SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003 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 Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share New York Stock Exchange (Title of each class) (Name of each exchange on which registered) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No --- --- The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of common stock on, June 30, 2003, the last business day of the registrant's most recently completed second fiscal quarter, as reported by the New York Stock Exchange, was approximately $695,179,314. As of March 1, 2004 the number of shares outstanding of the Registrant's common stock was 103,177,129. DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registrant's Proxy Statement for its 2003 Annual Meeting of shareholders are incorporated by reference in Part III. FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K 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 II, Item 5 under 'Market for Registrant's Common Equity and Related Stockholder Matters', 'Liquidity and Capital Resources,' and '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,' 'can,' 'hopes,' 'perhaps,' 'would,' or 'become,' or the negative of these terms or other comparable terminology. In addition, except for historical facts, all information provided in Part II, Item 7A, 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 publicly update 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. PART I ITEM 1. BUSINESS Introduction MPS Group, Inc. ('MPS' or the 'Company') is a leading global provider of business services with over 170 offices throughout the United States, Canada, the United Kingdom, and continental Europe. MPS delivers consulting, solutions, and staffing services to virtually all industries in the following disciplines and through the following brands: Discipline Brand(s) Information Technology (IT) Services Modis Accounting and Finance Badenoch & Clark, Accounting Principals Engineering Entegee Legal Special Counsel IT Solutions Idea Integration Health Care Soliant Health Executive Search Diversified Search Human Capital Automation Beeline MPS operates these brands under three divisions: the professional services division; the IT services division; and the IT solutions division. The Company generated revenue of $1.10 billion in 2003, of which 64% was contributed from the United States. The remainder was earned internationally, primarily in the United Kingdom. Note 16 to the Company's Consolidated Financial Statements provides segment and geographic information for the three years ending December 31, 2003. MPS's common stock is listed on the New York Stock Exchange ('NYSE') under the ticker symbol 'MPS'. The Company's Internet address is www.mpsgroup.com and its principal executive offices are located at 1 Independent Drive, Jacksonville, Florida 32202 (telephone: 904-360-2000). The Company makes available through its Internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after filing such material with, or furnishing it to, the Securities and Exchange Commission. The information contained on the Company's website, or on other websites linked to its website, is not part of this document. Operations Professional Services division The professional services division represented approximately 47% of MPS's revenue and 51% of its gross profit for 2003. This was up from 41% of its revenue and 47% of its gross profit for 2002. Approximately 61% of the division's revenue was generated in the United States with the remainder contributed from the United Kingdom. The professional services division provides professional business staffing and solutions to a wide variety of clients, through its network of approximately 100 offices in the United States and the United Kingdom. The division provides expertise in a wide variety of disciplines operating through the Badenoch & Clark, Accounting Principals, Special Counsel, Entegee, Soliant Health, and Diversified Search brands. Badenoch & Clark is a professional services recruitment consultancy with offices located across the United Kingdom, primarily specializing in finance & accounting. Badenoch & Clark has served clients for over 20 years with a professional, consultative approach to permanent, temporary and interim hiring solutions. Entegee provides a strategic work force solution for technical and engineering needs through its domestic network of national practice branches. From on-site management consulting and in-house project services to temporary and direct placement, Entegee combines industry knowledge and experience to fill highly skilled technical and engineering positions. Entegee also provides engineering and drafting design services through company-owned centers that utilize state-of-the-art computer technology. Special Counsel provides customized legal workforce solutions to Fortune 1000 companies and law firms through its network of offices located across the United States. Special Counsel provides temporary, temporary-to-direct hire, and direct hire solutions for workload management, litigation support, business transaction support, pre-litigation and document management support, as well as trial-related services. Accounting Principals provides professional services recruitment and placement of accounting and finance professionals with offices located across the United States. Accounting Principals offers a complete range of workforce solutions in accounting, finance, mortgage, and banking through its nationwide branch network and team of experienced professionals. Soliant Health provides specialized healthcare staffing services in nursing, imaging, therapy, and other healthcare positions to hospitals and healthcare providers. By supplying traveling nurses and allied healthcare professionals on both temporary and direct hire assignments, Soliant Health delivers comprehensive healthcare staffing services to leading facilities across the United States. Diversified Search provides senior-level executive and board of director search services to clients ranging from small, private firms and not-for-profits to large publicly held corporations in the United States. The Company's business staffing solutions are provided for varying periods of time to companies or other organizations (including government agencies) that have a need for such personnel, but are unable to, or choose not to, engage certain personnel as their own employees. Examples of client needs for staffing solutions include the need for specialized or highly-skilled personnel for the completion of a specific project or subproject, substitution for regular employees during vacation or sick leave, and staffing of high turnover positions or seasonal peaks. The division has a variable cost business model whereby revenue and cost of revenue are primarily recognized and incurred on a time-and-materials basis. The majority of the billable consultants are compensated on an hourly basis only for the hours which are billed its client. Approximately 5% of the division's revenue in 2003 was generated from permanent placement fees. Permanent placement fees are generated when a client directly hires a skilled consultant. In 2003, the Company acquired the legal staffing businesses of LawPros and LawCorps. Purchase consideration for these two acquisitions totaled $16.0 million in cash, of which $15.3 million was paid at closing. LawPros and Lawcorps generated $10.1 million of revenue in 2003. In 2002, the Company acquired a health care staffing business, Elite Medical (subsequently re-branded as Soliant Health). Purchase consideration totaled $15.9 million, which was paid in a mixture of cash and stock. Soliant Health's revenue was $19.4 million and $9.1 million in 2003 and 2002, respectively. In December 2003, the Company sold certain operating assets and transferred certain operating liabilities of its outplacement unit, Manchester, for $8.0 million in cash while retaining the working capital of the business of approximately $2.0 million. This decision to sell Manchester was in keeping with the Company's long-term strategy of focusing on the its core businesses. The initial after-tax loss on the sale was $20.7 million. Manchester's 2003 revenue was $21.0 million. As a result of the sale of Manchester and in accordance with GAAP, the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations report the results of operations of Manchester as discontinued operations for all periods presented. IT Services division The IT services division includes the Modis and Beeline units. The division represented approximately 47% of MPS's revenue and 40% of its gross profit for 2003. Approximately 63% of the division's revenue was generated in the United States, with the remainder generated internationally, primarily in the United Kingdom. Modis is one of the world's largest providers of Information Technology Resource Management (ITRM) services and solutions. ITRM is defined as deploying skilled consultants to meet an organization's information technology goals using the optimal mix of internal staff, outside consulting resources, and project outsourcing. Today, Modis delivers world-class ITRM solutions to more than 1,000 clients in a wide variety of industries through its network of approximately 65 offices in the United States, United Kingdom, Canada and continental Europe. The value-added solutions falling under the umbrella of ITRM include IT project support and staffing, recruitment of full-time positions, project-based solutions, supplier management solutions, and on-site recruiting support in the areas of application development, systems integration, and enterprise application integration. Modis has a variable cost business model whereby revenue and cost of revenue are primarily generated on a time-and-materials basis. The majority of the billable consultants are compensated on an hourly basis only for the hours which are billed its client. Less than 1% of the Modis' revenue in 2003 was generated from permanent placement fees. Beeline provides a software-based human capital management services solution to principally Fortune 1000 clients. Beeline offers a wide range of human capital solutions that automate the acquisition and management of both full-time and contingent workers. Beeline offerings include Beeline for Contingent Labor, Beeline for Managed Services, Beeline for Performance Appraisals, Beeline for Direct Hire, and Beeline for RFPs. Companies and government agencies enhance execution with these solutions by