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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

COMMISSION FILE NUMBER: 0-24484

MPS GROUP, INC.

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

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

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

Yes x No ¨

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of common stock on, June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, as reported by the New York Stock Exchange, was approximately $1,243,503,116.

As of March 1, 2005 the number of shares outstanding of the Registrant’s common stock was 103,541,544.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the Registrant’s Proxy Statement for its 2005 Annual Meeting of shareholders are incorporated by reference in Part III.

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This Annual Report on Form 10-K contains forward-looking statements that are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including but not limited to the specific factors discussed in Part I, Item 1 under ‘Risk Factors,’ in Part II, Item 5 under ‘Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities’, and Part II, Item 7 under ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.’ In some cases, you can identify forward-looking statements by terminology such as ‘will,’ ‘may,’ ‘should,’ ‘could,’ ‘expects,’ ‘plans,’ ‘indicates,’ ‘projects,’ ‘anticipates,’ ‘believes,’ ‘estimates,’ ‘appears,’ ‘predicts,’ ‘potential,’ ‘continues,’ ‘can,’ ‘hopes,’ ‘perhaps,’ ‘would,’ or ‘become,’ or the negative of these terms or other comparable terminology. In addition, except for historical facts, all information provided in Part II, Item 7A, under ‘Quantitative and Qualitative Disclosures About Market Risk’ should be considered forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of the Company may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements are based on beliefs and assumptions of the Company’s management and on information currently available to such management. Forward looking statements speak only as of the date they are made, and the Company undertakes no obligation to publicly update any of them in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.

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PART I

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

Overall

MPS Group, Inc. is a leading provider of business services with over 185 offices throughout the United States, Canada, the United Kingdom, and continental Europe. We deliver specialty staffing, consulting and business solutions to virtually all industries in the following disciplines, through the following primary brands:

Our strategy is to focus on increasing revenue and profits, through a combination of internal growth and acquisitions, primarily within our core disciplines and, to a lesser extent, expansion into new specialties. Specifically, we aim to maintain a leadership position in our IT-related disciplines, while growing our professional-related disciplines both organically and through acquisitions, which should result in the Professional Services Division providing a larger overall percentage contribution to our total revenues. The key elements to our internal growth strategy include:

While we look to strengthen relationships with our clients, we are not dependent upon a single customer or a limited number of customers.

Pursuant to our acquisition strategy, we acquired ten businesses from 2002 to 2004: four legal staffing businesses acquired in February of 2003, August of 2003, August of 2004, and October of 2004; three health care staffing businesses acquired in June of 2002, February of 2004, and March of 2004; and three accounting staffing businesses acquired in February of 2004, July of 2004, and October 2004. The businesses acquired in 2004, 2003, and 2002, had a combined revenue of $95 million, $22 million, and $18 million at acquisition date, respectively.

In addition, we look to focus our efforts intensely on our core businesses. Toward this end, we have divested certain businesses we deemed not central to our strategy, including the 2003 sale of our outplacement unit and the 2004 sale of our retained executive search unit. We feel we are able to execute and profit from our internal growth and acquisition strategies due to our strong management team, our integrated and scalable back office support services, and to the continued development of our strategic management systems.

In all of our markets and disciplines, we encounter aggressive and capable competition, with a number of firms offering services similar to ours on a national, regional or local basis. Our ability to compete successfully depends on our reputation, pricing and quality of service provided, our understanding of clients’ specific job requirements, and our ability to provide qualified personnel in a timely manner.

The Company was incorporated under the laws of the State of Florida in 1992 under the name Accustaff Incorporated, and changed its name to MPS Group, Inc. in 2002. Our principal executive offices are located in Jacksonville, Florida. Strategically, our operations are coordinated primarily from facilities in Jacksonville,

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Florida, and London, United Kingdom, and to a lesser extent, Burlington, Massachusetts. Both of our Jacksonville and London facilities provide support and centralized services to our offices in the administrative, marketing, public relations, accounting, training and legal areas. Regional and local office managers are responsible for most activities of their offices, including sales, local and regional marketing and recruitment.

Segments

Historically, we have presented the financial results of our operations under three reporting segments: Professional services, IT services, and IT solutions. In an effort to better align the reporting of our financial results with the manner in which we currently manage our business, we revised the presentation of our financial results from three to four reporting segments in the fourth quarter of 2004. Our four reporting segments are North American Professional services, European Professional services, North American IT services and European IT services. Prior periods have been reclassified to conform to this presentation.

The Company has both a Professional services and an IT services division. The Professional services division is comprised of both the North American Professional services segment and the European Professional services segment. The IT services division is comprised of both the North American IT services segment and the European IT services segment. The below table highlights the percentage contribution of revenue and gross profit from our four segments for 2004 and 2003, respectively:

Additional financial information relating to our segments can be found in Footnote 15 to the Consolidated Financial Statements.

Professional Services division

Our Professional services division provides specialized staffing and recruiting in the disciplines of accounting, finance, law, engineering and healthcare for varying periods of time to companies or other organizations (including government agencies) that have a need for such personnel, but are unable to, or choose not to, engage certain personnel as their own employees. Businesses increasingly view the use of temporary employees as a means of controlling personnel costs and converting the nature of such costs from fixed to variable. Examples of client needs for staffing solutions include the need for specialized or highly-skilled personnel for the completion of a specific project or subproject, substitution for regular employees during vacation or sick leave, and staffing of high turnover positions or during seasonal peaks.

We operate this division under a variable cost business model whereby revenue and cost of revenue are primarily recognized and incurred on a time-and-materials basis. The majority of the billable consultants are compensated on an hourly basis only for the hours which are billed to our clients.

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Clients also hire our skilled consultants on a permanent basis, whether it is from a conversion of a temporary assignment to, or a direct placement of, a full-time position. We earn a one-time fee for these services. These fees represent approximately 6% of this division’s revenue.

The principal national and international competitors of our Professional services division include Robert Half International Inc., Resources Connection, Inc., Spherion Corporation, Wallace Law Registry, Ajilon Consulting (a wholly owned subsidiary of Adecco SA), Michael Page International, Robert Walters PLC, Hays PLC, Cross Country Healthcare, Inc., and CDI Corporation.

North American Professional Services segment

Our North American Professional services segment goes to market under the primary brands and operating units Entegee, Special Counsel, Accounting Principals, and Soliant Health. The demands of our clients (the need for confidentiality, accuracy and reliability, cost-effectiveness, and frequent peak workload periods) are similar among the brands/operating units within this segment.

