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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
----- Act of 1934 for the fiscal year ended December 28, 1997.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
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 (I.R.S. Employer
incorporation or organization) Identification No.)
1415 South Main Street, Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 484-4400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.01 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant, on March 2, 1998, based upon the closing sales price of the Common
Stock of $20.813 per share on that date, as reported on the NASDAQ Stock Market,
was approximately $188,920,600. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 2, 1998, Registrant had outstanding 12,660,162 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 28, 1997 are incorporated by reference into Parts II and IV of
this Report. Portions of the Proxy Statement for Registrant's 1997 Annual
Meeting of Shareholders to be held May 13, 1998 are incorporated by reference in
Part III of this Report.
PART I
ITEM 1. BUSINESS
--------
General
SOS Staffing Services, Inc. ("SOS" or the "Company") is a leading
provider of staffing and consulting services in the western states. As of
December 28, 1997, SOS operated a network of 134 offices in 18 states. The
Company provides a broad range of commercial staffing and information technology
("IT") services. Commercial staffing services include light industrial,
clerical, industrial, technical, specialty and other professional services. IT
services consist of staffing, consulting and outsourcing services such as
systems design, programming, network and systems management and business
consulting. During the 52 weeks ended December 28, 1997, the Company provided
approximately 78,000 staffing employees to more than 10,000 businesses,
professional and service organizations and government agencies.
Since completing its initial public offering in July 1995, the Company
has aggressively pursued an acquisition program, having acquired 34 staffing and
consulting companies with 56 offices, consisting of 42 commercial staffing
offices and 14 IT staffing and consulting offices. Ten of the acquisitions
completed since July 1996 were of IT staffing and consulting companies, which
have allowed the Company to diversify the mix of staffing services provided to
include higher margin services. On a pro forma basis, revenues from IT staffing
services represented 22% of total revenues for the 1997 fiscal year compared to
5% of total revenues for the 52 weeks ended December 28. 1997. Additional
acquisitions have added other specialty services, including medical
administrative support, professional mining, geology, hydrology and
environmental services.
Business Strategy
The Company's goal is to enhance its profitability through a focused
business strategy. The Company has identified the following key elements of its
strategy, which management believes are critical to the Company's success:
Focus on Small to Mid-Size Customers and Projects. Historically, the
Company's customers have consisted primarily of small to mid-size companies.
Sales to these businesses tend to generate higher margins than larger national
accounts. The Company believes that focusing on small to mid-sized customers and
smaller projects limits its exposure to margin pressure associated with large
national contracts and volume discounts. In the IT segment, the Company focuses
on smaller specialty projects, often at larger businesses or as support in
larger projects. The Company believes that it has developed competitive
advantages in serving small and mid-sized businesses and projects by tailoring
its operations to meet local customer needs, including the establishment of
strong customer relationships through local marketing efforts, quality service
and community involvement.
Deliver Higher Margin Services. The Company's operating results since
1991 have been significantly enhanced by its strategy to deliver higher margin
services. Over the past several years, the Company has focused its efforts on
expanding its range of services to include higher margin specialty services such
as IT staffing and consulting, administrative staffing support services for
medical facilities and other professional services. The Company has
de-emphasized marketing to accounts where competitive pricing makes margins
unacceptable or to accounts where workers' compensation costs adversely affect
profitability.
Offer a Broad Range of Services. The Company's strategy includes
offering its customers a broad range of staffing services, including light
industrial, clerical, IT, industrial, technical and other professional services,
as well as a range of consulting services (including telephony, information
2
technology and general business consulting, as well as strategic planning). The
Company also provides related services to its customers, including payrolling,
skill and drug testing, risk management consulting and other professional
staffing services. In larger markets, the Company offers these services through
several separate offices operating under established names. The Company also
provides outsourcing services to customers whereby the Company contracts to
perform a particular business function for an agreed price, which includes
providing staffing, equipment and supplies. The Company is also expanding its
on-site services, in which SOS locates an on-site manager at the customer's
facility to manage all of the customer's employee staffing requirements.
Provide Centralized Support and Encourage Entrepreneurial Management.
