UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

¨	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 incorporation or organization)		(I.R.S. Employer Identification No.)

1 Independent Drive, Jacksonville, FL		32202
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number including area code): (904) 360-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s class of common stock as of October 19, 2009:

93,171,388 shares of $0.01 par value common stock

MPS Group, Inc. and Subsidiaries

Index


Part I	Financial Information

Item 1	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008	3

	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2009 and 2008	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2009 and 2008	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4	Controls and Procedures	30

Part II	Other Information

Item 1A	Risk Factors	31

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 6	Exhibits	32

	Signatures	33

Part I. Financial Information

Item 1.

Financial Statements

MPS Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


(dollar amounts in thousands except share amounts)	September 30, 2009			December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	152,848		$	90,566
Accounts receivable, net of allowance of $17,491 and $20,502, respectively		259,220			282,093
Prepaid expenses		10,998			10,929
Deferred income taxes		2,503			3,508
Other		18,610			9,761

Total current assets		444,179			396,857
Furniture, equipment, and leasehold improvements, net		29,416			34,763
Goodwill, net		302,543			293,275
Deferred income taxes		34,387			49,085
Other assets, net		18,076			21,912

Total assets	$	828,601		$	795,892

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	89,756		$	86,890
Accrued payroll and related taxes		89,039			83,497
Income taxes payable		—			2,760

Total current liabilities		178,795			173,147
Income taxes payable		7,307			7,458
Credit facility		—			7,313
Other		21,261			16,504

Total liabilities		207,363			204,422

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued		—			—
Common stock, $.01 par value; 400,000,000 shares authorized; 93,153,521 and 90,841,454 shares issued, respectively		932			908
Additional contributed capital		446,955			440,353
Retained earnings		195,035			185,059
Accumulated other comprehensive loss		(21,684	)		(34,850	)

Total stockholders’ equity		621,238			591,470

Total liabilities and stockholders’ equity	$	828,601		$	795,892

See accompanying notes to unaudited condensed consolidated financial statements.

MPS Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)


	Three Months Ended					Nine Months Ended
(dollar amounts in thousands except per share amounts)	September 30, 2009		September 30, 2008			September 30, 2009		September 30, 2008
Revenue	$	407,771	$	577,484		$	1,255,057	$	1,734,755
Cost of revenue		298,356		413,390			916,445		1,237,257

Gross profit		109,415		164,094			338,612		497,498

Operating expenses:
General and administrative		96,886		129,237			304,184		384,758
Depreciation and intangibles amortization		4,082		5,677			13,103		16,772

Total operating expenses		100,968		134,914			317,287		401,530

Income from operations		8,447		29,180			21,325		95,968
Other income (expense), net		1,573		(2,715	)		601		(4,259	)

Income before provision for income taxes		10,020		26,465			21,926		91,709
Provision for income taxes		4,568		9,257			11,950		34,702

Net income	$	5,452	$	17,208		$	9,976	$	57,007

Basic net income per common share	$	0.06	$	0.19		$	0.12	$	0.63

Average common shares outstanding, basic		86,473		88,459			86,462		90,159

Diluted net income per common share	$	0.06	$	0.19		$	0.11	$	0.62

Average common shares outstanding, diluted		89,199		90,315			88,161		91,738

See accompanying notes to unaudited condensed consolidated financial statements.

MPS Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Nine months ended September 30,
(dollar amounts in thousands)	2009			2008
Cash flows from operating activities:
Net income	$	9,976		$	57,007
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		15,985			15,399
Share-based plans expense		10,493			8,483
Depreciation and intangibles amortization		13,103			16,772
Changes in certain assets and liabilities, net of acquisitions:
Accounts receivable		29,252			(20,426	)
Prepaid expenses and other assets		(69	)		(1,693	)
Accounts payable and accrued expenses		(13,049	)		(2,604	)
Accrued payroll and related taxes		3,829			11,667
Other, net		6,002			334

Net cash provided by operating activities		75,522			84,939

Cash flows from investing activities:
Proceeds from sale of short term investments		—			2,500
Purchase of furniture, equipment and leasehold improvements, net of disposals		(3,741	)		(13,467	)
Purchase of businesses, including additional consideration on acquisitions, net of cash acquired		(1,574	)		(51,110	)

Net cash used in investing activities		(5,315	)		(62,077	)

Cash flows from financing activities:
Settlement of share-based awards		(1,980	)		(1,855	)
Repurchases of common stock		—			(64,407	)
Borrowings on indebtedness		—			29,973
Repayments on indebtedness		(8,977	)		(28,078	)
Other, net		263			2,453

Net cash used in financing activities		(10,694	)		(61,914	)

Effect of exchange rate changes on cash and cash equivalents		2,769			(2,687	)
Net increase (decrease) in cash and cash equivalents		62,282			(41,739	)
Cash and cash equivalents, beginning of period		90,566			105,285

Cash and cash equivalents, end of period	$	152,848		$	63,546

See accompanying notes to unaudited condensed consolidated financial statements.

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollar amounts in thousands except per share amounts)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by MPS Group, Inc. (“MPS”, “we”, “us”, or “our”) 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 accounting principles generally accepted in the United States of America have been condensed or omitted. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Form 10-K for the year ended December 31, 2008.

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.

Additionally, we have performed an evaluation of subsequent events through October 28, 2009.

Cash and Cash Equivalents

Cash and cash equivalents include deposits in banks and money market funds. On January 1, 2008, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) related to the fair value measurement of financial assets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principals, and expands the disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors: Level 1—quoted prices in active markets using identical assets; Level 2—significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs; and Level 3—significant unobservable inputs. Our money market funds are Level 1 fair value measurement financial assets.

Furniture, Equipment, and Leasehold Improvements

Furniture, equipment, and leasehold improvements are recorded at cost less accumulated depreciation and amortization. Depreciation of furniture and equipment is computed using the straight-line method over the estimated useful lives of the related assets. We have developed a proprietary software package, which allows us to implement imaging, time capture, and data-warehouse reporting. The costs associated with the development of this proprietary software package have been capitalized, and are being amortized over a five-year period.

We evaluate the recoverability of our carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Carrying value write-downs and gains and losses on disposition of property and equipment are reflected in the Condensed Consolidated Statements of Operations.

Goodwill and Other Identifiable Intangible Assets

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

We perform goodwill impairment reviews at least annually, and between tests if an event occurs or circumstances change that would more likely than not reduce the fair-value of a reporting unit below it’s carrying amount. We evaluate goodwill impairment using a two-step process. In the first step, we determine the fair value of each reporting unit using a blend of the discounted cash flow valuation methodology (“DCF”) and a guideline public company valuation methodology. For purposes of this assessment our reporting units are our segments or the operating units one level below our segments. We then compare the fair value to carrying value. If the fair value of the reporting unit exceeds the carrying value of the unit’s net assets, goodwill is not impaired and no further testing is performed.

If, however, a reporting unit’s carrying value exceeds its fair value, we must perform a second impairment assessment. The second impairment assessment involves allocating the reporting unit’s fair value to its net assets, including identifiable intangible assets, in order to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge. Identifiable intangible assets identified in this second impairment assessment include customer relationships, trade names and developed technology. We utilized income approach analyses to arrive at the fair values of these identifiable intangible assets.

