-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eoz6fZbXY2PX71PiD5/BfuVY1jf5aPu06wf8FYWIp7f18g4pbF6OtshGWl5ltFMG zFsR+zK3ilpSkCyb8q14PQ== 0000924646-02-000021.txt : 20021114 0000924646-02-000021.hdr.sgml : 20021114 20021114153723 ACCESSION NUMBER: 0000924646-02-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MPS GROUP INC CENTRAL INDEX KEY: 0000924646 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 593116655 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24484 FILM NUMBER: 02824978 BUSINESS ADDRESS: STREET 1: 1 INDEPENDENT DR CITY: JACKSONVILLE STATE: FL ZIP: 32202 BUSINESS PHONE: 9043602000 MAIL ADDRESS: STREET 1: 1 INDEPENDENT DR CITY: JACKSONVILLE STATE: FL ZIP: 32202 FORMER COMPANY: FORMER CONFORMED NAME: ACCUSTAFF INC DATE OF NAME CHANGE: 19940606 FORMER COMPANY: FORMER CONFORMED NAME: MODIS PROFESSIONAL SERVICES INC DATE OF NAME CHANGE: 19981001 10-Q 1 q310qtofile.txt FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2002 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 0-24484 MPS Group, Inc. (Exact name of Registrant as specified in its charter) Florida 59-3116655 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 Independent Drive Jacksonville, Florida 32202 (Address of principal executive offices) (Zip code) (904) 360-2000 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. October 31, 2002. Common Stock, $0.01 par value Outstanding: 102,566,674 (No. of shares) FORWARD-LOOKING STATEMENTS This report on Form 10-Q contains forward-looking statements that are subject to certain risks, uncertainties or assumptions and may be affected by certain other factors, including but not limited to the specific factors discussed in Part I, Item 3 under 'Liquidity and Capital Resources,' 'Seasonality,' 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,' 'would,' or 'become' or the negative of these terms or other comparable terminology. In addition, except for historical facts, all information provided in Part I, Item 3, under 'Quantitative and Qualitative Disclosures About Market Risk' should be considered forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of the Company may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on beliefs and assumptions of the Company's management and on information currently available to such management. Forward looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.
MPS Group, Inc. and Subsidiaries Index Part I Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001.............................................................................. 3 Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 2002 and 2001.................................................................. 4 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2002 and 2001.................................................................. 5 Unaudited Notes to Condensed Consolidated Financial Statements......................................... 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 12 Item 3 Quantitative and Qualitative Disclosures About Market Risks............................................ 18 Item 4 Controls and Procedures................................................................................ 21 Part II Other Information Item 1 Legal Proceedings...................................................................................... 22 Item 2 Changes in Securities and Use of Proceeds.............................................................. 22 Item 3 Defaults Upon Senior Securities........................................................................ 22 Item 4 Submission of Matters to a Vote of Security Holders.................................................... 22 Item 5 Other Information...................................................................................... 22 Item 6 Exhibits and Reports on Form 8-K....................................................................... 22 Signatures............................................................................................. 23 Certifications......................................................................................... 24-25 Exhibits
2 Part I. Financial Information Item 1. Financial Statements MPS Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
September 30, December 31, (dollar amounts in thousands except per share amounts) 2002 2001 - ----------------------------------------------------------------------------------------------------------------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 51,834 $ 49,208 Accounts receivable, net 197,401 227,069 Prepaid expenses 6,098 6,444 Deferred income taxes 5,668 5,873 Other 10,886 12,102 ---------------------------------- Total current assets 271,887 300,696 Furniture, equipment, and leasehold improvements, net 39,065 48,742 Goodwill, net 511,759 1,165,961 Deferred income taxes, long-term 62,735 - Other assets, net 28,880 28,223 ---------------------------------- Total assets $ 914,326 $ 1,543,622 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 37,514 $ 49,207 Accrued payroll and related taxes 36,638 39,524 Income taxes payable 2,177 7,243 ---------------------------------- Total current liabilities 76,329 95,974 Credit facility 25,000 101,000 Deferred income taxes, long-term - 22,214 Other 9,547 13,623 ---------------------------------- Total liabilities 110,876 232,811 ---------------------------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.01 par value; 400,000,000 shares authorized; 102,553,340 and 98,306,783 shares issued and outstanding, respectively 1,028 983 Additional contributed capital 622,023 594,061 Retained earnings 187,785 730,085 Accumulated other comprehensive loss (2,722) (9,400) Deferred stock compensation (4,464) (4,918) Treasury stock, at cost (40,400 shares in 2002) (200) - ---------------------------------- Total stockholders' equity 803,450 1,310,811 ---------------------------------- Total liabilities and stockholders' equity $ 914,326 $ 1,543,622 ==================================
See accompanying notes to condensed consolidated financial statements. 3 MPS Group, Inc. and Subsidiaries Condensed Consolidated Statements of Income
Three Months Ended Nine Months Ended ------------------------------- ------------------------------- September 30, September, 30 September 30, September 30, (dollar amounts in thousands except per share amounts) 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------ (unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 289,428 $ 368,853 $ 874,534 $ 1,222,902 Cost of revenue 213,493 270,844 647,820 885,875 ------------- ------------- -------------- ------------- Gross profit 75,935 98,009 226,714 337,027 ------------- ------------- -------------- ------------- Operating expenses: General and administrative 60,307 79,028 188,404 264,449 Depreciation 5,456 5,490 15,379 16,243 Amortization of goodwill - 9,635 - 28,936 ------------- ------------- -------------- ------------- Total operating expenses 65,763 94,153 203,783 309,628 ------------- ------------- -------------- ------------- Income from operations 10,172 3,856 22,931 27,399 Other expense, net 1,206 1,897 3,761 7,281 ------------- ------------- -------------- ------------- Income before provision for income taxes and cumulative effect of accounting change 8,966 1,959 19,170 20,118 Provision for income taxes 3,676 881 7,758 9,041 ------------- ------------- -------------- ------------- Income before cumulative effect of accounting change 5,290 1,078 11,412 11,077 Cumulative effect of accounting change (net of a $112,953 income tax benefit) - - (553,712) - ------------- ------------- -------------- ------------- Net income (loss) $ 5,290 $ 1,078 $ (542,300) $ 11,077 ============= ============= ============== ============= Basic net income (loss) per common share: Income before cumulative effect of accounting change $ 0.05 $ 0.01 $ 0.11 $ 0.11 Cumulative effect of accounting change, net of tax - - (5.52) - ------------- ------------- -------------- ------------- Basic net income (loss) per common share $ 0.05 $ 0.01 $ (5.41) $ 0.11 ============= ============= ============== ============= Average common shares outstanding, basic 102,369 98,071 100,337 97,754 ============= ============= ============== ============= Diluted net income (loss) per common share: Income before cumulative effect of accounting change $ 0.05 $ 0.01 $ 0.11 $ 0.11 Cumulative effect of accounting change, net of tax - - (5.41) - ------------- ------------- -------------- ------------- Diluted net income (loss) per common share $ 0.05 $ 0.01 $ (5.30) $ 0.11 ============= ============= ============== ============= Average common shares outstanding, diluted 103,115 98,291 102,303 97,948 ============= ============= ============== =============
See accompanying notes to condensed consolidated financial statements. 4 MPS Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, ------------------------------ (dollar amounts in thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------------ (unaudited) (unaudited) Cash flows from operating activities: Net (loss) income $ (542,300) $ 11,077 Adjustments to net (loss) income to net cash provided by operating activities: Depreciation 15,379 16,243 Amortization of goodwill - 28,936 Cumulative effect of accounting change, net of tax 553,712 - Deferred income taxes 14,717 6,012 Deferred compensation 1,212 897 Changes in assets and liabilities: Accounts receivable 38,663 53,331 Prepaid expenses and other assets (1,245) (1,860) Accounts payable and accrued expenses (13,389) (2,441) Accrued payroll and related taxes (4,042) 2,513 Other, net 9,900 (1,747) --------------- --------------- Net cash provided by operating activities 72,607 112,961 --------------- --------------- Cash flows from investing activities: Purchase of furniture, equipment and leasehold improvements, net of disposals (3,482) (13,771) Purchase of businesses, including additional earn-outs on acquisitions, net of cash acquired (6,702) (3,807) --------------- --------------- Net cash used in investing activities (10,184) (17,578) --------------- --------------- Cash flows from financing activities: Repurchases of stock (200) - Proceeds from stock options exercised 16,334 76 Repayments on indebtedness (76,406) (75,320) --------------- --------------- Net cash used in financing activities (60,272) (75,244) --------------- --------------- Effect of exchange rate changes on cash and cash equivalents 475 (7,201) Net increase in cash and cash equivalents 2,626 12,938 Cash and cash equivalents, beginning of period 49,208 5,013 --------------- --------------- Cash and cash equivalents, end of period $ 51,834 $ 17,951 =============== ===============