The Company's commercial staffing offices are supported by centralized functions
at corporate headquarters that include marketing, recruiting, training and
retention programs, as well as workers' compensation and other insurance
services, accounts payable, purchasing, credit, legal review and other
administrative support services. Generally, each staffing office has access to
the Company's computer system and its proprietary software that provides
information on customer requirements, available applicants, staffing employees
on assignment and other information which facilitates efficient response to
customer job orders. The Company is expanding IT staffing, consulting and
outsourcing operations and is developing a centralized support system tailored
to the specific needs of IT customers. This integration will be completed in
1998.
To encourage an entrepreneurial approach to field management, the
Company has established financial targets and quality performance standards
which are utilized at all offices. A substantial portion of the Company's field
management compensation is incentive-driven and based upon meeting financial
targets and quality standards. Managers are also given considerable discretion
to price services and to respond to specific customer requirements.
Emphasize Service and Value. The Company focuses on providing service
and value to its customers. The Company's staff employees seek to establish and
maintain long-term relationships with its customers by developing knowledge of
customers' businesses, responding promptly to customer orders and monitoring job
performance and customer satisfaction. The Company targets customer accounts
where service and quality are perceived to be as important as pricing of
services. This allows the Company to be more selective and to provide higher
quality services while maintaining desired margins.
Pursue Opportunities in Small Markets. In the commercial staffing
segment, SOS has focused on opening hub offices in key metropolitan areas
followed by establishing offices in surrounding markets. This decentralized
office management strategy locates multiple offices in close proximity to
customers and staffing employees. The Company believes this strategy has allowed
it to rapidly gain market share with low entry costs. Once a hub office has been
established, the Company focuses on leveraging hub office resources to market
and deliver services to surrounding smaller markets and to cross-sell IT and
other specialty staffing services. In these markets, which are often too small
to attract substantial competition from national staffing companies, the Company
has quickly achieved significant penetration and has often become the dominant
provider of staffing services.
Growth Strategy
Management believes the Company has substantial opportunities to expand
its office network and the range of services it offers to its customers. The
Company's growth strategy is comprised of two elements: Continued focus on
internal growth and pursuit of additional acquisitions. Since completing its
initial public offering in July 1995, the Company has added a total of 36
offices through internal growth and 56 offices through acquisitions.
Focus on Internal Growth. A principal element of the Company's growth
strategy has been its focus on internal growth. During the last five years, the
Company has maintained an average annual internal revenue growth rate in excess
of 20%. The Company's internal growth strategy consists of the following:
3
- Increase Penetration of Existing Markets. The Company continually
seeks to add new customers and offices in the geographic markets
it currently serves. In many instances, the Company pursues such
penetration by establishing a "hub" office from which it can
develop additional offices within a metropolitan area. SOS also
intends to introduce complementary or specialty services in
existing markets and incentivizes field and local managers to
focus on business development within existing offices.
- Enter New Markets. The Company plans to open new branches in
markets not currently served by existing offices. Frequently, the
Company enters new markets by establishing a "hub" office located
in a central location. The Company then opens new offices in
surrounding markets which benefit from the administrative support
and resources of the hub office. This strategy has enabled the
Company to enter many smaller markets cost effectively.
- Expand Service Offerings. The Company is actively seeking to
expand the range of IT services it offers to its customers to
include expanded outsourcing capabilities and network oversight
and management, and to add to its existing telephony consulting
business. The Company intends to expand its vendor on-premise
business, pursuant to which SOS manages all of the customer's
staffing requirements on-site. The Company also intends to further
develop partnering relationships under which SOS works with other
staffing providers to meet the customer's staffing requirements.
- Cross-sell Services. The Company actively seeks to cross-sell
commercial staffing and IT staffing and consulting services to
existing customers. Through incentive compensation arrangements,
the Company actively encourages referrals and cross-selling among
and within its commercial, specialty and IT operations.
Pursue Acquisitions. The Company intends to continue to pursue
acquisitions as a key element of its growth strategy. In targeting acquisitions,
SOS focuses on businesses with (i) a history of profitable operations, (ii) a
strong management team, (iii) a strong local market position, (iv) services that
complement the Company's operations and (v) compatible corporate philosophies
and culture.
- Enter New Markets. The Company intends to target strategic
acquisitions in new markets where the Company seeks to establish
staffing operations, particularly in the western states.
- Acquire Complementary Businesses in Existing Markets. The Company
intends to acquire complementary businesses or specialty lines of
business that enhance the services provided by existing offices.
