##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
  
 Form 10-Q
   (Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
  OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to Commission file number 001-13956 COMSYS IT PARTNERS, INC. (Exact name of Registrant as specified in its charter) Delaware
    
    7363
    
    56-1930691(State or other jurisdiction of
    
    (Primary Standard
    
    (I.R.S. employerincorporation or organization)
    
    Industrial Classification
    
    identification number)Code number)
 4400 Post Oak Parkway, Suite 1800
Houston, TX 77027
(Address, including zip code, of
Registrants principal executive offices)   (713) 386-1400   Venturi Partners, Inc.
Five LakePointe Plaza
2709 Water Ridge Parkway, 2nd Floor
Charlotte, North Carolina 28217
(Former Name or Former Address, if Changed Since Last Report)   x o
 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
   Yes o No x As of November 5, 2004, 15,462,255 shares of the registrants Common
Stock, $.01 par value, were outstanding.




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COMSYS IT PARTNERS, INC. TABLE OF CONTENTS
 PagePART I - FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Unaudited Consolidated Statements of Operations
    
    
    3Unaudited Consolidated Balance Sheets
    
    
    4Unaudited Consolidated Statements of Shareholders Equity
    
    
    5Unaudited Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II - OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    25Signatures
    
    
    26Exhibit Index
    
    
    27Certification of CEO pursuant to Rule 13a-14aCertification of CFO pursuant to Rule 13a-14aCertification of CEO pursuant to Rule 13a-14b and Section 1350Certification of CFO pursuant to Rule 13a-14b and Section 1350
  2




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ITEM 1. FINANCIAL STATEMENTS COMSYS IT Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Statements of Operations
 For the Periods Ended September 26, 2004 and September 28, 2003
 (in thousands, except per share data)
 Three months ended
    
    Nine months endedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    137,624
    
    
    $
    124,222
    
    
    $
    403,374
    
    
    $
    367,447Direct costs of services
    
    
    107,357
    
    
    
    96,957
    
    
    
    318,179
    
    
    
    288,469Gross profit
    
    
    30,267
    
    
    
    27,265
    
    
    
    85,195
    
    
    
    78,978Operating expenses:Selling, general and administrative
    
    
    24,739
    
    
    
    23,253
    
    
    
    73,217
    
    
    
    72,749Depreciation and amortization
    
    
    974
    
    
    
    1,227
    
    
    
    3,081
    
    
    
    3,980Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    41,700
    
    
    
    Restructuring and rationalization charges
    
    
    3,396
    
    
    
    236
    
    
    
    3,396
    
    
    
    2,351Stock option compensation (income)
    
    
    (1,128
    )
    
    
    267
    
    
    
    (304
    )
    
    
    267Operating income (loss)
    
    
    2,286
    
    
    
    2,282
    
    
    
    (35,895
    )
    
    
    (369
    )Interest expense
    
    
    385
    
    
    
    196
    
    
    
    876
    
    
    
    5,332Gain (loss) on financial restructuring, net
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    83,105Income (loss) before income taxes
    
    
    1,901
    
    
    
    2,058
    
    
    
    (36,771
    )
    
    
    77,404Provision (benefit) for income taxes
    
    
    466
    
    
    
    
    
    
    
    (422
    )
    
    
    Net income (loss)
    
    $
    1,435
    
    
    $
    2,058
    
    
    $
    (36,349
    )
    
    $
    77,404Basic earnings per common share
    
    $
    0.24
    
    
    $
    0.34
    
    
    $
    (5.97
    )
    
    $
    18.60Diluted earnings per common share
    
    $
    0.23
    
    
    $
    0.33
    
    
    $
    (5.97
    )
    
    $
    18.60Weighted average basic shares outstanding
    
    
    6,089,938
    
    
    
    6,090,199
    
    
    
    6,089,938
    
    
    
    4,161,484Weighted average diluted shares outstanding
    
    
    6,346,300
    
    
    
    6,171,432
    
    
    
    6,089,938
    
    
    
    4,161,484
 The accompanying notes are an integral part of these statements. 3




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##### Table of Contents



COMSYS IT Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Balance Sheets
 September 26, 2004 and December 28, 2003
 (in thousands, except share data)
 September 26,
    
    December 28,2004
    
    2003AssetsCurrent Assets:Cash and cash equivalents
    
    $
    1,059
    
    
    $
    508Accounts receivable, net of allowance for doubtful accounts of
$3,610 and $3,487 in 2004 and 2003, respectively
    
    
    80,009
    
    
    
    75,702Prepaid expenses and other current assets
    
    
    3,708
    
    
    
    4,527Recoverable income taxes
    
    
    
    
    
    
    35Total current assets
    
    
    84,776
    
    
    
    80,772Property and equipment, net
    
    
    6,657
    
    
    
    9,271Goodwill
    
    
    61,832
    
    
    
    103,532Other assets
    
    
    797
    
    
    
    785Total assets
    
    $
    154,062
    
    
    $
    194,360Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    56,392
    
    
    $
    370Accounts payable
    
    
    10,958
    
    
    
    15,471Accrued wages, benefits and other
    
    
    47,098
    
    
    
    39,737Total current liabilities
    
    
    114,448
    
    
    
    55,578Long-term debt -Convertible subordinated notes
    
    
    
    
    
    
    5,339Revolving credit facility
    
    
    
    
    
    
    55,264Other long-term liabilities
    
    
    11,586
    
    
    
    13,498Total liabilities
    
    
    126,034
    
    
    
    129,679Commitments and contingenciesShareholders equity:Preferred stock, $.01 par value; shares authorized 5,000;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; shares authorized 95,000;
6,090 shares issued and outstanding
    
    
    61
    
    
    
    61Additional paid-in capital
    
    
    295,977
    
    
    
    296,281Retained earnings (accumulated deficit)
    
    
    (268,010
    )
    
    
    (231,661
    )Total shareholders equity
    
    
    28,028
    
    
    
    64,681Total liabilities and shareholders equity
    
    $
    154,062
    
    
    $
    194,360
 The accompanying notes are an integral part of these balance sheets. 4




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COMSYS IT Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Statements of Shareholders Equity
 For the Period Ended September 26, 2004
 (in thousands)
 RetainedAdditional
    
    EarningsCommon Stock
    
    Paid-In
    
    (AccumulatedShares
    
    Amount
    
    Capital
    
    Deficit)
    
    TotalBalance, December 28, 2003
    
    
    6,090
    
    
    $
    61
    
    
    $
    296,281
    
    
    ($
    231,661
    )
    
    $
    64,681Stock option compensation
    
    
    
    
    
    
    
    
    
    
    (304
    )
    
    
    
    
    
    
    (304
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,349
    )
    
    
    (36,349
    )Balance, September 26, 2004
    
    
    6,090
    
    
    $
    61
    
    
    $
    295,977
    
    
    ($
    268,010
    )
    
    $
    28,028
 The accompanying notes are an integral part of these statements. 5




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COMSYS IT Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Statements of Cash Flows
 For the Nine Months Ended September 26, 2004 and September 28, 2003
 (in thousands)
 Nine months endedSept. 26,
    
    Sept. 28,2004
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    (36,349
    )
    
    $
    77,404Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,081
    
    
    
    3,980Amortization of deferred gain on financial restructuring, net
    
    
    (2,961
    )
    
    
    (1,811
    )Goodwill impairment
    
    
    41,700
    
    
    
    Stock option compensation
    
    
    (304
    )
    
    
    267Gain on financial restructuring, net
    
    
    
    
    
    
    (83,105
    )Deferred income taxes
    
    
    (632
    )
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (4,307
    )
    
    
    3,785Recoverable income taxes
    
    
    35
    
    
    
    25,351Accounts payable and accrued liabilities
    
    
    1,770
    
    
    
    273Other, net
    
    
    959
    
    
    
    956Net cash provided by operating activities
    
    
    2,992
    
    
    
    27,100Cash flows from investing activities:Purchase of property and equipment, net
    
    
    (467
    )
    
    
    (642
    )Net cash used in investing activities
    
    
    (467
    )
    
    
    (642
    )Cash flows from financing activities:Repayments under credit facility
    
    
    (11,900
    )
    
    
    (47,700
    )Borrowings under credit facility
    
    
    15,900
    
    
    
    6,000Repayment of 5.75% Convertible Subordinated Notes
    
    
    (5,339
    )
    
    
    Credit facility amendment fees
    
    
    (354
    )
    
    
    (1,680
    )Repayments of other debt, net
    
    
    (281
    )
    
    
    (648
    )Restructuring payments to bondholders
    
    
    
    
    
    
    (1,314
    )Payment for fractional shares in reverse stock split
    
    
    
    
    
    
    (4
    )Net cash used in financing activities
    
    
    (1,974
    )
    
    
    (45,346
    )Net increase (decrease) in cash and cash equivalents
    
    
    551
    
    
    
    (18,888
    )Cash and cash equivalents at beginning of period
    
    
    508
    
    
    
    22,623Cash and cash equivalents at end of period
    
    $
    1,059
    
    
    $
    3,735Supplemental cash flow information:Cash payments during the period for Interest
    
