<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
[x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter period ended September 27, 1998.
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
Commission file number 0-7907
C.H. Heist Corp.
----------------
(Exact name of registrant as specified in its charter)
New York 16-0803301
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
810 North Belcher Road
Clearwater, Florida 33765
------------------- -----
(Address of principal executive offices) (Zip Code)
727-461-5656
------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- ---------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date - October 16, 1998.
Common stock, $.05 par value 2,878,088
---------------------------- --------------------
(Class) (Outstanding shares)
<PAGE> 2
C.H. HEIST CORP. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
<S> <C>
Part I
Financial Information
Condensed Consolidated Balance Sheets - September 27, 1998 - (Unaudited) and 3
December 28, 1997
Condensed Consolidated Statements of Earnings and Comprehensive Income - 4
(Unaudited) Thirteen and thirty-nine week periods ended September 27,
1998 and September 28, 1997
Condensed Consolidated Statements of Cash Flows - (Unaudited)
Thirty-nine week periods ended September 27, 1998 and September
28, 1997
Notes to Condensed Consolidated Financial Statements 6 - 8
Independent Auditors' Review Report 9
Management's Discussion and Analysis of Results of Operations and Financial 10-12
Condition
Part II
Other Information 13
Signatures 14
</TABLE>
* * * * *
2
<PAGE> 3
Part I-Financial Information
C.H. HEIST CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
September 27, December 28,
Assets 1998 1997
------ ------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,924 2,948
Receivables 19,237 16,621
Services in progress 2,330 1,357
Parts and supplies 1,133 1,254
Prepaid expenses 595 539
Deferred income taxes 400 806
------------- -----------
Total current assets 26,619 23,525
------------- -----------
Property, plant and equipment, at cost 55,276 52,677
Less accumulated depreciation 38,448 35,838
------------- -----------
Net property, plant and equipment 16,828 16,839
------------- -----------
Deferred income taxes 168 176
Intangible assets, net 9,246 3,386
Other assets 161 160
------------- -----------
$ 53,022 44,086
============= ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 14 38
Accounts payable 3,331 2,660
Accrued expenses 6,449 3,814
Income taxes payable 242 454
------------- -----------
Total current liabilities 10,036 6,966
Long-term debt, excluding current installments 13,953 8,755
Deferred incentive compensation 610 479
Deferred income taxes 398 398
------------- -----------
Total liabilities 24,997 16,598
------------- -----------
Stockholders' equity (note 3):
Common stock of $.05 par value. Authorized
8,000,000 shares; issued 3,167,092 shares 158 158
Additional paid-in capital 4,277 4,274
Retained earnings 26,850 25,882
Accumulated other comprehensive losses (2,023) (1,583)
------------- -----------
29,262 28,731
Less cost of common stock in treasury: 289,004 and
290,269 shares for 1998 and 1997, respectively (1,237) (1,243)
------------- -----------
Total stockholders' equity 28,025 27,488
============= ===========
$ 53,022 44,086
============= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
C.H. HEIST CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Week period week period week period Week period
Ended Ended Ended Ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net service revenues $ 35,881 31,258 98,185 87,342
Cost of services (note 1) 25,722 22,029 70,355 63,100
--------------- --------------- --------------- --------------
Gross profit 10,159 9,229 27,830 24,242
Selling, general and administrative
expenses (note 1) 8,730 7,768 25,542 22,766
Amortization of intangible assets 149 75 367 163
--------------- --------------- --------------- --------------
Operating income 1,280 1,386 1,921 1,313
--------------- --------------- --------------- --------------
Other income (expense):
Interest income 17 33 64 51
Interest expense (259) (233) (643) (518)
Gain (Loss) on disposal of property,
plant and equipment, net 69 (3) 33 (8)
Miscellaneous, net 295 (2) 410 (208)
--------------- --------------- --------------- --------------
Total other income (expense), net 122 (205) (136) (683)
--------------- --------------- --------------- --------------
Earnings before income taxes 1,402 1,181 1,785 630
Income taxes 644 551 817 387
--------------- --------------- --------------- --------------
Net earnings $ 758 630 968 243
=============== =============== =============== ==============
Basic and diluted net earnings per share $ .22 .34 .08 .26
