-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HTpxjVonGggHM/UVDgm6ccSLi/7TkokHfuU2TpRqvjGVtKJsfq/iy3OW0TjSoNje RZsDTqbJ1ghKBD+MKdvr1w== 0000924646-03-000023.txt : 20031113 0000924646-03-000023.hdr.sgml : 20031113 20031113163814 ACCESSION NUMBER: 0000924646-03-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MPS GROUP INC CENTRAL INDEX KEY: 0000924646 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 593116655 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24484 FILM NUMBER: 03998606 BUSINESS ADDRESS: STREET 1: 1 INDEPENDENT DR CITY: JACKSONVILLE STATE: FL ZIP: 32202 BUSINESS PHONE: 9043602000 MAIL ADDRESS: STREET 1: 1 INDEPENDENT DR CITY: JACKSONVILLE STATE: FL ZIP: 32202 FORMER COMPANY: FORMER CONFORMED NAME: MODIS PROFESSIONAL SERVICES INC DATE OF NAME CHANGE: 19981001 FORMER COMPANY: FORMER CONFORMED NAME: ACCUSTAFF INC DATE OF NAME CHANGE: 19940606 10-Q 1 form10qtosend.txt FORM 10-Q FOR PERIOD ENDING 9/30/03 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ COMMISSION FILE NUMBER: 0-24484 MPS GROUP, INC. (Exact name of registrant as specified in its charter) Florida 59-3116655 - -------------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 Independent Drive, Jacksonville, FL 32202 - ---------------------------------------- -------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number including area code): (904) 360-2000 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. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No --- --- There were 104,428,475 shares with a par value of $0.01 outstanding at November 3, 2003. FORWARD-LOOKING STATEMENTS This report on Form 10-Q contains forward-looking statements that are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including but not limited to the specific factors discussed in Part I, Item 2 of this report and under the heading 'Factors Which May Impact Future Results and Financial Condition.' In some cases, you can identify forward-looking statements by terminology such as 'will,' 'may,' 'should,' 'could,' 'expects,' 'plans,' 'indicates,' 'projects,' 'anticipates,' 'believes,' 'estimates,' 'appears,' 'predicts,' 'potential,' 'continues,' 'would,' or 'become' or the negative of these terms or other comparable terminology. In addition, except for historical facts, all information provided in Part I, Item 3, under 'Quantitative and Qualitative Disclosures About Market Risk' should be considered forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of the Company may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on beliefs and assumptions of the Company's management and on information currently available to such management. Forward looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.
MPS Group, Inc. and Subsidiaries Index Part I Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002.............................................................................. 3 Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 2003 and 2002.................................................................. 4 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2003 and 2002.................................................................. 5 Unaudited Notes to Condensed Consolidated Financial Statements......................................... 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 11 Item 3 Quantitative and Qualitative Disclosures About Market Risks............................................ 17 Item 4 Controls and Procedures................................................................................ 20 Part II Other Information Item 1 Legal Proceedings...................................................................................... 21 Item 2 Changes in Securities and Use of Proceeds.............................................................. 21 Item 3 Defaults Upon Senior Securities........................................................................ 21 Item 4 Submission of Matters to a Vote of Security Holders.................................................... 21 Item 5 Other Information...................................................................................... 21 Item 6 Exhibits and Reports on Form 8-K....................................................................... 21 Signatures............................................................................................. 22 Exhibits
2 Part I. Financial Information Item 1. Financial Statements MPS Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
September 30, December 31, (dollar amounts in thousands except per share amounts) 2003 2002 - ----------------------------------------------------------------------------------------------------------------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 108,910 $ 66,934 Accounts receivable, net of allowance of $15,056 and $17,506 163,610 185,510 Prepaid expenses 7,213 5,099 Deferred income taxes 3,277 3,386 Other 11,067 11,632 ---------------------------------- Total current assets 294,077 272,561 Furniture, equipment, and leasehold improvements, net 33,880 38,792 Goodwill, net 523,023 511,796 Deferred income taxes 54,021 64,085 Other assets, net 9,432 10,749 ---------------------------------- Total assets $ 914,433 $ 897,983 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 40,629 $ 49,834 Accrued payroll and related taxes 40,778 35,885 Income taxes payable 12,574 14,911 ---------------------------------- Total current liabilities 93,981 100,630 Other 16,563 15,794 ---------------------------------- Total liabilities 110,544 116,424 ---------------------------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.01 par value; 400,000,000 shares authorized; 105,838,674 and 102,531,491 shares issued, respectively 1,058 1,025 Additional contributed capital 633,348 622,079 Retained earnings 178,541 163,781 Accumulated other comprehensive income 2,805 66 Deferred stock compensation (2,803) (3,958) Treasury stock, at cost (1,613,400 shares in 2003 and 290,400 shares in 2002) (9,060) (1,434) ---------------------------------- Total stockholders' equity 803,889 781,559 ---------------------------------- Total liabilities and stockholders' equity $ 914,433 $ 897,983 ==================================
See accompanying notes to condensed consolidated financial statements. 3 MPS Group, Inc. and Subsidiaries Condensed Consolidated Statements of Income
Three Months Ended Nine Months Ended ------------------------------- ------------------------------- September 30, September 30, September 30, September 30, (dollar amounts in thousands except per share amounts) 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ (unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 278,836 $ 289,428 $ 829,538 $ 874,534 Cost of revenue 204,378 213,493 609,376 647,820 ------------- ------------- -------------- ------------- Gross profit 74,458 75,935 220,162 226,714 ------------- ------------- -------------- ------------- Operating expenses: General and administrative 60,363 60,307 182,121 188,404 Depreciation and intangibles amortization 4,301 5,456 13,360 15,379 ------------- ------------- -------------- ------------- Total operating expenses 64,664 65,763 195,481 203,783 ------------- ------------- -------------- ------------- Income from operations 9,794 10,172 24,681 22,931 Other income (expense), net 186 (1,206) 170 (3,761) ------------- ------------- -------------- ------------- Income before provision for income taxes and cumulative effect of accounting change 9,980 8,966 24,851 19,170 Provision for income taxes 3,992 3,676 10,101 7,758 ------------- ------------- -------------- ------------- Income before cumulative effect of accounting change 5,988 5,290 14,750 11,412 Cumulative effect of accounting change (net of a $112,953 income tax benefit) - - - (553,712) ------------- ------------- -------------- ------------- Net income (loss) $ 5,988 $ 5,290 $ 14,750 $ (542,300) ============= ============= ============== ============= Basic net income (loss) per common share: Income before cumulative effect of accounting change $ 0.06 $ 0.05 $ 0.15 $ 0.11 Cumulative effect of accounting change, net of tax - - - (5.52) ------------- ------------- -------------- ------------- Basic net income (loss) per common share $ 0.06 $ 0.05 $ 0.15 $ (5.40) ============= ============= ============== ============= Average common shares outstanding, basic 101,795 102,369 101,680 100,337 ============= ============= ============== ============= Diluted net income (loss) per common share: Income before cumulative effect of accounting change $ 0.06 $ 0.05 $ 0.14 $ 0.11 Cumulative effect of accounting change, net of tax - - - (5.41) ------------- ------------- -------------- ------------- Diluted net income (loss) per common share $ 0.06 $ 0.05 $ 0.14 $ (5.30) ============= ============= ============== ============= Average common shares outstanding, diluted 104,866 103,115 103,515 102,303 ============= ============= ============== =============
