SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to__________
Commission File Number 0-26094
SOS STAFFING SERVICES, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0295503
(State or other jurisdiction of incorporation) (I.R.S. Employer ID No.)
1415 South Main Street
Salt Lake City, Utah 84115
(Address of principal executive offices)
(801) 484-4400
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months ( or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
Yes____X______ No___________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at May 9, 1997
Common Stock, $0.01 par value 9,037,820
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements Page(s)
Condensed Consolidated Balance Sheets
As of March 30, 1997 and December 29, 1996 3-4
Condensed Consolidated Statements of Income
For the Thirteen Weeks Ended
March 30, 1997 and March 31, 1996 5
Condensed Consolidated Statements of Cash Flows
For the Thirteen Weeks Ended
March 30, 1997 and March 31, 1996 6-7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
Item 3. Quantitative and Qualitative Discussion About Market Risk 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
Item 1. Financial Statements
<TABLE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 30, December 29,
1997 1996
-------------------- --------------------
CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 6,893,947 $ 5,784,651
Accounts receivable, net 18,316,217 19,114,117
Current portion of workers' compensation deposit 710,474 610,473
Prepaid expenses and other 468,668 305,151
Deferred tax asset 800,859 661,645
Amounts due from related parties 499,776 406,376
-------------------- --------------------
Total current assets 27,689,941 26,882,413
-------------------- --------------------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment 1,531,922 1,399,408
Office equipment 2,240,272 1,860,421
Leasehold improvements and other 899,736 969,208
-------------------- --------------------
4,671,930 4,229,037
Less accumulated depreciation and amortization (2,343,179) (2,096,556)
-------------------- --------------------
Total property and equipment, net 2,328,751 2,132,481
-------------------- --------------------
OTHER ASSETS:
Workers' compensation deposit, less current portion 106,369 106,369
Intangible assets, net 20,985,414 17,798,588
Deposits and other assets 378,491 372,973
-------------------- --------------------
Total other assets 21,470,274 18,277,930
-------------------- --------------------
Total assets $ $
51,488,966 47,292,824
==================== ====================
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
3
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
March 30, December 29,
1997 1996
-------------------- --------------------
CURRENT LIABILITIES: (Unaudited)
<S> <C> <C>
Accounts payable $ 235,074 $ 600,504
Accrued payroll costs 1,756,433 2,110,554
Current portion of workers' compensation reserve 1,768,652 1,501,669
Accrued liabilities 434,818 408,027
Income taxes payable 999,132 466,726
Accrued acquisition earnouts 4,572,048 4,782,689
-------------------- --------------------
Total current liabilities 9,766,157 9,870,169
-------------------- --------------------
WORKERS' COMPENSATION
RESERVE, less current portion 413,785 375,418
-------------------- --------------------
`
DEFERRED INCOME TAX LIABILITY 141,091 213,056
-------------------- --------------------
SHAREHOLDERS' EQUITY:
Common stock 90,378 87,060
Additional paid-in capital 34,229,599 31,216,917
Retained earnings 6,847,956 5,530,204
-------------------- --------------------
Total shareholders' equity 41,167,933 36,834,181
-------------------- --------------------
Total liabilities and shareholders' equity $ 51,488,966 $ 47,292,824
==================== ====================
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
4
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
13 Weeks Ended
-------------------------------------------------------------
March 30, 1997 March 31, 1996
---------------------------- ---------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
SERVICE REVENUES $ 40,846,085 $ 25,034,011
DIRECT COSTS OF SERVICES 32,139,009 19,792,432
---------------------------- ---------------------------
Gross profit 8,707,076 5,241,579
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,632,123 4,097,195
---------------------------- ---------------------------
INCOME FROM OPERATIONS 2,074,953 1,144,384
---------------------------- ---------------------------
OTHER INCOME (EXPENSE):
Interest expense (36,861) (10,496)
Interest income 83,641 8,629
Other, net 61,739 33,863
---------------------------- ---------------------------
Total, net 108,519 31,996
---------------------------- ---------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,183,472 1,176,380
PROVISION FOR INCOME TAXES (865,719) (447,083)
---------------------------- ---------------------------
NET INCOME $ 1,317,753 $ 729,297
============================ ===========================
NET INCOME PER COMMON SHARE $ 0.15 $ 0.11
============================ ===========================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 9,060,421 6,749,282
============================ ===========================
</TABLE>
Theaccompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
5
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
13 Weeks Ended
------------------------------------------
March 30, March 31,
1997 1996
------------------ --------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 1,317,753 $ 729,297
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 386,964 133,446
Deferred income taxes (211,179) (13,600)
Loss on disposition of assets - 694
Changes in operating assets and liabilities:
Accounts receivable, net 817,900 (619,669)
Workers' compensation deposit (100,001) 198,076
Prepaid expenses and other (163,517) (230,802)
Amounts due from related parties (93,400) 60,000
Deposits and other assets (5,518) (31,155)
Accounts payable (365,430) (85,625)
Accrued payroll costs (354,121) 192,224
Workers' compensation reserve 305,350 (83,097)
Accrued liabilities 26,791 (31,187)
Amounts due shareholders - 7,889
Income taxes payable 532,406 341,333
------------------- --------------------
Net cash provided by operating activities 2,093,998 567,824
