<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(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.
OR
( ) 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
incorporation or organization) Identification No.)
810 North Belcher Road
Clearwater, Florida 33765
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(Address of principal executive offices) (Zip Code)
(813) 461-5656
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.05 par value
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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 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).
<PAGE> 2
The aggregate market value of the Registrant's common shares held by
non-affiliates at March 15, 1998 was approximately $8,980,000.
The number of common shares of the Registrant outstanding at March 15,
1998 was 2,877,943.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
the following parts of this report: Part I and II -- the Registrant's Annual
Report to Shareholders for the year ended December 28, 1997, which appears as
Exhibit 13 to this Form 10-K; Part III -- the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission and used in
connection with the solicitation of proxies for the Registrant's annual meeting
of shareholders to be held on May 7, 1998.
<PAGE> 3
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PART I
ITEM 1. BUSINESS
General. C.H. Heist Corp. and its subsidiaries (the "Company") are engaged in
two industry segments: staffing services and industrial maintenance services.
The Company operates in both segments in the United States and in the industrial
maintenance segment in Canada.
Staffing Services
The Company supplies temporary employees in the U.S. through Ablest
Service Corp. ("Ablest"), a wholly owned subsidiary of the Company. Ablest is a
staffing services organization with 38 offices located in the Eastern United
States with the capability to supply temporary employees for the clerical,
industrial and technical needs of their customers. Ablest does not have any
principal customers, nor does it service any specific industry or field.
Instead, its services are provided to a broad-based customer list.
On September 15, 1996, Ablest purchased certain assets of Tech
Resource Inc. a Georgia corporation. This acquisition established Ablest in the
Information Technology staffing business. Two additional acquisitions in the
Information Technology staffing and documentation business were completed
during 1997. These were combined with the Tech Resource group and does
business as Ablest Technology Staffing division. See note 13 to the
Consolidated Financial Statements on page 21 of the Company's Annual Report to
Shareholders incorporated herein by reference.
The staffing services business is highly competitive. There are numerous local,
regional and national firms principally engaged in offering such services. The
primary competitive factors in the staffing services field are quality of
service, reliability of personnel and price.
Industrial Maintenance Services
The Company also performs industrial maintenance services. The
Company's services include high pressure water cleaning of industrial and
chemical equipment and facilities, sandblasting, industrial painting, and the
vacuuming of wet and dry industrial wastes. The Company engages in the business
of exchanger extraction and insertion, shell side cleaning, tube cleaning and
field service repairs of heat exchangers for the same client base. The services
are performed through the use of specialized automated mechanical equipment
which is generally regarded as state of the art. The Company also installs,
maintains and sells insulation for commercial applications.
The Company's principal customers include oil refineries,
petrochemical, chemical, ferrous and non-ferrous metal plants, mining
installations, governmental authorities, nuclear and fossil fuel electric
generating plants and pulp and paper mills.
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Sales of industrial maintenance services to one customer, E.
I. Dupont De Nemours and Company, accounted for approximately 9.3% of the
Company's consolidated sales during its fiscal year ended December 28, 1997.
The total amount of services purchased by this customer is an aggregate of
services provided at a number of separate plants. Plant managers at the
respective plants generally make the decisions as to whether or not to use the
Company's services. If the contracts with this customer were not renewed, it
would have a substantial impact on the Company's operations.
Many of the Company's industrial maintenance services are
performed outdoors, but the Company does not consider its business to be
seasonal. However, due in part to weather factors, the first quarter of the
Company's fiscal year has historically produced the lowest levels of revenue
and profitability.
The Company from time to time investigates and develops new
equipment components, tools and methods for use in the conduct of its
operations. Most of the components in its equipment are designed to the
Company's specification. The amounts expended for such activities, all of which
were performed at a Company facility, during the fiscal years ended December
28, 1997, December 29, 1996 and December 31, 1995 amounted to $338,000,
$248,000, and $154,000 respectively. During the fiscal year ended December 28,
1997, these services were performed primarily by seven individuals who were
employed by the Company on a full-time basis.
The Company competes with numerous other companies engaged in
high-pressure water maintenance cleaning services, industrial painting,
maintenance-cleaning of heavy industrial equipment through the use of
mechanical, chemical and other methods, the vacuum removal of dry and wet
industrial waste, and the installation and maintenance of insulation. The
Company does not believe that any single competitor is dominant in any of these
services. Competition is primarily based upon quality of services and price.
The Company is subject to various statutes and regulations
respecting control of noise, air, water and land pollution. In addition, its
customers may be subject to other environmental protection statutes and
regulations relating to some of the industrial maintenance services rendered by
the Company. From time to time modifications or improvements have been required
in the Company's equipment in order to comply with government regulations,
including those relating to safety and noise reductions. Such modifications or
improvements have not resulted in any material capital expenditures nor are any
anticipated for such purpose in the foreseeable future.
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Industry Segments and Service Activities. The following table is a summary of
information relating to the Company's operations in its two industry segments
for each of the Company's last three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
Dec. 28, Dec. 29, Dec. 31,
In Thousands 1997 1996 1995
- ------------ -------- -------- ---------
<S> <C> <C> <C>
Sales to Unaffiliated
Customers:
Staffing Services $ 63,268* $ 49,514* $ 44,685*
Industrial
Maintenance 56,248 57,001 57,974
Operating Income (loss):
Staffing Services 2,976 3,347 2,922
Industrial
Maintenance 97 (1,114) 488
Identifiable Assets:
Staffing Services 12,555 9,212 7,588
Industrial
Maintenance 29,414 31,548 30,468
</TABLE>
* Sales figures do not include intersegment sales of approximately
$39,000, $84,000 and $134,000 in 1997, 1996 and 1995, respectively.
The following table sets forth the approximate amounts of total sales
and revenues by service activity within the Company's industrial maintenance
segment for each of the Company's last three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
Industrial ---------------------------------
Maintenance Dec. 28, Dec. 29, Dec. 31,
Sales and Revenues 1997 1996 1995
- ------------------ -------- -------- --------
<S> <C> <C> <C>
Hydro/Mechanical 63% 69% 72%
Sandblasting and 17% 16% 17%
Painting
Other 20% 15% 11%
</TABLE>
<PAGE> 6
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Working Capital. By virtue of the nature of the Company's business
segments and the size and financial status of its customers, the attainment and
maintenance of high levels of working capital is not required, other than to
meet debt requirements as disclosed in Note 5 to the Consolidated Financial
Statements on page 17 of the Company's Annual Report to Shareholders which is
incorporated herein by reference.
Backlog. In view of the fact that the Company's services are primarily
furnished pursuant to purchase orders or on a call basis, backlog is not
material.
Employees. On December 28, 1997, the Company employed approximately
4,321 persons of whom 232 persons were employed on a full-time basis and the
remainder were part-time and temporary employees. Some of the Company's
industrial maintenance employees are represented by unions. The Company
considers its employee relations to be good.
Canadian Operations. The following table sets forth the relative
contributions in U.S. dollars to sales, operating income and identifiable
assets attributable to the Company's Canadian operations for the last three
fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
Dec. 28, Dec. 29, Dec .31,
In Thousands 1997 1996 1995
- ------------ --------- --------- --------
<S> <C> <C> <C>
Sales to Unaffiliated
Customers $16,300 $ 14,877 $ 14,483
Operating Income $ 1,525 $ 923 1,118
Identifiable Assets $10,570 $ 9,316 $ 10,093
</TABLE>
There were no export sales during any period.
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Executive Officers of Registrant
(a) Identification. The Company's executive officers are:
<TABLE>
<CAPTION>
Served as
Position and Executive
Office with Officer
Name Age Registrant Since
- ---- --- ------------ -----------
<S> <C> <C> <C>
Charles H. Heist 47 Chairman of the 1978
Board of Directors
and Chief Executive
Officer
W. David Foster 63 President - Chief 1976
Operating Officer
John L. Rowley 54 Vice President Finance, 1979
Chief Financial Officer
Isadore Snitzer 76 Secretary 1956
Duane F. Worthington 46 Vice President - 1989
U.S. Operations,
C. H. Heist Corp.
Andrew R. Crowe, Jr. 46 Vice President - 1990
Chief Operating
Officer, C. H.
Heist, Ltd.
Kurt R. Moore 39 Executive Vice President - 1991
Ablest Service Corp.
Christopher H. Muir 36 Vice President - 1997
Marketing and Sales,
C. H. Heist Corp.
Mark P. Kashmanian 42 Treasurer - Chief 1996
Accounting Officer
Paul K. Brumfield 55 Vice President - Human 1996
Resource, Safety, Health
and Environment
</TABLE>
<PAGE> 8
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(b) Arrangements and Understandings. There are no arrangements or
understandings pursuant to which the above officers were elected.
(c) Family Relationships. None of the officers has any family
relationship with any other officer of the Company.
(d) Business Experience. Messrs. Charles H. Heist, John L.
Rowley, W. David Foster, Duane F. Worthington, Kurt R. Moore, Andrew R. Crowe,
Jr., Mark P. Kashmanian and Paul K. Brumfield have been employees of the
Company for more than five years. Mr. Snitzer is a partner in the Buffalo, New
York, law firm of Borins, Setel, Snitzer & Brownstein, and its predecessors,
which firm served as general counsel to the Company until July 1996.
Christopher H. Muir joined the Company on April 28, 1997. Mr. Muir holds an
M.B.A. in Marketing from the University of South Florida and a B.A. degree in
Philosophy, English, and Business Administration from Southwestern University.
His recent work history includes, Director of Marketing at Quanterra, Inc.
(formerly the Enseco division of Corning, Inc.), 1992-1994; Principal at
Paradox Consulting Group(R), Inc., 1994-1997; and Adjunct Professor of
Marketing at the College of Business Administration, University of South
Florida, 1995-1997.
ITEM 2. PROPERTIES
The Company's subsidiary, Ablest Service Corp., owns the executive
office facilities for C.H. Heist Corp. and Ablest Service Corp. in Clearwater,
Florida. The Company owns and leases properties in Buffalo, New York and
Clearwater, Florida which house its administrative offices, and Methods and
Development facilities. The leased facilities in Buffalo are leased from
persons who are affiliates of certain officers and directors. See Part III,
Item 13 "Certain Relationships and Related Transactions" in this form 10-K, the
response to which is incorporated herein by reference.
The daily operations of the Company are currently operated out of
twenty-five service facilities and thirty-eight staffing services offices as
well as ten Regional Centers. The Regional Centers are covered by short term
leases. Nineteen service facilities and thirty-eight staffing services offices
are located in the continental United States and six service facilities are
located within Canada. With respect to the service facilities, twelve are owned
by the Company, and thirteen service areas and all of the staffing services
offices are subject to leases with various expiration dates. The Company
considers its service facilities, staffing services offices and Regional
Centers suitable and adequate for servicing its customers.
<PAGE> 9
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In meeting the requirements of its industrial maintenance customers,
the Company relies on its extensive, specially designed and equipped (to
Company's specifications) mobile equipment, which must be kept in good repair
and replaced from time to time. The Company considers this equipment adequate
for current operations. Each of the Company's active service facilities has
mobile equipment permanently assigned to it by the Company.
Certain of the properties owned by the Company are subject to
mortgages. Reference is made to Note 5 to the Consolidated Financial Statements
on page 17 of the Company's Annual Report to Shareholders, incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The information in response to this item is hereby incorporated by
reference to the information presented on page 23 of the Company's 1997 Annual
Report to Shareholders which appears as Exhibit 13 to this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information in response to this item is hereby incorporated by
reference to the information presented at page 10 in the Company's 1997 Annual
Report to Shareholders which appears as Exhibit 13 to this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in response to this item is hereby incorporated by
reference to the information presented at pages 11 through 12 in the Company's
1997 Annual Report to Shareholders which appears as Exhibit 13 to this Form
10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and independent auditors report required in
response to this item is hereby incorporated by reference to pages 13 through
22 in the Company's 1997 Annual Report to Shareholders which appears as Exhibit
13 to this Form 10-K.
<PAGE> 10
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in response to this item is hereby incorporated by
reference to the information under the caption "Nominees for Directors"
presented in the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission and used in connection with the solicitation
of proxies for the Company's annual meeting of shareholders to be held on May
7, 1998, except insofar as information with respect to executive officers is
presented in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information in response to this item is hereby incorporated by
reference to the information under the caption "Compensation of Executive
Officers" presented in the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission and used in conjunction with the
solicitation of proxies for the Company's annual meeting of shareholders to be
held on May 7, 1998; provided, however, that information appearing in the proxy
statement under the headings "Report on Executive Compensation by the
Compensation Committee and Board of Directors" and "Common Stock Performance"
is not incorporated herein and should not be deemed to be included in this
document for any purposes.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in response to this item is hereby incorporated by
reference to the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" presented in the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission and used in
connection with the solicitation of proxies for the Company's annual meeting of
shareholders to be held on May 7, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in response to this item is hereby incorporated by
reference to the information under the caption "Certain Transactions" presented
in the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission and used in connection with the solicitation of proxies for
the Company's annual meeting of shareholders to be held on May 7, 1998.