=============== =============== =============== ==============
Weighted average number of common shares outstanding 2,877,988 2,876,823 2,877,900 2,876,399
=============== =============== =============== ==============
Net earnings $ 758 630 968 243
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (247) (28) (440) (173)
--------------- --------------- --------------- --------------
Comprehensive income $ 511 602 528 70
=============== =============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
C. H. HEIST CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirty-nine week Thirty-nine week
period ended period ended
September 27, 1998 September 28, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 968 243
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation of plant and equipment 3,646 3,824
Amortization of intangible assets 367 163
(Gain) loss on disposal of property, plant
and equipment, net (33) 8
Stock compensation awards 9 15
Changes in assets and liabilities (see below) 25 (3,479)
--------------- ---------------
Net cash provided by operating activities 4,982 774
--------------- ---------------
Cash flows from investing activities:
Additions to property, plant and equipment (4,318) (4,083)
Proceeds from disposal of property, plant and equipment 506 147
Acquisitions and earnout payments, net of cash acquired (6,257) (1,904)
--------------- ---------------
Net cash used in investing activities (10,069) (5,840)
--------------- ---------------
Cash flows from financing activities:
Proceeds from bank line of credit borrowings 19,250 13,450
Repayment of bank line of credit borrowings (14,047) (8,500)
Repayment of other long-term debt (28) (528)
--------------- ---------------
Net cash provided by financing activities 5,175 4,422
--------------- ---------------
Effect of exchange rate changes on cash and cash equivalents (112) (46)
--------------- ---------------
Net decrease in cash and cash equivalents (24) (690)
Cash and cash equivalents at beginning of period 2,948 2,692
--------------- ---------------
Cash and cash equivalents at end of period $ 2,924 2,002
=============== ===============
Changes in assets and liabilities providing (using) cash:
Receivables $ (1,661) (4,435)
Services in progress (730) (445)
Income taxes receivable/payable, net (249) (331)
Parts and supplies 117 268
Prepaid expenses (56) (396)
Other assets 4 305
Accounts payable 535 699
Accrued expenses 1,930 856
Deferred incentive compensation 135 -
--------------- ---------------
Total $ 25 (3,479)
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
C. H. HEIST CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. In the opinion of management of C. H. Heist Corp. and Subsidiaries (the
Company), the accompanying condensed consolidated financial statements
contain all normal recurring adjustments necessary to fairly present the
Company's consolidated financial position as of September 27, 1998 and the
results of its operations and cash flows for the thirty-nine week periods
ended September 27, 1998 and September 28, 1997.
The Company has reclassified 1997 branch expenses that are not directly
attributable to the services it performs from cost of services to selling,
general and administrative expenses to conform to the 1998 classification.
The effect of this reclassification was to lower cost of services and
increase selling, general and administrative expenses by $3,883,000 and
$11,346,000 for the thirteen and thirty-nine week periods ended September
28, 1997. Management believes that its current presentation is generally
consistent with industry practice.
2. The results of operations for the thirty-nine week period ended September
27, 1998 are not necessarily indicative of the results to be expected for
the full year.
3. The changes in stockholders' equity for the thirty-nine week period ended
September 27, 1998 are summarized as follows (in thousands, except
shares):
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive Treasury Stock Stockholders'
Stock capital Earnings losses Shares Amount Equity
--------- ---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1997 $ 158 $ 4,274 $ 25,882 $(1,583) 290,269 $ (1,243) $ 27,488
Net earnings - - 968 - - - 968
Foreign currency translation
Adjustment - - - (440) - - (440)
Stock compensation awards - 3 - - (1,265) 6 9
========= ========== ========== =========== ========== ========== ===========
Balance at September 27, 1998 $ 158 $ 4,277 $ 26,850 $(2,023) 289,004 $ (1,237) $ 28,025
========= ========== ========== =========== ========== ========== ===========
</TABLE>
Accumulated other comprehensive losses consist solely of equity
adjustments from foreign currency translation.
