SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): December 29, 2000
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SOS STAFFING SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Utah 0-26094 87-0295503
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(State or other jurisdiction (Commission (IRS Employer ID
of incorporation) File Number) Number)
1415 South Main, Salt Lake City, Utah 84115
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (801) 484-4400
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
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On December 29, 2000, pursuant to an Asset Purchase Agreement
(the "Purchase Agreement") dated as of the same date by and between Inteliant
Corporation ("Inteliant"), SOS Staffing Services, Inc. ("SOS") and Herrick
Douglass, Inc. ("HD"), Inteliant, a wholly owned subsidiary of SOS, sold to HD
certain assets of Inteliant relating to its consulting division (the
"Transaction") for a sales price of $1.0 million cash at closing, and contingent
payments totaling up to $3.5 million during the four years following the closing
date based on the gross margin results of the newly combined businesses of HD
(the "Contingent Payments"). Pursuant to the Purchase Agreement, Inteliant
retained approximately $9.0 million in accounts receivable attributable to the
consulting division (the "Accounts Receivable"). Additionally, SOS agreed to
extend a one year subordinated loan to HD of up to a maximum of $3.5 million to
meet the operating needs of the combined businesses, $1.0 million of which was
extended to HD at closing.
In connection with the Transaction, SOS entered into an
amendment (the "Note Purchase Amendment") to the Note Purchase Agreements dated
September 1, 1998 (the "Note Purchase Agreements") by and among SOS and certain
noteholders (the "Noteholders"), pursuant to which the Noteholders consented to
the Transaction and the amendment of certain financial covenants in the Note
Purchase Agreements to avoid the breach of such covenants by SOS upon
consummation of the Transaction. The modified covenants included a reduction in
the minimum Consolidated Net Worth (as defined in the Note Purchase Agreements)
requirement of SOS. Also pursuant to the Note Purchase Amendment, SOS will pay
the Noteholders 50% of: (i) the Accounts Receivable, (ii) the Contingent
Payments and (iii) tax refunds estimated by SOS to total approximately $6.0
million resulting from the $38.5 million loss realized by SOS from the
Transaction (the "Tax Refund") as a prepayment under the Note Purchase
Agreements. SOS will make such prepayment within 15 days of the end of each
calendar quarter beginning with March 31, 2001 with respect to the Contingent
Payments, the Accounts Receivable collected and the Tax Refund received during
such calendar quarter.
Also in connection with the Transaction, on December 29, 2000
SOS entered into a Second Amendment to Amended and Restated Credit Agreement
(the "Second Amendment") with certain lenders (the "Lenders") under its Amended
and Restated Credit Agreement dated as of July 27, 1998 (the "Credit
Agreement"). Pursuant to the Second Amendment, the Lenders consented to the
Transaction and to the amendment of certain financial covenants in the Credit
Agreement to avoid the breach of such covenants by SOS upon consummation of the
Transaction. The modified covenants included a decrease in the amount of Net
Worth (as defined in the Credit Agreement) required of SOS and its consolidated
subsidiaries. In addition, SOS will distribute to the Lenders the remaining 50%
of the Accounts Receivable, the Contingent Payments and the Tax Refund based on
schedules agreed to with the Lenders. The Second Amendment also reduced the
Aggregate Commitment (as defined in the Credit Agreement) to $30 million.
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<PAGE>
In the opinion of Inteliant's management, the sales price and
all negotiations relating to the Transaction were on an arm's length basis.
The foregoing descriptions of the sale and the amendments to
the Note Purchase Agreements and the Credit Agreement are qualified in their
entirety by reference to the complete text of the Purchase Agreement, the Note
Purchase Amendment and the Second Amendment, respectively, which are filed as
exhibits hereto.
Item 7. Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information.
1. Unaudited pro forma condensed consolidated balance sheet as of
October 1, 2000.
2. Unaudited pro forma condensed consolidated statements of
operations for the 52 weeks ended January 2, 2000 and the 39
weeks ended October 1, 2000.
(c) Exhibits.
Exhibit Number Description
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2.1 Asset Purchase Agreement dated as of December 29, 2000 by and
between Inteliant Corporation, SOS Staffing Services, Inc. and
Herrick Douglass, Inc.