<PAGE> 11
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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) Financial Statements and Schedules
See Index to Financial Statements and Schedules at page 13.
(2) Exhibits
Exhibits identified below are filed herewith or incorporated herein
by reference to the documents indicated in parentheses.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant dated January 19, 1983. (Exhibit to the Company's Form
10-K Report for the year ended June 25, 1989).
3.2 Certificate of Amendment of Certificate of Incorporation of the Company (Appendix A to the Company's
definitive Proxy Statement in connection with its Annual Meeting held on May 11, 1992).
3.3 Amended By-laws of the Registrant adopted August 27, 1990 (Exhibit to the Company's Form 10-K Report for the
year ended June 24, 1990).
10.1 Business Loan Agreement with Manufacturers and Traders Trust Company dated December 22, 1994.
10.2 Corporate Revolving Term Loan Agreement with Manufacturer and Traders Trust Company dated August 21, 1995.
10.3 Amendment to Business Loan Agreement dated October 25, 1996. (Exhibit to the Company's Form 10-K Report for
the year ended December 29, 1996.)
10.4 EVA incentive plan. Incorporated herein by reference to the Company's definitive Proxy Statement in
connection with its annual meeting held on May 10, 1996.
10.5 Leveraged Stock Option plan. Incorporated herein by reference to the Company's definitive Proxy Statement in
connection with its annual meeting held on May 10, 1996.
10.6 Purchase Agreement dated as of September 15, 1996, with Tech Resource, Inc. (Exhibit to the Company's Form
8-K report dated September 30, 1996).
10.7 Purchase Agreement dated as of April 28, 1997, with Solution Source, Inc. (Exhibit to the Company's Form 8-K
report dated May 8, 1997).
</TABLE>
<PAGE> 12
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<TABLE>
<S> <C>
10.8 Purchase Agreement dated as of June 23, 1997, with the Kelton Group, Inc. (Exhibit to the Company's Form 8-K
report dated July 8, 1997).
10.9 * Amendent No. 4 dated June 17, 1997, to Corporate Revolving and Term Loan Agreement.
10.10 * Amendent agreement dated November 13, 1997, to Corporate Revolving and Term Loan Agreement.
13 * 1997 Annual Report to Shareholders.
15 * Letter regarding Unaudited Interim Financial Information.
21 * Subsidiaries of the Registrant. Inside back cover of the 1997 Annual Report to Shareholders. (Exhibit 13 to
this 10-K report).
23 * Consent of KPMG Peat Marwick LLP to incorporation of reports into Form S-8 No. 33-48497 and No. 333-26007.
27.1 * Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------------
* Filed herewith.
<PAGE> 13
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(b) Two reports on Form 8-K were filed by the Company during
1997. The first was filed on May 8, 1997 during the quarter ended June 29,
1997, regarding the Company's acquisition of certain assets of Solution Source,
Inc. The second was filed on July 8, 1997 during the quarter ended September
28, 1997, regarded the acquisition of certain assets of The Kelton Group, Inc.
The Company will furnish, without charge to a security holder
upon request, a copy of the documents portions of which are incorporated by
reference herein and will furnish any other exhibit at cost.
<PAGE> 14
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C.H. HEIST CORP. AND SUBSIDIARIES
Index to Financial Statements and Schedules
Form 10-K
Items 8, 14(a)(1)
<TABLE>
<CAPTION>
Page reference
-----------------
Annual Form
Report 10-K
------ ----
<S> <C> <C>
The financial statements of the registrant and its
subsidiaries required to be included in Item 8
are listed below:
Independent Auditors' Report 22
Financial Statements:
Consolidated Balance Sheets as of December 28, 1997 and
December 29, 1996 13
Consolidated Statements of Earnings for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995 14
Consolidated Statements of Stockholders' Equity for the years
ended December 28, 1997, December 29, 1996 and December 31, 1995 14
Consolidated Statements of Cash Flows for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995 15
Notes to Consolidated Financial Statements 16 - 21
Supplemental information, Quarterly data 23
The following consolidated financial statement schedules of the
registrant and its subsidiaries are included in Item 14(a)(1):
Independent Auditors' Report 14
Schedule:
II - Valuation Account 15
</TABLE>
Schedules other than those listed above are omitted because the conditions
requiring their filing do not exist or because the required information is
provided in the consolidated financial statements, including the notes thereto.
<PAGE> 15
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Independent Auditors' Report
The Board of Directors
C.H. Heist Corp.:
Under date of February 11, 1998, we reported on the consolidated financial
statements of C.H. Heist Corp. and subsidiaries as listed in the accompanying
index. These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1997.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedule as listed
in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Buffalo, New York
February 11, 1998
<PAGE> 16
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SCHEDULE II
C. H. HEIST CORP. AND SUBSIDIARIES
VALUATION ACCOUNT
<TABLE>
<CAPTION>
Additions
Balance at charged to Accounts Balance
Beginning cost and receivable at end
of period expenses written-off of period
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995 $362,543 114,979 (51,288) 426,234
======== ======== ======== =======
Year ended December 29, 1996 $426,234 42,296 (9,219) 459,311
======== ======== ======== =======
Year ended December 28, 1997 $459,311 274,903 (317,798) 416,416
======== ======== ======== =======
</TABLE>
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 23, 1998
C. H. HEIST CORP.
By: /s/Mark P. Kashmanian
-----------------------------------
Mark P. Kashmanian
Treasurer, Chief Accounting 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 Company
and in the capacities and as of the date indicated:
C. H. HEIST CORP.
<TABLE>
<S> <C>
By: /s/Charles H. Heist By: /s/John L. Rowley
------------------------------------------ --------------------------------------------
Charles H. Heist John L. Rowley, Director and Vice
Chairman of the Board President-Finance, Chief Financial Officer
and Chief Executive Officer
By: /s/W. David Foster
------------------------------------------
W. David Foster
Director and President
By: /s/Ronald K. Leirvik By: /s/Chauncey D. Leake, Jr.
----------------------------------------- --------------------------------------------
Ronald K. Leirvik Chauncey D. Leake, Jr.
Director Director
By: /s/Brian J. Lipke By: /s/Charles E. Scharlau
------------------------------------------ -------------------------------------------
Brian J. Lipke Charles E. Scharlau
Director Director
By: /s/Richard W. Roberson By: /s/Donna R. Moore
------------------------------------------ ------------------------------------------
Richard W. Roberson Donna R. Moore
Director Director
</TABLE>
February 23, 1998
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page or
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
3.1 Restated Certificate of Incorporation (1)
of Registrant dated January 19, 1983
3.2 Certificate of Amendment of Certificate (2)
of Incorporation of the Registrant
3.4 Amended By-laws of the Registrant adopted on
August 27, 1990
10.1 Business Loan Agreement with Manufacturers and (3)
Trades Trust Company dated December 22, 1994.
10.2 Corporate Revolving Term Loan Agreement with (6)
Manufactuers and Traders Trust Company Dated
August 21, 1995.
10.3 Amendment to Corporate Revolving Term Loan (7)
Agreement with Manufacturers and Traders Trust
Company dated October 25, 1996.
10.4 EVA Incentive Plan (4)
10.5 Leveraged Stock Option Plan (4)
10.6 Purchase agreement dated September 15, 1996 with (5)
Tech Resource, Inc.
10.7 Purchase agreement dated April 28, 1997 with Solution (8)
Source, Inc.
10.8 Purchase agreement dated June 23, 1997 with the Kelton (9)
Group, Inc.
10.9 Amendment date June 17, 1997 to the Corporate Revolving (10)
and Term Loan Agreement.
10.10 Amendment date November 13, 1997 to the Corporate (10)
Revolving and Term Loan Agreement.
13 1997 Annual Report to Shareholders. (10)
13 1997 Annual Report to Shareholders inside back cover. (10)
15 Letter regarding Unaudited Interim Financial (10)
Information.
23 Consent of KPMG Peat Marwick LLP to incorporation of (10)
reports into Form S-8 No. 33-48497 and No. 333-26007.
27 Financial Data Schedule (for SEC use only) (10)
</TABLE>
- ---------------------
<PAGE> 19
(1) Filed as an Exhibit to the Registrant's Form 10-K Report for the year
ended June 25, 1989 and incorporated herein by reference.
(2) Filed as Appendix A to the Registrant's definitive Proxy Statement in
connection with its Annual Meeting of Shareholders held on May 11,
1992.
(3) Filed as an Exhibit to the Registrant's form 10-K report for the period
ended December 25, 1994 and incorporated herein by reference.
(4) Filed as part of Registrant's definitive Proxy statement in connection
with its annual meeting of shareholders held on May 10, 1996 and
incorporated herein by reference.
(5) Filed as an Exhibit to the Registrant's form 8-K report dated September
30, 1996 and incorporated herein by reference.
(6) Filed as an Exhibit to the Registrant's form 10-K report for the period
ended December 31, 1995 and incorporated herein by reference.
(7) Filed as an Exhibit to the Registrants' form 10-K report for the period
ended December 29, 1996 and incorporated herein by reference.
(8) Filed as an Exhibit to the Registrants' form 8-K report dated May 8,
1997 and incorporated herein by reference.
(9) Filed as an Exhibit to the Registrants' form 8-K report dated July 8,
1997 and incorporated herein by reference.
(10) Filed as an Exhibit to this report.
<PAGE> 1
EXHIBIT 10.9
Amendment to Corporate Revolving and Term Loan
Agreement with Manufacturers and Traders Trust Company
dated June 17, 1997
<PAGE> 2
AMENDMENT NO. 4
TO
CORPORATE REVOLVING AND TERM LOAN AGREEMENT
Manufacturers and Traders Trust Company (the "Bank") and C.H. HEIST
Corp. (the "Borrower") hereby agree as follows:
1. Loan Agreement. The Bank and the Borrower are parties to a Corporate
Revolving and Term Loan Agreement dated December 23, 1993, and as amended (the
"Loan Agreement"). The Bank and the Borrower wish to amend the Loan Agreement
as set forth herein.
2. Amendment to Loan Agreement. The Bank and the Borrower hereby agree
that the Loan Agreement is amended as follows:
a. Section 11.cc.(ii) of the Loan Agreement, as previously amended,
is modified so that the reference to "0.875%" is deleted and "0.75%" is
substituted in its place.
b. Section 11.dd.(i) of the Loan Agreement, as previously amended,
is modified so that the reference to "August 1, 1998" is deleted and
"August 1, 1999" is substituted in its place.
3. Except as expressly modified herein, the Loan Agreement otherwise
remains unchanged and the Borrower hereby ratifies and reaffirms the Loan
Agreement, as amended, and any other documents executed in connection therewith,
and agrees that the Loan Agreement and all documents executed in connection
herewith are in full force and effect and fully enforceable with their terms and
not subject to any offset, claim, counterclaim or defense.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4
to be duly executed by their authorized officers as of the 17th day of June,
1997.
C.H. HEIST CORP. MANUFACTURERS AND TRADERS
TRUST COMPANY
By: /s/ John L. Rowley By: /s/ Kevin B. Quinn
--------------------------------- --------------------------------
John L. Rowley Kevin B. Quinn
Chief Financial Officer Banking Officer
<PAGE> 1
EXHIBIT 10.10
Amendment to Corporate Revolving and Term Loan
Agreement with Manufacturers and Traders Trust Company
dated November 13, 1997
<PAGE> 2
AMENDMENT AGREEMENT
This Amendment Agreement is made as of this 13th day of November 1997
between Manufacturers and Traders Trust Company, a New York banking organization
having its chief executive office at One M&T Plaza, Buffalo, New York 14240,
(the "Bank") and C.H. Heist Corp., a New York business corporation having its
chief executive office at 810 North Belcher Road, Clearwater, Florida 34625,
(the "Borrower").
WHEREAS, the Bank and the Borrower previously entered into a Corporate
Revolving and Term Loan Agreement dated December 23, 1993, which was amended by
(1) an Amendment No. 1 to Corporate Revolving and Term Loan Agreement dated
December 22, 1994, (2) an Amendment No. 2 to Corporate Revolving and Term Loan
Agreement dated August 21, 1995, (3) an Amendment No. 3 to Corporate Revolving
and Term Loan Agreement dated October 25, 1996 and (4) an Amendment No. 4 to
Corporate Revolving and Term Loan Agreement dated June 17, 1997 (as so amended,
the "Loan Agreement"); and
WHEREAS, the Bank and the Borrower now desire to amend certain
provisions of the Loan Agreement;
NOW, THEREFORE, effective as of the date of this Amendment Agreement,
the Bank and the Borrower agree that:
<PAGE> 3
- 2 -
1. The references in Section 2a of the Loan Agreement and Section 3a of
the Loan Agreement to "$10,000,000" are changed to "$25,000,000."
