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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
December 31, 1997 0-15045
BHA Group Holdings, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 43-1416730
- ----------------------------------- ---------------------------------
(State or Other Jurisdiction of (I.R.S. 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
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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 January 31, 1998, the number of shares outstanding of the Registrant's
Common Stock was 6,517,903.
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PART I. FINANCIAL INFORMATION
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share data) December 31, September 30,
Assets 1997 1997
-------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 935 $ 2,590
Accounts receivable, less allowance for doubtful
receivables of $925 and $965, respectively 23,992 21,947
Inventories (note 3) 20,172 19,936
Income taxes receivable -- 518
Prepaid expenses 1,947 1,250
Deferred income taxes 1,318 1,216
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Total current assets 48,364 47,457
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Property, plant and equipment, at cost:
Land and improvements 1,272 1,262
Buildings and improvements 21,987 20,356
Machinery and equipment 33,055 31,616
Office furniture, fixtures and equipment 3,709 3,514
----------- ------------
60,023 56,748
Less accumulated depreciation and amortization 25,706 24,537
----------- ------------
Net property, plant and equipment 34,317 32,211
----------- ------------
Other assets 8,813 7,937
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$ 91,494 $ 87,605
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 313 $ 62
Accounts payable 5,290 8,341
Accrued compensation and employee benefit costs 2,352 4,371
Accrued expenses and other current liabilities 2,559 2,551
Income taxes payable 246 --
----------- ------------
Total current liabilities 10,760 15,325
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Long-term deferred income taxes 3,058 2,947
Long-term debt, excluding current installments 19,621 12,415
Other Liabilities 120 --
Shareholders' equity:
Common stock $0.01 par value.
Authorized 20,000,000 shares; issued 7,858,660
and 7,837,789, respectively 79 78
Additional paid-in capital 47,884 47,607
Retained earnings 28,968 27,773
Foreign currency translation adjustment (517) (148)
Unearned compensation (185) (211)
Less cost of 1,340,756 shares and 1,335,210 of
common stock in treasury (18,294) (18,181)
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Total shareholders' equity 57,935 56,918
============ ============
$ 91,494 $ 87,605
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
(In thousands, except per share data) 1997 1996
---- ----
Net sales $ 30,022 $ 31,116
Cost of sales 20,312 21,769
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Gross margin 9,710 9,347
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Operating expenses
Selling and advertising expense 3,918 3,435
General and administrative expense 3,486 3,038
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Total operating expenses 7,404 6,473
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Operating income 2,306 2,874
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Interest income (13) (5)
Interest expense 259 184
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Earnings before income taxes 2,060 2,695
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Income taxes 670 900
========= ========
Net earnings $ 1,390 $ 1,795
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Basic earnings per common share $ .21 $ .27*
Diluted earnings per common share .20 .26*
Basic weighted average number of common 6,507 6,606
shares outstanding
Diluted weighted average number of common 6,982 6,783
shares outstanding
*Earnings per share have been adjusted to reflect the 1997 stock dividend of
10%.
See accompanying notes to condensed consolidated financial statements.
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BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
(In thousands) 1997 1996
---- ----
Cash flows from operating activities:
Net earnings: $ 1,390 $ 1,795
Adjustment to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,300 1,094
Changes in assets and liabilities:
Accounts receivable (1,306) (892)
Inventories 135 (1,163)
Prepaid expenses (697) (533)
Accounts payable (3,651) (828)
Accrued expenses and other liabilities (2,682) (2,373)
Income taxes payable 764 191
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Net cash used in operating activities (4,747) (2,709)
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Cash flows from investing activities:
Acquisition of property, plant and equipment (2,503) (1,851)
Net assets of businesses acquired, excluding cash (1,104) --
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Net cash used in investing activities (3,607) (1,851)
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Cash flows from financing activities:
Payment of cash dividend on common stock (195) (180)
Purchase of treasury stock (130) (740)
Proceeds from issuance of common stock 81 37
Net stock options exercised (17) --
Proceeds from borrowings under bank term notes -- 5,000
Net proceeds from borrowings under
revolving bank lines of credit 7,410 1,211
Repayments of long-term debt and other long-term (81) (1,642)
liabilities -- --
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Net cash provided by financing activities 7,068 3,686
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Effect of exchange rate changes (369) 44
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Net decrease in cash and cash equivalents (1,655) (830)
Cash and cash equivalents at beginning of period 2,590 2,304
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Cash and cash equivalents at end of period $ 935 $ 1,474
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See accompanying notes to condensed consolidated financial statements.