See accompanying notes to condensed consolidated financial statements. 4 MPS Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, ------------------------------- (dollar amounts in thousands) 2003 2002 - ------------------------------------------------------------------------------------------------------------ (unaudited) (unaudited) Cash flows from operating activities: Net income (loss) $ 14,750 $ (542,300) Adjustments to net income (loss) to net cash provided by operating activities: Cumulative effect of accounting change, net of tax - 553,712 Depreciation and intangibles amortization 13,360 15,379 Changes in assets and liabilities, net of acquisitions: Accounts receivable 27,507 38,663 Prepaid expenses and other assets (2,112) (1,245) Deferred income taxes 8,511 14,717 Deferred compensation 1,155 1,212 Accounts payable and accrued expenses (8,135) (13,389) Accrued payroll and related taxes 3,989 (4,042) Other, net 1,472 9,900 --------------- --------------- Net cash provided by operating activities 60,497 72,607 --------------- --------------- Cash flows from investing activities: Purchase of furniture, equipment and leasehold improvements, net of disposals (5,586) (3,482) Purchase of businesses, net of cash acquired (14,945) (6,702) --------------- --------------- Net cash used in investing activities (20,531) (10,184) --------------- --------------- Cash flows from financing activities: Repurchases of common stock (7,626) (200) Discount realized on employee stock purchase plan (328) (494) Proceeds from stock options exercised 8,926 16,828 Repayments on indebtedness (40) (76,406) --------------- --------------- Net cash provided by (used in) financing activities 932 (60,272) --------------- --------------- Effect of exchange rate changes on cash and cash equivalents 1,078 475 Net increase in cash and cash equivalents 41,976 2,626 Cash and cash equivalents, beginning of period 66,934 49,208 --------------- --------------- Cash and cash equivalents, end of period $ 108,910 $ 51,834 =============== ===============
See accompanying notes to condensed consolidated financial statements. 5 MPS Group, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (dollar amounts in thousands except for per share amounts) 1. Basis of Presentation. The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission ('SEC'). Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K for the year ended December 31, 2002. The accompanying condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position and results of operations for the interim periods presented. The results of operations for an interim period are not necessarily indicative of the results of operations for a full fiscal year. Recent Accounting Pronouncements During April 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for certain derivative instruments. Management does do not expect the adoption of this statement to have a material impact on the Company's consolidated financial statements, as the Company is not currently a party to derivative financial instruments addressed by this standard. During May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires an issuer to classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The Company has not issued any financial instruments with the scope of SFAS No. 150, nor does it currently hold any financial instruments within its scope. Stock-Based Compensation During December 2002, the FASB issued SFAS No. 148, 'Accounting for Stock-Based Compensation - Transition and Disclosure,' which provides for alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123, 'Accounting for Stock-Based Compensation,' to require more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for its employee and director stock option plans in accordance with Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to Employees,' and related Interpretations. The Company measures compensation expense for employee and director stock options as the aggregate difference between the market value of its common stock and exercise prices of the options on the date that both the number of shares the grantee is entitled to receive and the exercise prices are known. Compensation expense associated with restricted stock grants is equal to the market value of the shares on the date of grant and is recorded pro rata over the required holding period. If the Company had elected to recognize compensation cost for all outstanding options granted by the Company by applying the fair value recognition provisions of SFAS No. 148 to stock-based employee compensation, net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below. 6
Three Months Ended Nine Months Ended ----------------------------- ----------------------------- September 30, September 30, September 30, September 30, (dollar amounts in thousands except per share amounts) 2003 2002 2003 2002 - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) As reported $ 5,988 $ 5,290 $ 14,750 $ (542,300) Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,325) (950) (3,879) (3,123) --------------------------- --------------------------- Pro forma $ 4,663 $ 4,340 $ 10,871 $ (545,423) =========================== =========================== Basic net income (loss) per common share As reported $ 0.06 $ 0.05 $ 0.15 $ (5.41) Pro forma $ 0.05 $ 0.04 $ 0.11 $ (5.44) Diluted net income (loss) per common share As reported $ 0.06 $ 0.05 $ 0.14 $ (5.30) Pro forma $ 0.04 $ 0.04 $ 0.11 $ (5.33)
2. Net Income per Common Share The calculation of basic net income (loss) per common share and diluted net income (loss) per common share is presented below:
Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 30, September 30, September 30, September 30, (dollar amounts in thousands except per share amounts) 2003 2002 2003 2002 - ----------------------------------------------------------------------------------------------------------------------------------- Basic income (loss) per common share computation: Income before cumulative effect of accounting change $ 5,988 $ 5,290 $ 14,750 $ 11,412 Cumulative effect of accounting change, net of tax - - - (553,712) ------------ ------------ ------------ ------------ Net income (loss) $ 5,988 $ 5,290 $ 14,750 $ (542,300) ============ ============ ============ ============ Basic average common shares outstanding 101,795 102,369 101,680 100,337 ============ ============ ============ ============ Basic income (loss) per common share: Income before cumulative effect of accounting change $ 0.06 $ 0.05 $ 0.15 $ 0.11 Cumulative effect of accounting change, net of tax - - - (5.52) ------------ ------------ ------------ ------------ Basic net income (loss) per common share $ 0.06 $ 0.05 $ 0.15 $ (5.40) ============ ============ ============ ============ Diluted income (loss) per common share computation: Income before cumulative effect of accounting change $ 5,988 $ 5,290 $ 14,750 $ 11,412 Cumulative effect of accounting change, net of tax - - - (553,712) ------------ ------------ ------------ ------------ Net income (loss) $ 5,988 $ 5,290 $ 14,750 $ (542,300) ============ ============ ============ ============ Basic average common shares outstanding 101,795 102,369 101,680 100,337 Incremental shares from assumed exercise of stock options 3,071 746 1,835 1,966 ------------ ------------ ------------ ------------ Diluted average common shares outstanding 104,866 103,115 103,515 102,303 ============ ============ ============ ============ Diluted income (loss) per common share: Income before cumulative effect of accounting change $ 0.06 $ 0.05 $ 0.14 $ 0.11 Cumulative effect of accounting change, net of tax - - - (5.41) ------------ ------------ ------------ ------------ Diluted net income (loss) per common share $ 0.06 $ 0.05 $ 0.14 $ (5.30) ============ ============ ============ ============