    $
    3,612
    
    
    $
    9,507Income taxes
    
    
    154
    
    
    
    2
 The accompanying notes are an integral part of these statements. 6




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COMSYS IT Partners, Inc. and Subsidiaries 
 Notes to Unaudited Consolidated
 Financial Statements
(dollars in thousands, except per share data)
 (1) General The unaudited consolidated financial statements included herein have been
prepared in accordance with the instructions to Form 10-Q and do not include
all the information and footnotes required by generally accepted accounting
principles; however, they do include all adjustments of a normal recurring
nature that, in the opinion of management, are necessary to present fairly the
results of operations of COMSYS IT Partners, Inc. and its subsidiaries
(collectively, the Company) for the interim periods presented. These interim
financial statements should be read in conjunction with the Companys audited
consolidated financial statements and related notes included in the Companys
Annual Report on Form 10-K for the year ended December 28, 2003. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year. (2) Subsequent Events On September 30, 2004, the Company and certain of its subsidiaries
completed a merger transaction with COMSYS Holding, Inc. In the merger, VTP,
Inc., a subsidiary of the Company, merged with and into COMSYS Holding, Inc.
COMSYS Holding continued as the surviving entity and is now a wholly owned
subsidiary of the Company. In connection with the merger, the Company issued
new shares of its common stock to stockholders of COMSYS Holding, which
resulted in former COMSYS Holding stockholders owning approximately 55.4% of
the Companys outstanding common stock on a fully diluted basis. The Company
also amended and restated its charter to, among other things, change its name
to COMSYS IT Partners, Inc. The merger was intended to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended. In connection with the merger, and as a condition to its closing, on
September 30, 2004, the Company sold its Staffing Services business to Compass
CS, Inc. (Compass) for $30,300 in cash. After provision for certain escrows
and the payment of transaction expenses, the Company received approximately
$25,500 in net cash proceeds from this sale transaction, which it used to repay
indebtedness. The stock purchase agreement provides for a closing balance
sheet adjustment, which will be calculated in the fourth quarter of fiscal
2004. The purchaser in this transaction is affiliated with The Compass Group
International LLC, the parent entity of two of the largest stockholders of the
Company. A member of the Companys board of directors is a director of Compass
CS, as well as a principal of The Compass Group International LLC and another
Compass Group principal serves as a board observer for the Companys Board of
Directors. In connection with the consummation of the merger, the Company and its
U.S. subsidiaries entered into a Credit Agreement with Merrill Lynch Capital,
as administrative agent, ING Capital LLC, as documentation agent, GMAC
Commercial Finance LLC, as syndication agent, and a syndicate of lenders. The
Credit Agreement provides for a two-year term loan of $15,000, which was funded
on September 30, 2004, and which is scheduled to be repaid in eight equal
quarterly principal installments commencing on December 31, 2004, and a
five-year revolving credit facility of up to $100,000. The term loan bears
interest at LIBOR plus 3.0% or, at the Companys option, the prime rate plus
2.0% per annum. Revolving credit facility loans bear interest at LIBOR plus a
margin that can range from 2.25% to 2.50% or, at the Companys option, the
prime rate plus a margin that can range from 1.25% to 1.50%, each depending on
the Companys total debt to adjusted EBITDA ratio. The Credit Agreement also
provides for a quarterly commitment fee of 0.5% per annum of the unused portion
of the revolving credit facility and fees for each letter of credit issued
under the facility. The Company and certain of its subsidiaries guarantee the
loans and obligations under the Credit Agreement. The loans and obligations of
the Company and its subsidiaries under the Credit Agreement and guarantees are
secured by a perfected first priority security interest in substantially all of
the assets of the Company and its U.S. subsidiaries, as well as the shares of 7




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capital stock of the Companys direct and indirect U.S. subsidiaries and
65% of the capital stock of its direct and indirect non-U.S. subsidiaries. In addition, the Company and its U.S. subsidiaries, entered into a Term
Loan Credit Agreement with Merrill Lynch Capital, as administrative agent,
Heritage Bank, SSB, as collateral agent, and a syndicate of lenders. The Term
Loan Credit Agreement provides for a term loan of $70,000, which was funded on
September 30, 2004, and which matures on April 30, 2010. The term loan bears
interest at LIBOR plus 7.5% or, at the Companys option, the prime rate plus
6.5%. The Company and certain of its subsidiaries guarantee the loans and
obligations under the Term Loan Credit Agreement. The loans and obligations of
the Company and its subsidiaries under the Term Loan Credit Agreement and
guarantees are secured by a second priority security interest in substantially
all of the assets of the Company and its U.S. subsidiaries, as well as the
shares of capital stock of the Companys direct and indirect U.S. subsidiaries
and 65% of the capital stock of its direct and indirect non-U.S. subsidiaries. The Companys total outstanding indebtedness on September 30, 2004
consisted of approximately $135,000, which included approximately (1) $15,000
under the term loan at an interest rate of LIBOR plus 3.0%, (2) $50,000 under
the revolving credit facility at an interest rate of LIBOR plus 2.5%, and (3)
$70,000 under the Term Loan Credit Agreement at an interest rate of LIBOR plus
7.5%. The excess availability under the revolving credit facility on September
30, 2004 was approximately $19,000, which is net of required reserves for
merger related restructuring costs of $23,000 and a minimum availability amount
of $5,000. In connection with the merger, the Company entered into a second amendment
to its Amended and Restated Rights Agreement dated as of April 14, 2003. This
amendment generally provided that the Rights (as defined in the rights
agreement) would not become exercisable as a result of execution of the merger
agreement and completion of the transactions contemplated thereby. The
amendment also provided that the rights agreement would terminate immediately
prior to the effectiveness of the merger. (3) 2003 Comprehensive Financial Restructuring In April 2003, the Company completed a comprehensive financial
restructuring with its senior lenders and the holders of $109,661 outstanding
principal amount of its 5.75% Convertible Subordinated Notes due 2004 (the
5.75% Notes) in which it issued new shares of the Companys capital stock to
the participating noteholders in exchange for their 5.75% Notes (the Exchange
Transaction). In the Exchange Transaction, the participating noteholders in
the aggregate received $3,153 in cash and 5,015,349 shares of common stock
(after conversion of preferred stock initially issued in the Exchange
Transaction), which represented approximately 82% of the Companys outstanding
capital stock immediately after the Exchange Transaction. The Companys
existing shareholders retained ownership of their outstanding 1,075,248 shares
of common stock, which represented approximately 18% of the outstanding capital
stock. To facilitate the closing of the Exchange Transaction, the Company also
restructured its senior debt (the Senior Debt Restructuring). In the Senior
Debt Restructuring, the senior lenders forgave indebtedness in the amount of
$10,300, eliminated existing equity appreciation rights associated with the
revolving credit facility and agreed to certain further amendments. As a
result of the Exchange Transaction and the Senior Debt Restructuring, the
Company used substantially all of its cash on hand, after payment of
transaction expenses, to repay $37,985 of its outstanding credit facility and
eliminated an additional $119,961 of its outstanding indebtedness, which
resulted in substantial reductions in the Companys interest expense. No
provision for income taxes was recorded in 2003 since the gain from financial
restructuring was not subject to income tax. The amended revolving credit facility (the Restructuring Credit
Facility) provided for a $70,700 revolving line of credit due November 1,
2004. The Company issued common stock purchase warrants to the lenders under
the Restructuring Credit Facility entitling them to purchase a total of 768,997
shares of common stock, or 10% of the outstanding common stock on a fully
diluted basis as of the closing date of the financial 8




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restructuring. The Company engaged an independent valuation firm to
assist in the determination of the fair value of these warrants and recorded
$1,538 as additional shareholders equity with a corresponding reduction in the
related outstanding senior debt. These warrants are exercisable in whole or
part over a 10-year period at an exercise price of $7.8025 per share, which was
based on an assumed equity valuation for the Company of $60,000. The exercise
price for these warrants exceeded the estimated fair value of the underlying
equity at the issuance date. The Company entered into an agreement with each of the former noteholders
participating in the Exchange Transaction and each of its senior lenders to
provide them with registration rights with respect to the shares of common
stock issued in the financial restructuring and the shares of common stock
issuable upon exercise of the warrants, as applicable. (4) Stock Options The Company has adopted Statement of Financial Accounting Standards No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure.
The Company plans to continue using the intrinsic-value method of accounting
for stock-based awards granted to employees and, accordingly, does not
currently recognize compensation expense for its stock-based awards to
employees in the Consolidated Statements of Operations, except primarily for
the variable options described below. In March 2000, the FASB issued Financial Accounting Interpretation No. 44
(FIN 44), Accounting for Certain Transactions involving Stock Compensation,
an interpretation of APB Opinion No. 25, Accounting for Stock Issued to
Employees. FIN 44 requires that stock options issued within six months of the
cancellation date of prior options be accounted for as variable stock options.
Because most of the options granted by the Company under the 2003 Equity
Incentive Plan prior to December 28, 2003 were granted within six months from
the date that options granted to the same recipients under the 1995 Stock
Option Plan were cancelled, these new stock options are subject to variable
accounting until they are exercised, forfeited or expire unexercised. The following disclosures are presented to reflect the Companys pro forma
net income (loss) for the periods ended September 26, 2004 and September 28,
2003 as if the Company had applied the fair value recognition provision of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation. In preparing these disclosures, the Company has
determined the value of all outstanding stock options granted under the 1995
Stock Option Plan, which was terminated, and the Companys 2003 Equity
Incentive Plan, in each case using the Black-Scholes model and based on the
following weighted average assumptions used for grants: Period Ended
    
