SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or
15(d) of the Securities and Exchange Act of 1934
For the fiscal year ended December 31, 2000
OR
[ ] Transition
Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934
For
the transition period from to
Commission
file number 1-6081
COMFORCE
Corporation
(Exact
name of registrant as specified in its charter)
Delaware
36-2262248
(State or other jurisdiction of (IRS Employer Identification
No.)
incorporation or organization)
415
Crossways Park Drive, P.O. Box 9006, Woodbury, New York
11797
(Address of principal executive
offices) (Zip Code)
Registrant’s
telephone number, including area code:
(516) 437-3300
Securities
registered pursuant to Section 12(b) of the Act:
Name of Each
Exchange Title of Each Class on Which Registered
Common
stock, $.01 par value American Stock Exchange
Securities
registered pursuant to Section 12(g) of the Act: None
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 the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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
(Cover page continued next page)
(Cover page continued)
State
the aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 22, 2001:
$22,030,667
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class Outstanding at March 22, 2001
Common
stock, $.01 par value 16,659,062
Documents Incorporated by Reference: Portions
of the Registrant’s proxy statement to be filed by April 30, 2001 are
incorporated herein by reference in Items 10, 11, 12 and 13.
PART I
ITEM 1.
BUSINESS
Overview
COMFORCE
Corporation (“COMFORCE”) is a leading provider of specialty staffing,
consulting and outsourcing services primarily to Fortune 500 companies for
their information technology, telecommunications, scientific and engineering‑related
needs. COMFORCE Operating, Inc. (“COI”), a wholly-owned subsidiary of COMFORCE,
was formed for the purpose of facilitating certain of the Company’s financing
transactions in November 1997. Unless
the context otherwise requires, the term the “Company” refers to COMFORCE, COI
and all of their direct and indirect subsidiaries.
Through
a national network of 62 offices (48 company‑owned and 14 licensed), the
Company recruits and places highly skilled contingent personnel and provides
financial and outsourcing services for a broad customer base, including Sun
Microsystems, Bellsouth Telecommunications, Inc. (directly and through
Accenture, formerly Anderson Consulting, LLP), Boeing Company and Microsoft
Corporation. The Company’s labor force consists primarily of computer
programmers, systems consultants, telecommunications engineers, analysts,
engineers, technicians, scientists, researchers and skilled office support
personnel.
Services
The
Company provides a wide range of staffing, consulting, financial and
outsourcing services, including web-enabled solutions for the effective
procurement, tracking and engagement of contingent or non-employee labor. The Company’s extensive proprietary database
and national presence enable it to draw from a wealth of resources to link
highly‑trained computer technicians, telecommunications engineers and
other professionals, as well as clerical personnel, with businesses that need
highly skilled labor. The Company’s services are designed to give its customers
maximum flexibility and maximum choice. The Company’s professionals are
available on a short-term or long-term basis. The Company’s services permit
businesses to increase the volume of their work without increasing fixed
overhead and permanent personnel costs.
The Company has previously been reporting its results through two operating segments -- Staff Augmentation and Financial Services. Principally as a result of the development by the Company’s PrO Unlimited® subsidiary of a business offering web-enabled solutions for the procurement, tracking and engagement of contingent labor, the Company has determined to begin reporting its results through three operating segments -- Staff Augmentation, Human Capital Management Services and Financial Services. The Staff Augmentation segment provides information technology (IT), telecom and other staffing services. The Human Capital Management Services segment provides contingent workforce management services. The Financial Services segment provides payroll, funding and back office support services to independent consulting and staffing companies. A description of the types of services provided by each segment follows.
The
Company’s IT customers include Microsoft Corporation, BellSouth
Telecommunications, Inc. (directly and through Accenture) and Boeing
Information Services, Inc.
The Company’s telecom customers include Northern Telecom, Inc., ALCATEL Network Systems, Inc. and Ericsson Corporation.
In
addition to providing staffing services in the IT and telecom fields, as
described above, the Company provides a broad range of staffing services to its
customers, including laboratory support (through the Company’s Labforce®
division), medical office support, professional, scientific, clerical and call
center staffing.
The
Company provides engineer-related staffing services for national laboratory
research in such areas as environmental safety, alternative energy source
development and laser technology, and provides highly‑skilled labor
meeting diverse commercial needs in the avionics and aerospace, architectural,
automotive, energy and power, pharmaceutical, marine and petrochemical
fields. The Company’s engineer-related
staffing customers include Boeing Company, Gulfstream Aerospace, Raytheon
Company and the National Department of Energy National Research Laboratories,
including Los Alamos and Sandia.
