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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 March 28, 1999.
[ ] 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.
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(Exact name of registrant as specified in its charter)
New York 16-0803301
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
810 North Belcher Road
Clearwater, Florida 33765
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(Address of principal executive offices) (Zip Code)
727-461-5656
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(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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date - April 16, 1999.
Common stock, $.05 par value 2,880,763
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(Class) (Outstanding shares)
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C.H. HEIST CORP. AND SUBSIDIARIES
Index
Part I
Financial Information
Condensed Consolidated Balance Sheets - March 28, 1999 - 3
(Unaudited) and December 27, 1998
Condensed Consolidated Statements of Operations and Comprehensive 4
Income (Loss) - (Unaudited) Thirteen week periods ended March 28,
1999 and March 29, 1998
Condensed Consolidated Statements of Cash Flows - (Unaudited) 5
Thirteen week periods ended March 28, 1999 and March 29, 1998
Notes to Condensed Consolidated Financial Statements 6-8
Independent Auditors' Review Report 9
Management's Discussion and Analysis of Results of Operations 10-11
and Financial Condition
Part II
Other Information 12
Signatures 13
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Part I-Financial Information
C.H. HEIST CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
March 28, December 27,
Assets 1999 1998
------ ---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,876 3,147
Receivables 20,662 19,653
Services in progress 1,289 1,017
Income taxes receivable 250 --
Parts and supplies 1,134 1,174
Prepaid expenses 1,160 317
Deferred income taxes 627 626
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Total current assets 27,998 25,934
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Property, plant and equipment, at cost 58,344 56,350
Less accumulated depreciation 40,340 38,996
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Net property, plant and equipment 18,004 17,354
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Deferred income taxes 148 144
Intangible assets, net 10,419 10,471
Other assets 110 118
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$56,679 54,021
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Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 75 5
Accounts payable 2,758 3,030
Accrued expenses 5,607 5,788
Income taxes payable -- 1
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Total current liabilities 8,440 8,824
Long-term debt, excluding current installments 19,085 16,050
Deferred incentive compensation 746 869
Deferred income taxes 137 137
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Total liabilities 28,408 25,880
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Stockholders' equity (note 3):
Common stock of $.05 par value. Authorized
8,000,000 shares; issued 3,167,092 shares 158 158
Additional paid-in capital 4,283 4,278
Retained earnings 27,082 27,176
Accumulated other comprehensive losses (2,026) (2,235)
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29,497 29,377
Less cost of common stock in treasury: 286,429 and
288,754 shares for 1999 and 1998, respectively (1,226) (1,236)
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Total stockholders' equity 28,271 28,141
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$56,679 54,021
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See accompanying notes to condensed consolidated financial statements.
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C.H. HEIST CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(In thousands, except share data)
Thirteen Thirteen
Week period Week period
Ended Ended
March 28, March 29,
1999 1998
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Net service revenues $ 36,101 28,168
Cost of services (note 1) 26,283 20,569
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Gross profit 9,818 7,599
Selling, general and administrative expenses (note 1) 9,551 8,319
Amortization of intangible assets 183 77
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Operating income (loss) 84 (797)
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Other income (expense):
Interest income 21 32
Interest expense (259) (137)
Loss on disposal of property, plant and
equipment, net (7) (7)
Miscellaneous, net (11) 19
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Total other income (expense), net (256) (93)
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Loss before income taxes (172) (890)
Income tax benefit 78 397
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Net loss $ (94) (493)
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Basic and diluted net loss per share $ (.03) (.17)
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Weighted average number of common shares outstanding 2,880,271 2,877,758
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Net loss $ (94) (493)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 209 112
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Comprehensive income (loss) $ 113 (381)
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See accompanying notes to condensed consolidated financial statements.