See accompanying notes to condensed consolidated financial statements. 5 MPS Group, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (dollar amounts in thousands except for per share amounts) 1. Basis of Presentation. The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission ('SEC'). Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K, as filed with the SEC on March 26, 2002. Effective January 1, 2002, the Company completed its name change from Modis Professional Services, Inc. to MPS Group, Inc. The name change was approved by shareholders at a special meeting held in October 2001. The accompanying condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position and results of operations for the interim periods presented. The results of operations for an interim period are not necessarily indicative of the results of operations for a full fiscal year. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ('FASB') issued Statements of Financial Accounting Standards ('SFAS') No. 142, 'Goodwill and Other Intangible Assets,' which is required to be adopted in fiscal 2002. SFAS No. 142 establishes accounting and reporting standards for goodwill and intangible assets resulting from business combinations. SFAS No. 142 includes provisions discontinuing the periodic amortization of, and assessing the potential impairments of goodwill (and intangible assets deemed to have indefinite lives). As SFAS No. 142 replaces the measurement guidelines for goodwill impairment, goodwill not considered impaired under previous accounting literature may be considered impaired under SFAS No. 142. SFAS 142 also requires that the Company complete a two-step goodwill impairment test. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step is not required. SFAS 142 requires completion of this first step within the first six months of initial adoption and annually thereafter. If the carrying amount of a reporting unit exceeds its fair value, the second step is performed to measure the amount of impairment loss. The second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Upon the initial adoption, any impairment loss identified is presented as a change in accounting principle, net of applicable income tax benefit, and recorded as of the beginning of that year. Subsequent to the initial adoption, any impairment loss recognized would be recorded as a charge to income from operations. The Company adopted SFAS 142 as of January 1, 2002. During the first quarter of 2002, the Company completed both steps of the transitional goodwill impairment tests which resulted in an impairment charge of $553,712, net of an income tax benefit of $112,953. Refer to Note 4, 'Goodwill' for further discussion of the impact of SFAS 142 on the Company's financial position and results of operations. In August and October 2001, the FASB issued SFAS No. 143, 'Accounting for Asset Retirement Obligations' and SFAS No. 144, 'Accounting for the Impairment or Disposal of Long-Lived Assets,' respectively. SFAS No. 143 requires the fair value of a liability be recorded for an asset retirement obligation in the period in which it is incurred. SFAS No. 144 addresses the accounting and reporting for the impairment of long-lived assets, other than goodwill, and for long-lived assets to be disposed of. Further, SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale. The Company has adopted both SFAS No. 143 and No. 144 for 2002. The adoption of these statements did not have a material effect on the Company's consolidated results of operations and financial position. Additionally, in July 2002, the FASB issued SFAS No. 146, 'Accounting for Costs Associated with Exit or Disposal Activities.' SFAS No. 146 establishes that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred as opposed to recognition based on the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Management does not anticipate the adoption of this statement to have a material effect on the Company's consolidated results of operations and financial position. 6 2. Business Combinations In July 2002, the Company acquired Elite Medical, Inc., a health care staffing business. Purchase consideration totaled $7.0 million in cash at closing, a $1.0 million deferred cash payment and 1,141,269 shares of stock valued at $8.7 million. This acquisition, which is included in the Company's professional services division, was immaterial to the Company's third quarter results of operations. Refer to Note 4 'Goodwill' for the amount of goodwill recorded for this acquisition. 3. Derivative Instruments and Hedging Activities In 2001, the Company engaged in derivatives classified as cash flow hedges. Accordingly, changes in the fair value of these hedges are recorded in 'Accumulated other comprehensive loss' on the balance sheets. The Company formally documents all relations between hedging instruments and the hedged items, as well as its risk-management objectives and strategy for undertaking hedging transactions. The Company formally assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. The non-effective portions of these hedges are recorded as a component of current earnings. The Company is currently a party to and in the future may enter into interest rate swap agreements in the normal course of business to manage and reduce the risk inherent in interest rate fluctuations. Hedging interest rate exposure through the use of swaps is specifically intended to manage risk in keeping with management policy. The Company does not utilize derivatives for speculative purposes. Interest rate swap agreements are considered hedges of specific borrowings, and differences received under the swap agreements are recognized as adjustments to interest expense. In February 2001, the Company entered into an interest rate swap agreement to convert certain floating rate debt outstanding under the Company's credit facility into fixed rate debt by fixing the base rate, as defined by the credit facility. The actual interest rate on the credit facility is equal to this base rate plus an additional spread, determined by the Company's financial performance. This agreement was approved by the Board of Directors and expires January 2, 2003. As of September 30, 2002, this swap agreement had a total notional amount of $25.0 million and an underlying rate of 5.185%. 4. Goodwill The Company adopted SFAS 142, 'Goodwill and Other Intangibles', effective January 1, 2002. In connection with the adoption of SFAS 142, the Company discontinued amortizing goodwill. The changes in the carrying amount of goodwill for the nine months ended September 30, 2002, are as follows:
Information Technology Professional e-Business Services Services Solutions Total - ------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 2001 $ 592,037 $ 312,952 $ 260,972 $1,165,961 Impairment losses (338,449) (87,969) (240,247) (666,665) Acquisition of Elite Medical, Inc. - 12,463 - 12,463 ----------- ----------- ----------- ----------- Balance as of September 30, 2002 $ 253,588 $ 237,446 $ 20,725 $ 511,759 =========== =========== =========== ===========
In accordance with SFAS 142, the Company performed transitional goodwill impairment tests at the reporting unit level as defined in SFAS 142. Reporting units are equal to or one level below reportable segments. The Company engaged an independent valuation consultant to assist with the transitional goodwill impairment tests. 7 The fair value of each of the reporting units was calculated on an enterprise value basis using the following approaches: (i) market multiple approach and (ii) discounted cash flow approach. Under the market multiple approach, market ratios and performance fundamentals relating to similar public companies' stock prices or enterprise values were applied to the reporting units to determine their enterprise value. Under the discounted cash flow ("DCF") approach, the indicated enterprise value was determined using the present value of the projected future cash flows to be generated considering appropriate discount rates. The discount rates used in the calculation reflected all associated risks of realizing the projected future cash flows. The fair value conclusion of the reporting units reflects an equally blended value of the market multiple approach and the DCF approach discussed above. As a result of performing steps 1 and 2 of the goodwill impairment test, a loss of $553,712, net of an income tax benefit of $112,953, was recognized and recorded as a cumulative effect of accounting change in the accompanying Condensed Consolidated Statements of Income. The following table provides comparative disclosure of adjusted net income excluding goodwill amortization expense, net of income taxes, for the periods presented:
Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 30, September 30, September 30, September 30, 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change, as reported $ 5,290 $ 1,078 $ 11,412 $ 11,077 Goodwill amortization, net of income taxes - 6,784 - 20,355 ------------ ------------ ------------ ------------ Income before cumulative effect of accounting change, as adjusted $ 5,290 $ 7,862 $ 11,412 $ 31,432 Cumulative effect of accounting change, net of income taxes - - (553,712) - ------------ ------------ ------------ ------------ Net income (loss), as adjusted $ 5,290 $ 7,862 $ (542,300) $ 31,432 ============ ============ ============ ============ Basic income (loss) per common share: Income before cumulative effect of accounting change, as reported $ 0.05 $ 0.01 $ 0.11 $ 0.11 Goodwill amortization, net of income taxes - 0.07 - 0.21 ------------ ------------ ------------ ------------ Income before cumulative effect of accounting change, as adjusted $ 0.05 $ 0.08 $ 0.11 $ 0.32 Cumulative effect of accounting change, net of income taxes - - (5.52) - ------------ ------------ ------------ ------------ Basic net income (loss) per common share, as adjusted $ 0.05 $ 0.08 $ (5.41) $ 0.32 ============ ============ ============ ============ Diluted income (loss) per common share: Income before cumulative effect of accounting change, as reported $ 0.05 $ 0.01 $ 0.11 $ 0.11 Goodwill amortization, net of income taxes - 0.07 - 0.21 ------------ ------------ ------------ ------------ Income before cumulative effect of accounting change, as adjusted $ 0.05 $ 0.08 $ 0.11 $ 0.32 Cumulative effect of accounting change, net of income taxes - - (5.41) - ------------ ------------ ------------ ------------ Diluted net income (loss) per common share, as adjusted $ 0.05 $ 0.08 $ (5.30) $ 0.32 ============ ============ ============ ============
