| To Our Shareholders:
In 2004 our vision for COMFORCE unfolded as
planned, enabling us to enter 2005 with even
greater promise. Sales increases, coupled with
our continued debt reduction, helped us show
net income of $1.8 million and $0.07 per share,
as compared to a loss of $23.2 million and $1.44
loss per share in 2003. The ‘03 loss was
impacted by a $24.5 million impairment of goodwill.
We are proud to have met each of our challenges
head on and the payoff is clearly reflected
in the results. Revenues have improved in all
four quarters of 2004, resulting in five consecutive
quarters of improved year-over-year revenue
growth. For the year ending December 26, 2004
we reported revenues of $480.9 million, a marked
improvement from the $370.0 million reported
in 2003.
In addition to improving operating results,
we continued to take other measures to improve
our financial picture. In 2004 we reduced the
amount of 12% Senior Notes outstanding by $18.1
million to $64.4 million at year end. A marked
improvement from the $82.5 million outstanding
at the end of 2003. Since 2000, we have reduced
the amount of public debt by approximately $81.0
million resulting in a reduction of annual interest
expense of approximately $8.5 million.
During the fourth quarter of 2004 we issued
preferred stock in exchange for $6.7 million
of the outstanding 8% convertible notes, which
were scheduled to go cash pay in June 2005.
To further strengthen our capital structure
we also amended our PNC Credit Facility for
an additional $10.0 million, bringing our total
borrowing power to $85.0 million. This will
provide us with even greater flexibility to
buy back additional public debt.
Our vigilance over expenses resulted in a continued
reduction of general and administrative costs
as a percentage of revenues. We decreased them
to 11.2% in 2004 from 12.8% in 2003. We will
continue to closely monitor expenditures without
compromising our commitment to growth. However,
growth requires a continual reinvestment in
technology and this will not be compromised.
This past year we successfully upgraded to PeopleSoft
8.8, the most efficient and powerful back office
program in the global marketplace.
Most divisions showed a moderate upward trend,
but the PrO Unlimited Subsidiary once again
exceeded our expectations. PrO’s revenues
increased 42.9% in 2004 over ‘03 to $270.1
million. This represents 56.2% of our total
revenue. With our PrO team aggressively pursuing
new human capital management relationships,
we anticipate PrO to match, if not exceed, its
performance in 2005.
The accelerated outsourcing of payroll and
human capital management services by Fortune
100 and 500 companies and PrO’s ability
to meet this demand has helped them to maintain
national leadership. PrO has pioneered 1099,
Independent Contractor identification services,
payrolling and vendor neutral consolidation
services and they are the number one choice
of leading national companies.
COMFORCE has been creative in adapting its
strategy to keep pace with an evolving client
base and the types of services they demand.
In a half century, the staffing industry has
evolved from a permanent placement, applicant
paid fee structure, to a largely contingent
staffing, human capital management consulting
giant with over $90 billion dollars in annual
volume.
In order to maintain and gain market share
of an ever-changing industry which serves over
90% of U.S. companies, we have initiated a major
thrust into RightSourcing, a centralized solution
to managing multiple staffing vendor services.
Because of the necessity for businesses to use
multiple suppliers, the coordination and financial
management of this function has proven to be
a costly diversion for most. COMFORCE RightSourcing
has proven to be the solution our clients have
embraced. Documented savings from the implementation
of this program are in the multi million-dollar
range. The RightSourcing trend has been received
with wide acclaim in major medical facilities
and industries we’ve served across the
board in 2004 and is forecasted as a COMFORCE
leader in ‘05.
The maturity of the staffing industry has resulted
in a gradual compression of gross margins and
for that reason we have chosen to pursue larger
volume opportunities, which require hundreds
rather than single digit temporary placements.
We have successfully pursued information technology
help desks, call centers, government projects
and personnel transfer plan services to accomplish
these ends. COMFORCE is focusing on these specialized
niche areas in addition to our mainstream services
and we feel this focus has the potential to
provide a substantial enhancement of our revenues
and bottom line.
Each year the future for COMFORCE emerges brighter
than the last. The continued reduction of debt,
the gradually improving economy and the resulting
hiring trends all indicate the potential for
greater success. Your patient support is very
much appreciated, and we believe that you will
find your confidence has been well placed.
Sincerely,
John Fanning
Chief Executive Officer
|