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (269,200) (229,968)
Cash paid in acquisition of certain assets (3,437,527) (504,727)
Payments on acquisition earnouts (293,975) (15,000)
Principal payment on note related to acquisition - (1,450,000)
------------------- --------------------
Net cash used in investing activities $ (4,000,702) $ (2,199,695)
------------------- --------------------
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
6
<PAGE>
<TABLE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
13 Weeks Ended
-----------------------------------------
March 30, March 31,
1997 1996
------------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Proceeds from issuance of common stock, net $ 3,004,300 $ 13,000
Proceeds from exercise of employee stock options 11,700 -
------------------ --------------------
Net cash provided by financing activities 3,016,000 13,000
------------------ --------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,109,296 (1,618,871)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,784,651 2,717,389
------------------ --------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 6,893,947 $ 1,098,518
================== ====================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 12,849 $ 10,496
Income taxes 496,000 119,350
</TABLE>
Theaccompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
7
<PAGE>
SOS STAFFING SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These condensed consolidated financial statements reflect
all adjustments (consisting only of normal recurring adjustments), which in the
opinion of management, are necessary to present fairly the results of operations
of the Company for the periods presented. It is suggested that these condensed
consolidated financial statements be read in conjunction with the condensed
consolidated financial statements and the notes thereto included in the
Company's Annual Report to Shareholders on Form 10-K.
The results of operations for the thirteen week period ended March 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
Note 2. Asset Acquisitions
All of the Company's acquisitions have been accounted for using the
purchase method. Certain acquisitions have contingent earnout components of the
purchase price. Earnout amounts are accrued when payment becomes probable and
increase the amount of goodwill related to the acquisition.
During the quarter ended March 30, 1997, the Company acquired certain
assets or stock and substantially all of the operations of six businesses. The
aggregate purchase price was approximately $3,521,000 and one of the
acquisitions has contingent future earnouts up to a maximum of $1,300,000. The
excess of the initial purchase price (excluding earnouts) over the estimated
fair market value of the acquired tangible net assets was approximately
$3,309,000, of which $3,145,000 has been preliminarily allocated to goodwill and
$164,000 has been allocated to other intangible assets.
Earnouts and Acquisition Costs - During the quarter ended March 30,
1997 the Company paid earnouts totaling $293,975. As of March 30, 1997 accrued
acquisition earnouts totaled $4,572,048. During the quarter ended March 30, 1997
the Company incurred direct acquisition costs totaling $136,238.
Pro Forma Acquisition Information--Unaudited
The unaudited pro forma acquisition information for the thirteen weeks
ended March 30, 1997 and March 31, 1996 presents the results of operations of
material acquisitions as if the acquisitions had occurred at the beginning of
each thirteen week period. The results of operations give effect to certain
adjustments, including amortization of intangible assets and interest expense on
debt borrowings utilized to fund certain acquisitions. The pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made at the
beginning of the applicable period or of the results which may occur in the
future.
8
<PAGE>
Unaudited results of operations
13 Weeks Ended
March 30, 1997 March 1,1996
Service revenues $41,258,643 $26,294,142
=========== ===========
Income from operations $ 2,119,689 $ 1,355,189
=========== ===========
Net income $ 1,344,774 $ 837,297
=========== ===========
Note 3. Legal Matters
From time to time the Company is involved in legal matters generally
incident to its business. It is the opinion of management, after discussions
with legal counsel, that the ultimate dispositions of these matters will not
have a material impact on the financial condition, liquidity or results of
operations of the Company.
Note 4. Equity Transactions
In connection with the Company's secondary public offering completed in
December 1996, the underwriters exercised their overallotment option to purchase
330,000 common shares in January 1997. The Company received net proceeds of
approximately $3.0 million.
During the quarter ended March 30, 1997, options to purchase 1,800
shares of common stock were exercised by an employee and the Company received
$11,700.
.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the condensed consolidated financial statements and notes thereto appearing
elsewhere in this report. The Company's fiscal year consists of a 52-or 53-week
period ending on the Sunday closest to December 31.
Results of Operations
The following table sets forth unaudited income statement information
for the comparative thirteen week periods.
13 Weeks Ended
March 30, March 31,
1997 1996
---------- --------
Service revenues 100.0% 100.0%
Direct cost of services 78.7% 79.1%
----- ------
Gross profit 21.3% 20.9%
Selling, general and
administrative expenses 16.2% 16.4%
----- --------
Operating income 5.1% 4.5%
Service Revenues. Service revenues increased by $15.8 million, or 63%,
to $40.8 million for the thirteen weeks ended March 30, 1997, compared to $25.0
million for the thirteen weeks ended March 31, 1996. Of the $15.8 million
increase, approximately $8.2 million was attributable to offices acquired during
1996 and 1997, $5.4 million was attributable to increased revenues in existing
offices and $2.2 million resulted from opening offices in new markets. The
increase in service revenues was also generally consistent with increases in
hours billed, customers served and temporary staffing employees utilized.