8 5. Net Income per Common Share The calculation of basic net income (loss) per common share and diluted net income (loss) per common share is presented below:
Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 30, September 30, September 30, September 30, 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Basic income (loss) per common share computation: Income before cumulative effect of accounting change $ 5,290 $ 1,078 $ 11,412 $ 11,077 Cumulative effect of accounting change, net of income taxes - - (553,712) - ------------ ------------ ------------ ------------ Net income (loss) $ 5,290 $ 1,078 $ (542,300) $ 11,077 ============ ============ ============ ============ Basic average common shares outstanding 102,369 98,071 100,337 97,754 ============ ============ ============ ============ Basic income (loss) per common share: Income before cumulative effect of accounting change $ 0.05 $ 0.01 $ 0.11 $ 0.11 Cumulative effect of accounting change, net of income taxes - - (5.52) - ------------ ------------ ------------ ------------ Basic net income (loss) per common share $ 0.05 $ 0.01 $ (5.41) $ 0.11 ============ ============ ============ ============ Diluted income (loss) per common share computation: Income before cumulative effect of accounting change $ 5,290 $ 1,078 $ 11,412 $ 11,077 Cumulative effect of accounting change, net of income taxes - - (553,712) - ------------ ------------ ------------ ------------ Net income (loss) $ 5,290 $ 1,078 $ (542,300) $ 11,077 ============ ============ ============ ============ Basic average common shares outstanding 102,369 98,071 100,337 97,754 Incremental shares from assumed exercise of stock options 746 220 1,966 194 ------------ ------------ ------------ ------------ Diluted average common shares outstanding 103,115 98,291 102,303 97,948 ============ ============ ============ ============ Diluted income (loss) per common share: Income before cumulative effect of accounting change $ 0.05 $ 0.01 $ 0.11 $ 0.11 Cumulative effect of accounting change, net of income taxes - - (5.41) - ------------ ------------ ------------ ------------ Diluted net income (loss) per common share $ 0.05 $ 0.01 $ (5.30) $ 0.11 ============ ============ ============ ============
Options to purchase 8,644,664 and 2,229,563 shares of common stock that were outstanding during the three and nine months ended September 30, 2002, respectively, were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of the common shares. 6. Commitments and Contingencies Litigation The Company is a party to a number of lawsuits and claims arising out of the ordinary conduct of its business. In the opinion of management, 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. 7. Segment Reporting The Company discloses segment information in accordance with SFAS No. 131, 'Disclosure About Segments of an Enterprise and Related Information,' which requires companies to report selected segment information on a quarterly basis and to report certain entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Company has three reportable segments: information technology (IT) services, professional services, and e-Business solutions. The Company's reportable segments are strategic divisions that offer different services and 9 are managed separately as each division requires different resources and marketing strategies. The IT services division, operating under the brand Modis, offers value-added solutions such as IT project support and staffing, recruitment of full-time positions, project-based solutions, supplier management solutions, and on-site recruiting support. The professional services division provides expertise in a wide variety of disciplines including accounting and finance, law, engineering and technical, career management, executive search, human resource consulting, and health care. The e-Business solutions division, operating under the brand Idea Integration, provides e-Business strategy consulting, design and branding, application development, and integration. The professional services division's results for the three and nine months ended September 30, 2001, include the results of the Company's scientific operating unit. Results for 2002 do not include this unit as it was sold in December 2001. The Company evaluates segment performance based on revenues, gross profit, and income before provision for income taxes. The Company does not allocate income taxes or unusual items to the segments. The following table summarizes segment and geographic information:
Three Months Ended Nine Months Ended ------------------------------- -------------------------------- September 30, September 30, September 30, September 30, 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------- Revenue IT services $ 143,650 $ 183,616 $ 440,371 $ 605,890 Professional services 125,755 150,501 370,293 479,000 e-Business solutions 20,023 34,736 63,870 138,012 ------------ ------------ ------------ ------------ Total revenue $ 289,428 $ 368,853 $ 874,534 $ 1,222,902 ============ ============ ============ ============ Gross profit IT services $ 30,792 $ 40,328 $ 92,958 $ 133,645 Professional services 37,873 48,011 112,644 156,874 e-Business solutions 7,270 9,670 21,112 46,508 ------------ ------------ ------------ ------------ Total gross profit $ 75,935 $ 98,009 $ 226,714 $ 337,027 ============ ============ ============ ============ Income before provision for income taxes and cumulative effect of accounting change IT services $ 3,688 $ 8,547 $ 8,635 $ 30,210 Professional services 6,113 10,567 18,225 42,546 e-Business solutions 371 (5,623) (3,929) (16,421) ------------ ------------ ------------ ------------ 10,172 13,491 22,931 56,335 Amortization of goodwill - (9,635) - (28,936) Corporate interest and other income (1,206) (1,897) (3,761) (7,281) ------------ ------------ ------------ ------------ Total income before provision for income taxes and cumulative effect of accounting change $ 8,966 $ 1,959 $ 19,170 $ 20,118 ============ ============ ============ ============ Geographic Areas Revenue United States $ 193,433 $ 260,813 $ 591,106 $ 895,599 United Kingdom 92,970 104,822 273,709 317,928 Other 3,025 3,218 9,719 9,375 ------------ ------------ ------------ ------------ Total $ 289,428 $ 368,853 $ 874,534 $ 1,222,902 ============ ============ ============ ============ September 30, December 31, 2002 2001 - ---------------------------------------------------------------------------------------------- Assets IT services $ 468,081 $ 781,845 Professional services 361,069 426,547 e-Business solutions 68,950 319,284 ------------ ------------ 898,100 1,527,676 Corporate 16,226 15,946 ------------ ------------ Total assets $ 914,326 $ 1,543,622 ============ ============ Geographic Areas Identifiable Assets United States $ 664,222 $ 1,133,372 United Kingdom 242,435 399,259 Other 7,669 10,991 ------------ ------------ Total $ 914,326 $ 1,543,622 ============ ============
10 8. Comprehensive Income Comprehensive income includes unrealized gains and losses on foreign currency translation adjustments and changes in the fair value of certain derivative financial instruments which qualify for hedge accounting. A summary of comprehensive income for the three and nine months ended September 30, 2002 and 2001 is as follows:
Three Months Ended Nine Months Ended ------------------------------- ------------------------------- September 30, September 30, September 30, September 30, 2002 2001 2002 2001 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 5,290 $ 1,078 $ (542,300) $ 11,077 Unrealized gain (loss) on foreign currency translation adjustments (a) 1,508 963 5,309 (7,914) Unrealized gain (loss) on derivative instruments, net of deferred income taxes 442 (904) 1,369 (1,769) ------------- ------------- -------------- ------------- Total other comprehensive income (loss) 1,950 59 6,678 (9,683) ------------- ------------- -------------- ------------- Comprehensive income (loss) $ 7,240 $ 1,137 $ (535,622) $ 1,394 ============= ============= ============== =============
(a) The currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. 9. Income Taxes The Company is subject to periodic review by federal, state, and local taxing authorities in the ordinary course of business. During 2001, the Company 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 the Company recognized in 2000 of $86.3 million is also being reviewed. There can be no assurance that the Internal Revenue Service will not disallow any or all of the tax benefit. A disallowance would result in the Company having to repay any or all of the tax benefit to the Internal Revenue Service which may affect the Company's financial condition and financial covenants of the Company's credit facility. 10. Equity Investment The Company has a minority investment in a privately held company that is recorded as a non-current asset, and is included in the line item 'Other Assets, net' on the Condensed Consolidated Balance Sheets. The asset is carried at its original cost plus accrued interest. The investment was originally made in 1996 and the balance at September 30, 2002 was $15.4 million. The process of assessing whether a particular equity investment's net realizable value is less than its carrying cost requires a significant amount of judgment. The Company monitors the investment for impairment by considering, among other things, the investee's cash position, projected cash flows, financing needs, liquidation preference, most recent valuation data (including the duration and extent to which the fair value is less than cost), the current investing environment, competition and the Company's intent and ability to hold the investment. Based on the Company's most recent review of the investment, it is possible that a future reduction in the carrying value of the investment may be necessary. Among other concerns, the Company was notified during the third quarter, that this privately held company is trying to raise additional capital, through a recapitalization, at terms which could dilute the value of the Company's investment, should the Company elect not to participate in the recapitalization. Therefore, if the Company does not elect to participate, it is possible that a reduction in the carrying value of this investment, in part or in whole, will be necessary if the recapitalization is completed. Such a reduction would decrease the Company's results of operations for the period in which the determination was made. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MPS Group, Inc. ('MPS' or the 'Company') helps its client companies thrive by delivering a unique mix of consulting, solutions, and staffing services in the disciplines of information technology (IT), finance and accounting, legal, e-Business, human capital automation, engineering, executive search, work force management, and health care. MPS consists of three divisions: the IT services division, operating under the brand Modis; the professional services division; and the e-Business solutions division, operating under the brand Idea Integration. Effective January 1, 2002, the Company completed its name change from Modis Professional Services, Inc. to MPS Group, Inc. The name change was approved by shareholders at a special meeting held in October 2001. On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ('SFAS') No. 142, 'Goodwill and Other Intangibles.' Comparability of results prior to 2002 is affected by the Company's adoption of SFAS 142 as SFAS 142 requires the discontinuance of goodwill amortization. While the Company did not recognize any goodwill amortization for 2002, the Company recorded $9.6 million and $28.9 million of goodwill amortization for the three and nine months ended September 30, 2001, respectively. See Note 4 to the Condensed Consolidated Financial Statements for a discussion of SFAS 142. Included in the results for the three and nine months ended September 30, 2002, is $5.1 million and $17.3 million, respectively, 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 $4.2 million in revenue for the three months ended September 30, 2002. See Note 2 to the Condensed Consolidated Financial Statements for a discussion of the acquisition. The results from both of these transactions were immaterial to the Company's results. The following detailed analysis of operations should be read in conjunction with the 2001 Consolidated Financial Statements and related notes included in the Company's Form 10-K filed March 26, 2002. THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 Revenue. Revenue decreased $79.5 million, or 21.6%, to $289.4 million in the three months ended September 30, 2002, from $368.9 million in the year earlier period. The decrease was attributable primarily to diminished demand for services. This diminished demand has primarily led to a reduction in billable headcount throughout the Company's divisions and, to a lesser extent, a reduction in the Company's bill rates. For the IT services division, which accounted for 49.6% and 49.8% of the Company's total revenue for the three months ended September 30, 2002 and 2001, respectively, the Company's customers continued to limit spending on IT initiatives due to uncertainties relating to the economy. Revenue in the IT services division decreased $39.9 million, or 21.7%, to $143.7 million in the three months ended September 30, 2002, from $183.6 million in the year earlier period. Revenue in the professional services division decreased $24.7 million, or 16.4%, to $125.8 million in the three months ended September 30, 2002, from $150.5 million in the year earlier period. This decrease in the division's revenue was primarily attributable to the diminished demand for knowledge worker resources in the services provided by the division, primarily in the United States. Revenue generated in the United Kingdom decreased 7.7% year over year, while revenue generated in the United States decreased 20.7%. Excluding the results of the scientific unit, the professional services division operates primarily through five operating units consisting of accounting and finance, legal, engineering/technical, career management and consulting, and health care which contributed 42.6%, 12.0%, 34.0%, 8.0%, and 3.4% respectively, of the division's revenue by group during the three months ended September 30, 2002, as compared to 42.3%, 13.1%, 34.6%, 10.0%, and 0% respectively, during the year earlier period. For the e-Business solutions division, weak demand for e-Business consulting services was intensified by the uncertainties relating to the economy. Revenue in the division decreased $14.7 million, or 42.4%, to $20.0 million in the three months ended September 30, 2002, from $34.7 million in the year earlier period. Gross Profit. Gross profit decreased $22.1 million or 22.6% to $75.9 million in the three months ended September 30, 2002, from $98.0 million in the year earlier period. Gross margin decreased to 26.2% in the three months ended September 30, 2002, from 26.6% in the year earlier period. The gross margin in the IT services division decreased to 21.4% in the three months ended September 30, 2002, from 22.0% in the year earlier period. The decrease in gross margin in the IT services division is mainly attributable to 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 services provided by the division. 12 The gross margin in the professional services division decreased to 30.1% in the three months ended September 30, 2002, from 31.9% in the year earlier period. The decrease in gross margin in the professional services division is primarily attributable to the lower level of direct hire and permanent placement fees, which generate a higher margin and, to a lesser extent, a decrease in bill rates in the services provided by the division. As a percentage of revenue, the division's direct hire and permanent placement fees decreased to 4.6% of revenue in the three months ended September 30, 2002, from 6.3% in the year earlier period. The gross margin in the e-Business solutions division increased to 36.3% in the three months ended September 30, 2002, from 27.8% in the year earlier period. 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 salaried consultants to meet customer demand. While the Company has significantly reduced billable headcount in this division to reflect lower customer demand, increased use of the remaining billable consultants increases the Company's gross margin. Operating expenses. Operating expenses decreased $28.4 million or 30.1% to $65.8 million in the three months ended September 30, 2002, from $94.2 million in the year earlier period. During the year earlier period, operating expenses included $9.6 million of goodwill amortization, while the Company did not recognize any goodwill amortization during the current year period as a result of the adoption of SFAS 142 in 2002. The Company's general and administrative ('G&A') expenses decreased $18.7 million or 23.7% to $60.3 million in the three months ended September 30, 2002, from $79.0 million in the year earlier period. The IT services division's G&A expenses decreased $4.4 million, or 15.0%, to $24.7 million in the three months ended September 30, 2002, from $29.1 million in the year earlier period. As a percentage of revenue, the division's G&A expenses increased to 17.2% in the three months ended September 30, 2002, from 15.9% in the year earlier period. The decrease in the IT services division's G&A expenses is associated with the decrease in revenue for the three months ended September 30, 2002, and cost reduction initiatives implemented within the division throughout 2001 and continuing through 2002. The professional services division's G&A expenses decreased $6.0 million, or 16.7%, to $29.9 million in the three months ended September 30, 2002, from $35.9 million in the year earlier period. The professional services G&A expenses decreased 14.2% in the three months ended September 30, 2002, from the year earlier period. As a percentage of revenue, the division's G&A expenses decreased slightly to 23.7% in the three months ended September 30, 2002, from 23.8% in the year earlier period. The decrease in the professional services division's G&A expenses is associated with the decrease in revenue for the three months ended September 30, 2002, and cost reduction initiatives implemented within the division beginning in 2001 and continuing through 2002. The e-Business solutions division's G&A expenses decreased $8.3 million, or 58.9%, to $5.8 million in the three months ended September 30, 2002, from $14.1 million in the year earlier period. As a percentage of revenue, the division's G&A expenses decreased to 28.9% in the three months ended September 30, 2002, from 40.5% in the year earlier period. The decrease in the e-Business solutions division's G&A expenses was primarily related to reductions in its work force that started in early 2001 and has continued through 2002. Income from operations. Income from operations increased $6.3 million, or 161.5%, to $10.2 million in the three months ended September 30, 2002, from $3.9 million in the year earlier period. Excluding goodwill amortization in the year earlier period, income from operations decreased 24.4% in the three months ended September 30, 2002, from the year earlier period. Income from operations for the IT services division remained constant at $3.7 million for both the three months ended September 30, 2002, and 2001. Excluding goodwill amortization in the year earlier period, income from operations for the IT services division decreased 56.5% in the three months ended September 30, 2002, from the year earlier period. Income from operations for the professional services division decreased $1.5 million, or 19.7%, to $6.1 million in the three months ended September 30, 2002, from $7.6 million in the year earlier period. Excluding goodwill amortization in the year earlier period, income from operations for the professional services division decreased 42.5% in the three months ended September 30, 2002, from the year earlier period. Income from operations for the e-Business solutions division increased $7.6 million, to $0.4 million in the three months ended September 30, 2002, from a $7.5 million loss in the year earlier period. Excluding goodwill amortization in the year earlier period, income from operations for the e-Business solutions division increased to $0.4 million in the three months ended September 30, 2002, from a $5.6 million loss in the year earlier period. For the Company as a whole, income from operations as a percentage of revenue increased to 3.5% in the three months ended September 30, 2002, from 1.0% in the year earlier period. Excluding goodwill amortization in the year earlier period, for the Company as a whole, income from operations as a percentage of revenue decreased to 3.5% in the three months ended September 30, 2002, from 3.7% in the year earlier period. Other 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 certain investments owned by the