-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V9W6BLCnRhjihOtojUP7priB5DXnoWTXnAWgz7X0/BEqjpY2wWePIvQKH27hqQy6 IoAeAB4RTBXkwqbn+nggng== 0000950144-98-003220.txt : 19980326 0000950144-98-003220.hdr.sgml : 19980326 ACCESSION NUMBER: 0000950144-98-003220 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980325 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEIST C H CORP CENTRAL INDEX KEY: 0000046653 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 160803301 STATE OF INCORPORATION: NY FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10893 FILM NUMBER: 98572787 BUSINESS ADDRESS: STREET 1: 810 NORTH BELCHER ROAD CITY: CLEARWATER STATE: FL ZIP: 34625 BUSINESS PHONE: 8134615656 MAIL ADDRESS: STREET 1: 45 ANDERSON ROAD CITY: BUFFALO STATE: NY ZIP: 14225 10-K405 1 C.H. HEIST CORP. 1997 FORM 10-K405 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 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (813) 461-5656 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.05 par value - -------------------------------------------------------------------------------- (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 ------- ------- 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). 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. 3 - 2 - 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. 4 - 3 - 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. 5 - 4 - 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:
Fiscal Year Ended ---------------------------------- Dec. 28, Dec. 29, Dec. 31, In Thousands 1997 1996 1995 - ------------ -------- -------- --------- 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
* 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:
Fiscal Year Ended Industrial --------------------------------- Maintenance Dec. 28, Dec. 29, Dec. 31, Sales and Revenues 1997 1996 1995 - ------------------ -------- -------- -------- Hydro/Mechanical 63% 69% 72% Sandblasting and 17% 16% 17% Painting Other 20% 15% 11%
6 - 5 - 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:
Fiscal Year Ended ---------------------------------- Dec. 28, Dec. 29, Dec .31, In Thousands 1997 1996 1995 - ------------ --------- --------- -------- 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
There were no export sales during any period. 7 - 6 - Executive Officers of Registrant (a) Identification. The Company's executive officers are:
Served as Position and Executive Office with Officer Name Age Registrant Since - ---- --- ------------ ----------- 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
8 - 7 - (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. 9 - 8 - 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. 10 - 9 - 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. 11 - 10 - 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.
Exhibit Number Description - ------- ----------- 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).
12 - 11 - 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)
- --------------------- * Filed herewith. 13 - 12 - (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. 14 - 13 - C.H. HEIST CORP. AND SUBSIDIARIES Index to Financial Statements and Schedules Form 10-K Items 8, 14(a)(1)
Page reference ----------------- Annual Form Report 10-K ------ ---- 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
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. 15 - 14 - 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 16 -15- SCHEDULE II C. H. HEIST CORP. AND SUBSIDIARIES VALUATION ACCOUNT
Additions Balance at charged to Accounts Balance Beginning cost and receivable at end of period expenses written-off of period --------- ---------- ----------- --------- 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 ======== ======== ======== =======
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. 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
February 23, 1998 18 EXHIBIT INDEX
Exhibit Page or Number Description Reference - ------- ----------- --------- 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)
- --------------------- 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. EX-10.9 2 AMENDMENT (06-17-97) TO CORP REV & TERM LOAN AGMT 1 EXHIBIT 10.9 Amendment to Corporate Revolving and Term Loan Agreement with Manufacturers and Traders Trust Company dated June 17, 1997 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 EX-10.10 3 AMENDMENT (11-13-97) TO CORP REV & TERM LOAN AGMT 1 EXHIBIT 10.10 Amendment to Corporate Revolving and Term Loan Agreement with Manufacturers and Traders Trust Company dated November 13, 1997 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: 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: 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. 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 EX-13 4 1997 ANNUAL REPORT 1 EXHIBIT 13 1997 ANNUAL REPORT TO SHAREHOLDERS 2 TABLE OF CONTENTS 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
FINANCIAL HIGHLIGHTS
(In thousands, except per share earnings) December 28, 1997 December 29, 1996 - ------------------------------------------------------------------------------------------- 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
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. 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.
NET SALES (in $millions) 93 $ 82.5 94 $102.6 95 $102.7 96 $106.5 97 $119.5
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 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 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.
NET EARNINGS (in $millions) 93 $ .486 94 $ .318 95 $1.606 96 $ .690 97 $ .898
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.
OPERATING INCOME (in $millions) 93 $1.459 94 $1.471 95 $3.410 96 $2.233 97 $3.073
3 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 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."
STOCK PRICE VS. BOOK VALUE AT PERIOD END 93 94 95 96 97 ----- ----- ----- ------ ----- BOOK VALUE $8.59 $8.54 $9.18 $9.42 $9.56 STOCK PRICE $7.62 $7.00 $6.87 $7.87 $7.00
EBITDA (in millions) ------------- 93 $5.7 94 $5.8 95 $7.8 96 $7.0 97 $8.0
5 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 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.
STAFFING SERVICES NET SALES --------------------------- (in $millions) 93 $36.1 94 $44.1 95 $44.7 96 $49.5 97 $63.3
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.