    Period EndedSept. 26, 2004
    
    Sept. 28, 2003Risk-free interest rate
    
    
    3.1
    %
    
    
    3.1
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected life
    
    
    5
    
    
    
    5Expected volatility
    
    
    81.7
    %
    
    
    84.4
    %
 The fair value of stock options granted under the 2003 Equity Plan in the
first nine months of 2004 and the first nine months of 2003 was approximately
$38 and $2,556, respectively. Had compensation expense been determined
consistent with the fair value method, utilizing the assumptions set forth
above and the straight-line amortization method over the vesting period, the
Companys net income (loss) would have reflected the following pro forma
amounts: 9




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Sept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003Net income (loss), as reported
    
    $
    1,435
    
    
    $
    2,058
    
    
    $
    (36,349
    )
    
    $
    77,404Add: Stock option compensation included in
reported net income
    
    
    (1,128
    )
    
    
    267
    
    
    
    (304
    )
    
    
    267Deduct: Stock option compensation determined
using a fair value based method for all awards
    
    
    (223
    )
    
    
    (272
    )
    
    
    (771
    )
    
    
    (508
    )Tax effect
    
    
    540
    
    
    
    2
    
    
    
    430
    
    
    
    97Pro forma net income (loss)
    
    $
    624
    
    
    $
    2,055
    
    
    $
    (36,994
    )
    
    $
    77,260Earnings per share, as reported:Basic
    
    $
    0.24
    
    
    $
    0.34
    
    
    $
    (5.97
    )
    
    $
    18.60Diluted
    
    $
    0.23
    
    
    $
    0.33
    
    
    $
    (5.97
    )
    
    $
    18.60Pro forma earnings per share:Basic
    
    $
    0.10
    
    
    $
    0.34
    
    
    $
    (6.07
    )
    
    $
    18.57Diluted
    
    $
    0.10
    
    
    
    0.33
    
    
    
    -6.07
    
    
    
    18.57
 (5) Restructuring Charges and Transaction Related Costs The Company recorded $3,304 in the third quarter of 2004 related to
professional services rendered in connection with the merger with COMSYS
Holding and the sale of the Staffing Services division. Approximately $2,548
of these fees related to the Companys merger with COMSYS Holding and the
remaining $756 related to the sale of the Staffing Services division. Beginning in 2001, the Company implemented a plan to restructure and
rationalize certain operations. The Company recorded charges totaling $92 and
$236, in the third quarter of 2004 and the third quarter of 2003, respectively,
primarily related to lease termination and employee severance costs. Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the period ended September 26, 2004: Employee
    
    Lease
    
    ProfessionalSeverance
    
    Costs
    
    Fees
    
    TotalAccrued liability at December 28, 2003
    
    $
    26
    
    
    $
    4,733
    
    
    $
    
    
    
    $
    4,759Cash payments
    
    
    (20
    )
    
    
    (525
    )
    
    
    
    
    
    
    (545
    )Accrued liability at March 28, 2004
    
    
    6
    
    
    
    4,208
    
    
    
    
    
    
    
    4,214Cash payments
    
    
    
    
    
    
    (452
    )
    
    
    
    
    
    
    (452
    )Accrued liability at June 27, 2004
    
    
    6
    
    
    
    3,756
    
    
    
    
    
    
    
    3,762Charges
    
    
    
    
    
    
    92
    
    
    
    3,304
    
    
    
    3,396Cash payments
    
    
    
    
    
    
    (405
    )
    
    
    (1,723
    )
    
    
    (2,128
    )Accrued liability at September 26, 2004
    
    $
    6
    
    
    $
    3,443
    
    
    $
    1,581
    
    
    $
    5,030
 The accrued professional fees were substantially paid at the closing of
the merger and sale transactions (see Note 2). Of the remaining accrued
liability at September 26, 2004, the Company expects to pay approximately
$1,565 over the next 12 months and the balance, which primarily consists of
lease payments, over the following seven years. In connection with the sale of
the Commercial Staffing division, the buyer assumed up to $745 of accrued
restructuring costs, which primarily consists of lease costs. 10




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##### Table of Contents



(6) Goodwill The Company completed its annual impairment assessment in the fourth
quarter of 2003 and determined there was no further impairment at that time.
In order to assess the fair value of its goodwill, the Company engaged an
independent valuation firm to assist in determining the fair value. The fair
value of each of the Companys two reporting units was calculated as of
December 28, 2003 on an enterprise value basis using the market multiple and
discounted cash flow approaches. Under the market multiple approach, market
ratios and performance fundamentals relating to similar public companies stock
prices or enterprise values were applied to the reporting units to determine
their enterprise value. Under the discounted cash flow approach, the indicated
enterprise value was determined using the present value of the projected future
cash flows to be generated considering appropriate discount rates. The
discount rates used in the calculation reflected all associated risks of
realizing the projected future cash flows. Certain of the valuation
assumptions were based on managements expectations for future performance of
the Technology Services and Staffing Services reporting units. These
assumptions include the expected time frame of technology spending and broader
economic recoveries as well as future growth rates in the Technology Services
and Staffing Services businesses. A discount rate of 16-17% was utilized in
the discounted cash flow valuation approach due principally to the inherent
uncertainties associated with these assumptions. Subsequent to March 28, 2004, the Company entered into substantive
negotiations with Compass for the sale of its Staffing Services division. The
negotiations were concluded in July 2004. The Company recognized an impairment
loss of $41,700 associated with Staffing Services goodwill in the second
fiscal quarter of 2004 based on the estimated proceeds to be received in
connection with the Stock Purchase Agreement. The primary reasons for
impairment were, among other factors, the downward adjustment in projected
results of the Staffing Services division, caused in part by the loss of
certain key customers, and increased discounting of those future results based
on the current assessment of risk inherent in the business. (7) Debt The Companys debt consisted of the following at September 26, 2004 and
December 28, 2003: Sept. 26,
    
    December 28,2004
    
    20035.75% Notes due July 2004
    
    $
    
    
    
    $
    5,339Revolving credit facility
    
    
    54,000
    
    
    
    50,000Deferred gain on financial restructuring, net
    
    
    2,303
    
    
    
    5,264Other
    
    
    89
    
    
    
    37056,392
    
    
    
    60,973Less current portion
    
    
    56,392
    
    
    
    370$
    
    
    
    $
    60,603
 The 5.75% Notes were due in July 2004, and were paid in full at their
stated maturity. Subsequent to September 26, 2004, the merger and sale transactions were
completed. As a result, the revolving credit facility was paid in full and the
Company entered into new financing arrangements. See Note 2 for a complete
description of the transactions and related financing agreements. For the three months and nine months ended September 26, 2004, interest
expense was $385 and $876, respectively, which was net of amortization of
deferred gain on financial restructuring of $987 and $2,961, respectively. 11




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##### Table of Contents



(8) Earnings Per Share The following table reconciles net income (loss) and weighted average
shares outstanding to the amounts used to calculate basic and diluted earnings
per share for each of the three- and nine-month periods ended September 26,
2004 and September 28, 2003: Three months
ended
    
    Nine months endedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003Basic and diluted earnings per share:Net income (loss)
    
    $
    1,435
    
    
    $
    2,058
    
    
    $
    (36,349
    )
    
    $
    77,404Weighted average common shares outstanding
    
    
    6,089,938
    
    
    
    6,090,199
    
    
    
    6,089,938
    
    
    
    4,161,484Add: Dilutive stock options and warrants
    
    
    256,362
    
    
    
    81,233
    
    
    
    
    
    
    
    Add: Assumed conversion of 5.75% Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    6,346,300
    
    
    
    6,171,432
    
    
    
    6,089,938
    
    
    
    4,161,484Earnings per share:Basic
    
    $
    0.24
    
    
    $
    0.34
    
    
    $
    (5.97
    )
    
    $
    18.60Diluted
    
    $
    0.23
    
    
    $
    0.33
    
    
    $
    (5.97
    )
    
