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Article by DailyStocks_admin    (04-03-08 03:04 AM)

The Daily Magic Formula Stock for 04/04/2008 is COMSYS IT Partners Inc. According to the Magic Formula Investing Web Site, the ebit yield is 19% and the EBIT ROIC is >100 %.

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BUSINESS OVERVIEW

Unless otherwise indicated or the context otherwise requires, all references in this report to “COMSYS,” the “Company,” “us,” “our” or “we” are to COMSYS IT Partners, Inc., a Delaware corporation formed in July 1995, and its consolidated subsidiaries. Except as otherwise specified, references to “Old COMSYS” are to COMSYS Holding, Inc., its subsidiaries and their respective predecessors prior to its merger with VTP, Inc., a wholly-owned subsidiary of Venturi Partners, Inc., on September 30, 2004, which we refer to as the “merger.” Venturi Partners, Inc. was the surviving entity in the merger and changed its name to “COMSYS IT Partners, Inc.” References to “Venturi” are to Venturi Partners, Inc., its subsidiaries and their respective predecessors prior to the merger, except those subsidiaries relating to Venturi’s commercial staffing business, which were sold simultaneously with the merger on September 30, 2004.
Company Overview
We are a leading information technology (“IT”) services company and provide a full range of specialized staffing and project implementation services. Our comprehensive service offerings allow our clients to focus their resources on their core businesses rather than on recruiting, training and managing IT professionals. In using our staffing services, our clients benefit from:
• our extensive recruiting channels, providing our clients ready access to highly-skilled and specialized IT professionals, often within 48 hours of submitting a placement request;

• access to a flexible workforce, allowing our clients to manage their labor costs more effectively without compromising their IT goals; and

• our knowledge of the market for IT resources, providing our clients with qualified candidates at competitive prices.
We contract with our customers to provide both short- and long-term IT staffing services primarily at client locations throughout the United States. Our consultants possess a wide range of skills and experience, including website development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering and systems integration.
In addition to our core IT staffing business, we also offer our customers services that complement our staffing activities, such as:
• vendor management, in which we assist our clients in quantifying, consolidating, rationalizing and monitoring their procurement of temporary staffing and other services from multiple suppliers;

• project solutions, including custom software development and maintenance, packaged software development and network design and management;

• recruitment and permanent placement of IT professionals; and

• business intelligence solutions, transforming enterprise data into meaningful information aligning key performance indicators with strategic goals and objectives.
These additional services provide us opportunities to build relationships with new clients and enhance our service offerings to our existing clients.
We had 4,986 consultants on assignment at December 30, 2007. We recruit our consultants through our internal proprietary database that contains information about more than 650,000 candidates, and also through the Internet, local and national advertising and trade shows. We have a specialized selection, review and reference process for our IT consultant candidates. This process is an integral part of maintaining the delivery of high quality service to our clients.
We serve a broad and diversified customer base with over 1,000 corporate and government clients, including some of the largest users of IT services in the United States. These clients operate across a wide range of industry sectors, including financial services, telecommunications, manufacturing, information technology, government, pharmaceutical, biotechnology and transportation. Our customer base includes approximately 30% of the Fortune 500 companies and approximately 70% of the Fortune 50 companies. We have long-standing relationships with many of our clients, including relationships of more than a decade with many of our large customers. We believe our diverse customer base limits the risk associated with customer concentration. In 2007, for example, none of our customers represented more than 7% of our revenues and our 15 largest customers represented approximately 37% of our revenues.