INDUSTRIAL MAINTENANCE SERVICES NET SALES ---------------------- (in $millions) 93 $46.4 94 $58.5 95 $58.0 96 $57.0 97 $56.2
7 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 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 12 C. H. Heist Corp. & Subsidiaries -------------------------------- SUMMARY OF SELECTED FINANCIAL DATA --------------------------------
(In thousands, except per share earnings and percentages) - ----------------------------------------------------------------------------------------------------------------- FISCAL YEARS ENDED DECEMBER 1997(1) 1996(1) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------- 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
(1) Includes effects of acquisitions. Refer to note 13 of the consolidated financial statements. (2) Defined as net earnings plus depreciation and amortization. 10 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 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 15 C. H. Heist Corp. & Subsidiaries -------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------------
(In thousands, except share data) - ------------------------------------------------------------------------------------------------ YEAR ENDED DEC. 28, 1997 DEC. 29, 1996 - ------------------------------------------------------------------------------------------------ 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 ================================================================================================
See accompanying notes to consolidated financial statements. 13 16 C. H. Heist Corp. & Subsidiaries -------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS --------------------------------
(In thousands, except share data) - ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED DEC. 28, 1997 DEC. 29, 1996 DEC. 31, 1995 - ----------------------------------------------------------------------------------------------------------------------- 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 =======================================================================================================================
See accompanying notes to consolidated financial statements. C. H. Heist Corp. & Subsidiaries -------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS 'EQUITY --------------------------------
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 - -------------------------------------------------------------------------------------------------------------------------------- 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 ================================================================================================================================
See accompanying notes to consolidated financial statements. 14 17 C. H. Heist Corp. & Subsidiaries -------------------------------- CONSOLIDATED STATEMENTS OF CASHFLOWS --------------------------------
(In thousands) - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------ 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 - ==============================================================================================================================
See accompanying notes to consolidated financial statements. 15 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 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:
(In thousands) - ------------------------------------------------------------------ YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 - ------------------------------------------------------------------ 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 - ------------------------------------------------------------------
(3) INTANGIBLE ASSETS A summary of intangible assets follows:
(In thousands) - ------------------------------------------------------------------ YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 - ------------------------------------------------------------------ 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 ==================================================================
Intangible assets relate primarily to acquisitions in the staffing services segment (note 13). (4) ACCRUED EXPENSES A summary of accrued expenses follows:
(In thousands) - ------------------------------------------------------------------ YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 - ------------------------------------------------------------------ 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 - ------------------------------------------------------------------
(5) INDEBTEDNESS A summary of long-term debt follows:
(In thousands) - ------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 - ------------------------------------------------------------------- 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 ===================================================================
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 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:
Weighted Options average exercisable Shares exercise price at year end - -------------------------------------------------------------------------- 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 ==========================================================================
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:
Weighted average Shares exercise price - ----------------------------------------------------------------------- Outstanding Dec. 29, 1996 - $ - Granted 33,583 6.22 Exercised - - Canceled or expired - - - ----------------------------------------------------------------------- Outstanding Dec. 28, 1997 33,583 $ 6.22 =======================================================================
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:
(In thousands, except per share data) - ------------------------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995 - ------------------------------------------------------------------------------------------- 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
18 21 (8) INCOME TAXES Income tax expense consists of:
(In thousands) - ----------------------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1997 Dec. 31, 1995 - ----------------------------------------------------------------------------------------- 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 =========================================================================================
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:
(In thousands) - --------------------------------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995 - --------------------------------------------------------------------------------------------------- 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% ===================================================================================================
The tax effects of temporary differences that give rise to the deferred tax assets and liability are as follows:
(In thousands) - ----------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 - ----------------------------------------------------------------------------- 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 =============================================================================
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 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:
(In thousands) - ------------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 - ------------------------------------------------------------------------------- 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% ===============================================================================
(In thousands) - ------------------------------------------------------------------------------------- YEAR ENDED Dec. 28,1997 Dec. 29, 1996 Dec. 31,1995 - ------------------------------------------------------------------------------------- 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 =====================================================================================
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:
(In thousands) - -------------------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995 - -------------------------------------------------------------------------------------- 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 ======================================================================================
20 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:
(In thousands) - ----------------------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 Dec. 31, 1995 - ----------------------------------------------------------------------------------------- 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
(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.
Unaudited (In thousands, except per share data) - -------------------------------------------------------------------------- YEAR ENDED Dec. 28, 1997 Dec. 29, 1996 - -------------------------------------------------------------------------- Net sales $121,551 113,119 Net earnings 920 824 Basic and diluted earnings per share $ 0.32 0.29
(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:
(In thousands) Real property ----------------------- Related Year persons Other Equipment ============================================================================= 1998 $ 57 612 726 1999 58 387 509 2000 55 170 280 2001 - 45 2
(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 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 25 C. H. Heist Corp. & Subsidiaries -------------------------------- QUARTERLY FINANCIAL DATA --------------------------------
(in thousands, except per share data and percentages) - -------------------------------------------------------------------------------------------------------------------- QUARTER ENDED MARCH JUNE SEPT. DEC. - -------------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data and percentages) - ----------------------------------------------------- QUARTER ENDED FULL YEAR - ----------------------------------------------------- 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 - --------------------------
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 26 ---------------------- DIRECTORS AND OFFICERS ---------------------- 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
24 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) rowlj@heist.com 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 28 C.H. HEIST CORP. 810 NORTH BELCHER ROAD CLEARWATER, FLORIDA 33765 PHONE 813.461.5656 FAX 813.447.1146 HTTP://WWW.HEIST.COM EX-15 5 LETTER RE: UNAUDITED INTERIM FINANCIAL INFO 1 EXHIBIT 15 Letter regarding Unaudited Interim Financial Information 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 EX-23 6 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23 Consent of KPMG Peat Marwick LLP to incorporation of reports in Form S-8 No. 33-48497 and No. 333-26007 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 EX-27 7 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 1,000 YEAR DEC-28-1997 DEC-30-1996 DEC-28-1997 2,948 0 16,621 0 1,254 23,525 52,677 35,838 44,086 6,966 8,755 158 0 0 27,330 44,086 119,516 119,516 100,687 100,687 15,756 0 729 2,004 1,106 898 0 0 0 898 .31 .31
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