4. For the 39 week period ended September 27, 1998, 38,803 additional stock
options were granted and 3,396 stock options expired. As of September 27,
1998 and December 28, 1997, the Company had exercisable options
outstanding to employees to purchase 166,088 and 169,484 common shares
respectively, at prices ranging from $6.94 to $10.13 per share.
5. The Company has two professional service segments: Staffing services are
provided on a temporary and contract basis to businesses in clerical,
light industrial and technology professional sectors throughout the
eastern United States and select southwestern U.S. markets. Industrial
maintenance includes hydroblasting, painting, sandblasting, and vacuuming
of industrial wastes to a wide range of industries throughout the eastern
United States and Canada. The Company has adopted the provision of
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information". As a result of the
adoption of this standard the Company has revised its allocation of
various corporate overhead expenses between its reporting segments. The
effect of this reclassification was to allocate $198,000 and $648,000 of
additional expenses for the thirteen week and thirty nine-week periods
ended September 28, 1997 to the Company's staffing services segment.
Operating segment data is as follows (in thousands):
6
<PAGE> 7
C. H. HEIST CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Week period week period week period Week period
Ended Ended Ended Ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Staffing services $21,381 16,333 55,879 46,185
Industrial maintenance 14,500 14,925 42,306 41,157
------- ------- ------- -------
Total revenue $35,881 31,258 98,185 87,342
======= ======= ======= =======
Cost of services:
Staffing services $16,386 12,630 42,893 35,993
Industrial maintenance 9,336 9,399 27,462 27,107
------- ------- ------- -------
Total cost of services $25,722 22,029 70,355 63,100
======= ======= ======= =======
Selling, general, administrative:
Staffing services - operations $ 3,110 2,630 8,512 7,476
Staffing services - allocated overhead 666 517 2,025 1,606
------- ------- ------- -------
Total staffing services 3,776 3,147 10,537 9,082
------- ------- ------- -------
Industrial maintenance - operations 3,507 3,300 10,258 9,700
Industrial maintenance - overhead 1,447 1,321 4,747 3,984
------- ------- ------- -------
Total industrial maintenance 4,954 4,621 15,005 13,684
------- ------- ------- -------
Total selling, general and administrative $ 8,730 7,768 25,542 22,766
======= ======= ======= =======
Operating income (loss):
Staffing services $ 1,071 488 2,097 966
Industrial maintenance 209 898 (176) 347
------- ------- ------- -------
Total operating income 1,280 1,386 1,921 1,313
Other income (expenses), net 122 (205) (136) (683)
------- ------- ------- -------
Earnings before income taxes $ 1,402 1,181 1,785 630
======= ======= ======= =======
Depreciation & amortization by segment:
Staffing services $ 263 156 655 422
Industrial maintenance 930 1,153 3,358 3,565
------- ------- ------- -------
Total $ 1,193 1,309 4,013 3,987
======= ======= ======= =======
Assets by segment:
Staffing services $23,078 13,931
Industrial maintenance 28,627 32,108
Corporate 1,317 756
------- ------
Total $53,022 46,795
======= ======
Capital expenditures, including
acquisitions by segment:
Staffing services $ 143 116 6,751 2,538
Industrial maintenance 973 1,202 3,824 3,449
------- ------- ------- ------
Total $ 1,116 1,318 10,575 5,987
======= ======= ======= ======
</TABLE>
7
<PAGE> 8
C. H. HEIST CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. On April 13, 1998, Ablest Service Corp., a wholly owned subsidiary of C.
H. Heist Corp. acquired one hundred percent of the stock of Milestone
Technologies, Inc. ("Milestone") for approximately $6.6 million paid in
cash to the shareholders at closing and agreed to pay additional
consideration based on the achievement of certain pre-established earning
targets for 1998. Milestone provides information technology staffing
services in the Phoenix, Arizona metropolitan area and had fiscal 1997
revenues of approximately $9.0 million. The purchase price was determined
through negotiations and has been assigned, based on a preliminary
allocation, to the fair value of the assets and liabilities acquired with
the excess being assigned to goodwill.