We perform valuation testing annually as of October 1 and between tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We did not incur any goodwill impairment resulting from our valuation testing performed in the fourth quarters of 2007 and 2006. During the first three quarters of 2008, we did not experience significant adverse changes in the business climate that would cause us to accelerate the timing of our valuation testing. During the fourth quarter of 2008, the downturn in the economic conditions in the countries in which we do business, primarily the United States and the United Kingdom, reduced the demand for our services resulting in a significant decrease in our revenues and profits across all of our reporting units. During the latter half of the fourth quarter of 2008, it became apparent that the deterioration of macroeconomic conditions in the United States and the United Kingdom would continue into 2009. As such, we concluded that the acceleration of certain negative trends in sales activities that we were experiencing during the fourth quarter of 2008 would also continue into 2009. In addition, in comparison to the third quarter of 2008 we experienced an approximate 35% decline in our average market capitalization in the fourth quarter of 2008 along with a material decline in the valuations of our market comparable companies. The combination of the deterioration of macroeconomic conditions in the United States and the United Kingdom, which resulted in us updating our financial outlook for each of our reporting units, and the decline in our market capitalization and valuations of our market comparable companies were the primary factors contributing to our goodwill and identifiable intangible assets impairment charge. Our valuation testing considered both the continued economic and market valuation deteriorations that occurred during the fourth quarter. We expect that our revenue and profitability will continue to be significantly less than recent historical levels as long as the current negative economic conditions persist.

Based on the results of our valuation testing performed in the fourth quarter of 2008, we recorded a goodwill and intangible impairment charge of $379.3 million, or $303.4 million net of the related tax benefit. It should be noted that the impairment charge did not negatively impact our liquidity, as the financial covenants within our credit facility exclude this non-cash charge.

As previously mentioned, we use a blended value of a DCF and a guideline public company methodology to arrive at fair value. We have historically utilized a blended value of these two methodologies to arrive at fair value. The details and assumptions used in the DCF and guideline public company valuation methodologies we use for goodwill impairment testing are each discussed in more detail below.

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

Discounted Cash Flow Methodology. DCF establishes fair value by estimating the present value of projected future cash flows. Our DCF is prepared from three primary components: (a) our internally prepared five year projections of financial performance; (b) a discount rate; and (c) a terminal value. Assumptions we used in preparing our financial projections and in choosing a discount rate and terminal value are each discussed in more detail below.

•

We prepared five year financial projections for purposes of establishing inputs for the fair value calculations. In those projections we:

•

Assumed the current economic downturn would mirror the most recent economic downturn, which produced several sequential quarters of sequential revenue declines.

•

Assumed the current economic downturn would continue for all reporting units through 2009, followed by a recovery period at a moderate rate of growth starting in 2010. The growth rates from 2010 through 2013 used in our 2008 impairment testing were significantly lower than those utilized in prior years’ impairment testing.

•

Projected greater revenue declines in our IT reporting units than in our Professional reporting units and greater recovery rates from 2010 through 2013 in our Professional reporting units compared to our IT reporting units.

•

Applied profitability assumptions consistent with each reporting unit’s historical trends at various revenue levels.

•

In our testing we assumed a 3% terminal value to reflect the growth in our business for years beyond our five year financial projections. This is consistent with the terminal value used in the prior year’s impairment testing.

•

The discount rates applied to the projected future cash flows to arrive at the present value are based on a weighted average cost of capital intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discount rates used in our 2008 testing for each reporting unit, which were either 14% or 15%, were developed considering contemporaneous market data including the risk free rate of return on long-term treasury securities, beta indications from guideline companies, the risk associated with investing in similar equity securities, and the cost of debt for issuers of investment grade quality. The discount rates were lower than those used in prior years due to a reduction in risk free market rates and perceived forecast risk, which more than offset an increase in market risk premiums. In addition, the discount rate conclusions were compared to rates published in a third party research report, as a test of reasonableness.

Guideline Public Company Methodology. The guideline public company methodology establishes fair value by comparing us to other similar publicly traded companies on the basis of risk characteristics to determine our risk profile relative to the comparable companies as a group. This analysis generally focuses on quantitative considerations, which include financial performance and other quantifiable data, and qualitative considerations, which may include any factors which are expected to impact future financial performance. The most significant assumptions affecting the guideline public company methodology are the market multiples and control premium. The market multiples we use for each reporting unit are: (a) enterprise value to revenue and (b) enterprise value to EBITDA. A control premium represents the value an investor would pay above minority interest transaction prices in order to obtain a controlling interest in the respective company. We utilized a 20% control premium based on indications of premiums paid in transactions of controlling interests in employment services companies in 2007 and 2008.

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

Consideration of Interim Testing. We regularly monitor business conditions for events that may indicate that the carrying value of each reporting unit exceeds its fair value. For the three and nine months ended September 30, 2009, we compared the assumptions utilized in our goodwill impairment test conducted during the fourth quarter of 2008 to the operating results of the three and nine months ended September 30, 2009, along with expected or projected future operating results. During the first nine months of 2009, we saw a substantial decrease in demand for our services due to the poor macroeconomic conditions in the United States and the United Kingdom, the countries in which we primarily do business. The majority of this decrease occurred in the first three months of 2009. This deterioration was more pronounced in our permanent placement business than in our staffing business. The forecasts used in our fourth quarter 2008 goodwill impairment test anticipated these declines. As such, our cash flow and profitability in the three and nine months ended September 30, 2009 were substantially consistent with the assumptions utilized in the 2008 goodwill impairment test. In addition, we considered the following factors, the presence of which could indicate potential impairment, and concluded that they did not exist in comparison to the assumptions utilized in our 2008 goodwill impairment test:

•

significant changes to our overall business strategy and allocation of resources within our reporting units;

•

significant adverse change in the business climate; and/or

•

significant decline for a sustained period in our market capitalization relative to our net book value.

For the three and nine months ended September 30, 2009, we concluded that given the results of our comparison of operating results and outlook to forecasts utilized in our fourth quarter 2008 goodwill impairment test, it was more likely than not that the fair value of all of our reporting units was greater than their respective carrying values.

Revenue Recognition

We recognize substantially all revenue at the time services are provided and the revenue is recorded on a time and materials basis. In most cases, the consultant is our employee and all costs of employing the worker are our responsibility and are included in cost of revenue. Revenues generated when we permanently place an individual with a client are recorded at the time of start.

Foreign Operations

The financial position and operating results of foreign operations are consolidated using the local currency as the functional currency. These operating results are considered to be permanently invested in foreign operations. Local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the balance sheet date, and the local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the period.

Income Taxes

The provision for income taxes is based on income before taxes as reported in the accompanying Condensed Consolidated Statements of Operations. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets. This assessment includes anticipating future taxable income.

Net Income per Common Share

The consolidated financial statements include ‘basic’ and ‘diluted’ per share information. Basic net income per common share information is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted net income per common share information is calculated by also considering the impact of potential common stock equivalents on both net income and the weighted average number of common shares outstanding. The weighted average number of common shares used in the basic net income per common share computations was 86.5 million for the three and nine months ended September 30, 2009, and 88.5 million and 90.2 million in the three and nine months ended September 30, 2008, respectively. The only difference in the computation of basic and diluted net income per common share is the inclusion of 2.7 million and 1.7 million incremental common shares from the assumed exercise of stock options and restricted stock awards for the three and nine months ended September 30, 2009, respectively, and 1.9 million and 1.6 million incremental common shares for the three and nine months ended September 30, 2008, respectively. See Footnote 2.