Company and cash and cash equivalents on hand. Interest expense decreased $0.5 million, or 22.7%, to $1.7 million in the three months ended September 30, 2002, from $2.2 million in the 13 year earlier period. The decrease in interest expense is related to the lower level of borrowings under the Company's credit facility during the third quarter of 2002. Interest expense was offset by $0.5 million of interest and other income in the three months ended September 30, 2002, as compared to $0.3 million in the year earlier period. Income taxes. The Company's effective tax rate decreased to 41.0% in the three months ended September 30, 2002, as compared to 45.0% in the year earlier period, due to the discontinuance of goodwill amortization required by SFAS 142. In the year earlier period, non-deductible goodwill amortization on certain acquisitions had an increased effect on the Company's effective tax rate. Income before cumulative effect of accounting change. As a result of the foregoing, income before cumulative effect of accounting change increased $4.2 million, or 381.8%, to $5.2 million in the three months ended September 30, 2002, from $1.1 million in the year earlier period. Excluding goodwill amortization in the year earlier period, income before cumulative effect of accounting change decreased 32.9% in the three months ended September 30, 2002, from the year earlier period. Income before cumulative effect of accounting change as a percentage of revenue increased to 1.8% in the three months ended September 30, 2002, from 0.3% in the year earlier period. Excluding goodwill amortization in the year earlier period, income before cumulative effect of accounting change as a percentage of revenue decreased to 1.8% in the three months ended September 30, 2002, from 2.1% in the year earlier period. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001 Revenue. Revenue decreased $348.4 million, or 28.5%, to $874.5 million in the nine months ended September 30, 2002, from $1,222.9 million in the year earlier period. The decrease was attributable primarily to diminished demand for services. This diminished demand has primarily led to a reduction in billable headcount throughout the Company's divisions and, to a lesser extent, a reduction in the Company's bill rates. For the IT services division, which accounted for 50.4% and 49.5% of the Company's total revenue for the nine months ended September 30, 2002 and 2001, respectively, the Company's customers continued to limit spending on IT initiatives due to uncertainties relating to the economy. Revenue in the IT services division decreased $165.5 million, or 27.3%, to $440.4 million in the nine months ended September 30, 2002, from $605.9 million in the year earlier period. Revenue in the professional services division decreased $108.7 million, or 22.7%, to $370.3 million in the nine months ended September 30, 2002, from $479.0 million in the year earlier period. This decrease in the division's revenue was primarily attributable to the diminished demand for knowledge worker resources in the services provided by the division, primarily in the United States. Revenue generated in the United Kingdom decreased 10.8% year over year, while revenue generated in the United States decreased 28.1%. Excluding the results of the scientific unit, the professional services division operates primarily through five operating units consisting of accounting and finance, legal, engineering/technical, career management and consulting, and health care, which contributed 43.0%, 11.6%, 35.0%, 9.2%, and 1.2%, respectively, of the division's revenue by group during the nine months ended September 30, 2002, as compared to 42.1%, 12.9%, 35.6%, 9.4%, and 0%, respectively, during the year earlier period. For the e-Business solutions division, weak demand for e-Business consulting services was intensified by the uncertainties relating to the economy. Revenue in the division decreased $74.1 million, or 53.7%, to $63.9 million in the nine months ended September 30, 2002, from $138.0 million in the year earlier period. Gross Profit. Gross profit decreased $110.3 million or 32.7% to $226.7 million in the nine months ended September 30, 2002, from $337.0 million in the year earlier period. Gross margin decreased to 25.9% in the nine months ended September 30, 2002, from 27.6% in the year earlier period. The gross margin in the IT services division decreased to 21.1% in the nine months ended September 30, 2002, from 22.1% in the year earlier period. The decrease in gross margin in the IT services division is mainly attributable to 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 services provided by the division. The gross margin in the professional services division decreased to 30.4% in the nine months ended September 30, 2002, from 32.8% in the year earlier period. The decrease in gross margin in the professional services division is primarily attributable to a decrease in bill rates in 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 5.3% of revenue in the nine months ended September 30, 2002, from 6.7% in the year earlier period. The gross margin in the e-Business solutions division decreased to 33.1% in the nine months ended September 30, 2002, from 33.7% in the year earlier period. This decrease was driven by lower utilization of the Company's salaried consultants. This division's business model, unlike the Company's other 14 divisions, uses salaried consultants to meet customer demand. While the Company has significantly reduced billable headcount in this division to reflect lower customer demand, decreased use of the remaining billable consultants decreases the Company's gross margin. Operating expenses. Operating expenses decreased $105.8 million or 34.2% to $203.8 million in the nine months ended September 30, 2002, from $309.6 million in the year earlier period. During the year earlier period, operating expenses included $28.9 million of goodwill amortization, while the Company did not recognize any goodwill amortization during the current year period as a result of the adoption of SFAS 142 in 2002. The Company's general and administrative ('G&A') expenses decreased $76.0 million or 28.7% to $188.4 million in the nine months ended September 30, 2002, from $264.4 million in the year earlier period. The IT services division's G&A expenses decreased $18.0 million, or 18.9%, to $77.2 million in the nine months ended September 30, 2002, from $95.2 million in the year earlier period. As a percentage of revenue, the division's G&A expenses increased to 17.5% in the nine months ended September 30, 2002, from 15.7% in the year earlier period. The decrease in the IT services division's G&A expenses is associated with the decrease in revenue for the nine months ended September 30, 2002, and cost reduction initiatives implemented within the division throughout 2001 and continuing through 2002. The professional services division's G&A expenses decreased $20.3 million, or 18.5%, to $89.5 million in the nine months ended September 30, 2002, from $109.8 million in the year earlier period. As a percentage of revenue, the division's G&A expenses increased to 24.2% in the nine months ended September 30, 2002, from 22.9% in the year earlier period. The decrease in the professional services division's G&A expenses is associated with the decrease in revenue for the nine months ended September 30, 2002, and cost reduction initiatives implemented within the division beginning in 2001 and continuing through 2002. The e-Business solutions division's G&A expenses decreased $37.8 million, or 63.5%, to $21.7 million in the nine months ended September 30, 2002, from $59.5 million in the year earlier period. As a percentage of revenue, the division's G&A expenses decreased to 33.9% in the nine months ended September 30, 2002, from 43.1% in the year earlier period. The decrease in the e-Business solutions division's G&A expenses was primarily related to reductions in its work force that started in early 2001 and has continued through 2002. Income from operations. Income from operations decreased $4.5 million, or 16.4%, to $22.9 million in the nine months ended September 30, 2002, from $27.4 million in the year earlier period. Excluding goodwill amortization in the year earlier period, income from operations decreased 59.3% in the nine months ended September 30, 2002, from the year earlier period. Income from operations for the IT services division decreased $7.0 million, or 44.9%, to $8.6 million in the nine months ended September 30, 2002, from $15.6 million in the year earlier period. Excluding goodwill amortization in the year earlier period, income from operations for the IT services division decreased 71.5% in the nine months ended September 30, 2002, from the year earlier period. Income from operations for the professional services division decreased $15.6 million, or 46.2%, to $18.2 million in the nine months ended September 30, 2002, from $33.8 million in the year earlier period. Excluding goodwill amortization in the year earlier period, income from operations for the professional services division decreased 57.2% in the nine months ended September 30, 2002, from the year earlier period. Loss from operations for the e-Business solutions division decreased $18.1 million, to a $3.9 million loss in the nine months ended September 30, 2002, from a $22.0 million loss in the year earlier period. Excluding goodwill amortization in the year earlier period, loss from operations for the e-Business solutions division decreased to a $3.9 million loss in the nine months ended September 30, 2002, from a $16.4 million loss in the year earlier period. For the Company as a whole, income from operations as a percentage of revenue increased to 2.6% in the nine months ended September 30, 2002, from 2.2% in the year earlier period. Excluding goodwill amortization in the year earlier period, for the Company as a whole, income from operations as a percentage of revenue decreased to 2.6% in the nine months ended September 30, 2002, from 4.6% in the year earlier period. Other 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 certain investments owned by the Company and cash and cash equivalents on hand. Interest expense decreased $3.5 million, or 41.7%, to $4.9 million in the nine months ended September 30, 2002, from $8.4 million in the year earlier period. 