Our operations have a coast-to-coast presence in the United States, with 52 offices in 26 states as well as offices in Puerto Rico, Canada and the United Kingdom. This coverage allows us to meet the needs of our clients on a national basis and provides us with a competitive advantage over certain regional and local IT staffing providers.
Our History
We completed the merger of Venturi and Old COMSYS on September 30, 2004, and created one of the leading IT staffing and consulting companies in the United States. The combined company has achieved cost savings by reducing corporate overhead and other expenses. The combined company also enjoys the benefits of a broader geographic footprint and offers an expanded range of technology service offerings that we expect will make us more competitive.
Prior to the merger, Old COMSYS was one of the largest providers of IT staffing services in the United States, and its consultants provided services to a diverse customer base that included commercial clients and federal and state governmental entities. Headquartered in Houston, Texas, it operated a network of 30 offices in 20 states. Prior to the merger, Venturi was a leading provider of technology and commercial staffing services to businesses and professional and government organizations. Its technology business operated through 27 offices in 20 states. Venturi’s IT service offerings, which were similar to those offered by Old COMSYS, included technology consulting, IT staffing, IT permanent placement and vendor management services.
In connection with the merger, we changed the name of our corporation from “Venturi Partners, Inc.” to “COMSYS IT Partners, Inc.” Concurrent with the merger, we also completed the sale of Venturi’s commercial staffing services division, Venturi Staffing Partners, Inc., to CBS Personnel Services, Inc. (formerly known as Compass CS Inc.).
Services
Our core business is providing IT staffing services. We also strive to differentiate ourselves from our competitors by offering additional services that complement our IT staffing services, including vendor management, project solutions and recruitment and permanent placement of IT professionals.
IT Staffing Services
We provide a wide range of IT staffing services to companies in diversified markets, including financial services, telecommunications, manufacturing, information technology, federal, state and local government, pharmaceutical, biotechnology and transportation. We deliver qualified consultants and project managers for contract assignments and full-time employment across a number of technology disciplines. In light of the time- and location-sensitive nature of our core IT staffing services, offshore application development and maintenance centers have not to date proven critical to our operations or our competitive position.
Our staffing services are generally provided on a time-and-materials basis, meaning that we bill our clients for the number of hours worked in providing services to the client. Hourly bill rates are typically determined based on the level of skill and experience of the consultants assigned and the supply and demand in the current market for those qualifications. Alternatively, the bill rates for some assignments are based on a mark-up over compensation and other direct and indirect costs. Assignments generally range from 30 days to over a year, with an average duration of six months. Certain of our contracts are awarded on the basis of competitive proposals, which can be periodically re-bid by the client.
We maintain a variable cost model in which we compensate most of our consultants only for those hours that we bill to our clients. The consultants who perform IT services for our clients consist of our consultant employees as well as independent contractors and subcontractors. With respect to our consultant employees, we are responsible for all employment-related costs, including medical and health care costs, workers’ compensation and federal social security and state unemployment taxes.
Business Process Outsourcing
Vendor Management Services. Vendor management services (“VMS”) allow our clients to automate and manage their procurement of and expenditures for temporary IT, clerical, finance, accounting and light-industrial personnel. The largest users of contingent workers may rely on dozens of suppliers to meet their labor needs. VMS provides a mechanism for clients to reduce their expenditures for temporary personnel services by automating and consolidating management of the contracting processes, standardizing pay rates for similar positions and reducing the number of suppliers providing these services. VMS gives our clients the ability to leverage their purchasing power for these temporary personnel services by standardizing their requisition, contract and procurement processes. Clients also benefit from working with only one supplier, receiving a consolidated invoice and having a single point of contact while retaining access to a full range of resources offered by a diverse portfolio of suppliers.
We operate VMS under the brand name vWorx SM . vWorx SM provides a structured approach consisting of process management and a web-based software tool to quantify, rationalize and monitor the expenditures that a client makes for its contracted services. We use third-party software products and a proprietary software program to provide our VMS. Our VMS implementation processes have been ISO 9001:2000 certified, which means that our processes comply with a comprehensive set of international quality standards. We believe that we are one of the few companies in our industry providing vendor management services to have this ISO certification.
Project Solutions. We complement our core competency in IT staffing and consulting services by offering our clients specialized project services that include project managers, project teams and turn-key deliverable-based solutions in the application development, integration and re-engineering, maintenance and testing practice areas. We have a number of specialty practice areas, including business intelligence, statistical analysis applications (“SAS”), enterprise resource applications (“ERP”), infrastructure data solutions and globalization and localization services. We provide these solutions through a defined IT implementation methodology. We deliver these solutions through teams deployed at a client’s site, offsite at development centers located in Kalamazoo, Michigan; Richmond, Virginia; Somerset, New Jersey and Portland, Oregon and, through a strategic alliance, offshore at technology centers located in India. Most of our project solutions work is also on a time-and-materials basis, but we do provide services from time to time on a fixed-price basis.
Recruitment Process Outsourcing. We provide recruitment and human resource outsourcing services that enable companies to build competitive advantage through workforce recruitment and retention. With a focus on human capital solutions, we work as an extension of our clients’ internal HR department, providing a wide range of services that include full recruitment process outsourcing (“RPO”), on-demand and project recruitment services, executive search and human resource consulting.
Permanent Placement
We also assist our clients in locating IT professionals for full-time positions within their organizations. We assist in recruitment efforts and screening potential hires. If a customer hires our candidate, we are generally compensated based on a percentage of the candidate’s first-year cash compensation. Billing is contingent on the candidate beginning their employment.
Industry Overview
We believe the demand for IT staffing in the United States is highly correlated to economic conditions and overall employment trends and demand will increase with an improving economy; conversely, demand may contract during a constricting economy. After contraction in the IT staffing industry from late 2000 to 2002 caused by corporate overspending on IT initiatives during the late 1990s and subsequent poor economic conditions, the industry has expanded since the later half of 2003, growing by approximately 10% in both 2004 and 2005 and 9% in 2006 according to a July 2007 report by Staffing Industry Analysts, Inc. (“SIA”), an independent, industry-recognized research group. In the July 2007 report, SIA estimated 9% growth in 2007 IT staffing services. Forrester Research Inc., another independent, industry recognized research firm, forecasted a 3% growth in U.S. IT spending in 2008. Vendor management services are expected to grow at a much faster pace. According to a June 2007 SIA report, more than 50% of large companies are expected to have VMS programs by 2009, up from 34% in 2007.
SIA estimates North America IT staffing revenue in 2007 to be approximately $20.7 billion. The IT staffing industry is fragmented and highly competitive. Based on SIA data for 2006, only one provider accounted for more than 10% of total IT staffing industry revenues. The top five IT staffing providers accounted for approximately 33% of total industry revenues, up from 27% of total industry revenue in 2004. We believe the larger competitors in our industry are better positioned to increase their respective market share due, in part, to the fact that many large companies increasingly source their IT staffing and service needs from a list of preferred service providers that meet specific criteria. The criteria typically include the service provider’s (i) geographic coverage relative to the client’s locations, (ii) size and market share, which is often measured by total revenues, (iii) proven ability to quickly fill client requests with qualified candidates, and (iv) pricing structure, including discounts and rebates. As a result, we believe that further consolidation of our industry will continue.
We believe that key elements of successfully competing in the industry include maintaining a strong base of qualified IT professionals to enable quick responses to client requests (often within 48 hours) and ensuring that the candidates are an appropriate fit with the cultural and technical requirements of each assignment. Other key success factors include accurate evaluation of candidates’ technical skills, strong account management to develop and maintain client relationships and efficient and consistent administrative processes to assist in the delivery of quality services.
Competitive Strengths
We believe our competitive strengths differentiate us from our competitors and have allowed us to successfully create a sustainable and scalable national IT staffing services business. Our competitive strengths include:
Proven Track Record with a National Footprint. We believe our brand name, high quality consultant base and broad geographic presence give us a competitive advantage as corporate and governmental clients continue to consolidate their use of IT staffing providers. At December 30, 2007, we had 4,986 consultants on assignment. We offer a wide range of IT staffing expertise, including website development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering and systems integration. Our coast-to-coast presence of 52 offices in 26 states allows us to meet the needs of our clients on a national basis, as well as build local relationships. For our large customers that have multiple IT centers in the United States, our geographic coverage allows us to provide consistent high quality service through a single point of contact.
Focus on IT Staffing Services . We believe the IT staffing industry offers a greater opportunity for higher profitability than many other commercial staffing segments because of the value-added nature of IT personnel. Unlike many of our competitors that offer several types of staffing services such as IT, finance, accounting, light industrial and clerical, we are focused on the IT sector. As a result, we are able to commit our resources and capital towards our goal of building the leading IT staffing services business in the U.S. We will; however, consider diversifying into other high-value staffing segments on an opportunistic basis.
Diversified Revenue Base With Long-Term Customer Relationships. We have over 1,000 corporate and government clients, including approximately 30% of the Fortune 500 companies and approximately 70% of the Fortune 50 companies. During 2007, no single client represented more than 7% of our revenues and our 15 largest clients represented approximately 37% of our revenues. Our clients operate across a broad spectrum of markets, with our four largest end-markets consisting of financial services, telecommunications, pharmaceutical, biotechnology and information technology. We have long-standing relationships with many of our clients, including relationships of more than a decade with many of our large customers.
Extensive Recruiting Channels and Effective Hiring Process. We believe our recruiting tools and processes and our depth of knowledge of the markets in which we operate provide us with a competitive advantage in meeting the demanding time-to-market requirements for placement of IT consultants. The placement of highly skilled personnel requires operational and technical knowledge to effectively recruit and screen personnel, match them to client needs, and develop and manage the resulting relationships. To find and place the best candidate with the applicable skill-set, we maintain a proprietary database that contains information about more than 650,000 candidates. We also recruit through the internet, local and national advertising and trade shows and we maintain two national recruiting centers. All of these resources assist us in locating qualified candidates quickly, often within 48 hours of a client placement request.
Complementary Service Offerings. We believe our complementary service offerings help us to build and enhance our relationships with new and existing clients by providing us with cross-selling opportunities for all of our service offerings. In addition to our core business of IT staffing, we offer our customers vendor management services, project solutions and permanent placement of IT professionals through our business process outsourcing group. We began offering vendor management services in 2000 and now provide these services to 36 clients. We believe we are one of the leading vendor management businesses in the United States. We also evaluate opportunities to expand our service offerings based on customer demand and technology needs.
Scalable Infrastructure. We have a scalable information technology and transaction processing infrastructure. Our back-office functions, including payroll, billing, accounts payable, collections and financial reporting, are consolidated in our customer service center in Phoenix, Arizona, which operates on a PeopleSoft platform. We also have a proprietary, web-enabled front-office system, which facilitates the identification, qualification and placement of consultants in a timely manner. In addition, we maintain a centralized call center for scheduling sales appointments and a centralized proposals and contract services department. We believe this infrastructure will facilitate our internal growth strategy and allow us to continue to integrate acquisitions rapidly.