The Company also targets businesses in its existing markets as a
means of increasing market share.
- Acquire New Services. The Company intends to pursue acquisitions
of staffing businesses that will expand its service offerings. The
Company's acquisition of ten IT companies since July 1996 has
significantly strengthened the Company's IT staffing and
consulting offerings. As the Company identifies staffing
businesses in attractive niches, the Company intends to pursue
strategic acquisitions to facilitate its entry into such niches.
Operations
Services Offered. The Company offers a broad range of commercial
staffing and IT staffing, consulting, and outsourcing services. Generally, the
Company provides light industrial, clerical and industrial services through SOS
Staffing Services, Skill Staff Industrial Specialists and Century Personnel
offices, while technical and other specialty services are provided by specialty
offices such as SOS Technical Services (engineers, chemists, geologists,
designers, drafters, illustrators, artists, writers and other technical
4
personnel), AccountStaff (accountants, bookkeepers, auditors, data entry
personnel and financial analysts), PAMS (medical administrative services),
National Collex (collection services and project billing for medical facilities)
and CGS Personnel (mining, mineral exploration and environmental staffing).
Consulting and outsourcing services are provided under the names of Wolfe &
Associates, Telecom Project Assistance and JesCo Technical Services. IT staffing
services are provided under various names. The Company intends to adopt a common
name for its IT staffing, consulting and outsourcing services.
The Company's commercial staffing services also include professional
employer services such as payrolling, outsourcing, on-site and administrative
professional services provided through SOS Staffing Services and ServCom
offices. Payrolling typically involves the transfer of a customer's short-term
seasonal or special use employees to the Company's payroll for a designated
period. Outsourcing represents a growing trend among businesses to contract with
third parties to provide a particular function or business department for an
agreed price over a designated period. On-site services involve locating a
regular SOS employee at the customer's place of business to manage all of the
customer's temporary staffing requirements. Administrative professional services
offer SOS customers skills testing, drug testing and risk management services.
Skills testing available to SOS customers includes cognitive, personality and
psychological evaluations. Drug tests are confirmed through an independent
certified laboratory. Risk management services include on-site safety inspection
and consulting services. As of December 28, 1997, the Company also provided
professional employer organization services on a limited basis to approximately
60 customers, representing approximately 425 employees, which offers to SOS
customers the benefits of employee leasing.
The Company's IT services consist of IT staffing, consulting and
outsourcing services. The Company's IT staffing services include computer
programming, system design, analysis and administration, network and systems
management and software and documentation development. IT staffing services are
similar in many respects to commercial staffing services; however, IT services
generally require increased specialization and technical skill, carry
significantly higher hourly rates and involve substantially longer job
assignments. The Company's IT consulting services are focused on solving the
customer's organizational problems and typically include telephony services,
general business consulting, organizational analysis, technology consulting and
strategic planning. Company consultants provide innovative ideas, insight and
experience to address the customer's organizational problems, then work with the
customer to implement strategic solutions. IT consulting engagements typically
last six months to one year and may require the services of several specialized
consultants. The Company also delivers IT outsourcing services to customers who
turn over to SOS personnel the management and staffing of specific business
operations. Historically, the Company has provided IT staffing, consulting and
outsourcing services under the business names of acquired IT business units;
however, as the Company integrates acquired IT companies into its consolidated
IT operations, the Company intends to adopt common business names for use
throughout the Company's IT branch network during 1998.
Branch Offices. The Company provides commercial staffing and IT
staffing and consulting services through a network of 134 offices located in 18
states. The Company currently operates at least one office in every market in
the Mountain States (Arizona, Colorado, Idaho, Montana, New Mexico, Nevada,
Utah, and Wyoming) with a population base in excess of 100,000 people. In larger
markets, the Company generally provides light industrial and clerical personnel
through SOS Staffing Services offices, while specialty services are provided by
service-specific specialty offices. In smaller markets, SOS offices offer a
broader variety of commercial staffing services including specialty services.
The Company currently provides commercial staffing services through a network of
SOS Staffing Services, Century Personnel, Skill Staff, SOS Technical Services,
AccountStaff, Industrial Specialist, PAMS, ServCom and CGS offices.
The Company estimates the capital cost of establishing a new commercial
staffing offices ranges from $15,000 to $50,000, exclusive of working capital
requirements. The Company's new offices have historically achieved profitability
in six to 12 months, while offices created by division of an existing office are
usually profitable from inception.
