<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, 1996 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 Number)
incorporation or organization)
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 check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
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As of December 31, 1996, the number of shares outstanding of the Registrant's
Common Stock was 5,988,327.
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PART I. FINANCIAL INFORMATION
BHA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data)
DECEMBER 31,
1996 SEPTEMBER 30,
ASSETS (UNAUDITED) 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,474 $ 2,304
Accounts receivable, less allowance for doubtful
receivables of $972, and $932, respectively 20,256 19,364
Inventories (note 3) 19,521 18,358
Prepaid expenses 1,638 1,105
Deferred income taxes 975 975
---------------- ----------------
Total current assets 43,864 42,106
---------------- ----------------
Property, plant and equipment, at cost:
Land and improvements 955 955
Buildings and improvements 16,418 15,896
Machinery and equipment 27,652 26,358
Office furniture, fixtures and equipment 2,912 2,877
---------------- ----------------
47,937 46,086
Less accumulated depreciation and amortization 21,625 20,662
---------------- ----------------
Net property, plant and equipment 26,312 25,424
---------------- ----------------
Other assets 8,400 8,505
---------------- ----------------
$ 78,576 $ 76,035
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 4) $ 67 $ 595
Accounts payable 4,936 5,764
Accrued compensation and employee benefit costs 2,410 5,347
Accrued expenses and other current liabilities 1,734 1,384
Income taxes payable 756 565
---------------- ----------------
Total current liabilities 9,903 13,655
---------------- ----------------
Long-term deferred income taxes 2,440 2,440
Long-term debt, excluding current installments (note 13,341 8,244
4)
Shareholders' equity:
Common Stock $0.01 par value. Authorized
20,000,000 shares; issued 7,109,114 and
7,091,211, respectively 71 71
Additional paid-in capital 33,643 33,392
Retained earnings 33,578 31,963
Foreign currency translation adjustment (94) (138)
Unearned compensation (289) (315)
Less cost of 1,120,787 and 1,077,787 shares of
common stock in treasury (14,017) (13,277)
---------------- ----------------
Total shareholders' equity 52,892 51,696
---------------- ----------------
$ 78,576 $ 76,035
================ ================
</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, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
<S> <C> <C>
Net sales $ 31,116 $ 27,699
Cost of sales 21,769 19,604
------------------ ------------------
Gross margin 9,347 8,095
------------------ ------------------
Operating expenses
Selling and advertising expense 3,435 2,958
General and administrative expense 3,038 2,594
------------------ ------------------
Total operating expenses 6,473 5,552
------------------ ------------------
Operating income 2,874 2,543
Interest income (5) (9)
Interest expense 184 166
------------------ ------------------
Earnings before income taxes 2,695 2,386
------------------ ------------------
Income taxes 900 880
------------------ ------------------
Net earnings $ 1,795 $ 1,506
================== ==================
Weighted average number of common shares
outstanding 6,166 6,152
Earnings per share of common stock* $ .29 $ .25
</TABLE>
*Earnings per share for all periods presented have been adjusted to reflect the
1996 stock dividend of 10%.
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, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings: $ 1,795 $ 1,506
Adjustment to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,094 1,085
Provision for deferred income taxes - 26
------------------ -----------------
2,889 2,617
Changes in assets and liabilities, net of amounts
in business acquired:
Accounts receivable (892) 24
Inventories (1,163) 940
Prepaid expenses (533) (511)
Accounts payable (828) (3,075)
Accrued expenses and other liabilities (2,373) (1,450)
Income taxes payable 191 549
------------------ -----------------
Net cash used in operating activities (2,709) (906)
------------------ -----------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,851) (718)
Acquisition of product rights and other intangible
assets - (250)
------------------ -----------------
Net cash used in investing activities (1,851) (968)
------------------ -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 37 --
Payment of cash dividend on common stock (180) (164)
Purchase of treasury stock (740) -
Proceeds from borrowings under bank term note 5,000 -
Proceeds from borrowings on lines of credit, net 1,211 992
Repayments of long-term debt and other
long-term liabilities (1,642) (190)
------------------ -----------------
Net cash provided by financing activities 3,686 638
------------------ -----------------
Effect of exchange rate changes 44 (65)
------------------ -----------------
Net decrease in cash and cash equivalents (830) (1,301)
Cash and cash equivalents at beginning of period 2,304 2,317
------------------ -----------------
Cash and cash equivalents at end of period $ 1,474 $ 1,016
================== =================
</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, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share and per share data) 1996 1995
<S> <C> <C>
Common stock:
Balance at beginning period $ 71 $ 64
Issuance of 17,903 and 9,767 shares of common
stock in 1996 and 1995 -- --
----------------- ----------------
Balance at end of period 71 64
----------------- ----------------
Additional paid-in capital:
Balance at beginning of period 33,392 24,923
Excess over par value of common
stock issued 251 128
----------------- ----------------
Balance at end of period 33,643 25,051
----------------- ----------------
Retained earnings:
Balance at beginning of period 31,963 33,194
Net earnings for the period 1,795 1,506
Dividends of $.03 per share paid on common
stock during 1996 and 1995 (180) (164)
----------------- ----------------
Balance at end of period 33,578 34,536
----------------- ----------------
Foreign currency translation adjustment:
Balance at beginning of period (138) 280
Equity adjustment from foreign currency
translation 44 (65)
----------------- ----------------
Balance at end of period (94) 215
----------------- ----------------
Unearned compensation:
Balance at beginning of period (315) (418)
Compensation expense 26 26
----------------- ----------------
Balance at end of period (289) (392)
----------------- ----------------
Treasury Stock:
Balance at beginning of period (13,277) (11,604)
Acquisition of 43,000 shares of common
stock, at cost, in 1996 (740) -
----------------- ----------------
Balance at end of period (14,017) (11,604)
----------------- ----------------
Total shareholders' equity $ 52,892 $ 47,870
================= ================
</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, 1996 and with Management's Discussion
and Analysis of Results of Operations and Financial Condition appearing within
this quarterly report.