Business Strategy
Our goal is to become the leading provider of IT staffing and consulting services in the United States and to expand our complementary service offerings. We believe the following are key elements of our business strategy:
Expand Our Services to Our Existing Client Base. We are focused on expanding our market share in IT staffing services through greater penetration of our existing client base and cross-selling of our various service lines. We believe our brand name and proven track record with our clients will allow us to become an increasingly significant preferred IT staffing provider to our clients. In order to facilitate our cross-selling opportunities, in 2006, we implemented our “storefront model” across our existing branch network wherein each branch offers all of our service lines. We believe that the storefront model will accelerate our ability to provide additional services, such as vendor management and project solutions, to our existing clients.
Increase Our Customer Base within Our Existing Markets. We are focused on increasing our customer base by capitalizing on our broad geographic footprint and expansive and diverse range of services. We also plan to continue developing new customer relationships by leveraging our national and local sales forces through our 52 branch offices in the United States. We believe our reputation as a high quality provider of IT staffing services in our existing markets positions us to grow our share in certain of these markets with limited incremental fixed costs.
Focus on Managed Solutions and Higher-Skills Staffing Opportunities. We plan to continue focusing on the practice areas in our project solutions group and on placements that require more highly-skilled IT professionals, which typically generate higher bill rates and margins. We also remain committed to identifying emerging information technology applications that have the potential to generate substantial demand and yield high margins.
Attract and Retain Highly-Skilled Consultants. We believe one of the keys to our success is our ability to attract and retain highly-skilled consultants. To achieve this, we seek projects that provide our consultants the opportunity to work on complex applications or to learn new technologies. Our client profile, including approximately 30% of the Fortune 500 companies, is also attractive to professionals with more advanced skill sets. We monitor the IT consultant market continuously and offer competitive compensation and benefits. In addition, we continue to expand our online training offerings to our consultants and also provide consultant resource managers, who assist our consultants in their career development and help maintain a positive work environment.
Further Improve Operating Efficiency. We strive to continuously improve our efficiency in key business processes, especially in our sales and recruiting areas and our front and back office systems infrastructure. We believe that improvement in our business processes can contribute to further operating leverage while improving our service delivery to our clients.
Capitalize on Strategic Acquisition Opportunities. We look for acquisition targets that provide us the opportunity to expand our services to new geographic markets, add new clients to our existing customer base or add new IT practice areas to our existing capabilities. In addition, we believe strategic acquisitions can enhance our internal growth through cross-selling opportunities that can expand our market share and enhance our profitability by capitalizing on our scalable infrastructure. More recently, we have begun to consider entering into other high-value staffing segments through acquisitions. We believe our operating platform enables us to integrate acquisitions efficiently while reducing corporate overhead and other expenses.
Expand Our Geographic Presence. We opened two new offices in 2007 and added six additional locations through acquisitions. We continue to seek opportunities to expand our national presence. New office expansion will enable us to reach new clients or provide our services to existing clients in other locations where we have not previously served them. In particular, we continue to evaluate expansion to other cities in the United States where we believe the competitive dynamics would be favorable and we could enter with limited investment.

Sales and Marketing
We employ a centralized sales and marketing strategy that focuses on both national and local accounts. The marketing strategy is implemented on both national and local levels through each of our branch offices. At the national level, we focus on attaining preferred supplier status with Fortune 500 companies, a status that would make us one of a few approved service providers to those companies. An integral part of our marketing strategy at the national level is the use of our account management professionals who generally have over five years of experience in our industry. Their industry experience makes them capable of understanding our clients’ business strategies and IT staffing requirements. We are also supported by:
• centralized proposals and contract services departments;

• a strategic accounts group;

• a candidate sourcing operation for larger, high-volume clients that obtain contract IT professionals primarily through procurement departments;

• a centralized outbound call center for scheduling sales appointments with key contacts at prospective clients;

• a project solutions sales force;

• a vendor management sales force; and

• national recruiting centers for sourcing IT professionals located in the United States.
All of these assist in the development of responses to requests for proposals from large accounts and support our efforts in new client development activity.
Local accounts are targeted through account managers at the branch office level, permitting us to capitalize on the established local expertise and relationships of our branch office employees. These accounts are solicited through personal sales presentations, telephone and e-mail marketing, direct mail solicitation, referrals and advertising in a variety of local and national media. Although local offices retain flexibility with regard to local customer and employee issues, these offices adhere to company-wide policies and procedures and a set of best practices designed to ensure quality standards throughout the organization. Local employees are encouraged to be active in civic organizations and industry trade groups to facilitate the development of new customer relationships and develop local contacts with technology user groups for referral of specific technology skills.
Local office employees report to a managing director who is responsible for day-to-day operations and the profitability of the office. Managing directors report to regional vice presidents. Regional vice presidents have substantial autonomy in making decisions regarding the operations in their respective regions, although sales activities directed toward strategic accounts are coordinated at a national level.
Our company-wide compensation program for account managers and recruiters is intended to provide incentives for higher margin business. One component of compensation for account managers and recruiters is commissions, which increase significantly for placements with higher gross profit contribution.
Employees and Consultants
Of our 4,986 consultants on assignment at December 30, 2007, approximately 60% were employee consultants and approximately 40% were subcontractors and independent contractors. In addition, as of December 30, 2007, we had 777 permanent staff employees consisting primarily of management, administrative staff, account managers and recruiters. None of our employees are covered by collective bargaining agreements, and management believes that our relationships with our employees are good.
We recruit our consultants through both centralized and decentralized recruiting programs. Our recruiters use our internal proprietary database, the Internet, local and national advertisements and trade shows. Our front office system maintains a current database containing information about more than 650,000 candidates, including their skills, education, desired work location and other employment-related information. The system enables us to scan, process and store thousands of resumes, making it easier for recruiters to identify, qualify and place consultants in a timely manner. It also allows billable consultants to electronically review and apply for job openings. In addition, we use our national recruiting center in Houston, Texas for sourcing IT professionals located in the U.S. This center enhances our local recruitment effort by providing additional resources to meet clients’ critical timeframes and broadening our capability to deliver resources in areas of the country where no local office exists. We also recruit qualified candidates through our candidate referral program, which pays a referral fee to eligible individuals responsible for attracting new recruits that are successfully placed by us on an assignment.

We have a specialized selection, review and reference process for our IT consultant candidates that is an integral part of maintaining the delivery of high quality service to our clients. This process includes interviewing each candidate to allow us to assess whether that individual will be an appropriate match for a client’s business culture and performing reference checks. We also conduct a technical competency review of each candidate to determine whether the consultant candidate has the technical capabilities to successfully complete the client assignment. Our technical assessment will often include a formal technology skills assessment through an automated software product. We also undertake additional reviews, including more detailed background checks, at the request of our clients.
In an effort to attract a broad spectrum of qualified billable consultants, we offer a wide variety of employment options and training programs. Through our training and development department, we offer an online training platform to our consultants. This program includes over 2,000 self-paced IT and business-related courses and 13 technical certification paths in course areas such as software development, enterprise data systems, internet and network technologies, web design, project management, operating systems, server technologies and business-related skills. We believe these training initiatives improve consultant recruitment and retention, increase the technical skills of our personnel and result in better service for our clients. We also provide consultant resource managers to assist our consultants in their career development and help maintain a positive work environment.
Competition
We operate in a highly competitive and fragmented industry. There are relatively few barriers to entry into our markets, and the IT staffing industry is served by thousands of competitors, many of which are small, local operations. There are also numerous large national and international competitors that directly compete with us, including TEKsystems, Inc., Ajilon Consulting, MPS Group, Inc., Kforce Inc., Spherion Corporation, CDI Corp. and Robert Half International. Some of our competitors may have greater marketing and financial resources than us.
The competitive factors in obtaining and retaining clients include, among others, an understanding of client-specific job requirements, the ability to provide appropriately skilled information technology consultants in a timely manner, the monitoring of job performance quality and the price of services. The primary competitive factors in obtaining qualified candidates for temporary IT assignments are wages, the technologies that will be utilized, the challenges that an assignment presents, the timing of availability of assignments and the types of clients and industries that will be serviced. We believe our nationwide presence, strength in recruiting and account management and the broad range of customers and industries to which we provide services make us highly competitive in obtaining and retaining clients and recruiting highly qualified consultants.
Regulation
We are subject to various types of government regulations, including: employer/employee relationship between a firm and its employees, including tax withholding or reporting, social security or retirement, benefits, workplace compliance, wage and hour, anti-discrimination, immigration and workers’ compensation; registration, licensing, record keeping and reporting requirements; and federal contractor compliance.
Trademarks
We believe the COMSYS ® name is extremely valuable and important to our business. We endeavor to protect our intellectual property rights and maintain certain trademarks, trade names, service marks and other intellectual property rights, including vWorx SM . We also license certain other proprietary rights in connection with our businesses. We are not currently aware of any infringing uses or other conditions that would be reasonably likely to materially and adversely affect our use of our proprietary rights.
Seasonality
Our business is affected by seasonal fluctuations in corporate IT expenditures. Generally, expenditures are lowest during the first quarter of the year when our clients are finalizing their IT budgets. In addition, our quarterly results may fluctuate depending on, among other things, the number of billing days in a quarter and the seasonality of our clients’ businesses. Our business is also affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower revenues and gross margins in the fourth quarter of each year. Extreme weather conditions may also affect demand in the first and fourth quarters 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 resetting certain state and federal employment tax rates and related salary limitations.