In
the professional staffing area, the Company offers highly specialized chemists,
biologists, engineers, laboratory instrumentation operators, technicians and
others to companies involved in pharmaceutical, environmental, biotech and
other businesses.
The Company also recruits and
trains skilled billing, data entry and other clerical personnel who provide
support services for smaller businesses, particularly for medical, accounting
and law offices. In addition, the
Company provides staff for inbound call center operations, including
telemarketing personnel.
Human Capital Management Services
The Company provides Human Capital Management
services through its PrO Unlimited subsidiary.
PrO Unlimited has become a market leader in providing end-to-end
web-enabled solutions for the effective procurement, tracking and engagement of
contingent or non-employee labor. PrO
Unlimited utilizes a combination of proprietary web-based software and
intellectual capital to manage all aspects of this rapidly growing segment of
the workforce. While the Company
focuses on selling its services primarily to Fortune 500 companies, including
customers such as Sun Microsystems and Pfizer, PrO Unlimited’s contingent
workforce management tools are suitable for a cross-section of large employers
throughout the United States and Canada.
The contingent labor force consists of independent
contractors, temporary workers, consultants, returning retirees and
freelancers. A growing number of
corporations are utilizing contingent labor solutions to enable them to manage
their cost structures more effectively and to better position them to weather
business strategy transition and maintain streamlined “just-in-time” labor
pools. PrO Unlimited has been a pioneer
in assisting companies with government regulatory compliance regarding
contingent personnel, particularly the management, tax, benefit and liability
issues associated with the contingent workforce.
PrO Unlimited’s program
is designed to replace vendor-on-premise programs that large companies have
been using in recent years to manage their contingent workforces. PrO Unlimited seeks to draw upon its own
resources as well as Internet-based information and tools, and to provide a
range of services and software that enable large companies to effectively
manage their contingent workforces.
Rather than competing with traditional staffing firms, PrO Unlimited
acts as a "vendor neutral" facilitator providing customized
management reports and proprietary Total Quality Management (“TQM”) programs
that are designed to generate cost savings and improve efficiencies for client
companies. PrO Unlimited’s typical
client is a large company that relies upon contingent labor to meet important
elements of its staffing needs. Pro
Unlimited currently provides the following solutions:
Services
·
Contingent Staffing
Management – act
as impartial staffing desk for procuring contingent employees by utilizing many
different service providers to provide client’s hiring managers with the most
qualified candidate in the shortest period of time at the lowest cost.
·
Supplier Management
Services
– act as single-source supplier by consolidating and managing the invoicing,
negotiating and monitoring of services provided by a customer’s multiple
service providers.
·
The 1099 Management
Solution
– help customers manage the tax and benefit risks associated with the use of
independent contractors to ensure compliance with all governmental
regulations.
·
Professional Payrolling
Services –
provide automated payroll services and worker benefits as third party
processor.
Software
·
Workforce Alliance
Network Database (“WAND”) – web-enabled system developed for the engagement, management
and tracking of the contingent workforce by providing reports, consolidated
billing, security checks and screening services.
·
Staffing & Project
Ordering Tool (“SPOT”) – custom web-based
software tool that allows hiring managers and staffing vendors to communicate
24 hours a day to place job orders, check status of job orders, submit resumes,
review resumes, schedule interviews, select candidates and create custom
reports on staffing activity.
·
YourSourceTM
System
– search and retrieval system
software that allows on-line searches for contingent workers originally sourced
by a company who have previously worked in other departments within that
organization.
Financial Services
The Company provides payroll,
funding and back office support services to approximately 130 independent
consulting and staffing companies. The Company’s back office services include
payroll processing and billing, preparation of various management reports and
analysis, payment of all Federal, state and local payroll taxes and preparation
and filing of quarterly and annual payroll tax returns for the contingent
personnel employed and placed by independently owned and operated staffing and
consulting firms. Personnel placed by
such independent staffing and consulting firms remain employees of such firms.
In providing payroll funding services, the Company purchases the accounts
receivable of independent staffing firms and receives payments directly from
these firms’ clients. The Company pursues the collection of those receivables;
however, the amount of any account receivable, which is not collected within a
specified period after billing, is charged back by the Company to such firm.
The Company provides staffing, consulting and outsourcing services to a broad range of customers including telecommunication equipment manufacturers, telecommunication service providers (wireline and wireless), computer software and hardware manufacturers, aerospace and avionics firms, utilities, national laboratories, pharmaceutical companies, cosmetics companies, health care facilities, educational institutions and accounting firms. Services to Fortune 500 companies represent a majority of the Company’s revenues.
In certain cases, the Company’s contracts with its customers provide that the Company will have the first opportunity to supply the personnel required by that customer. Other staffing companies not under contract with the customer are then offered the opportunity to supply personnel only if the Company is unable to meet the customer’s requirements.