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 $1.1 million of interest and other income in the nine months ended September 30, 2002, as compared to $1.2 million in the year earlier period. Income taxes. The Company's effective tax rate decreased to 40.5% in the nine months ended September 30, 2002, as compared to 44.9% in the year earlier period, due to the discontinuance of goodwill amortization required by SFAS 142. In the year earlier period, non-deductible goodwill amortization on certain acquisitions had an increased effect on the Company's effective tax rate. 15 Income before cumulative effect of accounting change. As a result of the foregoing, income before cumulative effect of accounting change increased $0.3 million, or 2.7%, to $11.4 million in the nine months ended September 30, 2002, from $11.1 million in the year earlier period. Excluding goodwill amortization in the year earlier period, income before cumulative effect of accounting change decreased 63.7% in the nine months ended September 30, 2002, from the year earlier period. Income before cumulative effect of accounting change as a percentage of revenue increased to 1.3% in the nine months ended September 30, 2002, from 0.9% in the year earlier period. Excluding goodwill amortization in the year earlier period, income before cumulative effect of accounting change as a percentage of revenue decreased to 1.3% in the nine months ended September 30, 2002, from 2.6% in the year earlier period. LIQUIDITY AND CAPITAL RESOURCES The Company's 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 $195.6 million and $204.7 million as of September 30, 2002 and December 31, 2001, respectively. The Company had cash and cash equivalents of $51.8 million and $49.2 million as of September 30, 2002 and December 31, 2001, respectively. For the nine months ended September 30, 2002 and 2001, the Company generated $72.6 million and $113.0 million of cash flow from operations, respectively. The reduction in cash flow from operations is primarily due to a reduced level of earnings in the current year combined with a decrease in the cash provided by changes in accounts receivable. In the prior year, the Company experienced an increase in receivables collection as the main elements of the Company's back office integration and consolidation efforts were being completed. In addition, adding to the cash flow from operations for the current year was a tax refund received in the third quarter of $17.4 million stemming from the Job Creation and Workers Assistance Act of 2002. For the nine months ended September 30, 2002, the Company used $10.2 million of cash for investing activities. $6.7 million, net of cash acquired, was used to acquire a health care staffing business in July 2002, and $3.5 million was used for capital expenditures. For the nine months ended September 30, 2001, the Company used $17.6 million of cash for investing activities, of which $13.8 million was used for capital expenditures and $3.8 million for earn-out payments. For the nine months ended September 30, 2002, the Company used $60.3 million of cash for financing activities, of which $76.4 million was used for repayments on the Company's credit facility and $16.3 million was generated from stock option exercises. For the nine months ended September 30, 2001, the Company used $75.2 million of cash for financing activities. This amount primarily represented 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 flow from operations. The Company's Board of Directors has authorized the repurchase of up to $65.0 million of the Company's common stock. The Company began to utilize this authorization in the third quarter of 2002. As of October 31, 2002, 290,400 shares have been repurchased under this authorization. The Company anticipates that capital expenditures for furniture and equipment, including improvements to its management information and operating systems during the remainder of 2002, will be approximately $2.0 million. 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. 16 Indebtedness of the Company The Company has a $200 million revolving credit facility which is syndicated to a group of 13 banks with Bank of America as the principal agent. This facility expires on October 27, 2003. The credit facility contains certain financial and non-financial covenants relating to the Company's operations, including maintaining certain financial ratios. Repayment of the credit facility is guaranteed by the material subsidiaries of the Company. In addition, approval of an individual acquisition is required by the majority of the lenders if cash consideration for the acquisition would exceed 10% of consolidated stockholders' equity of the Company. In August 2002, the Company reduced the notional amount of the facility from $350 million to $200 million to more closely align the Company's facility with its anticipated capital needs. As of October 31, 2002, the Company had a balance of $25.0 million outstanding under the credit facility. The Company also had outstanding letters of credit in the amount of $2.4 million. In February 2001, the Company entered into an interest rate swap agreement to convert certain floating rate debt outstanding under the Company's credit facility into fixed rate debt by fixing the base rate, as defined by the credit facility. The actual interest rate on the credit facility is equal to this base rate plus an additional spread, determined by the Company's financial performance. This agreement was approved by the Board of Directors and expires January 2, 2003. As of October 31, 2002, this swap agreement had a total notional amount of $25.0 million and an underlying rate of 5.185%. SEASONALITY The Company's quarterly operating results are affected primarily by the number of billing days in the quarter and the seasonality of its customers' demand for services provided by the Company's divisions. Demand for business services is typically lower during the first quarter until customers' operating budgets are finalized and the profitability of the Company's consultants is generally lower in the fourth quarter due to fewer billing days because of the higher number of holidays and vacation days. 17 Item 3. Quantitative And Qualitative Disclosures About Market Risk The following assessment of the Company's market risks does not include uncertainties that are either nonfinancial or nonquantifiable, such as political, economic, tax and credit risks. Interest Rates. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's debt obligations under its 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. The Company's debt obligations totaled $25.4 million as of September 30, 2002. In February 2001, the Company entered into an interest rate swap agreement to convert certain floating rate debt outstanding under the Company's credit facility into fixed rate debt by fixing the base rate, as defined by the credit facility. The actual interest rate on the credit facility is equal to this base rate plus an additional spread, determined by the Company's financial performance. This agreement was approved by the Board of Directors and expires January 2, 2003. As of September 30, 2002, this swap agreement had a total notional amount of $25.0 million and an underlying rate of 5.185%. Hedging interest rate exposure through the use of swaps is specifically intended to manage risk in keeping with management policy. The Company does not utilize derivatives for speculative purposes. The Company prepared sensitivity analyses of its borrowings under the credit facility and its financial instruments to determine the impact of hypothetical changes in interest rates on the Company's results of operations and cash flows, and the fair value of its financial instruments. The interest-rate analysis assumed a 50 basis point adverse change in interest rates on all borrowings under the credit facility and financial instruments, representing approximately 10% of the Company's weighted average borrowing rate. However, the interest-rate analysis did not consider the effects of the reduced level of economic activity that could exist in such an environment. A 50 basis point adverse move in interest rates on the Company's outstanding borrowings under the credit facility would have an immaterial impact on the Company's results of operations and cash flows. 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 32% of its consolidated revenues for the nine months ended September 30, 2002 from international operations, approximately 97% of which were from the United Kingdom. The exchange rate has increased approximately 8% in the nine months ended September 30, 2002, from 1.45 at December 31, 2001 to 1.57 at September 30, 2002. 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 2002. While fluctuations in the British pound sterling have not historically had a material impact on the Company's results of operations, the lower level of earnings resulting from a decrease in demand for the services provided by the Company's domestic operations have increased the impact of exchange rate fluctuations. As of September 30, 2002, the Company did not hold and has not previously entered into any foreign currency derivative instruments. 