CEO BACKGROUND

Larry L. Enterline. Mr. Enterline was re-appointed as our Chief Executive Officer effective February 2, 2006. Mr. Enterline had previously served as our Chief Executive Officer from December 2000, when our company was known as Venturi Partners, Inc., until September 30, 2004, when we completed our merger with COMSYS Holding, Inc. He has served as a member of our Board since December 2000 and served as Chairman of the Board from December 2000 until the merger. Prior to joining our company, Mr. Enterline served in a number of senior management positions at Scientific-Atlanta, Inc. from 1989 to 2000, the last of which was Corporate Senior Vice President for Worldwide Sales and Service. He also held management positions in the marketing, sales, engineering and products areas with Bailey Controls Company and Reliance Electric Company from 1974 to 1989. He also serves on the boards of directors of Raptor Networks Technology Inc. and Concurrent Computer Corporation.
Michael H. Barker. Mr. Barker has served as our Executive Vice President and Chief Operating Officer since October 2006. Mr. Barker served as our Executive Vice President — Field Operations from the completion of the merger in September 2004 until October 2006. Prior to the merger, Mr. Barker had served as the President of Division Operations of Venturi since January 2003. From January 2001 through January 2003, Mr. Barker served as President of Venturi’s Technology Division. Prior to that time, Mr. Barker served as President of Divisional Operations of Venturi from October 1999 to January 2001 and as President of its Staffing Services Division from January 1998 until October 1999. Prior to joining Venturi, from 1995 to 1997 Mr. Barker served as the Chief Operations Officer for the Computer Group Division of IKON Technology Services, a diversified technology company.
Ken R. Bramlett, Jr. Mr. Bramlett was re-appointed as our Senior Vice President, General Counsel and Corporate Secretary effective January 3, 2006. Mr. Bramlett had previously served in a number of senior management positions with our company from 1996, when our company was known as Venturi Partners, Inc., until September 30, 2004, when we completed our merger with COMSYS Holding, Inc. His last position prior to the merger was Senior Vice President, General Counsel and Secretary. Prior to rejoining the Company, Mr. Bramlett was a partner in the business law department of Kennedy Covington Lobdell & Hickman LLP, a Charlotte, North Carolina law firm, from March 2005 to December 2005. Mr. Bramlett also serves on the boards of directors of World Acceptance Corporation and Raptor Networks Technology, Inc.
David L. Kerr. Mr. Kerr has served as our Senior Vice President — Corporate Development since the completion of the merger in September 2004. Prior to the merger, Mr. Kerr had served as Senior Vice President — Corporate Development of Old COMSYS since July 2004. Mr. Kerr joined Old COMSYS in October 1999 and served as its Chief Financial Officer and a Senior Vice President until December 2001. Old COMSYS retained Mr. Kerr as an independent consultant from January 2002 to July 2004, during which time Old COMSYS sought his advice and counsel on a number of business matters related to the IT staffing industry, including corporate development, mergers and acquisitions, divestitures, sales operations and financial transactions. Prior to joining Old COMSYS, Mr. Kerr was the Founder, Principal Officer, Shareholder and Managing Director of Omni Ventures LLC and Omni Securities LLC. Mr. Kerr was previously a partner with KPMG where he specialized in merger and acquisition transactions.
Amy Bobbitt . Ms. Bobbitt has served as our Senior Vice President and Chief Accounting Officer since September 2007. Prior to that, Ms. Bobbitt served as our Vice President of Finance since June 2006. Previously, Ms. Bobbitt was employed by Amkor Technology, Inc. from February 2005 to June 2006, where she served as Vice President and Corporate Controller. Prior to that, she served as Chief Accounting Officer and Corporate Controller at Rockford Corporation from December 2003 to February 2005. Ms. Bobbitt was the Vice President and Chief Financial Officer of Pima Capital Development Company for approximately eight years and was formerly an audit manager with Deloitte & Touche. Ms. Bobbitt received her Bachelor of Science in Business Administration, majoring in Accounting, from The Ohio State University and also maintains her Certified Public Accountant license.

