1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarter period ended September 28, 1997. [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. Commission file number 0-7907 ------ C.H. Heist Corp. - ---------------- (Exact name of registrant as specified in its charter) New York 16-0803301 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization 810 North Belcher Road Clearwater, Florida 33765 ------------------- ----- (Address of principal executive offices) (Zip Code) 813-461-5656 ------------ (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date - October 20, 1997. Common stock, $.05 par value 2,876,823 ---------------------------- --------- (Class) (Outstanding shares) 1 2 C.H. HEIST CORP. AND SUBSIDIARIES Index Part I Financial Information Condensed Consolidated Balance Sheets- September 28, 1997 (Unaudited) and December 29, 1996 3 Condensed Consolidated Statements of Earnings - (Unaudited) thirteen week periods ended September 28, 1997 and September 29, 1996 and thirty-nine week periods ended September 28, 1997 and September 29, 1996 4 Condensed Consolidated Statements of Cash Flows - (Unaudited) thirty-nine week periods ended September 28, 1997 and September 29, 1996 5 Notes to Condensed Consolidated Financial Statements 6 Independent Auditors' Review Report 7 Management's Discussion and Analysis of Results of Operations and Financial Condition 8-10 Part II Other Information 11 Signatures 12 * * * * * 2 3 Part I-Financial Information C.H. HEIST CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheets September 28, December 29, Assets 1997 1996 ------ ---- ---- (Unaudited) Current assets: Cash and cash equivalents $ 2,002,236 2,691,908 Receivables 18,936,132 14,533,685 Services in progress 1,556,099 1,117,235 Income taxes receivable 135,849 - Parts and supplies 1,334,484 1,604,470 Prepaid expenses 719,742 324,114 Deferred income taxes 1,010,177 1,010,376 --------------- --------------- Total current assets 25,694,719 21,281,788 --------------- --------------- Property, plant and equipment, at cost 52,940,715 49,635,229 Less accumulated depreciation 35,339,189 32,229,168 --------------- --------------- Net property, plant and equipment 17,601,526 17,406,061 --------------- --------------- Deferred income taxes 139,626 141,367 Other assets 3,359,156 2,073,881 --------------- --------------- $46,795,027 40,903,097 =============== =============== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Current installments of long-term debt $ 37,667 537,667 Accounts payable 2,311,189 1,579,775 Accrued expenses 5,321,805 4,470,646 Income taxes payable - 197,753 --------------- --------------- Total current liabilities 7,670,661 6,785,841 Long-term debt, excluding current installments 11,414,140 6,492,390 Deferred income taxes 551,285 551,285 --------------- --------------- Total liabilities 19,636,086 13,829,516 --------------- --------------- Stockholders' equity (note 3): Common stock of $.05 par value. Authorized 8,000,000 shares; issued 3,167,092. 158,355 158,355 Additional paid-in capital 4,273,915 4,267,798 Retained earnings 25,227,195 24,984,062 Equity adjustment from foreign currency translation (1,257,823) (1,084,731) --------------- --------------- 28,401,642 28,325,484 Less cost of common stock in treasury: 290,269 and 292,419 shares for 1997 and 1996, respectively. (1,242,701) (1,251,903) --------------- --------------- Total stockholders' equity 27,158,941 27,073,581 --------------- --------------- $ 46,795,027 40,903,097 =============== =============== See accompanying notes to condensed consolidated financial statements. 3 4 C.H. HEIST CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited) Thirteen Thirteen Thirty-nine Thirty-nine week period week period week period week period ended ended ended ended September 28, September 29, September 28, September 29, 1997 1996 1997 1996 --------------- -------------- ------------ ------------ Net Sales $ 31,257,515 28,218,788 87,341,603 79,769,125 Cost of sales 25,912,069 23,937,038 74,445,941 68,912,648 --------------- -------------- ------------ ------------ Gross profit 5,345,446 4,281,750 12,895,662 10,856,477 Selling, general and administrative expenses 3,884,349 3,189,314 11,419,868 10,123,716 -------------- -------------- ------------ ------------ Operating income 1,461,097 1,092,436 1,475,794 732,761 -------------- -------------- ------------ ------------ Other income (expense): Interest income 32,732 14,004 51,044 51,411 Interest expense (232,894) (164,152) (517,991) (461,626) Gain (loss) on disposal of property, plant and equipment, net (3,102) (30,385) (8,043) 52,776 Amortization of other assets (75,278) (24,647) (163,320) (86,661) Miscellaneous, net (1,581) (9,327) (207,625) (11,692) -------------- -------------- ------------ ------------ Total other expense, net (280,123) (214,507) (845,935) (455,792) -------------- -------------- ------------ ------------ Earnings before income taxes 1,180,974 877,929 629,859 276,969 Income tax expense 551,019 305,260 386,726 217,556 -------------- -------------- ------------ ------------ Net earnings $ 629,955 572,669 243,133 59,413 ============== ============== ============ ============ Net earnings per share $ .22 .20 .08 .02 ============== ============== ============ ============ Weighted average number of common shares outstanding 2,876,823 2,873,128 2,876,399 2,872,891 ============== ============== ============ ============ See accompanying notes to condensed consolidated financial statements. 