(2) EARNINGS PER COMMON SHARE
Earnings per common share is computed based on the average number of common
shares and common share equivalents outstanding. A 10% stock dividend was
announced in June 1996. The stock dividend was paid in July 1996 and all per
share and weighted average number of common shares and common share equivalents
outstanding data in the consolidated financial statements and related notes have
been restated to reflect the stock dividend for all periods presented.
(3) 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, 1996 and September 30, 1996 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
<S> <C> <C>
Raw materials $ 15,127 $ 13,448
Work-in-process 540 373
Finished goods 3,854 4,537
---------------- ------------------
Total $ 19,521 $ 18,358
================ ==================
</TABLE>
(4) 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. Principal payments on this term loan were due in quarterly
installments through 2000. At September 30, 1996 the outstanding balance under
the loan was $1,625,000. During the three months ended December 31, 1996, BHA
borrowed $5 million under a five-year unsecured term note at a fixed interest
rate of 7% from one of its current lenders. The proceeds of the term note were
used to pay the $1,625,000 outstanding under the $2.5 million unsecured term
loan and pay down a portion of BHA's domestic unsecured bank lines of credit
discussed below.
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BHA has domestic unsecured bank lines of credit amounting to $18,000,000 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 $5,000,000 and $3,000,000 which expire in
1998 and $5,000,000 which expires in 2000. BHA pays 0.25% as commitment fees on
the unused portion of these revolving lines of credit. A line of credit of
$5,000,000, for which BHA pays no commitment fee, is also available. This credit
line expires during fiscal 1998. At December 31, 1996, $8,150,000 were
outstanding under all domestic bank lines of credit at a weighted average
interest rate of 6.5%.
BHA's foreign subsidiaries in Europe maintain lines of credit with foreign banks
which aggregate approximately $1,300,000. As of December 31, 1996, there were no
outstanding balances 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, 1996.
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BHA GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NET SALES
BHA Group, Inc. ("BHA") sells fabric filter and electrostatic precipitator
("ESP") replacement parts and services to domestic customers in the U.S. and
Canada and other international customers around the world. BHA's international
focus is primarily in Europe, the Near East, Pacific Rim and Latin America.
Consolidated net sales increased 12.3% to $31.1 million for the three months
ended December 31, 1996 compared to $27.7 million for the three months ended
December 31, 1995. The sales improvement was primarily attributable to higher
domestic sales of fabric filter replacement parts and services and an increase
in international ESP replacement parts sales. BHA's domestic fabric filter
business grew 17% benefiting from continued favorable market acceptance of its
newer filtration products and by steady sales growth in its traditional product
offerings. International sales increased 45% lead by higher ESP replacement
parts and service sales. Fabric filter sales also increased in certain
international markets. Domestic ESP replacement parts and service sales for the
three months ended December 31, 1996 decreased 34% from the same period in the
prior year. Engineered rebuild sales declined significantly as this market
remains competitive and customers continue to delay expenditures for these
products and services.
GROSS MARGIN
Consolidated gross margin as a percentage of sales was 30.0% and 29.2% for the
three months ended December 31, 1996 and 1995, respectively. The improvement in
consolidated gross margin percentage was primarily attributable to the continued
increase in international sales, which has been running at higher gross margin
percentages than BHA's domestic businesses. Domestic gross margin percentages
increased over the same period a year ago due in part to a fabric filter sales
mix favoring BHA's filtration products which carry higher margins. Domestic
ESP project revenues, which typically carry lower margins than replacement
parts sales, decreased which contributed to the overall gross margin percentage
improvement.