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C.H. HEIST CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Thirteen Thirteen
Week period Week period
Ended Ended
March 28, March 29,
1999 1998
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Cash flows from operating activities:
Net loss $ (94) (493)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation of plant and equipment 1,229 1,280
Amortization of intangible assets 183 77
Loss on disposal of property, plant
and equipment, net 7 7
Stock compensation awards 15 8
Changes in assets and liabilities (see below) (1,665) 193
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Net cash provided (used) by operating activities (325) 1,072
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Cash flows from investing activities:
Additions to property, plant and equipment (1,404) (1,428)
Proceeds from disposal of property, plant and equipment 3 4
Acquisitions and earnout payments, net of cash acquired (1,319) (264)
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Net cash used in investing activities (2,720) (1,688)
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Cash flows from financing activities:
Proceeds from bank line of credit borrowings 9,450 4,400
Repayment of bank line of credit borrowings (6,700) (4,850)
Repayment of other long-term debt (20) (9)
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Net cash provided (used) by financing activities 2,730 (459)
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Effect of exchange rate changes on cash and cash equivalents 44 29
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Net decrease in cash and cash equivalents (271) (1,046)
Cash and cash equivalents at beginning of period 3,147 2,948
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Cash and cash equivalents at end of period $ 2,876 1,902
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Changes in assets and liabilities providing (using) cash:
Receivables $ (931) 593
Services in progress (269) 355
Income taxes receivable/payable, net (253) (953)
Parts and supplies 41 17
Prepaid expenses (842) (323)
Other assets 8 (58)
Accounts payable (290) 53
Accrued expenses 996 523
Deferred incentive compensation (125) (14)
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Total $(1,665) 193
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See accompanying notes to condensed consolidated financial statements.
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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 March 28, 1999 and the
results of its operations and cash flows for the thirteen week periods
ended March 28, 1999 and March 29, 1998.
2. The results of operations for the thirteen-week period ended March 28, 1999
are not necessarily indicative of the results to be expected for the full
year.
3. The changes in stockholders' equity for the thirteen week period ended
March 28, 1999 are summarized as follows (in thousands, except shares):
Accumulated
Additional other Total
Common paid-in Retained comprehensive Treasury Stock stockholders'
stock capital earnings losses Shares Amount equity
------ ---------- -------- ------------- ------- -------- -------------
Balance at December 27, 1998 $158 $4,278 $27,176 $(2,235) 288,754 $(1,236) $28,141
Net loss -- -- (94) -- -- -- (94)
Foreign currency translation
Adjustment -- -- -- 209 -- -- 209
Stock compensation awards -- 5 -- -- (2,325) 10 15
---- ------ ------- ------- ------- ------- -------
Balance at March 28, 1999 $158 $4,283 $27,082 $(2,026) 286,429 $(1,226) $28,271
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Accumulated other comprehensive losses consist solely of equity adjustments
from foreign currency translation.
4. For the 13 week period ended March 28, 1999, 74,117 additional stock
options were granted and no stock options expired. As of March 28, 1999 and
December 27, 1998, the Company had exercisable options outstanding to
employees to purchase 166,088 common shares at prices ranging from $6.94 to
$10.13 per share.
5. The Company has two professional service segments: staffing and industrial
maintenance services. Staffing services are provided on a temporary and
contract basis to businesses in clerical, light industrial and technology
professional sectors throughout the eastern United States and select
southwestern U.S. markets. Industrial maintenance services a wide range of
industries by providing hydroblasting, painting, sandblasting, and
vacuuming of industrial wastes throughout the eastern United States and
Canada. The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information". Operating segment data is as follows (in
thousands):
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C.H. HEIST CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands)
Thirteen Thirteen
Week period Week period
Ended Ended
March 28, March 29,
1999 1998
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Staffing services:
Net revenues $21,682 15,686
Intersegment revenues 31 33
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Total revenues 21,713 15,719
Cost of services 16,769 12,144
Selling, general & administrative:
Operations 3,592 2,649
Allocated overhead 842 815
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Total selling general & administrative 4,434 3,464
Amortization 181 70
Operating income 298 8
Depreciation 145 90
Assets 25,470 12,748
Capital expenditures and acquisitions $ 1,641 368
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Industrial maintenance services:
Net revenues $14,419 12,482
Cost of services 9,514 8,425
Selling, general & administrative:
Operations 3,582 3,290
Overhead 1,535 1,565
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Total selling general & administrative 5,117 4,855
Amortization 2 7
Operating loss (214) (805)
Depreciation 1,084 1,190
Assets 30,222 28,931
Capital expenditures $ 1,082 1,323
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Corporate assets $ 987 1,437
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Consolidated:
Net revenues $36,101 28,168
Cost of services 26,283 20,569
Selling, general & administrative 9,551 8,319
Amortization 183 77
Operating income (loss) 84 (797)
Other expense, net (256) (93)
Loss before income taxes (172) (890)
Depreciation 1,229 1,280
Assets 56,679 43,116
Capital expenditures and acquisitions $ 2,723 1,691
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C.H. HEIST CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. On April 13, 1998, Ablest Service Corp., a wholly owned subsidiary of C.H.