The Company provides IT staffing and consulting services from 18 IT
offices. The Company's IT staffing and consulting offices generally serve larger
geographic areas than SOS commercial staffing offices principally due to the
5
increased specialization associated with IT services. The Company's strategy of
integrating and expanding its existing IT staffing and consulting office network
will include efforts to position IT offices in strategic locations throughout
the western states, rather than the "hub and spoke" approach used by the Company
to expand its network of commercial staffing offices.
Sales and Marketing. SOS generally markets its commercial staffing
services through its network of offices whose managers, supported by the
Company's marketing staff, make regular personal sales visits to larger accounts
and prospects. The Company emphasizes long-term personal relationships with its
customers and develops these relationships through regular contact, periodic
assessment of customer requirements and regular monitoring of employee
performance. New customers are obtained through customer referrals,
telemarketing and advertising in a variety of local and regional media,
including television, radio, direct mail, Yellow Pages, newspapers, magazines
and trade publications. The Company is also a sponsor of job fairs and other
community events. In addition, the Company uses the Internet to support its
marketing efforts.
The Company's IT sales and marketing efforts may include the activities
described above, but are generally more focused to address IT staffing and
consulting needs which are typical of specific customers. Many of the Company's
existing and prospective IT customers routinely outsource IT functions, such as
programming, data entry and network administration. The Company's IT staffing
and consulting personnel seek to identify IT requirements of its customers and
promote IT services designed to meet those requirements. In addition to personal
sales visits, targeted mailings and telephone solicitations, the Company's IT
personnel actively promote the Company's services through cross-selling
complementary IT services to existing customers and participate in industry
trade associations.
Recruiting. The Company believes a key element of its growth and
profitability has been its ability to recruit and retain qualified staffing
personnel. In an effort to attract commercial staffing personnel, the Company
employs recruiters who regularly visit schools and professional associations and
present career development program to various organizations. In addition, the
Company obtains applicants from referrals by its staffing employees and from
advertising on radio, television, in the Yellow Pages and through other print
media. The Company has recently begun to utilize the Internet to recruit
professional, IT and technical staffing employees. Each applicant for a
commercial staffing position is interviewed with emphasis on past work
experience, personal characteristics and individual skills. The Company utilizes
the Dictionary of Occupational Titles ("DOT Codes") published by the Department
of Labor to evaluate and assign staffing employees. The Company maintains
software-training programs at its offices for applicants and employees who may
be trained and tested at no cost to the applicant, employee or Company customer.
The Company's efforts to recruit IT staffing and consulting personnel
frequently include some or all of the recruiting activities employed by the
Company's commercial staffing offices, but typically rely more heavily on
identifying potential employees who possess specialized education, training or
work experience. Frequently, the Company will screen prospective IT personnel
based solely upon resume submissions, then refer qualified candidates to
customers for on-site interviews. The Company's IT recruiting efforts also rely
heavily upon industry contacts, personal networks and referrals from existing
and former IT personnel.
To promote loyalty and retention among its staffing employees, the
Company provides its staffing employees with certain employee benefits,
including access to a Section 401(k) defined contribution plan, a credit union
and health insurance programs offered through the National Association of
Temporary and Staffing Services ("NATSS"). In addition, the Company has the
ability to issue paychecks to commercial staffing employees during the same week
worked.
Customers. During the 52 weeks ended December 28, 1997, the Company
provided approximately 78,000 staffing employees to more than 10,000 businesses,
professional and service organizations and government agencies. No customer
accounted for more then 2% of the Company's service revenues during the period
and the Company's top ten customers accounted for less than 11% of service
revenues during the same period. Historically, the Company's customers have
consisted primarily of small to mid-size commercial staffing customers.
Management believes there remain significant opportunities to deliver profitable
commercial staffing services to small and mid-size customers, who are less
likely to require substantial volume discounts than larger, nationwide
6
companies. As the Company expands its network into larger cities in the western
states, the Company anticipates that it will provide commercial staffing
services to larger customers who focus on value rather than cost, but will
continue to focus its efforts on attracting and providing quality services to
small and mid-size companies located in such larger cities.