18 FACTORS WHICH MAY IMPACT FUTURE RESULTS AND FINANCIAL CONDITION Effect of Fluctuations in the General Economy Our results are affected by the level of business activity of our customers, which is driven by the level of economic activity in the industries and markets they serve. The current economic downturn has significantly hurt our results of operations. If the current significant economic downturn persists, it will continue its material adverse effect on our results of operations. Further deterioration in the global economic or political conditions could increase these effects. The Company may also be adversely affected by consolidations through mergers and otherwise of major customers or between major customers with non-customers. These consolidations as well as corporate downsizings may result in redundant functions or services and a resulting reduction in demand by such customers for the Company's services. Also, spending for outsourced business services may be put on hold until the consolidations are completed. Competition The Company's industry is intensely competitive and highly fragmented, with few barriers to entry by potential competitors. The Company faces significant competition in the markets that it serves and will face significant competition in any geographic market that it may enter. In each market in which the Company operates, it competes for both clients and qualified professionals with other firms offering similar services. Competition creates an aggressive pricing environment and higher wage costs, which puts pressure on gross margins. Ability to Recruit and Retain Professional Employees The Company depends on its ability to recruit and retain employees who possess the skills, experience and/or professional certifications necessary to meet the requirements of the Company's clients. Competition for individuals possessing the requisite criteria is intense, particularly in certain specialized IT and professional skill areas. The Company often competes with its own clients in attracting and retaining qualified personnel. There can be no assurance that qualified personnel will be available and recruited in sufficient numbers on economic terms acceptable to the Company. Ability to Continue Acquisition Strategy; Ability to Integrate Acquired Operations Historically, the Company has included acquisitions as a part of the Company's overall growth strategy. Although the Company continues to seek acquisition opportunities, there can be no assurance that the Company will be able to negotiate acquisitions on economic terms acceptable to the Company or that the Company will be able to successfully identify acquisition candidates and integrate all acquired operations into the Company. Possible Changes in Governmental Regulations From time to time, legislation is proposed in the United States Congress, state legislative bodies and by foreign governments that would have the effect of requiring employers to provide the same or similar employee benefits to consultants and other temporary personnel as those provided to full-time employees. The enactment of such legislation would eliminate one of the key economic reasons for outsourcing certain human resources and could significantly adversely impact the Company's staff augmentation business. In addition, the Company's costs could increase as a result of future laws or regulations that address insurance, benefits or other employment-related matters. There can be no assurance that the Company could successfully pass any such increased costs to its clients. Bank Facility The Company's credit facility requires that specified financial ratios be maintained. The Company's ability to meet these financial ratios can be affected by events beyond its control. Failure to meet those financial ratios could allow its lenders to terminate the credit facility and to declare all amounts outstanding under those facilities to be immediately due and payable. Further, the current facility expires October 2003. The Company may not be able to obtain a replacement credit facility on terms and conditions or at interest rates as favorable as those in current agreements. 19 Income Tax Audits The Company is subject to periodic review by federal, state, and local taxing authorities in the ordinary course of business. During 2001, the Company 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 the Company recognized in 2000 of $86.3 million is also being reviewed. There can be no assurance that the Internal Revenue Service will not disallow any or all of the tax benefit. A disallowance would result in the Company having to repay any or all of the tax benefit to the Internal Revenue Service which may affect the Company's financial condition and financial covenants of the Company's credit facility. 20 Item 4. Controls and Procedures Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on their evaluation, the Chief Executive officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date that Chief Executive Officer and Chief Financial Officer completed their evaluation. 21 Part II. Other Information Item 1. Legal Proceedings No disclosure required. Item 2. Changes in Securities and Use of Proceeds No disclosure required. Item 3. Defaults Upon Senior Securities No disclosure required. Item 4. Submission of Matters to a Vote of Security Holders No disclosure required. Item 5. Other Information No disclosure required. Item 6. Exhibits and Reports on Form 8-K A. Exhibits 10.12(b) Restricted Stock Agreement with Timothy D. Payne. 10.14(a) Restricted Stock Agreement with Robert P. Crouch. B. Reports on Form 8-K A report on Form 8-K dated November 14, 2002 was filed by the Company in November 2002. The report was filed under Item 9, Regulation FD Disclosure. 22 SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ Timothy D. Payne President, Chief November 14, 2002 Timothy D. Payne Executive Officer and Director /s/ Robert P. Crouch Senior Vice President, November 14, 2002 Robert P. Crouch Treasurer, and Chief Financial Officer 23 CERTIFICATION I, Timothy D. Payne, President and Chief Executive Officer of MPS Group, Inc., certify that: (1) I have reviewed this quarterly report on Form 10-Q of MPS Group, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 14, 2002 /s/ Timothy D. Payne - ------------------------------------- Timothy D. Payne President and Chief Executive Officer 24 CERTIFICATION I, Robert P. Crouch, Senior Vice President and Chief Financial Officer of MPS Group, Inc., certify that: (1) I have reviewed this quarterly report on Form 10-Q of MPS Group, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 14, 2002 /s/ Robert P. Crouch - ------------------------------------- Robert P. Crouch Senior Vice President and Chief Financial Officer 25 EX-10 2 tprestrstck.txt EX10.12(B) - TIM PAYNE RESTRICTED STOCK RESTRICTED STOCK AGREEMENT This Agreement is made effective as of September 17, 2002 (the "Effective Date") between Timothy D. Payne (the "Employee") and MPS Group, Inc., a Florida corporation (the "Company"). W I T N E S S E T H T H A T: WHEREAS, the Company has awarded to Employee 100,000 shares (the "Shares") of the common stock ("Stock") of the Company effective as of September 17, 2002 (the "Effective Date") pursuant to the MPS Group, Inc. Amended and Restated 1995 Stock Option Plan (the "Plan") as an incentive to remain with the Company and to work to increase the value of the Stock; and WHEREAS, the Shares are subject to the terms and conditions hereinafter provided; NOW, THEREFORE, the Company and the Employee agree as follows: 1. AWARD. The Employee hereby is granted 100,000 Shares as of the Effective Date subject to all the terms and conditions of this Agreement. These Shares are granted pursuant to the provisions of the Plan and the terms and conditions of the Plan are incorporated herein by reference and made a part hereof. A copy of the Plan has been delivered to, and receipt is hereby acknowledged by, Employee. 2. STOCK CERTIFICATE. The Employee hereby acknowledges that a stock certificate for Restricted Shares (the "Certificate") is hereby awarded to the Employee hereunder, bearing the following legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of a Restricted Stock Agreement entered into between the registered owner and MPS Group, Inc., effective as of September 17, 2002. Copies of such Agreement are on file in the office of the Secretary, MPS Group, Inc., One Independent Drive, Jacksonville, Florida 32202." The Employee shall return the Certificate to the Company upon the forfeiture of any Shares pursuant to Section 4 below. Thereafter, the Company shall reissue a new Certificate for the number of Shares, if any, which were not forfeited. The new Certificate, if any, and the Shares represented thereby shall remain subject to this Agreement. 3. VESTING OF SHARES. The Employee agrees the Shares shall vest as follows: (a) According to the schedule in the table set forth below: Number of Shares Vested ---------------------------------------------------------------- January 1, 2003 20,000 January 1, 2004 20,000 January 1, 2005 20,000 January 1, 2006 20,000 January 1, 2007 20,000 (b) If, at any time after the execution of this Agreement, the Stock of the Company trades on the New York Stock Exchange at a price equal to or in excess of $15 per share over a ten (10) consecutive business day period, then any Shares remaining unvested under Section 3(a) above shall vest on the day thereafter. (c) Employee shall also become vested in any Shares remaining unvested under Section 3(a) upon the occurrence of: (i) a Change in Control of the Company, as such term is defined in Section 5 of this Agreement; (ii) termination of Employee's employment by the Company without Good Cause or by the Employee for Good Reason (as those terms are defined in the Employment Agreement between Employee and Company), or (iii) termination of Employee's employment due to death or disability. For purposes of this Agreement, "disability" shall have the meaning set forth in the Employee's long term disability plan or policy covering the Employee and shall not be considered to have occurred until after the waiting period as required by such plan or policy. 4. FORFEITURE; TRANSFER. (a) If the Employee shall cease to be employed by the Company for any reason other than as referenced above in Section 3 (c)(ii) or (iii), at any time prior to the dates set forth in the table in Section 3 (a) above, then the Employee shall forfeit and return to the Company any Shares which remain unvested as of such date for no payment. (b) No Shares received by the Employee shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of unless vested pursuant to any provision of Section 3 above. 5. CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control' shall mean: (a) the acquisition by any person or persons (as such term is used in Section 13(d) of the Securities Exchange Act of 1934) not a shareholder of Employer on September 17, 2002, of legal or beneficial ownership of 35% or more of either (A) the then outstanding shares of common stock of the Company, or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (b) individuals who, as of the date hereof, constitute the Board cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Board shall be considered as though such individual were a member of the Board as of the date hereof; (c) approval by the shareholders of the Company of a reorganization, merger, or consolidation, in each case unless the shareholders of the Company immediately before such reorganization, merger, or consolidation own, directly or indirectly, immediately following such reorganization, merger, or consolidation at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such reorganization, merger, or consolidation in substantially the same proportion as their ownership of the voting securities immediately before such reorganization, merger or consolidation; or (d) approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company, or (B) the sale or other disposition of more than 50% of the assets of the Company within a twelve month period. 