Pervasiveness of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results may differ from the estimates and assumptions used.

New Accounting Pronouncements

In May 2009, the FASB issued guidance on subsequent events which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. This guidance also requires disclosure of the date through which the entity has evaluated subsequent events and the basis for that date. Our adoption of this guidance during the three months ended June 30, 2009 did not have a material effect on our consolidated financial statements.

In June 2009, the FASB issued guidance which establishes the FASB Accounting Standards Codification as the single source of authoritative United States GAAP. This guidance is effective for interim and annual periods ending after September 15, 2009. Our adoption of this guidance during the three months ended September 30, 2009 did not have any effect on our consolidated financial statements.

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

2. Net Income per Common Share

The calculation of basic net income per common share and diluted net income per common share is presented below:


	Three Months Ended				Nine Months Ended
(dollar amounts in thousands except per share amounts)	September 30, 2009		September 30, 2008		September 30, 2009		September 30, 2008
Basic income per common share computation:
Net income	$	5,452	$	17,208	$	9,976	$	57,007

Basic average common shares outstanding		86,473		88,459		86,462		90,159
Incremental shares from assumed exercise of stock options and restricted stock awards		2,726		1,856		1,699		1,579

Diluted average common shares outstanding		89,199		90,315		88,161		91,738

Basic net income per common share	$	0.06	$	0.19	$	0.12	$	0.63

Diluted net income per common share	$	0.06	$	0.19	$	0.11	$	0.62

Options to purchase approximately 1.1 million and 307,000 shares of common stock that were outstanding during the three months ended September 30, 2009 and 2008, 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 for the respective periods. For the nine months ended September 30, 2009 and 2008, options to purchase approximately 2.0 million and 335,000 shares of common stock, respectively, were not included in the computation of diluted earnings per share for the aforementioned reason.

3. Commitments and Contingencies

We are a party to a number of lawsuits and claims arising out of the ordinary conduct of our business. In the opinion of management, based on the advice of in-house and external legal counsel, the lawsuits and claims pending are not likely to have a material adverse effect on us, our financial position, results of operations, or cash flows, but litigation is subject to inherent uncertainties.

4. Segment Reporting

We have four reportable segments: North American Professional Services, International Professional Services, North American IT Services, and International IT Services. Our reportable segments offer different services, have different client bases, experience differing economic characteristics, and are managed separately as each requires different resources and marketing strategies. Our segment results include the results from acquisitions discussed in Footnote 3 to our Form 10-K for the year ended December 31, 2008. We evaluate segment performance based on revenues, gross profit, and income before provision for income taxes. We do not allocate income taxes, interest or unusual items to the segments. In addition, we do not report total assets by segment.

The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Footnote 1 herein, and all intersegment sales and transfers are eliminated. In addition, no one customer represents more than 5% of our overall revenue.

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

The following tables summarize performance, accounts receivable, net, and long-lived assets by segment, and revenue by geographic location:


	Three Months Ended						Nine Months Ended
(dollar amounts in thousands)	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Revenue
North American Professional Services	$	128,257		$	192,185		$	421,893		$	557,453
International Professional Services		107,616			142,033			309,347			443,383
North American IT Services		124,793			154,765			376,343			471,854
International IT Services		47,105			88,501			147,474			262,065

Total revenue	$	407,771		$	577,484		$	1,255,057		$	1,734,755

Gross profit
North American Professional Services	$	37,101		$	58,380		$	120,344		$	171,296
International Professional Services		23,826			41,597			71,293			135,046
North American IT Services		38,966			47,797			117,902			145,525
International IT Services		9,522			16,320			29,073			45,631

Total gross profit	$	109,415		$	164,094		$	338,612		$	497,498

Income before provision for income taxes
North American Professional Services	$	6,145		$	17,104		$	20,588		$	51,645
International Professional Services		2,811			5,213			6,629			23,839
North American IT Services		6,613			10,367			14,663			33,326
International IT Services		743			4,009			3,477			9,879

		16,312			36,693			45,357			118,689
Corporate expenses (1)		(7,865	)		(7,513	)		(24,032	)		(22,721	)
Other income (expense), net		1,573			(2,715	)		601			(4,259	)

Total income before provision for income taxes	$	10,020		$	26,465		$	21,926		$	91,709

Geographic Areas
Revenue
North American	$	253,050		$	346,950		$	798,236		$	1,029,307
International		154,721			230,534			456,821			705,448

Total revenue	$	407,771		$	577,484		$	1,255,057		$	1,734,755

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)


(dollar amounts in thousands)	September 30, 2009		December 31, 2008
Accounts receivable, net
North American Professional Services	$	75,438	$	91,099
International Professional Services		54,860		47,497
North American IT Services		97,685		104,110
International IT Services		31,237		39,387

Total accounts receivable, net	$	259,220	$	282,093

Long-lived assets
North American Professional Services	$	163,647	$	164,103
International Professional Services		57,232		53,463
North American IT Services		84,518		84,128
International IT Services		18,450		16,054

		323,847		317,748
Corporate		8,112		10,290

Total long-lived assets	$	331,959	$	328,038

(1)	Corporate expenses include unallocated expenses not directly related to the segments’ operations.

5. Comprehensive Income

Comprehensive income includes unrealized gains and losses on foreign currency translation adjustments. A summary of comprehensive income for the three and nine months ended September 30, 2009 and 2008 is as follows:


	Three Months Ended						Nine Months Ended
(dollar amounts in thousands)	September 30, 2009			September 30, 2008			September 30, 2009		September 30, 2008
Net income	$	5,452		$	17,208		$	9,976	$	57,007
Unrealized gain (loss) on foreign currency translation adjustments (1)		(688	)		(32,961	)		13,166		(29,167	)

Comprehensive income (loss)	$	4,764		$	(15,753	)	$	23,142	$	27,840

(1)	The currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

6. Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for 2009 are as follows:


	Professional Services						IT Services
(dollar amounts in thousands)	North American			International			North American			International			Total
Balance as of December 31, 2008	$	158,735		$	48,039		$	72,735		$	13,766		$	293,275
Acquisitions		739			—			65			1,540			2,344
Effect of foreign currency exchange rates		—			(950	)		(138	)		(830	)		(1,918	)

Balance as of March 31, 2009		159,474			47,089			72,662			14,476			293,701
Acquisitions		(33	)		—			203			293			463
Effect of foreign currency exchange rates		—			7,011			557			835			8,403

Balance as of June 30, 2009		159,441			54,100			73,422			15,604			302,567
Effect of foreign currency exchange rates		—			(1,164	)		439			701			(24	)

Balance as of September 30, 2009	$	159,441		$	52,936		$	73,861		$	16,305		$	302,543

At September 30, 2009 and December 31, 2008, there was $2.1 million and $4.1 million, respectively, of identifiable intangible assets on our Condensed Consolidated Balance Sheets relating to our acquisitions. Identifiable intangible assets relate primarily to the value of the acquired business’ customer relationships and trade names at the acquisition date.

7. Subsequent Event

On October 19, 2009, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Adecco Inc., a Delaware corporation (“Adecco”), and Jaguar Acquisition Corp., a Florida corporation and wholly owned subsidiary of Adecco (“Merger Sub”). Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Adecco (the “Merger”). Adecco is owned by Adecco SA, a Swiss corporation. The terms and conditions of the Merger Agreement are included in our Form 8-K that was filed on October 20, 2009.

Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger, each outstanding share of common stock of the Company, other than those held in the treasury of the Company and those owned by Adecco or Merger Sub, will be canceled and converted into the right to receive $13.80 per share in cash, without interest.

The Company is subject to a “no-shop” restriction on its ability to solicit third party proposals from, provide information to and engage in discussions with third parties regarding an Acquisition Proposal (as such term is defined in the Merger Agreement). The “no-shop” restriction is subject to a “fiduciary-out” provision that allows the Company to provide information and participate in discussions with respect to competing proposals that the Board of Directors determines in good faith, after consultation with its financial advisors and outside counsel, constitutes or is reasonably likely to result in a Superior Proposal (as such term is defined in the Merger Agreement).

The Company may terminate the Merger Agreement under certain circumstances, including in order to enter into a transaction that is a Superior Proposal if, prior to the approval of the Merger Agreement by the Company’s

MPS Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)—(Continued)

(dollar amounts in thousands except per share amounts)

shareholders, the Board of Directors determines in good faith that it has received a Superior Proposal, and otherwise complies with certain terms of the Merger Agreement. In connection with such termination, the Company must pay a break-up fee of $45 million to Adecco. The Company will also have to pay the break-up fee if the Company’s board withdraws its recommendation that the Company’s shareholders approve the Merger Agreement, if the Company approves, adopts or recommends a competing transaction, or under certain other, related circumstances.

The Merger Agreement contains customary representations, warranties and covenants, including covenants with respect to confidentiality, cooperation, reasonable best efforts to consummate the Merger, the conduct of the Company’s business in the ordinary course consistent with past practice and other restrictions on the operation of the Company’s business prior to the consummation of the Merger, indemnification of the Company’s directors and officers, public announcements and similar matters.

Consummation of the Merger is not subject to a financing condition, but is subject to customary conditions to closing, including approval of the Merger by the Company’s shareholders and expiration or termination of applicable waiting periods under the Hart Scott Rodino Antitrust Improvements Act of 1976 and antitrust clearance from the European Union.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to “we”, “our”, “us”, the “Company,” or “MPS” in this Quarterly Report on Form 10-Q refer to MPS Group, Inc. and its consolidated subsidiaries, unless the context requires otherwise.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including but not limited to the specific factors discussed in our Form 10-K for the year ended December 31, 2008 in Part I, Item 1A under ‘Risk Factors,’ in Part II, Item 5 under ‘Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities’, Part II, Item 7 under ‘Management’s Discussion and Analysis of Financial Condition and Results of Operation,’ and the factors discussed in this Form 10-Q in Part II, Item 1A under ‘Risk Factors.’ In some cases, you can identify forward-looking statements by terminology such as ‘may,’ ‘should,’ ‘could,’ ‘expects,’ ‘plans,’ ‘indicates,’ ‘projects,’ ‘anticipates,’ ‘believes,’ ‘estimates,’ ‘appears,’ ‘predicts,’ ‘potential,’ ‘continues,’ ‘can,’ ‘hopes,’ ‘perhaps,’ ‘would,’ ‘seek,’ or ‘become,’ or the negative of these terms or other comparable terminology. In addition, except for historical facts, all information provided in Part II, Item 7A of our Form 10-K for the year ended December 31, 2008, under ‘Quantitative and Qualitative Disclosures About Market Risk’ as referenced by Item 3 herein 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 MPS 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 our management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and MPS undertakes no obligation to publicly update any of them in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.

Critical Accounting Policies

We prepare our financial statements in conformity with GAAP. We believe the following are our most critical accounting policies in that they are the most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective or complex judgments.

Revenue Recognition

We recognize substantially all revenue at the time services are provided, and on a time and materials basis. In most cases, the consultant is our employee and all costs of employing the worker are our responsibility and are included in cost of revenue. Revenues generated when we permanently place an individual with a client are recorded on the date the individual begins employment with the client.

Allowance for Doubtful Accounts

We regularly monitor and assess our risk of not collecting amounts we are owed by our customers. This evaluation is based upon a variety of factors, including an analysis of amounts current and past due, along with relevant history and facts particular to the customer. Based upon the results of this analysis, we record an allowance for uncollectible accounts for this risk. Our allowance for doubtful accounts, as a percentage of gross accounts receivable was 6.8% and 6.3% as of December 31, 2008 and September 30, 2009, respectively. As of September 30, 2009, a five-percentage point deviation in our allowance for doubtful accounts would have resulted in an increase or decrease to the allowance of approximately $875,000. This analysis requires us to make significant estimates, and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts.

Income Taxes

The provision for income taxes is based on income before taxes as reported in the Consolidated Statements of Operations. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. An assessment is made as to whether or not a valuation allowance is required to offset deferred tax assets. This assessment includes anticipating future income.

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. Management evaluates all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The establishment and amount of a valuation allowance requires significant estimates and judgment and can materially affect our results of operations. Our effective tax rate may vary from period to period based, for example, on changes in estimated taxable income or loss, changes to the valuation allowance, changes to federal, state or foreign tax laws, completion of federal, state or foreign audits, deductibility of certain costs and expenses by jurisdiction, and as a result of acquisitions.

Impairment of Tangible and Intangible Assets

For acquisitions, we allocate the excess of the cost of the acquisition over the fair market value of the net tangible assets acquired first to identifiable intangible assets, if any, and then to goodwill. We perform goodwill impairment reviews at least annually, and between tests if an event occurs or circumstances change that would more likely than not reduce the fair-value of a reporting unit below it’s carrying amount. We evaluate goodwill impairment using a two-step process prescribed. In the first step, we determine the fair value of each reporting unit using a blend of the DCF and a guideline public company valuation methodology. For purposes of this assessment our reporting units are our segments or the operating units one level below our segments. We then compare the fair value to carrying value. If the fair value of the reporting unit exceeds the carrying value of the unit’s net assets, goodwill is not impaired and no further testing is performed.

comparable companies. The combination of the deterioration of macroeconomic conditions in the United States and the United Kingdom, which resulted in us updating our financial outlook for each of our reporting units, and the decline in our market capitalization and valuations of our market comparable companies were the primary factors contributing to our goodwill and identifiable intangible assets impairment charge. Our valuation testing considered both the continued economic and market valuation deteriorations that occurred during the fourth quarter. We expect that our revenue and profitability will continue to be significantly less than recent historical levels as long as the current negative economic conditions persist.

The following table summarizes this charge by reporting segment:


(dollar amounts in thousands)	Three Months Ended December 31, 2008
Goodwill and intangible impairment charge
North American Professional Services	$	49,928
International Professional Services		94,336
North American IT Services		205,114
International IT Services		29,891

Total goodwill and intangible impairment charge	$	379,269

The following table summarizes the carrying amount of goodwill for each of our reporting units as of December 31, 2008. The North American IT Services and the International IT Services segment each have one reporting unit:


(dollar amounts in thousands)	December 31, 2008
Accounting and legal reporting unit	$	59,234
Engineering reporting unit		55,533
Healthcare reporting unit		43,968

North American Professional Services		158,735

UK professional reporting unit		43,861
Other international professional reporting unit		4,178

International Professional Services		48,039

North American IT Services		72,735

International IT Services		13,766

Balance as of December 31, 2008	$	293,275

•

We prepared five year financial projections for purposes of establishing inputs for the fair value calculations. In those projections we:

•

Assumed the current economic downturn would mirror the most recent economic downturn, which produced several sequential quarters of sequential revenue declines.