The Company's IT customer base, which consists primarily of IT
customers served by companies acquired by SOS since July 1996, includes
customers who are generally larger than many of the Company's commercial
staffing customers. Many of the Company's IT customers are Fortune 1000
companies, government agencies and educational institutions. Many of the
projects are smaller in scope than those done by large national companies. On
larger projects, the Company frequently provides service in a supporting role to
the project manager. The Company anticipates that its increased focus on IT
staffing and consulting, as well as its expansion into larger metropolitan
areas, will lead to additional opportunities to provide IT services to mid-size
and larger customers.
Risk Management Program. SOS is responsible for all employee-related
expenses for its staff employees including workers' compensation, unemployment
insurance, social security taxes, state and local taxes and other general
payroll expenses. The Company has implemented a deductible workers' compensation
program through CIGNA Property and Casualty ("CIGNA") with a loss cap of
$200,000 per incident. Staffing employees in Nevada, Washington and Wyoming are
insured through those states' insurance funds because private insurance is not
permitted in those states. The Company employs a full-time professional risk
manager and staff who work closely with the insurance carrier to manage claims
and establish appropriate reserves.
The Company has also developed workers' compensation loss control
programs which seek to limit claims through employee training and avoidance of
high risk job assignments such as roofing or logging. All staffing employees are
required to agree in advance to drug testing following any work-related accident
and all major accidents are investigated. The Company, in cooperation with its
insurer, monitors all claims and regularly reviews the claims with an emphasis
on early closure.
Information Systems
The Company's central management information system is linked to all of
the Company's larger commercial staffing offices. Smaller offices utilize
stand-alone computers or batch access software for routine office functions. The
centralized system is designed to support Company-wide operations such as
payroll, billing, accounting and sales and management reports.
Six of the Company's 18 IT offices are linked to the Company's central
management information system, while substantially all of the remaining offices
continue to utilize systems in place at the time of their acquisition by SOS.
The Company is developing a central management information system for use by the
Company's IT offices. The Company anticipates that its IT system will be
connected to the Company's existing system for certain common functions;
however, the IT system will be designed to accommodate the different business
cycles and processes associated with the IT industry.
The current operating system software utilized by the Company is
licensed on a perpetual royalty-free basis. The Company's proprietary
application software is regularly updated and revised to meet the Company's
specific requirements. All files are backed up routinely and stored off-site and
critical files are backed up on a daily basis. The present system has capacity
to service the Company's anticipated growth without significant capital
expenditures for the foreseeable future.
7
Year 2000
The Company's information systems have been made substantially
compliant with Year 2000 requirements. Reviews are beginning of the Company's
key vendors' compliance with these requirements. No determination of material
compliance or noncompliance of key vendors can be made at this time.
Competition
The staffing industry is comprised of national, regional and local
companies operating offices throughout the nation, making the industry highly
competitive and highly fragmented, with limited barriers to entry. The Company
faces intense competition from large national and international companies with
substantially greater financial and marketing resources than those of the
Company, as well as strong local and regional staffing companies.
The Company competes for qualified staffing employees and for customers
who require the services of such employees. The principal competitive factors in
attracting and retaining qualified staffing employees are competitive salaries
and benefits, quality and frequency of assignments and responsiveness to
employee needs. The Company believes that many persons who seek temporary
employment are also seeking regular employment and that the availability of
assignments which may lead to regular employment is an important factor in its
ability to attract qualified staffing employees.
The principal competitive factors in obtaining customers are a strong
sales and marketing program, having qualified staffing employees to assign in a
timely manner, matching of customer requirements with available staffing
employees, competitive pricing and satisfactory work production. The Company
believes its strong emphasis on providing service and value to its customers and
staffing employees are important competitive advantages.
Seasonality
The Company's business follows the seasonal trends of its customers'
businesses. Historically, the Company has experienced lower revenues in the
first quarter due to the seasonal trends of its customers and lower overall
economic activity.
Trade Names
The Company uses a variety of trademarks and trade names which are
generally descriptive of the temporary staffing services offered, including SOS
Staffing Services, Century Personnel, Skill Staff, AccountStaff, TSI, Industrial
Specialists, SOS Technical Services, ServCom, PAMS Employment Services, National
Collex, CGS Personnel, Wolfe & Associates, Impact Staffing, The Performance
Group, Computer Group, Inc., Telecom Project Assistance, Bedford Consultants,
Execusoft, JesCo Technical Services, CenTech, and Prestige Consulting trade
names. The Company has registered or reserved the majority of these names in the
appropriate states. The Company anticipates that at some future date the trade
names used in its IT staffing, consulting and outsourcing operations, including
Wolfe & Associates, Impact Staffing, The Performance Group, Computer Group,
Inc., Telecom Project Assistance, Bedford Consultants, Execusoft, JesCo
Technical Services, CenTech and Prestige Consulting may be modified or changed
to reflect their common business focus.