2. The reference in Section 2h of the Loan Agreement to "$10,000,000"
is changed to "$20,000,000."
3. Section 5a of the Loan Agreement is amended to read as follows:
a. Use of Proceeds. The proceeds of each Revolving Loan will be
used only for (i) working capital of the Borrower, (ii) general
corporate needs of the Borrower or (iii) loans to or funds otherwise
made available for the benefit of Ablest Service Corp. The proceeds
of the Term Loan will be used only to repay the outstanding principal
amounts of Revolving Loans.
4. The Loan Agreement is changed by this Amendment Agreement only to
the extent that it is specifically amended by this Amendment Agreement, and, as
so amended, the Loan Agreement shall remain in full force and effect. Effective
as of the date of this Amendment Agreement, references in the Loan Agreement to
"this Agreement" shall be deemed to be references to the Loan Agreement as
amended by this Amendment Agreement.
5. The effectiveness of this Amendment Agreement shall be contingent
upon the receipt by the Bank, upon the execution and delivery to the Bank of
this Amendment Agreement by the Borrower, of the following, in form and
substance satisfactory to the Bank:
<PAGE> 4
- 3 -
a. A Revolving Loan Note in the maximum principal amount of
$20,000,000, appropriately completed and duly executed by the Borrower, in
replacement of and in substitution for, but not in payment of, a Revolving Loan
Note, dated December 28, 1993, in the maximum principal amount of $5,000,000
issued by the Borrower to the Bank; and
b. Evidence of the taking and the continuation in full force and effect
on the date of this Amendment Agreement of each corporate or other action of the
Borrower and each action by any other Person (as such term is defined in the
Loan Agreement) necessary to authorize the execution, delivery to the Bank and
performance of this Amendment Agreement and each instrument, agreement and other
writing contemplated to be executed and delivered to the Bank in connection with
this Amendment Agreement.
<PAGE> 5
- 4 -
IN WITNESS WHEREOF, the Bank and the Borrower have caused this
Amendment Agreement to be duly executed on the date shown at the beginning of
this Amendment Agreement.
MANUFACTURERS AND TRADERS
TRUST COMPANY
By /s/ Kevin B. Quinn
--------------------------------------
Kevin B. Quinn, Banking Officer
C.H. HEIST CORP.
By /s/ John L. Rowley
--------------------------------------
John L. Rowley, Vice President-Finance
<PAGE> 1
EXHIBIT 13
1997 ANNUAL REPORT TO SHAREHOLDERS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 Performance Highlights and Company Profile
2-5 Chairman's Letter
6-9 Review of Operations
10 Summary of Selected Financial Data
11-12 Management's Discussion & Analysis
13 Consolidated Balance Sheets
14 Consolidated Statements of Earnings
14 Consolidated Statements of Stockholders' Equity
15 Consolidated Statements of Cash Flows
16-21 Notes to Consolidated Financial Statements
22 Independent Auditors' Report
23 Quarterly Financial Data
24 Directors & Officers
25 Shareholder and Corporate Information
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands, except per share earnings) December 28, 1997 December 29, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $119,516 $106,515
Cost of Sales 100,687 90,498
Gross Profit 18,829 16,017
Selling, General & Administrative Expenses 15,756 13,784
Operating Income 3,073 2,233
Other Expense, Net 1,069 724
Earnings Before Income Taxes 2,004 1,509
Income Taxes 1,106 819
Net Earnings 898 690
Earnings Per Share $ .31 $ .24
</TABLE>
Statements made in this report, other than those concerning historical
information, should be considered forward-looking and subject to certain risks
and uncertainties which could cause actual results to differ materially from
those projected. Readers should carefully review and consider disclosures,
including periodic reports on Forms 10-K and 10-Q filed with the Securities and
Exchange Commission, which attempt to advise interested parties of the factors
which affect the Company's business.
EVA(R) is a registered trademark of Stern Stewart & Co.
<PAGE> 3
- --------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
- --------------------------------------------------------------------------------
- - Net sales increased 12% to a record $119.5 million for 1997. Earnings per
share also increased approximately 30% from $.24 to $.31 per share in 1997.
- - The Company achieved improvements in Economic Value Added (EVA(R)).
- - Ablest's commercial staffing - clerical, accounting and light industrial -
sales grew approximately 15%, exceeding the industry average.
- - Solidifying corporate leadership, W. David Foster was promoted to President
and Chief Operating Officer, and Christopher H. Muir was appointed Vice
President - Marketing and Sales.
- - Ablest's information technology (IT) staffing solutions provider acquired
Solution Source and The Kelton Group to enhance its presence in key
Southeast markets. IT staffing represented approximately 12% of Staffing
Services sales.
<TABLE>
<CAPTION>
NET SALES
(in $millions)
<S> <C>
93 $ 82.5
94 $102.6
95 $102.7
96 $106.5
97 $119.5
</TABLE>
C.H. Heist Corp. stock trades on the American Stock Exchange under the
symbol "HST."
- --------------------------------------------------------------------------------
COMPANY PROFILE
- --------------------------------------------------------------------------------
STAFFING SERVICES AND INDUSTRIAL MAINTENANCE SERVICES are the two
professional service segments of C.H. Heist Corp. and its U.S. and Canadian
subsidiaries.
THE STAFFING SERVICES segment focuses on providing temporary and
contract staffing solutions to the business, professional and industrial sectors
from 38 locations throughout the eastern half of the United States. Commercial
staffing solutions - such as "traditional" clerical, accounting and light
industrial assignments - are provided by Ablest Staffing Services. Information
technology (IT) staffing solutions - such as computer programming, networking
and consulting - are provided through Ablest Technology Services.
THE INDUSTRIAL MAINTENANCE SERVICES segment focuses on providing
industrial cleaning and maintenance solutions to a wide range of industries,
such as chemical, petrochemical, power generation, pulp and paper, mining and
metallurgical plants. Its industrial services consist of hydroblasting,
painting, sandblasting, vacuuming of industrial wastes, turnaround services,
chemical cleaning and commercial insulation. Industrial Maintenance Services
facilities are located throughout the eastern United States and eastern Canada.
1
<PAGE> 4
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------
[PHOTO]
Chairman of the Board and
Chief Executive Officer Charles H. Heist
Company Mission: To provide quality services which will
exceed our clients' expectations and improve their level
of performance.
In 1997 our customers demanded that C.H. Heist Corp.'s Staffing
Services and Industrial Maintenance Services segments provide solutions to make
their own businesses safer, more productive and more profitable. Heist
delivered.
We were able to deliver because of the skill and experience our
executives and managers have in running two complementary businesses in dynamic
and high-potential industry lines which both:
- - Focus on business-to-business service
- - Rely on highly trained and dedicated employees
- - Rely on proprietary know-how
- - Invest in its people to stay competitive
- - Compete against many competitors, large and small, in fragmented industries
- - Take advantage of consolidation in their industries through acquisitions
- - Have tremendous potential to grow geographic markets and service offerings
- - Provide flexible and innovative solutions for business and industrial
customers
We believe that Heist has forged a unique culture from the similarities
in our Staffing Services and Industrial Maintenance Services segments, which
makes possible the unmatched delivery of quality professional services. Our
combined businesses give Heist substantial financial strength, stability and
flexibility, which in turn make significant acquisitions in either the Staffing
Services or Industrial Maintenance Services segments possible.
2
<PAGE> 5
LEADERSHIP
In 1997 we made several key changes in our executive group. W. David
Foster's promotion to President and Chief Operating Officer of Heist in 1997
came 11 years after he took the helm of our then $8.7 million Staffing Services
business and grew it into a $63.3 million regional leader. His years of
experience in Industrial Maintenance Services came during his tenure as Heist's
Vice President - Marketing and Sales, from 1976 to 1986. Dave has tremendous
knowledge of both business segments, their people and the customers they serve.
<TABLE>
<CAPTION>
NET EARNINGS
(in $millions)
<S> <C>
93 $ .486
94 $ .318
95 $1.606
96 $ .690
97 $ .898
</TABLE>
One of Dave's most valuable attributes is his ability to identify
opportunities ahead of the curve, and capitalize on them by focusing and leading
his team to achieve results. I'm confident that as President and Chief Operating
Officer, Dave will be able to more directly add value to both our business
segments and help lead the Company into the future.
Another member of our management team is Vice President - Marketing and
Sales Christopher H. Muir, who joined the Company in May of 1997. Chris has
involved people at all levels from Industrial Maintenance offices in the
development of a new strategic marketing plan, which is well on its way to being
implemented.
While strengthening the management team with Dave's promotion and
Chris' appointment, we also enhanced the Board of Directors.
During the past 15 months, we appointed four new outside directors. The
Board now consists of six outside directors and three insiders. I believe
strongly in maintaining a diverse Board of Directors with proven records as
successful CEOs and executives. We are fortunate to have such an impressive
slate of progressive strategic thinkers leading the Company.
<TABLE>
<CAPTION>
OPERATING
INCOME
(in $millions)
<S> <C>
93 $1.459
94 $1.471
95 $3.410
96 $2.233
97 $3.073
</TABLE>
3
<PAGE> 6
FINANCIAL RESULTS
"Low debt and the overall strength of Heist's balance sheet,
even after three acquisitions in less than two years, are keys
to the Company's ability to pursue external growth in the months
ahead."
Net sales for 1997 increased to $119.5 million, $13.0 million or 12.2%
over the $106.5 million recorded for 1996. Net earnings in 1997 were $898,000,
or $.31 per share, an increase of approximately 30% compared to $690,000, or
$.24 per share in 1996. Gross profit increased to 15.8% compared to 15.0% in
1996. Operating margins also improved to 2.6% compared to 2.1% the year prior.
Staffing Services segment sales for 1997 were $63.3 million, up $13.8
million, or 27.8% compared to 1996. Industrial Maintenance Services segment
sales for the year decreased by 1.3% to $56.2 million compared with 1996 sales
of $57.0 million.
The quick ratio at December 28, 1997 improved to 3.1 to 1 compared to
2.9 to 1 for the end of fiscal 1996, and the current ratio improved to 3.4 to 1
as compared to 3.3 to 1, for the respective periods.
Low debt and the overall strength of Heist's balance sheet, even after
three acquisitions in less than two years, are keys to the Company's ability to
pursue external growth in the months ahead. This financial stability allows us
to acquire, under reasonable terms, companies that immediately generate positive
cash flow and add value for C.H. Heist Corp.
In 1996 we initiated the Economic Value Added (EVA(R)) process, the
Stern Stewart & Co. financial measure of a company's ability to produce returns
that exceed the cost of capital. We believe this value-based management process
is an important tool that helps to focus all employees on actions that will
create value for our shareholders over the long term. All Company executives'
compensation is tied to EVA improvement. Although we are not yet where we want
to be in relation to this measurement, there was substantial improvement in our
EVA performance for 1997 in comparison to the results for the prior year.
4
<PAGE> 7
AN INVESTMENT IN VALUE
Heist has solid niche positions in two growing and dynamic industries,
a strong financial condition and a long history of prudent and conservative
business decisions. We are confident that the Company's sound strategic
direction and measurable performance improvements will begin to be reflected in
increased shareholder value. Thank you for your confidence in C.H. Heist Corp.,
and I look forward to my next opportunity to report the Company's progress.
Sincerely,
/s/Charles H. Heist
Charles H. Heist
Chairman of the Board and Chief Executive Officer
"We are confident that the Company's sound strategic direction
and measurable performance improvements will begin to be
reflected in increased shareholder value."
<TABLE>
<CAPTION>
STOCK PRICE
VS. BOOK VALUE
AT PERIOD END
93 94 95 96 97
----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
BOOK VALUE $8.59 $8.54 $9.18 $9.42 $9.56
STOCK PRICE $7.62 $7.00 $6.87 $7.87 $7.00
</TABLE>
<TABLE>
<CAPTION>
EBITDA
(in millions)
-------------
<S> <C>
93 $5.7
94 $5.8
95 $7.8
96 $7.0
97 $8.0
</TABLE>
5
<PAGE> 8
- --------------------------------------------------------------------------------
SEIZING OPPORTUNITIES
- --------------------------------------------------------------------------------
[PHOTO]
President and Chief Operating
Officer W. David Foster
"We expect Ablest Technology Services to account for about
25% of our Staffing Services segment sales by the end of
1998, compared to approximately 12% in 1997."