•

Applied profitability assumptions consistent with each reporting unit’s historical trends at various revenue levels.

•

Sensitivity Analysis. In our engineering and healthcare reporting units, the fair value as determined in the first step of our goodwill impairment testing exceeded their respective carrying values. In order to evaluate the sensitivity of the fair value calculations on our goodwill impairment testing, we applied hypothetical decreases to these two units’ fair values. We determined that hypothetical decreases in fair value of at least 49% and 15% would be required before the engineering and healthcare reporting units, respectively, would have a carrying

value in excess of its fair value. As part of this goodwill impairment testing for the healthcare reporting unit, we assumed a cumulative annual cash flow growth rate of approximately 3% from 2010 through 2013. In order for the fair value of this reporting unit to decrease by at least 15%, we would need to have a negative cumulative annual cash flow growth rate of approximately 3% from 2010 through 2013.

We performed a sensitivity analysis of the assumptions utilized in our fourth quarter 2008 goodwill impairment test for our North American IT Services reporting unit, the Accounting and legal reporting unit of our North American Professional Services segment, and the UK reporting unit of our International Professional Services segment. The following table summarizes the additional impairment we would have had on each of these reporting units if, separately, the discount rate increased by 1%, and the revenue growth and profitability growth rates decreased by 1%:


	Approximate Increase to Impairment Charge
(amounts in thousands)	North American IT Services		Accounting and Legal		UK Professional Services
Discount rate increased by 1%	$	10,260	$	6,660	$	7,080
Revenue growth rate decreased by 1%	$	3,840	$	2,760	$	3,120
Profitability growth rate decreased by 1%	$	6,060	$	4,320	$	6,780

Consideration of Interim Testing. We regularly monitor business conditions for events that may indicate that the carrying value of each reporting unit exceeds its fair value. For the three and nine months ended September 30, 2009, we compared the assumptions utilized in our goodwill impairment test conducted during the fourth quarter of 2008 to the operating results of the three and nine months ended September 30, 2009, along with expected or projected future operating results. During the three and nine months ended September 30, 2009, we saw a substantial decrease in demand for our services due to the poor macroeconomic conditions in the United States and the United Kingdom, the countries in which we primarily do business. The majority of this decrease occurred in the first three months of 2009. This deterioration was more pronounced in our permanent placement business than in our staffing business. The forecasts used in our fourth quarter 2008 goodwill impairment test anticipated these declines. As such, our cash flow and profitability in the three and nine months ended September 30, 2009 were substantially consistent with the assumptions utilized in the 2008 goodwill impairment test. In addition, we considered the following factors, the presence of which could indicate potential impairment, and concluded that they did not exist in comparison to the assumptions utilized in our 2008 goodwill impairment test:

•

significant changes to our overall business strategy and allocation of resources within our reporting units;

•

significant adverse change in the business climate; and/or

•

significant decline for a sustained period in our market capitalization relative to our net book value.

As previously mentioned, the process of evaluating goodwill for impairment involves the determination of the fair values of our reporting units. Inherent in such fair value determinations are significant judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that our conclusion regarding whether remaining goodwill is impaired could change and result in an additional goodwill and intangible impairment charge, which could have a material effect on our consolidated financial position or results of

operations. However, it should be noted that since such impairment charges are non-cash charges and the financial covenants of our credit facility exclude this non-cash charge in calculating the availability of borrowings from our facility, we would not expect such an additional charge to have an adverse affect on our liquidity. Additional information on Goodwill can be found in Footnote 6 to the Condensed Consolidated Financial Statements.

We amortize the cost of identifiable intangible assets (either through acquisition or as part of our internally generated intellectual property) over their estimated useful lives, unless such lives are deemed indefinite. We review our long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In performing the review for recoverability, we estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment charge is recognized. Otherwise, an impairment charge is not recognized. Measurement of an impairment charge for long-lived assets and identifiable intangibles would be based on the fair value of the asset. Included in the aforementioned goodwill and intangible impairment charge was a $2.5 million impairment charge to identifiable intangible assets.

Share-Based Compensation

Under our employee and director share-based compensation plans, participants have received or may receive grants of stock options, stock appreciation rights, restricted stock, restricted stock units, and performance shares. For 2009, we have solely utilized restricted stock for our share-based awards. Historically, we have utilized both restricted stock and stock options.

Effective January 1, 2006, we adopted guidance issued by the FASB related to share based compensation, applying the modified prospective transition method to all past awards outstanding and unvested as of the effective date of January 1, 2006. Prior periods have not been restated. We recognize expense only for awards that are expected to vest, rather than recording forfeitures when they occur. Our forfeiture rates are based mainly upon historical share-based compensation cancellations. However, if the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods. A one-percentage point deviation in the estimated forfeiture rates would have resulted in an approximate $40,000 increase or decrease in compensation expense related to restricted stock for the quarter ended September 30, 2009.

New Accounting Pronouncements

Executive Summary

We are a leading provider of business services with over 210 offices in the United States, Canada, the United Kingdom, continental Europe, Australia, and Asia. We deliver specialty staffing, consulting and business solutions to virtually all industries in the following disciplines, through the following primary brands:


Discipline		Brand(s)
Information Technology (IT) Services		Modis^®
Accounting and Finance		Badenoch & Clark^®, Accounting Principals^®
Engineering		Entegee^®
Legal		Special Counsel^®
IT Solutions		Idea Integration^®
Healthcare		Soliant Health^®
Workforce Automation		Beeline^®

We present the financial results of the above brands under our four reporting segments: North American Professional Services, International Professional Services, North American IT Services and International IT Services. The accounting policies of these segments are consistent with those described herein as Critical Accounting Policies.

The following detailed analysis of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the 2008 Consolidated Financial Statements and related notes included in our Form 10-K for the year ended December 31, 2008.

Proposed Merger

On October 19, 2009, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Adecco Inc., a Delaware corporation (“Adecco”), and Jaguar Acquisition Corp., a Florida corporation and wholly owned subsidiary of Adecco (“Merger Sub”). Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Adecco (the “Proposed Merger”). Adecco is owned by Adecco SA, a Swiss corporation.

Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008—Consolidated

The following tables summarize our consolidated results of operations:


	Three Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	407,771		$	577,484		(29.4	%)
Gross profit	$	109,415		$	164,094		(33.3	%)
Gross margin		26.8	%		28.4	%
General and Administrative (included in Total operating expenses)	$	96,886		$	129,237		(25.0	%)
Unallocated corporate expenses (included in Total operating expenses)	$	7,865		$	7,513		4.7	%
Unallocated corporate expenses as a percentage of revenue		1.9	%		1.3	%
Total operating expenses	$	100,968		$	134,914		(25.2	%)
Income from operations	$	8,447		$	29,180		(71.1	%)
Income from operations as a percentage of revenue		2.1	%		5.1	%
Other income (expense), net	$	1,573		$	(2,715	)
Provision for income taxes	$	4,568		$	9,257		(50.7	%)
Effective tax rate		45.6	%		35.0	%
Net income	$	5,452		$	17,208		(68.3	%)


	Nine Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	1,255,057		$	1,734,755		(27.7	%)
Gross profit	$	338,612		$	497,498		(31.9	%)
Gross margin		27.0	%		28.7	%
General and administrative (included in Total operating expenses)	$	304,184		$	384,758		(20.9	%)
Unallocated corporate expenses (included in Total operating expenses)	$	24,032		$	22,721		5.8	%
Unallocated corporate expenses as a percentage of revenue		1.9	%		1.3	%
Total operating expenses	$	317,287		$	401,530		(21.0	%)
Income from operations	$	21,325		$	95,968		(77.8	%)
Income from operations as a percentage of revenue		1.7	%		5.5	%
Other income (expense), net	$	601		$	(4,259	)
Provision for income taxes	$	11,950		$	34,702		(65.6	%)
Effective tax rate		54.5	%		37.8	%
Net income	$	9,976		$	57,007		(82.5	%)

For the quarter ended September 30, 2009, our consolidated revenue decreased 29% and our consolidated operating income decreased 71%, compared to the third quarter of the prior year. The demand for our services is highly dependent upon the state of the economy in the markets in which we operate, particularly the United States and the United Kingdom, and upon the staffing needs of our clients. During the first nine months of 2009, we saw a substantial decrease in demand for our services due to the poor macroeconomic conditions in the United States and the United Kingdom, the countries in which we primarily do business. The majority of this decrease occurred in the first three months of 2009. This deterioration was more pronounced in our permanent placement business than in our staffing business. Permanent placement fees decreased 61% from the three months ended September 30, 2008 to the three months ended September 30, 2009, with staffing services revenue decreasing 28% during the same time period. We believe macroeconomic conditions may continue to erode demand for both our permanent placement and staffing services, further decreasing our revenues and profits.

Our results are impacted by fluctuations in foreign currency exchange rates. The British Pound, the main functional currency for our international segments, weakened substantially against the United States Dollar, primarily during the fourth quarter of 2008. Although the value of the British Pound versus the United States Dollar increased in the three months ended September 30, 2009, the average exchange rate for the third quarter of 2009 was still approximately 13% lower than the average exchange rate for the third quarter of 2008. Any future devaluation of the British Pound versus the United States Dollar would have a negative impact on our results.

While our compensation expenses decrease generally in proportion to our revenue as many of our employees are compensated based on revenue production, we have additionally taken a variety of steps to improve our cost efficiency. These steps have included slowing the hiring of new staff, reducing personnel through attrition and eliminating certain staff positions. For example, we have reduced our staff headcount by approximately 20% from the third quarter of 2008 to the third quarter of 2009. If we do not continue to undertake short term steps to improve our cost efficiency, further revenue declines could have a greater negative impact on our operating income.

Unallocated corporate expenses, included in consolidated operating expenses, pertain to certain functions such as executive management, accounting, administration, tax and treasury that are not directly attributable to our operating units.

Other income (expense), net, primarily includes changes in the cash surrender value of our company-owned life insurance, interest income related to our investments and cash on hand, net of interest expense related to notes issued in connection with acquisitions and fees and interest on our credit facility.

The increase in the effective tax rate for the three and nine months ended September 30, 2009 was due primarily to the increased impact of our permanent non-tax deductible items in relation to the decreased level of pre-tax income. If we continue to experience decreased levels of pre-tax income throughout the year, our effective tax rate will remain at an increased level.

Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008—By Business Segment

Professional Services Division

North American Professional Services Segment

The following tables summarize the results of operations of our North American Professional Services Segment:


	Three Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	128,257		$	192,185		(33.3	%)
Gross profit	$	37,101		$	58,380		(36.4	%)
Gross margin		28.9	%		30.4	%
General and administrative	$	29,953		$	39,851		(24.8	%)
General and administrative as a percentage of revenue		23.4	%		20.7	%
Income from operations	$	6,145		$	17,104		(64.1	%)
Income from operations as a percentage of revenue		4.8	%		8.9	%

	Nine Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	421,893		$	557,453		(24.3	%)
Gross profit	$	120,344		$	171,296		(29.7	%)
Gross margin		28.5	%		30.7	%
General and administrative	$	96,614		$	115,694		(16.5	%)
General and administrative as a percentage of revenue		22.9	%		20.8	%
Income from operations	$	20,588		$	51,645		(60.1	%)
Income from operations as a percentage of revenue		4.9	%		9.3	%

An acquisition completed in 2008 contributed $10.4 million in revenue in the nine months ended September 30, 2009. Excluding the impact of this acquisition, revenue for the three and nine months ended September 30, 2009 decreased in all of the North American Professional Services businesses due to weaker staffing services demand.

Revenue contribution from the North American Professional Services businesses for the three and nine months ended September 30, 2009 and 2008 were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2009		2008		2009		2008
Entegee	38.4	%	42.9	%	41.1	%	43.5	%
Special Counsel	28.3		25.8		25.3		26.4
Accounting Principals	14.3		13.0		12.9		13.6
Soliant Health	19.0		18.3		20.7		16.5

The aforementioned acquisition contributed $2.9 million in gross profit in the nine months ended September 30, 2009. The decrease in gross margin in the three and nine months ended September 30, 2009 was due primarily to a decreased level of permanent placement fees, most notably in the Accounting Principals and Special Counsel business units, and to a lesser extent a decrease in the staffing gross margins in this segment. For the three and nine months ended September 30, 2009, respectively, approximately 130 basis points and 170 basis points of the gross margin decrease was due to the decreased level of permanent placement fees. Permanent placement fees decreased to 3.7% of the segment’s revenue for the three months ended September 30, 2009, from 5.5% in the year earlier period, and decreased to 3.7% of the segment’s revenue for the nine months ended September 30, 2009, from 5.9% in the year earlier period.

The decrease in General and administrative (“G&A”) expenses for the three and nine months ended September 30, 2009 was due primarily to a combination of decreases in compensation expense associated with decreases in revenue and decreases in compensation expense resulting from reduced personnel.

International Professional Services Segment

The following tables summarize the results of operations of our International Professional Services Segment:


	Three Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	107,616		$	142,033		(24.2	%)
Gross profit	$	23,826		$	41,597		(42.7	%)
Gross margin		22.1	%		29.3	%
General and administrative	$	20,187		$	34,870		(42.1	%)
General and administrative as a percentage of revenue		18.8	%		24.6	%
Income from operations	$	2,811		$	5,213		(46.1	%)
Income from operations as a percentage of revenue		2.6	%		3.7	%

	Nine Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	309,347		$	443,383		(30.2	%)
Gross profit	$	71,293		$	135,046		(47.2	%)
Gross margin		23.0	%		30.5	%
General and administrative	$	61,614		$	106,802		(42.3	%)
General and administrative as a percentage of revenue		19.9	%		24.1	%
Income from operations	$	6,629		$	23,839		(72.2	%)
Income from operations as a percentage of revenue		2.1	%		5.4	%

Changes in foreign currency exchange rates decreased revenue by $15.7 million and $80.6 million, from the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2009, respectively. Apart from the effect of changes in foreign currency exchange rates, the decrease in revenue for the three and nine months ended September 30, 2009 was due to the decreased demand for our services.

