<PAGE>
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
December 31, 1995 0-15045
BHA Group, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 43-1416730
--------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
8800 East 63rd Street, Kansas City, Missouri 64133
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 356-8400
----------------------------
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
--------- ---------
As of January 31, 1995, the number of shares outstanding of the Registrant's
Class A Common Stock was 5,464,469.
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Part I. Financial Information
BHA Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1995 September 30,
Assets (Unaudited) 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,015,721 $ 2,316,677
Accounts receivable, less allowance for doubtful receivables
of $902,000 and $830,000, respectively 19,051,579 19,074,975
Inventories (note 2) 13,924,535 14,864,490
Prepaid expenses 1,367,986 856,488
Deferred income taxes 860,000 860,000
------------------- -------------------
Total current assets 36,219,821 37,972,630
------------------- -------------------
Property, plant and equipment, at cost:
Land and improvements 955,255 955,255
Buildings and improvements 14,965,490 14,479,697
Machinery and equipment 24,077,618 23,885,716
Office furniture, fixtures and equipment 2,609,937 2,569,224
------------------- -------------------
42,608,300 41,889,892
Less accumulated depreciation and amortization 18,001,168 17,127,848
-------------------
-------------------
Net property, plant and equipment 24,607,132 24,762,044
-------------------
-------------------
Other assets 9,117,604 9,054,166
------------------- -------------------
$ 69,944,557 $ 71,788,840
=================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt (note 3) $ 567,072 $ 756,696
Accounts payable 3,224,393 6,299,344
Accrued compensation and employee benefit costs 2,183,998 4,059,919
Accrued expenses and other current liabilities 1,544,059 1,245,657
Income taxes payable 1,274,230 724,379
------------------- -------------------
Total current liabilities 8,793,752 13,085,995
------------------- -------------------
Long-term deferred income taxes 2,390,000 2,364,000
Long-term debt, excluding current installments (note 3) 10,890,645 9,898,683
Shareholders' equity:
Class A common stock $0.01 par value. Authorized
10,000,000 shares; issued 6,436,069 and 6,426,302,
respectively (note 4) 64,361 64,263
Additional paid-in capital (note 4) 25,050,830 24,923,428
Retained earnings 34,535,858 33,194,128
Foreign currency translation adjustment 215,333 280,441
Unearned compensation (note 4) (392,436) (418,312)
Less cost of 971,600 shares of common stock in treasury (11,603,786) (11,603,786)
------------------- -------------------
Total shareholders' equity 47,870,160 46,440,162
------------------- -------------------
$ 69,944,557 $ 71,888,840
=================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BHA Group, Inc. and Subsidiaries
Consolidated Statements of Earnings
For the Three Months Ended December 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net sales $27,699,033 $27,258,354
Cost of sales 19,603,865 20,005,816
----------------- ----------------
Gross margin 8,095,168 7,252,538
----------------- ----------------
Operating expenses
Selling and advertising expense 2,958,516 2,521,639
General and administrative expense 2,594,043 2,491,392
----------------- ----------------
Total operating expenses 5,552,559 5,013,031
----------------- ----------------
Operating income 2,542,609 2,239,507
Interest income (8,613) (20,544)
Interest expense 165,590 9,094
----------------- ----------------
Earnings before income taxes 2,385,632 2,250,957
----------------- ----------------
Income taxes 880,000 840,000
----------------- ----------------
Net earnings $1,505,632 $1,410,957
================== ================
Weighted average number of common shares
outstanding 5,592,875 6,076,548
Earnings per share of common stock $ .27 $ .23
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BHA Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings: $ 1,505,632 $ 1,410,957
Adjustment to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,085,758 1,016,871
Provision for deferred income taxes 26,000 -
---------------------- ----------------------
2,617,390 2,427,828
Changes in assets and liabilities, net of amounts in
business acquired:
Accounts receivable 23,396 (1,365,994)
Inventories 939,955 964,988
Prepaid expenses (511,498) (153,898)
Accounts payable (3,074,951) (3,889,260)
Accrued expenses and other liabilities (1,450,019) 244,665
