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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File No. 001-31299

MEDICAL STAFFING NETWORK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

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    ý           No    o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes    ý           No    o

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 27, 2003 (the last business day of the registrant's most recently completed second fiscal quarter) was $218,905,992.50. As of March 2, 2004, there were 30,225,859 shares of common stock, $0.01 par value, outstanding.

Documents Incorporated by Reference:

Part III of this Form 10-K incorporates certain information by reference from the registrant's Definitive Proxy Statement for the 2004 Annual Meeting of Stockholders, which will be filed no later than 120 days after December 28, 2003.

TABLE OF CONTENTS

        All references to "we, "us," or "our," in this Annual Report on Form 10-K means Medical Staffing Network Holdings, Inc.

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PART I

Item 1. Business

General Development of Business

        We are a leading healthcare staffing company and the largest provider of per diem nurse staffing services (staffing assignments of less than 13 weeks in duration) in the United States as measured by revenues. Our per diem staffing assignments place our professionals, predominately nurses, at hospitals and other healthcare facilities to solve our clients' temporary staffing needs. We believe we are also a leading provider of specialized radiology and diagnostic imaging specialists and clinical laboratory technicians, or "allied health" professionals, as measured by revenues. We serve our clients through what we believe to be the largest temporary medical staffing network in the United States, which was comprised as of December 28, 2003 of over 140 per diem branches that provide nurse staffing on a per diem basis in 43 states. Our extensive client base includes over 7,000 healthcare facilities including leading for-profit and not-for-profit hospitals, leading teaching hospitals and regional healthcare providers. We do not receive a material portion of our revenues from Medicare or Medicaid reimbursements or similar state reimbursement programs.

        Our business has grown significantly since our founding in 1998. We call branches that we have opened since our inception "de novo" branches, as opposed to branches acquired from third parties. Approximately 75% of all existing branches as of December 28, 2003 were de novo branches.

        In the second quarter of 2003, we discontinued our physician staffing services. As such, the results of operations from these services are shown separately, as a total amount, in our consolidated statements of income for all years presented.

        In March 2003, we purchased substantially all of the assets and assumed certain of the liabilities of Saber-Salisbury Group (SSG), which operates a temporary healthcare staffing company. The transaction was consummated pursuant to the terms of an asset purchase agreement, dated March 22, 2003.

        On June 16, 2003, we completed our plan to restructure our operations by closing 29 branches. The restructuring was necessary to adjust the infrastructure we had put in place to support multiple growth initiatives and reflects the current contraction in demand for our services. As a result, in the second quarter of 2003, we recorded a pre-tax charge, of approximately $0.8 million, relating to employee severance costs, branch closing costs and lease termination costs.

        For the year ended December 28, 2003, we had revenues of $513.0 million and income from operations of $17.5 million. During this period, we earned 72% of our revenues from our per diem nurse staffing assignments, 17% from our specialized radiology and diagnostic imaging technicians and clinical laboratory technicians, or our "allied health" assignments, and 11% from our travel nurse staffing assignments.

        We believe the flexibility of our service offerings provides substantial value to our clients and professionals. We provide our clients with significant assistance in managing their profitability by giving them a high degree of control in managing their labor costs without sacrificing clinical expertise. In addition, working on a per diem basis allows our healthcare professionals substantial flexibility in balancing their careers with their lifestyle objectives.

        We were formed as a Delaware corporation in 1998. Our predecessor corporation, Southeast Staffing Partners, Inc., a Florida corporation, was founded in June 1997.

Industry Overview

        The temporary nurse staffing market has two major components: per diem nursing and travel nursing. Per diem nurse staffing is the largest sector of the temporary medical staffing industry, providing healthcare professionals for assignments of a single shift to 13 weeks, and is used to meet

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local labor shortages and openings due to holidays, vacations, illness and staff turnover, as well as daily and seasonal fluctuations in hospital volume. The per diem market operates with many local operators and is highly fragmented. The per diem staffing model requires a local presence in every market served because these short-term staffing needs are typically filled on a local basis, and are dependant on the relationship that exists between local operators, local professionals and the healthcare facility.

        In the travel nurse market, healthcare facilities hire travel nurses on a contract, fixed-term basis to meet seasonal fluctuations in hospital census levels for time periods ranging from several weeks to one year, but are typically 13 weeks long. Travel nurse companies coordinate travel and housing arrangements for their professionals who typically relocate to the area in which they are placed. The travel staffing model utilizes a centralized approach to serving its clients.

        Allied staffing consists of highly specialized radiology and diagnostic imaging specialties, clinical laboratory specialties, pharmacists and respiratory therapists. These professionals are staffed on both a per diem and travel basis.

        Service revenues and gross profit margins have been under pressure as demand for temporary nurses is currently going through a period of contraction. Due to the current difficult economic times, the unemployment rate is near a nine-year high, which we believe has resulted in nurses in many households becoming a primary breadwinner, and which is causing such nurses to seek more traditional full-time employment. Additionally, hospitals are experiencing lower than projected census levels and are placing greater reliance on existing full-time staff, resulting in increased overtime and nurse-patient loads.

        We cannot predict when conditions will reverse, but we are confident in the long-term growth of the industry. In a January 13, 2000 report, the U.S. Census Bureau, Population Projections Bureau, projected that the number of Americans over 65 years of age is expected to grow from 34.5 million in 2000 to 53.7 million in 2020. In a July 2002 report, the U.S. Department of Health and Human Services stated that the national supply of full-time equivalent registered nurses was approximately 1.9 million while demand was approximately 2.0 million. This gap between supply and demand, for nurses, is expected to grow from 0.1 million in 2000 to 0.8 million by 2020. In conjunction with the two aforementioned factors, as the economy rebounds, the prospects for the healthcare staffing industry should improve as hospitals experience higher census levels and increasing shortages of healthcare workers.

Description of the Business

        We provide hospitals and other healthcare facilities with a wide range of staffing services, including per diem nurses, allied professionals and travel nurses. While we have a national presence, we operate on a local basis through an integrated network, which consisted of over 140 per diem branches in 43 states as of December 28, 2003, so that we may develop significant relationships with our clients and healthcare professionals and provide the highest level of service. We have provided services to over 7,000 healthcare facilities that have paid us directly for the services we provide.

Services Provided

        Per Diem Nursing.    The per diem nurse staffing portion of our business provides nurses for assignments with durations ranging from a single shift to a 13-week assignment and represented approximately 72% of our fiscal year 2003 revenues. We offer our clients all major classifications of nurses, including registered nurses and licensed practical nurses, across all specialties such as pediatric, geriatric, intensive care unit and cardiovascular. We provide per diem personnel to a variety of healthcare facilities including acute care hospitals, nursing homes, clinics and surgical and ambulatory care centers. We serve both for-profit and not-for-profit organizations that range in scope from one facility to national chains with over 100 facilities.

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        Allied Staffing.    Our allied staffing division, which represented approximately 17% of our 2003 revenues, specializes in providing allied professionals to hospitals, nursing homes, clinics and surgical and ambulatory care centers, both on a per diem and a travel basis. We believe our allied healthcare business to be among the largest in the country as measured by revenues. Allied specialties that we staff include diagnostic imaging and radiology technicians, clinical laboratory technicians, pharmacists and respiratory therapists.

        Travel Nursing.    Comprising approximately 11% of our 2003 revenues, our travel nursing operations provide nurses and surgical technicians to hospitals across the country for assignments lasting over thirteen weeks.

        Physicians.    During the second quarter of 2003, we discontinued our physician staffing operation, and as such, the results of operations from these services are shown separately, as a total amount, in our consolidated statements of income for all years presented.

National Branch Network

        We currently operate an integrated network, which consisted of over 140 per diem branches located in 43 states as of December 28, 2003. Our branches are organized into several geographic regions, each of which is coordinated by a regional director. These branches serve as our direct contact with our healthcare professionals and clients and are active in recruiting, scheduling and sales and marketing. Each branch is responsible for covering a specific local geographic region. Our typical branch is staffed with four or five professionals who are responsible for the day-to-day operations of the business. These professionals include a branch manager, two to three staffing coordinators, and a payroll administrator.

        The cost structure of our typical branch is primarily fixed, consisting of limited personnel, office space rent, information systems infrastructure and supplies. We have been able to develop a highly efficient branch management model that is easily scaleable to meet increasing demand.

Recruitment and Retention

        Our ability to recruit and retain a pool of talented, motivated and highly credentialed healthcare professionals is critical to our success. Our active pool of professionals has grown 52% compounded annually from 7,000 in 1999 to 37,000 in 2003, with a significant number of new recruits generated via word of mouth. Over 80% of our senior operations management has nursing or other clinical backgrounds. We believe this depth of clinical experience helps us understand the needs of clinical personnel and has enhanced our reputation in the industry as an advocate for nurses and other healthcare professionals, improving our ability to recruit such personnel. In addition, we offer competitive benefits packages that differentiate us from the smaller, local per diem staffing companies with which we compete, and which are typically unable to offer the package of services and benefits that we offer. We believe our competitive advantages in recruiting skilled personnel include the ability to offer the following opportunities to our personnel:

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Flexible Staffing Assignments. We provide our professionals with the flexibility to tailor their staffing schedules to accommodate lifestyle choices. There are many reasons why qualified nurses choose to work on a per diem basis, but most are motivated by the ability to balance their profession with their other responsibilities and interests. Our professionals are able to choose not only when they work but also where they work. Our scheduling systems are designed to place our professionals in facilities and shifts where they have had a productive and positive experience with our clients.



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Competitive Benefits Package. We believe that we were the first per diem healthcare staffing company to offer a comprehensive benefits program for qualified per diem staff. Our program

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includes a matching 401(k) plan and access to group discounted benefits such as health, dental, life, disability and general liability insurances for healthcare professionals who work for us for a specified minimum number of hours per month for more than one month.

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Choice of Pay Frequency—Including Daily. Our ability to offer pay as frequently as daily provides our professionals with another key element of flexibility. Rather than waiting for the end of a traditional weekly or biweekly pay period, our professionals can be paid immediately after completing their shifts. This allows our branch staff to maintain an active dialogue with our professionals regarding future assignments. This consistent interaction fosters unique relationships that distinguish us from our competition.