4 5 C. H. HEIST CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Thirty-nine week Thirty-nine period week period ended ended September 28, September 29, 1997 1996 ---------------- ------------- Cash flows from operating activities: Net earnings $ 243,133 59,413 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of plant and equipment 3,823,797 3,614,933 Amortization of other assets 163,320 86,661 (Gain) loss on disposal of property, plant and equipment, net 8,043 (52,776) Deferred income taxes - 70,380 Changes in assets and liabilities (see below) (3,479,036) (2,516,468) ---------------- ------------- Net cash provided by operating activities 759,257 1,262,143 ---------------- ------------- Cash flows from investing activities: Additions to property, plant and equipment (4,082,761) (3,618,281) Proceeds from disposal of property, plant and equipment 147,105 215,937 Acquisitions (1,903,869) (1,115,492) ---------------- ------------- Net cash used in investing activities (5,839,525) (4,517,836) ---------------- ------------- Cash flows from financing activities: Proceeds from bank line of credit borrowings 13,450,000 7,800,000 Repayment of bank line of credit borrowings (8,500,000) (5,700,000) Repayment of other long-term debt (528,250) (28,250) Reissuance of treasury shares 15,319 14,204 ---------------- ------------- Net cash provided by financing activities 4,437,069 2,085,954 ---------------- ------------- Effect of exchange rate changes on cash and cash equivalents (46,473) 131 ---------------- ------------- Net decrease in cash and cash equivalents (689,672) (1,169,608) Cash and cash equivalents at beginning of period 2,691,908 3,040,815 ================ ============= Cash and cash equivalents at end of period $ 2,002,236 1,871,207 ================ ============= Changes in assets and liabilities providing (using) cash: Receivables $ (4,434,945) (1,700,042) Services in progress (445,079) (1,515,751) Income taxes receivable/payable, net (330,964) (840,430) Parts and supplies 268,358 168,645 Prepaid expenses (396,476) (279,130) Other assets 304,954 (109,553) Accounts payable 698,698 423,300 Accrued expenses 856,418 1,336,493 ================ ============= Total $ (3,479,036) (2,516,468) ================ ============= See accompanying notes to condensed consolidated financial statements 5 6 C. H. HEIST CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. In the opinion of management of C. H. Heist Corp. and Subsidiaries (the Company), the accompanying condensed consolidated financial statements contain all normal recurring adjustments necessary to fairly present the Company's consolidated financial position as of September 28, 1997 and the results of its operations and cash flows for the thirteen and thirty nine week periods ended September 28, 1997 and September 29, 1996. 2. The results of operations for the thirteen and thirty nine week periods ended September 28, 1997 are not necessarily indicative of the results to be expected for the full year. 3. The changes in stockholders' equity for the thirty nine week period ended September 28, 1997 are summarized as follows: Equity adjustment Additional from foreign Total Common paid-in Retained currency Treasurey Stock stockholders stock capital earnings translation Shares Amount equity ----- ------- -------- ----------- ------ ------ ------ Balance at December 29, 1996 $158,355 $4,267,798 $24,984,062 $ (1,084,73) 292,419 $(1,251,903) $27,073,581 Net earnings - - 243,133 - - - 243,133 Foreign currency translation Adjustment (173,092) (173,092) Reissuance of treasury stock - 6,117 - - (2,150) 9,202 15,319 -------- ---------- ----------- ----------- ------- ----------- ------------ Balance at September 28, 1997 $158,355 $4,273,915 $25,227,195 $(1,257,823) 290,269 $(1,242,701) $ 27,158,941 ======== ========== =========== =========== ======= =========== ============ 4. During the quarter ended September 28, 1997, no stock options were exercised, and none expired. As of September 28, 1997 and December 31, 1996, the Company had exercisable options outstanding to employees to purchase 177,536 and 182,389 common shares respectively, at prices ranging from $6.94 to $11.14 per share. 