A number of substantial opportunities are at hand for C.H. Heist Corp.,
and management has positioned the Staffing Services and Industrial Maintenance
Services segments to pursue and capitalize on those opportunities.
STAFFING SERVICES OPPORTUNITIES
Analysts predict the staffing industry will experience nationwide
expansion of $137 billion by 2001, highlighted by a 5-year compound annual
growth rate of 13.6%. Our Staffing Services segment will continue to benefit
from industry expansion trends by providing customized niche programs and
services to long-term customers on a regional basis.
Operating as Ablest Technology Services, information technology (IT)
staffing holds the greatest growth potential for the Staffing Services segment,
and was further bolstered by the second quarter acquisitions of Solution Source
and The Kelton Group. Nationally, this specialty staffing market is expected to
grow at a rate of 25% annually.
"We expect Ablest Technology Services to account for about 25% of our
Staffing Services segment sales by the end of 1998, compared to approximately
12% in 1997," President and Chief Operating Officer W. David Foster explained.
"We'll hit 25% with the right acquisitions and if our internal growth continues
at its current pace."
Commercial staffing is expected to grow revenues 10% to 12% annually by
providing staffing solutions for customers' accounting, clerical and light
industrial personnel needs. The Company is currently working to take full
advantage of four key growth drivers that should positively impact both
information technology and commercial Staffing Services:
6
<PAGE> 9
- Companies' strategic plans increasingly call for temporary, or
contract, staffing to accomplish short- and long-term goals and
objectives
- Companies are reluctant to add full-time staff because of potential
layoff costs
- Companies are concentrating on core strengths and relying on vendors
to provide administrative and non-essential services
- Staffing providers emphasize problem solving, not just staffing
STAFFING CUSTOMER PARTNERSHIPS
The Point Source(TM) "vendor-on-premises" program is one of the Company's
most effective long-term relationship building tools. Long-term partnerships
with customers can be attributed to commercial staffing's focus on providing
responsive and customized staffing solutions to enhance clients' businesses. In
a Point Source partnership, the Company places Ablest managers at customer
locations to consult and implement staffing solutions to address customer needs
on demand.
<TABLE>
<CAPTION>
STAFFING SERVICES NET SALES
---------------------------
(in $millions)
<S> <C>
93 $36.1
94 $44.1
95 $44.7
96 $49.5
97 $63.3
</TABLE>
Point Source offers high-volume customers lower-cost and faster-response
staffing solutions than traditional "retail" staffing procurement. In addition
to Point Source's competitive advantages, the Company benefits from a more
stable revenue stream and lower operating expenses than is typical of
conventional staffing assignments.
GROWTH FOCUS
To supplement internal revenue growth, the Company will consider for
acquisition profitable information technology or commercial staffing companies
with annual revenues between $6 million and $12 million and compatible corporate
cultures.
The Company has three primary internal growth strategies. One is to
introduce Ablest Technology Services into the markets where Ablest Staffing
Services already has a commercial staffing presence. The second is to expand
into new markets where the Staffing Services segment will fulfill profitable
niche staffing needs. The third is to continue opening satellite offices as
economic conditions dictate.
<TABLE>
<CAPTION>
INDUSTRIAL MAINTENANCE
SERVICES NET SALES
----------------------
(in $millions)
<S> <C>
93 $46.4
94 $58.5
95 $58.0
96 $57.0
97 $56.2
</TABLE>
7
<PAGE> 10
"To continue the performance shareholders have come to expect from the
Staffing Services segment," Foster noted, "we will continue to implement our
five-point growth strategy."
- Be a preferred provider of quality commercial staffing services
- Be a growing provider of quality IT staffing and consulting services
- Maintain a decentralized entrepreneurial management structure
- Provide customized client services
- Apply innovative technology
"We must continue to build and broaden our core competencies
of industrial maintenance, cleaning, turnaround, waste
disposal and HazMat response."
INDUSTRIAL MAINTENANCE SERVICES OPPORTUNITIES
The North American industrial maintenance industry is experiencing one of
its most volatile periods since Heist entered the business in 1949. Global
competition has encouraged our customers to seek strategic alliances with
professional service providers. As a result, the industry has segmented into
three categories of industrial maintenance operations:
- Large industry consolidators that tend to be publicly traded and post
annual sales of $500 million or more.
- Small "mom and pop" operations that will likely be acquired or have
trouble surviving intense pressure to lower prices while enhancing
service and developing higher technology processes. Most are privately
held companies with sales under $10 million.
- Niche and regional operations, like Heist. These operations typically
have sales under $200 million, and some are publicly traded.
To outperform other niche and regional operations, Heist must capitalize on
long-standing customer partnerships, provide highly customized niche services,
make processes more efficient, enhance marketing and sales efforts and look for
strategic acquisition opportunities.
INDUSTRIAL MAINTENANCE CUSTOMER PARTNERSHIPS
Long-standing customer partnerships allow Industrial Maintenance Services
to permanently assign supervisors, operations staff and equipment on-site at
customer facilities. Industrial Maintenance Services also provides supplemental
services, employees and equipment to respond to crisis situations, production
peaks and scheduled plant shut downs.
8
<PAGE> 11
MARKETING AND SALES FOCUS
"HEIST WILL SUCCEED BY BECOMING CUSTOMERS' LONG-TERM,
SINGLE-SOURCE, PREFERRED PROVIDER OF INDUSTRIAL MAINTENANCE
SOLUTIONS."
In 1997, Heist committed to enhancing the resources dedicated to the
Industrial Maintenance Services segment's marketing and sales.
Heist assembled a corps of regional account executives that report directly
to Vice President - Marketing and Sales Christopher H. Muir. New to Heist in
1997, Muir is a dynamic leader and strategic thinker who was brought in to lay
the cornerstone of Industrial Maintenance Services' new marketing and sales
foundation.
This is an important, and positive, shift of new sales responsibility away
from the Industrial Maintenance Services branch managers, who can now increase
their focus on customer service.
"We have committed to provide Chris and the sales team the sophisticated
tools they need to tackle their responsibilities," Foster added.
One example is an extensive market study by a national research firm that
is slated for completion during the second quarter of 1998. Quantitative
research such as this will now be regularly employed to enable the sales team to
respond to market demands early and effectively. In some cases this marketing
and sales response will require introducing new services.
"Continually developing new services and processes is critical to providing
safe, efficient, effective and profitable industrial maintenance solutions for
our customers," Foster said.
In 1997 Heist introduced chemical cleaning, a logical extension of the
Company's hydroblasting services, thanks to the advent of environmentally
friendly products. Industrial Maintenance Services just scratched the surface in
chemical cleaning revenues in 1997, and invested in the state-of-the-art
equipment required to add the new offering to its full menu of programs for all
customers.
To supplement Industrial Maintenance Services internal growth, Heist is
investigating acquisition opportunities. We will consider profitable companies
in the $5 million to $30 million revenue range that can offer Heist outstanding
operations personnel, allied industrial maintenance services and entry into new
regions.
"We must continue to build and broaden our core competencies of
industrial maintenance, cleaning, turnaround, waste disposal and HazMat
(hazardous materials) response. Heist will succeed by becoming customers'
long-term, single-source, preferred provider of industrial maintenance
solutions," the President and Chief Operating Officer states.
9
<PAGE> 12
C. H. Heist Corp. & Subsidiaries
--------------------------------
SUMMARY OF SELECTED
FINANCIAL DATA
--------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share earnings and percentages)
- -----------------------------------------------------------------------------------------------------------------
FISCAL YEARS ENDED DECEMBER 1997(1) 1996(1) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 119,516 106,515 102,659 102,572 82,476
Cost of sales 100,687 90,498 86,933 90,098 71,506
- -----------------------------------------------------------------------------------------------------------------
Gross profit 18,829 16,017 15,726 12,474 10,970
Selling, general and administrative expenses 15,756 13,784 12,316 11,003 9,511
- -----------------------------------------------------------------------------------------------------------------
Operating income 3,073 2,233 3,410 1,471 1,459
Interest expense (729) (643) (541) (396) (224)
Other income (expense) (340) (81) 42 (23) (149)
Earnings before income taxes 2,004 1,509 2,911 1,052 1,086
Income taxes 1,106 819 1,305 734 600
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 898 690 1,606 318 486
=================================================================================================================
Effective tax rate 55.2% 54.3% 44.8% 69.8% 55.3%
Net earnings per share $ .31 .24 .56 .11 .17
=================================================================================================================
Canadian operations (U.S. $):
Sales $ 16,300 14,877 14,483 12,673 12,643
Operating income (loss) 1,525 923 1,118 549 (153)
Total assets $ 10,570 9,316 10,093 9,451 8,479
=================================================================================================================
Other data:
Working capital $ 16,559 14,661 15,738 14,356 12,431
Property, plant and equipment, net 16,839 17,406 17,642 14,964 15,631
Capital expenditures, including acquisitions 6,708 5,859 7,091 3,957 7,643
Depreciation and amortization 5,357 4,905 4,530 4,433 4,534
Cash flow from operations (2) 6,255 5,595 6,135 4,751 5,020
Total assets 44,086 40,797 39,548 36,756 33,972
Long-term debt 8,755 6,492 6,980 5,121 3,760
Stockholders' equity 27,488 27,074 26,368 24,513 24,709
Return on beginning stockholders' equity 3.3% 2.6% 6.6% 1.3% 2.0%
Weighted average number of shares outstanding 2,877 2,873 2,872 2,872 2,885
</TABLE>
(1) Includes effects of acquisitions. Refer to note 13 of the
consolidated financial statements.
(2) Defined as net earnings plus depreciation and amortization.
10
<PAGE> 13
C. H. Heist Corp. & Subsidiaries
--------------------------------
MANAGEMENT'S
DISCUSSION & ANALYSIS
--------------------------------
For the fiscal year ended December 28, 1997 compared to December 29, 1996
RESULTS OF OPERATIONS
Service revenues (net sales) for the current fiscal year increased by $13.0
million or 12.2% to $119.5 million from $106.5 million. Service revenues in the
Company's growing staffing services segment, Ablest Service Corp. (Ablest),
increased by $13.8 million or 27.8%, over the prior year. Ablest now represents
53% of the Company's consolidated service revenues. Started in 1978, Ablest
service revenues have grown at a compound annual growth rate of 21.6% since
1990. Between September '96 and June '97, three acquisitions of information
technology (IT) staffing companies were consummated adding $8.0 million in
service revenues. Revenues from these acquisitions represented 11.5% of total
service revenues for this segment in 1997. The commercial staffing division of
Ablest grew at approximately 15%, which is slightly above the industry growth
rate.
Service revenues in the Company's industrial maintenance segment, long the
bulwark of the Company, declined by $753,000 or 1.3% compared to the prior year.
After a slow first quarter in which service revenues were down by $3.2 million,
this segment showed solid growth with increases in three consecutive quarters.
Of particular note, service revenues increased in the fourth quarter by $1.7
million or 12.8%, over the same period of the prior year. Service revenue
increases, in the fourth quarter, were achieved in field service repair,
equipment related services, chemical cleaning, wet and dry vacuuming and waste
management services. The Company's Canadian industrial maintenance subsidiary
had increased service revenues for the year of $1.4 million, contributing
significantly to the service revenue improvement during the last 9 months of
1997.
Gross profit on a consolidated basis increased by $2.8 million, or 17.6%, to
$18.8 million from $16.0 million, one year earlier. Gross profit as a percentage
of service revenues increased to 15.8% from 15.0% in the prior fiscal year.
Gross profit percentage for the Company's staffing services segment decreased to
16.8% from 17.4%, one year earlier. Costs associated with new office openings,
staffing existing offices to accommodate increased service revenues and the
increased competitive pressures on pricing within the staffing industry
contributed to this decline. Gross profit percentage for the industrial
maintenance segment improved to 14.6% in 1997 from 13.1% during the prior year.
The improvement in gross profit percentage was due to improved pricing in the
Company's industrial maintenance segment and reductions in insurance reserves
due to decreased claims for workers' compensation and the settlement of two
liability claims pending against the Company for less-than-reserved amounts. The
Company attributes the decreased workers' compensation claim level to continued
improvements in the Company's safety - risk management program.
Selling, general and administrative expenses on a consolidated basis increased
by approximately $2.0 million or 14.3% in fiscal 1997, as compared to fiscal
1996. Selling, general and administrative expenses for the staffing services
segment increased by $2.4 million or 46.2% for the current fiscal year, compared
with 1996. This increase is the result of costs associated with new office
openings and information technology staffing company acquisitions. Additional
increases were incurred to improve and expand support structures and field
operations to accommodate the growth that Ablest has achieved and to position it
for future growth. During the current year Ablest wrote-off approximately
$218,000 in accounts receivable for one customer over disputed invoices on a
short-term commercial staffing project. Additional write-offs were made for two
customers who have filed for protection under Chapter 11 of the bankruptcy code.