    $
    18.60
 Stock options to purchase 186,895 and 339,075 shares of Common Stock were
outstanding under the 2003 Equity Incentive Plan and the 1995 Stock Option Plan
during the quarters ended September 26, 2004 and September 28, 2003,
respectively, but were excluded from the computation of earnings per diluted
share because their effect was antidilutive. The common stock purchase
warrants issued in 2003, which entitle the lenders under the Restructuring
Credit Facility to purchase a total of 768,997 shares of common stock, were
also excluded from the computation of earnings per diluted shares for the
quarter ended September 28, 2003 because their effect was antidilutive. (9) Commitments and Contingencies The Company is involved in various legal actions and claims. In the
opinion of management, after considering appropriate legal advice, the future
resolutions of all actions and claims are not expected to have a material
adverse effect on the Companys consolidated financial position, results of
operations or cash flows. During the first quarter of 2004, the Company entered into a significant
new lease agreement for its Corporate offices with rent (approximately $257 per
year and escalating annually) commencing December 1, 2004 and ending December
31, 2014. As a result of the merger, the Company does not expect to occupy
these offices and will attempt to mitigate its obligations under this lease. (10) Segment Information: Prior to the completion of the merger and sale transactions discussed
above, we were organized in two segments: Technology Services and Staffing
Services. Technology Services provides technical staffing, training and
information technology consulting services and technology tools for human
capital management. Staffing Services provides temporary staffing services,
placement of full-time employees and on-site management of temporary employees.
The Company evaluates segment performance based on income from operations
before unallocated corporate expenses, restructuring and rationalization
charges, stock option compensation, amortization of goodwill and intangible
assets, interest expense, gain (loss) on financial restructuring, net, and
income taxes. Because of the Companys substantial goodwill, management does
not consider total assets by segment an important management tool and,
accordingly, the Company does not report this information 12




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##### Table of Contents



separately. The table below presents segment information for Technology
Services and Staffing Services for the three- and nine-month periods ended
September 26, 2004 and September 28, 2003: Three months ended
    
    Nine months endedSept. 26,
    
    Sept. 28,
    
    Sept. 26,
    
    Sept. 28,2004
    
    2003
    
    2004
    
    2003Total revenuesTechnology Services
    
    $
    67,217
    
    
    $
    60,914
    
    
    $
    202,374
    
    
    $
    181,302Staffing Services
    
    
    70,407
    
    
    
    63,308
    
    
    
    201,000
    
    
    
    186,145Total revenues
    
    
    137,624
    
    
    
    124,222
    
    
    
    403,374
    
    
    
    367,447Gross profitTechnology Services
    
    
    16,515
    
    
    
    14,463
    
    
    
    46,717
    
    
    
    42,038Staffing Services
    
    
    13,752
    
    
    
    12,802
    
    
    
    38,478
    
    
    
    36,940Total gross profit
    
    
    30,267
    
    
    
    27,265
    
    
    
    85,195
    
    
    
    78,978Operating incomeTechnology Services
    
    
    4,155
    
    
    
    3,092
    
    
    
    10,586
    
    
    
    6,872Staffing Services
    
    
    3,593
    
    
    
    3,238
    
    
    
    8,540
    
    
    
    6,452Total segment operating income, as defined
    
    
    7,748
    
    
    
    6,330
    
    
    
    19,126
    
    
    
    13,324Unallocated corporate expenses
    
    
    3,194
    
    
    
    3,513
    
    
    
    10,229
    
    
    
    10,903Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    41,700
    
    
    
    Restructuring and rationalization charges
    
    
    3,396
    
    
    
    236
    
    
    
    3,396
    
    
    
    2,351Stock option compensation expense (income)
    
    
    (1,128
    )
    
    
    267
    
    
    
    (304
    )
    
    
    267Amortization of intangible assets
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    172Interest expense
    
    
    385
    
    
    
    196
    
    
    
    876
    
    
    
    5,332Gain on financial restructuring, net
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    83,105Income (loss) before income taxes
    
    $
    1,901
    
    
    $
    2,058
    
    
    $
    (36,771
    )
    
    $
    77,404
 The following table sets forth identifiable assets by segment at September
26, 2004 and December 28, 2003: Sept. 26,
    
    December 28,2004
    
    2003Accounts receivable, netTechnology Services
    
    $
    51,757
    
    
    $
    49,849Staffing Services
    
    
    28,252
    
    
    
    25,853Total accounts receivable, net
    
    $
    80,009
    
    
    $
    75,702
 13




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 INTRODUCTION The following discussion and analysis should be read in conjunction with
our consolidated financial statements and related notes appearing elsewhere in
this document. Our fiscal year ends on the Sunday nearest to December 31, and
our fiscal quarters end on the Sunday nearest to the end of each calendar
quarter. THE COMPANY On September 30, 2004, we and certain of our subsidiaries completed a
merger transaction with COMSYS Holding, Inc. and its affiliates. In the
merger, VTP, Inc., a subsidiary of ours, merged with and into COMSYS Holding,
Inc. COMSYS Holding continued as the surviving entity and is now one of our
wholly owned subsidiaries. In connection with the merger, we issued new shares
of our common stock to stockholders of COMSYS Holding, which resulted in former
COMSYS Holding stockholders owning approximately 55.4% of our outstanding
common stock on a fully diluted basis. We also amended and restated our
charter and changed our name to COMSYS IT Partners, Inc. The merger was
intended to qualify as a tax-free reorganization under the Internal Revenue
Code of 1986, as amended. Because former COMSYS Holding stockholders now own a
majority of our outstanding common stock as a result of the merger, COMSYS
Holding is deemed the accounting acquirer for financial accounting purposes.
The financial results reported in this report reflect only the historical
operations of Venturi Partners, Inc. since our third fiscal quarter ended prior
to the consummation of the merger. Our future financial results will reflect
the combined operations of COMSYS Holding and Venturi Partners, Inc. As a
result, the financial results reported in this report are not necessarily
indicative of our future results. In connection with the merger, and as a condition to its closing, on
September 30, 2004, we sold our Staffing Services business to Compass CS, Inc.
for $30.3 million in cash. After provision for certain escrows and the payment
of transaction expenses, we received approximately $25.5 million in net cash
proceeds from this sale transaction, which we used to repay indebtedness. The
stock purchase agreement provides for a closing balance sheet adjustment, which
will be calculated in the fourth quarter of fiscal 2004. The purchaser in this
transaction is affiliated with The Compass Group International LLC, the parent
entity of two of our largest stockholders. A member of our board of directors
is a director of Compass CS, as well as a principal of The Compass Group
International LLC and another Compass Group principal serves as a board
observer for our Board of Directors. In connection with the consummation of the merger, we and our U.S
subsidiaries entered into a credit agreement, which provides for a two-year
term loan of $15 million and a five-year revolving credit facility of up to
$100 million. The term loan of $15 million was funded on September 30, 2004
and is scheduled to be repaid in eight equal quarterly principal installments
commencing on December 31, 2004. In addition, we and our U.S. subsidiaries
entered into a term loan credit agreement, which provides for a term loan of
$70 million. The term loan credit agreement matures on April 30, 2010. On
September 30, 2004, our total outstanding indebtedness under these facilities
totaled approximately $135 million, which included approximately (1) $15
million under the term loan at an interest rate of LIBOR plus 3.0%, (2) $50
million under the revolving credit facility at an interest rate of LIBOR plus
2.5%, and (3) $70 million under the term loan credit agreement at an interest
rate of LIBOR plus 7.5%. These credit facilities are discussed below in
further detail in the section entitled Liquidity and Capital Resources. In connection with the merger, we entered into a second amendment to our
Amended and Restated Rights Agreement dated as of April 14, 2003. This
amendment generally provided that the Rights (as defined in the rights
agreement) would not become exercisable as a result of execution of the merger
agreement and completion of the transactions contemplated thereby. The
amendment also provided that the rights agreement would terminate immediately
prior to the effectiveness of the merger. 14




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##### Table of Contents



Prior to the completion of the merger and sale transactions discussed
above, we were organized in two divisions: the Technology Services division,
which provides information technology staffing and consulting services in a
range of computer-related disciplines and technology tools for human capital
management, and the Staffing Services division, which provides a variety of
temporary office, clerical, accounting and finance, light technical and light
industrial staffing services. Approximately 49% of our third quarter 2004
revenues came from Technology Services and 51% came from Staffing Services. Our business depends in large part on our ability to recruit skillful
people and put them to work on temporary assignments for our customers, making
our primary revenue drivers billable hours and hourly bill rates. We generate
revenue primarily by billing our customers based on pre-agreed bill rates for
the number of hours that each of our associates works on assignment. We
describe the types of business that we do for our customers as either retail or
vendor-on-premise, referred to as VOP, business. Our retail business includes
our smaller accounts and involves more local relationship building and selling.
Our VOP business tends to be our larger accounts or business with larger
customers that may have needs in multiple cities. Most of our billings are on
a time and materials basis. We also provide permanent placement services to
certain of our customers, which results in fee revenue to us generally based on
a percentage of the candidates first year salary. These placement services
have been primarily for our customers in Staffing Services. Direct costs of services are our actual costs related to our billable
employees and include the pay rate and payroll taxes, benefits and insurance
costs and other similar expenses. Gross margin is influenced by the
utilization rate for each billable employee, our business mix, seasonal trends
as we move through each calendar year and our ability to manage other
employment related costs, such as workers compensation costs. The Technology
Services business is 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. The Staffing Services business has also been subject to
the seasonal impact of summer and holiday employment trends. Typically, the
Staffing Services business was stronger in the second half of each calendar
year than in the first half. We believe our revenue trends in the first nine months of 2004 continue to
provide evidence of the slightly improving economy. Consistent with normal
seasonal influences, Staffing Services revenues continued to strengthen in the
third quarter of 2004. Technology Services net billable headcount increased
slightly during the quarter, closing the quarter with 2,025 consultants. 15