Entegee

Our Entegee brand/operating unit provides strategic workforce solutions for technical and engineering needs. From on-site management consulting and in-house project services to temporary and direct placement, Entegee combines industry knowledge and experience to fill highly skilled technical and engineering positions. These positions include, but are not limited to, engineers, designers, drafters, inspectors and assemblers. Entegee operates through a domestic network of national practice branches with offices in 10 markets, and employs approximately 2,400 billable consultants. Entegee also provides engineering and drafting design services through company-owned centers, in Iowa and Minnesota, that utilize state-of-the-art computer technology. Certain of its client base includes government and defense contractors, manufacturing and engineering companies.

Special Counsel

Our Special Counsel brand/operating unit specializes in placing temporary and full-time employees in attorney, paralegal, legal administrative and legal secretarial positions for workload management, litigation support, business transaction support, pre-litigation and document management support, as well as medical document review, deposition digesting, and other trial-related services. Special Counsel has a network of 34 offices located across the United States, and employs approximately 1,400 billable consultants. Its clients include Fortune 1000 companies and law firms.

In 2004, we expanded Special Counsel’s geographic footprint with the acquisition of Legal Networks in August and expanded its service offering with the acquisition of Alderson Court Reporting, a premier provider of court reporting, legal videography and litigation support services, in October. In addition, Alderson is the official court reporter of the United States Supreme Court.

Accounting Principals

Our Accounting Principals brand/operating unit specializes in placing temporary and full-time employees in accounting, finance, and banking positions. Accounting Principals has a network of 47 offices located across the United States, and employs approximately 1,900 billable consultants.

In 2004, we expanded Accounting Principals’ geographic footprint with the acquisitions of Accounting Alternatives in July and Accounting Solutions in October. The Accounting Solutions acquisition added 17 net new markets across the United States. We also expanded Accounting Principals’ service offering in 2004 with the acquisition of Lillian Kloock, a provider of medical billing and medical collection professionals to leading facilities primarily in the Southeastern United States.

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Soliant Health

Our Soliant Health brand/operating unit specializes primarily in placing traveling healthcare professionals, in the areas of nursing, physical and occupational therapy, along with imaging technicians. Soliant Health employs approximately 500 consultants, and its clients include hospitals and healthcare providers across the United States.

In 2004, we expanded Soliant Health’s geographic footprint with the acquisitions of Sunbelt Staffing Solutions and Management Search in February and March. During the year, we also expanded its service offering to include school therapists and the permanent placement of physicians.

Dispositions

In 2003, we sold certain operating assets and transferred certain operating liabilities of our then outplacement unit. The decision to sell our outplacement unit was in keeping with our long-term strategy of focusing on our core businesses. As a result of the sale of our outplacement unit and in accordance with Generally Accepted Accounting Principles (GAAP), our Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations report the results of operations of this unit as Discontinued Operations for all periods presented. In June 2004, we sold certain assets and transferred certain liabilities of our retained executive search brand.

European Professional Services segment

Our European Professional services segment is comprised of our Badenoch & Clark brand/operating unit. Since 1980, Badenoch & Clark has been specializing in placing temporary, full-time, contract and interim recruitment employees in positions such as accounting and finance, financial services, legal, human resources, marketing, not-for-profit and public-sector. With the 2004 opening of offices in Essex and Wales, Badenoch & Clark has 18 offices located across the United Kingdom. It also has 1 office in Luxembourg. Badenoch & Clark employs approximately 4,000 billable consultants.

IT Services division

Our IT services division provides specialty staffing, consulting and business solutions under the brands/operating units Modis, Modis International, Idea Integration and Beeline. We utilize the brand Modis in both our North American and European segments; however, the overall business culture distinguishes the operation of these two segments.

We operate this division primarily under a variable cost business model whereby revenue and cost of revenue are primarily recognized and incurred on a time-and-materials basis. The majority of the billable consultants are compensated on an hourly basis only for the hours which are billed to our clients. Less than 1% of this division’s revenue is generated from fees for clients directly hiring our consultants.

The principal national and international competitors of our IT services division include Keane, Inc., Computer Horizons Corp., Comsys IT Partners, Inc., CIBER, Inc., Computer People (a division of Ajilon Group), Hays PLC, Elan, Lorien PLC, and Sapient Corporation. In addition, we may compete against the internal management information services and IT departments of clients and potential clients.

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North American IT Services segment

Modis

Our Modis brand/operating unit specializes in the placement of IT contract consultants for IT project support and staffing, recruitment of full-time positions, project-based solutions, supplier management solutions, and on-site recruiting support in the areas of application development, systems integration, and enterprise application integration. Modis has a network of 45 offices located across the United States, and employs approximately 3,700 billable consultants.

Idea Integration

Our Idea Integration brand/operating unit formerly comprised the IT Solutions segment. Idea specializes in Web design and development, information management solutions, wireless workflow applications, portal solutions, and enterprise resource management. Idea utilizes both salaried and hourly consultants to deliver solutions primarily under time-and-materials contracts and to a lesser extent under fixed-fee contracts. It operates in certain markets across the United States and its clients include Fortune 1000 companies, government and middle-market companies.

Beeline

Our Beeline brand/operating unit provides a software-based human capital management services solution that automates the acquisition and management of both full-time and contingent workers. Beeline operates primarily in the United States and its’ clients are principally Fortune 1000 companies.

Beeline maintains a full-time staff to support its operations and seeks to collect a service charge based upon the usage of this service. Subsequent to the initial start up costs and time, minimal cost and resources are required for the usage of Beeline’s services.

European IT Services segment

Our European IT services segment is comprised of Modis International. Modis International, headquartered in the United Kingdom, specializes in providing IT contract consultants throughout the United Kingdom and certain continental European markets. Modis International has been in operation for over 30 years. It has 10 offices located across the United Kingdom, and an office each in Belgium, Germany, Poland, and the Netherlands. It employs approximately 1,900 billable consultants.

Employees

MPS employs approximately 16,400 consultants and approximately 2,500 full-time staff employees. Approximately 250 of the employees work at corporate headquarters.

As described below, in most jurisdictions, we, as the employer of the consultants or as otherwise required by applicable law, are responsible for employment administration. This administration includes collection of withholding taxes, employer contributions for social security or its equivalent outside the United States, unemployment tax, maintaining workers’ compensation and fidelity and liability insurance, and other governmental requirements imposed on employers. Full-time employees are covered by life and disability insurance and receive health insurance and other benefits.

Government Regulations

Outside of the United States and Canada, the staffing services industry is closely regulated. These regulations differ among countries but generally may regulate: (i) the relationship between us and our temporary employees; (ii) registration, licensing, record keeping, and reporting requirements; and (iii) types of operations permitted. Regulation within the United States and Canada has not materially impacted our operations.

In many countries, including the United States and the United Kingdom, staffing services firms are considered the legal employers of the temporary consultants while the consultant is on assignment with a

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company client. Therefore, laws regulating the employer/employee relationship, such as tax withholding or reporting, social security or retirement, anti-discrimination, and workers’ compensation, govern us. In other countries, staffing services firms, while not the direct legal employer of the consultant, are still responsible for collecting taxes and social security deductions and transmitting such amounts to the taxing authorities.