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Leading Continuing Educational Programs. We also offer continuing education courses as a means to improve our pool of nurses as well as to maintain proper compliance. We have a unique relationship with Florida Atlantic University's College of Nursing. The College of Nursing faculty develops continuing education courses that we offer online through our website. Our nurses can obtain continuing education units (CEUs) that many states require to educate our nurses regarding changing technology and clinical practices. Our courses are fully accredited by the American Nurses Credentialing Center of Excellence and the Florida Board of Nursing.

        We have several proven recruitment channels that consistently augment our pool of healthcare professionals at low marginal cost. In 2003, we spent approximately 1% of our revenues on recruitment activities. Our recruiting activities include print advertisements in local newspapers and in trade journals, mailings, Internet listings and solicitations at trade conventions.

Quality Management

        We have developed a substantial clinical quality improvement program to uphold our high standards in recruiting healthcare professionals. Our two-step internal process ensures that all of our temporary professionals have the proper credentials, skills and experience for their assignments. We have found that our adherence to high quality management standards is an integral component of satisfying both clients and professionals with our placements. Our two-step process for quality management includes the following:

        Pre-employment Qualifications.    All of our per diem healthcare professionals undergo a rigorous screening process which includes requirements such as a minimum of one year of related work experience and the successful completion of written tests specific to the area of specialty. Each applicant is then interviewed in person by a local branch manager. This sets us apart from our competitors who often do not conduct face-to-face interviews. We also check prior work references, confirm the validity of the applicant's professional license(s) and screen the applicant for any criminal activity and drug abuse. All of these standards comply with or exceed those required by OSHA (Occupational Safety & Health Administration) and JCAHO (Joint Commission on Accreditation of Healthcare Organizations).

        Placement and Ongoing Monitoring.    Once we have hired a healthcare professional, we enter all of the professional's data into our database, which tracks any "renewal dates" with respect to licenses and continuing education requirements. Our database also matches our clients' needs with our available pool of professionals. We strive to place our professionals in facilities where they have previously worked in order to enhance the continuity of our services to our clients. If this is not possible, we provide our professionals with pre-staffing orientation to the facility. By taking these steps, we ensure that the healthcare professional is comfortable with the facility's physical layout, permanent staff and clinical protocols. We also continually monitor the performance of our professionals through evaluations and client feedback, among other things. In addition, our database allows remote access (via the Internet) by our clients, providing them the ability to view the credentials of the professionals being staffed at their facilities.

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Sales and Marketing

        We have developed a three-pronged approach to our sales and marketing activities in order to address the different levels of decision makers at our clients' facilities:

        Our first level of business development and relationship management is with the purchasing manager, administrator(s) or chief nursing officer at a group of facilities we service. Commonly-owned hospitals, nursing home chains and healthcare group alliances often purchase temporary staffing services for multiple facilities under a single contract, and a single person typically manages the selection process. A senior member of our staff, the regional director and, in certain circumstances, the Executive Vice President of Nurse Per Diem Operations, handle the negotiation of contractual terms and pricing with such groups of facilities.

        Our second level of business development and relationship management is with the director of nursing or a nurse/allied department manager who reviews our services from a clinical competency and quality hiring standards perspective. Our regional director and local branch manager establish, build and maintain relationships at this level.

        Our third level of relationship management is with the facility staffing coordinators and the after-hours and weekend supervisors who are the actual users of the services. Our branch managers and local staffing coordinators regularly contact these buyers to coordinate the daily staffing and scheduling of personnel.

Information Systems

        Our information system for our per diem staffing operation, for which we hold an exclusive twenty-five year license and which we refer to as MSN HealthWorks, is customized to our recruiting, regulatory credentialing, scheduling and billing needs. Not only is the database used as a management tool, but it is also used by our staffing coordinators in each branch to respond quickly to client questions and requests. MSN HealthWorks' applications and its supporting infrastructure house and organize all of our client and employee information. Electronic files are maintained on our client facilities, detailing historical and prospective requests for staffing. These files also contain facility-specific procedures and protocols so that we can ensure our healthcare professionals integrate quickly. Each employee's electronic file contains the employee's credentials, test scores, employment record and availability. This data enables our branch-office staff to automatically match open requests with qualified candidates.

        MSN HealthWorks also monitors billing records using time cards to generate invoices for our clients and paycheck information for our employees. MSN HealthWorks operates as a single entry system, meaning that the initial shift confirmation entry enables our payroll to be generated at the branch level on a daily basis and the invoicing to be generated at our corporate office. This system enables us not only to monitor costs and compliance, but also to ensure that we respond to client requests as quickly as possible. We typically fill a client staffing request in less than 15 minutes.

        We have adapted our MSN HealthWorks platform to provide our clients with functionality for budgeting and access to nurse and employee credentials via an Internet connection.

Competition

        The temporary medical staffing industry is highly competitive. We compete with both national firms and local and regional firms. We compete with these firms to attract nurses and other healthcare professionals as temporary healthcare professionals and to attract hospital and healthcare facility clients. We compete for temporary healthcare professionals on the basis of the quantity, diversity and quality of assignments available, compensation packages, and the benefits that we provide to temporary healthcare professionals while they are on assignment. We compete for hospital and healthcare facility clients on the basis of the quality of our temporary healthcare professionals, the timely availability of our professionals with the requisite skills, quality and scope, price and geographic reach of our services.

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        The per diem market includes many local operators and is highly fragmented. The per diem staffing business requires a local presence in every market served since an important relationship exists between the local branch and the healthcare facility. We believe, however, that larger, nationally established firms enjoy distinct competitive advantages over smaller, local and regional competitors in the healthcare staffing industry. Larger and more established firms have a critical mass of available nursing candidates, substantial word-of-mouth referral networks and established brand names, enabling them to attract a consistent flow of new applicants. Larger firms can also more easily provide payroll services, which are cash flow intensive, to healthcare providers. As a result, sizable and established firms such as ours have had a significant advantage over small participants.

        Some of our large competitors in the temporary medical staffing industry include AMN Healthcare Services, Inc., Cross Country Healthcare, Inc. and InteliStaf Healthcare, Inc.

Liability Insurance

        We currently maintain a professional liability insurance policy, which we believe is sufficient for the risks associated with our business. Medical malpractice claims against us relating to our healthcare professionals are defended by our insurance carrier. We have indemnity agreements with approximately 80% of our clients which state that we will defend, indemnify and hold harmless those clients against any act of omission or willful or reckless acts, including negligence and misconduct. A majority of such agreements are reciprocal.

Trademarks and Service Marks

        The service mark "Medical Staffing Network, Inc." (Name and Logo), which was registered with the U.S. Patent and Trademark Office as of May 6, 2003, and the trade name "Medical Staffing Network" are each owned and licensed from Medical Staffing Network Assets, LLC, our indirectly wholly-owned subsidiary.

Government Regulation

        The healthcare industry is subject to extensive and complex federal and state laws and regulations relating to professional licensure, conduct of operations, payment for services and payment for referrals. The extensive and complex laws that apply to our hospital and healthcare facility clients, including laws related to Medicare, Medicaid and other federal and state healthcare programs, could indirectly affect the demand or the prices paid for our services. For example, our hospital and healthcare facility clients could suffer civil and/or criminal penalties and/or be excluded from participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses.

        Our business, however, is not directly impacted by or subject to the laws and regulations that generally govern the healthcare industry, because we provide services on a contract basis and are paid directly by our hospital and other healthcare facility clients.

        Some states require state licensure for businesses that employ and/or assign healthcare personnel to provide healthcare services on-site at hospitals and other healthcare facilities. We hold a Nursing Pool License in those jurisdictions in which we do business that require such licenses, which are Connecticut, Delaware, the District of Columbia, Florida, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New Jersey, Nevada, North Carolina, Rhode Island, Tennessee, Texas and Washington.

        Most of our temporary healthcare professionals are required to be individually licensed or certified under applicable state laws. We take reasonable steps to ensure that our professionals possess all necessary licenses and certifications in all material respects. These steps include: employee must present

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original version of state issued license; we validate employee's identity through government issued photo identification; we call or verify online employee's license with the applicable state board prior to assignment; and, a copy of the license is maintained in the employee's personnel file and expiration dates are monitored through our MSN HealthWorks platform.

Seasonality

        Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal preferences for destinations by our temporary healthcare professionals, the number of healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. Many of our hospital and healthcare facility clients are located in areas, particularly Florida, that experience seasonal fluctuations in population, during the winter and summer months. These facilities adjust their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs.

        Historically, the number of temporary healthcare professionals on assignment has increased from December through March followed by declines or minimal growth from April through November. This pattern may or may not continue in the future. As a result of all of these factors, results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year.

Employees

        As of December 28, 2003, we employed 1,338 people in the following areas: 1,170 in branch staff, 148 in corporate office staff and 20 in regional and de novo operations staff. In addition, during 2003 we employed over 37,000 temporary healthcare professionals. We do not have any organized labor unions. We believe we have excellent relationships with our employees.

        Generally, our allied health professionals, per diem nurses and travel nurses are our employees. However, our certified registered nurse anesthetists and anesthesiologists are, and before discontinuation of our physician staffing business our physicians were, independent contractors. We have not entered into any employment agreements with any of our healthcare professionals.

Available Information

        We file annual, quarterly and current reports and other information with the Securities and Exchange Commission. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge in the "Investor Relations" section of our website at www.msnhealth.com. These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission.

        In addition, our website, www.msnhealth.com, will include, free of charge, items related to corporate governance matters, including our Corporate Governance Guidelines, charters of various committees of our Board of Directors and our Code of Business Conduct and Ethics applicable to our employees, officers and directors. A printed copy of our Corporate Governance Guidelines and our Code of Business Conduct and Ethics is available without charge by sending a written request to: Secretary, Medical Staffing Network Holdings, Inc., 901 Yamato Road, Suite 110, Boca Raton, Florida 33431.

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Risk Factors

        There are a number of factors, including those specified below, which may adversely affect our business, financial results or stock price. Additional risks that we do not know about or that we currently view as immaterial may also impair our business or adversely impact our financial results or stock price.

Risks Related to Our Business and Industry

        If we are unable to attract qualified nurses and allied healthcare professionals for our healthcare staffing business, our business could be negatively impacted.