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##### Table of Contents



RESULTS OF OPERATIONS Quarter Ended September 26, 2004 Versus Quarter Ended September 28, 2003 Operating Results Revenues increased 10.8% to $137.6 million in the third quarter of 2004
from $124.2 million in the third quarter of 2003. Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, increased
10.7% to $107.4 million in the third quarter of 2004 primarily due to higher
revenues and increases in state unemployment taxes and workers compensation.
Gross profit increased 11.0% to $30.3 million in the third quarter of 2004 from
$27.3 million in the third quarter of 2003, primarily due to higher revenues.
Gross profit as a percentage of revenues was relatively flat at 22.0% in the
third quarter of 2004 compared to 21.9% in the third quarter of 2003. Operating expenses, consisting of selling, general and administrative
expenses and depreciation and amortization expense, increased 5.0% to $25.7
million in the third quarter of 2004 from $24.5 million in the third quarter of
2003. This increase was primarily due to increased commissions on the higher
revenues. As a percentage of revenues, selling, general and administrative
expenses decreased to 18.0% in the third quarter of 2004 from 18.7% in the
third quarter of 2003. In addition, depreciation and amortization expense
decreased to 0.7% of revenues in the third quarter of 2004 from 1.0% in the
third quarter of 2003. Technology Services Division Technology Services revenues increased 10.3% to $67.2 million in the third
quarter of 2004 from $60.9 million in the third quarter of 2003. Technology
Services billable consultants on assignment increased slightly for the quarter
from 1,987 at the end of the second quarter of 2004 to 2,025 at the end of the
third quarter of 2004. The following table summarizes the quarterly revenue
and billable headcount (as of the end of each period) for the Technology
Services operations for the third quarter of 2004 and 2003 (revenues in
thousands): 2004
    
    2003Q3
    
    Q3Revenues
    
    $
    67,217
    
    
    $
    60,914Billable headcount
    
    
    2,025
    
    
    
    1,900
 Gross margin percentage in Technology Services was 24.6% for the third
quarter of 2004, an increase of 90 basis points from the third quarter of 2003.
We believe our gross margins are stabilizing after several years of margin
compression from customer pressure on bill rates and a market driven shift in
mix of business away from higher margin new systems development work.
Operating income rose to $4.2 million, or 6.2% of revenues, for the Technology
Services operations in the third quarter of 2004 compared to $3.1 million, or
5.1% of revenues, in the third quarter of 2003, primarily due to increased
revenues, improved gross margins and our ongoing efforts to aggressively manage
costs. Staffing Services Division Staffing Services revenues increased 11.2% to $70.4 million in the third
quarter of 2004 from $63.3 million in the third quarter of 2003, primarily due
to improvement in the retail component of our temporary staffing business and
permanent placement revenues, which were partially offset by a decline in our
VOP business. Operating income rose to $3.6 million, or 5.1% of revenues, for
the Staffing Services operations in the third quarter of 2004, up from $3.2
million, or 5.1% of revenues, in the third quarter of 2003. The following
table summarizes the quarterly revenues and billable hours for the Staffing
Services operations for the third quarter of 2004 and 2003 (in thousands): 16




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##### Table of Contents



2004
    
    2003Q3
    
    Q3Revenues
    
    $
    70,407
    
    
    $
    63,308Billable hours
    
    
    4,121
    
    
    
    3,754
 The change in business mix discussed above also impacts the divisions
gross margins, as the VOP business typically carries higher volume and lower
gross margins compared to the higher margin retail and permanent placement
business. The following table summarizes the quarterly business mix for the
Staffing Services division for the third quarter of 2004 and 2003: 2004
    
    2003Q3
    
    Q3Retail
    
    
    67.1
    %
    
    
    62.2
    %VOP
    
    
    30.4
    %
    
    
    35.6
    %Permanent placement
    
    
    2.5
    %
    
    
    2.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 As previously discussed, the Staffing Services division was sold
subsequent to the end of the third quarter on September 30, 2004. Restructuring and Rationalization Charges We recorded $3.3 million in the third quarter of 2004 related to
professional services fees incurred by us in connection with the merger with
COMSYS Holding and the sale of the Staffing Services division. Approximately
$2.5 million of these fees related to our merger with COMSYS Holding and the
remaining $0.8 million related to the sale of our Staffing Services division. Beginning in 2001, we implemented a plan to restructure and rationalize
certain operations. We recorded charges totaling $0.1 million and $0.2 million
in the third quarter of 2004 and the third quarter of 2003, respectively,
primarily related to lease termination and employee severance costs Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the quarter ended September 26, 2004 (in
thousands): Employee
    
    Lease
    
    ProfessionalSeverance
    
    Costs
    
    Fees
    
    TotalAccrued liability at June 27, 2004
    
    
    6
    
    
    
    3,756
    
    
    
    
    
    
    
    3,762Charges
    
    
    
    
    
    
    92
    
    
    
    3,304
    
    
    
    3,396Cash payments
    
    
    
    
    
    
    (405
    )
    
    
    (1,723
    )
    
    
    (2,128
    )Accrued liability at September 26, 2004
    
    $
    6
    
    
    $
    3,443
    
    
    $
    1,581
    
    
    $
    5,030
 The accrued professional fees were substantially paid at the closing of
the merger and sale transactions (see Note 2). Of the remaining accrued
liability at September 26, 2004, we expect to pay approximately $1.6 million
over the next 12 months and the balance, consisting primarily of lease
payments, over the following seven years. In connection with the sale of our
Staffing Services division, the buyer assumed up to $0.8 million of accrued
restructuring costs, primarily consisting of lease costs. Stock Option Compensation Expense (Income) Stock option compensation expense (income) represents the non-cash charge
associated with certain stock options that were issued within a six-month
period after cancellation of old stock options and subsequently are accounted
for as variable stock options under FASB Interpretation No. 44 (FIN 44), 17




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##### Table of Contents



Accounting for Certain Transactions involving Stock Compensation. The
share price at September 26, 2004 was lower than the share price at the end of
the second quarter, resulting in an income adjustment of $1.1 million in the
third quarter of 2004. We expect to continue to record adjustments to income
from stock option compensation in future periods due to continued vesting of
such stock options and any subsequent changes in the price of our common stock. Interest Expense Interest expense increased 96.4% to $0.4 million in the third quarter of
2004 from $0.2 million in the third quarter of 2003, primarily as a result of
higher average debt balances outstanding. The reported interest expense of
$0.4 million for the third quarter of 2004 is net of amortization of deferred
gain on financial restructuring of $1.0 million. The average interest rate on
borrowings was 8.4% in the third quarter of 2004, unchanged from the third
quarter of 2003. In connection with the merger, we entered into new credit
facilities and repaid all amounts outstanding under our prior credit facility.
Total debt outstanding under these credit facilities on September 30, 2004 was
approximately $135 million. Provision (Benefit) for Income Taxes We recorded income tax expense of $0.5 million in the third quarter of
2004, comprised of a non-cash deferred income tax benefit related to the
goodwill impairment charge recorded in the second quarter offset by an
effective tax rate of 18.6% related to our operating income. The estimated
effective tax rate of 18.6% in the third quarter of 2004 was lower than the
U.S. federal statutory rate of 35% primarily due to the impact of
non-deductible expenses and the provision of valuation allowances against
deferred income tax assets. No provision or benefit for income taxes was
recorded in the third quarter of 2003 since the gain from the financial
restructuring will not be subject to income tax and we had incurred operating
losses that can be carried forward to offset future taxable income. Because of
the changes in ownership of the Company that occurred in connection with the
financial restructuring on April 14, 2003, the utilization of net operating
losses generated prior to that date will not be available to offset future
taxable income. We have deferred tax assets relating to deductible temporary
differences and NOL carryforwards generated since April 14, 2003 which are
fully reserved through a valuation allowance to the extent they are not offset
by deferred tax liabilities. Nine Months Ended September 26, 2004 Versus Nine Months Ended September
28, 2003 Operating Results Revenues increased 9.8% to $403.4 million in the first nine months of 2004
from $367.4 million in the first nine months of 2003. Direct costs, consisting
of payroll and related expenses of consultants and temporary workers, increased
10.3% to $318.2 million in the first nine months of 2004, due primarily to
higher revenues. Gross profit increased 7.9% to $85.2 million for the first
nine months of 2004 from $79.0 million for the first nine months of 2003, due
primarily to higher revenues. Gross profit as a percentage of revenues
decreased to 21.1% in the first nine months of 2004 from 21.5% in the first
nine months of 2003, primarily as the result of higher state unemployment tax
rates and increased workers compensation and medical costs. Operating expenses, consisting of selling, general and administrative
expenses and depreciation and amortization expense, decreased 1.0% to $76.3
million in the first nine months of 2004 from $76.7 million in the first nine
months of 2003. This decrease was primarily due to our aggressive cost
management program, offset by increases in state unemployment tax rates and
medical costs. As a percentage of revenues, selling, general and
administrative expenses decreased to 18.2% in the first nine months of 2004
from 19.8% in the first nine months of 2003. In addition, depreciation and
amortization expense decreased to 0.8% of revenues in the first nine months of
2004 from 1.1% in the first nine months of 2003. Technology Services Division 18