Intellectual Property

We seek to protect our intellectual property through copyright, trade secret and trademark law and through contractual non-disclosure restrictions. Our services often involve the development of work and materials for specific client engagements, the ownership of which is frequently assigned to the client. We do at times, and when appropriate, negotiate to retain the ownership or continued use of development tools or know how created or generated by us for a client in the delivery of our services, which we may then license or use in the delivery of our services to other clients.

Seasonality

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

Access to Company Information

Our common stock is listed on the New York Stock Exchange (‘NYSE’) under the ticker symbol ‘MPS’. Our Internet address is www.mpsgroup.com. We make available through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after filing such material with, or furnishing it to, the Securities and Exchange Commission. The information contained on our website, or on other websites linked to our website, is not part of this document.

Risk Factors

We are subject to various risks and uncertainties that affect our business. The most important of these risks and uncertainties are as follows:

Demand for our services is affected by the economic climate in the industries and markets we serve. The demand for our services, in particular our staffing services, is highly dependent upon the state of economy and upon the staffing needs of our clients. Any variation in the economic condition or unemployment levels of the United States or of any of the foreign countries in which our brands/operating units do business, or in the economic condition of any region of any of the foregoing, or in any specific industry, may severely reduce the demand for our services and thereby significantly decrease our revenues and profits.

Our market is highly competitive with low barriers to entry. Our industry is intensely competitive and highly fragmented, and because it is a service business, the barriers to entry are quite low. There are many competitors, and new ones are entering the market constantly. In addition, some of these competitors have greater resources than us. Competition arises locally, regionally, nationally, internationally and in certain cases from remote locations, particularly from offshore locations such as India.

Certain of our contracts are awarded on the basis of competitive proposals, which can be periodically re-bid by the client. There can be no assurance that existing contracts will be renewed on satisfactory terms or that additional or replacement contracts will be awarded to us. In addition, long-term contracts form a negligible

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portion of our revenue. Therefore, there can be no assurance that we will be able to retain clients or market share in the future. Nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or, if profitable, maintain our current profit margins.

Our business requires a qualified candidate pool, which we may not be able to recruit or maintain. Our staffing services consist of the placement of individuals seeking employment in specialized IT and professional positions. Some of these sectors are characterized by a shortage of qualified candidates. There can be no assurance that suitable candidates for employment will continue to be available or will continue to seek employment through us. Candidates generally seek temporary or regular positions through multiple sources, including us and our competitors. Any shortage of qualified candidates could materially adversely affect us.

Our business depends on key personnel, including executive officers, local managers and field personnel. We are engaged in the services business. As such, our success or failure is highly dependent upon the performance of our management personnel and employees, rather than upon technology or upon tangible assets (of which we have few). There can be no assurance that we will be able to attract and retain the personnel that are essential to our success.

We have to comply with existing government regulation and are exposed to increased regulation of the workplace. Our business is subject to regulation or licensing in many states and in certain foreign countries. While we have had no material difficulty complying with regulations in the past, there can be no assurance that we will be able to continue to obtain all necessary licenses or approvals or that the cost of compliance will not prove to be material. Any inability to comply with government regulation or licensing requirements could materially adversely affect us. Additionally, our staffing services entails employing individuals on a temporary basis and placing such individuals in clients’ workplaces. Increased government regulation of the workplace or of the employer-employee relationship could materially adversely affect us.

We are exposed to employment-related claims and costs and other litigation. Our staffing services entails employing individuals on a temporary basis and placing such individuals in clients’ workplaces. Our ability to control the workplace environment is limited. As the employer of record of our temporary employees, we incur a risk of liability to our temporary employees for various workplace events, including claims of physical injury, discrimination, harassment, or retroactive entitlement to employee benefits. We also incur a risk of liability to our clients resulting from allegations of errors, omissions, misappropriation, or theft of property or information by our temporary employees. We maintain insurance with respect to many of such claims. While such claims have not historically had a material adverse effect on us, there can be no assurance that we will continue to be able to obtain insurance at a cost that does not have a material adverse effect upon us or that such claims (whether by reason of us not having insurance or by reason of such claims being outside the scope of our insurance) will not have a material adverse effect upon us.

We depend on our reputation to sell our services. The success of our brands is highly dependent upon their reputations. The reputations of our staffing businesses in turn depend upon the perceived quality of the professionals we employ and staff with our customers—consequently, if our customers are dissatisfied with our employees, our brands will be harmed. Any event that adversely impacts the reputation of a brand could materially affect our results of operations.

The price of our common stock may fluctuate significantly. The market price for our common stock can fluctuate as a result of a variety of factors, including factors listed in these “Risk Factors,” many of which are beyond our control. These factors include actual or anticipated variations in quarterly operating results; announcements of new services by our competitors or us; announcements relating to strategic relationships or acquisitions; changes in financial estimates or other statements by securities analysts; and other changes in general economic conditions. Because of this, we may fail to meet or exceed the expectations of our shareholders or of our securities analysts, and the market price for our common stock could fluctuate as a result.

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Our corporate headquarters, located in Jacksonville, Florida, is on lease through 2012. Our business services are conducted through more than 185 offices located in the United States, Canada, the United Kingdom, and continental Europe. Almost all of our offices are on lease, with the terms of an average office lease being from three to six years.

We believe that our facilities are generally adequate for our needs and do not anticipate difficulty replacing such facilities or locating additional facilities, if needed. Additional information on lease commitments can be found in Footnote 6 to the Consolidated Financial Statements.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2004.

PART II

Market Price and Related Matters

The following table sets forth the high and low sale prices of our Common Stock, as reported by the NYSE, during the two years ended December 31, 2004:

See the factors set forth above in ‘Risk Factors,’ for factors that may impact the price of our Common Stock. As of March 1, 2005, there were approximately 889 holders of record of our Common Stock.

We have not paid to-date a cash dividend or other cash distribution with respect to our Common Stock. We currently intend to retain any earnings to provide for the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

Issuer Repurchases of Equity Securities

In 1999, our Board of Directors authorized the repurchase of up to $65 million of our Common Stock. Beginning in the third quarter of 2002 through the year-end of 2004, approximately 5.1 million shares at a cost of $39.9 million have been repurchased under this authorization. The following table sets forth information about our Common Stock repurchases for the three months ended December 31, 2004. There is no expiration date for this authorization.

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MPS Group, Inc. (the Company) is a leading provider of business services with over 185 offices throughout the United States, Canada, the United Kingdom, and continental Europe. We deliver specialty staffing, consulting and business solutions to virtually all industries in the following disciplines, through the following primary brands:

Historically, we have presented the financial results of our operations under three reporting segments: Professional services, IT services, and IT solutions. In an effort to better align the reporting of our financial results with the manner in which we currently manage our business, we revised the presentation of our financial results from three to four reporting segments in the fourth quarter of 2004. Our four reporting segments are North American Professional services, European Professional services, North American IT services and European IT services. Prior periods have been reclassified to conform to this presentation.