Heist Corp. acquired one hundred percent of the stock of Milestone
Technologies, Inc. ("Milestone") for approximately $6.6 million paid in
cash to the shareholders at closing and agreed to pay additional
consideration based on the achievement of certain pre-established earning
targets for 1998. Milestone provides information technology staffing
services in the Phoenix, Arizona metropolitan area and had fiscal 1997
revenues of approximately $9.0 million. The purchase price was determined
through negotiations and has been assigned to the fair value of the assets
and liabilities acquired with the excess being assigned to goodwill.
Pro Forma Condensed Combined Financial Information - (Unaudited) thirteen
week period ended March 29, 1998.
The unaudited pro forma condensed combined financial information
reflects the pro forma results of operations of the Company for the
thirteen week period March 29, 1998 assuming the acquisition of
Milestone had been consummated as of the beginning of the periods
presented.
Milestone uses a November 30th fiscal year end and therefore the
accompanying unaudited pro forma financial information include their
results of operations for comparable periods. Those periods include
the historical results of operations for the thirteen-week period
ended February 28, 1998.
The purchase method of accounting has been used for this acquisition
and in the preparation of the pro forma condensed combined financial
information. Management believes that the assumptions used in
preparing this unaudited pro forma condensed combined financial
information provide a reasonable basis of presenting all of the
significant effects of the acquisition of Milestone. The pro forma
condensed combined financial information does not purport to be
indicative of the actual results that would have occurred had the
acquisition been consummated on or as of the date assumed, and are
not necessarily indicative of the future results of operations which
will be obtained as a result of the acquisition.
Thirteen
Week period
Ended
March 28,
1999
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Net service revenues 31,007
Net loss (433)
Basic and diluted loss per share (.15)
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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 March 28, 1999 and the related condensed consolidated
statements of operations and comprehensive income and cash flows for the
thirteen-week periods ended March 28, 1999 and March 29, 1998. 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 27, 1998, 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 12, 1999, 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
27, 1998, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Buffalo, New York KPMG LLP
April 24, 1999
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations:
Net service revenue increased by $7.9 million or 28.2% to $36.1 million from
$28.2 million for the fiscal quarter ended March 28, 1999 compared to the same
fiscal quarter one year ago.
Service revenues in the Company's Staffing Services segment, Ablest Service
Corp., increased by $6.0 million or 38.2% to $21.7 million from $15.7 million
for the current fiscal quarter as compared to the same fiscal quarter one year
ago. This segment's commercial staffing division increased service revenues by
$2.3 million or 17.4% over the same fiscal period one year ago. Increased
revenues from existing customers, greater market penetration in established
offices and new office openings in the current and prior fiscal years, spurred
this increase. Service revenues in information technology staffing increased by
$3.7 million or 154.3% over the same fiscal period one year ago. This growth
was predominately achieved through acquisitions that were made in the Company's
second and fourth quarters of 1998. These service revenues accounted for 28.0%
of total revenues in the Staffing Services segment for this period.
Service revenues in the Company's industrial maintenance services segment
increased by $1.9 million or 15.5% to $14.4 million from $12.5 million during
the current fiscal period as compared to one year ago. Service revenues in the
Canadian subsidiary, C.H. Heist, Ltd., declined by $126,000 or 2.6% when
measured in their domestic currency, the Canadian dollar. However, due to the
continued weakness of the Canadian dollar, once converted to the Company's base
currency, the U.S. dollar, service revenues were down approximately $263,000. In
this segment's U.S. operation, service revenues increased by $2.2 million or
24.2% over the same fiscal quarter, one year ago. This increase was due to
revenues generated by a major refinery turnaround in the Northern/Mid-Atlantic
region and also from numerous smaller turnarounds in the company's Southern
region. Service revenues in the Southern region have increased by 58.7% over the
same period one year ago. This increase is attributed to the opening of a new
office late in the prior fiscal year and greater market penetration in existing
offices.
Gross profit (margin) increased by $2.2 million or 29.2% and as a percentage of
service revenues to 27.2% from 27.0% for the current fiscal quarter compared to
the same period one year ago.
Gross profit (margin) in the Company's staffing services segment increased by
$1.4 million or 38.7% and as a percentage of service revenues, increased to
22.7% from 22.6% for the current fiscal quarter compared to the same quarter
one year ago. Contributing to this increase was the improvement in the gross
profit percentage of this segment's commercial staffing division which
increased to 22.5% from 22.2% for the current fiscal quarter compared to one
year ago. Contributing to this increase is a corporate strategy to increase
margins while continuing to focus on customer service and service excellence.