Pro Forma Condensed Combined Financial Information - (Unaudited) thirteen
and thirty-nine week periods ended September 27, 1998 and September 28,
1997.
The unaudited pro forma condensed combined financial information
reflects the pro forma results of operations of the Company for
the thirteen and thirty-nine week periods ended September 27, 1998
and September 28, 1997 assuming the acquisition of Milestone had
been consummated as of the beginning of the periods presented.
Milestone uses a November 30th fiscal year end and therefore the
accompanying unaudited pro forma financial information include
their results of operations for comparable periods. Those periods
include the historical results of operations for the thirteen and
thirty-nine week periods ended August 31, 1997 and the
thirteen-week period ended February 28, 1998.
The purchase method of accounting has been used for this
acquisition and in the preparation of the pro forma condensed
combined financial information. Management believes that the
assumptions used in preparing this unaudited pro forma condensed
combined financial information provide a reasonable basis of
presenting all of the significant effects of the acquisition of
Milestone. The pro forma condensed combined financial information
does not purport to be indicative of the actual results that would
have occurred had the acquisition been consummated on or as of the
dates assumed, and are not necessarily indicative of the future
results of operations which will be obtained as a result of the
acquisition.
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
week period week period week period week period
ended ended Ended ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net service revenues $ 35,881 33,565 101,024 93,631
Net earnings 758 677 1,028 348
Basic and diluted earnings per share $ .26 .24 .36 .12
</TABLE>
8
<PAGE> 9
Independent Auditors' Review Report
The Board of Directors and Stockholders
C.H. Heist Corp:
We have reviewed the condensed consolidated balance sheet of C.H. Heist Corp.
and subsidiaries as of September 27, 1998 and the related condensed
consolidated statements of operations and comprehensive income and cash flows
for the thirteen and thirty-nine week periods ended September 27, 1998 and
September 28, 1997. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of C.H. Heist Corp. and subsidiaries
as of December 28, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year ended (not presented herein);
and in our report dated February 11, 1998, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
28, 1997, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Buffalo, New York KPMG Peat Marwick LLP
October 23, 1998
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
Results of Operations:
Net service revenue increased by $4.6 million or 14.8% to $35.9 million from
$31.3 million during the current fiscal quarter and by $10.9 million or 12.4%
to $98.2 million from $87.3 million for the fiscal year to date period,
compared to one year ago. Service revenues in the staffing services segment
increased by $5.1 million or 30.9% to $21.4 million from $16.3 million during
the current fiscal quarter and by $9.7 million or 21.0% to $55.9 million from
$46.2 million for the fiscal year to date period, compared to one year ago.
Revenues in the Ablest Technology Services (ATS) division of this segment
increased by $3.0 million or 127% to $5.5 million from $2.4 million during the
current fiscal quarter and by $7.9 million or 159% to 12.9 million from $5.0
million for the fiscal year to date period, compared to one year ago. Milestone
Technologies, Inc., acquired on April 13, 1998 has contributed $3.1 million and
$5.5 million of this increase for the current fiscal quarter and year to date
periods, respectively. The ATS division currently accounts for 25.8% and 23.1%
of total staffing service revenues for the current fiscal quarter and year to
date periods, respectively. The commercial staffing division increased revenues
by $2.0 million or 14.2% and by $1.8 million or 4.3% for the current fiscal
quarter and year to date period, respectively. The increases in the commercial
staffing division were mainly attributable to offices that were opened within
the past two years and with greater market penetration in existing offices.
Service revenues in the Company's industrial maintenance segment declined by
$425,000 or 2.8% to $14.5 million from $14.9 million during the current fiscal
quarter while increasing by $1.1 million or 2.8% to $42.3 million from $41.2
million for the fiscal year to date period, compared to one year ago.
Contributing to the decline in the current fiscal quarter and in limiting the
increase in year to date revenues is the impact of the decline in value of the
Canadian dollar to the U.S. dollar. The segment's Canadian division, C. H.