Non-GAAP Financial Measures

From time to time we may measure certain financial information on a ‘constant currency’ basis. Such constant currency financial data is not a U.S. generally accepted accounting principles (‘GAAP’) financial measure. Constant currency removes from financial data the impact of changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries, by translating the current period financial data into U.S. dollars using the same foreign currency exchange rates that were used to translate the financial data for the previous period. We believe presenting certain results on a constant currency basis is useful to investors because it allows a more meaningful comparison of the performance of our foreign operations from period to period. Additionally, certain internal reporting and compensation targets are based on constant currency financial data for our various foreign subsidiaries. However, constant currency measures should not be considered in isolation or as an alternative to financial measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with GAAP.

From 2002 to 2004, we acquired ten businesses for our North American professional services segment (together, the ‘Acquisitions’): four legal staffing businesses acquired in February of 2003, August of 2003, August of 2004, and October of 2004; three health care staffing businesses acquired in June of 2002, February of 2004, and March of 2004; and three accounting staffing businesses acquired in February of 2004, July of 2004, and October 2004. From time to time we may measure certain financial information excluding the effect of Acquisitions. Such financial data that excludes the effect of businesses we acquire is not a GAAP financial measure. We believe presenting some results excluding the effects of businesses we acquire is helpful to investors because it permits a comparison of the performance of our core internal operations from period to period. Additionally, certain internal reporting and compensation targets are based on the performance of core internal operations. The effect of a business we acquire is excluded for the first 12 months following the acquisition date. Subsequent to this, a business is considered to be integrated for reporting purposes. Again however, such measures should be considered only in conjunction with the correlative measures that include the results from acquisitions, as calculated and presented in accordance with GAAP.

Additionally, from time to time we may use EBITDA to measure results of operations. EBITDA is a non-GAAP financial measure that is defined as earnings before interest, taxes, depreciation and amortization. We

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believe EBITDA is a meaningful measure of operating performance as it gives management a consistent measurement tool for evaluating the operating activities of the business as a whole, as well as, the various operating units, before the effect of investing activities, interest and taxes. In addition, we believe EBITDA provides useful information to investors, analysts, lenders, and other interested parties because it excludes transactions that management considers unrelated to core business operations, thereby helping interested parties to more meaningfully evaluate, trend and analyze the operating performance of our business. We also use EBITDA for certain internal reporting purposes, and certain compensation targets may be based on EBITDA. Finally, certain covenants in our debt facility are based on EBITDA performance measures. EBITDA, as with all non-GAAP financial measures, should be considered only in conjunction with the comparable measures, as calculated and presented in accordance with GAAP, including net income.

Discontinued Operations

In December 2003, we sold certain operating assets and transferred certain operating liabilities of our outplacement unit. As a result of the sale of this unit and in accordance with GAAP, the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations report the results of operations of our outplacement unit as Discontinued Operations for all periods presented. Revenue generated by this unit was $21.0 million and $35.8 million, in 2003 and 2002, respectively. Income (loss) before taxes was $(3.7) million and $2.2 million, for 2003 and 2002, respectively. We recorded contract termination costs of $732,000 in 2002, and, as a result of the sale, an additional $705,000 in 2003. Additional information on contract termination costs can be found in Exit Costs below. Additional information on Discontinued Operations can be found in Footnote 17 to the Consolidated Financial Statements.

Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. Associated with this, we believe the following are our most critical accounting policies in that they are the most important to the portrayal of our financial condition and results and require management’s most difficult, subjective or complex judgments.

Revenue Recognition

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

In addition and to a lesser extent, we are involved in fixed price or lump-sum engagements. The services we render under the relevant contracts generally require performance spanning more than one accounting period. We recognize revenue for these engagements under the proportional performance accounting model.

Allowance for Doubtful Accounts

We regularly monitor and assess our risk of not collecting amounts we are owed by our customers. This evaluation is based upon a variety of factors including: an analysis of amounts current and past due along with relevant history and facts particular to the customer. Based upon the results of this analysis, we record an allowance for uncollectible accounts for this risk. This analysis requires us to make significant estimates, and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts.

Income Taxes

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

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

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

We have a net deferred tax asset as of December 31, 2004 and 2003, primarily due to the impairment loss recorded as a change in accounting principle associated with our adoption of Statement of Financial Accounting Standards (SFAS) No. 142 in 2002. This impairment reduced the financial statement-carrying amount of goodwill, which resulted in the tax basis of tax-deductible goodwill being greater than the financial statement-carrying amount. Our tax basis in tax-deductible goodwill will be deducted in our income tax returns, generating $370.4 million of future tax deductions over the next 15 years.

We are subject to periodic review by federal, state, foreign and local taxing authorities in the ordinary course of business. In 2002, we recorded an $8.7 million charge for an agreed upon adjustment related to an audit of our prior years’ tax returns. Additional information on Income Taxes can be found in Footnote 7 to the Consolidated Financial Statements.

Stock Option Plans

We have historically issued stock options to employees and directors as an integral part of our compensation programs. U.S. GAAP allows alternative methods of accounting for these plans. We have chosen to account for our stock option plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Under APB 25, the intrinsic value of the options is used to record compensation expense and, as a result, no compensation expense related to stock options is included in determining net income and net income per share in the Consolidated Financial Statements. Restricted stock grants are accounted for in accordance with APB 25, which mandates that restricted stock grants with performance conditions be calculated using the intrinsic value. As required by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure (“SFAS 148”), calculations of pro forma net income (loss) and net income (loss) per share, computed in accordance with the method prescribed by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), are set forth in Footnote 2 to the Consolidated Financial Statements.

We expect to adopt the provisions of SFAS No. 123 (revised 2004), Share-Based Payments (“SFAS 123R”), which replaces SFAS No. 123 and supercedes APB Opinion No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption alternatives. Under the retroactive alternatives, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with

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the first period restated. We are evaluating the requirements of SFAS 123R and have not yet determined the method of adoption or the effect of adopting SFAS 123R, nor have we determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

Impairment of Tangible and Intangible Assets

For acquisitions, we allocate the excess of cost over the fair market value of the net tangible assets first to identifiable intangible assets, if any, and then to goodwill. In connection with SFAS No. 142, Goodwill and Other Intangible Assets, we are required to perform, at least annually, goodwill impairment reviews utilizing a fair-value approach. Additionally, SFAS No. 142 required a transitional goodwill impairment review upon adoption.