        We rely significantly on our ability to attract and retain nurses and allied healthcare professionals who possess the skills, experience and licenses necessary to meet the requirements of our hospital and healthcare facility clients. We compete for healthcare staffing personnel with other temporary healthcare staffing companies and with hospitals and healthcare facilities. We must continually evaluate and expand our temporary healthcare professional network to keep pace with our hospital and healthcare facility clients' needs. Currently, there is a shortage of qualified nurses in most areas of the United States, competition for nursing personnel is increasing, and salaries and benefits have risen. We may be unable to continue to increase the number of temporary healthcare professionals that we recruit, decreasing the potential for growth of our business. Our ability to attract and retain temporary healthcare professionals depends on several factors, including our ability to provide temporary healthcare professionals with assignments that they view as attractive and to provide them with competitive benefits and wages. We cannot assure you that we will be successful in any of these areas. The cost of attracting temporary healthcare professionals and providing them with attractive benefits packages may be higher than we anticipate and, as a result, if we are unable to pass these costs on to our hospital and healthcare facility clients, our profitability could decline. Moreover, if we are unable to attract and retain temporary healthcare professionals, the quality of our services to our hospital and healthcare facility clients may decline and, as a result, we could lose clients.

        Contraction of demand for our temporary nurses may continue if unemployment rates remain high or increase and hospital census levels remain lower than projected.

        Demand for temporary nurses is currently experiencing a period of contraction. Due to the current difficult economic times, the unemployment rate is near a nine-year high, which we believe has resulted in nurses in many households becoming a primary breadwinner, and which is causing such nurses to seek more traditional full-time employment. Additionally, hospitals are experiencing lower than projected census levels and are placing greater reliance on existing full-time staff, resulting in increased overtime and nurse-patient loads. Consequently, our service revenues and gross profit margins have been under pressure. In June 2003, we completed a plan to restructure our operations by closing 29 branches. The restructuring was in response to the current contraction in demand for our services and was necessary to adjust the infrastructure we had put in place to support multiple growth initiatives. If these industry trends continue, our revenues and gross profit margins may decline.

        We operate in a highly competitive market and our success depends on our ability to remain competitive in obtaining and retaining hospital and healthcare facility clients and temporary healthcare professionals.

        The temporary medical staffing business is highly competitive. We compete in national, regional and local markets with full-service staffing companies and with specialized temporary staffing agencies. Some of our competitors in the temporary nurse staffing sector include AMN Healthcare Services, Inc., Cross Country Healthcare, Inc. and InteliStaf Healthcare, Inc. Some of these companies may have greater marketing and financial resources than we do. Competition for hospital and healthcare facility clients and temporary healthcare professionals may increase in the future and, as a result, we may not be able to remain competitive. To the extent competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenues or hospital and healthcare

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facility clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline. In addition, the development of alternative recruitment channels could lead our hospital and healthcare facility clients to bypass our services, which would also cause our revenues and margins to decline.

        Our business depends upon our continued ability to secure and fill new orders from our hospital and healthcare facility clients, because we do not have long-term agreements or exclusive contracts with them.

        We do not have long-term agreements or exclusive guaranteed order contracts with our hospital and healthcare facility clients. The success of our business depends upon our ability to continually secure new orders from hospitals and other healthcare facilities and to fill those orders with our temporary healthcare professionals. Our hospital and healthcare facility clients are free to place orders with our competitors and may choose to use temporary healthcare professionals that our competitors offer them. Therefore, we must maintain positive relationships with our hospital and healthcare facility clients. If we fail to maintain positive relationships with our hospital and healthcare facility clients, we may be unable to generate new temporary healthcare professional orders and our business may be adversely affected.

        Reacting to concerns over agency utilization in prior years, hospitals and other healthcare facilities have devised strategies to reduce agency expenditure and limit overall agency utilization. If current pressures to control agency usage continue and escalate, we will have fewer business opportunities, which could harm our business.

        An important part of our long-term strategy is the expansion of market share of our business through the opening and development of de novo branches and the expansion of the service areas of our existing branches. The success of this expansion depends on our ability to continue to identify and retain local management and to secure good locations.

        Since our founding in 1998, we have opened many de novo branches. This expansion activity contributed substantially to our operating results and has been an important part of our business strategy. Our ability to open de novo branches depends on a number of factors, including identifying, attracting and retaining local management and securing good locations on acceptable terms. In 2003, we opened five de novo branches as compared to 40 for 2002. If our ability to open de novo branches or the ability to expand the service areas of our existing branches is impaired, our revenue growth may be adversely affected. In addition, if our existing de novo branches do not develop as quickly as we anticipate, or if we fail to integrate de novo branches effectively into our national network, our results of operations and cash flows may be adversely affected.

        Fluctuations in patient occupancy at our hospital and healthcare facility clients may adversely affect the demand for our services and therefore the profitability of our business.

        Demand for our temporary healthcare staffing services is significantly affected by the general level of patient occupancy at our hospital and healthcare facility clients. When occupancy increases, hospitals and other healthcare facilities often add temporary employees before full-time employees are hired. As occupancy decreases, hospitals and other healthcare facilities typically reduce their use of temporary employees before undertaking layoffs of their regular employees. In addition, we may experience more competitive pricing pressure during periods of occupancy downturn. Occupancy at our hospital and healthcare facility clients also fluctuates due to the seasonality of some elective procedures. We are unable to predict the level of patient occupancy at any particular time and its effect on our revenues and earnings.

        Healthcare reform could negatively impact our business opportunities, revenues and margins.

        The U.S. government has undertaken efforts to control increasing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and drug companies. In

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the recent past, the U.S. Congress has considered several comprehensive healthcare reform proposals. The proposals were generally intended to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures. While the U.S. Congress did not adopt any comprehensive reform proposals, members of Congress may raise similar proposals in the future. If any of these proposals are approved, hospitals and other healthcare facilities may react by spending less on healthcare staffing, including nurses. If this were to occur, we would have fewer business opportunities, which could seriously harm our business.

        State governments have also attempted to control increasing healthcare costs. For example, the state of Massachusetts has implemented a regulation that limits the hourly rate payable to temporary nursing agencies for registered nurses, licensed practical nurses and certified nurses' aides. The state of Minnesota has also implemented a statute that limits the amount that nursing agencies may charge nursing homes. Other states have also proposed legislation that would limit the amounts that temporary staffing companies may charge. Any such current or proposed laws could seriously harm our business, revenues and margins.

        Furthermore, third party payors, such as health maintenance organizations, increasingly challenge the prices charged for medical care. Failure by hospitals and other healthcare facilities to obtain full reimbursement from those third party payors could reduce the demand or the price paid for our staffing services.

        There is a growing trend to restrict mandatory healthcare worker overtime requirements by employers and to establish nurse-patient ratios. The state of California has already enacted such legislation and several other states have similar legislation pending. This legislation could ultimately have a potential positive or negative impact on our business.

        We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce our revenues and profitability.

        The healthcare industry is subject to extensive and complex federal and state laws and regulations related to professional licensure, conduct of operations, payment for services and payment for referrals. If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or cease and desist orders.

        The extensive and complex laws that apply to our hospital and healthcare facility clients, including laws related to Medicare, Medicaid and other federal and state healthcare programs, could indirectly affect the demand or the prices paid for our services. For example, our hospital and healthcare facility clients could suffer civil and/or criminal penalties and/or be excluded from participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses. In addition, our hospital and healthcare facility clients could receive reduced reimbursements, or be excluded from coverage, because of a change in the rates or conditions set by federal or state governments. In turn, violations of or changes to these laws and regulations that adversely affect our hospital and healthcare facility clients could also adversely affect the prices that these clients are willing or able to pay for our services.

We are dependent on the proper functioning of our information systems.

        Our company is dependent on the proper functioning of our information systems in operating our business. Critical information systems used in daily operations identify and match staffing resources and client assignments and regulatory credentialing scheduling and perform billing and accounts receivable functions. Our information systems are vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. If our information systems fail or are otherwise unavailable, these functions would have to be accomplished manually, which could impact

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our ability to identify business opportunities quickly, maintain billing and clinical records reliably, pay our staff in a timely fashion and bill for services efficiently.

        Competition for acquisition opportunities may restrict our future growth by limiting our ability to make acquisitions at reasonable valuations.

        Since our founding in 1998, we have completed 26 acquisitions. Our business strategy includes increasing our market share and presence in the temporary healthcare staffing industry through strategic acquisitions of companies that complement or enhance our business. We have historically faced competition for acquisitions. In the future, this could limit our ability to grow by acquisitions or could raise the prices of acquisitions and make them less accretive to us. In addition, restrictive covenants in our credit facility, including a covenant that requires us to obtain the approval of our lenders for any acquisition with a purchase price over $3 million, may limit our ability to complete desirable acquisitions. If we are unable to secure necessary financing under our credit facility or otherwise, we may be unable to complete desirable acquisitions.

        We may face difficulties integrating our acquisitions into our operations and our acquisitions may be unsuccessful, involve significant cash expenditures or expose us to unforeseen liabilities.

        We continually evaluate opportunities to acquire healthcare staffing companies that complement or enhance our business and frequently have preliminary acquisition discussions with some of these companies.

        These acquisitions involve numerous risks, including:

•

potential loss of key employees or clients of acquired companies;



•

difficulties integrating acquired personnel and distinct cultures into our business;



•

difficulties integrating acquired companies into our operating, financial planning and financial reporting systems;



•

diversion of management attention from existing operations; and



•

assumption of liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for their failure to comply with healthcare regulations.

        These acquisitions may also involve significant cash expenditures, debt incurrence and integration expenses that could seriously harm our financial condition and results of operations. Any acquisition may ultimately have a negative impact on our business and financial condition.

Our ability to borrow under our new credit facility may be limited.

        On December 22, 2003, we entered into a new credit facility, consisting of a three-year $65 million asset-based revolving credit facility and a two-year $17 million term note. Our ability to borrow under the new credit facility is based upon, and thereby limited by, the amount of our accounts receivable. Any material deterioration in our service revenues could reduce our borrowing base, which could cause us to lose our ability to borrow additional amounts under the new credit facility. In such a circumstance, the borrowing availability under the new credit facility may not be sufficient for our capital needs.

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        Significant legal actions could subject us to substantial uninsured liabilities.

        In recent years, healthcare providers have become subject to an increasing number of legal actions alleging malpractice, product liability or related legal theories. Many of these actions involve large claims and significant defense costs. In addition, we may be subject to claims related to torts or crimes committed by our employees or temporary healthcare professionals. In some instances, we are required to indemnify our clients against some or all of these risks. A failure of any of our employees or healthcare professionals to observe our policies and guidelines intended to reduce these risks, relevant client policies and guidelines or applicable federal, state or local laws, rules and regulations could result in negative publicity, payment of fines or other damages. Our professional malpractice liability insurance and general liability insurance coverage may not cover all claims against us or continue to be available to us at a reasonable cost. If we are unable to maintain adequate insurance coverage or if our insurers deny coverage we may be exposed to substantial liabilities.