Options to purchase shares of common stock were not included in the computation of diluted earnings per share if the exercise prices of these options were greater than the average market price of the common shares. So, for the three months ended September 30, 2003 and 2002, options to purchase 1.2 million and 8.6 million shares of common stock, respectively, were not included in the computation of diluted earnings per share. For the nine months ended September 30, 2003 and 2002, options to purchase 2.0 million and 2.2 million shares of common stock, respectively, were not included in the computation of diluted earnings per share. 3. Commitments and Contingencies Litigation The Company is a party to a number of lawsuits and claims arising out of the ordinary conduct of its business. In the opinion of management, based on the advice of in-house and external legal counsel, the lawsuits and claims pending are not likely to have a material adverse effect on the Company, its consolidated financial position, results of operations, or cash flows. 7 4. Segment Reporting The Company discloses segment information in accordance with SFAS No. 131, 'Disclosure About Segments of an Enterprise and Related Information,' which requires companies to report selected segment information on a quarterly basis and to report certain entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Company has three reportable segments: IT services, professional services, and IT solutions. The Company's reportable segments are strategic divisions that offer different services and are managed separately as each division requires different resources and marketing strategies. The IT services division offers value-added solutions such as IT project support and staffing, recruitment of full-time positions, project-based solutions, supplier management solutions, and on-site recruiting support. The professional services division provides expertise in a wide variety of disciplines including accounting and finance, law, engineering and technical, workforce management, executive search, human resource consulting, and health care. The IT solutions division provides IT strategy consulting, design and branding, application development, and integration. The professional services division's results for the three and nine months ended September 30, 2003, include the results of the Company's health care staffing unit, which was acquired by the Company in July 2002, and the results from the acquisitions of two legal staffing businesses, which were acquired in February and August of 2003. The Company evaluates segment performance based on revenues, gross profit, and income before provision for income taxes. The Company does not allocate income taxes, interest or unusual items to the segments. The following table summarizes segment and geographic information:
Three Months Ended Nine Months Ended ------------------------------- -------------------------------- September 30, September 30, September 30, September 30, (dollar amounts in thousands) 2003 2002 2003 2002 - ----------------------------------------------------------------------------------------------------------------------- Revenue IT services $ 125,266 $ 143,650 $ 380,142 $ 440,371 Professional services 136,459 125,755 394,020 370,293 IT solutions 17,111 20,023 55,376 63,870 ------------ ------------ ------------ ------------ Total revenue $ 278,836 $ 289,428 $ 829,538 $ 874,534 ============ ============ ============ ============ Gross profit IT services $ 28,851 $ 30,792 $ 85,789 $ 92,958 Professional services 39,642 37,873 113,788 112,644 IT solutions 5,965 7,270 20,585 21,112 ------------ ------------ ------------ ------------ Total gross profit $ 74,458 $ 75,935 $ 220,162 $ 226,714 ============ ============ ============ ============ Income before provision for income taxes and cumulative effect of accounting change IT services $ 2,829 $ 3,688 $ 5,392 $ 8,635 Professional services 6,758 6,113 16,109 18,225 IT solutions 207 371 3,180 (3,929) ------------ ------------ ------------ ------------ 9,794 10,172 24,681 22,931 Corporate other income (expense), net 186 (1,206) 170 (3,761) ------------ ------------ ------------ ------------ Total income before provision for income taxes and cumulative effect of accounting change $ 9,980 $ 8,966 $ 24,851 $ 19,170 ============ ============ ============ ============ Geographic Areas Revenue United States $ 182,335 $ 193,433 $ 544,601 $ 591,106 U.K. 93,866 92,970 276,882 273,709 Other 2,635 3,025 8,055 9,719 ------------ ------------ ------------ ------------ Total revenue $ 278,836 $ 289,428 $ 829,538 $ 874,534 ============ ============ ============ ============ 8 September 30, December 31, 2003 2002 - ---------------------------------------------------------------------------------------------- Assets IT services $ 462,220 $ 457,163 Professional services 401,008 380,340 IT solutions 51,205 59,700 ------------ ------------ 914,433 897,203 Corporate - 780 ------------ ------------ Total assets $ 914,433 $ 897,983 ============ ============ Geographic Areas Identifiable Assets United States $ 653,834 $ 636,351 U.K. 252,614 254,169 Other 7,985 7,463 ------------ ------------ Total $ 914,433 $ 897,983 ============ ============
5. Comprehensive Income The Company discloses other comprehensive income in accordance with SFAS No. 130, 'Reporting Comprehensive Income'. Comprehensive income includes unrealized gains and losses on foreign currency translation adjustments and changes in the fair value of certain derivative financial instruments which qualify for hedge accounting. A summary of comprehensive income for the three and nine months ended September 30, 2003 and 2002 is as follows:
Three Months Ended Nine Months Ended ------------------------------- ------------------------------- September 30, September 30, September 30, September 30, 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 5,988 $ 5,290 $ 14,750 $ (542,300) Unrealized gain on foreign currency translation adjustments (a) 1,464 1,508 2,739 5,309 Unrealized gain on derivative instruments, net of deferred income taxes - 442 - 1,369 ------------- ------------- -------------- ------------- Total other comprehensive income 1,464 1,950 2,739 6,678 Comprehensive income (loss) $ 7,452 $ 7,240 $ 17,489 $ (535,622) ============= ============= ============== =============
(a) The currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. 6. Excess Real Estate Obligations During June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires that a liability for a cost associated with an exit or disposal activity be recognized, at fair value, when the liability is incurred rather than at the time an entity commits to a plan. The provisions of SFAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. The Company adopted the provisions of SFAS No. 146 in 2002. In the fourth quarter of 2002, the Company recorded a $9.7 million charge relating to its abandonment of excess real estate obligations for certain vacant office space. In 2001 and 2002, the Company experienced a material decrease in demand for its domestic operations. To reflect this decreased demand, the Company made attempts to realign its real estate capacity needs by vacating and reorganizing certain office space. In the fourth quarter of 2002, management determined that the Company would not be able to utilize this vacated office space and, therefore, notified the respective lessors of their intentions. This determination eliminated the economic benefit associated with the vacated office space. As a result, the Company recorded a charge for contract termination costs, mainly due to, costs that will continue to be incurred under the lease contract for its remaining term without economic benefit to the Company. While the Company looks to settle excess lease obligations, the current economic environment has made it difficult for the Company to either settle or find acceptable subleasing opportunities. The average remaining lease term for the lease obligations included herein is approximately 2 years. 9 The following table summarizes the activity of the charge for contract termination costs from origination through September 30, 2003 by reportable segment:
IT Professional IT (dollar amounts in thousands) Services Services Solutions Total - ------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2002 $ 675 $ 1,163 $ 7,861 $ 9,699 Costs paid or otherwise settled during the three months ended: March 31, 2003 (184) (157) (1,248) (1,589) June 30, 2003 (45) (145) (642) (832) September 30, 2003 (52) (142) (1,234) (1,428) ----------- ----------- ----------- ----------- Balance as of September 30, 2003 $ 394 719 4,737 5,850 =========== =========== =========== ===========