COMPENSATION

Larry L. Enterline rejoined COMSYS as Chief Executive Officer in February 2006 and has an employment agreement with us dated as of July 27, 2006. This employment agreement provides for an annual base salary of $500,000, which may be adjusted as determined by the Compensation Committee. Mr. Enterline is eligible to participate in the Company’s annual incentive bonus plan. Under the incentive plan, Mr. Enterline is eligible for an annual bonus, ranging from 50% to 200% of one-half of his annual base salary, also referred to as the bonus target, based upon the achievement of an annual EBITDA target established each year by the Compensation Committee. Each 1% incremental increase over the established EBITDA target for each year will result in an additional 5% incremental increase in the bonus payable for the year. No incentive is provided unless a minimum of 90% of the EBITDA target is achieved and no additional bonus potential will be earned for any EBITDA above 110% of the target. The initial term of Mr. Enterline’s employment agreement commenced on the date of the agreement and will continue to December 31, 2008, subject to automatic extensions for a one-year period at the end of each year of the term, unless the agreement is terminated in accordance with its terms. In the event that we do not renew Mr. Enterline’s employment agreement, he is terminated other than for cause, he resigns for good reason, or his employment is terminated due to death or disability, Mr. Enterline will receive severance of $750,000, plus an amount equal to the average annual bonus earned by Mr. Enterline during each of the two years prior to his termination, payable in a lump sum or, in certain circumstances, over a 24-month period. Mr. Enterline would also be entitled to receive continued insurance and benefits for a 24-month period following such a termination. If Mr. Enterline had been terminated under these circumstances as of December 31, 2006, the value of his severance and benefits would have totaled $1,181,143, which includes $750,000 for severance, $425,000 for his 2006 bonus, and $6,143 for the present value of health benefits based on our current rates.
Also under the terms of the agreement, if Mr. Enterline is terminated for any reason other than for cause, or resigns for good reason, during the two-year period following a change of control of our Company, Mr. Enterline would be entitled to receive an additional severance benefit of $250,000 and all benefits that would be otherwise provided under the employment agreement in the event of a termination of his employments without cause (which, as of December 31, 2006, would have totaled $1,431,143 for severance and benefits). The change in control payments for severance and bonus will be payable in a lump sum in immediately available funds. In addition, in the event of a change in control, all of his outstanding unvested stock options and other stock awards would vest. In the event it shall be determined that any payment or distribution to or for the benefit of the executive upon a change of control would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties with respect to such excise tax, then the executive will be entitled to receive an additional payment (“gross-up payment”), in an amount such that after payment by the executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any excise tax imposed upon the gross-up payment, the executive retains an amount of the gross-up payment equal to the excise tax imposed upon the payments. If there had been an employment termination following a change in control as of December 31, 2006, the value of Mr. Enterline’s total severance and change in control benefits would have been $5,283,495 which includes $1,000,000 for severance, $425,000 for his 2006 bonus, $6,143 for the present value of health benefits based on our current rates, $3,031,500 for accelerated vesting of his equity awards based on the closing price of our stock on the last trading day of the fiscal year (see “Compensation Tables—Outstanding Equity Awards at 2006 Fiscal-Year End” above for more detail on Mr. Enterline’s equity holdings) and $820,852 for tax gross up payments (assuming a combined federal income and Medicare tax rate of 36.45%). The agreement includes a restriction on competition for a period of two years following termination of Mr. Enterline’s employment.
Under this employment agreement, Mr. Enterline received a restricted stock award of 150,000 restricted shares of common stock in July 2006. One-third (or 50,000 shares) was originally scheduled to vest on the grant date and two-thirds (or the remaining 100,000 shares) were scheduled to vest in substantially equal installments on each of January 1, 2007, January 1, 2008 and January 1, 2009. On September 29, 2006, we entered into a modification agreement with Mr. Enterline that amended the vesting schedule for Mr. Enterline’s restricted stock award. As a result of this amendment, the 50,000 shares that were originally scheduled to vest on the grant date were rescheduled to vest on the earlier of (i) January 1, 2009 or (ii) the termination of Mr. Enterline’s employment for any reason that would entitle him to severance benefits under Section 6 of his employment agreement (as amended from time to time).
Michael H. Barker
Michael H. Barker has an employment agreement with us dated as of April 13, 2003. This employment agreement currently provides for an annual base salary of $326,400, which may be adjusted as determined by the Compensation Committee. Mr. Barker is eligible to participate in the Company’s annual incentive plan. Under the incentive plan, Mr. Barker is eligible for an annual bonus, ranging from 50% to 200% of one-half of such executive’s annual base salary, also referred to as the bonus target, based upon the achievement of an annual EBITDA target established by the Compensation Committee. Each 1% incremental increase over the established EBITDA target for the year will result in an additional 5% incremental increase in bonus payable for that year. No incentive is provided unless a minimum of 90% of the EBITDA plan is achieved, and no additional bonus potential will be earned for any EBITDA above 110% of the target. The initial term of Mr. Barker’s employment agreement commenced on the date of the agreement and will continue to September 30, 2007, subject to automatic extensions for a one-year period at the end of each year of the term, unless the agreement is terminated in accordance with its terms. The employment agreement with Mr. Barker provides for severance equal to one year of his base salary and a pro rata bonus upon termination (including non-renewal) without cause. In addition, for a period of twelve months following termination of Mr. Barker’s employment, he and his spouse and dependents will be entitled to continue to be covered by all group medical insurance arrangements in which Mr. Barker was a participant as of the date of such termination, at the same coverage level and on the same terms and conditions which apply to our then active employees, until Mr. Barker commences a new employment or otherwise obtains coverage under another group medical plan, provided such new coverage does not contain any pre-existing condition exclusions or limitations. If Mr. Barker had been terminated under these circumstances as of December 31, 2006, the value of his severance and benefits would have totaled $557,431, which includes $326,400 for severance, $220,320 for his bonus, and $10,711 for the present value of health benefits based on our current rates.
In the event of a change of control of our Company, all of Mr. Barker’s outstanding unvested stock options and other stock awards would vest. If there had been a change in control as of December 31, 2006, the value of Mr. Barker’s total severance and change in control benefits would have been $1,198,719, which includes $326,400 for severance, $220,320 for his bonus, $10,711 for the present value of health benefits based on our current rates and $641,288 for accelerated vesting of his equity awards based on the closing price of our stock on the last trading day of the fiscal year (see “Compensation Tables—Outstanding Equity Awards at 2006 Fiscal-Year End” above for more detail on Mr. Barker’s equity holdings). The employment agreement also includes a restriction on competition for a period of two years following termination of Mr. Barker’s employment.
For 2005, Mr. Barker was entitled to receive a minimum performance bonus of $100,000 under an amendment to his employment agreement that was executed in connection with the closing of the merger. At the Compensation Committee’s request, Mr. Barker agreed to accept 12,500 restricted shares of our common stock in lieu thereof. These shares were issued to Mr. Barker in February 2006 and vest at the rate of 33 1 / 3 % each year over the three-year period beginning on the first anniversary of the grant date.
Joseph C. Tusa, Jr.
Joseph C. Tusa, Jr. has an amended and restated employment agreement with us dated as of December 9, 2005. This employment agreement provides for an annual base salary of $296,500, which may be adjusted as determined by the Compensation Committee. Mr. Tusa is eligible to participate in the Company’s annual incentive plan. Under the incentive plan, Mr. Tusa is eligible for an annual bonus, ranging from 50% to 200% of one-half of his annual base salary, also referred to as the bonus target, based upon the achievement of an annual EBITDA target established each year by the Compensation Committee. Each 1% incremental increase over the established EBITDA target for each year will result in an additional 5% incremental increase in bonus payable for that year. No incentive is provided unless a minimum of 90% of the EBITDA plan is achieved, and no additional bonus potential will be earned for any EBITDA above 110% of the target. The initial term of Mr. Tusa’s employment agreement commenced on the date of the agreement and will continue to December 31, 2007, subject to automatic extensions for a one-year period at the end of each year of the term, unless the agreement is terminated in accordance with its terms. In the event that we do not renew Mr. Tusa’s employment agreement, he is terminated other than for cause, he resigns for good reason, or his employment is terminated due to death or disability, Mr. Tusa will receive severance equal to 150% of his base compensation, plus an amount equal to the average bonus earned by Mr. Tusa for the two years prior his termination, payable in a lump sum or, in certain circumstances, over a 24-month period. Mr. Tusa would also be entitled to receive continued insurance and benefits for a 24-month period following such a termination. If Mr. Tusa had been terminated under these circumstances as of December 31, 2006, the value of these benefits would be $621,909, which includes $444,750 for severance, $157,569 for his bonus (which is the average of the bonuses Mr. Tusa earned for 2005 and 2006), and $19,590 for the present value of health benefits based on our current rates.