Changes in foreign currency exchange rates decreased gross profit by $3.3 million and $17.9 million from the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2009, respectively. The decrease in gross margin for the three and nine months ended September 30, 2009 was due primarily to decreased permanent placement fees, and to a lesser extent a decrease in gross margins from the segment’s staffing services, resulting predominantly from the mix of staffing services, as more of our revenue was contributed by public sector clients which carry a lower gross margin than our other clients. For the three

and nine months ended September 30, 2009, respectively, approximately 450 basis points and 490 basis points of the gross margin decrease was due to the decreased level of permanent placement fees. Permanent placement fees decreased to 4.9% of the segment’s revenue for the three months ended September 30, 2009, from 10.4% in the year earlier period, and decreased to 5.5% of the segment’s revenue for the nine months ended September 30, 2009, from 11.6% in the year earlier period.

The decrease in G&A expenses for the three and nine months ended September 30, 2009 was due primarily to a combination of decreases in compensation expense related to reduced personnel and decreases in the segment’s revenue, and a lesser extent to changes in foreign currency exchange rates.

IT Services Division

North American IT Services Segment

The following tables summarize the results of operations of our North American IT Services Segment:


	Three Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	124,793		$	154,765		(19.4	%)
Gross profit	$	38,966		$	47,797		(18.5	%)
Gross margin		31.2	%		30.9	%
General and administrative	$	30,465		$	35,138		(13.3	%)
General and administrative as a percentage of revenue		24.4	%		22.7	%
Income from operations	$	6,613		$	10,367		(36.2	%)
Income from operations as a percentage of revenue		5.3	%		6.7	%

	Nine Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	376,343		$	471,854		(20.2	%)
Gross profit	$	117,902		$	145,525		(19.0	%)
Gross margin		31.3	%		30.8	%
General and administrative	$	97,332		$	105,433		(7.7	%)
General and administrative as a percentage of revenue		25.9	%		22.3	%
Income from operations	$	14,663		$	33,326		(56.0	%)
Income from operations as a percentage of revenue		3.9	%		7.1	%

Changes in foreign currency exchange rates decreased revenue by $492,000 and $3.2 million, from the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2009, respectively. Two acquisitions completed in 2008 contributed $2.0 million in revenue in the nine months ended September 30, 2009. Apart from the effect of changes in foreign currency exchange rates, the decrease in revenue for the three and nine months ended September 30, 2009 was due to the decreased demand for our services.

Revenue within the North American IT Services segment is generated primarily from Modis, as it generated 79.4% and 78.7% of the segment’s revenue for the three months ended September 30, 2009 and 2008, respectively. Idea Integration and Beeline are responsible for the remainder of this segment’s revenue.

Changes in foreign currency exchange rates decreased gross profit by $103,000 and $654,000, from the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2009, respectively. The aforementioned acquisitions completed in 2008 contributed $1.1 million in gross profit in the nine months ended September 30, 2009. The increase in gross margin for the three and nine months ended

September 30, 2009 was due primarily to increased gross margins from the Beeline and Idea Integration business units. Permanent placement fees decreased to .8% of the segment’s revenue for the three months ended September 30, 2009, from 1.6% in the year earlier period, and decreased to 1.0% of the segment’s revenue for the nine months ended September 30, 2009, from 1.7% in the year earlier period.

The decrease in the segment’s G&A expenses for the three and nine months ended September 30, 2009 was due primarily to decreases in compensation expense related to the decreases in the segment’s revenue and reduced personnel.

International IT Services Segment

The following tables summarize the results of operations of our International IT Services Segment:


	Three Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	47,105		$	88,501		(46.8	%)
Gross profit	$	9,522		$	16,320		(41.7	%)
Gross margin		20.2	%		18.4	%
General and administrative	$	8,416		$	11,865		(29.1	%)
General and administrative as a percentage of revenue		17.9	%		13.4	%
Income from operations	$	743		$	4,009		(81.5	%)
Income from operations as a percentage of revenue		1.6	%		4.5	%

	Nine Months Ended
(amounts in thousands)	September 30, 2009			September 30, 2008			Increase/ (Decrease)
Revenue	$	147,474		$	262,065		(43.7	%)
Gross profit	$	29,073		$	45,631		(36.3	%)
Gross margin		19.7	%		17.4	%
General and administrative	$	24,592		$	34,107		(27.9	%)
General and administrative as a percentage of revenue		16.7	%		13.0	%
Income from operations	$	3,477		$	9,879		(64.8	%)
Income from operations as a percentage of revenue		2.4	%		3.8	%

Changes in foreign currency exchange rates decreased revenue by $6.6 million and $36.7 million, from the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2009, respectively. An acquisition completed in 2008 contributed $4.8 million in revenue in the nine months ended September 30, 2009. Apart from the effect of changes in foreign currency exchange rates, the decrease in revenue for the three and nine months ended September 30, 2009 was due to the decreased demand for our services.

Changes in foreign currency exchange rates decreased gross profit by $1.3 million and $7.0 million, from the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2009, respectively. The aforementioned acquisition contributed $1.1 million in gross profit in the nine months ended September 30, 2009. The increase in gross margin for the three and nine months ended September 30, 2009 was due to increased gross margins on the segment’s staffing services resulting from a mix shift in client revenue. Permanent placement fees decreased to 1.8% of the segment’s revenue for the three months ended September 30, 2009, from 3.4% in the year earlier period, and decreased to 2.3% of the segment’s revenue for the nine months ended September 30, 2009, from 3.0% in the year earlier period.

The decrease in G&A expenses in the three months ended September 30, 2009 was due primarily to decreases in compensation expense related to reduced personnel and the decreases in the segment’s revenue, and

to a lesser extent changes in foreign currency exchange rates. The decrease in G&A expenses in the nine months ended September 30, 2009 was due primarily to changes in foreign currency exchange rates, and to a lesser extent decreases in compensation expense related to the decreases in the segment’s revenue and reduced personnel.

Liquidity and Capital Resources

Overview

We intend to generate stockholder value through strategic investments in our existing businesses, acquisitions and stock repurchases, as appropriate. Changes to our liquidity have historically been due primarily to the net effect of: (i) funds generated by operations; and (ii) funds used for acquisitions, repurchases of common stock and capital expenditures. While there can be no assurances in this regard, we believe that funds provided by operations, our current cash balances, and borrowings available to us under our existing credit facility will be sufficient to meet our presently anticipated needs for working capital, capital expenditures, repurchases of common stock and acquisitions for at least the next twelve months.

In the nine months ended September 30, 2009, the $78.3 million of cash provided from operating activities and the effect of changes in foreign currency exchange rates exceeded the $16.0 million used in investing and financing activities. Our net increase in cash in the nine months ended September 30, 2009 was due primarily to increased cash collections on trade receivables. In the nine months ended September 30, 2008, cash of $126.7 million used in investing and financing activities and the effect of changes in foreign currency exchange rates exceeded the $84.9 million of cash provided from operating activities. Our net decrease in cash in the nine months ended September 30, 2008 was due primarily to repurchases of our common stock and acquisitions. The table below highlights working capital and cash and cash equivalents as of September 30, 2009 and December 31, 2008, respectively:


(dollar amounts in millions)	September 30, 2009		December 31, 2008
Working capital	$	265.4	$	223.7
Cash and cash equivalents	$	152.8	$	90.6

Operating cash flows

For the nine months ended September 30, 2009 and 2008, we generated $75.5 million and $84.9 million of cash flow from operations, respectively. The decrease in cash flow from operations was due primarily to decreased earnings, partially offset by increased cash collections on trade receivables. During a period of decreasing revenue, such as we experienced in the nine months ended September 30, 2009, the cost and cash outflows associated with our billable employees decline immediately with the decline in weekly payroll associated with our billable employees, while we continue to collect receivables from earlier periods.

