<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------------------------
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number -
March 31, 1995 0-15045
BHA Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 43-1416730
-------------------------- -------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8800 East 63rd Street, Kansas City, Missouri 64133
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (816) 356-8400
-----------------
Indicate by checkmark 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 twelve 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
------------- -------------
As of March 31, 1995, the number of shares outstanding of the
Registrant's Class A Common Stock was 5,620,802.
<PAGE>
PART I. FINANCIAL INFORMATION
BHA GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1995 SEPTEMBER 30,
ASSETS (UNAUDITED) 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 721,197 $ 6,796,976
Accounts receivable, less allowance
for doubtful receivables of $852,000 and
$757,000, respectively 18,360,863 14,957,812
Inventories (note 2) 15,215,336 12,452,044
Prepaid expenses 1,328,141 1,223,122
Deferred income taxes 635,000 635,000
------------ ------------
Total current assets 36,260,537 36,064,954
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 955,255 670,241
Buildings and improvements 13,031,756 10,384,234
Machinery and equipment 21,552,709 18,711,729
Office furniture, fixtures and equipment 2,479,206 2,266,738
------------ ------------
38,018,926 32,032,942
Less accumulated depreciation and amortization 15,487,840 13,654,884
------------ ------------
Net property, plant and equipment 22,531,086 18,378,058
------------ ------------
Other assets 8,331,919 8,307,780
------------ ------------
$67,123,542 $62,750,792
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt (note 3) $565,593 $56,016
Accounts payable 6,064,686 7,177,851
Accrued compensation and employee benefit costs 2,501,971 2,247,559
Accrued expenses and other current liabilities 2,431,606 1,481,638
Income taxes payable 231,168 380,720
------------ ------------
Total current liabilities 11,795,024 11,343,784
------------ ------------
Long-term deferred income taxes 2,433,000 2,193,000
Long-term debt, excluding current installments (note 3) 6,913,204 350,717
Shareholders' equity:
Class A common stock $0.01 par value.
Authorized 10,000,000 shares; issued
6,425,002 and 6,380,002, respectively
(note 4) 64,250 63,800
Additional paid-in capital (note 4) 24,919,311 24,402,261
Retained earnings 30,565,489 27,925,706
Foreign currency translation adjustment 287,234 37,986
Unearned compensation (note 4) (470,062) --
Less cost of 804,200 and 346,500 shares of
common stock in treasury (9,383,908) (3,566,462)
------------ ------------
Total shareholders' equity 45,982,314 48,863,291
------------ ------------
$67,123,542 $62,750,792
============ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BHA GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales $30,264,138 $28,095,309
Cost of sales 22,182,845 21,598,383
------------ ------------
Gross margin 8,081,293 6,496,926
------------ ------------
Operating expenses
Selling and advertising expense 2,723,306 2,294,304
General and administrative expense 2,687,059 2,355,065
------------ ------------
Total operating expenses 5,410,365 4,649,369
------------ ------------
Operating income 2,670,928 1,847,557
Interest (income) expense, net 100,231 (12,703)
------------ ------------
Earnings before income taxes 2,570,697 1,860,260
------------ ------------
Income taxes 990,000 690,000
------------- -------------
Net earnings $1,580,697 $1,170,260
============= =============
Weighted average number of common shares
outstanding 5,785,393 6,464,515
Earnings per share of common stock $.27 $.18
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BHA GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales $57,522,492 $52,969,810
Cost of sales 42,188,661 40,544,261
------------ ------------
Gross margin 15,333,831 12,425,549
------------ ------------
Operating expenses
Selling and advertising expense 5,244,945 4,422,460
General and administrative expense 5,178,451 4,537,592
------------ ------------
Total operating expenses 10,423,396 8,960,052
------------ ------------
Operating income 4,910,435 3,465,497
Interest (income) expense, net 88,781 (14,510)
------------ ------------
Earnings before income taxes 4,821,654 3,480,007
------------ ------------
Income taxes 1,830,000 1,255,000
------------- -------------
Net earnings $ 2,991,654 $ 2,225,007
------------- ------------
Weighted average number of common shares
outstanding 5,932,614 6,460,085
Earnings per share of common stock $.50 $.34
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BHA GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings: $ 2,991,654 $ 2,225,007
Adjustment to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 2,296,255 1,741,732
------------ ----------
5,287,909 3,966,739
Changes in assets and liabilities, net of amounts in
business acquired:
Accounts receivable (3,403,051) 350,222
Inventories (2,763,292) (432,811)
Prepaid expenses (105,019) (527,422)
Accounts payable (1,113,165) (2,369,163)
Accrued expenses and other liabilities 1,204,380 700,763
Income taxes payable (149,552) 190,417
------------ ----------
Net cash provided by (used in) operation (1,041,790) 1,878,745
------------ ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (5,985,984) (1,707,375)