Heist, Ltd., showed a fiscal quarter and year to date increase in service
revenues of $457,000 and $497,000, respectively, when measured in Canadian
dollars. However, when converted to its U.S. dollar equivalent, these increases
resulted in declines of $92,000 and $431,000 for the current fiscal quarter and
year to date periods respectively. Contributing to the fiscal year to date
increase were improvements in revenues for hourly rated maintenance services in
the segment's core service line as well as the opening of two new offices.
Gross profit (margin) increased by $930,000 or 10.1% for the current fiscal
quarter and by $3.6 million or 14.8% for the fiscal year to date period,
compared to one year ago. Gross profit as a percent of revenues declined to
28.3% from 29.5% for the current fiscal quarter while improving to 28.3% from
27.7% for the fiscal year to date period, compared to one year ago. Gross
profit margin in the staffing services segment increased by $1.3 million or
34.9% and by $3.0 million or 27.4% for the current fiscal quarter and year to
date periods, respectively. The increase in both gross profit dollars and
percent are partially attributable to acquisitions of Information Technology
staffing companies which generate higher gross profit margins
Gross profit margin in the Company's industrial maintenance segment declined in
both dollars and percent during the current fiscal quarter. Gross profit margin
declined by $363,000 or 6.6% during the current fiscal quarter, while still
showing an increase of $793,000 or 5.6% for the current fiscal year to date
period as compared to one year ago. The decline in both dollars and percent
during the current fiscal quarter is partially attributable to the impact of
the decline in value of the Canadian dollar, as noted above, and also to lower
than expected returns on the segment's painting and paint-related services.
Another area impacting this reduction in gross profit margin for the current
fiscal quarter, is a decrease in waste management services out of this
segment's Canadian division. This decrease is the result of effects from the
fire, which occurred at the Company's Rouyn-Noranda, Quebec facility on June
30, 1998.
Selling, general and administrative expenses, inclusive of amortization
expense, increased by $1.0 million or 13.2% and by $3.0 million or 13.0% for
the current fiscal quarter and year to date periods, respectively. Selling,
general and administrative expenses for the Company's staffing services segment
increased by $708,000 or 22.0% and by $1.7 million or 18.0% for the current
fiscal quarter and year to date periods, respectively.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
Results of Operations (continued):
Contributing to this increase in both fiscal periods are the costs associated
with new offices and acquisitions, including increased amortization of
intangible assets. Selling, general and administrative expenses for the
Company's industrial maintenance segment increased by $328,000 or 7.1% and by
$1.3 million or 9.6% for the current fiscal quarter and year to date periods,
respectively. Partially contributing to this increase is the costs associated
with the opening of new offices and the higher costs to maintain and continue
to develop information technology hardware, software and personnel to better
service our customers. These increases were partially offset by the allocations
of proceeds received from the settlement of litigation in the Company's
Canadian division. See the heading "Litigation Settlement" below.
Other income and expense, net resulted in a net other income for the current
fiscal quarter of $122,000, an improvement of $327,000 from the same period,
one year ago. For the year to date period net other expenses were $136,000 an
improvement of $547,000 from the same period one year ago. Interest expense
increased by $42,000 and $112,000 during the current fiscal quarter and year to
date periods, respectively. This was caused by the higher level of borrowings
utilized to partially pay for acquisitions.
The reduction noted in other expenses net for the fiscal year to date period is
partially attributable to costs that were not repeated from the prior year
associated with the planned spin-off and initial public offering of the
Company's staffing services segment. Also having a major impact during the
current fiscal quarter and year to date periods was the settlement of
litigation in the Company's Canadian division. See the heading "Litigation
Settlement" below.
The effective tax rate for the current fiscal quarter was 45.9% and 45.8% for
the fiscal year to date period. The effective tax rates are the result of
multiple taxing jurisdictions in which the Company operates.