Gross Profit. Gross profit as a percentage of service revenues for the
thirteen weeks ended March 30, 1997 and March 31, 1996 was 21.3% and 20.9%,
respectively. The increase in gross profit was primarily due to a shift in
business mix towards information technology and other specialty lines of
business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of service revenues for the thirteen
weeks ended March 30, 1997 and March 31, 1996 were 16.2% and 16.4%,
respectively. The decrease in selling, general and administrative expenses as a
percentage of service revenues was attributable to expenses growing less rapidly
than revenues partially offset by a higher cost structure in information
technology and specialty areas.
Income Taxes. The effective combined federal and state income tax rate
for the thirteen weeks ended March 30, 1997 and March 31, 1996 was 39.7% and
38.0%, respectively. The increased combined tax rate was due to an increase in
non-deductible amortization of intangible assets relating to certain
acquisitions and increasing profits generated in states which assess higher
state tax rates.
10
<PAGE>
Liquidity and Capital Resources
For the thirteen weeks ended March 30, 1997 and March 31, 1996 net cash
provided by operations was $2.1 million and $0.6 million, respectively. The net
cash provided by operations increased as a result of the decline in accounts
receivable and higher net income.
The Company's investing activities used $0.3 million to purchase
property and equipment, $3.4 million to purchase assets of acquired businesses
and $0.3 million to pay earnouts on previous acquisitions. See Note 2 to the
condensed consolidated financial statements of the Company for a description of
the material terms of these acquisitions.
The Company's primary sources of short-term and long-term liquidity and
capital resources at March 30, 1997 were cash flows from operating activities
and a secured line of credit with a bank. The Company's line of credit allows
for maximum borrowings of $20 million. As of March 30, 1997 the Company had no
outstanding borrowings on the line of credit. Short-term borrowings bear
interest at the prime rate charged by the Company's lender which is periodically
adjusted (at March 30, 1997, 8.50%), and long-term borrowings which bear
interest at the LIBOR rate plus 1.75% (at March 30, 1997, 7.45%). The Company
also had letters of credit of $3.7 million outstanding at March 30, 1997, for
purposes of securing its workers' compensation premium obligation. The aggregate
amount of such letters of credit reduces the borrowing availability on the line
of credit. At March 30, 1997, $16.3 million was available for borrowings or
additional letters of credit under the line of credit. Management believes that
the present credit facility, together with cash reserves and cash flow from
operations, will be sufficient to fund the Company's operations, capital
expenditure requirements and acquisitions presently anticipated for at least the
next 12 months. However, if the Company were to expand its operations
significantly, especially through unanticipated acquisitions, additional capital
may be required. There can be no assurance that the Company will be able to
obtain additional capital at acceptable rates.
Other Matters
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This
statement is effective for periods ending after December 15, 1997 and early
application is prohibited. The statement will require that the Company present
basic earnings per share and diluted earnings per share data to replace current
earnings per share information previously presented and all prior period data
must be restated. SFAS No. 128 provides new guidelines expected to simplify the
computation of diluted earnings per share. This statement is not expected to
have a material impact when adopted.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Not Required
11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27 - Financial Data Schedule, filed herewith.
b) No Reports were filed on Form 8-K during the quarter for
which this report is filed.
<PAGE>
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.
SOS STAFFING SERVICES, INC.
---------------------------
Registrant
Dated: May 9, 1997 /s/ Richard D. Reinhold
-----------------------
Richard D. Reinhold
Chairman of the Board,
Chief Executive Officer
Dated: May 9, 1997 /s/ Gary B. Crook
-----------------------
Gary B. Crook
Vice President,
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 6893947
<SECURITIES> 0
<RECEIVABLES> 18924833
<ALLOWANCES> (608616)
<INVENTORY> 0
<CURRENT-ASSETS> 27689941
<PP&E> 4671930
<DEPRECIATION> (2343179)
<TOTAL-ASSETS> 51488966
<CURRENT-LIABILITIES> 9766157
<BONDS> 0
0
0
<COMMON> 90378
<OTHER-SE> 41077555
<TOTAL-LIABILITY-AND-EQUITY> 51488966
<SALES> 0
<TOTAL-REVENUES> 40846085
<CGS> 0
<TOTAL-COSTS> 32139009
<OTHER-EXPENSES> 6359807
<LOSS-PROVISION> 126936
<INTEREST-EXPENSE> 36861
<INCOME-PRETAX> 2183472
<INCOME-TAX> 865719
<INCOME-CONTINUING> 1317753
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1317753
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