Acquisition of product rights (200,000) (410,000)
------------ ----------
Net cash used in investment transactions (6,185,984) (2,117,375)
------------ ----------
Cash flows from financing activities:
Payment of cash dividend on common stock (351,871) (382,800)
Purchase of treasury stock (5,817,446) --
Proceeds from borrowings under bank term note 2,500,000 --
Net proceeds from borrowings under revolving bank lines
of credit 4,725,000 --
Repayments of long-term debt and other long-term liability (152,936) (44,357)
------------ ----------
Net cash provided by (used in) financing activity 902,747 (427,157)
------------ ----------
Effect of exchange rate changes 249,248 (2,191)
------------ ----------
Net increase in cash and cash equivalents (6,075,779) (667,978)
Cash and cash equivalents at beginning of period 6,796,976 3,840,652
------------ -----------
Cash and cash equivalents at end of period $ 721,197 $ 3,172,674
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BHA GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Class A common stock:
Balance at beginning period $ 63,800 $ 63,660
Issuance of 45,000 and 14,000 shares of common
stock in 1995 and 1994 450 140
--------------- -------------
Balance at end of period 64,250 63,800
--------------- -------------
Additional paid-in capital:
Balance at beginning of period 24,402,261 24,219,654
Excess of issuance of common stock over par value 517,050 182,607
------------- -----------
Balance at end of period 24,919,311 24,402,261
------------- -----------
Retained earnings:
Balance at beginning of period 27,925,706 23,877,816
Net earnings for the period 2,991,654 2,225,007
Dividends at $.06 per share paid on common stock
during 1995 and 1994 (351,871) (382,800)
------------- -----------
Balance at end of period 30,565,489 25,720,023
------------- -----------
Foreign currency translation adjustment:
Balance at beginning of period 37,986 (124,769)
Equity adjustment from foreign currency translation 249,248 (2,191)
------------- -----------
Balance at end of period 287,234 (126,960)
------------- -----------
Unearned compensation:
Balance at beginning of period -- --
Issuance of 45,000 shares of restricted stock (517,500) --
Compensation expense 47,438 --
------------- -----------
Balance at end of period (470,062) --
------------- -----------
Treasury Stock:
Balance at beginning of period (3,566,462) --
Acquisition of 457,700 shares of common stock,
at cost during 1995 (5,817,446) --
------------- -----------
Balance at end of period (9,383,908) --
------------- -----------
Total shareholders' equity $45,982,314 $50,059,124
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BHA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
These condensed consolidated financial statements reflect all
adjustments (consisting of normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the financial
position, results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles
applied in a consistent basis.
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Company's Annual
Report to Shareholders for the fiscal year ended September 30, 1994 and
with Management's Discussion and Analysis of Results of Operations and
Financial Condition appearing within this quarterly report.
(2) INVENTORY VALUATION
BHA values its inventory at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Components of inventories at March 31, 1995 and September 30, 1994 were
as follows:
March 31, September 30,
1995 1994
---- ----
Raw materials $ 9,927,911 $ 8,625,316
Work-in-process 2,313,627 1,159,831
Finished goods 2,973,798 2,666,897
----------- -----------
Total $15,215,336 $12,452,044
=========== ===========
(3) NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
During fiscal 1995, BHA increased its credit facilities through the
establishment of a term loan and revolving bank lines of credit and
raised the amounts available under its existing unsecured lines of
credit.
BHA borrowed $2,500,000 under an unsecured term loan, the proceeds of
which were used to purchase the building which serves as its corporate
headquarters. The unsecured term loan has variable interest rates tied
to the bank's prime interest rate. Principal payments are due in
quarterly installments over a five year period through 2000. At March
31, 1995, $2,375,000 was outstanding under the term loan.
BHA also has unsecured revolving bank lines of credit amounting to
$8,000,000. The revolving bank lines of credit include a $3,000,000
facility with variable interest rate options based on, at BHA's option,
either LIBOR or the bank's prime interest rates which expires in 1998.
The revolving bank lines of credit include a $5,000,000 facility with
variable interest rates based on LIBOR, which expires in 2000. At March
31, 1995, $4,725,000 was borrowed under the revolving bank lines of
credit.
BHA has unsecured lines of credit amounting to $8,600,000. There were
no borrowings against these lines of credit during the six months ended
March 31, 1994.
<PAGE>
The term loan, revolving bank lines of credit and other lines of credit
require BHA, among other things, to maintain certain minimum levels of
net worth and fixed charge coverage and set a minimum current and a
maximum leverage ratio.
BHA has notes payable to banks of $378,797 bearing interest at 6.5% to
6.75% with annual principal payments from 1995 to 2000.