If Mr. Tusa is terminated for any reason other than for cause, or resigns for good reason, during the two-year period following a change of control of our Company, Mr. Tusa would be entitled to receive an additional severance benefit of 50% of his base compensation and all benefits that would be otherwise provided under the employment agreement in the event of a termination of his employment without cause (which, as of December 31, 2006, would have totaled $770,159 for severance and benefits). The change of control payments will be payable in lump sum in immediately available funds. In the event it shall be determined that any payment or distribution to or for the benefit of the executive upon a change of control would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties with respect to such excise tax, then the executive will be entitled to receive an additional payment, referred to as a gross-up payment, in an amount such that after payment by the executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any excise tax imposed upon the gross-up payment, the executive retains an amount of the gross-up payment equal to the excise tax imposed upon the payments. In addition, in the event of a change in control, all of his outstanding unvested restricted stock would vest. If there had been a change in control as of December 31, 2006, and Mr. Tusa resigned for good reason or was terminated other than for cause, the value of Mr. Tusa’s total change in control benefits would be $2,739,427, which includes $593,000 for severance, $157,569 for his bonus (which is the average of the bonuses Mr. Tusa earned for 2005 and 2006), $19,590 for the present value of health benefits based on our current rates, $1,527,532 for accelerated vesting of his equity awards based on the closing price of our stock on the last trading day of the fiscal year (see “Compensation Tables—Outstanding Equity Awards at 2006 Fiscal-Year End” above for more detail on Mr. Tusa’s equity holdings) and $441,736 for tax gross up payments (assuming a combined federal income and Medicare tax rate of 36.45%). The agreement includes a restriction on competition for a period of two years following termination of Mr. Tusa’s employment.
David L. Kerr
David L. Kerr has an employment agreement with COMSYS Information Technology Services, Inc., dated as of July 16, 2004. This employment agreement provides for an annual base salary of $284,600, which may be adjusted as determined by the Compensation Committee. Mr. Kerr is eligible to participate in the Company’s annual incentive plan. Under the incentive plan, Mr. Kerr is eligible for an annual bonus, ranging from 50% to 200% of one-half of such executive’s annual base salary, also referred to as the bonus target, based upon the achievement of an annual EBITDA target established each year by the Compensation Committee. Each 1% incremental increase over the established EBITDA target for that year will result in an additional 5% incremental increase in bonus payable for that year. No incentive is provided unless a minimum of 90% of the EBITDA plan is achieved, and no additional bonus potential will be earned for any EBITDA above 110% of the target. Mr. Kerr’s employment agreement commenced on the date of the agreement and will continue until terminated in accordance with its terms. Mr. Kerr’s agreement provides for severance equal to one year’s base compensation, provided that the executive is terminated without cause. If Mr. Kerr had been terminated under these circumstances as of December 31, 2006, the value of these benefits would be $284,600, based on his 2006 salary.
In the event of a change of control of our Company, all of Mr. Kerr’s unvested restricted stock awards will vest. If there had been a change in control as of December 31, 2006, and Mr. Kerr is terminated without cause, the value of Mr. Kerr’s total change in control benefits would be approximately $1,812,132, which includes $284,600 for severance and $1,527,532 for accelerated vesting of his equity awards based on the closing price of our stock on the last trading day of the fiscal year (see “Compensation Tables—Outstanding Equity Awards at 2006 Fiscal-Year End” above for more detail on Mr. Kerr’s equity holdings). The employment agreement includes a restriction on competition for a period of two years following termination of Mr. Kerr’s employment.
Ken R. Bramlett, Jr.
Ken R. Bramlett, Jr. has an employment agreement with us, dated as of January 3, 2006. The employment agreement provides for an annual base salary of $270,000, which may be adjusted as determined by the Compensation Committee. Mr. Bramlett is eligible to participate in the Company’s annual incentive plan. Under the incentive plan, Mr. Bramlett is eligible for an annual bonus, ranging from 50% to 200% of one-half of his annual base salary, also referred to as the bonus target, based upon the achievement of an annual EBITDA target established each year by the Compensation Committee. Each 1% incremental increase over the established EBITDA target for that year will result in an additional 5% incremental increase in bonus payable for that year. No incentive is provided unless a minimum of 90% of the EBITDA plan is achieved, and no additional bonus potential will be earned for any EBITDA above 110% of the target. The initial term of Mr. Bramlett’s employment agreement commenced on the date of the agreement and will continue to December 31, 2007, subject to automatic extensions for a one-year period at the end of each year of the term, unless the agreement is terminated in accordance with its terms. In the event that we do not renew Mr. Bramlett’s employment agreement, he is terminated other than for cause, he resigns for good reason, or his employment is terminated due to death or disability, Mr. Bramlett will receive severance equal to 150% of his base salary, plus an amount equal to the average bonus earned by Mr. Bramlett for the two years prior his termination, payable in a lump sum or, in certain circumstances, over a 24-month period. Mr. Bramlett would also be entitled to receive continued insurance and benefits for a 24-month period following such a termination. If Mr. Bramlett had been terminated under these circumstances as of December 31, 2006, the value of these benefits would be $606,228, which includes $405,000 for severance, $182,250 for his bonus, and $18,978 for the present value of health benefits based on our current rates.
If Mr. Bramlett is terminated for any reason other than for cause, or resigns for good reason, during the two-year period following a change of control of our Company, Mr. Bramlett would be entitled to receive an additional severance benefit of 50% of his base salary and all benefits that would be otherwise provided under the employment agreement in the event of a termination of his employment without cause (which, as of December 31, 2006, would have totaled $741,228 for severance and benefits). The change of control payments will be payable in lump sum in immediately available funds. In the event it shall be determined that any payment or distribution to or for the benefit of the executive upon a change of control would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties with respect to such excise tax, then the executive will be entitled to receive an additional payment, referred to as a gross-up payment, in an amount such that after payment by the executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any excise tax imposed upon the gross-up payment, the executive retains an amount of the gross-up payment equal to the excise tax imposed upon the payments. In addition, in the event of a change in control, all of his outstanding unvested stock options and other stock awards would vest. If there had been a change in control as of December 31, 2006, and Mr. Bramlett resigned for good reason or was terminated other than for cause, the value of Mr. Bramlett’s total change in control benefits would be $1,892,532, which includes $540,000 for severance, $182,250 for his bonus, $18,978 for the present value of health benefits based on our current rates, $604,560 for accelerated vesting of his equity awards based on the closing price of our stock on the last trading day of the fiscal year (see “Compensation Tables—Outstanding Equity Awards at 2006 Fiscal-Year End” above for more detail on Mr. Bramlett’s equity holdings) and $546,744 for tax gross up payments (assuming a combined federal income, Medicare and state tax rate of 42.45%). The agreement includes a restriction on competition for a period of two years following termination of Mr. Bramlett’s employment.
In connection with his employment by our Company, on January 3, 2006, Mr. Bramlett also received options to purchase an aggregate of 66,000 shares of our common stock at an exercise price of $11.05 per share. One-third of these options vests on each anniversary of the date of grant, with all such options fully vesting on January 3, 2009. In addition, in February 2007, the Compensation Committee amended the expiration date of 64,000 fully-vested stock options held by Mr. Bramlett. The expiration date for these options was shortened in 2004 when Mr. Bramlett left our Company following the merger between Old COMSYS and a wholly-owned subsidiary of Venturi Partners, Inc. Mr. Bramlett re-joined our Company in January 2006, and the Compensation Committee’s action restored the expiration date for these options to the original scheduled date.
SEVERANCE AGREEMENT
Michael T. Willis
In connection with Michael T. Willis’ resignation as our Chief Executive Officer, we entered into a resignation agreement and release, dated as of February 2, 2006, pursuant to which we agreed to pay Mr. Willis cash severance payments over a 24-month period in the aggregate amount of $1.15 million, consulting fees of $0.1 million, an expense allowance of $8,250 per month for 12 months and up to $1,000 per month to reimburse him for the cost of health benefits until he reaches the age of 65 or such time as another employer provides benefits. The agreement also provided that in addition to the 282,703 vested shares of common stock that Mr. Willis held at the time under the 2004 Management Incentive Plan, 204,109 unvested shares of restricted common stock held by Mr. Willis would vest if the average closing price of COMSYS common stock over any consecutive 30-day period ending on or before December 31, 2006 equaled or exceeded $18.67 per share. These shares vested in October 2006.
Under the resignation agreement, Mr. Willis released us, our subsidiaries and affiliates and certain others from any and all claims he may have against us or them up to the date of his resignation. Although the resignation agreement superseded and canceled all prior agreements with Mr. Willis with respect to the subject matter, Mr. Willis will remain subject to certain non-solicitation and non-disclosure obligations, although he will not be subject to certain non-competition restrictions. In the event that Mr. Willis materially violates any of the provisions of the resignation agreement, he will forfeit all unpaid cash payments described above.
In connection with the execution of the resignation agreement, Wachovia Investors, Inc., our largest stockholder, agreed to amend the terms of a $1.0 million note made by Mr. Willis and held by Wachovia. The amendment, among other things, reduced the interest rate on the note from a variable floating rate to 5%, extended the maturity date from December 31, 2006 to December 31, 2010, and provided for various repayment options, including discounts and forgiveness of certain payment obligations under specified circumstances.