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##### Table of Contents



Technology Services revenues increased 11.6% to $202.4 million in the
first nine months of 2004 from $181.3 million in the first nine months of 2003.
Technology Services billable consultants on assignment began to climb again in
2004, and increased from approximately 1,950 at year-end 2003 to 2,025 at the
end of the third quarter of 2004. The following table summarizes the quarterly
revenue and billable headcount (as of the end of each period) for the
Technology Services operations for the first nine months of 2004 and 2003
(revenues in thousands): 2004
    
    2003Q1
    
    Q2
    
    Q3
    
    YTD
    
    Q1
    
    Q2
    
    Q3
    
    YTDRevenues
    
    $
    67,478
    
    
    $
    67,679
    
    
    $
    67,217
    
    
    $
    202,374
    
    
    $
    60,559
    
    
    $
    59,829
    
    
    $
    60,914
    
    
    $
    181,302Billable headcount
    
    
    1,980
    
    
    
    1,987
    
    
    
    2,025
    
    
    
    N/A
    
    
    
    1,830
    
    
    
    1,800
    
    
    
    1,900
    
    
    
    N/A
 Gross margin percentage in Technology Services was 23.1% for the first
nine months of 2004, which reflects a decrease of 10 basis points from the
first nine months of 2003, primarily as a result of higher state unemployment
tax rates. We believe our gross margins are stabilizing after several years of
margin compression from customer pressure on bill rates and a market driven
shift in mix of business away from higher margin new systems development work.
Operating income rose to $10.6 million, or 5.2% of revenues, for the Technology
Services operations in the first nine months of 2004 compared to $6.9 million,
or 3.8% of revenues, in the first nine months of 2003, primarily due to
increased revenues, improved gross margins and our ongoing efforts to
aggressively manage costs. Staffing Services Division Staffing Services revenues increased 8.0% to $201.0 million in the first
nine months of 2004 from $186.1 million in the first nine months of 2003,
primarily due to improvement in the retail component of our temporary staffing
business and permanent placement revenues, which were partially offset by a
decline in our VOP business. Operating income rose to $8.5 million, or 4.2% of
revenues, for the Staffing Services operations in the first nine months of
2004, up from $6.5 million, or 3.5% of revenues, in the first nine months of
2003. The following table summarizes the quarterly revenues and billable hours
for the Staffing Services operations for the first nine months of 2004 and 2003
(in thousands): 2004
    
    2003Q1
    
    Q2
    
    Q3
    
    YTD
    
    Q1
    
    Q2
    
    Q3
    
    YTDRevenues
    
    $
    61,778
    
    
    $
    68,815
    
    
    $
    70,407
    
    
    $
    201,000
    
    
    $
    60,157
    
    
    $
    62,680
    
    
    $
    63,308
    
    
    $
    186,145Billable hours
    
    
    3,568
    
    
    
    3,998
    
    
    
    4,121
    
    
    
    7,566
    
    
    
    3,574
    
    
    
    3,691
    
    
    
    3,754
    
    
    
    11,019
 The change in business mix discussed above also impacts the divisions
gross margins, as the VOP business typically carries higher volume and lower
gross margins compared to the higher margin retail and permanent placement
business. The following table summarizes the quarterly business mix for the
Staffing Services division for the first nine months of 2004 and 2003: 2004
    
    2003Q1
    
    Q2
    
    Q3
    
    YTD
    
    Q1
    
    Q2
    
    Q3
    
    YTDRetail
    
    
    63.5
    %
    
    
    64.4
    %
    
    
    67.1
    %
    
    
    65.1
    %
    
    
    60.6
    %
    
    
    60.7
    %
    
    
    62.2
    %
    
    
    61.2
    %VOP
    
    
    33.9
    %
    
    
    32.9
    %
    
    
    30.4
    %
    
    
    32.3
    %
    
    
    37.4
    %
    
    
    37.0
    %
    
    
    35.6
    %
    
    
    36.6
    %Permanent placement
    
    
    2.6
    %
    
    
    2.7
    %
    
    
    2.5
    %
    
    
    2.6
    %
    
    
    2.0
    %
    
    
    2.3
    %
    
    
    2.2
    %
    
    
    2.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 As previously discussed, our Staffing Services division was sold
subsequent to the end of our third quarter on September 30, 2004. 19




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Goodwill Impairment Based on the proceeds to be received in connection with the sale of our
Staffing Services division, we recognized an impairment loss of $41.7 million
associated with Staffing Services goodwill in the second fiscal quarter of
2004. The primary reasons for impairment were, among other factors, the
downward adjustment in projected results of the Staffing Services division,
caused in part by the loss of certain key customers, and increased discounting
of future results based on the current assessment of risk inherent in the
business. Restructuring and Rationalization Charges We recorded $3.3 million in the third quarter of 2004 related to
professional services incurred by us in connection with the merger with COMSYS
Holding and the sale of our Staffing Services division. Approximately $2.5
million of these fees related to our merger with COMSYS Holding and the
remaining $0.8 million related to the sale of our Staffing Services division. Beginning in 2001, we implemented a plan to restructure and rationalize
certain operations. We recorded charges totaling $0.1 million and $2.4 million
in the first nine months of 2004 and the first nine months of 2003,
respectively, primarily related to lease termination and employee severance
costs Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the nine months ended September 26, 2004 (in
thousands): Employee
    
    Lease
    
    ProfessionalSeverance
    
    Costs
    
    Fees
    
    TotalAccrued liability at December 28, 2003
    
    $
    26
    
    
    $
    4,733
    
    
    $
    
    
    
    $
    4,759Cash payments
    
    
    (20
    )
    
    
    (525
    )
    
    
    
    
    
    
    (545
    )Accrued liability at March 28, 2004
    
    
    6
    
    
    
    4,208
    
    
    
    
    
    
    
    4,214Cash payments
    
    
    
    
    
    
    (452
    )
    
    
    
    
    
    
    (452
    )Accrued liability at June 27, 2004
    
    
    6
    
    
    
    3,756
    
    
    
    
    
    
    
    3,762Charges
    
    
    
    
    
    
    92
    
    
    
    3,304
    
    
    
    3,396Cash payments
    
    
    
    
    
    
    (405
    )
    
    
    (1,723
    )
    
    
    (2,128
    )Accrued liability at September 26, 2004
    
    $
    6
    
    
    $
    3,443
    
    
    $
    1,581
    
    
    $
    5,030
 The accrued professional fees were substantially paid at the closing of
the merger and sale transactions (see Note 2). Of the remaining accrued
liability at September 26, 2004, we expect to pay approximately $1.6 million
over the next 12 months and the balance, primarily lease payments, over the
following seven years. In connection with the sale of the Commercial Staffing
division, the buyer assumed up to $0.8 million of accrued restructuring costs,
primarily lease costs. Interest Expense Interest expense decreased 83.6%, to $0.9 million in the first nine months
of 2004 from $5.3 million in the first nine months of 2003, primarily as a
result of the comprehensive financial restructuring completed in April 2003.
The reported interest expense of $0.9 million for the first six months of 2004
is net of amortization of deferred gain on financial restructuring of $3.0
million. The average interest rate on borrowings was 8.4% in the first nine
months of 2004, up 80 basis points from the first nine months of 2003. Gain on Financial Restructuring, Net The gain on financial restructuring that resulted from the conversion of
$109.7 million of our 5.75% convertible subordinated notes to equity is net of
professional fees incurred in connection with the financial 20