improving efficiency, visibility, discipline, and communication. Beeline has operations in both the United States and the United Kingdom. Beeline maintains a full-time staff to support its operations and seeks to collect a service charge based upon the usage of this service. To implement its service, Beeline incurs considerable start up costs and time. Subsequent to implementation, minimal cost and resources are required for the usage of Beeline's services. IT Solutions division The IT solutions division is comprised solely of Idea Integration ('Idea'). The division represented approximately 6% of MPS's revenue and 9% of its gross profit for 2003. All of the division's revenue was generated in the United States. Idea is an e-business consulting and systems integration solutions provider serving Fortune 1000 companies, government, and middle-market clients, through a combination of local, regional, and national practice groups located in nine domestic markets. Specializing in Web design and development, information management solutions, wireless workflow applications, portal solutions, and enterprise resource management, Idea strives to deliver high-return business applications for its clients. Idea has a fixed cost business model utilizing salaried consultants to deliver solutions primarily under time-and-materials contracts and to a lesser extent under fixed-fee contracts. Competition MPS's ability to compete successfully for clients depends on its reputation, pricing and quality of service provided, its understanding of clients' specific job requirements, and the ability to provide qualified personnel in a timely manner. Certain of the Company's contracts are awarded on the basis of competitive proposals which can be periodically re-bid by the client. While MPS has been successful in obtaining both short and long-term contracts in the past, there can be no assurance that existing contracts will be renewed on satisfactory terms or that additional or replacement contracts will be awarded to the Company. The principal competitors of the professional services division include Robert Half International Inc., Resources Connection, Inc., Spherion Corporation, Wallace Law Registry, Ajilon Consulting (a wholly owned subsidiary of Adecco SA), Michael Page International, Robert Walters PLC, Cross Country Healthcare, Inc., and CDI Corporation. The principal competitors of the IT services division include Keane, Inc., Computer Horizons Corp., Comsys Information Technology Services, Inc., CIBER, Inc., and Ajilon Consulting. The principal competitors of the IT solutions division include Sapient Corporation, Cognizant Technology Solutions Corporation, Answerthink, Inc., Accenture Ltd., Cap Gemini Ernst & Young, and to an extent, the consulting division of IBM. In addition, in seeking engagements the division often competes against the internal management information services and IT departments of clients and potential clients. Growth Strategy The Company's growth strategy is focused on increasing overall revenue and gross profits primarily through its core services offerings relating to professional services, IT services, and IT solutions and, to a lesser extent, expansion into new specialties. The Company looks to achieve this focus through a combination of both internal growth and acquisitions. In addition, this focus is aided by the shedding of non-core businesses, as illustrated by the 2003 sale of the Company's outplacement unit, Manchester. The decision of growing internally as opposed to an acquisition will be based on the perceived length of time to penetrate a market compared to its cost, as well as analyzing the potential return on invested capital for a potential acquisition. The Company feels it has positioned itself for an upturn in the economy through the consolidation of back office activities and the continued development of its strategic management systems. Coming out of an economic downturn, employers historically have turned to contingent labor first before hiring fixed cost employees. As demand for the Company's services improves, the Company is looking to further diversify its business mix through a combination of maintaining a leadership position in both IT services and IT solutions, while growing the professional services segment. Supported by favorable workforce demographics, the Company looks to grow the professional services segment revenue in both amount and overall percentage contribution through a broadening of existing service lines and through strategic acquisitions primarily in the areas of accounting and finance, legal and health care. The key elements of the Company's internal growth strategy include increasing penetration of existing markets and customer segments, expanding current specialties into new and contiguous geographic markets, concentrating on skill areas that value high levels of service, and identifying and adding new practice areas. As one of the largest global providers of business services, the Company looks to expand on this market footprint. Further, the Company can strengthen its relationships with clients, consultants and employees by enhancing the knowledge and skills of its consultants and employees. While the Company looks to strengthen its relationships with clients, it does not look to concentrate on any one specific client. For example, there were no customers to which sales represented over 5% of the Company's consolidated revenue for 2003. Employees On March 1, 2004, the Company employed approximately 12,800 consultants and approximately 1,900 corporate employees on a full-time equivalent basis. Approximately 275 of the employees work at corporate headquarters. As described below, in most jurisdictions, the Company, as the employer of the consultants or as otherwise required by applicable law, is responsible for employment administration. This administration includes collection of withholding taxes, employer contributions for social security or its equivalent outside the United States, unemployment tax, workers' compensation and fidelity and liability insurance, and other governmental requirements imposed on employers. Full-time employees are covered by life and disability insurance and receive health insurance and other benefits. Government Regulations Outside of the United States and Canada, the staffing services industry is closely regulated. These regulations differ among countries but generally may regulate: (i) the relationship between the Company and its temporary employees; (ii) registration, licensing, record keeping, and reporting requirements; and (iii) types of operations permitted. Regulation within the United States and Canada has not materially impact the Company's operations. In many countries, including the United States and the United Kingdom, staffing services firms are considered the legal employers of the temporary consultants while the consultant is on assignment with a company client. Therefore, laws regulating the employer/employee relationship, such as tax withholding or reporting, social security or retirement, anti-discrimination, and workers' compensation, govern the Company. In other countries, staffing services firms, while not the direct legal employer of the consultant, are still responsible for collecting taxes and social security deductions and transmitting such amounts to the taxing authorities. Intellectual Property The Company seeks to protect its intellectual property through copyright, trade secret and trademark law and through contractual non-disclosure restrictions. The Company's services often involve the development of work and materials for specific client engagements, the ownership of which is frequently assigned to the client. The Company does at times, and when appropriate, negotiate to retain the ownership or continued use of development tools or know how created or generated by the Company for a client in the delivery of its services, which the Company may then license to other clients. 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 facilities are located in geographic areas subject to closure or reduced hours due to inclement weather. ITEM 2. PROPERTIES The Company owns no material real property. It leases its corporate headquarters, as well as almost all of its branch offices. The branch office leases generally run for three to five-year terms. The Company believes that its facilities are generally adequate for its needs and does not anticipate difficulty replacing such facilities or locating additional facilities, if needed. For additional information on lease commitments, see Note 6 to the Company's Consolidated Financial Statements. For additional information on the Company's charge for exit costs associated with the abandonment of excess real estate obligations for certain vacant office space, see Note 17 of the Company's Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS 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 financial position, its results of operations, or its cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2003. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the NYSE (NYSE symbol - MPS). The following table sets forth the high and low sale prices of MPS's Common Stock, as reported by the NYSE, during the two years ended December 31, 2003:
2003 2002 ----------------------------- ------------------------------ High Low High Low ----------------------------- ------------------------------ Period: First Quarter..................... $ 6.24 $ 4.75 $ 8.94 $ 6.45 Second Quarter.................... 7.58 5.20 9.80 7.00 Third Quarter..................... 10.10 6.83 8.25 4.35 Fourth Quarter.................... 10.65 8.55 6.65 4.35
See the factors set forth below in 'FACTORS WHICH MAY IMPACT FUTURE RESULTS AND FINANCIAL CONDITION' under 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,' for factors that may impact the price of the Company's Common Stock. Fluctuations and volatility in the financial and equity markets, in general, and in the Company's industry sector, in particular, affect the price of the Company's Common Stock. As of March 1, 2004, there were approximately 912 holders of record of the Company's Common Stock. No cash dividend or other cash distribution with respect to the Company's Common Stock has ever been paid by the Company. The Company currently intends to retain any earnings to provide for the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. The Company's Board of Directors had authorized the repurchase of up to $65.0 million of the Company's Common Stock. Beginning in the third quarter of 2002 through the second quarter of 2003, 1.6 million shares at a cost of $9.1 million have been repurchased under this authorization. There has been no activity under this authorization since the second quarter of 2003. ITEM 6. SELECTED FINANCIAL DATA