Staff Employees
At December 28, 1997, the Company had approximately 776 staff employees
consisting of 14 senior managers, 127 field managers, 119 consultants and 516
other staff employees. The Company's training department provides general and
job specific training to all staff employees, including continuing training with
8
experienced counterparts. None of the Company's staff employees is covered by
collective bargaining agreements. The Company considers its relationship with
its staff employees to be good.
Factors that May Affect Future Results
The statements contained in this Annual Report on Form 10-K that are
not purely historical are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements
involve various risks and uncertainties. Forward-looking statements contained in
this Report include statements regarding the Company's acquisition plans and
opportunities, existing and proposed service offerings, market opportunities,
expectations, goals, revenues, financial performance, strategies, intentions for
the future and any other statements to the effect that the Company or its
management "believes", "expects", "anticipates", "plans" or other similar
expressions. Such forward-looking statements are included under Item 1.
"Business", Item 2. "Properties", Item 3. "Legal Proceedings" and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." All forward-looking statements included in this Report are made as
of the date hereof, based on information available to the Company as of such
date, and the Company assumes no obligation to update any forward-looking
statement. It is important to note that such statements may not prove to be
accurate, and that the Company's actual results and future events could differ
materially from those anticipated in such statements. Many factors could cause
actual results to differ materially from the Company's expectations, including,
without limitation, the factors identified below.
The Company's future results will be impacted by, among other factors,
the Company's ability to implement its growth strategy, which, in turn, is
dependent upon a number of factors, including the availability of working
capital to support such growth, plans to expand the Company's offering of IT
staffing services, competition for attractive acquisition opportunities, the
Company's ability to integrate the operations of acquired businesses,
management's ability and resources to implement the growth strategy and the
successful hiring, training and retention of qualified field management. Future
results will also be affected by other factors associated with the operation of
the Company's business, including the Company's response to existing and
emerging competition, demand for the Company's services, effects associated with
the recent transition within the Company's senior management, the Company's
ability to maintain profit margins in the face of pricing pressures, the
Company's efforts to develop and maintain customer and employee relationships,
economic fluctuations and employee-related risks and expenses.
All subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by this section and other factors included elsewhere in this Report.
You also should consult other factors identified from time to time in the
Company's periodic reports to the Securities and Exchange Commission.
ITEM 2. PROPERTIES
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As of December 28, 1997, the Company provided staffing services through
134 offices in 18 states. These offices typically consist of 1,200 to 5,000
square feet and are leased by the Company for terms of three to five years.
Offices in larger or smaller markets may vary in size from the typical office.
The Company does not expect that maintaining or finding suitable lease space at
reasonable rates in its markets or in areas where the Company contemplates
expansion will be difficult.
The Company's executive and administrative offices are located in Salt
Lake City, Utah. The premises consist of approximately 15,600 square feet and
are leased from a related party for a term ending on March 31, 2005, with an
option to renew for 10 additional years (see "Certain Relationship and Related
Parties"). The Company believes that the lease terms are at least as favorable
as could be obtained from any unrelated third party.
9
ITEM 3. LEGAL PROCEEDINGS
-----------------
In the ordinary course of its business, the Company is periodically
threatened with or named as a defendant in various lawsuits. The Company
maintains insurance in such amounts and with such coverage and deductibles as
management believes to be reasonable and prudent. The principal risks covered by
insurance include worker's compensation, personal injury, bodily injury,
property damage, errors and omissions, fidelity losses and general liability.