The
Company generally invoices its customers weekly. IT, telecom and professional staffing customers generally obtain
the Company’s services on a purchase order basis, while engineer-related
staffing and Human Capital Management Services customers generally enter into
long-term contracts with the Company.
During
the year ended December 31, 2000, no single customer accounted for 10% or more
of the Company’s revenues. The largest
four customers accounted for approximately 28% of the Company’s revenues.
The
Company services its customers through a network of 48 company‑owned and
14 licensed branch offices located in 19 states across the United States and
its corporate headquarters located in Woodbury, New York. The Company’s sales
and marketing strategy is focused on increasing its share of existing customer
business, expanding its business with existing customers through cross‑selling
and by establishing relationships with new customers. The Company solicits
customers through personal sales presentations, telephone marketing, direct
mail solicitation, referrals from customers, and advertising in a variety of
local and national media including the Yellow Pages, magazines, newspapers,
trade publications and through the Company’s website (www.comforce.com).
The
Company’s Sales and Resource Managers are responsible for maintaining contact
with existing clients, maximizing the number of requisitions that the Company
will have the opportunity to fill, and then working with the recruiting staff
to offer the client the candidate or candidates that best fit the
specification. New account targets are
chosen by assessing: (1) their need for contract labor with skill sets provided
by the Company; (2) the appropriateness of the Company’s niche products to the
client’s needs; (3) the potential growth and profitability of the account; and
(4) the creditworthiness of the client. While the Company’s corporate office
assists in the selection of target accounts, the majority of account selection
and marketing occurs locally. Although
the Company continues to market to its Fortune 500 client base, it also places
a significant marketing focus on smaller, faster-growing companies.
The Company’s success
depends on its ability to effectively and efficiently match skilled personnel
with specific customer assignments. The Company has established an extensive
national resume database of prospective employees with expertise in the disciplines
served by the Company. To identify qualified personnel for inclusion in this
database, the Company solicits referrals from its existing personnel and
customers, places advertisements in local newspapers, trade magazines, its
website and otherwise actively recruits through the Internet. The Company continuously updates its
proprietary database to reflect changes in personnel skill levels and
availability. Upon receipt of assignment specifications, the Company searches
the database to identify suitable personnel. Once an individual’s skills are
matched to the specifications, the Company considers other selection criteria
such as interpersonal skills, availability and geographic preferences to ensure
there is a proper fit between the employee and the assignment being staffed.
The Company can search its resume database by a number of different criteria,
including specific skills or qualifications, to match the appropriate employee
with the assignment.
Management
believes that the Company enhances its ability to attract recruits by making
extensive training opportunities available to its employees. The Company employs Internet‑based
educational programs to train employees in the latest developments in IT,
telecommunications and other technologies.
The Company maintains training facilities in Dallas, Texas and Raleigh,
North Carolina, where telecom staffers are trained to install and test
telecommunications equipment. The
Company also provides training to telecom staff on assignment for the Company
throughout the United States. In
addition, the Company maintains a telephone hot line to assist its clerical
employees with software problems or questions.
The
Company believes it has a competitive advantage in attracting and retaining
specialty staffing and consulting personnel as it provides assignments with
high-profile customers that make use of advanced technology and offers the
employees the opportunity to obtain additional experience that can enhance
their skills and overall marketability. The Company also offers flexible
schedules, wages and, depending on the contract or assignment, paid holidays,
vacation, and certain benefit plan opportunities to attract and retain
qualified personnel.
The
Company uses PeopleSoft® system software, which it believes is the industry
standard, and is currently upgrading to the PeopleSoft® 8.0 version. With its PeopleSoft® system, the Company has
been able to substantially consolidate its back office operations. Through this
system, the Company has also been able to substantially integrate the
management information systems of its 11 acquired companies.
The
Company is in the final stage of implementation of the EZAccess® recruiting and
database software system to consolidate the resume databases of its acquired
companies. This software allows easier, faster and more accessible updating of
its resume database and posting of job openings on a national basis. The
Company believes that EZAccess® will enhance both its recruiting efforts and
its customer service capabilities.
The
contingent staffing and consulting industry is very competitive and fragmented.
There are relatively limited barriers to entry and new competitors frequently
enter the market. The Company’s competitors vary depending on geographic region
and the nature of the service(s) being provided. The Company faces substantial
competition from both larger firms possessing substantially greater financial,
technical and marketing resources than the Company and smaller, regional firms
with a strong presence in their respective local markets.