Selling, general and administrative expenses for the industrial maintenance
segment decreased by approximately $400,000 or 4.7% during 1997. The decrease is
primarily the result of streamlining and consolidations that were made in the
Company's support functions.
Over the past two years the Company has made a major investment in information
technology hardware, software and personnel, which also contributed to the
increase in selling, general and administrative expense. This investment was
made to provide management, and ultimately our customers, with more timely and
accurate information. The Company has wide-and local-area networks for real-time
communications throughout the geographically dispersed operating offices, which
makes timely and reliable dissemination of information possible.
The Company has reviewed all applicable systems that it currently utilizes and
has developed a plan to address and correct any year 2000 compliance issues by
the end of the third quarter of fiscal 1998. The Company believes that coming
into compliance with the year 2000 will not have a material impact on business,
operations or financial condition.
Other expenses, net increased approximately $345,000, or 47.7%, during the
current fiscal year, as compared to 1996. Amortization of goodwill and other
assets associated with the technology staffing acquisitions contributed to this
increase. The three acquisitions completed in the past fifteen months were
financed by borrowing on the Company's line-of-credit and through long-term
earnouts with previous owners. This increased the level of borrowing, and thus
increased interest expense. Long-term debt reached $11.4 million during the year
and at year-end was $8.75 million.
The acquisitions were accretive to earnings and generated positive cash flow,
which was used to reduce debt. During the fourth quarter of 1997, the Company
consolidated and increased its line-of-credit facility to a total availability
of $25 million under more favorable terms and conditions than were in effect
prior to the termination of separate credit facilities for the industrial
maintenance services and staffing services segments. Also contributing to the
increase in other expenses was the write-off of costs associated with the
preparation of documents for the proposed spin-off and initial public offering
of Ablest Service Corp., which was terminated by the Company's Board of
Directors in the third quarter of 1997.
The effective tax rate for the current fiscal year was 55.2%. The effective
rates are affected by the multiple taxing jurisdictions in which the Company
operates, including higher foreign rates on earnings of the Company's Canadian
subsidiary. Please refer to Footnote 8 of the Company's financial statements for
a further explanation of income taxes.
FINANCIAL CONDITION
In 1996, the Company adopted the value-based management system, Stern Stewart &
Co.'s Economic Value Added (EVA(R)) process. Under this process, the Company is
focused on maximizing utilization of capital deployed on projects where the
return exceeds the cost of capital as well as generating earnings. Executive and
management incentive compensation is tied to improving EVA, further
strengthening maximum capital utilization.
11
<PAGE> 14
The quick ratio at December 28, 1997 improved to 3.1 to 1 compared to 2.9 to 1
for the end of fiscal 1996, and the current ratio improved to 3.4 to 1 as
compared to 3.3 to 1, for the respective periods. Net working capital increased
by $1.9 million during 1997. The increase in working capital is attributable to
an increase in cash and cash equivalents by the Company's Canadian subsidiary,
and an increase in accounts receivable by the staffing services segment
resulting from significant sales growth. Also contributing was an increase in
services in process, predominately at the Company's U. S. industrial maintenance
services segment and a decrease in accrued wages, other compensation and related
taxes. These increases to working capital were partially offset by a decrease in
inventories and an increase in trade accounts payables for the industrial
maintenance segment. Reference should be made to the statement of cash flows,
which details the sources and uses of cash.
Open credit commitments at the end of 1997 were $16.25 million. The Company also
has $348,000 (the US dollar equivalent) available for C. H. Heist, Ltd., the
Company's Canadian subsidiary.
Capital expenditures (excluding acquisitions) were $4.8 million for fiscal 1997.
Of this amount $2.5 million was additions to the mobile equipment fleet,
$880,000 was for computer equipment, $83,000 was for facilities and the
remainder was for other equipment, furniture and fixtures. Commitments as of
December 28, 1997 were $209,000, of which $165,000 was for facilities, $39,000
was for computer equipment and the remainder for replacement equipment. It is
anticipated that existing internally available funds, cash flows from operations
and available borrowings will be sufficient to cover working capital and capital
expenditures in fiscal 1998.
ACQUISITIONS
On April 28, 1997, Ablest Service Corp. acquired certain assets of Solution
Source, Inc., of Atlanta, Georgia. Solution Source provides information
technology staffing services and has been combined with the Ablest Technology
Services division that was previously known as the Tech Resources Group.
On June 23, 1997, Ablest Service Corp. acquired certain assets of The Kelton
Group, Inc. of Raleigh, North Carolina. The Kelton Group is an information
technology staffing and documentation services provider. It has also been
combined with the Ablest Technology Services division.
Reference should be made to the Company's May 8, 1997, 8-K filing for the
Solution Source acquisition and July 8, 1997, 8-K filing for The Kelton Group
acquisition.
For the fiscal year ended December 29, 1996 compared to December 31, 1995
RESULTS OF OPERATIONS
Sales for the current year increased by $3.8 million or 3.8% to $106.5 million
from $102.7 million a year earlier. Sales in the company's temporary staffing
segment, Ablest Service Corp. (Ablest), increased $4.8 million or 10.8%.
Increased sales in offices opened in the prior year and sales in five new
locations opened or acquired in 1996, including $682,000 in sales attributable
to Tech Resource, Inc., acquired in September 1996, accounted for the increase.
For more information in regard to this acquisition, please refer to footnote 13
in the accompanying financial statements.
Sales for the industrial maintenance segment declined by $974,000 or 1.7%
compared to the same period one year ago. This decrease was mainly attributed to
the loss at the end of 1995 of a contract to provide insulation application
services at a facility of one of the Company's major customers. This contract
accounted for approximately $2.4 million in sales in fiscal 1995. Also
contributing to the decline in sales was a reduction in painting services of
approximately $573,000 due to a lower magnitude of work being performed in 1996
on a major lead abatement contract. Field service repair sales declined by $1.2
million due to the change in focus away from this service and towards attaining
annual maintenance contracts. Partially offsetting these declines were increases
in equipment related service of $3.1 million. Larger volume of turnaround work
and sales of a new service, dewatering with a mobile filter press were the
reasons for this increase.
In terms of dollars, gross profit improved by $291,000 during fiscal 1996 as
compared to fiscal 1995, however as a percentage of sales gross profit decreased
to 15.1% from 15.3%. The increase in gross profit dollars was mainly
attributable to improvements made at the Company's Southern region (formally
Heist Field Services) which had a gross profit during the current fiscal year
compared to a gross loss during fiscal 1995. Partially offsetting this increase
was a decline in gross profit dollars due to the loss of the insulation services
contract and to higher then normal equipment repair costs. Ablest continued to
contribute with gross profit improving to 17.4% in fiscal 1996 from 16.5% in
fiscal 1995. The Company also was able to attain savings of approximately $2.0
million through safety training, development of safety programs and focusing on
risk management.
Gross profit was also affected during 1996 by the August closing of the
Company's Buffalo service and repair facility. When measured under the
principals of EVA(R) (Economic Value Added), it was determined that this
facility's daily volume of repair activity did not warrant the level of capital
being employed. These services are currently being outsourced and resulted in a
savings of approximately $140,000 in the fourth quarter of fiscal 1996. Savings
in 1997 should approximate $650,000. During the last quarter inventories at
field locations and the Buffalo service facility were reviewed and obsolete
items were written off. This amounted to a charge of approximately $251,000
further reducing gross profit.
Selling, general and administrative expenses increased by $1.5 million or 12%
compared to fiscal 1995. The increase in the current fiscal year was partially
the result of depreciation expense on the upgrade in information systems which
occurred during fiscal 1995. In addition, legal expenses associated with the
planning and preparation of documents associated with the potential spin-off and
initial public offering of Ablest and increased costs for wages, training, and
recruiting of personnel contributed to the increase.
Other expenses net, increased during the current fiscal year by $225,000 or 45%
over the comparable period one year ago. This was partially due to an increase
in interest expense of approximately $103,000 and a decrease in interest income
of approximately $77,000. The increase in interest expense was due to a higher
level of borrowing during the current fiscal year while the decline in interest
income was due to both a reduction in short term investments and the rate of
return on those investments.
The effective tax rate for the current fiscal period is 54% compared to 44.8% in
the prior fiscal year. The full tax benefit of operating losses are offset by
state taxes, which are due even when losses are incurred. Also higher foreign
tax rates on earnings at the Company's Canadian subsidiary contributed to the
higher effective tax rate.
12
<PAGE> 15
C. H. Heist Corp. & Subsidiaries
--------------------------------
CONSOLIDATED
BALANCE SHEETS
--------------------------------
<TABLE>
<CAPTION>
(In thousands, except share data)
- ------------------------------------------------------------------------------------------------
YEAR ENDED DEC. 28, 1997 DEC. 29, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,948 2,692
Receivables, less allowance for doubtful receivables of
$416 and $459 in 1997 and 1996, respectively 16,621 14,534
Services in progress 1,357 1,117
Parts and supplies 1,254 1,605
Prepaid expenses 539 324
Deferred income taxes (note 8) 806 899
- ------------------------------------------------------------------------------------------------
Total current assets 23,525 21,171
- ------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost (note 2) 52,677 49,635
Less accumulated depreciation 35,838 32,229
- ------------------------------------------------------------------------------------------------
Net property, plant and equipment 16,839 17,406
Deferred income taxes (note 8) 176 146
Intangible assets, net (note 3) 3,386 1,600
Other 160 474
- ------------------------------------------------------------------------------------------------
$ 44,086 40,797
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current installments of long-term debt (note 5) $ 38 538
Accounts payable 2,660 1,580
Accrued expenses (note 4) 3,814 4,194
Income taxes payable 454 198
- ------------------------------------------------------------------------------------------------
Total current liabilities 6,966 6,510
Long-term debt, excluding current installments (note 5) 8,755 6,492
Deferred incentive compensation (note 6) 479 276
Deferred income taxes (note 8) 398 445
- ------------------------------------------------------------------------------------------------
Total liabilities 16,598 13,723
- ------------------------------------------------------------------------------------------------
Stockholders' equity (notes 5, 7 and 8):
Common stock of $.05 par value. Authorized 8,000,000 shares;
issued 3,167,092 shares for 1997 and 1996, respectively 158 158
Additional paid-in capital 4,274 4,268
Retained earnings 25,882 24,984
Equity adjustment from foreign currency translation (1,583) (1,084)
- ------------------------------------------------------------------------------------------------
28,731 28,326
Less cost of common shares in treasury - 290,269 and
292,419 shares for 1997 and 1996, respectively (1,243) (1,252)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 27,488 27,074
- ------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 13, 14 and 15) -- --
- ------------------------------------------------------------------------------------------------
$ 44,086 40,797
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 16
C. H. Heist Corp. & Subsidiaries
--------------------------------
CONSOLIDATED
STATEMENTS OF EARNINGS
--------------------------------
<TABLE>
<CAPTION>
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DEC. 28, 1997 DEC. 29, 1996 DEC. 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 119,516 106,515 102,659
Cost of sales 100,687 90,498 86,933
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 18,829 16,017 15,726
Selling, general and administrative expenses 15,756 13,784 12,316
- -----------------------------------------------------------------------------------------------------------------------
Operating income 3,073 2,233 3,410
- -----------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (729) (643) (541)
Interest income 78 62 139
Gain (loss) on disposal of property, plant and equipment, net 14 11 (25)
Amortization of intangible assets (247) (117) (124)
Miscellaneous, net (185) (37) 52
- -----------------------------------------------------------------------------------------------------------------------
Other expense, net (1,069) (724) (499)
- -----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 2,004 1,509 2,911
Income taxes (note 8) 1,106 819 1,305
- -----------------------------------------------------------------------------------------------------------------------
Net earnings $ 898 690 1,606
=======================================================================================================================
Basic and diluted earnings per common share $ 0.31 0.24 0.56
=======================================================================================================================
Weighted average number of common shares outstanding 2,876,505 2,873,337 2,871,812
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
C. H. Heist Corp. & Subsidiaries
--------------------------------
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS 'EQUITY
--------------------------------
<TABLE>
<CAPTION>
Equity
adjustments
Additional from foreign Total
Common paid-in Retained currency Treasury stock stockholders'
(In thousands, except share data) stock capital earnings translation Shares Amounts equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 25, 1994 $ 158 4,236 22,688 (1,317) 292,419 (1,252) 24,513
Net earnings -- -- 1,606 -- -- -- 1,606
Exercised options -- 18 -- -- -- -- 18
Foreign currency translation
adjustment -- -- -- 231 -- -- 231
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 158 4,254 24,294 (1,086) 292,419 (1,252) 26,368
Net earnings -- -- 690 -- -- -- 690
Exercised options -- 14 -- -- -- -- 14
Foreign currency translation
adjustment -- -- -- 2 -- -- 2
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 29, 1996 158 4,268 24,984 (1,084) 292,419 (1,252) 27,074
Net earnings -- -- 898 -- -- -- 898
Reissue treasury shares -- 6 -- -- (2,150) 9 15
Foreign currency translation
adjustment -- -- -- (499) -- -- (499)
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 28, 1997 $ 158 4,274 25,882 (1,583) 290,269 (1,243) 27,488
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 17
C. H. Heist Corp. & Subsidiaries
--------------------------------
CONSOLIDATED
STATEMENTS OF CASHFLOWS
--------------------------------
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 898 690 1,606
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of plant and equipment 5,110 4,788 4,406
Amortization of intangible assets 247 117 124
(Gain) loss on disposal of property,
plant and equipment, net (14) (11) 25
Deferred income taxes 8 (64) 81
Stock compensation awards 15 - -
Changes in assets and liabilities (see below) (1,116) 238 282
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,148 5,758 6,524
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (4,804) (4,740) (7,091)
Proceeds from disposal of property, plant and equipment 210 225 150
Acquisitions (note 13) (1,904) (1,119) -
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (6,498) (5,634) (6,941)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from bank line of credit borrowings 17,000 8,700 8,200
Repayment of bank line of credit borrowings (14,700) (9,150) (6,300)
Repayment of acquisition note payable (500) - -
Repayment of other long-term debt (37) (37) (41)
Exercised stock options - 14 18
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,763 (473) 1,877
Effect of exchange rate changes on cash and cash equivalents (157) - 48
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 256 (349) 1,508
Cash and cash equivalents at beginning of year 2,692 3,041 1,533
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,948 2,692 3,041
==============================================================================================================================
Changes in assets and liabilities providing (using) cash:
Receivables $ (2,199) (256) 706
Services in progress (255) (128) 864
Parts and supplies 345 566 (108)
Prepaid expenses (226) (136) (159)
Accounts payable 1,074 293 (442)
Accrued expenses (625) 316 (896)
Income taxes payable 267 (349) 215
Other assets 298 (344) 102
Deferred incentive compensation 205 276 -
- ------------------------------------------------------------------------------------------------------------------------------
Total $ (1,116) 238 282
==============================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 692 458 434
Income taxes $ 823 1,144 939
Non cash investing and financing activities:
Note issued in connection with acquisition $ - 500 -
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 18
C. H. Heist Corp. & Subsidiaries
--------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
--------------------------------
Years ended December 28, 1997, December 29, 1996 and December 31, 1995
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
C. H. Heist Corp. and subsidiaries (the Company) provide industrial cleaning
and maintenance services and, through its subsidiary, Ablest Service Corp.