Years Ended --------------------------------------------------------------------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, (in thousands, except per share amounts) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Operations data: Revenue $ 1,096,030 $ 1,119,156 $1,500,615 $ 1,777,540 $ 1,895,093 Cost of revenue 808,890 834,318 1,105,781 1,269,760 1,395,945 --------------------------------------------------------------------------------- Gross profit 287,140 284,838 394,834 507,780 499,148 Operating expenses 251,623 255,929 342,918 388,338 312,729 Amortization of goodwill (1) - - 37,312 35,937 30,618 Impairment of investment - 16,165 - (694) (2,275) Exit costs (recapture) (284) 8,967 - - - Asset write-down related to sale of discontinued operations - - - 13,122 25,000 --------------------------------------------------------------------------------- Operating income 35,801 3,777 14,604 71,077 133,076 Other income (expense), net 553 (3,947) (9,199) (21,621) (7,794) ---------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes and cumulative effect of accounting change 36,354 (170) 5,405 49,456 125,282 Provision (benefit) for income taxes 14,519 13,832 3,102 (65,834) 47,571 --------------------------------------------------------------------------------- Income (loss) from continuing operations before cumulative effect of accounting change 21,835 (14,002) 2,303 115,290 77,711 Discontinued operations: (2) Income (loss) from discontinued operations, net of tax (2,395) 1,410 6,040 4,463 4,424 Gain (loss) on sale of discontinued operations, net of tax (20,675) - - - 14,955 --------------------------------------------------------------------------------- Income (loss) before cumulative effect of accounting change (1,235) (12,592) 8,343 119,753 97,090 Cumulative effect of accounting change, net of tax (1) - (553,712) - - - --------------------------------------------------------------------------------- Net income (loss) $ (1,235) $ (566,304) $ 8,343 $ 119,753 $ 97,090 ================================================================================= Basic income (loss) per common share: From continuing operations $ 0.21 $ (0.14) $ 0.02 $ 1.19 $ 0.81 ================================================================================= From discontinued operations $ (0.02) $ 0.01 $ 0.06 $ 0.05 $ 0.05 ================================================================================= From sale of discontinued operations $ (0.20) $ - $ - $ - $ 0.16 ================================================================================= From accounting change $ - $ (5.49) $ - $ - $ - ================================================================================= Basic income (loss) per common share $ (0.01) $ (5.62) $ 0.09 $ 1.24 $ 1.01 ================================================================================= Diluted income (loss) per common share: From continuing operations $ 0.21 $ (0.14) $ 0.02 $ 1.18 $ 0.80 ================================================================================= From discontinued operations $ (0.02) $ 0.01 $ 0.06 $ 0.05 $ 0.05 ================================================================================= From sale of discontinued operations $ (0.20) $ - $ - $ - $ 0.15 ================================================================================= From accounting change $ - $ (5.49) $ - $ - $ - ================================================================================= Diluted income (loss) per common share $ (0.01) $ (5.62) $ 0.08 $ 1.23 $ 1.00 ================================================================================= Basic average common shares outstanding 101,680 100,833 97,868 96,675 96,268 ================================================================================= Diluted average common shares outstanding 104,518 100,833 98,178 97,539 97,110 ================================================================================= December 31, --------------------------------------------------------------------------------- (in thousands) 2003 2002 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------------- Consolidated Balance Sheet data: Working capital $ 216,879 $ 171,154 $ 200,887 $ 242,872 $ 250,668 Total assets 893,151 892,974 1,533,863 1,645,414 1,581,049 Long term debt - - 101,000 194,000 238,615 Stockholders' equity 793,462 781,559 1,310,811 1,303,218 1,182,515
(1) Cumulative effect of accounting change relates to the Company's adoption of Statement of Financial Accounting Standards ('SFAS') No. 142 'Goodwill and Other Intangible Assets,' effective January 1, 2002. SFAS No. 142 discontinued the periodic amortization of goodwill. (2) For discontinued operations, the 1999 gain on sale related to the discontinued Commercial operations and Teleservices division sold in September 1998. The income (loss) from discontinued operations for the periods presented above and the 2003 loss on sale related to the discontinued outplacement unit, Manchester, sold in December 2003. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MPS (the 'Company') is a leading global provider of business services with over 170 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, health care, executive search, and human capital automation. The following detailed analysis of operations contains certain financial information on a 'constant currency' basis. Such constant currency financial data is not a U.S. generally accepted accounting principles ('GAAP') financial measure. Constant currency removes from financial data the impact of changes in exchange rates between the U.S. dollar and the functional currencies of the Company's 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. The Company believes presenting certain results on a constant currency basis is useful to investors because it allows a more meaningful comparison of the performance of its foreign operations from period to period. Additionally, certain internal reporting and compensation targets are based on constant currency financial data for the Company's various foreign subsidiaries. However, 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 GAAP. The following detailed analysis of operations also presents the revenue generated by the Company's professional services division in the United States excluding the effect of acquisitions. Such financial data that excludes the effect of acquisitions is not a GAAP financial measure. The Company believes presenting some results excluding the effects of businesses we acquire is helpful to investors because it permits a comparison of the performance of its core internal operations from period to period. Additionally, certain internal reporting and compensation targets are based on core internal operations. The effect of acquisitions are excluded for the first 12 months following the acquisition date. Subsequent to this, acquisitions are considered to be integrated. Again however, such measures should be considered 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 also contains certain financial information excluding the effect of a $25.1 million charge for an investment impairment and exit costs in 2002, along with a $284,000 recapture for these exit costs in 2003. The 2002 charge of $25.1 million was comprised of the following: (1) The Company elected not to participate in a recapitalization of a minority investment originally made in 1996. This election resulted in the investment being impaired. As a result, the Company wrote off the investment in its entirety resulting in a $16.2 million charge; (2) The Company recorded an $9.0 million charge for exit costs associated with the abandonment of excess real estate obligations for certain vacant office space. This charge was recorded in accordance with SFAS No. 146, 'Accounting for Costs Associated with Exit or Disposal.' In 2003, the Company recaptured $284,000 relating to the settlement of abandoned real estate. See Note 17 to the Company's Consolidated Financial Statements for further discussion. We believe presenting certain financial information excluding the effect of the aforementioned charges (recapture) provides a more meaningful comparison of changes from period to period. Again however, you should consider such measures only in conjunction with the correlative measures that include the charges (recapture), as calculated and presented in accordance with GAAP. In December 2003, the Company sold certain operating assets and transferred certain operating liabilities of its outplacement unit, Manchester, for $8.0 million in cash while retaining the working capital of the business of approximately $2.0 million. This decision to sell Manchester was in keeping with the Company's long-term strategy of focusing on the its core businesses. The initial after-tax loss on the sale was $20.7 million. As a result of the sale of Manchester and in accordance with GAAP, the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations report the results of operations of Manchester as discontinued operations for all periods presented. Manchester's revenue was $21.0 million, $35.8 million, and $47.9 million, in 2003, 2002 and 2001, respectively. Manchester's income (loss) before taxes was a $(3.7) million, $2.2 million, and $9.7, for 2003, 2002 and 2001, respectively. The following detailed analysis of operations should be read in conjunction with the 2003 Financial Statements and related notes included elsewhere in this Form 10-K. 2003 COMPARED TO 2002 Consolidated Results Revenue. Revenue decreased $23.2 million, or 2.1%, to $1,096.0 million in 2003 from $1,119.2 million in 2002. The decrease was due to a reduction in 2003 revenue in both the Company's IT Services and IT Solutions divisions of 11.1% and 16.9%, respectively. This decrease was offset by a 2003 revenue increase of 11.9% in the Company's professional services division. Approximately 36% of the Company's 2003 revenue 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 2003 had a slight impact on revenue, as revenue, on a constant currency basis decreased 4.8%, as compared to the decrease of 2.1% above. In 2002, the Company acquired a health care staffing business, and in 2003, the Company acquired two legal staffing