Financial Condition:
The quick ratio was 2.5 to 1 compared to 3.1 to 1 and the current ratio was 2.7
to 1 compared to 3.4 to 1 for the period ending September 27, 1998 and December
28, 1997, respectively. Net working capital increased by $24,000, primarily due
to increases in accounts receivable and services in progress associated with
acquisitions and the growth in the staffing services segment. These increases
were mostly offset with an increase in accrued expenses, which increased due to
the accrual of $914,000 of earnout costs associated with completed
acquisitions. Reference should be made to the statement of cash flows which
details the sources and uses of cash.
Open credit commitments as of September 27, 1998 were $11.0 million. The
Company also has $331,000 (the U.S. dollar equivalent) available for C. H.
Heist, Ltd., the Company's Canadian subsidiary.
Capital expenditures for the current fiscal quarter were approximately $1.1
million. Of this amount, $670,000 was for additions to the mobile equipment
fleet, $186,000 was for computer hardware, software and office automation and
communication systems, $108,000 was for new facilities and the balance was for
other equipment. Open purchase commitments at September 27, 1998 were $444,000
of which $350,000 is for new mobile equipment, $5,000 for computer hardware and
the balance for other 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 expenditure requirements for
the remainder of fiscal 1998.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
Litigation Settlement:
During the current fiscal quarter, the Company's Canadian subsidiary
successfully negotiated a settlement of an outstanding lawsuit, which it had
brought against an international bridge authority in Sarnia, Ontario Canada.
The suit alleged that the bridge authority and its engineering firm
misrepresented the total volume of steel that was to be sand blasted and
painted on the structure in fiscal 1993 and 1994. The settlement reached was
for $661,000 in Canadian dollars (approximately $430,000 in U. S. funds). The
allocation of the proceeds from this settlement was to first payoff an
outstanding receivable in the amount of $11,000 due from the authority, then to
offset $106,000 (U.S. dollars) of attorney and engineering consulting costs
that were incurred to prepare and present our case. In addition a reserve for
potential subcontractor demands of approximately $78,000 (U.S. dollars) was
established. Such claims are expected to be resolved during fiscal 1999. The
remaining balance of approximately $235,000 (U.S. dollars) was credited to
miscellaneous other income and included in the current fiscal quarter.
Impact of Year 2000 Compliance:
Some of the Company's computer programs and hardware have date-sensitive
software which may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a systems failure or miscalculation causing
disruptions of certain day to day accounting operations. The Company has
undertaken an extensive review of its internal systems and has recently
completed an applications upgrade to its integrated accounting programs that
make them Year 2000 (Y2K) compliant. The Company is currently upgrading
operating systems at all of its remote locations and anticipates being
internally Y2K compliant by the end of 1998. The next phase of our plan is to
assess external, third party, and compliance for those suppliers of critical
services that the Company relies upon. It is anticipated that this final phase
will be completed in early 1999. The upgrade to the various applications, which
the Company has undertaken, did not result in additional expenses as they were
part of the normal maintenance and support fees that are incurred on an ongoing
basis. The total cost associated with the Company's Y2K compliance program is
not material to the Company's operation. Although there can be no assurances,
the Company does not anticipate any foreseeable problems regarding
date-sensitive computer hardware or software applications that would have a
materially adverse effect on the Company.
12
<PAGE> 13
Part II-Other Information
Item 5 Other Information
If a shareholder intends to raise at the Company's 1999 annual meeting
a proposal that he does not seek to have included in the Company's proxy
statement and form of proxy, he must notify the Company of the proposal on or
before February 16, 1999. If the shareholder fails to notify the Company, the
Company's proxies will be permitted to use their discretionary voting authority
with respect to such proposal when and if it is raised at such annual meeting,
whether or not there is any discussion of such in the 1999 proxy statement.
Item 6 Exhibits and Reports on Form 8-K
(A) Exhibit 27.1 Financial Data Schedules (for SEC use only)
(B) Reports on Form 8-K: No reports on Form 8-K have been filed
during the quarter ended September 27, 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C.H. Heist Corp.
(Registrant)
Date November 4, 1998 /s/ Mark P. Kashmanian
----------------------- ----------------------
Mark P. Kashmanian
Chief Accounting Officer
14
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