99.1 Press Release dated January 3, 2001 issued by the Registrant
99.2 Amendment to Note Purchase Agreement dated January 12, 2001
with effect as of December 22, 2000 between SOS Staffing
Services, Inc. and certain entities listed as Purchasers on
the signature pages thereto
99.3 Second Amendment to Amended and Restated Credit Agreement
dated as of December 29, 2000 by and among SOS Staffing
Services, Inc., certain Lenders, First Security Bank, N.A., as
administrative agent, and Bank One, N.A., as documentation
agent
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SOS STAFFING SERVICES, INC.
By: /s/ Kevin Hardy
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Name: Kevin Hardy
Title: Senior Vice President and
Chief Financial Officer
Dated: January 12, 2001
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SOS STAFFING SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet
as of October 1, 2000 has been prepared to give pro forma effect to the sale of
Inteliant Corporation's consulting group ("Consulting Group"), as if it had
occurred on October 1, 2000. The following unaudited pro forma condensed
consolidated statements of operations for the 52 weeks ended January 2, 2000,
and the 39 weeks ended October 1, 2000, have been prepared to give pro forma
effect to the Consulting Group sale as if it had occurred on January 4, 1999.
The unaudited pro forma financial information does not purport to be indicative
of the financial position or results of operations of future periods or
indicative of results that would have occurred had the Transaction referred to
above been consummated on the dates indicated. The unaudited pro forma
adjustments are based on available information and certain assumptions that
management of the Company believes are reasonable.
The unaudited pro forma financial information should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto set forth in the Company's reports on Forms 10-K and 10-Q filed by the
Company with the Securities and Exchange Commission.
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SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 1, 2000
(unaudited, in thousands)
ASSETS
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------------ ------------------- -----------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,552 $ -- $ 1,552
Receivables, net 54,479 -- 54,479
Notes Receivable 1,000 (1) 1,000
Prepaid expenses and other 1,761 (211) (1) 1,550
Deferred income tax asset 4,254 3,771 (2) 8,025
Income tax receivable -- 6,000 (2) 6,000
------------------ ------------------- -----------------
Total current assets 62,046 10,560 72,606
------------------ ------------------- -----------------
Property and equipment, net 7,979 (2,662) (1) 5,317
Intangible assets, net 130,686 (34,602) (1) 96,084
Other assets 3,444 (21) (1) 3,423
------------------ ------------------- -----------------
Total assets $ 204,155 $ (26,725) $ 177,430
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,503 $ -- $ 3,503
Accrued liabilities 19,959 (710) (1)
2,687 (1) 21,936
Current portion of debt 18,409 -- 18,409
Income taxes payable 177 (177) (2) --
------------------ ------------------- -----------------
Total current liabilities 42,048 1,800 43,848
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LONG-TERM LIABILITIES
Notes payable, less current portion 35,000 -- 35,000
Deferred income tax liability 3,715 -- 3,715
Other liabilities 2,016 -- 2,016
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Total long-term liabilities 40,731 -- 40,731
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SHAREHOLDER'S EQUITY 121,376 (28,525) (3) 92,851
------------------ ------------------- -----------------
Total liabilities and shareholders' equity $ 204,155 $ (26,725) $ 177,430
------------------ ------------------- -----------------
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated balance sheet.
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SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited, in thousands)
(1) Adjustments to eliminate net assets sold in accordance with the Asset
Purchase Agreement, and to record the note receivable from the
subordinated loan to HD. The net impact on cash is $0 as a result of
receiving $1 million and loaning $1 million to HD. Additionally,
Inteliant incurred certain costs, such as professional fees and
commissions, related to completing the sale of the Consulting Group
that were accrued as additional liabilities.
(2) Adjustment to record the tax consequences of the sale transaction as
follows:
<TABLE>
<CAPTION>
<S> <C>
Anticipated book loss on sale $ 38,473
Permanent basis difference primarily related to nondeductible
intangibles for tax purposes (9,213)
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Adjusted basis for tax purposes 29,260
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Anticipated tax benefit from sale assuming only a federal
jurisdiction benefit of 34% $ 9,948
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Tax benefit from sale is applied as follows:
Estimated current income tax receivable as a result of $ 6,177
carryback results from prior year's taxes and refunds of
estimated payments made during the current fiscal year
Current deferred tax asset 3,771
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Total tax benefit from sale $ 9,948
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(3) Adjustment to record the loss from the sale of net assets as if the
sale had occurred on October 1, 2000 calculated as follows (the actual
loss on the Transaction date is expected to be $38.5 million, excluding
the tax effect):
Notes receivable $ 1,000
Anticipated tax benefit from sale 9,948
Less:
Book value of net assets sold (36,786)
Closing costs of the Transaction (2,687)
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Net decrease in shareholder's equity $ (28,525)
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</TABLE>
The above calculation does not consider the effect of any contingent
consideration (a maximum of $3.5 million) which will be received under
certain circumstances over a four-year period as described in the
Purchase Agreement.