MANAGEMENT DISCUSSION FROM LATEST 10K

Our Business
Our mission is to become a leading company in the professional services industry in the United States. We intend to pursue this mission through a combination of internal growth and strategic acquisitions that complement or enhance our business.
Industry trends that affect our business include:
• rate of technological change;

• rate of growth in corporate IT and professional services budgets;

• penetration of IT and professional services staffing in the general workforce;

• outsourcing of the IT and professional services workforce; and

• consolidation of supplier bases.
We anticipate our growth will be primarily generated from greater penetration of our service offerings with our current clients, introducing new service offerings to our customers and obtaining new clients. Our strategy for achieving this growth includes cross-selling our vendor management services, project solutions services and process solutions services to existing IT staffing customers, aggressively marketing our services to new clients, expanding our range of value-added services, enhancing brand recognition and making strategic acquisitions.
The success of our business depends primarily on the volume of assignments we secure, the bill rates for those assignments, the costs of the consultants that provide the services and the quality and efficiency of our recruiting, sales and marketing and administrative functions. Our brand name, our proven track record, our recruiting and candidate screening processes, our strong account management team and our efficient and consistent administrative processes are factors that we believe are key to the success of our business. Factors outside of our control, such as the demand for IT and other professional services, general economic conditions and the supply of qualified professionals, will also affect our success.
Our revenue is primarily driven by bill rates and billable hours. Most of our billings for our staffing and project solutions services are on a time-and-materials basis, which means we bill our customers based on pre-agreed bill rates for the number of hours that each of our consultants works on an assignment. Hourly bill rates are typically determined based on the level of skill and experience of the consultants assigned and the supply and demand in the current market for those qualifications. General economic conditions, macro IT and profession service expenditure trends and competition may create pressure on our pricing. Increasingly, large customers, including those with preferred supplier arrangements, have been seeking pricing discounts in exchange for higher volumes of business or maintaining existing levels of business. Billable hours are affected by numerous factors, such as the quality and scope of our service offerings and competition at the national and local levels. We also generate fee income by providing vendor management and permanent placement services.
Our principal operating expenses are cost of services and selling, general and administrative expenses. Cost of services is comprised primarily of the costs of consultant labor, including employees, subcontractors and independent contractors, and related employee benefits. Approximately 60% of our consultants are employees and the remainder are subcontractors and independent contractors. We compensate most of our consultants only for the hours that we bill to our clients, which allows us to better match our labor costs with our revenue generation. With respect to our consultant employees, we are responsible for employment-related taxes, medical and health care costs and workers’ compensation. Labor costs are sensitive to shifts in the supply and demand of professionals, as well as increases in the costs of benefits and taxes.

The principal components of selling, general and administrative expenses are salaries, selling and recruiting commissions, advertising, lead generation and other marketing costs and branch office expenses. Our branch office network allows us to leverage certain selling, general and administrative expenses, such as advertising and back office functions.
Our back office functions, including payroll, billing, accounts payable, collections and financial reporting, are consolidated in our customer service center in Phoenix, Arizona, which operates on a PeopleSoft platform. We also have a proprietary, web-enabled front-office system that facilitates the identification, qualification and placement of consultants in a timely manner. We maintain a national recruiting center, a centralized call center for scheduling sales appointments and a centralized proposals and contract services department. We believe this scalable infrastructure allows us to provide high quality service to our customers and will facilitate our internal growth strategy and allow us to continue to integrate acquisitions rapidly.
Historically, Old COMSYS’ fiscal year ended on December 31 st , while Venturi’s fiscal year ended on the Sunday closest to December 31 st . In connection with the merger, we adopted Venturi’s fiscal year-end. Accordingly, our fiscal year-ends for 2007, 2006 and 2005 were December 30, 2007, December 31, 2006, and January 1, 2006, respectively.
Overview of 2007 Results
Our stated priorities for 2007 were internal growth, efficiency improvements, improved working capital management and expansion of our operations through acquisitions. We made the following progress against each during the year.
Our revenues grew 0.9% in 2007 from 2006. We ended the year with 4,986 billable consultants, which was essentially unchanged from the end of 2006. Early in the year, we experienced large fall off at two major customers, which impacted our headcount throughout the year and caused our revenue growth in the second, third and fourth quarters to lag our peers. Average bill rates in 2007 increased slightly from 2006 average bill rates despite pricing pressures at several large clients.
We continued to see the benefits of our efficiency improvements throughout 2007, and these improvements allowed us to redirect resources closer to the point of sale. Selling, general and administrative expenses decreased by 0.2% in 2007 from 2006, and selling, general and administrative expenses as a percentage of revenue decreased to 18.2% in 2007 from 18.4% in 2006.
Due to our improved profitability and working capital management, our debt balance declined to $71.9 million at the end of 2007 from $98.5 million at the end of 2006. During 2007, we generated $58.8 million of cash flow from operations and used $30.9 million for acquisitions. We expect to make further debt reductions in 2008.
Our final priority was to expand our operations through selected acquisitions. During 2007, we completed four acquisitions. Our March 2007 acquisition of Econometrix allowed us to bring a valuable VMS software program in-house. The May 2007 acquisition of Plum Rhino expanded our offerings into the specialty finance and accounting sector, which has provided cross-selling opportunities and expanded our offerings outside of IT. Finally, in December 2007, we purchased T. Williams Consulting, LLC, a recruitment process outsourcing business, and Praeos Technologies, Inc., a business intelligence practice, to complement our existing solutions offerings. These acquisitions will allow us to expand our managed solutions and process solutions offerings through our newly developed Process Solutions Group, which will complement our traditional staffing and consulting businesses.
With 2007 behind us, we now have three full years of profitable operations since the merger. Overall, we were able to increase our gross profit by 3% and our net income by 59% from 2006 levels. The decrease in our debt balance led to a reduction of 47% in our net interest expense during 2007.
2008 Outlook
Our priorities for 2008 will remain straightforward. We plan to keep internal growth at the top of our priority list, and we will focus on sales, marketing and recruiting to our core customer base and on adding new customers. Additionally, we will continue to work on improving our balance sheet, where we feel we can generate additional cost savings through further debt reductions and working capital management. Continuing improvements in efficiency will also be a priority, and we are devoting considerable attention to process improvements, especially in sales and recruiting and in our front and back offices. We will complement these priorities by looking for acquisitions at reasonable prices that have synergies with our existing operations.

We have benefited from low tax rates for financial reporting for some time now, but we do not expect that to last indefinitely if we continue to be profitable. If we continue to be profitable, we will continue to evaluate each quarter our estimates of the recoverability of our deferred tax assets based on our assessment of whether any portion of these fully-reserved assets become more likely than not recoverable through future taxable income. At such time, if any, that we no longer have a reserve for our deferred tax assets, we will begin to provide for taxes at the full statutory rate. Our actual cash paid for taxes is expected to remain low in 2008.

Results of Operations

Year Ended December 30, 2007, Versus Year Ended December 31, 2006
We recorded operating income of $43.3 million and net income of $33.3 million in 2007 compared to operating income of $34.7 million and net income of $21.0 million in 2006. The increase in operating income was due primarily to stronger gross profit margins on slightly higher revenue and lower depreciation and amortization expense, while slightly reducing selling, general and administrative expenses, as discussed above in “ Overview of 2007 Results .”
Revenues. Revenues for 2007 and 2006 were $743.3 million and $736.6 million, respectively, representing an increase of 0.9%. Reimbursable expense revenue declined to $11.1 million in 2007 from $16.0 million in 2006, primarily due to lower consultant-related expenses at one major customer. This decline had no impact on gross margin dollars as the related reimbursable expense was recognized in the same period. Absent the decline in reimbursable expenses, revenues for 2007 increased 1.6% from the prior year. Although average staffing headcount was down during 2007 as compared to 2006, increases in bill rates caused staffing revenue to increase slightly. Vendor management related fee revenue increased 13.2% to $28.3 million in 2007 from $25.0 million in 2006 due to expansion and implementation of vendor management programs in response to increasing demand for such services. We continue to see bill rate pressures from our customers, particularly among Fortune 500 clients. Our revenue growth was driven primarily by our clients in the pharmaceutical and biotechnology sector. Revenues from the pharmaceutical and biotechnology sector increased by 23% in 2007 from 2006. This increase was partially offset by revenue decreases of 29% and 5% from the telecommunications and financial services sectors, respectively, over the same period.
Cost of Services . Cost of services for 2007 and 2006 were $558.1 million and $557.6 million, respectively, representing an increase of 0.1%. Cost of services as a percentage of revenue decreased slightly to 75.1% in 2007 from 75.7% in 2006. The decrease in cost of services as a percentage of revenue was primarily due to revenues increasing at a faster rate than the costs related to various labor expenses such as pay rates for consultants, state unemployment taxes and health care expenses.