7. Business Combination In February and August of 2003, the Company acquired the legal staffing businesses of LawPros and LawCorps, respectively. Purchase consideration totaled $15.5 million in cash at closing, and deferred cash payments of $1.3 million. These acquisitions, which are included in the Company's professional services division, were immaterial to the Company's results of operations for the three and nine months ended September 30, 2003. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MPS Group, Inc. ('MPS' or the 'Company') (NYSE:MPS) is a leading global provider of business services with over 180 offices throughout the United States, Canada, the United Kingdom, and continental Europe. MPS delivers a mix of consulting, solutions, and staffing services in disciplines such as IT services, finance and accounting, legal, engineering, IT solutions, workforce management, executive search, human capital automation, and health care. The following detailed analysis of operations contains certain financial information on a 'constant currency' basis. Constant currency removes the impact on financial data from changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries, by translating the current period financial data into U.S. dollars using the same foreign currency exchange rates that were used to translate the financial data for the previous period. We believe presenting some results on a constant currency basis is useful to investors because it allows a more meaningful comparison of the performance of our foreign operations from period to period. We caution you, however, that constant currency measures should not be considered in isolation or as an alternative to financial measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. generally accepted accounting principles ('GAAP'). The following detailed analysis of operations also presents the revenue generated by our professional services division in the United States excluding the effect of acquisitions. We believe presenting some results excluding the effects of businesses we acquire is helpful to investors because it permits a comparison of the performance of our core internal operations from period to period. We exclude the effect of acquisitions for the first 12 months following the acquisition date. Subsequent to this, we consider acquisitions to be integrated. Again however, you should consider such measures only in conjunction with the correlative measures that include the results from acquisitions, as calculated and presented in accordance with GAAP. The following detailed analysis of operations should be read in conjunction with the 2002 Consolidated Financial Statements and related notes included in the Company's Form 10-K for the year ended December 31, 2002. Three Months Ended September 30, 2003 Compared To Three Months Ended September 30, 2002 Consolidated Results Revenue. Revenue decreased $10.6 million, or 3.7%, to $278.8 million in the three months ended September 30, 2003, from $289.4 million in the year earlier period. The decrease in revenue was attributable to diminished demand for the Company's services. For example, the Company's customers continued to experience a constrained ability to spend on IT initiatives due to uncertainties relating to the economy. Included in the results for the three months ended September 30, 2003, was revenue from the acquisitions of the two legal staffing businesses acquired in February and August of 2003. These businesses (together, the 'legal acquisitions') contributed $0.9 million and $2.4 million, respectively, in revenue for the three months ended September 30, 2003. Approximately 35% of the Company's revenue for the three months ended September 30, 2003 was generated internationally, primarily in the United Kingdom. The Company's revenue is therefore subject to changes in foreign currency exchange rates. The weakening of the U.S. dollar in the third quarter of 2003 had a positive impact on revenue, as revenue, on a constant currency basis decreased 5.0%, as compared to the decrease of 3.7% above. Gross Profit. Gross profit decreased $1.4 million or 1.8% to $74.5 million in the three months ended September 30, 2003, from $75.9 million in the year earlier period. Gross margin increased to 26.7% in the three months ended September 30, 2003, from 26.2% in the year earlier period. Operating expenses. Total operating expenses decreased $1.1 million or 1.7% to $64.7 million in the three months ended September 30, 2003, from $65.8 million in the year earlier period. The Company's general and administrative ('G&A') expenses remained relatively stable at $60.4 million in the three months ended September 30, 2003, compared to $60.3 million in the year earlier period. As a percentage of revenue, the Company's G&A expenses increased to 21.6% in the three months ended September 30, 2003, from 20.8% in the year earlier period, due to the decline in revenue. Income from operations. Income from operations decreased $0.4 million, or 3.9%, to $9.8 million in the three months ended September 30, 2003, from $10.2 million in the year earlier period. 11 Other income (expense), net. Other income (expense), net consists primarily of interest expense related to borrowings under the Company's expired credit facility and notes issued in connection with acquisitions, net of interest income related to investment income from (1) certain investments owned by the Company and (2) cash on hand. Interest expense decreased $1.5 million, or 88.2%, to $0.2 million in the three months ended September 30, 2003, from $1.7 million in the year earlier period. The decrease in interest expense is related to the reduction of borrowings under the Company's expired credit facility between these two periods. As of September 30, 2002, the Company had $25 million outstanding under its expired credit facility, while there were no borrowings outstanding during the third quarter of 2003. Interest expense was offset by $0.4 million and $0.5 million of interest and other income in the three months ended September 30, 2003 and 2002, respectively. Income taxes. The Company's effective tax rate decreased to 40.0% in the three months ended September 30, 2003, as compared to 41.0% in the year earlier period. The decrease was due to the lower level of non-deductible expenses in the third quarter of 2003. Income before cumulative effect of accounting change. As a result of the foregoing, income before cumulative effect of accounting change increased $0.7 million, or 13.2%, to $6.0 million in the three months ended September 30, 2003, from $5.3 million in the year earlier period. Income before cumulative effect of accounting change as a percentage of revenue increased to 2.1% in the three months ended September 30, 2003, from 1.8% in the year earlier period. Segment Results IT Services division Revenue in the IT services division decreased $18.4 million, or 12.8%, to $125.3 million in the third quarter of 2003, from $143.7 million in the year earlier period. On a constant currency basis, revenue decreased 14.0%. The decrease in revenue was attributable to the diminished demand for IT services. The division's customers continued to experience a constrained ability to spend on IT initiatives due to uncertainties relating to the economy. Of the division's revenue, approximately 64% and 65% were generated in the United States in the three months ended September 30, 2003 and 2002, respectively. The remainder was generated internationally, primarily in the United Kingdom. Revenue generated in the United States decreased 14.3% in the third quarter of 2003, from the year earlier period. Revenue generated internationally decreased 9.9% in the third quarter of 2003, from the year earlier period. However on a constant currency basis, revenue generated internationally decreased 13.4%. Gross profit for the IT services division decreased $1.9 million, or 6.2%, to $28.9 million in the third quarter of 2003, from $30.8 million in the year earlier period. However, the gross margin increased to 23.0% in the three months ended September 30, 2003, from 21.4% in the year earlier period. The increase in gross margin is attributable to the division's domestic operations where the gross margin increased to 27.6% in the third quarter of 2003, from 24.4% in the year earlier period. In the year earlier period, the division's domestic operations experienced a decrease in bill rates and a shift in the mix of its services, which exceeded the related decrease in pay rates of its primarily hourly employees. The Company was able to more effectively manage