Investing cash flows

For the nine months ended September 30, 2009, we used $5.3 million of cash for investing activities, including $1.6 million for consideration on acquisitions completed in earlier periods, and $3.7 million for capital expenditures, net of disposals.

For the nine months ended September 30, 2008, we used $62.1 million of cash for investing activities, including $51.1 million for acquisitions, net of cash acquired, and $13.5 million for capital expenditures, net of disposals.

We anticipate that capital expenditures for furniture and equipment, including improvements to our management information and operating systems, for the remainder of 2009 will be approximately $3.0 million.

Financing cash flows

For the nine months ended September 30, 2009, we used $10.7 million of cash for financing activities, consisting primarily of $7.3 million for the repayment of borrowings on our revolving credit facility, $2.0 million for the settlement of share based awards and $1.6 million used for the repayment of acquisition related notes.

For the nine months ended September 30, 2008, we used $61.9 million of cash for financing activities, consisting primarily of $64.4 million for the repurchase of common stock.

Our Board of Directors has authorized certain repurchases of our common stock. From the third quarter of 2002 through December 31, 2008, we have repurchased a total of 27.4 million shares at a cost of $293.2 million under this plan. For the three and nine months ended September 30, 2009, we did not repurchase any shares under this authorization. We have approximately $24.3 million remaining under this authorization as of October 19, 2009. However, we are prohibited from repurchasing our common stock under the terms and conditions set forth in the Merger Agreement.

Indebtedness of the Company

We have a $250 million revolving credit facility which is syndicated to a group of leading financial institutions and contains certain financial and non-financial covenants relating to our operations. Certain of the financial covenants include the maintenance of financial ratios, of which EBITDA is a main component. Because our EBITDA levels have decreased in recent quarters, the amount of available borrowings under this facility has also decreased. We had approximately $175 million of borrowing capacity available under this facility as of September 30, 2009. We expect the availability of borrowings under this facility to decrease in the fourth quarter, as EBITDA is expected to remain at these decreased levels. Repayment of the credit facility is guaranteed by substantially all of our subsidiaries. The facility expires in November 2011. As of October 19, 2009, we have no borrowings outstanding under this facility, other than $9.3 million of standby letters of credit for certain operational matters.

Seasonality

Our quarterly operating results are affected by the number of billing days in the quarter and the seasonality of our customers’ businesses. Demand for our services has historically been lower during the calendar year-end, as a result of holidays, through February of the following year, as our customers approve annual budgets. Extreme weather conditions may also adversely affect demand in the early part of the year as certain of our clients’ facilities are located in geographic areas subject to closure or reduced hours due to inclement weather. In addition, we experience an increase in our cost of sales and a corresponding decrease in gross profit and gross margin in the first fiscal quarter of each year, as a result of certain state and federal employment tax resets.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A to our Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on March 2, 2009. There were no material changes to our market risk for the three and nine months ended September 30, 2009.

Item 4.

Controls and Procedures

We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the supervision and participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

There has been no change in our internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)) that occurred during the last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Part II. Other Information

Item 1A.

Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those disclosed in our 2008 Form 10-K, except for the following.

The Market Price of our Common Stock Has Been, and May Continue to Be, Materially Affected by the Proposed Merger

The current market price of our common stock may reflect, among other things, the anticipated commencement and completion of the Proposed Merger. The current market price is higher than the price before the Proposed Merger was announced on October 20, 2009. To the extent that the current market price of our common stock reflects market assumptions that the Proposed Merger will be completed, it is possible that the price of our common stock could decline if these market assumptions are not realized. However, there can be no assurance in this regard or as to any other forward-looking statements or matters relating to our stock price or otherwise, which are subject to numerous uncertainties and matters beyond the control of the Company, including the closing conditions set forth in the Merger Agreement.

Uncertainties Associated with the Proposed Merger May Cause a Loss of Employees and May Otherwise Materially Adversely Affect our Business Operations.

Our future results of operations will depend in part upon our ability to retain existing highly skilled and qualified employees and to attract new employees. The failure to continue to attract and retain such individuals could materially adversely affect our ability to compete. In addition, current and prospective employees may experience uncertainty about their roles if the Proposed Merger is commenced and completed. This uncertainty may materially adversely affect our ability to attract and retain key management, sales, and other personnel. An inability to retain key personnel could have an adverse effect on our ability to operate the business as a stand-alone enterprise in the event the Proposed Merger is not consummated.

We may also be subject to additional risks, whether or not the Proposed Merger is commenced or completed, including:

•

costs relating to the Proposed Merger, such as legal, financial, and accounting fees, much of which must be paid regardless of whether the Proposed Merger is completed;

•

uncertainties relating to the Proposed Merger may adversely affect our relationships with our employees and clients; and

•

the attention of our management may be directed to Proposed Merger related considerations and may be diverted from the day to day operations of our business.

In connection with the Proposed Merger, some of our clients may delay or defer decisions relating to their ongoing and future relationships with us, which could negatively affect our revenues, earnings and cash flows and adversely affect our prospects and which could be detrimental to our stockholders if the Proposed Merger is not completed.

The Merger Agreement contains restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities.

The Merger Agreement contains restrictive covenants that limit our ability to take certain significant actions during the period prior to the completion of the Proposed Merger. These restrictions may materially adversely

affect our ability to react to changes in market conditions and take advantage of business opportunities, which could have a material and adverse effect on the prospects of our business, which could be detrimental to our stockholders in the event the Proposed Merger is not completed.

In certain circumstances, the Merger Agreement requires us to pay Adecco a break-up fee of $45 million. Should the Merger Agreement be terminated in circumstances under which the break-up fee is payable, the payment could have material and adverse consequences to our financial condition and operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities


Period (1)	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs
July 1, 2009 to July 31, 2009	—		$	—	—	$	24,311,305
August 1, 2009 to August 31, 2009	836	(2)		—	—		24,311,305
September 1, 2009 to September 30, 2009	2,460	(2)		—	—		24,311,305

Total	3,296		$	—	—	$	24,311,305

(1)	Based on trade date, not settlement date.

(2)	Shares of restricted stock delivered by directors and employees to us, upon vesting, to satisfy tax withholding requirements.

Item 6.

Exhibits

A. Exhibits Required by Item 601 of Regulation S-K:

See Index of Exhibits.


Exhibit No.		Description

2.1		Agreement and Plan of Merger, incorporated by reference to the Company’s Form 8-K filed October 20, 2009.

31.1*		Certification of Timothy D. Payne pursuant to Rule 13a-14(a).

31.2*		Certification of Robert P. Crouch pursuant to Rule 13a-14(a).

32.1*		Certification of Timothy D. Payne pursuant to 18 U.S.C. Section 1350.

32.2*		Certification of Robert P. Crouch pursuant to 18 U.S.C. Section 1350.

*	Copy of Exhibit is filed herewith.

SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there onto duly authorized.


MPS GROUP, INC.

By:		/s/ Robert P. Crouch
		Robert P. Crouch Senior Vice President, Treasurer, and Chief Financial Officer (Principal Financial Officer and duly authorized signatory)

Date: October 28, 2009

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MPS GROUP INC 10-Q