Management
believes that the availability and quality of candidates, the effective
monitoring of job performance, the scope of geographic service and the price of
service are the principal elements of competition. The availability of quality
contingent personnel is an especially important facet of competition. The
Company believes its ability to compete also depends in part on a number of
competitive factors outside its control, including the ability of its
competitors to hire, retain and motivate skilled personnel and the extent of
its competitors’ responsiveness to customer needs.
The Company currently employs approximately 650 full-time staff employees at its headquarters and Company-owned offices. The Company issued approximately 30,000 W-2s to employees of the Company who provided services to its customers during 2000, not including W-2s issued as part of the Financial Services segment payrolling services provided by the Company to its customers. In addition to employees on assignment, the Company maintains a proprietary database of prospective employees with expertise in the disciplines served by the Company. Billable employees are employed by the Company on an as-needed basis dependent on customer demand and are paid only for time they actually work. Non-billable administrative personnel provide management, sales and marketing and other services in support of the Company’s staffing services.
The Company has granted a limited number
of licenses to operate COMFORCE offices. The most recent license for a new
office was granted in July 1992, and the Company does not presently expect
to grant more licenses. Licensees recruit contingent personnel and promote their
services to both existing and new clients obtained through the licensees’
marketing efforts. Performance of the
contingent personnel and overall service quality is the direct responsibility
of licensees, and the licensees are ultimately responsible for the collection
of accounts receivable. The Company and
the licensees share the gross profits from each licensed office.
Contingent
staffing and consulting services firms are generally subject to one or more of
the following types of government regulations: (1) registration of the
employer/employees; (2) licensing, record keeping and recording
requirements; and (3) substantive limitations on operations. Contingent
staffing and consulting firms are the legal employers of their workers.
Therefore, the Company is governed by laws regulating the employer/employee
relationship, such as tax withholding or reporting, social security or
retirement, anti-discrimination and workers’ compensation. In addition, the
Company’s licenses are considered to be franchises, which are subject to
regulation, both by the Federal Trade Commission and a number of states.
The Company leases all of its office space. Excluding the Company’s headquarters, these leases are for office space ranging in size from approximately 150 square feet to approximately 15,600 square feet and have remaining lease terms of from less than one year to five years. The Company’s headquarters in Woodbury, New York occupies approximately 38,000 square feet of space in two facilities under separate leases that expire in 2010. The Company owns no real estate, except for an approximately 700 square foot condominium.
The
Company believes that its facilities are adequate for its present and
reasonably anticipated future business requirements, except to the extent of
future acquisitions of existing businesses. In the case of such acquisitions,
the Company expects to assume the leases of businesses acquired or, to the
extent possible, consolidate such operations with existing offices. The Company
does not anticipate difficulty locating additional facilities, if needed.
In
January 1997, Austin A. Iodice, who served as the Company's chief
executive officer, president and vice chairman from 1993 to 1995 while the
Company was engaged in the jewelry business, and Anthony Giglio, who performed
the functions of the Company's chief operating officer during this same period,
filed separate suits against the Company in the Connecticut Superior Court
alleging that the Company had breached the terms of management agreements
entered into with them by failing to honor options awarded to them in
1993. Mr. Iodice had received options
to purchase 370,419 shares of the Company’s common stock and Mr. Giglio had
received options to purchase 185,209 shares of common stock, each at an
exercise price of $1.125 per share. The
Company maintained that these options had expired in 1996, three months after
the plaintiffs ceased to be employed by the Company, as provided in the Company’s
Long-Term Stock Investment Plan. The
plaintiffs maintained that they were agents and not employees of the Company
and that, therefore, these options had not expired.
The plaintiffs alleged that they were entitled to an
unspecified amount of damages based upon the difference between the exercise
price and highest market price of the Company’s common stock following the date
of the purported exercise of all options, plus costs and expenses. They also claimed entitlement to treble
these damages under Connecticut law. They filed offers of judgment with the
court for $6.0 million in the aggregate based upon the significantly higher
prices of the Company’s common stock in 1996 and 1997, but this offer did not
limit the amount of damages they could claim at trial.
On
November 30, 2000, immediately prior to the scheduled jury trial, the parties
reached settlement of these suits, the terms of which were entered with the
court. Under the terms of settlement,
the Company agreed to pay to the plaintiffs $325,000 on January 2, 2001 (which
amount was paid on this date) and $300,000 on May 1, 2001, and to issue to them
options on January 2, 2001 to purchase 555,628 shares of common stock in the
aggregate at an exercise price of $0.6625 per share. The options are exercisable until March 15, 2006. While management of the Company believes
that the options originally issued to the plaintiffs had expired, it believes
that settlement was advisable given the exposure faced by the Company in the
event of an adverse judgment in the jury trial. The Company incurred a charge of approximately $1.1 million in
connection with this settlement.