        We may be legally liable for damages resulting from our hospital and healthcare facility clients' mistreatment of our healthcare personnel.

        Because we are in the business of placing our temporary healthcare professionals in the workplaces of other companies, we are subject to possible claims by our temporary healthcare professionals alleging discrimination, sexual harassment, negligence and other similar activities by our hospital and healthcare facility clients. The cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract and retain qualified healthcare professionals in the future.

        If we become subject to material liabilities under our self-insured programs, our financial results may be adversely affected.

        We provide workers compensation coverage through a program that is partially self-insured. In addition, we provide medical coverage to our employees through a partially self-insured preferred provider organization. If we become subject to substantial uninsured workers compensation or medical coverage liabilities, our financial results may be adversely affected.

        Our operations may deteriorate if we are unable to continue to attract, develop and retain our sales personnel.

        Our success depends upon the performance of our sales personnel, especially regional directors, branch managers and staffing coordinators. The number of individuals who meet our qualifications for these positions is limited and we may experience difficulty in attracting qualified candidates. In addition, we commit substantial resources to the training, development and support of these individuals. Competition for qualified sales personnel in the line of business in which we operate is strong and there is a risk that we may not be able to retain our sales personnel after we have expended the time and expense to recruit and train them.

        The loss of key senior management personnel could adversely affect our ability to remain competitive.

        We believe that the success of our business strategy and our ability to operate profitably depends on the continued employment of our senior management team, consisting of Robert J. Adamson, Kevin S. Little, Greg Guckes, Patricia G. Donohoe, Lynne Stacy, Judy Johnson, Jan Casford and Pat Layton. If any members of our senior management team become unable or unwilling to continue in their present positions, our business and financial results could be materially adversely affected.

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        We have a substantial amount of goodwill on our balance sheet. Our level of goodwill may have the effect of decreasing our earnings or increasing our losses.

        As of December 28, 2003, we had $125 million of goodwill, net on our balance sheet, which represents the excess of the total purchase price of our acquisitions over the fair value of the net assets acquired. At December 28, 2003, goodwill represented approximately 55% of our total assets.

        Historically, we amortized goodwill on a straight-line basis over the estimated period of future benefit of 20 years. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 142 requires that, subsequent to January 1, 2002, goodwill not be amortized but rather that it be reviewed annually for impairment. In the event impairment is identified, a charge to earnings would be recorded. We have adopted the provisions of SFAS No. 141 and SFAS No. 142 as of December 31, 2001. Although it does not affect our cash flow, amortization of goodwill or an impairment charge to earnings has the effect of decreasing our earnings or increasing our losses, as the case may be. If we are required to amortize a substantial amount of goodwill or take a charge to earnings, our stock price could be adversely affected.

        Our costs of providing housing for nurses and other healthcare personnel in our travel business may be higher than we anticipate and, as a result, our margins could decline.

        We currently have approximately 200 apartments on lease throughout the United States. If the costs of renting apartments and furniture for our nurses and other healthcare personnel increase more than we anticipate and we are unable to pass such increases on to our clients, our margins may decline. To the extent the length of a nurse's or other professional's housing lease exceeds the term of the nurse's or other professional's staffing contract, we bear the risk that we will be obligated to pay rent for housing we do not use. To limit the costs of unutilized housing, we try to secure leases with term lengths that match the term lengths of our staffing contracts, which typically last 13 weeks. In some housing markets we have had, and believe we will continue to have, difficulty identifying short-term leases. If we cannot identify a sufficient number of appropriate short-term leases in regional markets, or if, for any reason, we are unable to efficiently utilize the apartments we do lease, we may be required to pay rent for unutilized housing or, to avoid such risk, we may forego otherwise profitable opportunities.

        Demand for medical staffing services is significantly affected by the general level of economic activity and unemployment in the United States.

        When economic activity increases, temporary employees are often added before full-time employees are hired. However, as economic activity slows, many companies, including our hospital and healthcare facility clients, reduce their use of temporary employees before laying off full-time employees. In addition, we may experience more competitive pricing pressure during periods of economic downturn. Therefore, any significant economic downturn could have a material adverse impact on our condition and results of operations.

        Our executive officers, directors and significant stockholders will be able to influence matters requiring stockholder approval and could discourage the purchase of our outstanding shares at a premium.

        Our executive officers and directors (including stockholders with which directors are affiliated) control approximately 62% of our outstanding common stock. Warburg Pincus Private Equity Fund VIII, L.P., a Delaware limited partnership (Warburg Pincus), owns approximately 46% of our common stock. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a

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premium for their common stock as part of a sale or merger of our company and may negatively affect the market price of our common stock. These transactions might include proxy contests, tender offers, mergers or other purchases of common stock that could give our stockholders the opportunity to realize a premium over the then-prevailing market price for shares of our common stock.

        Warburg Pincus has the right under our stockholders agreement to designate two persons to our Board of Directors. As a result of this share ownership and minority representation on our Board of Directors, our current stockholders, in particular Warburg Pincus, will be able to influence all affairs and actions of our company, including matters requiring stockholder approval such as the election of directors and approval of significant corporate transactions. The interests of our executive officers, directors and principal stockholders may differ from the interests of the other stockholders.

        Warburg Pincus and certain significant stockholders have demand registration rights to cause us to file, at any time and at our expense, a registration statement under the Securities Act covering resales of their shares. These shares represent approximately 46% of our outstanding common stock, or approximately 14.0 million shares. These shares may also be sold under Rule 144 of the Securities Act, depending on their holding period and subject to significant restrictions in the case of shares held by persons deemed to be our affiliates.

        If provisions in our corporate documents and Delaware law delay or prevent a change in control of our company, we may be unable to consummate a transaction that our stockholders consider favorable.

        Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our Board of Directors to issue up to 15 million shares of "blank check" preferred stock. Without stockholder approval, the Board of Directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire us. Applicable Delaware law may also discourage, delay or prevent someone from acquiring or merging with us.

        Our stock price may be volatile and your investment in our common stock could suffer a decline in value.

        With the current uncertainty about healthcare policy, reimbursement and coverage in the United States, there has been significant volatility in the market price and trading volume of securities of healthcare and other companies, which is unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our common stock.

        Some specific factors that may have a significant effect on our common stock market price include:

•

actual or anticipated fluctuations in our operating results;



•

actual or anticipated changes in our growth rates or our competitors' growth rates;



•

actual or anticipated changes in healthcare policy in the United States and internationally;



•

conditions in the financial markets in general or changes in general economic conditions;



•

our inability to raise additional capital;



•

conditions of other medical staffing companies or the medical staffing industry generally; and



•

changes in stock market analyst recommendations regarding our common stock, other comparable companies or the medical staffing industry generally.

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Item 2. Properties

        Our U.S. corporate headquarters is located in Boca Raton, Florida and has an aggregate of 50,000 square feet. We operate on a national basis with a presence in 43 states and over 140 locations as of December 28, 2003. The facilities at our headquarters and at each of our locations are leased. The lease to our headquarters expires in 2013. We believe that our properties are adequate for our current needs. In addition, we believe that adequate space can be obtained to meet our foreseeable business needs. With the exception of our corporate headquarters, we have no material operating leases.

Item 3. Legal Proceedings

        On February 20, 2004, Joseph and Patricia Marrari filed a class action lawsuit against Medical Staffing Network in the United States District Court of the Southern District of Florida, on behalf of themselves and purchasers of our common stock pursuant to or traceable to our initial public offering in April 2002. The lawsuit also named as defendants certain of our directors and executive officers. The complaint alleges that certain disclosures in the Registration Statement/Prospectus filed in connection with our initial public offering on April 17, 2002 were materially false and misleading in violation of Sections 11 and 15 of the Securities Act of 1933. The complaint seeks compensatory damages as well as costs and attorney fees.

        On March 3, 2004, another class action complaint was filed by Jerome Gould against Medical Staffing Network and certain of our directors and executive officers in the United States District Court for the Southern District of Florida, individually and on behalf of a class of Medical Staffing Network's stockholders who purchased stock during the period from April 18, 2002 through June 16, 2003. The complaint alleges that certain of our public disclosures during the class period were materially false and misleading in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The complaint also seeks compensatory damages, costs and attorney fees.

        We believe that these two class action lawsuits are without merit and intend to vigorously defend this litigation.

        From time to time, we are subject to lawsuits and claims that arise out of our operations in the normal course of business. We are plaintiffs or defendants in various litigation matters in the ordinary course of business, some of which involve claims for damages that are substantial in amount. We believe that the disposition of claims currently pending will not have a material adverse effect on our financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

        There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 28, 2003.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        The following table sets forth, for the fiscal quarters indicated, the high and low sales prices per share of our common stock, as reported by the New York Stock Exchange (NYSE).

        Our common stock has traded on the NYSE under the symbol "MRN" since our initial public offering on April 17, 2002. Prior to that time, there was no public trading market for our common stock.

        As of December 28, 2003, there were approximately 24 holders of record of our common stock, which numbers do not reflect stockholders who beneficially own common stock held in nominee or street name.

        We have never declared or paid cash dividends on our common stock. We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. Except as otherwise restricted by our current senior credit facility, any payment of cash dividends on our common stock will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors. Our current senior credit facility prohibits us and our subsidiaries from declaring or paying any dividends or any other distributions without the consent of lenders holding more than 50% of the loans under the facility (or if a single lender holds more then 50% of the loans under the facility, the consent of that lender and at least one other lender is required), except that we and our subsidiaries may pay dividends or make other distributions to each other, except further that our operating subsidiary may pay dividends or make other distributions to us to be used to pay our operating expenses in an amount up to $500,000 in the aggregate in any fiscal year.

        We did not repurchase any shares of our common stock during the fourth quarter of the fiscal year ended December 28, 2003.

Item 6. Selected Financial Data

        The selected Consolidated Statement of Income data for the years ended December 28, 2003, December 29, 2002 and December 30, 2001 and the selected Consolidated Balance Sheet data as of December 28, 2003 and December 29, 2002 are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected Consolidated Statement of Income data for the years ended December 31, 2000 and 1999 and the selected Consolidated Balance Sheet data as of December 30, 2001, December 31, 2000 and 1999 are derived from our audited consolidated financial statements not included in this annual report. Certain reclassifications have been made to prior year amounts to conform to the 2003 presentation.