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restructuring. Fees incurred in the first nine months of 2003 totaled
$3.0 million, and all prior year costs were previously classified in
restructuring and rationalization charges. These fees have been reclassified
for all periods presented. Provision (Benefit) for Income Taxes We recorded an income tax benefit of $0.4 million in the first nine months
of 2004, comprised of a non-cash deferred income tax benefit related to the
goodwill impairment charge recorded in the second quarter of 2004 offset by an
effective tax rate of 18.6% related to our operating income. The estimated
effective tax rate of 18.6% in the first nine months of 2004 was lower than the
U.S. federal statutory rate of 35% primarily due to the impact of
non-deductible expenses and the provision of valuation allowances against
deferred income tax assets. No provision or benefit for income taxes was
recorded in the first nine months of 2003 since the gain from the financial
restructuring will not be subject to income tax and we had incurred operating
losses which can be carried forward to offset future taxable income. Because of
the changes in our ownership that occurred in connection with the financial
restructuring on April 14, 2003, the utilization of net operating losses
generated prior to that date will not be available to offset future taxable
income. We have deferred tax assets relating to deductible temporary
differences and NOL carryforwards generated since April 14, 2003, which are
fully reserved through a valuation allowance to the extent they are not offset
by deferred tax liabilities. We expect our effective tax rate to approach the
statutory rate in 2007. LIQUIDITY AND CAPITAL RESOURCES Overview In connection with the consummation of the merger, our existing credit
facility was paid off and we, along with our U.S. subsidiaries, entered into a
new credit agreement with Merrill Lynch Capital, as administrative agent, ING
Capital LLC, as documentation agent, GMAC Commercial Finance LLC, as
syndication agent, and a syndicate of lenders. This credit agreement provides
for a two-year term loan of $15 million, which was funded on September 30,
2004, and which is scheduled to be repaid in eight equal quarterly principal
installments commencing on December 31, 2004, and a five-year revolving credit
facility of up to $100 million. The term loan bears interest at LIBOR plus
3.0% or, at our option, the prime rate plus 2.0% per annum. Revolving credit
facility loans bear interest at LIBOR plus a margin that can range from 2.25%
to 2.50% or, at our option, the prime rate plus a margin that can range from
1.25% to 1.50%, each depending on our total debt to adjusted EBITDA ratio. The
credit agreement also provides for a quarterly commitment fee of 0.5% per annum
of the unused portion of the revolving credit facility and fees for each letter
of credit issued under the facility. We and certain of our subsidiaries
guarantee the loans and obligations under the credit agreement. Our loans and
obligations and those of our subsidiaries under the credit agreement and
guarantees are secured by a perfected first priority security interest in
substantially all of our assets and the assets of our U.S. subsidiaries, as
well as the shares of capital stock of our direct and indirect U.S.
subsidiaries and 65% of the capital stock of our direct and indirect non-U.S.
subsidiaries. In connection with the merger, we, along with our U.S. subsidiaries, also
entered into a term loan credit agreement with Merrill Lynch Capital, as
administrative agent, Heritage Bank, SSB, as collateral agent, and a syndicate
of lenders. The term loan credit agreement provides for a term loan of $70
million, which was funded on September 30, 2004, and which matures on April 30,
2010. The term loan bears interest at LIBOR plus 7.5% or, at our option, the
prime rate plus 6.5%. We and certain of our subsidiaries guarantee the loans
and obligations under the term loan credit agreement. Our loans and
obligations and those of our subsidiaries under the term loan credit agreement
and guarantees are secured by a second priority security interest in
substantially all of our assets and the assets of our U.S. subsidiaries, as
well as the shares of capital stock of our direct and indirect U.S.
subsidiaries and 65% of the capital stock of our direct and indirect non-U.S.
subsidiaries. Our total debt outstanding under these facilities on September 30, 2004
was approximately $135 million, which included approximately (1) $15 million
under the term loan at an interest rate of LIBOR plus 3.0%, (2) $50 million
under the revolving credit facility at an interest rate of LIBOR plus 2.5%, and
(3) $70 million under the 21




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term loan credit agreement at an interest rate of LIBOR plus 7.5%. The
excess availability under the revolving credit facility on September 30, 2004
was approximately $19 million, which is net of required reserves for merger
related restructuring costs of $23 million and a minimum availability amount of
$5 million. Immediately following the completion of the merger, we began implementing
a comprehensive integration program intended to streamline our operations and
reduce operating costs. The major components of our integration plan are
definition of the organizational structure, consolidation of duplicate branch
offices, deployment of information systems, implementation of common business
processes and standardizing compensation and benefit plans. Before the end of
2004, we expect to combine 16 of our 39 branch offices, deploy COMSYS Holdings
front office system to each of the legacy Venturi branch offices, standardize
compensation plans for account managers and recruiters and implement a common
benefit plan for consultants and staff employees. To date, we have combined
eight of the 16 duplicate branch offices and deployed our front office system
to 12 of the 21 offices that will begin to operate under this system. We have
also completed our reduction in force plan and provided termination notices to
approximately 185 staff employees. The merger and integration program will result in substantial,
non-recurring costs. These costs include legal and accounting fees, duplicate
information technology and accounting personnel expenses and severance and
retention costs. These costs and expenses will be paid primarily in the last
quarter of 2004 and the first quarter of 2005. Accordingly, they are not
reflected in the financial statements included in this report, except for the
merger related costs of $3.3 million paid at the closing of the merger for
professional fees. We have established a $23 million restructuring reserve for
this purpose. We believe that cash flow from operations and available
borrowings under our credit facilities will be adequate to meet our working
capital needs and fund our capital expenditures and debt service obligations.
Capital expenditures for 2005 are currently estimated to be $5 million to $6
million. We are subject to periodic review by federal, state and local taxing
authorities in the ordinary course of business, and are currently engaged in
certain audits that may result in assessments for certain deficiencies. In any
of these cases or in other audits of our income, payroll or other tax returns,
the appropriate taxing authority could challenge certain tax positions that we
have taken and propose adjustments that could result in assessments for
additional taxes payable, together with penalties and interest. We believe
that our tax positions comply with applicable tax laws and we would vigorously
defend these positions if challenged. In addition, although we believe that we
have adequately accrued for any foreseeable payments resulting from tax
examinations, there can be no assurance that any such additional taxes,
penalties or interest payable would not have a material effect on our liquidity
or financial condition. The following table summarizes our cash flow activity for the nine months
ended September 26, 2004 and September 28, 2003 (in thousands): Nine months endedSept. 26,
    
    Sept. 28,2004
    
    2003Net cash provided by operating activities
    
    $
    2,992
    
    
    $
    27,100Net cash used in investing activities
    
    
    (467
    )
    
    
    (642
    )Net cash used in financing activities
    
    
    (1,974
    )
    
    
    (45,346
    )Net decrease in cash and cash equivalents
    
    $
    551
    
    
    $
    (18,888
    )
 For the nine months ended September 26, 2004, cash provided by operating
activities was $3.0 million compared with $27.1 million in the first nine
months of 2003, primarily due to income tax refunds received in 2003. In the
first nine months of 2004, cash was used for accounts receivable due to
increasing business activity levels, offset somewhat by a reduction in days
sales outstanding. In the aggregate, days sales outstanding decreased to 47
days at September 26, 2004 from 51 days at December 28, 2003. Cash used in 22




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investing activities related to our capital spending was $0.5 million in
the first nine months of 2004 compared with $0.6 million during the first nine
months of 2003. Cash used in financing activities was $2.0 million in the
first nine months of 2004, compared to $45.3 million in the first nine months
of 2003 as we used substantially all of our cash on hand to pay down the
indebtedness under the credit facility we entered into in connection with the
financial restructuring in April 2003. We had accrued restructuring and rationalization charges of $5.0 million
at September 26, 2004, of which $1.6 million related to professional fees
related to the merger, which were paid at the closing date, September 30, 2004.
We expect to pay an additional $1.6 million of such charges during the next 12
months and the balance, primarily lease payments, over the following seven
years. Our common stock has traded since May 13, 2004 on the NASDAQ National
Market. As a result of our name change following our merger with COMSYS
Holding, our common stock now trades under the symbol (CITP). CONTRACTUAL AND COMMERCIAL COMMITMENTS During the first quarter of 2004, we entered into a significant new lease
agreement for our corporate offices with rent (approximately $0.3 million per
year and escalating annually) commencing December 1, 2004 and ending December
31, 2014. As a result of the merger, we do not expect to occupy these offices
and will attempt to mitigate our obligations under this lease. FORWARD-LOOKING INFORMATION Certain information contained in this report may be deemed forward-looking
statements regarding events and financial trends that could affect our plans,
objectives, future operating results, financial condition, performance and
business. These statements may be identified by words such as estimate,
forecast, plan, intend, believe, should, expect, anticipate, or
variations or negatives thereof, or by similar or comparable words or phrases.
Forward-looking statements are based on our expectations and beliefs concerning
future events affecting the Company and are subject to risks and uncertainties
relating to our operations and business environment, all of which are difficult
to predict and many of which are beyond our control, including:  
    
    our success in attracting, training, retaining and motivating
key officers and employees;
    
    changes in levels of unemployment and other economic
conditions in the United States, or in particular regions or
industries;
    
    weakness or reductions in corporate information technology
spending levels;
    
    our ability to maintain existing client relationships and
attract new clients in the context of changing economic or
competitive conditions;
    
    the impact of competitive pressures, including any change in
the demand for our services, on its ability to maintain or improve
its operating margins;
    
    the entry of new competitors into the marketplace or
expansion by existing competitors;
    
    the possibility of our incurring liability for the activities
of its temporary employees or for events impacting its temporary
employees on clients premises;
    
    the risk in an uncertain economic environment of increased
incidences of employment disputes, employment litigation and
workers compensation claims; 23