(4) RESTRICTED STOCK AND UNEARNED COMPENSATION
During fiscal 1995, BHA awarded an aggregate of 45,000 shares of
restricted stock to employees. The awards were issued under the BHA
Incentive Stock Plan (the Plan) which was approved by shareholders at
the 1995 Annual Meeting of Shareholders. The fair value of the awards
is being charged to compensation expense over their five year vesting
period.
<PAGE>
BHA GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NET SALES
Net sales for the six months ended March 31, 1995 increased 9% compared
to the same period a year ago. The increase was attributable to higher
BHA Company, Inc. (BHA Company) and BHA Group International, Inc. (BGI)
sales offset by lower PrecipTech, Inc. (PrecipTech) sales. BHA Company
sales increased 24% as sales of fabric filters and other replacement
parts showed strong improvement over the prior year. Sales of
maintenance services and major projects also increased during the
period. BGI sales increased 62% from the same period a year ago as the
sales of pleated products through SF Air Filtration AG (SFAG), which
was acquired during the fourth quarter of fiscal 1994, were included in
the current period results. BGI sales, exclusive of pleated product
sales through SFAG, increased 35% over the prior year due to higher
sales to the Latin American and European markets. PrecipTech sales
decreased 23% due to lower sales of engineered rebuilds to the utility
markets. Rebuild activity within other industrial markets, however,
improved as compared to the prior year. Higher sales prices accounted
for only a small portion of the increases.
Net sales for the three months ended March 31, 1995 increased 8%
compared to the same period a year ago. The results reflect higher BHA
Company and BHA Group International sales offset by lower PrecipTech
sales.
GROSS MARGIN
Gross margin as a percentage of sales was 26.7% for the six months
ended March 31, 1995 compared to 23.5% for the same period last year.
The overall improvement in gross margin percentage was attributable to
a sales mix shift towards higher BHA Company and BGI sales which carry
higher gross margin percentages than engineered rebuilds to
PrecipTech's markets. BHA Company gross margin percentages increased in
part due to favorable plant absorption associated with the increase in
sales of manufactured products. BGI gross margin percentages increased
over the prior year due to higher sales of pleated media and
precipitator products which carry strong gross margin percentages.
PrecipTech gross margin percentages were consistent with the prior
year. For the year ended September 30, 1994, consolidated gross margin
as a percentage of sales was 25.0%.
Gross margin as a percentage of sales was 26.7% for the three months
ended March 31, 1995 compared to 23.1% for the same period a year ago.
The three month period results reflect an increase in higher margin
BHA Company and BGI business.
OPERATING EXPENSES
Selling and advertising expense as a percentage of sales for the six
months ended March 31, 1995 and 1994 was 9.1% and 8.3%, respectively.
The corresponding percentages for the 1995 and 1994 three month periods
were 9.0% and 8.2%. Selling and advertising expense, expressed in
dollars for the six and three month periods, increased $822,000 and
$429,000 over the same period in the prior year. The increase is
attributable to higher selling expenses associated with the increase in
domestic and international business and startup costs to develop new
markets.
<PAGE>
General and administrative expense for the six months ended March 31,
1995 and 1994 as a percentage of sales was 9.0% and 8.6%, respectively.
The corresponding percentages for the 1995 and 1994 three month periods
were 8.9% and 8.4%, respectively. General and administrative expense,
expressed in dollars, increased $641,000 and $332,000 over the six and
three month periods in the prior year due to higher payroll and other
expense associated with the general increase in business.
NET INTEREST INCOME/EXPENSE
Net interest expense for the six months ended March 31, 1995 was
$88,781 compared to net interest income of $14,510 for the same period
a year ago. For the three months ended March 31, 1995, net interest
expense was $100,231 compared to $12,703 net interest income for the
same period a year ago. Borrowings under the Company's credit
facilities to purchase the building which serves as its headquarters
and the acquisition of shares as treasury stock substantially
contributed to the net interest expense in the current year.
INCOME TAXES
The Company's effective tax rate for the six months ended March 31,
1995 was 38.0% compared to 36.0% for the same period last year. The
effective tax rates for the 1995 and 1994 three month periods were
38.5% and 37.1%. The increase in the effective tax rates for the
current year periods was attributable to higher provisions for state
income taxes.
NET EARNINGS
Net earnings for the six and three month periods ended March 31, 1995
increased over the prior year due to higher sales volume and gross
margin percentages.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $24.5 million at March 31, 1995 compared to
$24.7 million at September 30, 1994. Cash decreased from $6.8 million
at September 30, 1994 to $721,000 at March 31, 1995. The decrease in
cash of $6.1 million was composed of a $1.0 million decrease in cash
from operating activities, almost $6.2 million of cash used in
investing activities and $903,000 of cash provided by financing
activities. Investing activities included the purchase of the building
which serves as the Company's corporate headquarters and capital
improvements at its manufacturing facilities. The Company's financing
activities consisted of borrowings of $4,725,000 under the Company's
revolving bank lines of credit and $2.5 million under a bank term note,
the proceeds of which were used in part to acquire 457,700 shares as
treasury stock for $5.8 million and pay a cash dividend on the
Company's common stock of $352,000.