In June 1997, a former customer of the Company commenced litigation
against the Company in Second District Court, Davis County, State of Utah,
alleging breach of contract, negligence, fraud and misrepresentation. The
allegations are based upon the alleged theft of surplus military goods from the
former customer's warehouse by a former temporary employee of the Company. The
plaintiff is seeking special, general, consequential, punitive and other damages
in an amount in excess of $7 million. In September 1997, the Company filed a
motion to dismiss the negligence claim based on the pleadings and filed an
answer to the complaints denying the material allegations and asserting several
affirmative defenses. In December 1997, the judge denied the Company's motion to
dismiss without prejudice. The Company believes the claim is without merit and
that the Company has valid defenses to all of the allegations raised by the
plaintiff.
There is no other pending litigation that the Company currently
anticipates will have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the 52 weeks ended December 28, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
---------------------------------------------------------------------
The information required by this Item is incorporated by reference to
page 33 of the Company's 1997 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this Item is incorporated by reference to
page 1 of the Company's 1997 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The information required by this item in incorporated by reference to
pages 9 through 12 of the Company's 1997 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable
10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
------------------------------------------
The information required by this item in incorporated by reference to
pages 13 through 32 of the Company's 1997 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
PART III
The information required by this Part III is omitted from this Report
in that the Company will file with the Securities and Exchange Commission a
definitive proxy statement for the Annual Meeting of Shareholders of the Company
to be held on May 13, 1998 (the "Proxy Statement"), not later that 120 days
after December 28, 1997, and certain information included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
specifically identified below which address the items set forth herein are
incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors", "Executive Officers" and "Key
Employees" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
--------------------
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors-Director Compensation" and
"Executive Officers-Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item is incorporated by reference to
the section entitled "Principal Holders of Voting Securities" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSATIONS
---------------------------------------------
The information required by this item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Proxy Statement.
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements: The following Consolidated Financial
Statements of the Company and Report of Independent Public Accountants,
are incorporated by reference to pages 13 through 32 of the Company's
1997 Annual Report to Shareholders:
Consolidated Balance Sheets--As of December 28, 1997, and December 29,
1996
Consolidated Statements of Income--For the Fiscal Years Ended December
28, 1997, December 29, 1996, and December 31, 1995. Consolidated
Statements of Shareholders' Equity--For the Fiscal Years Ended December
28, 1997, December 29, 1996 and December 31, 1995.
Consolidated Statements of Cash Flows--For the Fiscal Years Ended
December 28, 1997, December 29, 1996, and December 31, 1995.
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
No schedules submitted
(b) Reports on Form 8-K:
--------------------
On October 14, 1997, the Company filed a Current Report on Form 8-K,
dated October 2, 1997, which the Company subsequently amended by filing
an Amendment to Current Report on Form 8-K/A on October 15, 1997. The
Report, as amended, was filed for the purpose of reporting the
Company's acquisition of certain assets and substantially all of the
business operations of Century Personnel, Inc., and M.A. Jones
Enterprises, Inc. (collectively, "Century"). No financial statements
were filed with the Current Report or the subsequent amendment;
however, on November 24, 1997, the Company filed an Amendment to
Current Report on Form 8-K/A for the purpose of providing the financial
statements and pro forma financial information required in connection
with the Company's acquisition of Century's assets and business
operations.
On November 12, 1997, the Company filed an Amendment No. 1 to Current
Report on Form 8-K/A for the purpose of amending a Current Report on
Form 8-K, dated September 15, 1997, in order to provide financial
statements and pro forma financial information required in connection
with the Company's acquisition of certain assets and substantially all
of the business operations of JesCo Technical Services, Inc.
