SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K/A
Current Report
--------------
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------
Date of Report (Date of earliest event reported): October 1, 1997
------------------------
SOS Staffing Services, Inc.
(Exact name of registrant as specified in its charter)
Utah 0-26094 87-0295503 .
- ---------------------------- --------------------- -------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1415 South Main Street
Salt Lake City, Utah 84115 .
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(Address of principal executive offices, including zip code)
(801) 484-4400 .
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
TABLE OF CONTENTS
This Amendment No. 1 to Current Report is filed by SOS Staffing Services,
Inc. (the "Company") to provide the financial statements and pro forma
information identified in Item7.a and Item 7.b below.
Page
----
Item 7. Financial Statements, Pro Forma Financial information and Exhibits
(a) Financial Statements of business acquired:
Report of Independent Public Accountants.......................F-1
Combined Balance Sheets as of December 31, 1996 and
September 30, 1997.............................................F-2
Combined Statements of Income and Retained Earnings for the
year ended December 31, 1996 and for the
nine months ended September 30, 1997...........................F-4
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the nine months
ended September 30, 1997.......................................F-5
Notes to Combined Financial Statements.........................F-6
(b) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
December 29, 1996.............................................F-10
Unaudited Pro Forma Condensed Consolidated Statements of Income
for the year ended December 29, 1996 and the thirty-nine weeks
ended September 28, 1997......................................F-11
Notes to Pro Forma Condensed Consolidated Financial Data......F-12
(c) Exhibits
2.1 Asset Purchase Agreement, dates as of October 1, 1997
among SOS Staffing Services, Inc., as buyer; Century
Personnel, Inc., doing business as The Century Group
and Centech; M.A.Jones Enterprises, Inc., doing
business as Century Personnel, collectively, as
sellers, and Michael A. Jones, as the shareholder of
such sellers. *
99.1 Press Release dated October 2, 1997. *
- -----------------------------------
* Previously filed.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Century Personnel, Inc. and Affiliate:
We have audited the accompanying combined balance sheets of Century Personnel,
Inc. (a Kansas corporation) and M.A. Jones Enterprises, Inc. (a Missouri
corporation) as of September 30, 1997 and December 31, 1996 and the related
combined statements of income and retained earnings, and cash flows for the nine
months ended September 30, 1997 and the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Century Personnel,
Inc. and M.A. Jones Enterprises, Inc. as of September 30, 1997 and December 31,
1996, and the results of their operations and cash flows for the nine months
ended September 30, 1997 and the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
October 24, 1997
F-1
<PAGE>
<TABLE>
Page 1 of 2
CENTURY PERSONNEL, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
ASSETS
<CAPTION>
September 30, December 31,
1997 1996
-------------- --------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 834,417 $ 415,007
Accounts receivable, net of allowance of approximately
$57,400 and $77,600, respectively 2,548,735 1,785,139
Deferred tax asset 17,977 12,741
Prepaids and other 52,945 45,944
-------------- --------------
Total current assets 3,454,074 2,258,831
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment 84,741 75,823
Furniture and fixtures 179,679 153,949
-------------- --------------
264,420 229,772
Less - accumulated depreciation
and amortization (162,779) (137,042)
-------------- --------------
Net property and equipment 101,641 92,730
-------------- --------------
OTHER ASSETS 14,880 2,839
-------------- --------------
Total assets $ 3,570,595 $ 2,354,400
============== ==============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-2
<PAGE>
<TABLE>
Page 2 of 2
CENTURY PERSONNEL, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER EQUITY
<CAPTION>
September 30, December 31,
1997 1996
------------- --------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 366,179 $ 70,283
Accrued payroll costs 674,604 438,265
Deferred tax liability 3,444 -
-------------- --------------
Total current liabilities 1,044,227 508,548
-------------- --------------
Deferred tax liability 16,137 14,345
-------------- --------------
COMMITMENTS
SHAREHOLDER EQUITY:
Common stock of combined entities 100,500 100,500
Additional paid in capital 493,869 493,869
Retained earnings 1,915,862 1,237,138
-------------- --------------
Total shareholder equity 2,510,231 1,831,507
-------------- --------------
Total liabilities and shareholders' equity $ 3,570,595 $ 2,354,400
============== ==============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-3
<PAGE>
<TABLE>
CENTURY PERSONNEL, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
------------------ ----------------
<S> <C> <C>
SERVICE REVENUES $ 14,973,858 $ 13,086,150
DIRECT COSTS OF SERVICES 10,540,555 9,240,334
------------- --------------
Gross margin 4,433,303 3,845,816
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,415,467 2,584,213
------------- --------------
Income from operations 2,017,836 1,261,603
INTEREST INCOME 10,400 12,087
------------- --------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,028,236 1,273,690
PROVISION FOR INCOME TAXES - (11,700)
-------------- --------------
NET INCOME 2,028,236 1,261,990
RETAINED EARNINGS, beginning of period 1,237,138 803,483
DISTRIBUTIONS TO SHAREHOLDER (1,349,512) (828,335)
------------- --------------
RETAINED EARNINGS, end of period $ 1,915,862 $ 1,237,138
============= ==============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-4
<PAGE>
<TABLE>
CENTURY PERSONNEL, INC.