the differential in the bill and pay rates throughout 2003, which resulted in an increase in gross margin from the year earlier period. For revenue generated internationally, the gross margin decreased to 14.9% in the three months ended September 30, 2003, from 15.9% in the year earlier period, primarily due to a shift in the mix of services provided internationally. The IT services division's G&A expenses decreased $0.9 million, or 3.6%, to $23.8 million in the three months ended September 30, 2003, from $24.7 million in the year earlier period. As a percentage of revenue, the division's G&A expenses increased to 19.0% in the three months ended September 30, 2003, from 17.2% in the year earlier period. Income from operations for the IT services division decreased $0.9 million, or 24.3 %, to $2.8 million in the three months ended September 30, 2003, from $3.7 million in the year earlier period. Professional services division Revenue in the professional services division increased $10.7 million, or 8.5%, to $136.5 million in the three months ended September 30, 2003, from $125.8 million in the year earlier period. The legal acquisitions contributed $3.3 million in revenue for the three months ended September 30, 2003. Of the division's revenue, approximately 62% and 64% were generated in the United States in both the third quarter of 2003 and 2002, respectively. The remainder was generated in the United Kingdom. Excluding the contribution from the legal acquisitions, revenue generated in the United States increased 2.4% for the third quarter of 2003, from the year earlier period. Revenue generated in the United Kingdom increased 12.0% in the third quarter of 2003, from the year earlier period. However on a constant currency basis, revenue generated in the United Kingdom increased 7.4%. The increase in revenue was attributable to the raised demand for staffing services provided by the division. 12 The professional services division operates primarily through five operating units consisting of accounting and finance, legal, engineering, workforce management and executive search, and health care, which contributed 43.5%, 15.3, 32.8%, 4.7%, and 3.7%, respectively, of the division's revenue by group during the three months ended September 30, 2003, as compared to 42.6%, 12.0%, 34.0%, 8.0%, and 3.4%, respectively, during the year earlier period. Gross profit for the professional services division increased $1.7 million, or 4.5%, to $39.6 million in the third quarter of 2003, from $37.8 million in the year earlier period. The gross margin decreased to 29.1% in the three months ended September 30, 2003, from 30.1% in the year earlier period. The decrease in gross margin is primarily attributable to the decrease in demand for the division's workforce management unit, which utilizes a higher percentage of a salaried workforce. The professional services division's G&A expenses increased $1.6 million, or 5.4%, to $31.5 million in the three months ended September 30, 2003, from $29.9 million in the year earlier period. As a percentage of revenue, the division's G&A expenses decreased to 23.1% in the three months ended September 30, 2003, from 23.7% in the year earlier period. Income from operations for the professional services division increased $0.7 million, or 11.5 %, to $6.8 million in the three months ended September 30, 2003, from $6.1 million in the year earlier period. IT Solutions division Revenue in the IT solutions division decreased $2.9 million, or 14.5%, to $17.1 million in the three months ended September 30, 2003, from $20.0 million in the year earlier period. Weak demand for IT consulting solutions was intensified by the uncertainties relating to the economy. As a result, management refined its focus by deciding to exit certain non-strategic markets over 2002, the last of which occurred in August 2002. These markets, while generating revenue, were not producing positive income or cash flow from operations. Gross profit for the IT solutions division increased $1.3 million, or 17.8%, to $6.0 million in the three months ended September 30, 2003, from $6.0 million in the year earlier period. The gross margin decreased to 34.9% in the third quarter of 2003, from 36.3% in the year earlier period. This decrease was primarily due to lower utilization of the Company's salaried consultants. This division's business model, unlike the Company's other divisions, uses primarily salaried consultants to meet customer demand. The IT solutions division's G&A expenses decreased $0.8 million, or 13.8%, to $5.0 million in the three months ended September 30, 2003, from $5.8 million in the year earlier period. As a percentage of revenue, the division's G&A expenses increased to 29.3% in the third quarter of 2003, from 28.9% in the year earlier period. The decrease in the division's G&A expenses was primarily related to reductions in its work force throughout 2002. Income from operations for the IT solutions division decreased $0.2 million, or 50.0%, to $0.2 million in the three months ended September 30, 2003, from a $0.4 million in the year earlier period. Nine Months Ended September 30, 2003 Compared To Nine Months Ended September 30, 2002 Consolidated Results Revenue. Revenue decreased $45.0 million, or 5.1%, to $829.5 million in the nine months ended September 30, 2003, from $874.5 million in the year earlier period. The decrease in revenue was attributable to diminished demand for the Company's services. For example, the Company's customers continued to experience a constrained ability to spend on IT initiatives due to uncertainties relating to the economy. Included in the results for the nine months ended September 30, 2003, was revenue from health care and legal acquisitions (together, the 'acquisitions'). The Company's health care staffing business, which was acquired in July 2002, contributed $14.5 million and $4.3 million in revenue in the nine months ended September 30, 2003 and 2002, respectively. The legal acquisitions contributed $5.0 million in revenue in the nine months ended September 30, 2003. Approximately 34% of the Company's revenue for the nine months ended September 30, 2003 was generated internationally, primarily in the United Kingdom. The weakening of the U.S. dollar in the nine months ended September 30, 2003 had a positive impact on revenue, as revenue, on a constant currency basis decreased 7.8%, as compared to the decrease of 5.1% above. Gross Profit. Gross profit decreased $6.5 million or 2.9% to $220.2 million in the nine months ended September 30, 2003, from $226.7 million in the year earlier period. However, gross margin increased to 26.5% in the nine months ended September 30, 2003, from 25.9% in the year earlier period. 13 Operating expenses. Total operating expenses decreased $8.3 million or 4.1% to $195.5 million in the nine months ended September 30, 2003, from $203.8 million in the year earlier period. The Company's G&A expenses decreased $6.3 million, or 3.3%, to $182.1 million in the nine months ended September 30, 2003, from $188.4 million in the year earlier period. As a percentage of revenue, the Company's G&A expenses increased to 22.0% in the nine months ended September 30, 2003, from 21.5% in the year earlier period. The decrease in G&A expenses was attributable to a decrease in revenue for the nine months ended September 30, 2003, and cost reduction initiatives that were implemented throughout 2002 across MPS's divisions in response to the lower revenue levels. The decrease in revenue primarily reduces the variable component of compensation for the Company's employees. Certain of the cost reduction initiatives include the reduction of the Company's salaried workforce, and the realignment of compensation levels for the Company's employees. Income from operations. Income from operations increased $1.8 million, or 7.9%, to $24.7 million in the nine months ended September 30, 2003, from $22.9 million in the year earlier period. Other income (expense), net. Other income (expense), net consists primarily of interest expense related to borrowings under the Company's expired credit facility and notes issued in connection with acquisitions, net of interest income related to investment income from (1) certain investments owned by the Company and (2) cash on hand. Interest expense decreased $3.7 million, or 75.5%, to $1.2 million in the nine months ended September 30, 2003, from $4.9 million in the year earlier period. The decrease in interest expense is related to the reduction of