businesses (together, the 'acquisitions'). The Company's health care staffing business, which was acquired in July 2002, contributed $19.4 million and $9.1 million in revenue for 2003 and 2002, respectively. The Company's acquisition of two legal staffing businesses in February and August of 2003 (together, the 'legal acquisitions'), contributed $10.1 million in revenue for 2003. See Note 3 to the Company's Consolidated Financial Statements for a discussion of the acquisitions. Gross profit. Gross profit increased $2.3 million, or 0.8%, to $287.1 million in 2003 from $284.8 million in 2002. However, on a constant currency basis, gross profit decreased $2.5 million, or 0.8%, in 2003. Gross margin increased to 26.2% in 2003, from 25.5% in 2002. The higher margin is due primarily to a higher concentration of revenue being generated from the professional services division for 2003. Operating expenses. Total operating expenses decreased $29.8 million, or 10.6%, to $251.3 million in 2003, from $281.1 million in 2002. Included in total operating expenses for 2002 was a $25.1 million charge for an investment impairment and exit costs. Included in total operating expenses for 2003 was a $284,000 recapture for these exit costs. Excluding these aforementioned charges (recapture), total operating expenses decreased $4.3 million, or 1.7%, to $251.6 million in 2003, from $255.9 million in 2002. The Company's general and administrative ('G&A') expenses, which are included in operating expenses, decreased $1.1 million, or 0.5%, to $234.6 million in 2003, from $235.7 million in 2002. G&A expenses on a constant currency basis decreased $6.6 million, or 2.8%, in 2003. The decrease in G&A expenses was attributable to the elimination of duplicative corporate infrastructure responsibilities and the decrease in revenue for 2003. The decrease in revenue primarily reduces the variable component of compensation for the Company's employees. Operating income. Operating income increased $32.0 million to $35.8 million in 2003, from $3.8 million in 2002. Results for 2002 and 2003 included a $25.1 million charge for an investment impairment and exit costs, and a $284,000 recapture for these exit costs, respectively. Operating income as a percentage of revenue increased to 3.3% in 2003, from 0.3% in 2002. The charge for an investment impairment and exit costs in 2002 and the exit costs recapture in 2003, had a 2.3% and 0.1% impact, respectively, on operating income as a percentage of revenue. Other income (expense), net. Other expense, net consists primarily of interest expense related to borrowings under the Company's 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 $4.7 million, or 83.9%, to $0.9 million in 2003, from $5.6 million in 2002. The decrease in interest expense is related to the lack of borrowings under the Company's credit facility during 2003. Interest expense was offset by $1.5 million and $1.7 million of interest and other income in 2003 and 2002, respectively. Income taxes. The Company recognized an income tax provision of $14.5 million in 2003, compared to a provision of $13.8 million in 2002. Included in the provision for 2002 is an $8.7 million charge for an agreed upon adjustment related to an audit by the Internal Revenue Service of prior years' tax returns. See Note 7 to the Company's Consolidated Financial Statements for further discussion. This charge net of the tax benefit on the previously mentioned investment impairment and exit costs in 2002 increased the 2002 income tax provision by $3.5 million. The remaining decrease in the level of the Company's income tax provision as a percentage of pre-tax income is due to the lower level of non-deductible expenses for 2003. Income from continuing operations before cumulative effect of accounting change. As a result of the foregoing, income from continuing operations before cumulative effect of accounting change increased $35.8 million, to $21.8 million in 2003, from a $14.0 million loss in 2002. Segment Results Professional Services division Revenue in the professional services division increased $54.8 million, or 11.9%, to $514.1 million in 2003, from $459.3 million in 2002. On a constant currency basis, revenue increased 8.4%. Acquisitions contributed $19.6 million in revenue for 2003. Of the division's revenue, approximately 61% was generated in the United States in both 2002 and 2003. The remainder was generated in the United Kingdom. Excluding the contribution from acquisitions, revenue generated in the United States increased 5.2% for 2003. On a constant currency basis, revenue increased 2.6% for revenue generated in the United Kingdom. Excluding the contribution from acquisitions and the favorable impact from changes in foreign currency exchange rates, all of the professional division's operating units, as listed below, increased revenue in 2003 from 2002. This increase in revenue was attributable to the increased demand for the services provided by the division. Revenue contribution from the professional services division's operating units for 2003 and 2002 are as follows:
2003 2002 ------------------------------------------------------------------ Accounting and finance 44.5% 46.0% Engineering 34.9 37.6 Legal 15.3 12.8 Health care 3.8 2.0 Executive search 1.5 1.6
Gross profit for the professional services division increased $13.3 million, or 9.9%, to $147.4 million in 2003 from $134.1 million in 2002. The gross margin decreased to 28.7% in 2003, from 29.2% in 2002. The decrease in gross margin is primarily attributable to the 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 4.8% of revenue in 2003, from 5.4% in 2002. Gross margin for the division's staffing services remained stable from 2002 to 2003. The professional services division's G&A expenses increased $9.6 million, or 9.1%, to $115.6 million in 2003, from $106.0 million in 2002. As a percentage of revenue, the division's G&A expenses decreased to 22.5% in 2003, from 23.1% in 2002. The increase in the division's G&A expenses is associated primarily with the increase in revenue for 2003, and to a lesser extent, from the impact of changes in foreign currency exchange rates. Operating income for the professional services division increased $4.8 million, or 21.9%, to $26.7 million in 2003, from $21.9 million in 2002. IT Services division Revenue in the IT services division decreased $63.6 million, or 11.1%, to $511.7 million in 2003, from $575.3 million in 2002. On a constant currency basis, revenue decreased 13.7%. The decrease 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 65% was generated in the United States in 2003 and 2002, respectively. The remainder was generated internationally, primarily in the United Kingdom. Revenue generated in the United States decreased 15.0% in 2003. On a constant currency basis, revenue decreased 11.0% for revenue generated internationally. Gross profit for the IT services division decreased $7.6 million, or 6.2%, to $114.7 million in 2003 from $122.3 million in 2002. However, the gross margin increased to 22.4% in 2003, from 21.3% 2002. The increase in gross margin is attributable to the division's domestic operations where the gross margin increased to 26.9% in 2003, from 24.4% in 2002. In 2002, 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 division 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 2002. For revenue generated internationally, the gross margin decreased to 15.0% in 2003, from 15.4% in 2002, primarily due to a shift in the mix of services provided internationally. The IT services division's G&A expenses decreased $2.5 million, or 2.5%, to $99.5 million in 2003, from $102.0 million in 2002. As a percentage of revenue, the division's G&A expenses increased to 19.4% in 2003, from 17.7% in 2002. The decrease in the division's G&A expenses is primarily associated with the decrease in revenue for 2003. Operating income for the IT services division decreased $4.3 million, or 40.6%, to $6.3 million in 2003, from $10.6 million in 2002. IT Solutions division Revenue in the IT solutions division decreased $14.3 million, or 16.9%, to $70.2 million in 2003, from $84.5 million in 2002. 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 throughout 2002, the last of which occurred in August 2002. These markets, while generating revenue, were not producing positive income or cash flow from operations. Revenue generated from these closed markets was $4.3 million for 2002. Gross profit for the IT solutions division decreased $3.3 million, or 11.6%, to $25.1 million in 2003 from $28.4 million in 2002. However, the gross margin increased to 35.7% in 2003, from 33.6% in 2002. This increase was driven 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 $8.2 million, or 29.6%, to $19.5 million in 2003, from $27.7 million in 2002. As a percentage of revenue, the division's G&A expenses decreased to 27.8% in 2003, from 32.8% in 2002. The decrease in the division's G&A expenses was primarily related to reductions in its work force throughout 2002. Operating income for the IT solutions division increased $6.1 million, to $2.5 million in 2003, from a $3.6 million loss in 2002. 2002 COMPARED TO 2001 Consolidated Results Revenue. Revenue decreased $381.4 million, or 25.4%, to $1,119.2 million in 2002 from $1,500.6 million in 2001. The decrease was due to a reduction in 2002 revenue for all three divisions, whereby revenue decreased 18.1%, 25.4%, and 49.9%, in the Company's professional services, IT Services and IT Solutions divisions, respectively. Approximately 34% of the Company's 2002 revenue 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 2002 had a slight impact on revenue, as revenue, on a constant currency basis decreased 26.4%, as compared to the decrease of 25.4% above. Constant currency removes the impact on revenue from changes in exchange rates between the U.S. dollar and the functional currencies of its foreign subsidiaries. Included in the results for 2001 was $20.7 million in revenue from the Company's scientific operating unit which was sold in December 2001. Additionally, the Company acquired a health care staffing business in July 2002 which contributed $9.1 million in revenue for 2002. Gross profit. Gross profit decreased $110.0 million, or 27.9%, to $284.8 million in 2002 from $394.8 million in 2001. Gross margin decreased to 25.5% in 2002, from 26.3% in 2001. The lower margin is due primarily to changes in business mix, and a decrease in direct hire and permanent placement fees, which generate a higher margin. Operating expenses. Total operating expenses decreased $99.1 million, or 26.1%, to $281.1 million in 2002, from $380.2 million in 2001. There are two items which should be separately identified to provide a more meaningful analysis of the change in operating expenses. Included in total operating expenses for 2002 was a $25.1 million charge for an investment impairment and exit costs. Included in total operating expenses for 2001 was $37.3 million of goodwill amortization. Excluding these aforementioned costs, total operating expenses decreased $87.0 million, or 25.4%, to $255.9 million in 2002, from $342.9 million in 2001. The Company's G&A expenses decreased $86.2 million, or 26.8%, to $235.7 million in 2002, from $321.9 million in 2001. The decrease in G&A expenses was attributable to (i) a decrease in revenue for 2002, (ii) cost reduction initiatives that were implemented in 2001 and throughout 2002 across MPS's divisions in response to the lower revenue levels and (iii) the elimination of duplicative corporate infrastructure responsibilities. 