(Ablest), provides staffing services. The industrial business includes
sandblasting, painting, cleaning and repairing of various structures including
bridges and power generation facilities. These services are offered
domestically and in Canada through C. H. Heist Ltd., a wholly owned subsidiary.
Many of these services are rendered on a contract basis. The temporary staffing
business provides clerical and light industrial personnel to domestic
customers. Beginning in 1996, Ablest also provides professional, technology
based personnel on a contract basis. Significant accounting policies followed
by the Company are summarized as follows:
(a) Fiscal Year
The Company's fiscal year ends on the last Sunday of December. The
consolidated financial statements include 52 weeks for each of the years
ended December 28, 1997 and December 29, 1996 and 53 weeks for the year
ended December 31, 1995.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Cash Equivalents
All highly liquid investments with original maturities of three months or
less are considered cash equivalents.
(d) Revenue Recognition
Revenues are recognized as the services are provided. Anticipated losses,
if any, are provided for in full. Services in progress represent the costs
and related earnings of work which is not completed at the end of the
period for which billings will be issued in the future.
(e) Parts and Supplies
Parts and supplies used in the industrial maintenance segment are valued
at the lower of cost (first-in, first-out) or market.
(f) Property, Plant and Equipment
Depreciation of plant and equipment is provided over the estimated useful
lives of the respective assets, principally on the straight-line method.
Leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
(g) Intangible Assets
The values ascribed to acquired intangibles, primarily goodwill, covenants
not-to-compete, customer and employee lists are being amortized on the
straight-line method over periods of three to forty years. The Company
regularly evaluates whether events and circumstances have occurred that
indicate the carrying amounts of intangible assets may warrant revision or
may not be recoverable. In the event of possible impairment, the asset's
value will be determined by projected net cash flows of the related
business.
(h) Income Taxes
Income taxes are accounted for by the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to operating loss
and credit carryforwards and differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized as income or expense in the period that includes the enactment
date.
(i) Earnings Per Share
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share," during 1997. Under this
statement, the Company computes both basic and diluted earnings per share.
Basic earnings per share is computed by using the weighted average number
of common shares outstanding. Diluted earnings per share is computed by
using the weighted average number of common shares outstanding plus the
dilutive effect, if any, of stock options. All prior financial statements
have been retroactively restated for the effects of the adoption of SFAS
No. 128.
(j) Foreign Currency Translation
The Canadian subsidiary utilizes the Canadian dollar as its functional
currency. Assets and liabilities are translated using rates of exchange as
of the balance sheet date and the statements of earnings are translated at
an average rate of exchange during the year. Gains and losses resulting
from translation are reported separately in stockholders' equity as "Equity
adjustment from foreign currency translation." Foreign currency
transaction gains and losses, if any, are reflected in operations.
(k) Use of Estimates
Management has made a number of estimates and assumptions in preparing
these financial statements to conform with generally accepted accounting
principles. Actual results could differ from those estimates.
(l) Stock Option Plans
Prior to January 1, 1996, the company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation expense for stock options was
measured as the excess, if any, of the quoted market price of the
Company's stock on the date of the grant over the amount an employee must
pay to acquire the stock. On January 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock - Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based
16
<PAGE> 19
awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net earnings and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and thereafter
as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123 (note 7).
(m) Comprehensive Income
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income." The standard must be adopted by
fiscal 1998. SFAS No. 130 does not change any accounting measurements,
but requires presentation of comprehensive income and a reconciliation
thereof to net earnings. The principal differences between comprehensive
income and net earnings are certain adjustments made directly to
stockholders' equity, such as foreign currency translation adjustments.
(n) Segment Information
In 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which requires financial information
to be reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to segments.
The standard must be adopted by fiscal 1998. The Company is currently
evaluating the disclosures required under this new standard.
(2) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment, at cost, follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996
- ------------------------------------------------------------------
<S> <C> <C>
Land $ 1,380 1,458
Buildings and improvements 5,394 5,496
Machinery and equipment 25,092 24,147
Automotive equipment 14,276 12,966
Office furniture and equipment 6,070 5,152
Leasehold improvements 465 416
- ------------------------------------------------------------------
$ 52,677 49,635
- ------------------------------------------------------------------
</TABLE>
(3) INTANGIBLE ASSETS
A summary of intangible assets follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996
- ------------------------------------------------------------------
<S> <C> <C>
Goodwill, less accumulated
amortization of $68 and $9 $ 2,413 990
Other intangible assets, less
accumulated amortization
of $293 and $108 973 610
- ------------------------------------------------------------------
$ 3,386 1,600
==================================================================
</TABLE>
Intangible assets relate primarily to acquisitions in the staffing services
segment (note 13).
(4) ACCRUED EXPENSES
A summary of accrued expenses follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996
- ------------------------------------------------------------------
<S> <C> <C>
Payroll and other compensation $ 1,353 1,782
Taxes, other than income 150 345
Insurance 1,535 1,709
Site rehabilitation 148 149
Other 628 209
- ------------------------------------------------------------------
$ 3,814 4,194
- ------------------------------------------------------------------
</TABLE>
(5) INDEBTEDNESS
A summary of long-term debt follows:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996
- -------------------------------------------------------------------
<S> <C> <C>
Notes payable, bank-revolving
credit agreement $ 8,750 6,450
Notes payable issued in
connection with an
acquisition (note 13) repaid
on September 15, 1997 - 500
Mortgage note with interest
at 9% payable in principal
installments of approximately
$38 annually 43 80
- -------------------------------------------------------------------
Total long-term debt 8,793 7,030
Less current installments of
long-term debt 38 538
- -------------------------------------------------------------------
Long-term debt, excluding
current installments $ 8,755 6,492
===================================================================
</TABLE>
The Company has a $25,000,000 unsecured bank line of credit under a revolving
credit agreement. The interest rate on borrowings under the line of credit is
elected weekly by the Company and is either (i) the bank's prime rate or (ii)
the Secondary Market Certificate of Deposit (CD) Rate plus 3/4%. The rate in
effect at December 28, 1997 is 6.7%. On July 31, 1999, the Company has the
option of converting the then outstanding borrowings to a term loan, payable in
twenty equal quarterly installments, bearing interest at either (i) the bank's
prime rate plus 1/2% or (ii) the Secondary Market CD Rate plus 1-1/2%. If
converted, the Company continues electing, on a weekly basis, the interest rate
to be charged. The revolving credit agreement contains working capital
requirements, and limits the amount of liabilities, capital expenditures and
payment of cash dividends. Under the most restrictive of these provisions,
$1,000,000 of retained earnings is free of dividend restrictions at December
28, 1997. The Company also pays a commitment fee of 1/4% per annum on the
average daily unused portion. Compensating balances, may be, but are not
required to be maintained. If compensating balances are not maintained a fee
equal to 5% of borrowings, at the bank's prime rate are charged on the balance
not maintained.
The Company's Canadian subsidiary has an unsecured line of credit in the U.S.
dollar equivalent amount of $348,000 at December 28, 1997. Any borrowings
thereunder bear interest at the bank's prime rate. Commitment fees of 1/4% per
annum are payable on the average daily unused portion of the line of credit. No
compensating balances are required. No amounts were outstanding at December 28,
1997 and December 29, 1996.
17
<PAGE> 20
Long-term debt matures as follows assuming conversion, on July 31, 1999, of the
amount due under the revolving credit agreement; $38,000 in 1998; $880,000 in
1999; $1,750,000 in 2000; $1,750,000 in 2001; $1,750,000 in 2002; and
$2,625,000 thereafter. The fair value of long-term debt approximates its
recorded value.
(6) DEFERRED INCENTIVE COMPENSATION
In 1996, the Company initiated an Economic Value Added (EVA(R)) Incentive
Remuneration Plan for officers and key employees. The purpose of the plan is to
provide incentive compensation in a form which relates the participants
incentive compensation to an increase in the economic value of the Company. The
participant is paid a portion of the declared bonus in the February following
the year in which the bonus was deemed earned and is reflected in accrued
expenses. The remaining portion of the bonus that is declared but unpaid may be
paid in succeeding years if performance targets are met. A participant may
forfeit any declared but unpaid bonus upon termination of employment other than
reason of death, disability or retirement, at the discretion of the
Compensation Committee of the Board of Directors. Compensation expense, net of
forfeitures, relating to this plan was approximately $708,000 and $804,000 in
1997 and 1996, respectively.
(7) STOCK OPTION PLANS
The Company has reserved 375,000 common shares for issuance in conjunction with
its Stock Option Plan (Plan). The Plan provides for the granting of incentive
stock options and/or non qualified options to officers and key employees to
purchase shares of common stock at a price not less than the fair market value
of the stock on the dates options are granted. Such options are exercisable at
such time or times as may be determined by the Compensation Committee of the
Board of Directors and generally expire no more than ten years after grant.
Options vest and become fully exercisable six months after the grant date. A
summary of stock option activity follows:
<TABLE>
<CAPTION>
Weighted Options
average exercisable
Shares exercise price at year end
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding Dec. 25, 1994 149,153 $ 8.09
Granted 47,000 6.94
Exercised (2,500) 7.25
Canceled or expired (3,953) 8.49
- --------------------------------------------------------------------------
Outstanding Dec. 31, 1995 189,700 7.80 142,700
Granted - -
Exercised (1,900) 7.48
Canceled or expired (5,411) 8.06
- --------------------------------------------------------------------------
Outstanding Dec. 29, 1996 182,389 7.80 182,389
Granted - -
Exercised - -
Canceled or expired (12,905) 9.13
- --------------------------------------------------------------------------
Outstanding Dec. 28, 1997 169,484 $ 7.70 169,484
==========================================================================
</TABLE>
At December 28, 1997, the range of exercise prices and weighted average
contractual life of outstanding and exercisable options was $6.94 - $10.13 and
6.4 years, respectively.