Income taxes payable 549,851 496,320
---------------------- ----------------------
Net cash (used) by operating activities (905,876) (1,275,351)
---------------------- ----------------------
Cash flows from investing activities:
Additions to property, plant and equipment (718,408) (3,847,879)
Acquisition of product rights and other intangible
assets (250,000) -
---------------------- ----------------------
Net cash (used) by investment transactions (968,408) (3,847,879)
---------------------- ----------------------
Cash flows from financing activities:
Payment of cash dividend on common stock (163,902) (181,620)
Purchase of treasury stock - (3,471,612)
Proceeds from borrowings under bank term note - 2,500,000
Proceeds from borrowings on lines of credit, net 991,962 850,000
Repayments of long-term debt and other
long-term liabilities (189,624) (15,308)
---------------------- ----------------------
Net cash provided (used) by financing
activities 638,436 (318,540)
---------------------- ----------------------
Effect of exchange rate changes (65,108) (25,600)
---------------------- ----------------------
Net (decrease) in cash and cash equivalents (1,300,956) (5,467,370)
Cash and cash equivalents at beginning of period 2,316,677 6,796,976
---------------------- ----------------------
Cash and cash equivalents at end of period $ 1,015,721 $ 1,329,606
====================== ======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BHA Group, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Three Months Ended December 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Class A common stock:
Balance at beginning period $ 64,263 $ 63,800
Issuance of 9,767 and 45,000 shares of common
stock in 1995 and 1994 98 450
-------------------- --------------------
Balance at end of period 64,361 64,250
-------------------- --------------------
Additional paid-in capital:
Balance at beginning of period 24,923,428 24,402,261
Excess of proceeds over par value of common
stock issued 127,402 517,050
-------------------- --------------------
Balance at end of period 25,050,830 24,919,311
-------------------- --------------------
Retained earnings:
Balance at beginning of period 33,194,128 27,925,706
Net earnings for the period 1,505,632 1,410,957
Dividends of $.03 per share paid on common
stock during 1995 and 1994 (163,902) (181,620)
-------------------- --------------------
Balance at end of period 34,535,858 29,155,043
-------------------- --------------------
Foreign currency translation adjustment:
Balance at beginning of period 280,441 37,986
Equity adjustment from foreign currency
translation (65,108) (25,600)
-------------------- --------------------
Balance at end of period 215,333 12,386
-------------------- --------------------
Unearned compensation:
Balance at beginning of period (418,312) -
Issuance of 45,000 shares of restricted stock
in 1994 - (517,500)
Compensation expense 25,876 21,563
-------------------- --------------------
Balance at end of period (392,436) (495,937)
==================== ====================
Treasury Stock:
Balance at beginning of period (11,603,786) (3,566,462)
Acquisition of 275,000 shares of common
stock, at cost, in 1994 - (3,471,612)
-------------------- --------------------
Balance at end of period (11,603,786) (7,038,074)
-------------------- --------------------
Total shareholders' equity $ 47,870,160 $ 46,619,979
==================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BHA Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) Basis of Presentation
These 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 on 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, 1995 and with Management's Discussion
and Analysis of Results of Operations and Financial Condition appearing within
this quarterly report.
(2) Inventory Valuation
BHA Group, Inc. ("BHA" or "the Company") 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 December 31, 1995 and September 30, 1995 were as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
<S> <C> <C>
Raw materials $ 9,604,065 $ 9,233,825
Work-in-process 1,085,729 1,580,177
Finished goods 3,234,741 4,060,488
-------------------- ---------------------
Total $ 13,924,535 $ 14,864,490
==================== =====================
</TABLE>
(3) Notes Payable to Banks and Long-Term Debt
In fiscal 1995, BHA entered into a $2,500,000 unsecured term loan, the proceeds
of which were used to purchase the building which serves as BHA's 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. The outstanding balance under this term
loan was $2,000,000 at December 31, 1995.