We adopted SFAS No. 142 as of January 1, 2002. After performing the required transitional goodwill impairment tests, we recognized a loss of $553.7 million, net of an income tax benefit of $113.0 million, and recorded the loss (net of the related tax benefit) as a cumulative effect of an accounting change in the Consolidated Statement of Operations for 2002. We performed additional valuation testing during the fourth quarter of 2002, 2003 and 2004 (our designated timing of the annual impairment test under SFAS No. 142) and did not incur any further impairment. We plan to perform our next annual impairment review during the fourth quarter of 2005. An impairment review prior to our next scheduled annual review may be required if certain events occur, including lower than forecasted earnings levels for various reporting units. In addition, changes to other assumptions could significantly impact our estimate of the fair value of our reporting units. Such a change may result in a goodwill impairment charge, which could have a significant impact on the reportable segments that include the related reporting units and the Consolidated Financial Statements.

As part of our goodwill impairment reviews, fair value was calculated using an equally blended value of a discounted cash flow analysis and market comparables. In contrast to SFAS 142, the prior accounting standard (SFAS No. 121) required the use of undiscounted cash flow estimates over the remaining useful life of the goodwill and other long-lived assets as a step 1 test for possible impairment. Under SFAS No. 121, the concept of recoverability of the goodwill over the useful life of the asset was the underlying test for impairment as opposed to fair value under SFAS No. 142. This fundamental difference in the underlying methodologies of testing for impairment of goodwill in SFAS No. 121 and SFAS No. 142 caused us to attribute the resulting impairment from the initial valuation completed on January 1, 2002 to a change in accounting principle upon the adoption of SFAS No. 142. Projected cash flows, used for both SFAS No. 121 and No. 142 testing, considered the effects from the then downturn in our business.

As mentioned above, we used an equally blended value of a discounted cash flow analysis and market comparables to arrive at fair value for SFAS No. 142. For the discounted cash flow analysis, significant assumptions included expected future revenue growth rates, reporting unit profit margins, working capital levels and a discount rate. The revenue growth rates and reporting unit profit margins are based, in part, on our expectation of an improving economic environment. Market comparables included a comparison of the market ratios and performance fundamentals from comparable companies. The use of these measurement criteria is consistent with the underlying concepts used in determining the fair value of a company or reportable unit under the market approach. The market ratios we used refer to the multiples of revenue and earnings of comparable companies and the performance fundamentals refer to the consideration of the effects of the differences in the operating metrics, i.e. growth rates, operating margins, gross margins, etc. on our value versus the comparable companies. Additional information on Goodwill can be found in Footnote 5 to the Consolidated Financial Statements.

We amortize the cost of identifiable intangible assets (either through acquisition or as part of intellectual property) over their estimated useful lives unless such lives are deemed indefinite. We review our long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In performing the review for recoverability, we estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the

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expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles would be based on the fair value of the asset.

Exit Costs

In 2001 and 2002, we experienced a material decrease in demand for our domestic operations. To reflect this decreased demand, we made attempts to realign our real estate capacity needs and thus vacate and reorganize certain office space.

In 2002, management determined that we would not be able to utilize this vacated office space. This determination eliminated the economic benefit associated with the vacated office space. As a result, we recorded $9.0 million of contract termination costs in 2002, mainly due to costs that will continue to be incurred under the lease contract for its remaining term without economic benefit to us. These termination costs were recorded in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires that a liability for a cost associated with an exit or disposal activity be recognized, at fair value, when the liability is incurred rather than at the time an entity commits to a plan. In 2003 and 2004, we recaptured $284,000 and $897,000, respectively, of these costs relating to the settlement of the abandoned space. We continually look for ways to either settle or sublease our remaining abandoned real estate and review, as necessary, our assumptions associated with our abandoned real estate. The average remaining lease term for the lease obligations included herein is approximately 5 years. Additional information on Exit Costs can be found in Footnote 16 to the Consolidated Financial Statements.

EXECUTIVE SUMMARY

We believe that economic conditions strengthened in 2004, both in the United States and abroad, which favorably impacts both MPS and our industry. For 2004, we were able to grow revenue in all of our operating units. In addition to the improved macroeconomic conditions, we believe this growth resulted from our investments in staff, the ability to execute our acquisition strategy, new service offerings, and new office openings. We expect our revenue to continue to be impacted by general macroeconomic conditions in 2005.

Our revenue increased 30.2% from 2003, while our operating income increased 45.6% from 2003. However, our gross margin decreased 90 basis points due to lower gross margins in our IT services division and European Professional services segment, and a higher concentration of our revenue being generated from our lowest gross margin segment, the European IT services segment. For 2005, we will continue to look for opportunities to increase gross margin along with increasing operating leverage within each segment. In addition, we have a foundation for growth with more than $100 million of cash on hand at year-end, a $150 million credit facility with no outstanding borrowings, no long-term debt, and working capital of $232.1 million.

The following detailed analysis of operations should be read in conjunction with the 2004 Consolidated Financial Statements and related footnotes included elsewhere in this Form 10-K.

Results of Operations for the Three Years Ended December 31, 2004

Consolidated revenue was $1,426.8 million, $1,096.0 million, and $1,119.2 million in 2004, 2003 and 2002, respectively, increasing by 30.2% in 2004 and decreasing by 2.1% in 2003.

Consolidated gross profit was $360.8 million, $287.1 million, and $284.8 million in 2004, 2003 and 2002, respectively, increasing by 25.6% and by 0.8% in 2004 and 2003, respectively. The consolidated gross margin was 25.3%, 26.2% and 25.5% in 2004, 2003 and 2002, respectively.

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Consolidated operating expenses were $308.7 million, $251.3 million, and $281.1 million, in 2004, 2003 and 2002, respectively, increasing by 22.8% in 2004 and decreasing by 10.6% in 2003. General and administrative (G&A) expenses, which are included in operating expenses, were $293.8 million, $234.6 million, and $235.7 million, in 2004, 2003 and 2002, respectively, increasing by 25.2% in 2004 and decreasing by 0.5% in 2003.

Consolidated operating income was $52.1 million, $35.8 million, and $3.8 million in 2004, 2003 and 2002, respectively, increasing by 45.5% in 2004. Operating income as a percentage of revenue was 3.7%, 3.3% and 0.3% in 2004, 2003 and 2002, respectively.

Segments

Professional Services division

North American Professional Services segment

Revenue in our North American Professional services segment was $429.6 million, $315.8 million, and $281.6 million, for 2004, 2003 and 2002, respectively, increasing by 36.0% and by 12.1% in 2004 and 2003, respectively. Acquisitions contributed $60.6 million, $19.6 million, and $9.1 million in revenue in 2004, 2003 and 2002, respectively. The following contributed to the increase in revenue for both 2004 and 2003: we executed on our acquisition strategy; we made considerable investments in staff; and we introduced additional service offerings. We completed 10 acquisitions from 2002 to 2004, and between these acquisitions and internal staff investments, we increased our staff headcount by 51% in 2004 compared to 9% in 2003. The internal staff investments were in anticipation of increased demand and were coupled with the added service offerings to our Special Counsel, Accounting Principals, and Soliant Health brands/operating units in 2004.