borrowings under the Company's expired credit facility between these two periods. As of September 30, 2002, the Company had $25 million outstanding under its expired credit facility, while there were no borrowings outstanding during the nine months ended September 30, 2003. Interest expense was offset by $1.4 million and $1.2 million of interest and other income in the nine months ended September 30, 2003 and 2002, respectively. Income taxes. The Company's effective tax rate increased slightly to 40.6% in the nine months ended September 30, 2003, as compared to 40.5% in the year earlier period. Income before cumulative effect of accounting change. As a result of the foregoing, income before cumulative effect of accounting change increased $3.4 million, or 29.8%, to $14.8 million in the nine months ended September 30, 2003, from $11.4 million in the year earlier period. Income before cumulative effect of accounting change as a percentage of revenue increased to 1.8% in the nine months ended September 30, 2003, from 1.3% in the year earlier period. Segment Results IT Services division Revenue in the IT services division decreased $60.3 million, or 13.7%, to $380.1 million in the nine months ended September 30, 2003, from $440.4 million in the year earlier period. On a constant currency basis, revenue decreased 16.2%. The decrease in revenue was attributable to the diminished demand for IT services. The division's customers continued to experience a constrained ability to spend on IT initiatives due to uncertainties relating to the economy. Of the division's revenue, approximately 63% and 66% was generated in the United States in the nine months ended September 30, 2003 and 2002, respectively. The remainder was generated internationally, primarily in the United Kingdom. Revenue generated in the United States decreased 17.7% in the nine months ended September 30, 2003, from the year earlier period. Revenue generated internationally decreased 5.8% in the nine months ended September 30, 2003, from the year earlier period. However on a constant currency basis, revenue generated internationally decreased 13.1%. Gross profit for the IT services division decreased $7.2 million, or 7.7%, to $85.8 million in the nine months ended September 30, 2003, from $93.0 million in the year earlier period. However, the gross margin increased to 22.6% in the nine months ended September 30, 2003, from 21.1% in the year earlier period. The increase in gross margin is attributable to the division's domestic operations where the gross margin increased to 27.0% in the nine months ended September 30, 2003, from 24.0% in the year earlier period. In the year earlier period, the division's domestic operations experienced a decrease in bill rates and a shift in the mix of its services, which exceeded the related decrease in pay rates of its primarily hourly employees. The Company was able to more effectively manage the differential in the bill and pay rates throughout 2003, which resulted in an increase in gross margin from the year earlier period. For revenue generated internationally, the gross margin decreased to 15.1% in the nine months ended September 30, 2003, from 15.5% in the year earlier period. The IT services division's G&A expenses decreased $3.4 million, or 4.4%, to $73.8 million in the nine months ended September 30, 2003, from $77.2 million in the year earlier period. As a percentage of revenue, the division's G&A expenses increased to 19.4% in the nine months ended September 30, 2003, from 17.5% in the year earlier period. The decrease in the division's G&A expenses is associated with the decrease in revenue for the nine months ended September 30, 2003, and cost reduction initiatives implemented within the division throughout 2002. 14 Income from operations for the IT services division decreased $3.2 million, or 37.2 %, to $5.4 million in the nine months ended September 30, 2003, from $8.6 million in the year earlier period. Professional services division Revenue in the professional services division increased $23.7 million, or 6.4%, to $394.0 million in the nine months ended September 30, 2003, from $370.3 million in the year earlier period. Acquisitions contributed $14.5 million in revenue for the nine months ended September 30, 2003. Of the division's revenue, approximately 63% and 64% was generated in the United States in both the nine months ended September 30, 2003 and 2002, respectively. The remainder was generated in the United Kingdom. Excluding the contribution from acquisitions, revenue generated in the United States decreased 0.4% in the nine months ended September 30, 2003, from the year earlier period. Revenue generated in the United Kingdom increased 7.6% in the nine months ended September 30, 2003, from the year earlier period. However on a constant currency basis, revenue generated in the United Kingdom decreased 1.2%. The decrease in revenue was attributable to the diminished demand for staffing services and workforce solutions provided by the division. The professional services division operates primarily through five operating units consisting of accounting and finance, legal, engineering, workforce management and executive search, and health care, which contributed 42.3%, 14.3%, 33.7%, 6.0%, and 3.7%, respectively, of the division's revenue by group during the nine months ended September 30, 2003, as compared to 43.0%, 11.6%, 35.0%, 9.2%, and 1.2%, respectively, during the year earlier period. Gross profit for the professional services division increased $1.2 million, or 1.1%, to $113.8 million in the nine months ended September 30, 2003, from $112.6 million in the year earlier period. The gross margin decreased to 28.9% in the nine months ended September 30, 2003, from 30.4% in the year earlier period. The decrease in gross margin is primarily attributable to the decrease in demand for the division's workforce management unit, which utilizes a higher percentage of a salaried workforce and, to a lesser extent, a lower level of direct hire and permanent placement fees, which generate a higher margin. As a percentage of revenue, the division's direct hire and permanent placement fees decreased to 4.9% of revenue in the nine months ended September 30, 2003, from 5.3% in the year earlier period. The professional services division's G&A expenses increased $3.7 million, or 4.1%, to $93.2 million in the nine months ended September 30, 2003, from $89.5 million in the year earlier period. As a percentage of revenue, the division's G&A expenses decreased to 23.7% in the nine months ended September 30, 2003, from 24.2% in the year earlier period. Income from operations for the professional services division decreased $2.1 million, or 11.5 %, to $16.1 million in the nine months ended September 30, 2003, from $18.2 million in the year earlier period. IT Solutions division Revenue in the IT solutions division decreased $8.5 million, or 13.3%, to $55.4 million in the nine months ended September 30, 2003, from $63.9 million in the year earlier period. Weak demand for IT consulting solutions was intensified by the uncertainties relating to the economy. As a result, management refined its focus by deciding to exit certain non-strategic markets over 2002, the last of which occurred in August 2002. These markets, while generating revenue, were not producing positive income or cash flow from operations. Gross profit for the IT solutions division decreased $0.5 million, or 2.4%, to $20.6 million in the nine months ended September 30, 2003, from $21.1 million in the year earlier period. The gross margin increased to 37.2% in the nine months ended September 30, 2003, from 33.1% in the year earlier period. This increase was driven primarily by higher utilization of the Company's salaried consultants. This division's business model, unlike the Company's other divisions, uses primarily salaried consultants to meet customer demand. To reflect lower customer demand, the division significantly reduced billable headcount during 2002. The IT solutions division's G&A expenses decreased $6.6 million, or 30.4%, to $15.1 million in the nine months ended September 30, 2003, from $21.7 million in the year earlier period. As a percentage of revenue, the division's G&A expenses decreased to 27.2% in the nine months ended September 30, 2003, from 33.9% in the year earlier period. The decrease in the division's G&A expenses was primarily related to reductions in its work force throughout 2002. Income from operations for the IT solutions division increased $7.1 million, to $3.2 million in the nine months ended September 30, 2003, from a $3.9 million loss in the year earlier period. 