At December 28, 1997 there were 201,116 shares available for grant under the
Plan. The per share weighted average fair value of stock options granted during
1995 was $3.81 on the date of grant using the Black Scholes option-pricing
model with the following weighted average assumptions: expected dividend yield
- - none, risk free interest rate of 5.6%, volatility of 31% and an expected life
of ten years.
In May 1996, the Company's shareholders approved the adoption of a Leveraged
Stock Option plan (leveraged Plan) for key employees. The leveraged Plan
authorizes the issuance of options covering up to 375,000 shares of common
stock. Pursuant to the leveraged Plan, 10% of a participant's annual EVA
incentive compensation payment will be used to purchase stock options, which
will be granted, following the end of the fiscal year. The number of options
and the exercise price will be based on the average market price per share of
common stock for the ten days prior to the calendar year end for which the
option is granted. The exercise price of the options will be subject to
escalation at 8% per year over the original option price. Options will vest
after three years and will be exercisable over a ten-year period from the date
of grant. The Compensation Committee of the Board of Directors establishes the
percentage of the compensation to be applied towards the options, and the
escalation percentage of the options. A summary of leveraged Plan option
activity follows:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding Dec. 29, 1996 - $ -
Granted 33,583 6.22
Exercised - -
Canceled or expired - -
- -----------------------------------------------------------------------
Outstanding Dec. 28, 1997 33,583 $ 6.22
=======================================================================
</TABLE>
At December 28, 1997, the weighted average contractual life of outstanding
options was 9.2 years. No options were exercisable as of December 28, 1997. At
December 28, 1997 there were 341,417 shares available for grant under the
leveraged Plan. The per share weighted average fair value of stock options
granted during 1997 was $2.59 on the date of grant using the Black Scholes
option-pricing model with the following weighted average assumptions: expected
dividend yield - none, risk free interest rate of 6.4%, volatility of 28% and
an expected life of ten years.
Based on the fair value of all options at the grant date under the disclosure
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In thousands, except per share data)
- -------------------------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings As reported $ 898 690 1,606
Pro forma 884 598 1,591
Basic and
diluted earnings
per share As reported $ 0.31 0.24 0.56
Pro forma 0.31 0.21 0.55
</TABLE>
18
<PAGE> 21
(8) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1997 Dec. 31, 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current expense (benefit):
Federal $ (50) 150 378
State 257 295 246
Foreign 891 438 600
- -----------------------------------------------------------------------------------------
Total current 1,098 883 1,224
- -----------------------------------------------------------------------------------------
Deferred expense (benefit):
Federal 54 (29) 76
State 10 (2) 5
Foreign (56) (33) --
- -----------------------------------------------------------------------------------------
Total deferred 8 (64) 81
- -----------------------------------------------------------------------------------------
$1,106 819 1,305
=========================================================================================
Earnings before income taxes
consist of:
Domestic $ 348 426 1,603
Foreign 1,656 1,083 1,308
- -----------------------------------------------------------------------------------------
$2,004 1,509 2,911
=========================================================================================
</TABLE>
Actual income taxes differ from the "expected" taxes (computed by applying the
U.S. Federal corporate tax rate of 34% to earnings before income taxes) as
follows:
<TABLE>
<CAPTION>
(In thousands)
- ---------------------------------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected
tax expense $ 681 513 990
Adjustments resulting from:
Effect of higher foreign
tax rates 272 167 155
State taxes net of
Federal tax benefit 176 193 166
Change in beginning of year
valuation allowance for
deferred tax assets -- (129) (7)
Other (23) 75 1
- ---------------------------------------------------------------------------------------------------
$1,106 819 1,305
===================================================================================================
Effective tax rate 55.2% 54.3% 44.8%
===================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and liability are as follows:
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful
receivables $155 128
Accrued site rehabilitation
expense 60 61
Accrued insurance expense 543 648
Other 48 62
- -----------------------------------------------------------------------------
806 899
- -----------------------------------------------------------------------------
Long-term deferred tax assets:
Accumulated depreciation of
plant and equipment 143 141
Deferred compensation 33 5
- -----------------------------------------------------------------------------
176 146
- -----------------------------------------------------------------------------
Long-term deferred tax
liability, net:
Liabilities:
Accumulated depreciation
of plant and equipment (683) (724)
Other -- (1)
- -----------------------------------------------------------------------------
(683) (725)
- -----------------------------------------------------------------------------
Assets:
Operating loss and credit
carryforwards 961 811
Accumulated amortization
of other assets 119 174
Deferred compensation 162 106
Valuation allowance (959) (811)
Other 2 --
- -----------------------------------------------------------------------------
(398) (445)
- -----------------------------------------------------------------------------
Net deferred tax assets $584 600
=============================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management considers,
within each taxing jurisdiction, whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the years in which the deferred tax assets are deductible,
management has provided valuation allowances for those deferred tax assets that
are not expected to be realized.
Undistributed earnings of the Canadian subsidiary, which are intended to be
permanently reinvested in the business, are approximately $10,201,000 at
December 28, 1997. If such earnings were remitted to the domestic parent, taxes
based at the then current rates and subject to certain limitations would be
payable after reduction for any foreign taxes previously paid on such earnings.
19
<PAGE> 22
(9) EMPLOYEE BENEFIT PLANS
The Company has qualified noncontributory defined benefit pension plans covering
substantially all of its non-bargaining unit personnel in the United States. The
benefits are based on years of service and the employee's average compensation
during employment. Pension costs are funded as required by applicable
regulations. Plan assets are invested in a diversified portfolio which includes
common stocks, bond and mortgage obligations, insurance contracts and money
market funds. The following tables set forth the funded status of the plans at
the October 1 measurement dates and the components of pension expense:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Funded status
Accumulated benefit
obligation:
Vested $ 2,666 1,764
Nonvested 593 307
- -------------------------------------------------------------------------------
$ 3,259 2,071
===============================================================================
Projected benefit obligation 3,593 2,633
Plan assets at fair value 3,806 2,788
- -------------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 213 155
Unrecognized cumulative
experience gain (887) (1,233)
Unrecognized prior service cost 624 685
Unrecognized net transition
obligation 12 15
- -------------------------------------------------------------------------------
Accrued pension liability $ (38) (378)
===============================================================================
Principal actuarial
assumptions are:
Weighted average
discount rate 6.50% 7.25%
Weighted average return on
plan assets 7.75% 7.75%
Rate of compensation increase 4.88% 5.15%
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------------
YEAR ENDED Dec. 28,1997 Dec. 29, 1996 Dec. 31,1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension expense:
Service cost-benefits earned
during the year $ 411 427 300
Interest cost on projected
benefit obligation 199 172 129
Actual return on plan assets (387) (137) (329)
Net amortization and deferral 163 (19) 168
- -------------------------------------------------------------------------------------
Total pension expense $ 386 443 268
=====================================================================================
</TABLE>
The Company maintains a deferred profit sharing plan covering all salaried
employees of its Canadian subsidiary that meet certain eligibility requirements.
Contributions to the plan are based on net earnings, as defined, subject to
certain limitations based on the salaries of the participants. Expenses under
the plan were $38,000 in 1997, $35,000 in 1996 and $30,000 in 1995.
In 1997, the Company initiated a qualified defined contribution plan covering
the non-bargaining unit employees of its United States subsidiary. The Company
matches the contributions of participating employees, with a maximum
contribution limit, on the basis of the percentages specified in the plan. The
matching contributions in the first year of the plan were $16,000.
(10) METHODS AND DEVELOPMENT COSTS
Methods and development costs amounted to $338,000, $248,000, and $154,000 for
the fiscal years 1997, 1996 and 1995, respectively.
(11) INDUSTRY SEGMENTS AND MAJOR CUSTOMERS
The Company operates in two industry segments, staffing services and industrial
maintenance. Net sales by segment are to unaffiliated customers. Intersegment
sales, where applicable, are accounted for in the same basis as sales to
unaffiliated customers. The costs of performing certain administrative services
are allocated between the segments. Segment data as of and for each of the years
ended December 28, 1997, December 29, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Staffing services:
Net sales $ 63,268 49,514 44,685
Intersegment sales 39 84 134
- --------------------------------------------------------------------------------------
Total sales $ 63,307 49,598 44,819
Operating income 2,976 3,347 2,922
Identifiable assets 12,555 9,212 7,588
Capital expenditures,
including acquisitions in
1997 & 1996 2,581 1,374 385
Depreciation 409 320 321
Amortization $ 215 93 100
======================================================================================
Industrial maintenance services:
Net sales $ 56,248 57,001 57,974
Operating income (loss) 97 (1,114) 488
Identifiable assets 29,414 31,548 30,468
Capital expenditures 4,127 4,485 6,706
Depreciation 4,701 4,468 4,085
Amortization $ 32 24 24
======================================================================================
Corporate assets $ 2,117 37 1,492
======================================================================================
Consolidated:
Net sales $119,516 106,515 102,659
Operating income 3,073 2,233 3,410
Total assets 44,086 40,797 39,548
Capital expenditures,
including acquisitions in
1997 & 1996 6,708 5,859 7,091
Depreciation 5,110 4,788 4,406
Amortization $ 247 117 124
======================================================================================
</TABLE>
20
<PAGE> 23
The segment data reflects the Company's operational structure, however, certain
corporate expenses and assets have been allocated to industry segments.
Corporate assets not allocated include certificates of deposit. One customer
accounted for approximately 9.3%, 8.4% and 12.9% of the Company's consolidated
net sales in fiscal 1997, 1996, and 1995 respectively. At December 28, 1997 and
December 31, 1996, receivables include $1,844,000 and $1,329,000 respectively,
from the same customer.
(12) CANADIAN OPERATION
A summary of financial data (in U.S. dollars) relating to the Company's Canadian
industrial maintenance operation follows:
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable assets $ 10,570 9,316 10,093
Liabilities 1,921 754 703
Net sales 16,300 14,877 14,483
Net earnings 913 677 709
</TABLE>
(13) ACQUISITIONS
On September 15, 1996, Ablest purchased certain assets from Tech Resource, Inc.,
an information technology staffing services business in the Atlanta, Georgia
metropolitan area, and its shareholder. The aggregate purchase price, including
acquisition costs was approximately $1,619,000, of which approximately
$1,119,000 was paid in cash and $500,000 was in the form of a one-year
promissory note paid September 1997 ( note 5 ). The acquisition has been
accounted for by the purchase method of accounting. The purchase price was
allocated to assets acquired based on their fair values, including approximately
$1,581,000 which has been allocated to various intangible assets, primarily
goodwill. The operations of the acquired business are included in the 1996
consolidated statement of earnings from the acquisition date.
On April 28, 1997, Ablest purchased certain assets from Solution Source, Inc.,
an information technology staffing services business in the Atlanta, Georgia
metropolitan area, and its shareholders. The aggregate purchase price, including
acquisition costs, was approximately $1,429,000, paid in cash. The acquisition
has been accounted for by the purchase method of accounting. The purchase price
was allocated to assets acquired based on their fair values, including
approximately $1,379,000 which has been allocated to various intangible assets,
primarily goodwill. The acquisition agreement also provides that Ablest may be
required to pay up to an additional $1,125,000 over the next three years if
certain performance criteria are met. The operations of the acquired business
are included in the 1997 consolidated statement of earnings from the acquisition
date.
On June 23, 1997, Ablest purchased certain assets from The Kelton Group, Inc.,
an information technology staffing and documentation services provider in the
Raleigh, North Carolina metropolitan area, and its shareholder. The aggregate
purchase price, including acquisition costs, was approximately $475,000, paid in
cash. The acquisition has been accounted for by the purchase method of
accounting. The purchase price was allocated to assets acquired based on their
fair values, including approximately $375,000 which has been allocated to
various intangible assets, primarily goodwill. The operations of the acquired
business are included in the 1997 consolidated statement of earnings from the
acquisition date.
The following unaudited, pro forma, condensed, combined financial information
assumes the acquisitions occurred at the beginning of each fiscal year
presented. The results do not purport to be indicative of what would have
occurred had the acquisitions been made at the beginning of each of the fiscal
years presented, or of the results that may occur in the future.
<TABLE>
<CAPTION>
Unaudited
(In thousands, except per share data)
- --------------------------------------------------------------------------
YEAR ENDED Dec. 28, 1997 Dec. 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Net sales $121,551 113,119
Net earnings 920 824
Basic and diluted earnings
per share $ 0.32 0.29
</TABLE>
(14) LEASE COMMITMENTS
The Company and its subsidiaries occupy certain facilities under noncancelable
operating lease arrangements. Expenses under such arrangements amounted to
$941,000, $786,000, and $660,000 in 1997, 1996 and 1995 respectively. Of these
amounts $93,000, $92,000 and $83,000 applied to leases with related persons in
1997, 1996, and 1995, respectively.