COMBINED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1997 1996
----------------- -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C>
Net income $ 2,028,236 $ 1,261,990
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 25,737 45,486
Changes in operating assets
and liabilities:
Accounts receivable, net (763,596) (647,179)
Prepaid expenses and other (7,001) (43,611)
Other assets (12,041) 3,667
Deferred taxes - 1,604
Accounts payable 295,896 34,225
Accrued liabilities 236,339 267,010
------------- --------------
Net cash provided by operating activities 1,803,570 923,192
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (34,648) (50,733)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholder (1,349,512) (828,335)
------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 419,410 44,124
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 415,007 370,883
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 834,417 $ 415,007
============= ==============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-5
<PAGE>
CENTURY PERSONNEL, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - continued
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Organization of Business
Century Personnel, Inc. ("Century") and M.A. Jones Enterprises, Inc.
("Jones") (collectively the "Company") were incorporated under the laws of the
State of Kansas and the State of Missouri, respectively. Century and Jones
provide temporary staffing and permanent placement services through 13 offices
in Kansas and Missouri. The Company's business consists principally of providing
commercial staffing services.
During October 1997, the Company signed an agreement to sell certain assets
and substantially all of its operations to SOS Staffing Services, Inc. The
accompanying financial statements presented are pre-acquisition financial
statements of the Company and do not reflect any purchase accounting
adjustments.
Principles of Combination
The combined financial statements include the financial position and
operating results of Century and its affiliate, Jones. Combined financial
statements are more meaningful than separate statements as the companies operate
under common ownership and management. All significant intercompany accounts and
transactions have been eliminated in combination.
Revenue Recognition
Temporary service revenues are recognized when the Company's temporary
employees render the services. Permanent placement revenues are recognized when
employment candidates accept offers of permanent employment.
Concentrations of Credit Risk
The Company's financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
In the normal course of business, the Company provides credit terms to its
customers. The Company believes its portfolio of accounts receivable is well
diversified and as a result its concentrations of credit risk are minimal. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses, but typically does not require collateral.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity
of three months or less to be cash and cash equivalents. As of September 30,
1997, approximately $750,000 of overnight repurchase investments were included
in cash and cash equivalents.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the terms of the respective leases or the estimated economic
lives of the assets, whichever is shorter. The depreciation and amortization
periods range from three to seven years.
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation or amortization are removed from the
accounts. The resulting gain or loss is reflected in income. Major renewals and
betterments are capitalized while minor expenditures for maintenance and repairs
are charged to expense as incurred.
F-6
<PAGE>
CENTURY PERSONNEL, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - continued
Income Taxes
Century has elected, for federal and state income tax purposes, to include
its taxable income with that of its shareholders (an S Corporation election).
Accordingly, this company does not make a provision for income taxes. This
company distributes amounts as needed for the payment of the shareholders'
federal and state income taxes. Distributions are recorded in the accompanying
financial statements when paid.
Jones is a taxable entity for state and federal income tax purposes.
Accordingly, Jones has recorded a provision for income taxes in the accompanying
financial statements. Also, Jones recognizes a liability or asset for the
deferred tax consequences of all temporary differences between the tax bases of
assets or liabilities and their reported amounts in the financial statements.
The provision for income taxes for the year ended December 31, 1996 is
comprised of approximately $8,000 of federal income tax and $3,700 of state
income tax.
The following is a reconciliation between the statutory federal income tax
rate and the effective income tax rate which is derived by dividing the
provision for income taxes by income before provision for income taxes for the
year ended December 31, 1996.