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. In accordance with SFAS No. 142, the Company did not record any goodwill amortization in 2002. See Note 5 to the Company's Consolidated Financial Statements for further discussion. Operating income. Operating income decreased $10.8 million, or 74.0%, to $3.8 million in 2002, from $14.6 million in 2001. Results for 2001 and 2002 included $37.3 million of goodwill amortization, and a $25.1 million charge for an investment impairment and exit costs, respectively. Operating income as a percentage of revenue decreased to 0.3% in 2002, from 1.0% in 2001. Goodwill amortization in 2001 and the charge for an investment impairment and exit costs in 2002, had a 2.5% and 2.3% negative impact, respectively, on operating income as a percentage revenue. Other income (expense), net. Other expense, net consists primarily of interest expense related to borrowings under the Company's credit facilities 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 $5.0 million, or 47.2%, to $5.6 million in 2002, from $10.6 million in 2001. The decrease in interest expense is related to the lower level of borrowings under the Company's credit facility during 2002. Interest expense was offset by $1.7 million and $1.4 million of interest and other income in 2002 and 2001, respectively. Income taxes. The Company recognized an income tax provision of $13.8 million in 2002, compared to a provision of $3.1 million in 2001. Included in the provision for 2002 is an $8.7 million charge recognized for an agree upon adjustment related to an audit by the Internal Revenue Service of prior years' tax returns. This charge net of the tax benefit on the previously mentioned investment impairment and exit costs in 2002 increased the 2002 income tax provision by $3.5 million. The remaining decrease in the level of the Company's income tax provision as a percentage of pre-tax income is primarily due to the discontinuance of goodwill amortization required by SFAS No. 142. In 2001, non-deductible goodwill amortization on certain acquisitions had an increased effect on the Company's effective tax rate. Income from continuing operations before cumulative effect of accounting change. As a result of the foregoing, income from continuing operations before cumulative effect of accounting change decreased $16.3 million, to a $14.0 million loss in 2002, from $2.3 million of income in 2001. Segment Results Professional Services division Revenue in the professional services division decreased $101.7 million, or 18.1%, to $459.3 million in 2002, from $561.0 million in 2001. On a constant currency basis, revenue decreased 19.4%. The decrease was attributable to the diminished demand for staffing services and workforce solutions provided by the division. Of the division's revenue, approximately 61% and 66% was generated in the United States in 2002 and 2001, respectively. The remainder was generated in the United Kingdom. Included in revenue for 2001 was $20.7 million of revenue from the Company's scientific operating unit which was sold in 2001. Included in revenue for 2002 was $9.1 million of revenue from the Company's mid-year acquisition of a health care staffing business. On an organic basis, excluding both the divestiture and the acquisition, revenue generated in the United States decreased 21.5% for 2002. On a local currency basis, revenue decreased 11.8% for revenue in the United Kingdom. Gross profit for the professional services division decreased $37.7 million, or 21.9%, to $134.1 million in 2002 from $171.8 million in 2001. The gross margin decreased to 29.2% in 2002, from 30.6% in 2001. The decrease in gross margin is primarily attributable to a decrease in bill rates for the services provided by the division and, to a lesser extent, the 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 5.4% of revenue in 2002, from 6.9% in 2001. The professional services division's G&A expenses decreased $19.8 million, or 15.7%, to $106.0 million in 2002, from $125.8 million in 2001. As a percentage of revenue, the division's G&A expenses increased to 23.1% in 2002, from 22.4% in 2001. The decrease in the division's G&A expenses is associated with the decrease in revenue for 2002, and cost reduction initiatives implemented within the division in 2001 and throughout 2002. Operating income for the professional services division decreased $8.2 million, or 27.2%, to $21.9 million in 2002, from $30.1 million in 2001. Goodwill amortization had a $10.5 million negative impact on operating income for 2001. IT Services division Revenue in the IT services division decreased $195.5 million, or 25.4%, to $575.3 million in 2002, from $770.8 million in 2001. On a constant currency basis, excluding the effects of exchange rates, revenue decreased 26.4%. The decrease 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 65% and 71% was generated in the United States in 2002 and 2001, respectively. The remainder was generated internationally, primarily in the United Kingdom. Revenue generated in the United States decreased 30.8% in 2002. On a local currency basis, revenue decreased 15.7% for revenue generated internationally. Gross profit for the IT services division decreased $46.0 million, or 27.3%, to $122.3 million in 2002 from $168.3 million in 2001. The gross margin decreased to 21.3% in 2002, from 21.8% 2001. The decrease in gross margin is attributable to the division's international operations, where it experienced a decrease in bill rates, which exceeded the related decrease in pay rates of the division's primarily hourly employees, along with a shift in the mix of its services. For revenue generated internationally, the gross margin decreased to 15.4% in 2002, from 16.6 % in 2001. For revenue generated in the United States, the gross margin increased to 24.4% in 2002, from 24.0% in 2001. The IT services division's G&A expenses decreased $22.6 million, or 18.1%, to $102.0 million in 2002, from $124.6 million in 2001. As a percentage of revenue, the division's G&A expenses increased to 17.7% in 2002, from 16.2% in 2001. The decrease in the division's G&A expenses is associated with the decrease in revenue for 2002, and cost reduction initiatives implemented within the division in 2001 and throughout 2002. Operating income for the IT services division decreased $2.8 million, or 20.9%, to $10.6 million in 2002, from $13.4 million in 2001. Goodwill amortization had a $19.4 million negative impact on operating income for 2001. IT Solutions division Revenue in the IT solutions division decreased $84.3 million, or 49.9%, to $84.5 million in 2002, from $168.8 million in 2001. 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. These markets, while generating revenue, were not producing positive income or cash flow from operations. Gross profit for the IT solutions division decreased $26.3 million, or 48.1%, to $28.4 million in 2002 from $54.7 million in 2001. However, the gross margin increased to 33.6% in 2002, from 32.4% in 2001. This increase was driven 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 from 2001 to 2002. The IT solutions division's G&A expenses decreased $43.9 million, or 61.3%, to $27.7 million in 2002, from $71.6 million in 2001. As a percentage of revenue, the division's G&A expenses decreased to 32.8% in 2002, from 42.4% in 2001. The decrease in the division's G&A expenses was primarily related to reductions in its work force that started in 2001 and continued through 2002. The operating loss for the IT solutions division decreased $25.3 million, to a $3.6 million loss in 2002, from a $28.9 million loss in 2001. Goodwill amortization had a $7.4 million negative impact on operating income for 2001. 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 the customer. 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 $216.9 million and $171.2 million as of December 31, 2003 and 2002, respectively. The Company had cash and cash equivalents of $124.8 million and $66.9 million as of December 31, 2003 and 2002, respectively. For the years ended December 31, 2003, 2002, and 2001, the Company generated $70.3 million, $111.5 million, and $173.9 million of cash flow from operations, respectively. The reduction in cash flow from operations, from 2002 to 2003, was primarily due to the normalizing of receivables collection. In 2001 and 2002, the main elements of the Company's back office integration and consolidation efforts were being completed. These efforts led to improvements in receivables collection for 2001 and 2002. The reduction in cash flow from operations, from 2001 to 2002, was primarily due to a reduced level of earnings in 2002, which was somewhat offset by this improvement in receivables collection. For the year ended December 31, 2003, the Company used $22.7 million of cash for investing activities, of which $15.9 million, net of cash acquired, was used primarily for the legal acquisitions, and $6.8 million was used for capital expenditures. For the year ended December 31, 2002, the Company used $12.7 million of cash for investing activities, of which $6.7 million, net of cash acquired, was used for the purchase of the Company's health care business, and $6.0 million was used for capital expenditures. For the year ended December 31, 2001, the Company used $14.8 million of cash for investing activities, primarily for capital expenditures. For the year ended December 31, 2003, the Company generated $2.7 million