5. VOTING RIGHTS; DIVIDENDS; CAPITAL CHANGES. (a) Except as otherwise limited or provided in this Agreement, with respect to any Shares subject to the restrictions of this Agreement, the Employee shall be a shareholder of the Company and shall have all of the rights of a shareholder with respect to the Shares, including full power to vote all of the Shares from time to time. Dividends on such shares shall be paid to the Employee. (b) Any new, additional or different shares of capital stock or other securities issued with respect to any of the Shares described herein or in substitution or replacement thereof shall be subject to all of the terms and conditions of this Agreement and shall be delivered to the Employee (or the Employee's beneficiary) or revert to the Company under the same circumstances as the original Shares with respect to, or in substitution for which they were issued. 6. DELIVERY OF STOCK CERTIFICATE TO COMPANY. If Employee refuses to deliver to Company a properly endorsed stock certificate for any Shares forfeited, the Employee hereby authorizes and directs the Company to cancel on its books and records (including but not limited to its stock transfer book) the Employee's ownership of the Shares and to take whatever action the Company deems necessary or appropriate to have such Shares registered in the name of the Company without any further action, or direction, by the Employee. 7. COMPLIANCE WITH LAW AND REGULATIONS. The obligations of the Company hereunder are subject to all applicable Federal and state laws and to the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed and any other government or regulatory agency. 8. ATTORNEYS' FEES. The prevailing party in any litigation hereunder shall be entitled to attorneys' fees and costs of litigation. 9. NO RIGHTS TO EMPLOYMENT. Nothing in this Agreement shall confer upon the Employee any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate his employment at any time. 10. GOVERNING LAW. The terms of this Agreement shall be governed by and interpreted in accordance with the laws of the State of Florida, without regard to any issues of conflicts of laws. 11. ENTIRE AGREEMENT; MODIFICATION. The terms stated herein are the entire and sole terms of the agreement between Employee and Company related to the award of Shares hereunder, and the parties agree there are no representations, promises, terms or conditions, oral or otherwise, related thereto not explicitly stated herein. The parties agree this agreement may only be modified or amended in a writing signed by the parties. IN WITNESS WHEREOF, the Employee and Company have executed the Agreement effective as of the day and year first above written. MPS GROUP, INC. By: /s/ MPS Group, Inc. Its: EMPLOYEE /s/ Timothy D. Payne -------------------------- Timothy D. Payne EX-10 3 rpcrestrstck.txt EX10.14(A) - BOB CROUCH RESTRICTED STOCK RESTRICTED STOCK AGREEMENT This Agreement is made effective as of September 17, 2002 (the "Effective Date") between Robert P. Crouch (the "Employee") and MPS Group, Inc., a Florida corporation (the "Company"). W I T N E S S E T H T H A T: WHEREAS, the Company has awarded to Employee 50,000 shares (the "Shares") of the common stock ("Stock") of the Company effective as of September 17, 2002 (the "Effective Date") pursuant to the MPS Group, Inc. Amended and Restated 1995 Stock Option Plan (the "Plan") as an incentive to remain with the Company and to work to increase the value of the Stock; and WHEREAS, the Shares are subject to the terms and conditions hereinafter provided; NOW, THEREFORE, the Company and the Employee agree as follows: 1. AWARD. The Employee hereby is granted 50,000 Shares as of the Effective Date subject to all the terms and conditions of this Agreement. These Shares are granted pursuant to the provisions of the Plan and the terms and conditions of the Plan are incorporated herein by reference and made a part hereof. A copy of the Plan has been delivered to, and receipt is hereby acknowledged by, Employee. 2. STOCK CERTIFICATE. The Employee hereby acknowledges that a stock certificate for Restricted Shares (the "Certificate") is hereby awarded to the Employee hereunder, bearing the following legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of a Restricted Stock Agreement entered into between the registered owner and MPS Group, Inc., effective as of September 17, 2002. Copies of such Agreement are on file in the office of the Secretary, MPS Group, Inc., One Independent Drive, Jacksonville, Florida 32202." The Employee shall return the Certificate to the Company upon the forfeiture of any Shares pursuant to Section 4 below. Thereafter, the Company shall reissue a new Certificate for the number of Shares, if any, which were not forfeited. The new Certificate, if any, and the Shares represented thereby shall remain subject to this Agreement. 3. VESTING OF SHARES. The Employee agrees the Shares shall vest as follows: (a) According to the schedule in the table set forth below: Number of Shares Vested ------------------------------------------------------------------ January 1, 2003 10,000 January 1, 2004 10,000 January 1, 2005 10,000 January 1, 2006 10,000 January 1, 2007 10,000 (b) If, at any time after the execution of this Agreement, the Stock of the Company trades on the New York Stock Exchange at a price equal to or in excess of $15 per share over a ten (10) consecutive business day period, then any Shares remaining unvested under Section 3(a) above shall vest on the day thereafter. (c) Employee shall also become vested in any Shares remaining unvested under Section 3(a) upon the occurrence of: (i) a Change in Control of the Company, as such term is defined in Section 5 of this Agreement; (ii) termination of Employee's employment by the Company without Good Cause or by the Employee for Good Reason (as those terms are defined in the Employment Agreement between Employee and Company), or (iii) termination of Employee's employment due to death or disability. For purposes of this Agreement, "disability" shall have the meaning set forth in the Employee's long term disability plan or policy covering the Employee and shall not be considered to have occurred until after the waiting period as required by such plan or policy. 4. FORFEITURE; TRANSFER. (a) If the Employee shall cease to be employed by the Company for any reason other than as referenced above in Section 3 (c)(ii) or (iii), at any time prior to the dates set forth in the table in Section 3 (a) above, then the Employee shall forfeit and return to the Company any Shares which remain unvested as of such date for no payment. (b) No Shares received by the Employee shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of unless vested pursuant to any provision of Section 3 above. 5. CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control' shall mean: (a) the acquisition by any person or persons (as such term is used in Section 13(d) of the Securities Exchange Act of 1934) not a shareholder of Employer on September 17, 2002, of legal or beneficial ownership of 35% or more of either (A) the then outstanding shares of common stock of the Company, or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (b) individuals who, as of the date hereof, constitute the Board cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Board shall be considered as though such individual were a member of the Board as of the date hereof; (c) approval by the shareholders of the Company of a reorganization, merger, or consolidation, in each case unless the shareholders of the Company immediately before such reorganization, merger, or consolidation own, directly or indirectly, immediately following such reorganization, merger, or consolidation at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such reorganization, merger, or consolidation in substantially the same proportion as their ownership of the voting securities immediately before such reorganization, merger or consolidation; or (d) approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company, or (B) the sale or other disposition of more than 50% of the assets of the Company within a twelve month period. 5. VOTING RIGHTS; DIVIDENDS; CAPITAL CHANGES. (a) Except as otherwise limited or provided in this Agreement, with respect to any Shares subject to the restrictions of this Agreement, the Employee shall be a shareholder of the Company and shall have all of the rights of a shareholder with respect to the Shares, including full power to vote all of the Shares from time to time. Dividends on such shares shall be paid to the Employee. (b) Any new, additional or different shares of capital stock or other securities issued with respect to any of the Shares described herein or in substitution or replacement thereof shall be subject to all of the terms and conditions of this Agreement and shall be delivered to the Employee (or the Employee's beneficiary) or revert to the Company under the same circumstances as the original Shares with respect to, or in substitution for which they were issued. 6. DELIVERY OF STOCK CERTIFICATE TO COMPANY. If Employee refuses to deliver to Company a properly endorsed stock certificate for any Shares forfeited, the Employee hereby authorizes and directs the Company to cancel on its books and records (including but not limited to its stock transfer book) the Employee's ownership of the Shares and to take whatever action the Company deems necessary or appropriate to have such Shares registered in the name of the Company without any further action, or direction, by the Employee. 7. COMPLIANCE WITH LAW AND REGULATIONS. The obligations of the Company hereunder are subject to all applicable Federal and state laws and to the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed and any other government or regulatory agency. 8. ATTORNEYS' FEES. The prevailing party in any litigation hereunder shall be entitled to attorneys' fees and costs of litigation. 9. NO RIGHTS TO EMPLOYMENT. Nothing in this Agreement shall confer upon the Employee any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate his employment at any time. 10. GOVERNING LAW. The terms of this Agreement shall be governed by and interpreted in accordance with the laws of the State of Florida, without regard to any issues of conflicts of laws. 11. ENTIRE AGREEMENT; MODIFICATION. The terms stated herein are the entire and sole terms of the agreement between Employee and Company related to the award of Shares hereunder, and the parties agree there are no representations, promises, terms or c