15 LIQUIDITY AND CAPITAL RESOURCES The Company's historical capital requirements have principally been related to the acquisition of businesses, working capital needs and capital expenditures. These requirements have been met through a combination of bank debt and internally generated funds. The Company's operating cash flows and working capital requirements are affected significantly by the timing of payroll and by the receipt of payment from customers. Generally, the Company pays its consultants weekly or semi-monthly, and receives payments from customers within 30 to 90 days from the date of invoice. The Company had working capital of $200.1 million and $171.9 million as of September 30, 2003 and December 31, 2002, respectively. The Company had cash and cash equivalents of $108.9 million and $66.9 million as of September 30, 2003 and December 31, 2002, respectively. For the nine months ended September 30, 2003 and 2002, the Company generated $60.5 million and $72.6 million of cash flow from operations, respectively. The decrease in cash flow from operations, from 2002 to 2003, is primarily due the reduced level of earnings in the current year. For the nine months ended September 30, 2003, the Company used $20.5 million of cash for investing activities, of which $14.9 million was used for acquisitions of legal staffing businesses in February and August of 2003, and $5.6 million was used for capital expenditures. For the nine months ended September 30, 2002, the Company used $10.2 million of cash for investing activities, of which $6.7 million was used for an acquisition of a health care staffing business in July 2002, and $3.5 million was used for capital expenditures. For the nine months ended September 30, 2003, the Company generated $0.9 million of cash for financing activities, primarily comprised of $8.9 million generated from stock option exercises, net of $7.6 million used for the repurchase of the Company's common stock. For the nine months ended September 30, 2002, the Company used $60.3 million of cash for financing activities, of which $76.4 million was used for repayments on the Company's expired credit facility, and $16.3 million was generated from stock option exercises. These repurchases and repayments were mainly funded from cash flow from operations. The Company's Board of Directors has authorized the repurchase of up to $65.0 million of the Company's common stock. The Company began to utilize this authorization in the third quarter of 2002. As of November 3, 2003, 1.6 million shares at a cost of $9.1 million have been repurchased under this authorization. The Company anticipates that capital expenditures for furniture and equipment, including improvements to its management information and operating systems during the remainder of 2003, will be approximately $2.0 million. While there can be no assurance in this regard, the Company believes that funds provided by operations, and current amounts of cash will be sufficient to meet its presently anticipated needs for working capital and capital expenditures for at least the next 12 months. Indebtedness of the Company The Company had a revolving credit facility that expired on October 27, 2003, with no borrowings outstanding. Management is negotiating with lenders regarding a new credit facility and expects to enter into a new credit facility in the near future. At November 3, 2003, the Company had outstanding letters of credit in the amount of $2.7 million. SEASONALITY The Company's quarterly operating results are affected by the number of billing days in the quarter and the seasonality of its customers' businesses. Demand for the Company's services has historically been lower during the calendar year-end, as a result of holidays, through February of the following year, as the Company's customers approve annual budgets. Extreme weather conditions may also affect demand in the early part of the year as certain of the Company's client bases are located in geographic areas subject to extreme weather. 16 Item 3. Quantitative And Qualitative Disclosures About Market Risk The following assessment of the Company's market risks does not include uncertainties that are either nonfinancial or nonquantifiable, such as political, economic, tax and credit risks. Interest rates. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's debt obligations under its expired credit facility and to the Company's investments. The Company's investment portfolio consists of cash and cash equivalents including deposits in banks, government securities, money market funds, and short-term investments with maturities, when acquired, of 90 days or less. The Company is adverse to principal loss and seeks to preserve its invested funds by placing these funds with high credit quality issuers. The Company constantly evaluates its invested funds to respond appropriately to a reduction in the credit rating of any investment issuer or guarantor. Foreign currency exchange rates. Foreign currency exchange rate changes impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. The Company generated approximately 34% of its consolidated revenues for the nine months ended September 30, 2003, from international operations, approximately 97% of which were from the United Kingdom. The British pound sterling to U.S. dollar exchange rate has increased approximately 3% in 2003, from 1.61 at December 31, 2002, to 1.66 at September 30, 2003. The Company prepared sensitivity analyses to determine the adverse impact of hypothetical changes in the British pound sterling, relative to the U.S. Dollar, on the Company's results of operations and cash flows. However, the analysis did not include the potential impact on sales levels resulting from a change in the British pound sterling. An additional 10% adverse movement in the exchange rate would have had an immaterial impact on the Company's cash flows and financial position for the nine months ended September 30, 2003. While fluctuations in the British pound sterling have not historically had a material impact on the Company's consolidated results of operations, the lower level of earnings resulting from a decrease in demand for the services provided by the Company's domestic operations have increased the impact of exchange rate fluctuations. As of September 30, 2003, the Company did not hold and has not previously entered into any foreign currency derivative instruments. 17 FACTORS WHICH MAY IMPACT FUTURE RESULTS AND FINANCIAL CONDITION Our Revenues Have Declined Because Demand For Our Services Has Weakened Significantly, And Demand Will Likely Remain Weak For Some Time Because Of The Current Economic Climate. MPS's revenues are affected by the level of business activity of its customers, which is driven by the level of economic activity in the industries and markets we serve. Consequently, the current economic downturn and uncertainty has significantly hurt our revenues and results of operations. Further deterioration in global economic or political conditions could increase these effects. As long as this uncertainty remains, we believe that the demand for our services will remain diminished. We cannot predict when the economic climate will significantly improve. When the economic climate does improve, we cannot predict whether and to what extent the demand for our services will improve. Although we have implemented a somewhat variable cost model, further declines in revenue will have a material adverse impact on our results. The difficult economic climate may also encourage customer downsizings, or consolidations through mergers and otherwise of our major customers or between our major customers with non-customers. These may result in redundant functions or services and a resulting reduction in demand by those customers for our services. Also, spending for outsourced business services may be put on hold until the consolidations are completed. Economic considerations may also encourage our customers to consolidate their vendor lists in an attempt to achieve cost and expense savings, which increases competitive pressure as described below. Our Market Is Highly Competitive, Which Puts Pressure On The Profit Margins Of Our Services. Our industry is intensely competitive and highly fragmented, with few barriers to entry by potential competitors. MPS faces significant competition in the markets it serves, and will face