Selling, General and Administrative Expenses . Selling, general and administrative expenses in 2007 and 2006 were $135.4 million and $135.7 million, respectively, representing a decrease of 0.2%. Included in these amounts are $4.5 million and $3.3 million of stock-based compensation, respectively. The decrease in total selling, general and administrative expenses was due primarily to the benefits of our efficiency improvements and targeted cost reductions, partially offset by increases in stock-based compensation and rent expense. Additionally, the 2006 amount includes $1.9 million in severance-related expenses to two former officers and the 2007 amount includes $1.0 million in bad debt expense related to the bankruptcy of VMS provider Chimes. As a percentage of revenue, selling, general and administrative expenses decreased slightly to 18.2% in 2007 from 18.4% in 2006.
Depreciation and Amortization . Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of our customer base intangible assets. For 2007 and 2006, depreciation and amortization expense was $6.4 million and $8.7 million, respectively, representing a decrease of 26.3% between periods. The decline was the result of a large asset becoming fully depreciated at the end of 2006 along with lower levels of capital expenditures, partially offset by the depreciation of the Econometrix software and the amortization of the Plum Rhino customer list intangible asset.
Interest Expense. Interest expense was $8.3 million and $15.5 million in 2007 and 2006, respectively, a decrease of 46.8% that was due to a reduction in interest payments due to our overall debt reduction during 2006 and 2007 and a reduction in the related interest rates.
Provision for Income Taxes . The 2007 income tax is much lower than typical statutory rates given that income tax expense was in large part offset by a decrease in our valuation allowance. The 2007 expense contains the following amounts: current expenses in the amount of $0.3 million for federal alternative minimum tax; $0.3 million for the Texas Margin tax and other miscellaneous state income tax expenses and $0.1 million for foreign income taxes related to our profitable United Kingdom subsidiary, a deferred expense in the amount of $2.3 million resulting from the release of a portion of the valuation allowance on Venturi’s acquired net deferred assets from the merger and a deferred state tax benefit of $0.7 million related to the conversion of our Texas net operating loss carryforwards into the new Texas Margin tax credit. Although our net deferred tax asset is substantially offset with a valuation allowance, a portion of our fully-reserved deferred tax assets that became realized through operating profits are recognized as adjustments to the purchase price as a reduction to goodwill to the extent they relate to benefits acquired in the merger. This then results in deferred tax expense as the assets are utilized. This portion of deferred tax expense represents the consumption of pre-merger deferred tax assets that were acquired with zero basis. In accordance with the provisions of SFAS No. 109, Accounting for Income Taxes , we calculated a goodwill bifurcation ratio in the year of the merger to determine the amount of deferred tax asset realizable expense that should be offset to goodwill prospectively. The income tax benefit for 2006 is the result of a federal income tax refund of $5.8 million, net of the impact of release of the valuation allowance on acquired net deferred tax assets from the merger and a provision for foreign income taxes related to our profitable foreign operations. The federal income tax refund resulted from legislation that allowed us to carry back a portion of our 2002 net operating loss to prior years. The refund resulted from a loss carryback to periods prior to the current ownership of the Company. In 2007, we paid $0.8 million in taxes, and, in 2006, we received a tax refund, net of taxes paid, of $5.7 million.
As of December 30, 2007, we had combined state and federal net operating loss carryforwards of approximately $217.1 million, an alternative minimum tax credit carryfoward of $0.3 million, and had recorded a reserve against the assets for net operating loss carryforwards due to the uncertainty related to the realization of these amounts. As a result of our Section 382 analysis related to the merger of Old COMSYS and Venturi, which may have been an ownership change as defined by the Internal Revenue Code, our federal and state net operating losses were reduced by approximately $0.7 million and $44.4 million, respectively, during the first quarter of 2007.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations
Quarter Ended September 30, 2007, Versus Quarter Ended October 1, 2006

We recorded operating income of $12.5 million and net income of $9.6 million in the third quarter of 2007 compared to operating income of $10.5 million and net income of $2.9 million in the third quarter of 2006. The increase in operating income was due primarily to an increase in gross margin and a decrease in depreciation and amortization.
Revenues. Revenues for the third quarter of 2007 and the third quarter of 2006 were $187.2 million and $185.7 million, respectively, representing an increase of 0.8%. The increase was due primarily to increases in average bill rates and the purchase of Plum Rhino in May 2007, partially offset by a decrease in billable hours as a result of lower headcount. Reimbursable expense revenue declined from $4.0 million in the third quarter of 2006 to $2.3 million in the third quarter of 2007, primarily due to lower consultant-related expenses at one major customer. This decline had no impact on gross margin dollars as the related reimbursable expense was recognized in the same period. Although average staffing headcount was down in the third quarter of 2007 as compared to the 2006 period, increases in bill rates raised staffing revenue up slightly. We continue to see bill rate pressures from our customers, particularly among Fortune 500 clients. Vendor management related fee revenue decreased 6.9% to $6.9 million in the third quarter of 2007 from $7.4 million in the third quarter of 2006. Revenues from the pharmaceutical and biotechnology sector increased by 19% in the third quarter of 2007 from the third quarter of 2006. This increase was partially offset by revenue decreases of 48% and 13% from the telecommunications and financial services sector, respectively, over the same period.
Cost of Services . Cost of services for the third quarter of 2007 and the third quarter of 2006 were $139.9 million and $140.0 million, respectively, representing a slight decrease between periods. The decrease was due primarily to decreases in reimbursable expenses, as discussed above under Revenues. In addition, we are realizing the system fee reductions contemplated in our Econometrix acquisition. This reduction in gross cost of services from Econometrix is partially offset by the depreciation of the software, which is recorded in depreciation and amortization. Cost of services as a percentage of revenue decreased to 74.8% in the third quarter of 2007 from 75.4% in the third quarter of 2006. The decrease in cost of services as a percentage of revenue was primarily due to the increase in revenues in our vendor management service line and permanent placement fees. We have seen an increase in our average pay rates in 2007 over 2006; however, our bill rates have increased slightly more than the increase in our pay rates.
Selling, General and Administrative Expenses . Selling, general and administrative expenses were level in the third quarter of 2007 and the third quarter of 2006 at $33.1 million. Included in these amounts is $1.0 million and $0.9 million of stock-based compensation, respectively. As a percentage of revenue, selling, general and administrative expenses decreased slightly to 17.6% in the third quarter of 2007 from 17.8% in the third quarter of 2006.
Depreciation and Amortization . Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of our customer base intangible assets. For the third quarter of 2007 and the third quarter of 2006, depreciation and amortization expense was $1.7 million and $2.2 million, respectively, representing a decrease of 24.8% between periods. The reduction in depreciation and amortization expense was the result of a large asset becoming fully depreciated at the end of 2006 along with lower levels of capital expenditures, partially offset by the depreciation of the Econometrix software and the amortization of the Plum Rhino customer list intangible.
Interest Expense, Net. Interest expense, net was $2.0 million and $4.9 million in the third quarter of 2007 and the third quarter of 2006, respectively, a decrease of 58.9%. The decrease was due to our overall debt reduction during 2006 and 2007 and the interest rate reductions.
Provision for Income Taxes. Income tax expense in the three months ended September 30, 2007, is the result of the release of part of the valuation allowance on Venturi’s acquired net deferred tax assets from the merger, a provision for alternative minimum tax on U.S. taxable income and foreign income taxes on our profitable foreign operations, net of an income tax benefit due to a change in tax law related to the Texas margin tax.
As of September 30, 2007, we had combined state and federal net operating loss carryforwards of approximately $217.7 million and had recorded a reserve against the assets for net operating loss carryforwards due to the uncertainty related to the realization of these amounts.

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