5. On April 28, 1997, Ablest Service Corp. ("Ablest"), a wholly owned subsidiary of C. H. Heist Corp. purchased certain assets from Solution Source, Inc., a Georgia corporation engaged in the information technology staffing business. The purchase price was $1.3 million cash at closing plus additional contingent consideration not to exceed $1.125 million over the next three years based on the achievement of certain earnings goals. The source of the funds used by Ablest was $1.3 million from its revolving line of credit. The purchase price was determined through negotiations and has been allocated to various intangible assets, primarily goodwill, based on their fair values. Additionally on June 23, 1997, Ablest purchased certain assets from The Kelton Group, Inc., a North Carolina corporation engaged in the information technology staffing and documentation writing service business. The purchase price was $300,000 cash at closing which came from Ablest's operating cash account. The purchase price was determined through negotiations and has been allocated to various intangible assets, primarily goodwill, based on their fair values. The pro forma effect of the above acquisitions on the Company's results of operations for the thirteen and thirty nine week periods ended September 28, 1997 and September 29, 1996 is not material. 6 7 Independent Auditors' Review Report The Board of Directors and Stockholders C.H. Heist Corp: We have reviewed the condensed consolidated balance sheet of C.H. Heist Corp. and subsidiaries as of September 28, 1997 and the related condensed consolidated statements of earnings and cash flows for the thirteen and thirty-nine week periods ended September 28, 1997 and September 29, 1996. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of C.H. Heist Corp. and subsidiaries as of December 29, 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year ended (not presented herein); and in our report dated February 14, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 29, 1996, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Buffalo, New York KPMG Peat Marwick LLP October 24, 1997 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Net sales increased by $3 million or 10.8% during the current fiscal quarter and by $7.6 million or 9.5% for the fiscal year to date period, compared to one year ago. Net sales in the staffing services segment (Ablest Service Corp.) increased by $2.9 million or 21.9% during the current fiscal quarter, and by $10.0 million or 27.8% for the fiscal year to date period, compared to one year ago. The increase during the current fiscal quarter was primarily due to sales generated by recent acquisitions in information technology staffing services. In addition, the increase in year to date sales resulted from sales generated from offices opened during the prior fiscal year and during the first quarter of the current fiscal year as well as the servicing of a high volume, short term commercial staffing project completed during the first half of fiscal 1997. Net sales in the Company's industrial maintenance segment increased by $108,000 or .7% during the current fiscal quarter and decreased by $2.5 million or 5.7% during the fiscal year to date period compared to one year ago. The increase during the current fiscal quarter was the result of increased sales in a new service, chemical cleaning, as well as improvements in sales of wet and dry vacuum services. These improvements were offset by the year to date decline in major plant clean-up work in the Company's southern region that occurred earlier in the fiscal year. Gross profit increased by $1.0 million for the current fiscal quarter and $2.0 million for the fiscal year to date period, compared to one year ago. Gross profit as a percent of sales increased to 17.1% from 15.2% and to 14.8% from 13.6% during the current fiscal quarter and year to date periods, respectively. Gross profit as a percent of sales decreased in the staffing services segment to 16.5% from 17.6% for the current fiscal quarter and to 16.0% from 17.0% for the current fiscal year to date period, compared to one year ago. The decline in gross profit percentage is the result of competitive pressures on pricing within the staffing industry as well as the securing of high volume, lower margin contracts in two of the Company's regions. Gross profit as a percent of sales improved in the Company's industrial maintenance segment to 17.0% from 13.0% and to 13.4% from 10.8% during the current fiscal quarter and year to date periods, respectively. The improvement in gross profit percentage was partially the result of improved margins obtained in the performance of painting and sandblasting services, new services including chemical cleaning and waste management and a reduction in insurance reserves due to the favorable settlement of two liability claims previously pending against the Company. Selling, general and administrative expenses increased by approximately $695,000 or 21.8% and $1.3 million or 12.8% for the current fiscal quarter and year to date periods, respectively. Selling, general and administrative expenses for the staffing services segment increased by $604,000 or 45.5% for the current fiscal quarter and by $1.8 million or 48.6% for the current fiscal year to date periods, as compared to one year ago. The increase is partially