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        In the following tables, we provide you with select consolidated financial data and other operating information of Medical Staffing Network which should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and accompanying notes included in this annual report.

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(1)

EITF 01-14 requires that reimbursements received for out-of-pocket expenses incurred generally be characterized as revenue in the statement of income. We adopted EITF 01-14 in the quarter ended June 30, 2002. We historically recorded reimbursements for out-of-pocket expenses as net amounts in cost of services rendered in the statement of income. In accordance with the transition guidance included in EITF 01-14, our adoption required the reclassification of financial statements for prior periods presented for comparative purposes. There is no change in gross profit as both service revenues and cost of services increased by approximately $4.6 million for the fiscal year ended 2001. There was no impact on service revenue or cost of services rendered in fiscal years ended 2000 and 1999.

(2)

Includes provision for doubtful accounts.

(3)

Pursuant to provisions of SFAS No. 142, in 2002 we ceased amortizing goodwill and certain intangible assets with an indefinite useful life period.

(4)

Reflects charges related to the recapitalization in October 2001.

(5)

Pursuant to the provisions of SFAS No. 145, which we adopted December 29, 2002, we were required to reclassify our extraordinary loss on early extinguishment of debt of $2.7 million, net of tax benefit of $1.7 million, related to the October 2001 recapitalization transaction into income from continuing operations.

(6)

Reflects 8% dividends accrued on the Series I Convertible Preferred Stock issued in connection with the recapitalization. This preferred stock was converted into common stock upon completion of our initial public offering.

(7)

Includes post acquisition results of Saber-Salisbury Group acquired in March 2003, which has been accounted for in accordance with the purchase method of accounting.

(8)

Includes the post acquisition results of STAT Medical Services, Inc. acquired in July 2002, Medical Staffing Services, Inc. acquired in July 2002, Pro Med, Inc. acquired in July 2002, Pharmstaff, Ltd. acquired in August 2002, B&G Nurse Registry acquired in October 2002, Clinical Resource Services, Inc. and Health Search International, Inc. acquired in November 2002, and Travel Nurse International acquired in December 2002, all of which were accounted for in accordance with the purchase method of accounting.

(9)

Includes the post acquisition results of Excel Staffing Services, Inc. acquired in June 2001, which has been accounted for in accordance with the purchase method of accounting.

(10)

Includes the post acquisition results of Medix Resources, Inc. acquired in February 2000, Best Nursing acquired in March 2000, American Anesthesia Services, Inc. acquired in October 2000, NursingCare USA acquired in October 2000, and Health Med, Inc. acquired in November 2000, all of which were accounted for in accordance with the purchase method of accounting.

(11)

Includes the post acquisition results of Pediatric Services of America, Inc. acquired in June 1999, "Z" Healthcare Enterprises, Inc. acquired in July 1999, MTS Staffing Resource, Inc. acquired in November 1999, and Medical Office Services, Inc. acquired in November 1999, all of which were accounted for in accordance with the purchase method of accounting.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

        Management's discussion and analysis of financial condition and results of operations is provided as a supplement to our consolidated financial statements and accompanying notes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The discussion and analysis is organized as follows:

•

Overview. This section provides a general description of our business, trends in our industry, as well as significant transactions that have occurred that we believe are important in understanding our financial condition and results of operations.

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•

Recent accounting pronouncements. This section provides an analysis of relevant recent accounting pronouncements issued by the Financial Accounting Standards Board (FASB) and the effect of those pronouncements.



•

Results of operations. This section provides an analysis of our results of operations for all three years presented in the accompanying consolidated statements of income.



•

Liquidity and capital resources. This section provides an analysis of our cash flows, capital resources, off-balance sheet arrangements and our outstanding debt and commitments as of December 28, 2003.



•

Critical accounting policies. This section discusses those accounting policies that are both considered important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including the critical accounting policies, are summarized in Note 1 to the accompanying consolidated financial statements.



•

Caution concerning forward-looking statements. This section discusses how certain forward-looking statements made by us throughout this discussion and analysis are based on management's present expectations about future events and are inherently susceptible to uncertainty and changes in circumstance.

Overview

Business Description

        We are a leading healthcare staffing company and the largest provider of per diem nurse staffing services in the United States as measured by revenues. More than two-thirds of our clients are acute care hospitals, clinics and surgical and ambulatory care centers. We serve both for-profit and not-for-profit organizations that range in scope from one facility to national chains with over 100 facilities. Our clients pay us directly. We do not receive a material portion of our revenues from Medicare or Medicaid reimbursements or similar state reimbursement programs. All of our revenues are derived from providing healthcare staffing services. Approximately 72% of our 2003 revenues were derived from per diem nurse staffing, while allied healthcare professional staffing represented 17% of our 2003 revenues, and travel nurse staffing (assignments lasting more than four weeks) represented 11% of our 2003 revenues. In the second quarter of 2003, we discontinued our physician staffing and have reported the results separately as discontinued operations, net of taxes. Our 7% growth in revenue for 2003 was primarily the result of growth from acquisitions of 15%, partially offset by an organic decline of 8%.

Industry Trends

        Service revenues and gross profit margins have been under pressure as demand for temporary nurses is currently going through a period of contraction. Due to the current difficult economic times, the unemployment rate is near a nine-year high, which we believe has resulted in nurses in many households becoming a primary breadwinner, and which is causing such nurses to seek more traditional full-time employment. Additionally, hospitals are experiencing lower than projected census levels and are placing greater reliance on existing full-time staff, resulting in increased overtime and nurse-patient loads.

        We cannot predict when conditions will reverse, but we are confident in the long-term growth of the industry. In a January 13, 2000 report, the U.S. Census Bureau, Population Projections Bureau, projected that the number of Americans over 65 years of age is expected to grow from 34.5 million in 2000 to 53.7 million in 2020. In a July 2002 report, the U.S. Department of Health and Human Services stated that the national supply of full-time equivalent registered nurses was approximately 1.9 million while demand was approximately 2.0 million. This gap between supply and demand, for nurses, is expected to grow from 0.1 million in 2000 to 0.8 million by 2020. In conjunction with the two aforementioned factors, as the economy rebounds, the prospects for the healthcare staffing industry should improve as hospitals experience higher census levels and increasing shortages of healthcare workers.

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Acquisitions

        In 2003, we purchased substantially all of the assets of one healthcare staffing company for an aggregate purchase price of $10.8 million. In 2002, we purchased substantially all of the assets of seven healthcare staffing companies for an aggregate purchase price of $56.4 million. In 2001, we purchased substantially all of the assets of one healthcare staffing company for an aggregate purchase price of $9.8 million. All such acquisitions were accounted for as purchases and, accordingly, the results of these acquired businesses are included in our consolidated financial statements from the acquisition dates or the dates when we assumed substantial control.

Discontinued Operations

        We discontinued our physician staffing services in the second quarter of 2003. Pursuant to the provisions of the FASB Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), results of operations are to be classified as discontinued when the disposal of the "component of an entity" has occurred or it has met the "held for sale" criteria. As such, the total is shown separately in the line item, income (loss) from discontinued operations, net of taxes, in our consolidated statements of income. For the year ended December 28, 2003, we had a loss from discontinued operations, net of taxes, of approximately $0.5 million. For the years ended December 29, 2002 and December 30, 2001, we had income from discontinued operations, net of taxes, of approximately $0.1 million and $0.3 million, respectively. Net assets of the discontinued operations were less than approximately $10,000 at December 28, 2003 and consisted solely of current assets. Net assets of the discontinued operations were approximately $0.6 million at December 29, 2002 and were comprised of $0.7 million of current assets and $0.1 million of current liabilities. No reclassification of current or prior year balance sheet presentation was made to reflect the net assets of the discontinued operations, due to immateriality.

Restructuring Charge

        On June 16, 2003, we completed our plan to restructure our operations by closing 29 branches. The restructuring was necessary to adjust the infrastructure we had put in place to support multiple growth initiatives and was in response to the current contraction in demand for our services. As a result, in the second quarter of 2003, we recorded a pre-tax charge, of approximately $0.8 million, relating to employee severance costs, branch closing costs and lease termination costs. The restructuring charge is included in selling, general and administrative expenses in our consolidated statement of income for the year ended December 28, 2003. No amounts have been or are expected to be incurred or paid in subsequent quarters relating to this restructuring.

Loss on Early Extinguishment of Debt

        In December 2003, we entered into a new credit facility. The new $82.0 million facility is comprised of a three-year $65.0 million revolving credit facility and a two-year $17.0 million term note. Approximately $60.0 million of proceeds from the new credit facility were used to refinance all of our existing debt and to pay financing related fees. The remaining borrowing availability will be used for working capital and general business purposes. As a result of the prepayment of the facility, we recorded a charge of approximately $3.6 million to write off debt issuance costs associated with the extinguished facility. The charge appears in the line item loss on early extinguishment of debt on the consolidated statement of income for the year ended December 28, 2003.

        In October 2001, we recapitalized our business. In connection with the recapitalization, we incurred approximately $165.0 million of indebtedness, approximately $83.0 million of which was used to repay existing indebtedness. As a result of the prepayment of this facility, we recorded a pre-tax charge of approximately $4.4 million to write off debt issuance costs associated with the facility. The charge appears in the line item loss on early extinguishment of debt on the consolidated statement of income for the year ended December 30, 2001.

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Initial Public Offering

        On April 23, 2002, we completed our initial public offering of 7.8 million shares of common stock at $19.00 per share. Additionally, the underwriters exercised the over-allotment option of 1.2 million shares, bringing the total number of shares issued to 9.0 million. Total proceeds received by us, net of expenses related to the initial public offering were $156.3 million. The proceeds were used to repay $62.9 million of our outstanding balance under the senior unsecured notes, and approximately $93.4 million of our outstanding loans under the senior credit facility. Immediately prior to the completion of the initial public offering, the outstanding shares of Series I Preferred Stock were converted into 21.1 million shares of common stock.

Recapitalization

        In October 2001, an investment group led by Warburg Pincus acquired majority ownership of us in a transaction that recapitalized our business. Our recapitalization was accounted for as a leveraged recapitalization of our company and, accordingly, we have retained the historical cost basis of accounting. In connection with the recapitalization, we incurred approximately $165.0 million of indebtedness, approximately $83.0 million of which was used to repay existing indebtedness.