of cash from financing activities, primarily from $10.9 million of stock option exercises, net of $7.6 million used for the purchase of treasury stock. For the year ended December 31, 2002, the Company used $86.5 million of cash for financing activities, of which $101.4 was used for repayments on the Company's credit facility and $16.9 million was generated from stock option exercises. The Company also used $1.4 million for the purchase of treasury stock in 2002. For the year ended December 31, 2001, the Company used $116.6 million of cash for financing activities. This amount primarily represented net repayments on the Company's credit facility and on notes issued in connection with the acquisition of certain companies. These repayments were mainly funded from cash flows from operations. The Company's Board of Directors has authorized the repurchase of up to $65.0 million of the Company's Common Stock. Beginning in the third quarter of 2002 through the second quarter of 2003, 1.6 million shares at a cost of $9.1 million have been repurchased under this authorization. There has been no activity under this authorization since the second quarter of 2003. The Company anticipates that capital expenditures for furniture and equipment, including improvements to its management information and operating systems during the next twelve months will be approximately $8 million. While there can be no assurance in this regard, the Company believes that funds provided by operations, available borrowings under the credit facility, and current amounts of cash will be sufficient to meet its presently anticipated needs for working capital, capital expenditures and acquisitions for at least the next 12 months. Indebtedness, Contractual Obligations, and Commercial Commitments of the Company The following are contractual cash obligations and other commercial commitments of the Company at December 31, 2003:
Payments Due by Period ------------------------------------------------------------------------------ Less than 1 - 3 4 - 5 After 5 Total 1 Year Years Years Years Contractual Cash Obligations (in thousands) Operating leases $ 52,810 $ 14,462 $ 24,346 $ 9,387 $ 4,615 Other 891 891 - - - ------------------------------------------------------------------------------ Total Contractual Cash Obligations $ 53,701 $ 15,353 $ 24,346 $ 9,387 $ 4,615 ============================================================================== Amount of Commitment Expiration per Period ------------------------------------------------------------------------------ Less than 1 - 3 4 - 5 After 5 Total 1 Year Years Years Years Standby letters of credit $ 2,753 $ 2,753 $ - $ - $ - ------------------------------------------------------------------------------ Total Commercial Commitments $ 2,753 $ 2,753 $ - $ - $ - ==============================================================================
The Company had a revolving credit facility that expired in October 2003, with no borrowings outstanding. In the fourth quarter of 2003, the Company closed on a $150 million revolving credit facility syndicated to a group of leading financial institutions. The credit facility contains certain financial and non-financial covenants relating to the Company's operations, including maintaining certain financial ratios. Repayment, if applicable, of the credit facility is guaranteed by substantially of the subsidiaries of the Company. The facility expires in November 2006. As of March 1, 2004, there are no borrowings outstanding under this facility, other than the $2.8 million of standby letters of credit. CRITICAL ACCOUNTING POLICIES The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Associated with this, the Company believes the following are its most critical accounting policies in that they are the most important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective or complex judgments. Revenue Recognition The Company recognizes substantially all revenue at the time services are provided and is recorded on a time and materials basis. In most cases, the consultant is the Company's employee and all costs of employing the worker are the responsibility of the Company and are included in cost of revenue. Revenues generated when the Company permanently places an individual with a client are recorded at the time of placement less a reserve for employees not expected to meet the probationary period. In addition and to a lesser extent, the Company is involved in fixed price or lump-sum engagements. The services rendered by the Company under the relevant contracts generally require performance spanning more than one accounting period. The Company recognizes revenue for these engagements under the proportional performance accounting model. Goodwill In connection with SFAS No. 142, 'Goodwill and Other Intangible Assets,' the Company is required to perform goodwill impairment reviews, at least annually, utilizing a fair-value approach. Additionally, SFAS No. 142 required a transitional goodwill impairment review upon adoption. The Company adopted SFAS No. 142 as of January 1, 2002. In connection, the Company engaged an independent valuation consultant to assist with the required transitional goodwill impairment review. As of December 31, 2001, the Company's Consolidated Balance Sheet reflected goodwill of $1,166.0 million. After performing the required transitional goodwill impairment tests, the Company recognized a loss of $553.7 million, net of an income tax benefit of $113.0 million, and recorded the loss (net of the related tax benefit) as a cumulative effect of an accounting change in the Company's Consolidated Statement of Operations for 2002. The Company performed additional valuation testing during the fourth quarter of 2002 and 2003 (the Company's designated timing of the annual impairment test under SFAS No. 142) and did not incur any further impairment. The Company plans to perform its next annual impairment review during the fourth quarter of 2004. An impairment review prior to the Company's next scheduled annual review may be required if certain events occur, including lower than forecasted earnings levels for various reporting units. In addition, changes to other assumptions could significantly impact our estimate of the fair value of our reporting units. Such a change may result in a goodwill impairment charge, which could have a significant impact on the reportable segments that include the related reporting units and the Company's Consolidated Financial Statements. As part of the Company's goodwill impairment reviews, fair value was calculated using an equally blended value of a discounted cash flow analysis and market comparables. In contrast to SFAS 142, the prior accounting standard (SFAS No. 121) required the use of undiscounted cash flow estimates over the remaining useful life of the goodwill and other long-lived assets as a step 1 test for possible impairment. Under SFAS No. 121, the concept of recoverability of the goodwill over the useful life of the asset was the underlying test for impairment as opposed to fair value under SFAS No. 142. This fundamental difference in the underlying methodologies of testing for impairment of goodwill in SFAS No. 121 and SFAS No. 142 caused the Company to attribute the resulting impairment from the initial valuation completed on January 1, 2002 to a change in accounting principle upon the adoption of SFAS No. 142. Projected cash flows, used for both SFAS No. 121 and No. 142 testing, considered the effects from the then downturn in the Company's business. As mentioned above, the Company used an equally blended value of a discounted cash flow analysis and market comparables to arrive at fair value for SFAS No. 142. For the discounted cash flow analysis, significant assumptions included expected future revenue growth rates, reporting unit profit margins, working capital levels and a discount rate. The revenue growth rates and reporting unit profit margins are based, in part, on the Company's expectation of an improving economic environment. Market comparables included a comparison of the market ratios and performance fundamentals from comparable companies. The use of these measurement criteria is consistent with the underlying concepts used in determining the fair value of a company or reportable unit under the market approach. The market ratios the Company used refer to the multiples of revenue and earnings of comparable companies and the performance fundamentals refer to the consideration of the effects of the differences in the operating metrics, ie. growth rates, operating margins, gross margins, etc. on the value of the company versus the comparable companies. See Note 5 to the Company's Consolidated Financial Statements for further discussion. Allowance for Doubtful Accounts The Company regularly monitors and assesses its risk of not collecting amounts owed to it by its customers. This evaluation is based upon a variety of factors including: an analysis of amounts current and past due along with relevant history and facts particular to the customer. Based upon the results of this analysis, the Company records an allowance for uncollectible accounts for this risk. This analysis requires the Company to make significant estimates, and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts. Income Taxes The provision for income taxes is based on income before taxes as reported in the Company's Consolidated Statements of Income. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets. This assessment includes anticipating future income. Significant management judgment is required in determining the Company's provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the Company's net deferred tax assets. Management evaluates all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The establishment and amount of a valuation allowance requires significant estimates and judgment and can materially affect the Company's results of operations. The company's effective tax rate may vary from period to period based, for example, on changes in estimated taxable income or loss, changes to the valuation allowance, changes to federal, state or foreign tax laws, deductibility of certain costs and expenses by jurisdiction and as a result of acquisitions. The Company has a net deferred tax asset as of both December 31, 2003 and 2002, primarily due to the impairment loss recorded as a change in accounting principle associated with the Company's adoption of SFAS No. 142 in 2002. This impairment reduced the financial statement carrying amount of goodwill, which resulted in the tax basis of tax deductible goodwill being greater than the financial statement carrying amount. The Company's tax basis in its tax deductible goodwill will be deducted in the Company's income tax returns, generating $420.0 million of future tax deductions over the next 15 years. MPS is subject to periodic review by federal, state, foreign 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 would 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 2002, the company recorded an $8.7 million charge for an agreed upon adjustment related to its audit of prior years' tax returns. This Internal Revenue Service examination will be finalized once it has been reviewed by the Joint Committee on Taxation. For a further discussion, see Note 7 to the Consolidated Financial Statements. Exit Costs 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 and thus vacate and reorganize certain office space. In 2002, management determined that the Company would not be able to utilize this vacated office space. This determination eliminated the economic benefit associated with the vacated office space. As a result, the Company recorded $9.0 million of contract termination costs in 2002, mainly due to, costs that will continue to be incurred under the lease contract for its remaining term without economic benefit to the Company. These termination costs were recorded in accordance with 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. In 2003, the Company recaptured $284,000 of these costs relating to the settlement of the abandoned space. 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 1.5 years. See Note 17 to the Company's Consolidated Financial Statements for further discussion. For the Company's discontinued Manchester operations, the Company recorded $0.7 million of contract termination costs in 2002. As a result of the sale of Manchester, the Company recorded an additional $0.7 million of contract termination costs in 2003, which is included in 'Loss on Disposition, net of tax' on the Company's Consolidated Statement of Operations. See Note 18 to the Company's Consolidated Financial Statements for further discussion. Impairment on Tangible Assets The Company reviews its long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles would be based on the fair value of the asset. RECENT ACCOUNTING PRONOUNCEMENTS During January 2003, the FASB issued Interpretation No. 46, 'Consolidation of Variable Interest Entities,' which clarifies the consolidation and disclosure requirements related to variable interests in a variable interest entity. A variable interest entity is an entity for which control is achieved through means other than voting rights. The consolidation provisions of this Interpretation, as revised, are effective immediately for interests created after January 31, 2003 and are effective on December 31, 2003 for interests created before February 1, 2003. This Interpretation will not have an impact on the Company's Consolidated Financial Statements as it does not have any variable interest entities that require consolidation. During April 2003, the FASB issued 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. The adoption of this statement did not have an impact on the Company's Consolidated Financial Statements, as it 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. The adoption of this statement did not have an impact on the Company's Consolidated Financial Statements, as it is not currently a party to such instruments addressed by this standard. During December 2003, the FASB revised SFAS No. 132, 'Employers' Disclosures about Pensions and Other Postretirement Benefits,' to require additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The adoption of this statement did not have an impact on the Company's Consolidated Financial Statements, as the Company does not offer a defined benefit pension plan or other defined benefit postretirement plans within the scope of the revised SFAS No. 132. Item 7A. 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 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 36% of its consolidated revenues for 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 11% in 2003, from 1.61 at December 31, 2002 to 1.78 at December 31, 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 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 December 31, 2003, the Company did not hold and has not previously entered into any foreign currency derivative instruments. FACTORS WHICH MAY IMPACT FUTURE RESULTS AND FINANCIAL CONDITION Demand For The Company's Services Is Impacted By The Economic Climate In The Industries And Markets The Company Serves. This Economic Climate Is Difficult To Predict, With Downturns Weakening Demand. 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. While we have experienced a recent uptick in demand related to the current economic environment, a downturn or deterioration in global economic or political conditions could significantly hurt our revenues and results of operations. We cannot predict when the economic climate will significantly improve. Although we are seeing an slight improvement in the economic climate, we cannot predict to what extent the demand for our services will improve. Even though we have a somewhat variable cost base, further declines in revenue will have a material adverse impact on our results. The current 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 industries and 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 candidates 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. The Inability To Comply With Existing Government Regulation Along With Increased Regulation Of The Workplace Could Adversely Effect The Company. The Company's business is subject to regulation or licensing in many states and in certain foreign countries. While the Company has had no material difficulty complying with regulations in the past, there can be no assurance that the Company will be able to continue to obtain all necessary licenses or approvals or that the cost of compliance will not prove to be material. Any inability of the Company to comply with government regulation or licensing requirements could materially adversely effect the Company. Additionally, the Company's temporary services business entails employing individuals on a temporary basis and placing such individuals in clients' workplaces. Increased government regulation of the workplace or of the employer-employee relationship could materially adversely effect the Company. The Company Is Exposed To Employment-Related Claims and Costs And Other Litigation That Could Materially Adversely Effect The Company's Business, Financial Condition, And Results Of Operations. The Company's temporary services business entails employing individuals on a temporary basis and placing such individuals in clients' workplaces. The Company's ability to control the workplace environment is limited. As the employer of record of its temporary employees, the Company incurs a risk of liability to its temporary employees for various workplace events, including claims of physical injury, discrimination, harassment, or retroactive entitlement to employee benefits. The Company also incurs a risk of liability to its clients resulting from allegations of errors, omissions, misappropriation, or theft of property or information by its temporary employees. The Company maintains insurance with respect to many of such claims. While such claims have not historically had a material adverse effect on the Company, there can be no assurance that the Company will continue to be able to obtain insurance at a cost that does not have a material adverse effect upon the Company or that such claims (whether by reason of the Company not having insurance or by reason of such claims being outside the scope of the Company's insurance) will not have a material adverse effect upon the Company. Adjustments During Periodic Tax Audits May Increase Our Tax Liability And Hurt Our Results Of Operations. MPS is subject to periodic review by federal, foreign, 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 2002, the company recorded an $8.7 million charge for an agreed upon 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 December 31, 2003, the closing price of the common stock as reported on the New York Stock Exchange ranged from a high of $10.62 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (a) Consolidated Financial Statements: The following consolidated financial statements are included in this Annual Report on Form 10-K:
Report of Independent Certified Public Accountants Consolidated Balance Sheets at December 31, 2003 and 2002 Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002, and 2001 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001 Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of MPS Group, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity, and of cash flows present fairly, in all material respects, the financial position of MPS Group, Inc. and its subsidiaries (the Company) at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 5 to the Consolidated Financial Statements, the Company changed its method of accounting for goodwill upon the adoption of the accounting guidance of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. PricewaterhouseCoopers LLP Jacksonville, Florida March 12, 2004 MPS Group, Inc. and Subsidiaries Consolidated Balance Sheets
December 31, December 31, (dollar amounts in thousands except share amounts) 2003 2002 ----------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 124,830 $ 66,934 Accounts receivable, net of allowance of $12,899 and $16,919 159,359 180,120 Prepaid expenses 6,417 4,703 Deferred income taxes 2,200 3,386 Other 10,662 11,632 ---------------------------------- Total current assets 303,468 266,775 Furniture, equipment, and leasehold improvements, net 29,488 36,505 Goodwill, net 486,630 474,484 Deferred income taxes 62,464 67,562 Other assets, net 11,101 10,437 Net assets of discontinued operations - 37,211 ---------------------------------- Total assets $ 893,151 $ 892,974 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 32,601 46,606 Accrued payroll and related taxes 37,848 34,104 Income taxes payable 16,140 14,911 ---------------------------------- Total current liabilities 86,589 95,621 Other 13,100 15,794 ---------------------------------- Total liabilities 99,689 111,415 ---------------------------------- Commitments and contingencies (Notes 3, 4, 6, and 7) Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued - - Common stock, $.01 par value; 400,000,000 shares authorized; 104,576,204 and 102,531,491 shares issued, respectively 1,046 1,025 Additional contributed capital 634,492 622,079 Retained earnings 162,546 163,781 Accumulated other comprehensive income 6,933 66 Deferred stock compensation (2,495) (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 793,462 781,559 ---------------------------------- Total liabilities and stockholders' equity $ 893,151 $ 892,974 ==================================