the result of new office openings and costs associated with information technology staffing acquisitions. Additional increases were caused by the establishment of a separate human resources department for the staffing services segment and fees associated with legal, audit, and board of directors meeting fees, associated with the attempt to separate the companies. Selling, general and administrative expenses for the industrial maintenance segment increased by $91,000 or 4.9% and decreased by $540,000 or 8.5% for the current fiscal quarter and year to date periods, respectively. The increase in the current quarter was primarily the result of the hiring of a vice president for sales and marketing and the undertaking of a strategic sales and marketing planning initiative to take effect in fiscal 1998. The decrease in the fiscal year to date period is primarily the result of streamlining and consolidating of support functions which occurred during the prior fiscal year. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued Results of Operations Other expenses net, increased by $66,000 or 30.6% for the current fiscal quarter and by $390,000 or 85.6% for the current fiscal year to date periods, compared to one year ago. The increase for the current fiscal quarter is the result of the amortization of acquisition related expenses and increased interest on debt. The increased interest on debt is the result of higher levels of borrowing used to acquire certain assets of information technology staffing companies and provide sufficient working capital for those entities after the acquisition. Additionally, the fiscal year to date increase includes the costs associated with the preparation of documents for the spin-off and initial public offering of Ablest Service Corp., which has been called off. The effective tax rates for the current fiscal quarter was 46.7% and for the fiscal year to date period was 61.4%. The effective rates are effected by the multiple taxing jurisdictions in which the Company operates. During 1997, the Company will adopt the provision of Statement of Financial Accounting Standards No. 128 , "Earnings Per Share". Management believes the adoption of this standard will not have a material effect on the reported operating results of the Company. Financial Condition The quick ratio was 3.0 to 1 as of September 28, 1997 as opposed to 2.8 to 1 at December 29, 1996. The current ratio was 3.3 to 1 as of September 28, 1997 as opposed to 3.1 to 1 at December 29, 1996. Net working capital increased by $3.8 million during the current fiscal quarter. The increase in working capital is attributable to increases in cash at the Company's Canadian subsidiary, increases in accounts receivable mostly attributable to the sales growth in Ablest Service Corp., and a decrease in the current installments of long term debt due to the payment of a promissory note entered into in conjunction with the acquisition of certain assets of Tech Resource, Inc. by Ablest Service Corp. in September 1996. Reference should be made to the cash flow statement, which details the sources and uses of cash. Open credit commitments as of September 28, 1997 were $8.6 million of which $3.2 million was for C. H. Heist Corp., and $5.4 million was for Ablest Service Corp. The company also has $361,000 (the U.S. dollar equivalent) available for C. H. Heist, Ltd., the Company's Canadian subsidiary. Capital expenditures for the current fiscal quarter were $1.5 million. Of this amount, $767,000 was for additions to the equipment fleet, $153,000 was for computer equipment, and the balance was for other equipment and facilities. Commitments at September 28, 1997 were $218,000 of which $160,000 was for new facilities, $20,000 was for computer equipment and the balance for other equipment. Recent Developments At a meeting of the Company's board of directors held on August 12, 1997, the Company called off the spin-off of Ablest Service Corp., the Company's staffing services subsidiary. The Company has concluded it can better utilize the financial strength and leverage of the combined entities to aggressively pursue acquisitions and open new offices in strategic markets. 9 10 Part II-Other Information Item 6 Exhibits and Reports on Form 8-K (A) Exhibit 27.1 Financial Data Schedule (for SEC use only). (B) Reports on Form 8-K On July 8, 1997, the Company filed a report on Form 8-K regarding its wholly owned subsidiary, Ablest Service Corp.'s acquisition of certain assets of The Kelton Group, Inc. for $300,000 cash at closing. On July 9, 1997, the Company filed a report on Form 8-KA regarding the required audited financial statements of Solution Source, Inc. and pro forma financial statements not previously included with the initial Form 8-K filing on May 8, 1997. 10 11 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. C.H. Heist Corp. (Registrant) Date November 10, 1997 /s/ Mark P. Kashmanian ---------------------------- ---------------------- Mark P. Kashmanian Chief Accounting Officer 11