OPERATING EXPENSE
Consolidated selling and advertising expense as a percentage of sales was 11.0%
for the three months ended December 31, 1996 compared to 10.7% for the same
period during the prior year. These expenses increased $477,000 over the prior
year due in part to higher spending associated with the increase in
international business.
General and administrative expense as a percentage of sales was 9.8% and 9.4%
for the three months ended December 31, 1996 and 1995, respectively. The
increase of $444,000 was attributed to higher payroll expenses associated with
the increase in both domestic and international business.
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NET INTEREST INCOME/EXPENSE
Interest income was $5,000 and $9,000 for the three months ended December 31,
1996 and 1995, respectively. Interest expense for the three months ended
December 31, 1996 was $184,000 compared to $166,000 for the same period a year
ago. The increase in interest expense during the first quarter of fiscal 1997
was attributed to an increase in the average borrowings outstanding under bank
term notes due to an increase in capital spending and higher working capital
requirements associated with the increase in overall business.
INCOME TAXES
The effective income tax rate was 33.4% for the three months ended December 31,
1996 compared to 36.8% for the three months ended December 31, 1995. The
decrease in the effective income tax rate was attributable to benefits
associated with the international mix of business and domestic research and
development tax credits earned.
NET EARNINGS
Net earnings were $1.8 million and $1.5 million for the three months ended
December 31, 1996 and 1995, respectively. The improvement was attributable to
higher sales volume and an increase in gross margin percentage combined with a
lower effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $34.0 million at December 31, 1996 as compared to $28.5
million at September 30, 1996. The current ratio was 4.4 to 1 and 3.1 to 1 at
December 31, 1996 and September 30, 1996, respectively. Cash decreased from
$2.3 million at September 30, 1996 to $1.5 million at December 31, 1996.
Cash used in operating activities was $2.7 million and $.9 million for the three
months ended December 31, 1996 and 1995, respectively. The amount of net cash
used in operating activities fluctuates primarily as a result of changes in
accounts receivable, accounts payable and inventory balances.
Investing activities resulted in a net use of cash of $1.9 million during the
three months ended December 31, 1996 due to expenditures for property, plant and
equipment.
During the first quarter of fiscal 1997, net cash provided by financing
activities of $3.7 million included borrowings under a bank term note, repayment
of long-term debt, and the repurchase of BHA Common Stock under the authorized
stock repurchase program.
At December 31, 1996 and September 30, 1996, BHA had unused bank lines of credit
of $11.2 million and $12.4 million, respectively. The unused short-term foreign
exchange borrowing arrangements of $9.7 million was consistent with the
September 30, 1996 balance. During the first quarter of fiscal 1997 BHA borrowed
$5 million under a five-year unsecured term note at a fixed interest rate of 7%
from one of its current lenders. The proceeds of the term note were used to pay
down existing bank debt and other current liabilities. BHA increased its net
borrowing capacity by approximately $3.5 million as a result of this
transaction. BHA believes that cash flows from operations and available credit
lines will be sufficient to meet its capital needs for the foreseeable future.
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PART II. OTHER INFORMATION
Item 6 - Exhibits
a) Exhibit 11: Computation of earnings per common share.
b) Exhibit 27: Financial Data Schedule
Reports on Form 8-K
During the quarter ended December 31, 1996, 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, 1997
- --------------------------
Date
By: /s/ James E. Lund
------------------------------------------------
(Signature)
James E. Lund
President & Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
<PAGE>
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Exhibit 11
BHA GROUP, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
1996 1995
--------------- ---------------
<S> <C> <C>
Net earnings $1,795 $1,506
Weighted average number of common and common
stock equivalent shares:
Weighted average number of outstanding common
shares 6,005 6,006
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) 161 146
------ ------
6,166 6,152
Earnings per common and Common Stock equivalent
shares: $ .29 $ .25
------ -------
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) -- --
------ ------
6,166 6,152
------ ------
Earnings per common and Common Stock equivalent
shares assuming full dilution: $ .29 $ .25
------ ------
</TABLE>
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<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, 1996 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-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,474
<SECURITIES> 0
<RECEIVABLES> 21,228
<ALLOWANCES> 972
<INVENTORY> 19,521
<CURRENT-ASSETS> 43,864
<PP&E> 47,937
<DEPRECIATION> 21,625
<TOTAL-ASSETS> 78,576
<CURRENT-LIABILITIES> 9,903
<BONDS> 13,341
<COMMON> 71
0
0
<OTHER-SE> 52,821
<TOTAL-LIABILITY-AND-EQUITY> 78,576
<SALES> 25,713
<TOTAL-REVENUES> 31,116
<CGS> 17,435
<TOTAL-COSTS> 21,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 93
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 2,695
<INCOME-TAX> 900
<INCOME-CONTINUING> 1,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,795
<EPS-PRIMARY> .291
<EPS-DILUTED> .291
</TABLE>