Recent Accounting Pronouncements

Accounting for Business Combinations

        In June 2001, the FASB issued SFAS No. 141, Business Combinations (SFAS No. 141) and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). These standards change the accounting for business combinations by, among other things, prohibiting the use of pooling-of-interests accounting and requiring companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, goodwill and intangible assets deemed to have an indefinite useful life will be subject to an annual review for impairment. These new standards were effective for us beginning in the first quarter of 2002 and for purchase business combinations consummated after June 30, 2001. Upon adoption of SFAS No. 142 and pursuant to its provisions, we completed our annual impairment test and determined that there was no impairment of goodwill or other intangible assets with an indefinite life.

Financial Statement Presentation of Early Extinguishment of Debt

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). SFAS No. 145 rescinds SFAS No. 4 which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result of SFAS No. 145, the criteria in APB No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been rescinded. The provisions of SFAS No. 145 shall be applied effective fiscal years beginning after May 15, 2002, with early application encouraged. We adopted the provisions as of December 29, 2002 and, as such, we were required to reclassify our extraordinary loss on early extinguishment of debt of $2.7 million, net of tax benefit of $1.7 million, related to the October 2001 recapitalization transaction into income from continuing operations for the year ended December 30, 2001.

Exit or Disposal Activity Costs

        In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146), which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than when a commitment to an exit plan is made. It is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We adopted the provisions of SFAS 146 as of December 30, 2002. The adoption of this new accounting standard may delay the period or periods in which any future restructuring costs are recognized.

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Stock-Based Compensation

        In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123 (SFAS No. 148). This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002 and pursuant to its provisions, we have added the required disclosures.

Revenue Classification Changes

        In November 2001, the Emerging Issues Task Force (EITF) of the FASB announced EITF Topic D-103, Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred, which has subsequently been recharacterized as EITF 01-14, which is effective for financial statements beginning after December 31, 2001. EITF 01-14 requires that reimbursements received for out-of-pocket expenses incurred, generally be characterized as revenue in the statement of income. We adopted EITF 01-14 in the quarter ended June 30, 2002. We historically recorded reimbursements for out-of-pocket expenses as net amounts in cost of services rendered in the statement of income. In accordance with the transition guidance included in EITF 01-14, our adoption required the reclassification of financial statements for prior periods presented for comparative purposes. The adoption of EITF 01-14 did not affect our net income, financial position or cash flows. The reclassification resulted in an increase in both service revenues and cost of services rendered for the year ended December 30, 2001 of $4.6 million.

Accounting for Financial Instruments with Characteristics of both Liabilities and Equity

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity(SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In accordance with SFAS No. 150, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 shall be effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. There was no impact to our financial statements upon the adoption of the provisions of SFAS No. 150.

Variable Interest Entities

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN No. 46). FIN No. 46 requires companies to make certain disclosures about variable interest entities (VIEs) with which it has involvement, if it is reasonably possible that it will consolidate or disclose information about VIEs when FIN No. 46 was to have become fully effective in July 2003. The disclosure requirements are effective to all financial statements issued after January 31, 2003. We have no VIEs so no entities have been consolidated and no additional disclosures have been provided.

        In December 2003, the FASB issued Interpretation No. 46R (FIN No. 46R), a revision to FIN No. 46. FIN No. 46R clarifies some of the provisions of FIN No. 46 and exempts certain entities from its requirements. FIN No. 46R is effective at the end of the first interim period ending after March 15, 2004. Entities that have adopted FIN No. 46 prior to this effective date can continue to apply the provisions of FIN No. 46 until the effective date of FIN No. 46R. The provisions of FIN No. 46R, which will become applicable in the first quarter of 2004, are not expected to have an impact on our consolidated financial statements.

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Results of Operations

Comparison of Year Ended December 28, 2003 to Year Ended December 29, 2002

        The following table sets forth, for the periods indicated, certain selected financial data (in thousands, except percentages):

(1)

Includes provision for doubtful accounts.

        Service Revenues.    Our service revenues for 2003 increased $34.2 million, or 7.1%, from $478.8 million in 2002 to $513.0 million in 2003. Our revenue growth for the year ended December 28, 2003 was primarily the result of acquisitions, which more than offset an organic decline of 7.6%. The organic decline was attributable to a decrease in the number of hours worked by professionals due to the current weak demand for temporary healthcare staffing. For the year ended December 28, 2003, we had an organic decline from our continuing branch locations of 3.2%. For the year ended December 28, 2003, price rates increased less than 1% over the same period in 2002.

        A portion of the increase in revenues for the year ended December 28, 2003 was attributable to a $4.0 million, or 1.1% increase in our per diem nurse staffing revenues from $366.2 million for the year ended December 29, 2002 to $370.2 million for the year ended December 28, 2003. Of the increase of $4.0 million in per diem nurse staffing revenues, growth from acquisitions completed in 2002 and 2003 contributed $36.0 million, offset by an organic decline from continuing locations of $16.7 million, and an organic decline of $15.3 million attributable to the locations closed in the second quarter restructuring.

        The remainder of the increase in service revenues is from our staffing divisions other than the per diem nurse staffing division, which collectively increased $30.2 million, or 26.7%, from $112.6 million for the year ended December 29, 2002 to $142.8 million for the year ended December 28, 2003. Of the increase of $30.2 million, acquisitions completed in 2002 and 2003 contributed $34.6 million, offset by an organic decline of $4.4 million.

        Cost of Services Rendered.    Cost of services rendered increased $39.8 million, or 11.1%, from $358.4 million in 2002 to $398.2 million in 2003. The increase was attributable to the increase in service

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revenues and higher compensation, benefits and insurance costs associated with our healthcare professionals.

        Gross Profit.    Gross profit decreased $5.6 million, or 4.7%, from $120.4 million in 2002 to $114.8 million in 2003, driven primarily by higher compensation, benefits and insurance costs associated with our healthcare professionals and other direct costs, partially offset by the growth in service revenues. This resulted in a gross margin percentage of 22.4% for the year ended December 28, 2003, as compared to 25.2% for the year ended December 29, 2002.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $8.1 million, or 11.4%, from $70.7 million in 2002 to $78.8 million in 2003. As a percentage of revenue, selling, general and administrative expenses were 14.8% and 15.4% for the years ended December 29, 2002 and December 28, 2003, respectively. The increase is primarily attributable to the restructuring initiative completed during the second quarter of 2003, the expansion of the branch-in-branch (BiB) program prior to May 2003, and the acquisitions that the we made in the latter half of 2002 and the early portion of 2003, partially offset by a $3.8 million pre-tax charge we took in the fourth quarter of 2002 related to a client bankruptcy.

        Corporate and Administrative Expenses.    Corporate and administrative expenses increased $4.3 million, or 59.1%, from $7.4 million in 2002 to $11.7 million in 2003. The increase was primarily due to increased infrastructure associated with the aforementioned acquisitions and expansion of the BiB program. As a percentage of revenue, corporate and administrative expenses were 1.5% and 2.3% for the years ended December 29, 2002 and December 28, 2003, respectively.

        Depreciation and Amortization Expenses.    Depreciation and amortization expenses increased $2.3 million, or 51.0%, from $4.5 million in 2002 to $6.8 million in 2003. The increase was attributable to an increase in depreciation expense of $2.0 million related to depreciation on fixed asset additions and an increase in amortization expense of $0.3 million related to certain intangibles acquired in acquisitions.

        Income from Operations.    As a result of the above, income from operations decreased $20.3 million, or 53.8%, from $37.8 million in 2002 to $17.5 million in 2003. As a percentage of revenue, income from operations was 7.9% and 3.4% for the years ended December 29, 2002 and December 28, 2003, respectively.

        Loss on Early Extinguishment of Debt.    There was a loss on early extinguishment of debt of $3.6 million in 2003 due to the December 2003 refinancing. There was no loss from the early extinguishment of debt in 2002.

        Interest Expense, Net.    Net interest expense decreased $2.9 million, or 38.4%, from $7.6 million in 2002 to $4.7 million in 2003. The decrease was attributable to lower average debt levels and lower interest rates for the year ended December 28, 2003 as compared to the comparable period of 2002. The average debt balance decreased as the proceeds from our initial public offering, which was completed on April 23, 2002, was used to pay down a portion of our outstanding debt.

        Income from Continuing Operations Before Provision for Income Taxes.    As a result of the above, income from continuing operations before provision for income taxes decreased $21.0 million, or 69.5%, from $30.2 million in 2002 to $9.2 million in 2003.

        Provision for Income Taxes.    Our provision for income taxes was $12.4 million in 2002 and $3.7 million in 2003 representing effective tax rates of 41.0% in 2002 and 40.2% in 2003. The decrease in our effective tax rate is attributable to lower expected state tax expense.

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        Income (Loss) from Continuing Operations.    As a result of the above, income (loss) from continuing operations decreased $12.3 million, or 69.1%, from income of $17.8 million in 2002 to $5.5 million in 2003.

        Income (Loss) from Discontinued Operations, Net of Taxes.    Income (loss) from discontinued operations was income of $0.1 million in 2002 and a loss of $0.5 million in 2003.

        Net Income.    As a result of the above, net income decreased $12.9 million from $17.9 million in 2002 to $5.0 million in 2003.

Comparison of Year Ended December 29, 2002 to Year Ended December 30, 2001

        The following table sets forth, for the periods indicated, certain selected financial data (in thousands, except percentages):

(1)

EITF 01-14 requires that reimbursements received for out-of-pocket expenses incurred, generally, be characterized as revenue in the statement of income. We adopted EITF 01-14 in the quarter ended June 30, 2002. We historically recorded reimbursements for out-of-pocket expenses as net amounts in cost of services rendered in the statement of income. In accordance with the transition guidance included in EITF 01-14, our adoption required the reclassification of financial statements for prior periods presented for comparative purposes. There is no change in gross profit as both service revenues and cost of services rendered increased by approximately $4.6 million for the year ended December 30, 2001.

(2)

Includes provision for doubtful accounts.

        Service Revenues.    Our service revenues for 2002 increased $140.6 million, or 41.6%, from $338.2 million in 2001 to $478.8 million in 2002. Approximately 82% of our revenue growth in 2002 was organic and was the result of increased volume and a favorable shift in mix with the balance the result of acquisitions and increased pricing. In 2002, price rates increased approximately 5% over 2001 rates. The majority of the increase in revenues in 2002 was attributable to a $113.0 million increase in our per diem nurse staffing revenues from $253.2 million in 2001 to $366.2 million in 2002.