(c) Exhibits:
---------
Exhibit Incorporated by Filed Herewith
No. Exhibit Reference
- --------------- ------------------------------------------------------ ------------------- -----------------
3.1 Amended and Restated Articles of Incorporation of (1)
the Company
12
Exhibit Incorporated by Filed Herewith
No. Exhibit Reference
- --------------- ------------------------------------------------------ ------------------- -----------------
3.2 Amended and Restated Bylaws of the Company (1)
4.2 Amended and Restated Articles of Incorporation of (1)
the Company
4.3 Amended and Restated Bylaws of the Company (1)
10.1 SOS Staffing Services, Inc. Stock Incentive Plan (3)
dated May 4, 1995, as amended
10.2 Form of Employment Agreement entered into by the (1)
Company and each of Messrs. Richard D. Reinhold,
Howard W. Scott, Jr. and Richard J. Tripp
10.3 Form of Consulting Agreement between the Company (2)
and Ms. JoAnn W. Wagner, effective as of July 1, 1995
10.4 Lease Agreement between the Company and Reed F. (1)
Reinhold, Rand F. Reinhold, Rena R. Qualls and Robb
F. Reinhold, dated April 1, 1995, covering the
Company's Corporate office building
10.5 Credit Agreement dated as of July 11, 1996 by and (4)
among the Company, First Security Bank, N.A. and NBD
Bank, together with Security Agreement and Revolving
Credit Notes
10.6 Stock Purchase Agreement between the Company, Wolfe (5)
& Associates, Inc. and certain shareholders of Wolfe
& Associates, Inc. dated November 5, 1996
10.7 Asset Purchase Agreement between the Company, (6)
Execusoft, Inc. and the principals of Execusoft,
Inc., effective as of August 27, 1997
10.8 Asset Purchase Agreement between Wolfe & Associates, (7)
Inc., the Company, JesCo Technical Services, Inc.,
and John E. Shaffer, effective September 28, 1997
10.9 Asset Purchase Agreement between the Company, (8)
Century Personnel, Inc., M.A. Jones Enterprises,
Inc. and Michael A. Jones, effective October 27, 1997
13 Annual Report to Shareholders for the year ended (9)
December 28, 1997 by reference into Items 5 through
8 of this Annual Report on Form 10-K and, except as
so incorporated by reference, the Annual Report to
Shareholders is not deemed to be filed as part of
this Report.
13
Exhibit Incorporated by Filed Herewith
No. Exhibit Reference
- --------------- ------------------------------------------------------ ------------------- -----------------
21 Subsidiaries of the Company (9)
23.2 Consent of Independent Public Accountants (9)
27 Financial Data Schedule (9)
(1) Incorporated by reference to the exhibits to a Registration Statement
on Form S-1 filed by the Company on May 17, 1995, Registration No.
33-92268.
(2) Incorporated by reference to the exhibits to Amendment No. 1 to a
Registration Statement on Form S-1 filed on June 22, 1995, Registration
No. 33-92268.
(3) Incorporated by reference to the exhibits to the Company's Annual
Report of Form 10-K for the year ended December 31, 1995 filed by the
Company on March 29, 1996.
(4) Incorporated by reference to the exhibits to a Quarterly Report on Form
10-Q for the quarter ended September 26, 1996 filed by the Company on
November 14, 1996.
(5) Incorporated by reference to the exhibits to a Current Report on Form
8-K filed by the Company on November 14, 1996.
(6) Incorporated by reference to the exhibits to a Current Report on Form
8-K filed by the Company on September 3, 1997.
(7) Incorporated by reference to the exhibits to a Current Report on Form
8-K filed by the Company on September 18, 1997.
(8) Incorporated by reference to the exhibits to an Amendment to Current
Report on Form 8-K/A filed by the Company on October 15, 1997.
(9) Filed herewith and attached to this Report following page 13 hereof.
(d) Financial Statement Schedules:
------------------------------
No schedules submitted.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
SOS STAFFING SERVICES, INC.
Date: March 23, 1998 By: /s/ Gary B. Crook
-----------------
Gary B. Crook
Executive Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ JoAnn W. Wagner Chairman of the Board and March 23, 1998
------------------ Executive Vice President
JoAnn W. Wagner
/s/ Howard W. Scott, Jr. Director, Chief Executive March 23, 1998
----------------------- Officer (Principal Executive
Howard W. Scott, Jr. Officer)
/s/ Peter R. Sollenne Director, President and Chief March 23, 1998
- --------------------- Operating Officer
Peter R. Sollenne
/s/ Gary B. Crook Executive Vice President, Treasurer March 23, 1998
- ----------------- and Chief Financial Officer
Gary B. Crook (Principal Financial and Accounting
Officer)
/s/ Richard J. Tripp Director and March 23, 1998
- --------------------
Richard J. Tripp Senior Vice President
/s/ Stanley R. deWaal Director March 23, 1998
- ---------------------
Stanley R. deWaal
/s/ Samuel C. Freitag Director March 23, 1998
--------------------
Samuel Freitag
/s/ R. Thayne Robson Director March 23, 1998
- --------------------
R. Thayne Robson
/s/ Randolph K. Rolf Director March 23, 1998
- --------------------
Randolph K. Rolf
/s/ Annette Strauss Director March 23, 1998
- -------------------
Annette Strauss
15