Revenue contribution in the North American Professional services operating units for 2004, 2003 and 2002 was as follows:

Gross profit in our North American Professional services segment was $123.8 million, $89.1 million, and $79.7 million, for 2004, 2003 and 2002, respectively, increasing by 38.9% and by 11.8% in 2004 and 2003, respectively. Acquisitions contributed $19.7 million, $6.1 million, and $2.7 million in gross profit in 2004, 2003 and 2002, respectively. Gross margin in our North American Professional services segment was 28.8%, 28.2% and 28.3% in 2004, 2003 and 2002, respectively. The increase in gross margin in 2004 was due primarily to an increase in direct hire fees. Direct hire fees, which generate higher margin, increased to 4.5% of the segment’s revenue, from 3.6% in 2003.

G&A expenses in our North American Professional services segment were $88.4 million, $69.3 million, and $60.3 million, in 2004, 2003 and 2002, respectively, increasing by 27.5% and by 14.9% in 2004 and 2003, respectively. As a percentage of revenue, G&A expenses were 20.6%, 21.9%, and 21.4%, for 2004, 2003 and 2002, respectively. The increase in G&A expenses for both 2004 and 2003 was due primarily to the increase in compensation expense related to the increases in the segment’s revenue, our investment in additional sales and recruiting personnel, and additional G&A from Acquisitions.

Operating income was $30.9 million, $16.0 million, and $15.1 million in 2004, 2003 and 2002, respectively, increasing by 93.1% and by 6.0% in 2004 and 2003, respectively. Operating income as a percentage of revenue was 7.2%, 5.1% and 5.4% in 2004, 2003 and 2002, respectively.

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European Professional Services segment

Revenue in our European Professional services segment was $289.1 million, $198.3 million, and $177.7 million, for 2004, 2003 and 2002, respectively, increasing by 45.8% and by 11.6% in 2004 and 2003, respectively. Changes in foreign currency exchange rates contributed $31.2 million in revenue from 2003 to 2004, and $16.0 million in revenue from 2002 to 2003. The increase in revenue in 2004 was due primarily to an overall improvement of the economic environment, coupled with our substantial investment in sales and recruiting personnel across our service lines. We increased our staff headcount by 31% in 2004 in anticipation of increased demand. The increase in revenue in 2003 was due primarily to diversifying our client base including moving into sectors, such as public sector and not-for-profit organizations that we historically have not relied upon. Traditionally, this segment has focused on servicing financial services, accounting and finance, and human resources clients.

Gross profit in our European Professional services segment was $80.4 million, $58.2 million, and $54.4 million, in 2004, 2003 and 2002, respectively, increasing by 38.1% and by 7.0% in 2004 and 2003, respectively. Changes in foreign currency exchange rates contributed $8.7 million in gross profit from 2003 to 2004, and $4.7 million from 2002 to 2003. Gross margin in our European Professional services segment was 27.8%, 29.4%, and 30.6% in 2004, 2003 and 2002, respectively. The decrease in gross margin in 2004 was due to a shift in the mix of services provided by this segment along with the increased competition for candidates. We have been able to increase our bill rates in 2004 from our 2003 and 2002 levels. However, the increased competition for candidates has led to a greater increase in pay rates, and therefore a decrease in the bill and pay rate spread. The decrease in gross margin in 2003 was due primarily to a decrease in direct hire fees. Direct hire fees decreased to 6.8% of the segment’s revenue in 2003, from 8.0% in 2002.

G&A expenses in our European Professional services segment were $65.6 million, $44.6 million, and $36.7 million, in 2004, 2003 and 2002, respectively, increasing by 47.3% and by 21.5% in 2004 and 2003, respectively. As a percentage of revenue, G&A expenses were 22.7%, 22.5%, and 20.6%, for 2004, 2003 and 2002, respectively. The increase in G&A expenses was due to the following: the increase in compensation expense related to the increases in the segment’s revenue in 2004 and 2003; our investment in additional sales and recruiting personnel in 2004; the effect of exchange rates in 2004 and 2003; and additional infrastructure expenses and costs to retain personnel in 2003.

Operating income was $13.2 million, $12.5 million, and $16.2 million in 2004, 2003 and 2002, respectively, increasing by 4.8% in 2004 and decreasing by 22.8% in 2003. Operating income as a percentage of revenue was 4.6%, 6.3% and 9.1% in 2004, 2003 and 2002, respectively.

IT Services division

North American IT Services segment

Revenue in our North American IT services segment was $459.5 million, $401.2 million, and $484.6 million, for 2004, 2003 and 2002, respectively, increasing by 14.5% in 2004 and decreasing by 17.2% in 2003. The increase in revenue in 2004 was due to a combination of increased spending on IT initiatives by our clients and our investment in staff. In order to capitalize on the improving macroeconomic trends, we increased our staff headcount by 15% during 2004. Revenue from this segment in 2003 was adversely impacted by the diminished demand for IT-related services. Specifically, our customers in 2003 continued to experience a constrained ability to spend on IT initiatives due to uncertainties relating to the economy.

Revenue within the North American IT services segment is generated primarily from Modis, as it generated 82.8%, 81.5% and 82.5% of the segment’s revenue for 2004, 2003 and 2002, respectively. Idea Integration and Beeline are responsible for the remainder of this segment’s revenue.

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Gross profit in our North American IT services segment was $123.8 million, $112.8 million, and $122.8 million, in 2004, 2003 and 2002, respectively, increasing by 9.8% in 2004 and decreasing by 8.1% in 2003. Gross margin in our North American IT services segment was 26.9%, 28.1%, and 25.4% in 2004, 2003 and 2002, respectively. The decrease in gross margin in 2004 was due primarily to lower utilization of Idea Integration’s salaried consultants and to Modis’ increased presence on national vendor lists. Revenue from clients on a national vendor list tends to generate a lower gross margin due to these clients’ buying power. Modis was able to stabilize gross margin in the second half of 2004 by increasing its proportion of revenue from middle market clients, which tend to generate a higher gross margin. In conjunction with the uncertainties surrounding the economy in 2002 and 2003, our clients reduced the number of approved vendors. We looked for Modis to remain on these vendor lists so that we would be poised for growth when macroeconomic conditions were more favorable. The increase in gross margin in 2003 was due primarily to higher utilization of Idea Integration’s salaried consultants and Modis more effectively managing the bill and pay rates spread.