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        De novo branches opened in 2001 contributed $69.0 million of the increase in revenues and de novo branches opened in 2002 contributed $7.2 million of the increase. Acquisitions completed in 2001 contributed $9.3 million of the increase in revenues and acquisitions in 2002 contributed $15.0 million of the increase. The balance of the 2002 per diem nurse staffing revenue growth came from a $12.5 million increase in the revenue of branches opened prior to 2001.

        Service revenues from our staffing divisions other than the per diem nurse staffing division collectively increased $27.6 million, or 32.5%, from $85.0 million in 2001 to $112.6 million in 2002. The growth in 2002 came from organic growth.

        Cost of Services Rendered.    Cost of services rendered increased $105.3 million, or 41.6%, from $253.1 million in 2001 to $358.4 million in 2002. The increase was attributable to the increase in service revenues.

        Gross Profit.    Gross profit increased $35.3 million, or 41.5%, from $85.1 million in 2001 to $120.4 million in 2002, representing gross margin percentages of 25.2% in both 2001 and 2002.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $23.9 million, or 51.1%, from $46.8 million in 2001 to $70.7 million in 2002. As a percentage of revenue, selling, general and administrative expenses were 13.8% and 14.8% for the years ended December 30, 2001 and December 29, 2002, respectively. The increase is primarily attributable to a $3.8 million pretax charge we took in the fourth quarter of 2002 related to a client bankruptcy and expenses required to establish the infrastructure for our de novo branches opened in 2002, which were partially offset by the continued growth and maturation of de novo branches opened in 2001 and earlier.

        Corporate and Administrative Expenses.    Corporate and administrative expenses increased $1.0 million, or 14.9%, from $6.4 million in 2001 to $7.4 million in 2002. As a percentage of revenue, corporate and administrative expenses were 1.9% and 1.5% for the years ended December 30, 2001 and December 29, 2002, respectively. The decrease as a percentage of revenue was a result of increased operating leverage. The decrease occurred despite significant expansion of the corporate infrastructure required to sustain the rapid growth of the business.

        Depreciation and Amortization Expenses.    Depreciation and amortization expenses decreased $1.4 million, or 23.6%, from $5.9 million in 2001 to $4.5 million in 2002. The decrease was primarily due to the adoption of SFAS No. 142. Pursuant to the provisions of SFAS No. 142, goodwill or intangible assets with an indefinite life are no longer amortized after December 30, 2001. The decrease was partially offset by an increase in depreciation expense related to depreciation on fixed asset additions.

        Recapitalization Expenses.    There were no recapitalization expenses for 2002 as compared to $7.2 million from 2001, which were comprised of non-capitalizable costs incurred in conjunction with our recapitalization in October 2001. The recapitalization was accounted for as a leveraged recapitalization and, accordingly, we retained the historical cost basis of accounting.

        Income from Operations.    As a result of the above, income from operations increased $19.0 million, or 100.9%, from $18.8 million in 2001 to $37.8 million in 2002. As a percentage of revenue, income from operations was 5.6% and 7.9% for the years ended December 30, 2001 and December 29, 2002, respectively.

        Loss on Early Extinguishment of Debt.    There was no loss from the early extinguishment of debt in 2002. In 2001, loss on early extinguishment of debt of $4.4 million was attributable to the write off of

26

deferred financing costs and note discounts associated with the debt that was repaid in conjunction with our October 2001 recapitalization. Pursuant to the provisions of SFAS No. 145, which we adopted as of December 29, 2002, we were required to reclassify our extraordinary loss on early extinguishment of debt of $2.7 million, net of tax benefit of $1.7 million, into income from continuing operations.

        Interest Expense, Net.    Net interest expense decreased $6.7 million, or 46.9% from $14.3 million in 2001 to $7.6 million in 2002. The decrease was attributable to lower average debt levels in 2002 as compared to 2001.

        Income from Continuing Operations Before Provision for Income Taxes.    As a result of the above, income from continuing operations before provision for income taxes increased $30.1 million, or 20,472.8%, from $0.1 million in 2001 to $30.2 million in 2002.

        Provision for Income Taxes.    Our provision for income taxes was $1.7 million in 2001 and $12.4 million in 2002 representing effective tax rates of 1,220.4% in 2001 and 41.0% in 2002. The decrease in the effective rate is due to a certain percentage of our 2001 recapitalization expenses being nondeductible for tax purposes.

        Income (Loss) from Continuing Operations.    As a result of the above, income (loss) from continuing operations increased $19.4 million, or 1,183.3%, from a loss of $1.6 million in 2001 to income of $17.8 million in 2002.

        Income from Discontinued Operations, Net of Taxes.    Income (loss) from discontinued operations was $0.3 million in 2001 and $0.1 million in 2002.

        Net Income (Loss).    As a result of the above, net income increased $19.2 million from a net loss of $1.3 million in 2001 to net income of $17.9 million in 2002.

Unaudited Quarterly Results of Operations

        The following table presents a summary of our unaudited quarterly operating results for each of the four quarters in 2003 and 2002. We derived this information from unaudited interim financial statements that have been prepared on a basis consistent with the financial statements contained elsewhere in this annual report and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with our

27

audited financial statements and accompanying notes. The operating results for any quarter are not necessarily indicative of results for any future period.

(1)

Includes provision for doubtful accounts.

(2)

Includes a non-cash pre-tax charge of $3.6 million resulting from the write-off of certain fees associated with the early extinguishment of our former credit facility and a pre-tax $0.4 million workers' compensation expense benefit in cost of services rendered as a result of favorable claims experience based on actuarial valuations performed during the quarter.

(3)

Includes $3.8 million provision for bad debt expense in selling, general and administrative expenses related to a client bankruptcy.

Seasonality

        Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal preferences for destinations by our temporary healthcare professionals, the number of healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. Many of our hospital and healthcare facility clients are located in areas, particularly Florida, that experience seasonal fluctuations in population, during the winter and summer months. These facilities adjust their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs.

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        Historically, the number of temporary healthcare professionals on assignment has increased from December through March followed by declines or minimal growth from April through November. This trend may or may not continue in the future. As a result of all of these factors, results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year.

Liquidity and Capital Resources

Discussion on Liquidity and Capital Resources

        We fund our cash needs through various equity and debt issuances and through cash flow from operations. Currently, we have no commitments to make any material capital expenditures.

        At December 28, 2003, we had cash and cash equivalents totaling $0.8 million, working capital totaling $68.5 million and unused availability under our committed credit facility totaling $27.0 million, of which $9.3 million is immediately available for borrowing, compared to cash and cash equivalents totaling $4.6 million, working capital totaling $81.1 million and unused capacity under our committed credit facility totaling $2.0 million at December 29, 2002. Cash provided by operating activities was $36.7 million during the year ended December 28, 2003 compared to cash used in operating activities of $5.9 million and $1.7 million during the years ended December 29, 2002 and December 30, 2001, respectively. Cash provided by continuing operations was $37.2 million during the year ended December 28, 2003 compared to cash used in continuing operations of $6.0 million and $2.1 million during the years ended December 29, 2002 and December 30, 2001, respectively. Cash used by discontinued operations was $0.5 million during the year ended December 28, 2003 as compared to cash provided by discontinued operations of $0.1 million and $0.4 million during the years ended December 29, 2002 and December 30, 2001, respectively.

        Cash flows from operating activities were positively impacted in 2003, primarily the result of a lower accounts receivable balance due to improved collections and lower sales volume, the closure of 29 cash using offices in the restructuring completed during the second quarter of 2003, and the opening of fewer de novo branches in 2003 (five as compared to 40 in 2002). Cash flows from operating activities were negatively impacted in 2002, due to cash required to fund our de novo branches, partially offset by the positive impact of increased earnings. Because we rely on cash flow from operations as a source of liquidity, we are subject to the risk that a decrease in the demand for our staffing services could have an adverse impact on our liquidity. Decreased demand for our staffing services could result from an inability to attract qualified healthcare professionals, fluctuations in patient occupancy at our hospital and healthcare facility clients and changes in state and federal regulations relating to our business.

        In October 2001, an investment group led by Warburg Pincus acquired a majority interest in our company in a recapitalization that provided us with proceeds from new equity and senior debt issuances totaling approximately $156.0 million and advances from a new senior credit facility totaling $105.0 million. Together, these funds were used to provide us with working capital for operations, to retire then-outstanding debt obligations and accrued interest totaling approximately $82.0 million, as consideration for the acquisition of the former stockholders' equity interests for approximately $173.0 million, and to pay recapitalization costs of approximately $7.2 million.

        On April 23, 2002, we completed our initial public offering of 7.8 million shares of common stock at $19.00 per share. Additionally, the underwriters exercised the over-allotment option of 1.2 million shares, bringing the total number of shares issued to 9.0 million. Total proceeds received by us, net of expenses related to the initial public offering were $156.3 million. The proceeds were used to repay $62.9 million of our outstanding balance under the senior unsecured notes, and approximately $93.4 million of our outstanding loans under the senior credit facility. Immediately prior to the

29

completion of the initial public offering, the outstanding shares of Series I Preferred Stock were converted into 21.1 million shares of common stock.

        We entered into a senior credit facility, in connection with our 2001 recapitalization, which consisted of a term loan arrangement and a revolving line of credit. On July 3, 2002, we amended the terms of the senior credit facility and entered into a $25.0 million note. In accordance with the amendment, the remaining balance on the existing senior credit facility was paid off. On October 3, 2002, we amended the terms of the senior credit facility and entered into a $65.0 million note with terms and rights identical to the previous Term A notes and reduced the borrowing capacity of the revolving loan from $20.0 million to $15.0 million. On March 21, 2003, we amended the terms of our senior credit facility as follows: (i) Term A notes were increased to $77.0 million (Tranche A-1) with terms and rights identical to its previous Term A notes, (ii) Tranche A-2 term loans (Tranche A-2) provide for up to $13.0 million of borrowings prior to December 31, 2003, with a minimum initial borrowing of $5.0 million and in integral multiples of $1.0 million thereafter. Tranche A-2 loans cannot be reborrowed once repaid, are due in October 2006 and bear interest at a variable rate based on our leverage ratio with interest payable at least quarterly and principal payments payable quarterly commencing on March 31, 2004. The amendment did not affect the revolving loan's $15.0 million borrowing capacity. This senior credit facility was repaid in full with the proceeds from the December 2003 refinancing, as described below.