See accompanying notes to consolidated financial statements. MPS Group, Inc. and Subsidiaries Consolidated Statements of Operations
Years Ended December 31, ------------------------------------------ (dollar amounts in thousands except per share amounts) 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------ Revenue $ 1,096,030 $ 1,119,156 $ 1,500,615 Cost of revenue 808,890 834,318 1,105,781 ------------------------------------------ Gross profit 287,140 284,838 394,834 ------------------------------------------ Operating expenses: General and administrative 234,614 235,673 321,939 Depreciation and intangibles amortization 17,009 20,256 20,979 Amortization of goodwill - - 37,312 Exit costs (recapture) (284) 8,967 - Impairment of investment - 16,165 - ------------------------------------------ Total operating expenses 251,339 281,061 380,230 ------------------------------------------ Operating income 35,801 3,777 14,604 Other income (expense), net 553 (3,947) (9,199) ------------------------------------------ Income (loss) from continuing operations before income taxes and cumulative effect of accounting change 36,354 (170) 5,405 Provision (benefit) for income taxes 14,519 13,832 3,102 ------------------------------------------ Income (loss) from continuing operations before cumulative effect of accounting change 21,835 (14,002) 2,303 Discontinued operations (Note 18): Income (loss) from discontinued operations (net of income taxes of $(1,289), $759, and $3,702, respectively) (2,395) 1,410 6,040 Loss on disposition of discontinued operations (net of a $11,133 income tax benefit) (20,675) - - ------------------------------------------ Income (loss) from operations before cumulative effect of accounting change (1,235) 12,592 8,343 Cumulative effect of accounting change (net of a $112,953 income tax benefit) - (553,712) - ------------------------------------------ Net income (loss) $ (1,235) $ (566,304) $ 8,343 ========================================== Basic net income (loss) per common share: Income (loss) from continuing operations before cumulative effect of accounting change $ 0.21 $ (0.14) $ 0.02 Income (loss) from discontinued operations, net of tax (0.02) 0.01 0.06 Loss on disposition of discontinued operations, net of tax (0.20) - - Cumulative effect of accounting change, net of tax - (5.49) - ------------------------------------------ Basic net income (loss) per common share $ (0.01) $ (5.62) $ 0.09 ========================================== Average common shares outstanding, basic 101,680 100,833 97,868 ========================================== Diluted net income (loss) per common share: Income (loss) from continuing operations before cumulative effect of accounting change $ 0.21 $ (0.14) $ 0.02 Income (loss) from discontinued operations, net of tax (0.02) 0.01 0.06 Loss on disposition of discontinued operations, net of tax (0.20) - - Cumulative effect of accounting change, net of tax - (5.49) - ------------------------------------------ Diluted net income (loss) per common share $ (0.01) $ (5.62) $ 0.08 ========================================== Average common shares outstanding, diluted 104,518 100,833 98,178 ==========================================
See accompanying notes to consolidated financial statements. MPS Group, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
Accumulated Other Common Additional Comprehensive Deferred (dollar amounts in thousands Stock Contributed Retained Income Stock Treasury except share amounts) Shares Amount Capital Earnings (Loss) Compensation Stock Total ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 96,796,217 $ 968 $587,854 $ 721,742 $ (6,945) $ (401) $ - $1,303,218 Comprehensive income: Net income - - - 8,343 - - - Foreign currency translation - - - - (9,132) - - Foreign currency translation, tax benefit - - - - 8,185 - - Derivative instruments, net of related tax benefit - - - - (1,508) - - Total comprehensive income - - - - - - - 5,888 Exercise of stock options and related tax benefit 150,566 1 373 - - - - 374 Issuance of restricted stock 1,360,000 14 5,834 - - (5,848) - - Vesting of restricted stock - - - - - 1,331 - 1,331 ----------------------------------------------------------------------------------------- Balance, December 31, 2001 98,306,783 983 594,061 730,085 (9,400) (4,918) - 1,310,811 Comprehensive loss: Net loss - - - (566,304) - - - Foreign currency translation - - - - 7,958 - - Derivative instruments, net of related tax benefit - - - - 1,508 - - Total comprehensive loss - - - - - - - (556,838) Issuance of common stock related to business combinations 1,149,679 11 8,714 - - - - 8,725 Exercise of stock options and related tax benefit 2,871,696 29 18,023 - - - - 18,052 Purchase of treasury stock - - - - - - (1,434) (1,434) Issuance of restricted stock 203,333 2 1,281 - - (1,283) - - Vesting of restricted stock - - - - - 2,243 - 2,243 ----------------------------------------------------------------------------------------- Balance, December 31, 2002 102,531,491 1,025 622,079 163,781 66 (3,958) (1,434) 781,559 Comprehensive loss: Net loss - - - (1,235) - - - Foreign currency translation - - - - 6,867 - - Total comprehensive loss - - - - - - - 5,632 Exercise of stock options and related tax benefit 2,044,713 21 12,413 - - - - 12,434 Purchase of treasury stock - - - - - - (7,626) (7,626) Vesting of restricted stock - - - - - 1,463 - 1,463 ----------------------------------------------------------------------------------------- Balance, December 31, 2003 104,576,204 $1,046 $634,492 $ 162,546 $ 6,933 $(2,495) $(9,060) $ 793,462 =========================================================================================
See accompanying notes to consolidated financial statements. MPS Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Years Ended December 31, ------------------------------------------ (dollar amounts in thousands) 2003 2002 2001 -------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Income (loss) from continuing operations before cumulative effect of accounting change $ 21,835 $ (14,002) $ 2,303 Adjustments to income (loss) from continuing operations before cumulative effect of accounting change to net cash provided by operating activities: Exit costs (recapture) (284) 8,967 - Impairment of investment - 16,165 - Deferred income taxes 17,417 29,172 3,522 Deferred compensation 1,465 2,243 1,331 Depreciation and identified intangibles amortization 17,009 20,256 20,979 Amortization of goodwill - - 37,313 Changes in assets and liabilities, net of acquisitions: Accounts receivable 31,235 49,868 110,862 Prepaid expenses and other assets (1,712) (1,969) 3,350 Accounts payable and accrued expenses (15,974) 5,876 (1,351) Accrued payroll and related taxes 2,204 (4,690) (2,084) Other, net (2,857) (373) (2,294) ----------------------------------------- Net cash provided by operating activities 70,338 111,513 173,931 ----------------------------------------- Cash flows from investing activities: Purchase of furniture, equipment, and leasehold improvements, net of disposals (6,880) (6,016) (14,287) Purchase of businesses, including additional earn-outs on acquisitions, net of cash acquired (15,864) (6,739) (509) ----------------------------------------- Net cash used in investing activities (22,744) (12,755) (14,796) ----------------------------------------- Cash flows from financing activities: Repurchases of common stock (7,626) (1,434) - Discount realized on employee stock purchase plan (389) (494) - Proceeds from stock options exercised 10,867 16,881 373 Borrowings on indebtedness - - 2,000 Repayments on indebtedness (163) (101,423) (118,962) ----------------------------------------- Net cash provided by (used in) financing activities 2,689 (86,470) (116,589) ----------------------------------------- Effect of exchange rate changes on cash and cash equivalents 4,714 1,541 (7,484) ----------------------------------------- Net increase in cash and cash equivalents 54,997 13,829 35,062 Net cash provided by discontinued operations 2,899 3,897 9,133 Cash and cash equivalents, beginning of year 66,934 49,208 5,013 ----------------------------------------- Cash and cash equivalents, end of year $ 124,830 $ 66,934 $ 49,208 =========================================
See accompanying notes to consolidated financial statements.
Years Ended December 31, (dollar amounts in thousands except for per share amounts) 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------ SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 1,234 $ 4,534 $ 12,711 Income taxes (refunded) paid (3,838) 6,214 13,873 COMPONENTS OF CASH PROVIDED BY DISCONTINUED OPERATIONS Cash (used in) provided by operating activities $ (4,987) $ 4,368 $ 9,660 Cash provided by (used in) investing activities 7,886 (471) (527) ----------- ------------ ------------ Net cash provided by discontinued operations $ 2,899 $ 3,897 $ 9,133 =========== ============ ============ NON-CASH INVESTING AND FINANCING ACTIVITIES The Company completed two acquisitions in 2003 and one acquisition in 2002. There were no acquisitions in 2001. In connection with the acquisitions, liabilities were assumed as follows: Years Ended December 31, 2003 2002 ------------------------------------------------------------------------------------------------------------------ Fair value of assets acquired $ 18,839 $ 7,367 Cash paid (16,322) (7,000) ---------- ----------- Liabilities assumed $ 2,517 $ 367 ========== ===========
1. DESCRIPTION OF BUSINESS MPS Group, Inc. ('MPS' or the 'Company') (New York Stock Exchange symbol:MPS) is a leading global provider of business services with over 170 offices throughout the United States, Canada, the United Kingdom, and continental Europe. MPS delivers a mix of consulting, solutions, and staffing services in the disciplines such as IT services, finance and accounting, legal, engineering, IT solutions, health care, executive search, and human capital au