BHA has unsecured bank lines of credit amounting to $16,000,000 for working
capital purposes and other corporate matters. These lines bear interest at
variable rates which are based on the prime rate and/or LIBOR. The facilities
include revolving credit agreements of $3,000,000 and $5,000,000 which expire in
1998 and 2000, respectively, in which BHA pays 0.25% as commitment fees on the
unused portion. Lines of credit of $3,000,000 and $5,000,000, for which BHA pays
no commitment fee, are also available. These lines expire during 1996. At
December 31, 1995, $9,550,000 was outstanding under these bank lines of credit
at a weighted average interest rate of 7.10%.
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BHA's foreign subsidiary located in Germany maintains a line of credit with a
foreign bank in the amount of DM 1,800,000 (approximately $1,256,000 U.S.). As
of December 31, 1995, there were no amounts outstanding under this line of
credit. BHA's foreign subsidiary located in Switzerland also maintains a line of
credit with a foreign bank in the amount of SFR 200,000 (approximately $174,000
U.S.). As of December 31, 1995, $117,000 was outstanding under these lines of
credit.
The term loan and domestic bank lines of credit require BHA, among other things,
to maintain minimum levels of net worth, minimum fixed charge coverage, minimum
current ratio and maximum leverage ratio. BHA was in compliance with all
covenants at December 31, 1995.
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BHA Group, Inc. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Net Sales
Net sales for the three months ended December 31, 1995 for BHA increased 2%
compared to the same period a year ago. The increase was attributable to higher
BHA Group International, Inc. ("BGI") sales offset by lower BHA Company, Inc.
("BHA Company") and PrecipTech, Inc. ("PrecipTech") sales. BGI sales increased
57% over the same period in the prior year due to higher sales to the Near East,
Pacific Rim and European markets. Sales to the Near East and Pacific Rim were
particularly strong in the first quarter of fiscal 1996 due in large part to the
successful selling efforts of our sales and service offices in Taiwan and India.
European sales increased by 36% as sales of fabric filters, pleated products and
accessories all showed improvement. Sales to Latin America decreased slightly
due to the economic slowdown in Mexico. BHA Company sales decreased 2% compared
to the same period in the last fiscal year due to lower sales of fabric filters
and other replacement parts to customers in the asphalt, steel and other metals
industries. PrecipTech sales decreased 25% due to lower sales of engineered
rebuilds to electric utilities, which have continued to defer capital and
maintenance projects due to competition resulting from deregulation in their
industry.
Gross Margin
Gross margin as a percentage of sales was 29.2% for the three months ended
December 31, 1995 compared to 26.6% for the same period last year and 27.2% for
the year ended September 30, 1995. The improvement in the consolidated gross
margin percentage is primarily attributable to the sharp increase in
international sales through BGI which carries higher gross margin percentages
than the Company's domestic businesses. The Company's domestic operations, BHA
Company and PrecipTech, also showed an increase in gross margin percentage over
the same period in the prior year. BHA Company's gross margin percentage
improved due to a favorable sales mix towards new products which included higher
sales of pleated filter elements. PrecipTech gross margins increased over the
same period a year ago due to a change in market mix with more sales to the
industrial market than in the prior year.
Operating Expenses
Selling and advertising expense as a percentage of sales for the three months
ended December 31, 1995 and 1994 was 10.7% and 9.3%, respectively. These
expenses increased $437,000 versus the same period a year ago. This increase was
attributable to higher selling expenses associated with the increase in
international business, startup costs to be associated with new markets and the
development of new product lines.
General and administrative expense as a percentage of sales for the three months
ended December 31, 1995 and 1994 was 9.4% and 9.1%, respectively. These expenses
increased $103,000 versus the same period a year ago. The modest increase was
attributable to higher personnel costs.