G&A expenses in our North American IT services segment were $87.2 million, $78.7 million, and $94.1 million, in 2004, 2003 and 2002, respectively, increasing by 10.8% and decreasing by 16.4% in 2004 and 2003, respectively. As a percentage of revenue, G&A expenses were 19.0%, 19.6%, and 19.4%, for 2004, 2003 and 2002, respectively. G&A expenses were affected by the following: the increase and decrease in compensation expense related to this segment’s increased 2004 revenue and decreased 2003 revenue, respectively; and our investment in additional sales and recruiting personnel in 2004.

Operating income was $28.0 million, $23.2 million, and $15.6 million in 2004, 2003 and 2002, respectively, increasing by 20.7% in 2004 and by 48.7% in 2003. Operating income as a percentage of revenue was 6.1%, 5.8% and 3.2% in 2004, 2003 and 2002, respectively.

European IT Services segment

Revenue in our European IT services segment was $248.8 million, $180.7 million, and $175.2 million, for 2004, 2003 and 2002, respectively, increasing by 37.7% and by 3.1% in 2004 and 2003, respectively. Changes in foreign currency exchange rates contributed $26.9 million in revenue from 2003 to 2004, and $14.6 million in revenue from 2002 to 2003. The increase in revenue in 2004 was due to increased spending on IT initiatives by our UK market clients.

Gross profit in our European IT services segment was $32.8 million, $27.0 million, $27.9 million, in 2004, 2003 and 2002, respectively, increasing by 21.5% in 2004 and decreasing by 3.2% in 2003. Changes in foreign currency exchange rates contributed $3.5 million in gross profit from 2003 to 2004, and $2.2 million in gross profit from 2002 to 2003. Gross margin in our European IT services segment was 13.2%, 14.9%, and 15.9% in 2004, 2003 and 2002, respectively. The decrease in gross margin was due primarily to a higher proportion of the segment’s growth being in the UK market, compared to the continental European market, and to a lesser extent, a shift in the mix of services provided by the segment. Our gross margins from revenue generated in the UK market are generally lower than those in the continental European market.

G&A expenses in our European IT services segment were $29.2 million, $22.9 million, and $22.3 million, in 2004, 2003 and 2002, respectively, increasing by 27.6% and by 2.7% in 2004 and 2003, respectively. As a percentage of revenue, G&A expenses were 11.7%, 12.6%, and 12.7%, for 2004, 2003 and 2002, respectively. The increase in G&A expenses was due to the increase in compensation expense related to the increases in the segment’s revenue in 2004, and the effect of exchange rates in 2004 and 2003.

Operating income was $2.4 million, $2.9 million, and $4.7 million in 2004, 2003 and 2002, respectively, decreasing by 17.2% and by 38.3% in 2004 and 2003, respectively. Operating income as a percentage of revenue was 1.0%, 1.6% and 2.7% in 2004, 2003 and 2002, respectively.

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Corporate expenses and charges (recaptures)

Included in consolidated operating expenses for 2002 was a $25.1 million charge for an investment impairment and exit costs. Included in consolidated operating expenses for 2003 and 2004, respectively, was a $284,000 and an $897,000 recapture for these exit costs.

The 2002 charge of $25.1 million was comprised of the following: (i) We elected not to participate in a recapitalization of a minority investment originally made in 1996. This election resulted in our investment being impaired. As a result, we wrote off the investment in its entirety resulting in a $16.2 million charge; (ii) We recorded a $9.0 million charge for exit costs associated with the abandonment of excess real estate obligations for certain vacant office space.

In 2003 and 2004, we recaptured $284,000 and $897,000, respectively, of the costs relating to the settlement of the abandoned office space. Changes to the local real estate economy where we have this abandoned real estate, and other factors originally unforeseen to us, allowed us the opportunity to either settle or find acceptable subleasing opportunities earlier than or for more than what we originally anticipated.

Unallocated corporate expenses pertain to certain functions, such as executive management, accounting, administration, tax, and treasury, that are not attributable to our operating units. Unallocated corporate expense was $23.3 million, $19.1 million and $22.8 million, in 2004, 2003 and 2002, respectively, increasing 22.0% in 2004 and decreasing 16.2% in 2003. The increase in unallocated corporate expense in 2004 was due primarily to expenses related to the adoption of and compliance with the new internal control requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002 and the standards of the Public Company Accounting Oversight Board, and to a lesser extent, higher incentive executive compensation based on the Company’s improved financial performance. The decrease in unallocated corporate expense in 2003 was due primarily to the elimination of duplicative corporate infrastructure, and to a lesser extent, lower provisions for incentive executive compensation based on the Company’s financial performance. As a percentage of revenue, unallocated corporate expense was 1.6%, 1.7% and 2.0%, for 2004, 2003 and 2002, respectively.

Consolidated other income (expense), net, was $1.4 million, $0.6 million, and $3.9 million in 2004, 2003 and 2002, respectively. Other income (expense), net, primarily includes interest income related to our investments and cash on hand, net of interest expense related to notes issued in connection with acquisitions and fees and interest on our credit facility. In 2002 we had outstanding borrowings and incurred interest expense in connection therewith.

The consolidated income tax provision was $18.2 million, $14.5 million, and $13.8 million in 2004, 2003 and 2002, respectively. Included in the 2004 income tax provision was a $1.3 million tax benefit associated with the settlement of a state income tax audit in the second quarter of 2004. Included in the provision for 2002 was an $8.7 million charge for an agreed upon adjustment related to an audit by the Internal Revenue Service of prior years’ tax returns. This charge, net of the tax benefit on the previously mentioned investment impairment and exit costs in 2002, increased the 2002 income tax provision by $3.5 million. Pre-tax income increased in 2004 compared to 2003, and in 2003 compared to 2002. This increase resulted in a lower effective income tax rate each year.

Consolidated income (loss) from continuing operations before cumulative effect of accounting change was $35.4 million, $21.8 million and a $14.0 million loss, in 2004, 2003, and 2002, respectively. The charge for the above investment impairment and exit costs in 2002 and the subsequent exit costs recaptures in 2003 and 2004, had a 2.3%, 0.1%, and 0.1% impact, respectively, on operating income as a percentage of revenue.

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LIQUIDITY AND CAPITAL RESOURCES

Changes to our liquidity during 2004, 2003 and 2002 are due primarily to the net effect of (i) funds generated by operations and stock option exercises, and (ii) funds used for acquisitions, repurchases of common stock and capital expenditures. We expect this to be consistent for 2005.

