its major engineering customers, the ability to win new contract awards and accounts and the availability of labor at a reasonable cost. In addition, ES is strategically engaging in global arrangements to lower its labor costs for customers, to access a broader talent pool and to provide worldwide servicing capabilities for its global customers. ES has developed professional recruitment outsourcing ("PRO") services to manage a customer's entire recruitment process. PRO services provide domestic and multi-national customers with a single source of professional and technical permanent placements across an entire organization. ES continues to develop its strategy to acquire broader skill sets and greater leverage for servicing the alternative energy markets, as it continues to pursue further business opportunities in those markets.

Key Performance Indicators

ES manages and assesses its performance through various means, with the primary financial and operational measures including revenue, contract renewals, new contract wins, account growth, gross profit dollars and gross profit margin, operating profit and return on net assets.

Revenue reflects performance on both new and existing contracts and accounts. Changes in revenue will not generally result in proportionate changes in costs, particularly operating and administrative expenses, thus potentially impacting operating profit margins.

New contracts, account wins and contract renewals are the primary drivers of future revenue and provide an assessment of ES's ability to compete. New contract wins fluctuate from quarter to quarter, depending on the timing of customer needs and external factors.

Gross profit dollars and gross profit margin reflect ES's ability to realize pricing consistent with value provided, to incorporate changes in market demand and to control and pass through direct costs. ES's focus on maintaining and improving overall margins can lead to improved profitability. Gross margins can also shift as a result of the mix of business, with project outsourcing services and professional services generally providing higher margins than staffing services. ES utilizes financial modeling and operational reviews in the contracting process to produce acceptable margins and returns.

Return on net assets ("RONA") reflects ES's ability to generate earnings while optimizing assets deployed in the business. A key metric to drive RONA is Accounts Receivable Days Sales Outstanding ("DSO"). Reduction in DSO will contribute to improvement in RONA.

Results of Operations

The following table presents changes in revenue by category, cost of services,
gross profit, operating and administrative expenses and operating profit for ES
for 2008 and 2007:



                                                                                              Increase
ES                                      2008                     2007 (1)                   (Decrease)
                                        % of                         % of
                                       Total                        Total
(in thousands)                 $     Revenue                $     Revenue                $           %
Revenue
Staffing services      $ 326,618        54.1 %      $ 307,433        50.0 %      $  19,185         6.2 %
Project
outsourcing
services                 266,437        44.2          297,383        48.4          (30,946 )     (10.4 )
Professional
services                  10,168         1.7            9,706         1.6              462         4.8
                         603,223       100.0          614,522       100.0          (11,299 )      (1.8 )
Cost of services         477,481        79.2          485,035        78.9           (7,554 )      (1.6 )
Gross profit             125,742        20.8          129,487        21.1           (3,745 )      (2.9 )
Operating and
administrative
expenses                  98,673        16.3           93,979        15.3            4,694         5.0
Operating profit       $  27,069         4.5 %      $  35,508         5.8 %      $  (8,439 )     (23.8 )%

(1) Revenues and expenses for 2007 have been reclassified to conform to the current year's presentation. See Note 21-Reporting Segments in the notes to the consolidated financial statements.

ES's revenue decreased slightly in 2008, primarily due to:

† Reductions in capital spending by petrochemical, chemical and industrial customers in the CDI - Process and Industrial ("P&I") vertical, driven by the global credit market crisis and a steep decline in commodity chemical and oil prices;

† Decreases in project outsourcing due to the Gulf Coast hurricanes;

† Continued project delays by a large customer in the CDI - Aerospace ("Aerospace") vertical; and

† Reduced business levels with alternative energy customers.

These decreases were partially offset by increased capital spending by major customers in the CDI-Government Services ("Government Services") vertical, increases in contract staffing services revenue, primarily from customers operating in the western Canadian oil market and increased project outsourcing revenue from the July 2008 acquisition of TK Engineering.

Gross profit dollars decreased 2.9%, primarily due to the decrease in higher margin project outsourcing services.

Gross profit margins decreased primarily due to the increase in lower margin staffing services, and the decrease in higher margin project outsourcing services, partially offset by a slight increase in permanent placement PRO services revenue in the P&I vertical and the higher margin revenue provided by the TK Engineering acquisition.

ES's operating and administrative expenses increased in 2008 primarily due to:

† Facility cost increases within the P&I vertical in Texas, Louisiana and Michigan, as well as the addition of new facilities related to the TK Engineering acquisition;

† The absence of a one-time favorable reversal of a legal accrual of $1.6 million in 2007; and

† The establishment of a $2.5 million bad debt reserve for a customer who filed for bankruptcy in early 2009, cost containment expenses of $0.6 million, unsuccessful acquisition costs of $0.5 million and a goodwill adjustment of $0.5 million.

These were partially offset by decreases in salaries, bonuses and commissions as . . .