-8-
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Net Interest Income/Expense
Interest income for the three months ended December 31, 1995 and 1994 was $9,000
and $21,000, respectively. Interest expense for the three months ended December
31, 1995 was $166,000, compared to $9,000 for the same period a year ago. The
increase in the current year was attributable to borrowings during 1995 under
the Company's credit facilities for the purchase of the building which serves as
the Company's headquarters and the acquisition of the Company's shares as
treasury stock. Lower interest expense in the prior period is the result of
lower borrowings during the first quarter of fiscal 1995 as the above noted
transactions took place during the second through fourth quarters of that year.
Income Taxes
The Company's effective tax rate for the three months ended December 31, 1995
and 1994 was 37%.
Net Earnings
Net earnings for the three month period ended December 31, 1995 increased 6.7%
to $1.5 million compared to $1.4 million for the same period last year. This
increase was attributable to higher gross margin percentages over the same
period a year ago due to improved sales mix both in terms of markets and
products.
Liquidity and Capital Resources
Net working capital was $27.4 million at December 31, 1995, compared to $24.9
million at September 30, 1995. Cash decreased from $2.3 million at September 30,
1995 to $1.0 million at December 31, 1995. This decrease in cash of $1.3 million
included a $1.0 million decrease in cash from operating activities, $1.0 million
decrease in cash from investing activities and $0.6 million provided by
financing activities. Investing activities included the capital improvements at
the Company's corporate headquarters. The Company's financing activities
included net borrowings of $1.0 million under the Company's bank lines of
credit, the proceeds of which were used to finance the operating and investing
activities.
At December 31, 1995 and September 30, 1995, the Company had unused bank lines
of credit of approximately $7.8 million and $9.2 million, respectively. The
Company had unused short-term foreign exchange borrowing arrangements of
approximately $8.7 million at December 31, 1995 and September 30, 1995. The
Company believes that cash flow from operations and available credit lines will
be sufficient to meet its capital needs in the foreseeable future.
Part II. Other Information
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 December 31, 1995, there were no reports on
Form 8-K filed by the Company.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BHA Group, Inc.
(Registrant)
By: /s/ James C. Shay
------------------------------
(Signature)
James C. Shay
Treasurer, Principal Financial &
Accounting Officer
February 13, 1996
- ------------------------------
Date
By: /s/ James E. Lund
------------------------------------
(Signature)
James E. Lund
President & Chief Executive Officer
<PAGE>
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Exhibit 11
BHA Group, Inc.
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Three Months Ended
December 31
1995 1994
------------------- ------------------
<S> <C> <C>
Net earnings $ 1,505,632 $ 1,410,957
Weighted average number of common and common
stock equivalent shares:
Weighted average number of outstanding common
shares 5,460,129 5,961,092
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) 132,746 115,456
------------------- ------------------
5,592,875 6,076,548
Earnings per common and common stock equivalent
shares: $ .27 $ .23
------------------- ------------------
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) - 1,470
------------------- ------------------
5,592,875 6,078,018
------------------- ------------------
Earnings per common and common stock equivalent
shares assuming full dilution: $ .27 $ .23
------------------- ------------------
</TABLE>
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
unaudited condensed consolidated financial statements for the three months
ended December 31, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,016
<SECURITIES> 0
<RECEIVABLES> 18,616
<ALLOWANCES> 902
<INVENTORY> 13,925
<CURRENT-ASSETS> 36,220
<PP&E> 42,608
<DEPRECIATION> 18,001
<TOTAL-ASSETS> 69,945
<CURRENT-LIABILITIES> 8,794
<BONDS> 10,891
<COMMON> 64
0
0
<OTHER-SE> 47,806
<TOTAL-LIABILITY-AND-EQUITY> 69,945
<SALES> 21,583
<TOTAL-REVENUES> 27,699
<CGS> 14,876
<TOTAL-COSTS> 19,604
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> 2,386
<INCOME-TAX> 880
<INCOME-CONTINUING> 1,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,506
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