In addition, the Company leases certain automotive and office equipment under
noncancellable operating lease arrangements, which provide for minimum monthly
rentals. Expenses under such arrangements amounted to $806,000, $813,000 and
$690,000 in 1997, 1996, and 1995, respectively.
Management expects that in the normal course of business, new leases will
replace leases that expire. Real estate taxes, insurance and maintenance
expenses are obligations of the Company.
A summary of future minimum rental payments at December 28, 1997 under operating
leases follows:
<TABLE>
<CAPTION>
(In thousands) Real property
-----------------------
Related
Year persons Other Equipment
=============================================================================
<C> <C> <C> <C>
1998 $ 57 612 726
1999 58 387 509
2000 55 170 280
2001 - 45 2
</TABLE>
(15) CONTINGENCIES
The Company is exposed to a number of asserted and unasserted potential claims
encountered in the normal course of business. In the opinion of management, the
resolution of such matters will not have a material adverse effect on the
Company's financial condition or liquidity.
21
<PAGE> 24
C.H. Heist & Subsidiaries
- ---------------
INDEPENDENT
AUDITORS'REPORT
- ---------------
The Board of Directors
C. H. Heist Corp.:
We have audited the accompanying consolidated balance sheets of C. H. Heist
Corp. and subsidiaries as of December 28, 1997 and December 29, 1996, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the years ended December 28, 1997, December 29, 1996 and December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of C. H. Heist Corp.
and subsidiaries as of December 28, 1997 and December 29, 1996, and the results
of their operations and their cash flows for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Buffalo, New York
February 11, 1998
22
<PAGE> 25
C. H. Heist Corp. & Subsidiaries
--------------------------------
QUARTERLY
FINANCIAL DATA
--------------------------------
<TABLE>
<CAPTION>
(in thousands, except per share data and percentages)
- --------------------------------------------------------------------------------------------------------------------
QUARTER ENDED MARCH JUNE SEPT. DEC.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1997:
Net sales $24,961 $31,123 $31,258 $32,174
Earnings (loss)
before income taxes (1,212) (4.9)% 661 2.1% 1,181 3.8% 1,374 4.3%
Income taxes (benefit) (369) (30.4)% 204 30.9% 551 46.7% 720 52.4%
Net earnings (loss) (843) (3.4)% 457 1.5% 630 2.0% 654 2.0%
Earnings (loss) per share $ (.29) $ .16 $ .22 $ .22
EPS - last 12 months $ (.03) $ .29 $ .31 $ .31
Stock price range $ 7 3/4 - 6 3/4 $ 7 3/8 - 6 3/8 $ 7 7/8 - 6 1/2 $ 8 - 6 15/16
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1996:
Net sales $25,769 $25,781 $28,219 $26,746
Earnings (loss)
before income taxes (101) (.4)% (500) (1.9)% 878 3.1% 1,232 4.6%
Income taxes (benefit) (39) (38.6)% (49) (9.8)% 305 34.7% 602 48.9%
Net earnings (loss) (62) (.2)% (451) (1.8)% 573 2.0% 630 2.4%
Earnings (loss) per share $ (.02) $ (.16) $ .20 $ .22
EPS - last 12 months $ .66 $ .35 $ .34 $ .24
Stock price range $ 7 5/8 - 6 1/4 $ 7 7/8 - 6 1/2 $ 8 7/8 - 5 1/2 $ 8 5/8 - 7 3/4
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1995:
Net sales $24,544 $25,301 $27,179 $25,635
Earnings (loss)
before income taxes (573) (2.3)% 974 3.8% 1,089 4.0% 1,421 5.5%
Income taxes (benefit) (225) (39.3)% 550 56.5% 490 45.0% 490 34.5%
Net earnings (loss) (348) (1.4)% 424 1.7% 599 2.2% 931 3.6%
Earnings (loss) per share $ (.12) $ .15 $ .21 $ .32
EPS - last 12 months $ .61 $ .62 $ .64 $ .56
Stock price range $ 10 3/4 - 6 3/4 $ 9 1/2 - 8 $ 8 1/8 - 7 1/4 $ 8 5/8 - 63/4
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
(in thousands, except per share data and percentages)
- -----------------------------------------------------
QUARTER ENDED FULL YEAR
- -----------------------------------------------------
<S> <C>
Fiscal 1997:
Net sales $119,516
Earnings (loss)
before income taxes 2,004 1.7%
Income taxes (benefit) 1,106 55.2%
Net earnings (loss) 898 .8%
Earnings (loss) per share $ .31
EPS - last 12 months $ .31
Stock price range $ 8 - 6 3/8
- --------------------------
Fiscal 1996:
Net sales $106,515
Earnings (loss)
before income taxes 1,509 1.4%
Income taxes (benefit) 819 54.3%
Net earnings (loss) 690 .6%
Earnings (loss) per share $ .24
EPS - last 12 months $ .24
Stock price range $ 8 7/8 - 5 1/2
- --------------------------
Fiscal 1995:
Net sales $102,659
Earnings (loss)
before income taxes 2,911 2.8%
Income taxes (benefit) 1,305 44.8%
Net earnings (loss) 1,606 1.6%
Earnings (loss) per share $ .56
EPS - last 12 months $ .56
Stock price range $ 10 3/4 - 6 3/4
- --------------------------
</TABLE>
The percentages indicate the pre-tax margin (earnings before income taxes/net
sales), the effective tax rate (provision for income taxes/earnings before
taxes) and after the tax margin (net earnings/net sales).
On December 28, 1997 there were 370 registered shareholders. Proxies were mailed
to an additional 388 shareholders whose certificates were registered in the name
of brokers, banks and nominees on March 27, 1998.
23
<PAGE> 26
----------------------
DIRECTORS AND OFFICERS
----------------------
<TABLE>
<S> <C>
Charles H. Heist -- Chairman and Chief Executive Officer since 1988. Mr. Heist has served as a Director since 1979 and
President from 1983 to 1997. In his 29 years with the Company, he has held numerous operations
and general management positions throughout Heist's national network of regional offices.
W. David Foster -- President and Chief Operating Officer since 1997. Mr. Foster has served as a Director since 1997.
In his 28 years with the Company, he has served as Vice President-Marketing and Sales, President
and Chief Executive Officer of the Ablest Service Corp. Staffing Services segment and in other
management positions.
John L. Rowley -- Vice President and Chief Financial Officer since 1992. Mr. Rowley has served as a Director since
1994. In 27 years with the Company, he has served as Chief Accounting Officer, Treasurer and
Assistant Treasurer.
Chauncey D. -- A Director since 1971. Mr. Leake is a financial consultant. He was formerly Vice President of
Leake, Jr. First Albany Companies, Inc. and Vice President of Moseley Securities Corporation.
Charles E. -- A Director since 1980. Mr. Scharlau is Chairman and Chief Executive Officer of the Southwestern
Scharlau Energy Company and Arkansas Western Gas Company. He also serves on the Board of Directors of
McIlroy Bank & Trust Company.
Ronald K. Leirvik -- A Director since 1996. Mr. Leirvik is President of RKL Enterprises, an acquirer and manager of
small to medium size manufacturing companies. He is also Chairman and Director of C. E. White
Company and serves on the Boards of Directors of AGA Gas, Inc. and Purdue Research Corporation.
He was formerly President, Chief Executive Officer and a Director of RB&W Corporation.
Brian J. Lipke -- A Director since 1997. Mr. Lipke is Chairman, President and Chief Executive Officer of Gibraltar
Steel Corporation. He also serves on The Chase Manhattan Bank, N.A. Regional Advisory Board
and the Dunlop Tire Corporation Board of Directors.
Richard W. -- A Director since 1997. Mr. Roberson is on the Board of Directors of Priority Healthcare Corporation,
Roberson TransGlobal Systems, Inc. and Wheel Reinventions, Inc. He was formerly President and Chief
Executive Officer of Visionworks, Inc., President of Eckerd Vision Group and Senior Vice President
of Eckerd Corporation, and Chief Executive Officer of Insta-Care Pharmacy Services, Inc.
Donna R. Moore -- A Director since 1997. Ms. Moore was Chairman and Chief Executive Officer of Discovery Zone,
Inc. She was formerly President and Chief Executive Officer of Motherhood Maternity, and
President - North American Division of Laura Ashley, Inc.
Isadore Snitzer, -- Mr. Snitzer is Corporate Secretary and a Partner of Borins, Setel, Snitzer & Brownstein.
Esq.
Kurt R. Moore -- Executive Vice President - Ablest Service Corp.
Andrew R. -- Vice President and Chief Operating Officer - C.H. Heist, Ltd.
Crowe, Jr.
Duane F. -- Vice President - U.S. Operations
Worthington II
Christopher -- Vice President - Marketing and Sales
H. Muir
Paul K. -- Vice President - Safety, Human Resources and Environment
Brumfield
Mark P. -- Chief Accounting Officer, Treasurer
Kashmanian
</TABLE>
24
<PAGE> 27
SHAREHOLDER AND
CORPORATE INFORMATION
TRADING INFORMATION
The Company's common stock is traded on the
American Stock Exchange. Its trading symbol
is "HST."
SHAREHOLDER SERVICES
To change the name, address or ownership of
stock, report lost certificates or to consolidate
accounts, please contact the Transfer Agent:
First Union National Bank
Securities Transfer Department
CMG - 5 Mailing Code
Suite 1200
Charlotte, North Carolina 28288
INVESTOR RELATIONS AND GENERAL INFORMATION
Analysts, investors and others seeking financial
information should contact:
John L. Rowley
Vice President - Finance
Chief Financial Officer
(813) 461-5656 (phone)
(813) 447-1146 (fax)
[email protected]
FORM 10-K AND OTHER
INFORMATION
Copies of our Annual Report on Form 10-K,
as filed with the Securities and Exchange
Commission, are available to shareholders at
no charge. To request a copy please call or
write John L. Rowley.
CORPORATE INFORMATION
ON THE WORLD WIDE WEB
C.H. Heist Corp. news and supplemental
financial information is also available from
the Company's World Wide Web site:
http://www.heist.com
CORPORATE HEADQUARTERS
C.H. Heist Corp.
810 North Belcher Road
Clearwater, Florida 33765
(813) 461-5656 (phone)
(813) 447-1146 (fax)
ANNUAL MEETING
May 7, 1998
Sheraton Sand Key
1160 Gulf Boulevard
Clearwater, Florida 34630
WHOLLY OWNED SUBSIDIARIES
C.H. Heist, Ltd.
Ablest Service Corp.
PLP Corp.
CORPORATE SERVICES
Independent Public Accountants
KPMG Peat Marwick LLP
Buffalo, New York 14202
General Counsel
Baker & Hostetler
Cleveland, Ohio 44114
25
<PAGE> 28
C.H. HEIST CORP.
810 NORTH BELCHER ROAD
CLEARWATER, FLORIDA 33765
PHONE 813.461.5656
FAX 813.447.1146
HTTP://WWW.HEIST.COM
<PAGE> 1
EXHIBIT 15
Letter regarding Unaudited Interim Financial Information
<PAGE> 2
C. H. Heist Corp.
Clearwater, Florida
Gentlemen:
With respect to the registration statements No. 33-48497 and 333-26007, we
acknowledge our awareness of the incorporation of our reports dated April 28,
1997, July 25, 1997 and November 10, 1997 related to our reviews of interim
financial information.
Pursuant to rule 436(c) under the Securities Act of 1933 (the Act), such
reports are not considered part of a registration statement prepared or
certified by an accountant or a report prepared or certified by an accountant
within the meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
Buffalo, New York
March 20, 1998
<PAGE> 1
EXHIBIT 23
Consent of KPMG Peat Marwick LLP to
incorporation of reports in Form S-8
No. 33-48497 and No. 333-26007
<PAGE> 2
Independent Auditors' Consent
The Board of Directors
C.H. Heist Corp.:
We consent to incorporation by reference in the registration statements No.
33-48497 and 333-26007 on Forms S-8 of C. H. Heist Corp. of our reports dated
February 11, 1998, relating to the consolidated balance sheets of C. H. Heist
Corp. and subsidiaries as of December 28, 1997 and December 29, 1996 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the years ended December 28, 1997, December 29, 1996 and December 31, 1995,
and related schedule, which reports appear in or are incorporated by reference
in the December 28, 1997 annual report on Form 10-K of C. H. Heist Corp.
KPMG Peat Marwick LLP
Buffalo, New York
March 20, 1998
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