During 1995, the Company expanded its borrowing capacity through the
establishment of revolving lines of credit and increases to the limits
under existing bank lines of credit. At March 31, 1995 and September
30, 1994, the Company had unused bank lines of credit of approximately
$11.9 million and $6.6 million, respectively. The Company had unused
short-term foreign exchange borrowing arrangements of approximately
$5,500,000 and $5,000,000 at March 31, 1995 and September 30, 1994. The
Company believes that cash flow from operations and available credit
facilities will be sufficient to meet its capital needs in the
foreseeable future.
<PAGE>
PART II. OTHER INFORMATION
Item 4 - Submission of Matters To A Vote of Security Holders
a) On February 21, 1995, at the Annual Meeting of Shareholders of BHA
Group, Inc.,
b) the following persons were elected as Directors by the following
vote:
AUTHORITY
FOR WITHHELDY
---------- ----------
Lamson Rheinfrank, Jr. 4,509,348 31,626
Michael T. Zak 4,508,219 32,755
James E. Lund 4,507,729 33,245
James J. Thome 4,507,859 33,115
Don H. Alexander 4,508,148 32,826
Robert D. Freeland 4,508,148 32,826
Thomas A. McDonnell 4,508,444 32,530
c) and (i) the amendment to the Incentive Stock Option Plan (the
"Plan"), which provided for an increase in the number of shares
of common stock available for issuance pursuant to options under
the Plan from 970,000 shares to 1,280,000 shares, as well as
certain other changes - all of which are described in the
Company's proxy statement dated January 11, 1995, and filed with
the Securities and Exchange Commission - was approved by the
following vote:
For Against Abstain
----- -------- --------
3,736,462 561,127 243,385
(ii) KPMG Peat Marwick was ratified as independent auditors of the
Company for the fiscal year ending September 30, 1995 by the
following vote:
For Against Abstain
----- -------- --------
4,516,106 22,201 2,667
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibit 11: Computation of earnings per common share
b) Reports on Form 8-K:
During the quarter ended March 31, 1995, there were no reports on
Form 8-K filed by the Company.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BHA GROUP, INC.
(Registrant)
By: /s/ James C. Shay
----------------------------
(Signature)
James C. Shay
Treasurer, Principal Financial and
Accounting Officer
May 10, 1995
- - ------------------------------
Date
By: /s/ James E. Lund
------------------------------
(Signature)
James E. Lund
President and
Chief Executive Officer
<PAGE>
EXHIBIT 11
BHA GROUP, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $1,580,697 $1,170,260 $2,991,654 $2,225,007
Weighted average number of common
and common stock equivalent
shares:
Weighted average number of
outstanding common shares 5,665,285 6,380,002 5,814,814 6,376,540
Dilutive effect (excess of number
of shares issuable over number of
shares assumed to be repurchased
with the proceeds of exercised
options based on the average market
price during the period) 120,108 84,513 117,800 83,545
---------- ---------- ---------- ---------
5,785,393 6,464,515 5,932,614 6,460,085
Earnings per common and common
stock equivalent shares: $ .27 $ .18 $ .50 $ .34
---------- ---------- ---------- ---------
Weighted average number of common and common
stock equivalent shares, assuming
full dilution:
Additional dilutive effect (reduction
in number of shares assumed to be
repurchased with the proceeds of
exercised stock options based on the
end of the period market price of the stock,
if higher than the average price) -- -- -- --
---------- ---------- ---------- ---------
5,785,393 6,464,515 5,932,614 6,460,085
---------- ---------- ---------- ---------
Earnings per common and common
stock equivalent shares assuming
full dilution: $ .27 $ .18 $ .50 $ .34
---------- ---------- ---------- ---------
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from unaudited
condensed consolidated financial
statements for the three months ended
March 31, 1995 and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Mar-31-1995
<CASH> 721
<SECURITIES> 0
<RECEIVABLES> 18,146
<ALLOWANCES> 852
<INVENTORY> 15,215
<CURRENT-ASSETS> 36,261
<PP&E> 38,019
<DEPRECIATION> 15,488
<TOTAL-ASSETS> 67,124
<CURRENT-LIABILITIES> 11,795
<BONDS> 6,913
<COMMON> 64
0
0
<OTHER-SE> 45,918
<TOTAL-LIABILITY-AND-EQUITY> 67,124
<SALES> 23,254
<TOTAL-REVENUES> 30,264
<CGS> 16,487
<TOTAL-COSTS> 22,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 70
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 2,571
<INCOME-TAX> 990
<INCOME-CONTINUING> 1,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,581
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