significant competition in any geographic market that it may enter. In each market in which we operate, we compete for both clients and qualified professionals with other firms offering similar services. Competition creates an aggressive pricing environment, which puts pressure on profit margins. We have increasingly competed against service providers offering their services from remote locations, particularly from offshore locations such as India. The substantially lower cost of the labor pool in these remote locations puts significant pricing pressure on our service offerings when we compete with them. While we believe that our service delivery model provides a superior level of service than many of these offshore based competitors, the increased pricing pressure from these providers may have a material adverse impact on our profitability. The effects of competition may be intensified by our customers' consolidation of their vendor lists. As customers have consolidated their number of vendors, often in an attempt to secure cost or expense savings in the face of difficult economic conditions, competition to be an approved vendor has greatly intensified. If we fail to remain on these consolidated vendor lists, our results of operations will suffer accordingly. Competing to remain on, or get on, these vendor lists could obligate us to offer our services at prices that offer lower margins, and less profit, than we might otherwise be able to achieve. Our Business Depends On Key Personnel, Including Executive Officers, Local Managers And Field Personnel; Our Failure To Retain Existing Key Personnel Or Attract New People Will Reduce Business And Revenues. MPS's operations depend on the continued efforts of our officers and executive management. The loss of key officers and members of executive management may cause a significant disruption to our business. We also depend on the performance and productivity of our local managers and field personnel. Our ability to attract and retain new business is significantly affected by local relationships and the quality of service rendered. The loss of key managers and field personnel may also jeopardize existing client relationships with businesses that continue to use our services based upon past relationships with local managers and field personnel. Our revenues would decline in that event. 18 Legislation Requiring Companies To Offer Benefits To Consultants And Temporary Personnel Could Hurt Our Industry. From time to time, legislation is proposed in the United States Congress, state legislative bodies, and the foreign governments of the United Kingdom and continental Europe that would have the effect of requiring employers to provide the same or similar employee benefits to consultants and other temporary personnel as those provided to full-time employees. This legislation would eliminate one of the key economic reasons for outsourcing certain business resources, and could significantly adversely impact MPS's staff augmentation business, thus reducing revenues. IRS Adjustments During Periodic Income Tax Audits May Increase Our Tax Liability And Hurt Our Results Of Operations. MPS is subject to periodic review by federal, state, and local taxing authorities in the ordinary course of business. During 2001, MPS was notified by the Internal Revenue Service that certain prior year income tax returns will be examined. As part of this examination, the net tax benefit associated with an investment in a subsidiary that MPS recognized in 2000 of $86.3 million is also being reviewed. In the fourth quarter of 2002, the company recorded an $8.7 million charge for an adjustment related to its audit of prior years' tax returns. While MPS has not received notice of any additional adjustments relating to its audit of prior years' tax returns, we cannot assure you that the IRS will not propose additional adjustments. Additional adjustments may affect our financial condition. The Price Of Our Common Stock May Fluctuate Significantly, Which May Result In Losses For Investors. The market price for our common stock has been and may continue to be volatile. For example, during the period from January 1, 2003 until September 30, 2003, the closing price of the common stock as reported on the New York Stock Exchange ranged from a high of $10.10 to a low of $4.85. Our stock price can fluctuate as a result of a variety of factors, including factors listed above and others, many of which are beyond our control. These factors include: - actual or anticipated variations in quarterly operating results; - announcement of new services by us or our competitors; - announcements relating to strategic relationships or acquisitions; - changes in financial estimates or other statements by securities analysts; - valuation fluctuations which may cause a negative impact to our operating results as it relates to Statement of Financial Accounting Standards No. 142; and - changes in general economic conditions. Because of this volatility, we may fail to meet the expectations of our shareholders or of securities analysts, and our stock price could decline as a result. 19 Item 4. Controls And Procedures Our management, including the Chief Executive Officer and Chief Financial Officer, supervised and participated in an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14) as of the end of the period covered by this report. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the date of that evaluation. 20 Part II. Other Information Item 1. Legal Proceedings No disclosure required. Item 2. Changes in Securities and Use of Proceeds No disclosure required. Item 3. Defaults Upon Senior Securities No disclosure required. Item 4. Submission of Matters to a Vote of Security Holders No disclosure required. Item 5. Other Information No disclosure required. Item 6. Exhibits and Reports on Form 8-K A. Exhibits 31.1 Certification of Timothy D. Payne pursuant to Rule 13a-14(a) 31.2 Certification of Robert P. Crouch pursuant to Rule 13a-14(a) 32.1 Certification of Timothy D. Payne pursuant to 18 U.S.C. Section 1350 32.2 Certification of Robert P. Crouch pursuant to 18 U.S.C. Section 1350 B. Reports on Form 8-K On July 22, 2003, we furnished a Report on Items 7 and 9 of Form 8-K pertaining to the issuance of a press release announcing our financial results for the three and six months ended June 30, 2003. This Form 8-K is not deemed incorporated by reference into any of our filings with the Securities and Exchange Commission. 21 SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ Timothy D. Payne President, Chief November 13, 2003 Timothy D. Payne Executive Officer and Director /s/ Robert P. Crouch Senior Vice President, November 13, 2003 Robert P. Crouch Treasurer, and Chief Financial Officer 22 EX-31 2 tp13acert930.txt EX 31.1 CERTIFICATION BY TIMOTHY D. PAYNE MPS GROUP, INC. AND SUBSIDIARIES CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) I, Timothy D. Payne, certify that: 1. I have reviewed this quarterly report on Form 10-Q of MPS Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Timothy D. Payne - ------------------------------------- Timothy D. Payne President and Chief Executive Officer EX-31 3 rc13acert930.txt EX. 31.2 CERTIFICATION BY ROBERT P. CROUCH MPS GROUP, INC. AND SUBSIDIARIES CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) I, Robert P. Crouch, certify that: 1. I have reviewed this quarterly report on Form 10-Q of MPS Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Robert P. Crouch - ------------------------------------- Robert P. Crouch Senior Vice President and Chief Financial Officer EX-32 4 tp1350cert930.txt EX. 32.1 CERTIFICATION BY TIMOTHY D. PAYNE MPS GROUP, INC. AND SUBSIDIARIES CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of MPS Group, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Timothy D. Payne, President, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Timothy D. Payne - -------------------------- Timothy D. Payne President, Chief Executive Officer and Director November 13, 2003 EX-32 5 rc1350cert930.txt EX. 32.2 CERTIFICATION BY ROBERT P. CROUCH MPS GROUP, INC. AND SUBSIDIARIES CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of MPS Group, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert P. Crouch, Senior Vice President, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Robert P. Crouch - -------------------------- Robert P. Crouch Senior Vice President, Treasurer and Chief Financial Officer November 13, 2003 -----END PRIVACY-ENHANCED MESSAGE-----