Statutory federal income tax rate 34.0%
State income taxes, net of federal benefit 4.2
Tax benefit of graduated rates (19.0)
Effect of income taxed to S corporation
shareholder (18.4)
Other 0.1
-----
0.9%
=====
F-7
<PAGE>
CENTURY PERSONNEL, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - continued
The components of the deferred tax assets and liabilities at September 30,
1997 and December 31, 1996 are as follows:
1997 1996
---- ----
Deferred tax assets:
Net operating loss $ 207,286 $ -
Compensation - 41,466
Other accruals - 22,537
---------- ----------
207,286 64,003
Valuation allowance (189,309) (38,278)
---------- ----------
17,977 25,725
---------- ----------
Deferred tax liabilities:
Depreciation (16,137) (14,345)
Other (3,444) (12,984)
---------- ----------
(19,581) (27,329)
---------- ----------
Net deferred tax liability $ (1,604) $ (1,604)
========== ==========
The Company has established a valuation allowance for that portion of the
deferred tax assets that, in management's judgement, more likely than not will
not be realized in the future.
Common Stock
The common stock of the combined entities consists of the stock of Century
and Jones. Century's stock has a $10 par value and has 100,000 authorized
shares, of which 10,000 shares are issued and outstanding. Jones' common stock
has a $1 par value and has 30,000 authorized shares, of which 500 shares are
issued and outstanding.
NOTE 2. COMMITMENTS
The Company leases its office facilities and various automobiles under
noncancellable operating leases. The lease terms are not longer than seven years
and expire at various dates through 2002. Operating lease payments totaled
$156,092 and $162,701 for the nine months ended September 30, 1997 and year
ended December 31, 1996, respectively. Future minimum lease payments for the
next five years are as follows:
Year ending
September 30, Amount
------------- ------
1998 $208,704
1999 153,912
2000 74,897
2001 46,332
2002 36,164
Thereafter 6,000
Total $526,009
F-8
<PAGE>
CENTURY PERSONNEL, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - continued
NOTE 3. RELATED PARTY TRANSACTIONS
During 1996, the Company entered into a lease agreement to lease one of its
offices spaces from its majority shareholder. The term of the lease is seven
years and expires in December 2002. Lease expenses totaled $18,000 and $24,000
for the nine months ended September 30, 1997 and the year ended December 31,
1996, respectively. The Company believes that the terms of the lease are at
least as favorable as the terms that could have been obtained from an
unaffiliated third party in a similar transaction.
NOTE 4. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan for employees who have completed one
year of service and are at least 21 years of age. The Company matches 25 percent
of the employee's contribution up to four percent of the employee's
compensation. For the nine months ended September 30, 1997 and the year ended
December 31, 1996, matching contributions totalled $7,958 and $4,324,
respectively.
F-9
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 28, 1997
(in thousands)
<CAPTION>
Historical
--------------------------------- Pro Forma
SOS Century Adjustments Pro Forma
--------------- -------------- ---------------- ----------------
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,300 $ 834 $ (834) (b) $ 1,300
Accounts receivable, net 27,638 2,549 (2,549) (b) 27,638
Current portion of workers'
compensation deposit 710 - 710
Prepaid expenses and other 630 53 (53) (b) 630
Deferred tax asset 915 18 (18) (b) 915
Amounts due from related parties 455 - 455
--------------- -------------- ---------------- ----------------
Total current assets 31,648 3,454 (3,454) 31,648
--------------- -------------- ---------------- ----------------
Property and equipment, net 3,267 102 3,369
--------------- -------------- ----------------
Other assets, net 34,718 15 14,827 (a) 49,545
--------------- -------------- ----------------
(15) (b)
Total assets $ 69,633 $ 3,571 $ 11,358 $ 84,562
=============== ============== ================ ================
Current liabilities:
Accrued acquisition earnouts $ 3,306 - $ 3,306
Accounts payable 241 366 $ (b) 241
(366)
Accrued payroll costs 3,947 675 (675) (b) 3,947
Current portion of worker's
compensation reserve 1,992 - 1,992
Accrued liabilities 839 - 839
Deferred tax liability - 3 (3) (b) -
Income taxes payable 629 - 629
--------------- -------------- ---------------- ----------------
Total current liabilities 10,954 1,044 (1,044) 10,954
--------------- -------------- ---------------- ----------------
Long-term liabilities 13,627 16 14,929 (a) 28,556
--------------- -------------- ----------------
(16) (b)
Shareholders' equity 45,052 2,511 (2,511) (b) 45,052
--------------- -------------- ---------------- ----------------
Total liabilities and equity $ 69,633 $ 3,571 $ 11,358 $ 84,562