Gross profit (margin) in the Company's industrial maintenance segment improved
by approximately $848,000 or 20.9% and as a percentage of service revenues to
34.0% from 32.5% for the current fiscal quarter compared to one year earlier.
Leading the improvement in both gross profit dollars and percentages was the
successful performance of the refinery turnaround, noted previously, that came
in on time and under budget despite working through severe winter weather. Also
contributing greatly to this improvement was the increased gross profit
generated by this segment's Southern region which was the result of the large
increase in revenues generated by this region.
Selling, general and administrative expenses increased by $1.3 million or 15.9%
to $9.7 million from $8.4 million, during the current fiscal quarter compared
to one year ago. As a percentage of service revenues, selling, general and
administrative expenses decreased to 27.0% from 29.8%.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Selling, general and administrative expenses for the Company's staffing
services segment increased by approximately $1.1 million but decreased as a
percentage of service revenues to 21.3% from 22.6% for the current fiscal
period compared to one year ago. Cost associated with new office openings,
acquisitions that occurred in the prior fiscal year, and amortization expense
from the intangible assets associated with those acquisitions all contributed
to this increase.
Other expenses net, increased by $163,000 or 175.3% during the current fiscal
quarter and year to date period, compared to one year ago. Contributing to this
increase was an increase in interest expense of approximately $122,000 due to a
higher level of borrowings associated with the acquisitions made in the prior
fiscal year. In addition there was a reduction of approximately $11,000 in
interest earned by the Company's Canadian subsidiary due to decline in the
interest rate received on investments in Canada.
The effective tax rate for the current fiscal quarter is a benefit of 45.3%.
The effective tax rates are affected by the multiple taxing jurisdictions in
which the company operates.
Financial Condition:
The quick ratio improved to 2.9 to 1 compared to 2.7 to 1 and the current ratio
improved to 3.3 to 1 compared to 2.9 to 1 for the period ended March 28, 1999
and December 27, 1998, respectively. Net working capital increased by $2.4
million of which approximately $1.3 million is attributable to an increase in
receivables and approximately $840,000 is the result of an increase in prepaid
expenses. The increase in receivables is primarily the result of the increased
service revenues noted previously while the increase in prepaid expenses is the
result of the renewal of our insurance program for 1999. Components of the
insurance program are prepaid at the beginning of each year and then allocated
out during the 12-month effective term of the respective policies. Reference
should be made to the statement of cash flows, which details the sources and
uses of cash.
Open credit commitments as of March 28, 1999 were $5.9 million. The
Company also has $330,000 (the U.S. dollar equivalent) available for C.H. Heist
Ltd., the Company's Canadian subsidiary.
Capital expenditures for the current fiscal quarter were $1.8 million,
inclusive of $376,000 in capital leases. Of this amount, $951,000 was for
additions to the mobile equipment fleet, $215,000 was for computer hardware,
software, office automation and communication systems, $180,000 was for new
facilities and the remainder was for other equipment. Open commitments at March
28, 1999 were $487,000, of which $181,000 was for new mobile equipment,
$206,000 was for new facilities, $8,000 was for computer equipment and the
balance for other equipment.
Impact of Year 2000 Readiness:
Items disclosed herein constitute "Y-2000 Readiness Disclosures" under the Year
2000 Information and Readiness Disclosure Act.
Over the past year and a half, the Company has undertaken an extensive review
of its internal systems and has completed an applications upgrade to its
integrated accounting programs that make them Y2K ready. The term "Y2K ready"
as used in this document means that the relevant hardware, software, embedded
chips or interfaces referenced herein will correctly process, provide and
receive date sensitive data within and between the 20th and 21st centuries. The
Company is currently upgrading operating systems at all of its remote locations.
The Company is also currently in the process of assessing external and third
party reliance for those suppliers of critical services that the Company relies
on. It is anticipated that this final phase will be completed by the end of the
second quarter of 1999. The upgrade to the various applications did not result
in additional expense, as they were part of the normal maintenance and support
fees that are incurred on an ongoing basis.
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Part II-Other Information
Item 6 Exhibits and Reports on Form 8-K
(A) Exhibit 27.1 Financial Data Schedules
(B) Reports on Form 8-K: No reports on Form 8-K have been filed during the
quarter ended March 28, 1999.
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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 May 10, 1999 /s/ Mark P. Kashmanian
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Mark P. Kashmanian
Chief Accounting Officer
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