In 2004, cash of $71.3 million used in both investing and financing activities exceeded the $53.0 million of cash provided from operating activities, the effect of exchange rates and discontinued operations. Our net use of cash in 2004 was due to the following: our increased acquisition activity; the use of our Board-approved stock repurchase program; and a lower level of cash provided by operations. In 2003, cash of $80.6 million provided from operating activities, financing activities, the effect of exchange rates and discontinued operations, exceeded the $22.7 million of cash used for investing activities. In 2002, cash of $117.0 million provided from operating activities, the effect of exchange rates and discontinued operations, exceeded the $99.2 million of cash used for investing and financing activities. The below table highlights working capital and cash and cash equivalents as of December 31, 2004, 2003 and 2002, respectively:

For 2004, 2003, and 2002, we generated $50.2 million, $70.3 million, and $111.5 million of cash flow from operations, respectively. The decrease in cash flow from operations in 2004, was due primarily to the use of working capital to support our revenue growth. This growth increased the cash needed to fund accounts receivable, as we collect receivables within an average of 50 days, while primarily paying our employees on a weekly basis. The decrease in cash flow from operations in 2003, from 2002, was due primarily to the normalizing of receivables collection. In 2001 and 2002, the main elements of our back office integration and consolidation efforts were being completed. These efforts led to substantial improvements in receivables collection for 2002.

For 2004, we used $57.3 million of cash for investing activities, of which $50.2 million, net of cash acquired, was used for Acquisitions, and $9.6 million was used for capital expenditures. These uses were partially offset by $2.4 million of proceeds from the sale of certain assets of our executive search brand.

For 2003, we used $22.7 million of cash for investing activities, of which $15.9 million, net of cash acquired, was used for Acquisitions, and $6.8 million was used for capital expenditures. For 2002, we used $12.7 million of cash for investing activities, of which $6.7 million, net of cash acquired, was used for Acquisitions, and $6.0 million was used for capital expenditures.

For 2004, we used $14.0 million of cash for financing activities, primarily for $30.9 million of stock repurchases, net of $18.3 million generated from stock option exercises.

For 2003, we generated $2.7 million of cash from financing activities, primarily from $10.9 million of stock option exercises, net of $7.6 million used for stock repurchases.

For 2002, we used $86.5 million of cash for financing activities, primarily for $101.4 million of repayments on our previous credit facility, net of $16.9 million generated from stock option exercises. In addition, we used $1.4 million for stock repurchases. These repayments were mainly funded from cash flows from operations.

Our Board of Directors authorized the repurchase of up to $65 million of our Common stock. We repurchased 3.5 million shares at a cost of $30.9 million in 2004, which brought the total amount repurchased under this plan to 5.1 million shares at a cost of $39.9 million at December 31, 2004. We anticipate that we will continue to purchase shares under this authorization in the future. We have not repurchased any shares to date in 2005.

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We anticipate that capital expenditures for furniture and equipment, including improvements to our management information and operating systems, during the next twelve months, will be approximately $10 million.

While there can be no assurance in this regard, we believe that funds provided by operations, available borrowings under the credit facility, and current amounts of cash will be sufficient to meet our presently anticipated needs for working capital, capital expenditures, repurchases of common stock and acquisitions for at least the next 12 months.

Indebtedness, Contractual Obligations, and Commercial Commitments of the Company

The following are contractual cash obligations and other commercial commitments at December 31, 2004:

In 2003, we closed on a $150 million revolving credit facility syndicated by a group of leading financial institutions. The credit facility contains certain financial and non-financial covenants relating to our operations, including maintaining certain financial ratios. Repayment, if applicable, of funds borrowed under the credit facility is guaranteed by substantially all of our subsidiaries. The facility matures in November 2006. At December 31, 2004 and March 1, 2005, there were no borrowings outstanding under this facility, other than $4.4 million of standby letters of credit for certain operational matters.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (“FSP 109-2”). FSP 109-2 provides guidance under FASB Statement No. 109, Accounting for Income Taxes, with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on enterprises’ income tax expense and deferred tax liability. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. Based upon our preliminary evaluation of the effects of the repatriation provision, we do not expect to apply this provision.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following assessment of our market risks does not include uncertainties that are either nonfinancial or nonquantifiable, such as political, economic, tax and credit risks.

Our exposure to market risk for changes in interest rates relates primarily to debt obligations under the credit facility and to our investments. We have an investment portfolio consisting of cash and cash equivalents including deposits in banks, money market funds, and short-term investments with maturities of 90 days or less. We are adverse to principal loss and seek to preserve our invested funds by placing these funds with high credit quality issuers. We evaluate our invested funds to respond appropriately to a reduction in the credit rating of any investment issuer or guarantor.

We are exposed to the impact of foreign currency fluctuations. Changes in foreign currency exchange rates impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. Our international operations generated approximately 38% of 2004 consolidated revenue, approximately 97% of which was from the United Kingdom.

Our international operations transact business in their functional currency. As a result, fluctuations in the value of foreign currencies against the U.S. dollar have an impact on reported results. Revenues and expenses denominated in foreign currencies are translated into U.S dollars at monthly average exchange rates prevailing during the period. Consequently, as the value of the U.S. dollar changes relative to the currencies of our non-U.S. markets, our reported results vary.

Fluctuations in exchange rates impact the U.S. dollar amount of Stockholders’ Equity. The assets and liabilities of our non-U.S. subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of a reporting period. The resulting translation adjustments are recorded in Stockholders’ Equity, as a component of Accumulated Other Comprehensive Income, in our Consolidated Balance Sheets.

We prepared a sensitivity analysis to determine the adverse impact of hypothetical changes in the British pound sterling, relative to the U.S. Dollar, on our results of operations and cash flows. However, the analysis did not include the potential impact on sales levels resulting from a change in the British pound sterling. An additional 10% adverse movement in the exchange rate would have had an immaterial impact on our cash flows and financial position at December 31, 2004. While fluctuations in the British pound sterling have not historically had a material impact on our consolidated results of operations, the higher level of earnings resulting from an increase in demand for the services provided by our international operations have increased the impact of exchange rate fluctuations. As of December 31, 2004, we have not entered into any foreign currency derivative instruments.

We are exposed to minimal price fluctuations on equity mutual funds that are contained with our company-owned life insurance. The cash surrender value of the company-owned life insurance was $7.7 million at December 31, 2004, and is included in ‘Other assets, net’ in the consolidated Balance Sheets. Changes to the cash surrender value are recognized in ‘Other income (expense), net’ on our Consolidated Statements of Operations. This company-owned life insurance is intended to be used to settle our obligations of deferred compensation. Therefore, a corresponding employee liability is included in ‘Other’ in the Liabilities section of the Consolidated Balance Sheets.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Stockholders of MPS Group, Inc.:

We have completed an integrated audit of MPS Group, Inc.’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index, present fairly, in all material respects, the financial position of MPS Group, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting for goodwill upon the adoption of the accounting guidance of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, effective January 1, 2002.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

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accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Jacksonville, Florida

March 14, 2005

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Management’s Report on Internal Control over Financial Reporting

Management of MPS Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on that assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2004.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in their report which is included herein.

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MPS Group, Inc. and Subsidiaries

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

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MPS Group, Inc. and Subsidiaries

Consolidated Statements of Operations