=============== ============== ================ ================
</TABLE>
F-10
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 29, 1996
(in thousands, except per share data)
<CAPTION>
Historical
--------------------------------- Pro Forma
SOS Century Adjustments Pro Forma
--------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Service revenues $ 136,164 $ 13,086 $ 149,250
Direct costs of services 108,589 9,240 117,829
--------------- -------------- ---------------
Gross profit 27,575 3,846 31,421
Operating expenses 20,868 2,584 $ 492 (c) 23,964
--------------- -------------- ---------------- ---------------
20 (d)
Operating income 6,707 1,262 (512) 7,457
Other income (expense), net (196) 12 (1,153) (e) (1,337)
--------------- -------------- ---------------- ---------------
Income before provision for
Income taxes 6,511 1,274 (1,665) 6,120
Provision for income taxes (2,482) (12) 149 (f) (2,345)
--------------- -------------- ---------------- ---------------
Net income $ 4,029 $ 1,262 $ (1,516) $ 3,775
=============== ============== ================ ===============
Net income per common
Share $ 0.59 $ 0.55
=============== ===============
Weighted average common
Shares outstanding 6,838 6,838
=============== ===============
<CAPTION>
For the Thirty-nine Weeks Ended September 28, 1997
(in thousands, except per share data)
Historical
--------------------------------- Pro Forma
SOS Century Adjustments Pro Forma
--------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Service revenues $ 141,753 $ 14,974 $ 156,727
Direct costs of services 110,483 10,541 121,024
--------------- -------------- ---------------
Gross profit 31,270 4,433 35,703
Operating expenses 22,913 2,415 $ 369 (c) 25,712
15 (d)
Operating income 8,357 2,018 (384) 9,991
Other income (expense), net 179 10 (864) (e) (675)
--------------- -------------- ---------------- ---------------
Income before provision for
Income taxes 8,536 2,028 (1,248) 9,316
Provision for income taxes (3,464) - (296) (f) (3,760)
--------------- -------------- ---------------- ---------------
Net income $ 5,072 $ 2,028 $ (1,544) $ 5,556
=============== ============== ================ ===============
Net income per common
Share $ 0.56 $ 0.61
=============== ===============
Weighted average common
Shares outstanding 9,125 9,125
=============== ===============
</TABLE>
F-11
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying pro forma condensed consolidated statements of income are
presented to give effect to the acquisition of certain assets and substantially
all of the business operations of Century Personnel, Inc., doing business as The
Century Group and Centech; M.A.Jones Enterprises, Inc., doing business as
Century Personnel (collectively, "Century") which occurred in October 1997. The
condensed consolidated balance sheet as of September 28, 1997 assumes that the
acquisition occurred on September 28, 1997. These condensed consolidated
statements of income assume that the acquisition occurred at the beginning of
the periods presented. Such information does no purport to be indicative of the
results which would have actually been obtained if the acquisition had been
effected at the beginning of the periods presented nor is it indicative of
actual or future operating results.
The purchase method of accounting has been used in preparing the pro forma
condensed consolidated financial statements. The purchase price was
approximately $14.9 million in cash plus contingent future earnout payments not
to exceed $10.1 million. The initial purchase price was allocated based on the
fair value of the net assets acquired and resulted in allocating approximately
$0.1 million to equipment, $14.7 million to goodwill and $0.1 million to other
intangibles. The Company records contingent earnout payments as additional
goodwill when earned or paid.
(2) Pro Forma Adjustments
(a) To reflect the acquisition and the related long-term borrowings assumed
to be outstanding under the Company's credit agreement.
(b) To eliminate assets not acquired and liabilities not assumed by SOS.
(c) To reflect amortization of goodwill which is being amortized on a
straight-line basis over 30 years.
(d) To reflect amortization of other intangible assets (employee and
customer lists, non-compete agreements and customer contracts) which
are being amortized on a straight-line basis over 3 and 6 years.
(e) To reflect the interest expense on the borrowings used to fund the
acquisition using an interest rate of 7.72%
(f) To reflect the income tax provision for Century and the related income
tax effect of the pro forma adjustments.
F-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K/A to be signed on its
behalf by the undersigned thereto duly authorized.
SOS STAFING SERVICES, INC.
\S\ Gary B. Crook
---------------------------------------
Gary B. Crook
Vice President, Chief Financial Officer
and Treasurer
Date: November 24, 1997