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SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 52 WEEKS ENDED JANUARY 2, 2000
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustment Pro Forma
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<S> <C> <C> <C> <C>
SERVICE REVENUES $ 371,054 $ (48,960) (1) $ 322,094
DIRECT COST OF SERVICES 285,250 (35,509) (1) 249,741
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Gross profit 85,804 (13,451) 72,353
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OPERATING EXPENSES:
Selling, general and administrative 67,758 (9,383) (1) 58,375
Intangible amortization 5,482 (1,466) (1) 4,016
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Total operating expenses 73,240 (10,849) 62,391
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INCOME FROM OPERATIONS 12,564 (2,602) 9,962
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OTHER INCOME (EXPENSE):
Interest expense (4,104) -- (4,104)
Interest income 129 -- 129
Other, net (5) (1) (1) (6)
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Total, net (3,980) (1) (3,981)
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INCOME BEFORE INCOME TAXES 8,584 (2,603) 5,981
INCOME TAX PROVISION (3,233) 1,193 (2) (2,040)
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NET INCOME (3) $ 5,351 $ (1,410) $ 3,941
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NET INCOME PER COMMON SHARE:
Basic $ 0.42 $ 0.31
Diluted 0.42 0.31
WEIGHTED AVERAGE COMMON SHARES:
Basic 12,691 12,691
Diluted 12,699 12,699
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated statements of operations.
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SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 1, 2000
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustment Pro Forma
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<S> <C> <C> <C> <C>
SERVICE REVENUES $ 280,464 $ (27,835) (1) $ 252,629
DIRECT COST OF SERVICES 215,471 (19,669) (1) 195,802
---------------------------------------- --------------------
Gross profit 64,993 (8,166) 56,827
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OPERATING EXPENSES:
Selling, general and administrative 55,114 (9,006) (1) 46,108
Intangible amortization 4,257 (1,064) (1) 3,193
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Total operating expenses 59,371 (10,070) 49,301
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INCOME FROM OPERATIONS 5,622 1,904 7,526
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OTHER INCOME (EXPENSE):
Interest expense (3,195) -- (3,195)
Interest income 133 -- 133
Other, net (100) 38 (1) (62)
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Total, net (3,162) 38 (3,124)
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INCOME BEFORE INCOME TAXES 2,460 1,942 4,402
INCOME TAX PROVISION (1,170) (662) (2) (1,832)
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NET INCOME (3) $ 1,290 $ 1,280 $ 2,570
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NET INCOME PER COMMON SHARE:
Basic $ 0.10 $ 0.20
Diluted 0.10 0.20
WEIGHTED AVERAGE COMMON SHARES:
Basic 12,691 12,691
Diluted 12,698 12,698
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated statements of operations.
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SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Adjustments to eliminate sales and expenses related to Inteliant's
Consulting Group. All overhead included in the expenses eliminated were
those expenses incurred only for the benefit of the Consulting Group's
operations. In addition, the Company expects to realize a reduction of
interest expense in the future as proceeds from the collection of
Accounts Receivable, Contingent Payments and the Tax Refund are
received and the debt is repaid.
(2) Adjustment to reflect the tax effect of amounts eliminated in (1). The
tax effect considers the effect of a reduction of nondeductible
amortization and other permanent differences associated with the assets
sold.
(3) The pro forma consolidated net income does not reflect the loss from
the sale of the Consulting Group. The total estimated loss will be
approximately $38.5 million which will be recorded in the fiscal year
2000 statement of operations.
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EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit Number Description
-------------- -----------
2.1 Asset Purchase Agreement dated as of December 29, 2000 by and between
Inteliant Corporation, SOS Staffing Services, Inc. and Herrick Douglass,
Inc.
99.1 Press Release dated January 3, 2001 issued by the registrant
99.2 Amendment to Note Purchase Agreement dated January 12, 2001 with effect
as of December 22, 2000, between SOS Staffing Services, Inc. and certain
entities listed as Purchasers on the signature pages thereto
99.3 Second Amendment to Amended and Restated Credit Agreement dated as of
December 29, 2000 by and among SOS Staffing Services, Inc., certain
Lenders, First Security Bank, N.A., as administrative agent, and Bank
One, N.A., as documentation agent
</TABLE>
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