        On December 22, 2003, we entered into a new credit facility. The new $82.0 million facility is comprised of a three-year $65.0 million revolving credit facility and a two-year $17.0 million term note. Approximately $60.0 million of proceeds from the new credit facility were used to refinance all of our existing debt and to pay financing related fees. Unused capacity under the revolving credit facility bears interest at 0.5% and is payable monthly. The term note is due on December 21, 2005 and bears interest at a variable rate based on our leverage ratio (as defined) with interest payable monthly. As of December 28, 2003, there was $38.0 million outstanding under our credit facility with unused capacity of $27.0 million, of which $9.3 million is immediately available for borrowing, and $17.0 million outstanding under our term loan.

        For the twelve months ended December 28, 2003, the weighted average interest rate for the loans under our extinguished and new credit facilities was 4.77%. As of December 28, 2003 the blended rate for loans outstanding under our new credit facility was 5.73%.

        As the borrower under our senior credit facility, our subsidiary, Medical Staffing Network, Inc., may only pay dividends or make other distributions to us in the amount of $500,000 in any fiscal year to pay our operating expenses. This limitation on our subsidiary's ability to distribute cash to us will limit our ability to obtain and service any additional debt at the holding company level. In addition, our subsidiary is subject to restrictions under the senior credit facility against incurring additional indebtedness.

        We believe that our current cash balances, together with our existing credit line, other available sources of liquidity and expected cash flows from our operating activities, will be sufficient for us to meet our current and future financial obligations, as well as to provide us with funds for working capital, anticipated capital expenditures and other needs for at least the next twelve months. No assurance can be given, however, that this will be the case. In the longer term, we may require additional equity and debt financing to meet our working capital needs, or to fund our acquisition activities, if any. There can be no assurance that additional financing will be available when required or, if available, will be available on satisfactory terms.

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Off-Balance Sheet Arrangements

        We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our investors.

Contractual Obligations

        The following table reflects our significant contractual obligations and other commitments as of December 28, 2003 (in thousands):

Critical Accounting Policies

        In response to the Securities and Exchange Commission (SEC) Release Number 33-8040 "Cautionary Advice Regarding Disclosure About Critical Accounting Policies" and SEC Release Number 33-8056, "Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations," we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we will evaluate our estimates, including those related to asset impairment, accruals for self-insurance and compensation and related benefits, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions. For a summary of all our significant accounting policies, including the critical accounting policies discussed below, see Note 1 to the accompanying consolidated financial statements.

        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

•

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which results in a provision for bad debt expense. The adequacy of this allowance is determined by continually evaluating customer receivables, considering the customers' financial condition, credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.



•

We have recorded goodwill and other intangibles resulting from our acquisitions through December 28, 2003. Through December 30, 2001, goodwill and other intangibles were amortized on a straight-line basis over their lives of 6 to 20 years. Pursuant to the provisions of SFAS No. 142, which we adopted in 2002, goodwill and intangible assets deemed to have an indefinite life are no longer amortized. We evaluate the recovery of the carrying amount of costs in excess

31

of net tangible assets acquired by determining if an impairment has occurred. This evaluation is done annually or more frequently if indicators of an impairment arise. Indicators of an impairment include duplication of resources resulting from acquisitions, instances in which the estimated undiscounted cash flows of the entity are less than the remaining unamortized balance of the underlying intangible assets and other factors. At such time that impairment is determined, the intangible assets are written off during that period. If we are required to record an impairment charge in the future, it would have an adverse impact on results of operations.

•

We maintain an accrual for our health, workers compensation and professional liability that are either self-insured or partially self-insured and are classified in accounts payable. The adequacy of these accruals are determined by periodically evaluating our historical experience and trends related to health, workers compensation, and professional liability claims and payments, based on company-specific actuarial computations and industry experience and trends. If such information indicates that the accruals are overstated or understated, we will adjust the assumptions utilized in its methodologies and reduce or provide for additional accruals as appropriate.



•

We are subject to various claims and legal actions in the ordinary course of our business. Some of these matters include professional liability and employee-related matters. Hospital and healthcare facility clients may also become subject to claims, governmental inquiries and investigations and legal actions to which we may become a party relating to services provided by our professionals. From time to time, and depending upon the particular facts and circumstances, we may be subject to indemnification obligations under our contracts with hospital and healthcare facility clients relating to these matters. Although we are currently not aware of any such pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on our financial condition or results of operations, if we become aware of such claims against us, we will evaluate the probability of an adverse outcome and provide accruals for such contingencies as necessary.

Caution Concerning Forward-Looking Statements

        The SEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment disclosures. This document contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, operating income and cash flow. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors include the following:

•

Our ability to attract and retain qualified nurses and other healthcare personnel;



•

Our ability to enter into contracts with healthcare facility clients on terms attractive to us;



•

The willingness of our hospital and healthcare facility clients to utilize temporary healthcare staffing services;



•

The functioning of our information systems;



•

The effect of existing or future government regulation and federal and state legislative and enforcement initiatives on our business;



•

Our clients' ability to pay for services;

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•

The effect of liabilities and other claims asserted against us;



•

The effect of competition in the markets we serve; and



•

Our ability to carry out our business strategy.

        Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results. Given these uncertainties, the forward-looking statements discussed herein might not occur.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

        Our exposure to interest rate risk arises principally from the variable rates associated with our credit facility. On December 28, 2003, we had borrowings of $55.0 million under our credit facility that were subject to variable rates, with a blended rate of 5.73%. As of December 28, 2003, an adverse change of 1.0% in the interest rate of all such borrowings outstanding would have caused us to incur an increase in interest expense of approximately $0.6 million on an annual basis. During the year ended December 29, 2002, we were a party to an interest rate swap agreement with a notional amount of $50.0 million. Under the swap agreement, the net settlement was computed on a quarterly basis as the difference between the 90-day LIBOR and the fixed rate of 4.34%. This resulted in a fixed interest rate on $50.0 million of borrowings under our credit facility at 4.34% effective December 24, 2001, plus the applicable margin. The swap agreement was terminated on May 9, 2002 for approximately $0.5 million. In addition, during the year ended December 29, 2002, there was exposure to market risk associated with our senior unsecured note which bore interest at a fixed rate. The carrying amount of the senior unsecured notes approximated fair value as the terms of the debt were based on similar terms, maturities, and interest rates as other debt issues with similar risk factors that are not traded on quoted market prices. Our senior unsecured notes were redeemed in full with proceeds from our initial public offering.

Foreign Currency Risk

        We have no foreign currency risk as we have no revenue outside the United States and all of our revenues are in U.S. dollars.

Inflation

        We do not believe that inflation has had a material effect on our results of operations in recent years and periods. There can be no assurance, however, that we will not be adversely affected by inflation in the future.

Item 8. Financial Statements and Supplementary Data

        The information required to be presented by this item is presented commencing on page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        We have had no disagreements with our independent accountants on any matter of accounting principles or practices or financial statement disclosure.

33

Item 9A. Controls and Procedures

        An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 28, 2003 was carried out by us under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures have been designed and are being operated in a manner that provides reasonable assurance that the information required to be disclosed by us in reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's forms and rules. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Subsequent to the date of the most recent evaluation of our internal controls, there were no significant changes in internal controls or other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

34

PART III.

Item 10. Directors and Executive Officers of the Registrant

        Information regarding our directors and executive officers is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the captions "Board Nominees Proposal—Directors and Executive Officers", "—Class III Directors—Term Expiring 2007", "—Nominees for Class II Directors—Term Expiring 2006", "Class I Directors—Term Expiring 2005", "—Non-Director Executive Officers", "—Board of Directors and Committees", "—Compliance with Section 16(a) of the Exchange Act" and "—Code of Business Conduct and Ethics" and is incorporated herein by reference.

Item 11. Executive Compensation

        Information regarding executive compensation is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the captions "Board Nominees Proposal—Board of Directors and Committees", "Director Compensation," "—Executive Compensation", "— Employment Agreements", and "—Compensation Committee Interlocks and Insider Participation" and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        Information regarding security ownership of certain beneficial owners and management and related stockholder matters is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption "Board Nominees Proposal—Principal Stockholders" and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

        Information regarding certain relationships and related transactions is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption "Board Nominees Proposal—Certain Transactions" and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

        Information regarding principal accounting fees and services is included in our Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption "Independent Public Accountants" and is incorporated herein by reference.

35

PART IV.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

The following documents are filed as part of this Annual Report on Form 10-K:

1.

Financial Statements

        The information required to be presented by this item is presented commencing on page F-1 of this Annual Report on Form 10-K.

2.

Financial Statement Schedules

        The information required to be presented by this item is presented commencing on page S-1 of this Annual Report on Form 10-K.

3.

Exhibits:

        See the Exhibit Index on page 38 of this Annual Report on Form 10-K.

(b)

Reports on Form 8-K

        The following Reports on Form 8-K were filed by us during the quarter ended December 28, 2003:

        Report on Form 8-K, filed on October 16, 2003, under Items 7 and 9.

        Report on Form 8-K, filed on November 6, 2003, under Items 7 and 12.

        Report on Form 8-K, filed on November 13, 2003, under Item 9.

        Report on Form 8-K, filed on December 22, 2003, under Items 7 and 9.

36

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

37

EXHIBIT INDEX

38

39

40

†

Management contract or compensatory plan.

41

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES

Contents

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholder
Medical Staffing Network Holdings, Inc.

        We have audited the accompanying consolidated balance sheets of Medical Staffing Network Holdings, Inc. and Subsidiaries (the Company) as of December 29, 2002 and December 28, 2003, and the related consolidated statements of income, changes in redeemable preferred stock and common stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 28, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Medical Staffing Network Holdings, Inc. and Subsidiaries at December 29, 2002 and December 28, 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 28, 2003, in conformity with accounting principles generally accepted in the United States.

        As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill, its method of reporting gains and losses on the early extinguishment of debt and its classification of reimbursements for out-of-pocket expenses during the year ended December 29, 2002, all related to the adoption of recent accounting principles.

/s/ Ernst & Young LLP

Fort Lauderdale, Florida
February 13, 2004, except with respect to the matters
        discussed in Note 19, as to which the date is March 3, 2004

F-2

MEDICAL STAFFING NETWORK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands, except per share amounts)