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##### Table of Contents




    
    the challenges of integration and restructuring associated
with the recently completed merger or other planned business
activities and the challenges of achieving anticipated synergies;
    
    the risk that further cost cutting or restructuring
activities undertaken by us could cause an adverse impact on certain
of our operations;
    
    economic declines that affect our liquidity or ability to
comply with its loan covenants;
    
    adverse changes in credit and capital markets conditions that
may affect our ability to obtain financing or refinancing on
favorable terms;
    
    adverse changes to managements periodic estimates of future
cash flows that may affect our assessment of its ability to fully
recover its goodwill;
    
    whether governments will amend existing regulations in such a
manner as to increase our costs of doing business;
    
    whether governments will impose additional regulations or
licensing requirements on staffing services businesses in particular
or on employer/employee relationships in general; and
    
    other matters discussed in this press release and our most
recent definitive proxy statement, Forms 10-K, 10-Q and 8-K, as well
as matters discussed in our future SEC filings. Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct. Any or all of our forward-looking statements
included in this report may turn out to be wrong. They can be affected by
inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in this report will be important in
determining future results. Actual future results may vary materially.
Because of these factors, we caution that investors should not place undue
reliance on any of our forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and
except as required by law we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which it is made or to reflect the occurrence of anticipated or unanticipated
events or circumstances, and we are not responsible for any changes made to
this release by wire or Internet services. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our outstanding debt under our prior credit facility at September 26 2004,
was $54.0 million. Interest on borrowings under that facility was based on the
prime rate plus a variable margin. Based on the outstanding balance at
September 26, 2004, a change of 1% in the interest rate would cause a change in
interest expense of approximately $0.5 million on an annual basis. In
connection with the merger, all indebtedness under this prior credit facility
was repaid with borrowings under our new credit facilities. On September 30,
2004, our total outstanding debt was approximately $135 million. Based on this
outstanding balance, a change of 1% in the interest rate would cause a change
in interest expense of approximately $1.4 million on an annual basis. 
 ITEM 4. CONTROLS AND PROCEDURES Based on their evaluation as of the end of the period covered by this Form
10-Q, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)) are effective to provide reasonable assurance that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. 24




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##### Table of Contents



There were no changes in the Companys internal controls over financial
reporting that occurred during the Companys third fiscal quarter that have
materially affected, or are reasonable likely to materially affect, the
Companys internal control over financial reporting. It should be noted that while the Companys management, including the
Chief Executive Officer and the Chief Financial Officer, believe that the
Companys disclosure controls and procedures provide a reasonable level of
assurance, they do not expect that the disclosure controls and procedures or
internal controls will prevent all errors and all fraud. A control system, no
matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected. 
 PART
II - OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits - The exhibits filed with or incorporated by
reference into this Form 10-Q are set forth in the Exhibit Index,
which immediately precedes the exhibits to this report.(b)
    
    Reports on Form 8-K  On July 20, 2004, we furnished to the SEC a Current
Report on Form 8-K announcing our entering into agreements to
merge with COMSYS Holding and to sell our Staffing Services
division. On July 21, 2004, we filed with the SEC a Current
Report on Form 8-K describing our merger agreement with COMSYS
Holding, Inc. and other parties thereto, our stock purchase
agreement with PFI Corp. and Compass CS, Inc. and a Second
Amendment to our Amended and Restated Rights Agreement. On July 29, 2004, we filed with the SEC a Current
Report on Form 8-K to file annexes and exhibits to our merger
agreement with COMSYS Holding, Inc. On August 6, 2004, we furnished to the SEC a Current
Report on Form 8-K announcing our financial results for the
second quarter of 2004. On September 7, 2004, we filed with the SEC a
Current Report on Form 8-K describing Separation Agreements
that we entered into with Larry Enterline, Ken Bramlett and
James Hunt. On September 10, 2004, we filed with the SEC a
Current Report on Form 8-K describing the First Amendment to
the Agreement and Plan of Merger. 25




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. COMSYS IT PARTNERS, INC.(Registrant)Date: November 10, 2004
    
    By:
    
    /s/ Michael T. WillisMichael T. WillisPresident and Chief Executive OfficerDate: November 10, 2004
    
    By:
    
    /s/ Joseph C. Tusa, Jr.Joseph C. Tusa, Jr.Senior Vice President and Chief Financial Officer
 26




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger dated as of July 19, 2004 among the
Company, Venturi Technology Partners, LLC, VTP, Inc., COMSYS
Information Technology Services, Inc., COMSYS Holding, Inc. and
certain COMSYS Holding stockholders named therein (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K filed
with the SEC on July 21, 2004).2.2
    
    Amendment No. 1 to Agreement and Plan of Merger dated as of
September 3, 2004 among the Company, Venturi Technology Partners,
LLC, VTP, Inc., COMSYS Information Technology Services, Inc.,
COMSYS Holding, Inc. and certain COMSYS Holding stockholders named
therein (incorporated by reference to the Current Report on Form
8-K filed with the SEC on September 10, 2004).2.3
    
    Stock Purchase Agreement dated as of July 19, 2004 among the
Company, PFI Corp. and Compass CS, Inc. (incorporated by reference
to Exhibit 2.2 to the Current Report on Form 8-K filed with the
SEC on July 21, 2004).3.1
    
    Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Current Report on
Form 8-K filed with the SEC on October 4, 2004).3.2
    
    Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Current Report on Form 8-K filed
with the SEC on October 4, 2004).4.1
    
    Specimen Certificate for Shares of Common Stock (incorporated by
reference to Exhibit 4.0 to the Quarterly Report on Form 10-Q
filed with the SEC on August 13, 2003).4.2
    
    Second Amendment to Amended and Restated Rights Agreement dated as
of July 19, 2004 between the Company and Wachovia Bank, National
Association, as rights agent (incorporated by reference to Exhibit
4.1 to the Current Report on Form 8-K filed with the SEC on July
21, 2004).10.1
    
    Credit Agreement dated as of September 30, 2004 among COMSYS
Services LLC, Venturi Technology Partners, LLC, COMSYS Information
Technology Services, Inc., COMSYS IT Partners, Inc., PFI Corp.,
COMSYS Holding, Inc., Merrill Lynch, as Administrative Agent, ING
Capital LLC, as Documentation Agent, GMAC Commercial Finance LLC,
as Syndication Agent, and the lenders from time to time party
thereto (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC on October 6, 2004).10.2
    
    Holdings Guaranty dated as of September 30, 2004 by COMSYS
Holding, Inc., COMSYS IT Partners, Inc. and PFI Corp. in favor of
Merrill Lynch Capital in its capacity as Administrative Agent
(incorporated by reference to Exhibit 10.2 to the Current Report
on Form 8-K filed with the SEC on October 6, 2004).10.3
    
    Term Loan Credit Agreement dated as of September 30, 2004 among
COMSYS Services LLC, Venturi Technology Partners, LLC, COMSYS
Information Technology Services, Inc., COMSYS IT Partners, Inc.,
PFI Corp., COMSYS Holding, Inc., Merrill Lynch Capital, as
Administrative Agent, Heritage Bank, SSB, as Collateral Agent, and
the lenders from time to time party thereto (incorporated by
reference to Exhibit 10.3 to the Current Report on Form 8-K filed
with the SEC on October 6, 2004).10.4
    
    Holdings Guaranty dated as of September 30, 2004 by COMSYS
Holding, Inc., COMSYS IT Partners, Inc. and PFI Corp. in favor of
Heritage Bank, SSB in its capacity as Collateral Agent and Merrill
Lynch Capital in its capacity as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed with the SEC on October 6, 2004).10.5
    
    Registration Rights Agreement, dated as of September 30, 2004, by
and among the Company and the stockholders party thereto
(incorporated by reference to the Companys Form 8-A/A filed with
the SEC on November 2, 2004).
 27




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##### Table of Contents



ExhibitNumber
    
    Description10.6
    
    Amended and Restated Registration Rights Agreement, dated as of
September 30, 2004, by and among the Registrant and the
stockholders party thereto (incorporated by reference to the
Companys Form 8-A/A filed with the SEC on November 2, 2004).10.7
    
    Voting Agreement, dated as of September 30, 2004, by and among the
Registrant and the stockholders party thereto (incorporated by
reference to Exhibit 2.4 to the Companys Current Report on Form
8-K filed with the SEC on October 4, 2004).10.8
    
    Voting Agreement, dated as of September 30, 2004, between the
Registrant and MatlinPatterson Global Opportunities Partners, L.P.
(incorporated by reference to Exhibit 2.5 to the Companys Current
Report on Form 8-K filed with the SEC on October 4, 2004).10.9
    
    2004 Stock Incentive Plan (incorporated by reference to Exhibit
10.2 to the Companys Registration Statement on Form S-8 filed
with the SEC on November 9, 2004).31.1*
    
    Certification of Chief Executive Officer of the Company pursuant
to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.31.2*
    
    Certification of Chief Financial Officer of the Company pursuant
to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended.32.1*
    
    Certification of Chief Executive Officer of the Company pursuant
to Rule 13a-14(b) promulgated under the Securities Exchange Act of
1934, as amended, and Section 1350 of Chapter 63 of Title 18 of
the United States Code.32.2*
    
    Certification of Chief Financial Officer of the Company pursuant
to Rule 13a-14(b) promulgated under the Securities Exchange Act of
1934, as amended, and Section 1350 of Chapter 63 of Title 18 of
the United States Code.
   * Filed herewith. 28