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BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share and per share data) 1997 1996
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<S> <C> <C>
Common stock:
Balance at beginning period $ 78 $ 71
Issuance of 20,871 and 17,903 shares of common
stock in 1997 and 1996, respectively 1 --
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Balance at end of period 79 71
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Additional paid-in capital:
Balance at beginning of period 47,607 33,392
Excess over par value of common stock issued 277 251
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Balance at end of period 47,884 33,643
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Retained earnings:
Balance at beginning of period 27,773 31,963
Net earnings for the period 1,390 1,795
Cash dividends of $.03 per share paid on common
stock during 1997 and 1996 (195) (180)
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Balance at end of period 28,968 33,578
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Foreign currency translation adjustment:
Balance at beginning of period (148) (138)
Equity adjustment from foreign currency translation (369) 44
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Balance at end of period (517) (94)
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Unearned compensation:
Balance at beginning of period (211) (315)
Compensation expense 26 26
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Balance at end of period (185) (289)
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Treasury stock:
Balance at beginning of period (18,181) (13,277)
Acquisition of 7,000 and 43,000 shares of common
stock, at cost, during 1997 and 1996, respectively (130) (740)
Sale of 1,454 treasury shares pursuant to
stock option exercises, net, during 1997 17 --
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Balance at end of period (18,294) (14,017)
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Total shareholders' equity $ 57,935 $ 52,892
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BHA GROUP HOLDINGS, 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 on a consistent basis.
These statements should be read in conjunction with the Notes to Consolidated
Financial Statements contained in BHA Group Holdings, Inc.'s Annual Report to
Shareholders for the fiscal year ended September 30, 1997, and with Management's
Discussion and Analysis of Results of Operations and Financial Condition
appearing within this quarterly report.
(2) EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share" during the first quarter ended December 31, 1997. This
statement requires the restatement of earnings per common share to show both a
"basic" and "diluted" earnings per share number. Basic earnings per share is
computed by dividing net earnings by the weighted average number of outstanding
common shares. Diluted earnings per share includes the dilutive effect of
common share equivalents in the computation of earnings per common share.
Earnings per common share is computed based on the average number of common
shares and common share equivalents outstanding. Stock dividends of 10% were
announced in June 1996 and 1997. The per share data and weighted average number
of common shares and common equivalents data in the consolidated financial
statements and related notes have been restated to reflect these stock dividends
for all periods presented.
(3) INVENTORIES
BHA Group Holdings, Inc. 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, 1997 and September 30, 1997 were as
follows (in thousands):
December 31, September 30,
1997 1997
Raw materials $ 13,150 $ 11,697
Work-in-process 303 1,015
Finished goods 6,719 7,224
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Total $ 20,172 $ 19,936
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(4) ACQUISITION OF BUSINESS
In November 1997, the Company acquired Purificacion y Filtracion, S.L.
(Purfilter), located in Spain, for $1,275,000. The acquisition was accounted for
as a purchase, with the purchase price allocated to the assets acquired based
upon the estimated fair values as of the date of acquisition. The excess of the
purchase price over the net assets acquired is being amortized on a
straight-line basis over thirty years.
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BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NET SALES
BHA Group Holdings, Inc. (the "Company") develops, manufactures and markets
innovative filtration products and services to domestic customers in the U.S.
and Canada and to international customers around the world. The Company's
international focus is primarily in Europe, the Near East, Pacific Rim and Latin
America. Consolidated net sales for the Company decreased 3.5% to $30,022,000
for the three months ended December 31, 1997 from $31,116,000 for the three
months ended December 31, 1996. The decrease in consolidated sales was
attributable to an 11% decline in the Company's international business caused by
lower U.S. export sales. The decline in U.S. exports was offset in part by an
increase in business in Europe. Domestic sales of both fabric filters and
electrostatic precipitator replacement parts and services were flat during the
first quarter of fiscal 1998 as compared to the same period in the prior year.
GROSS MARGIN
Consolidated gross margin as a percentage of sales was 32.3% and 30.0% during
the three months ended December 31, 1997 and 1996, respectively. Although gross
margin as a percentage of sales increased as compared to the same period in the
prior year, it was consistent sequentially with the fourth quarter of the prior
fiscal year. The improvement in gross margin percentage was attributable to a
favorable sales mix in the parts and services business for both fabric filters
and electrostatic precipitators.
OPERATING EXPENSE
Consolidated selling and advertising expense as a percentage of sales was 13.1%
and 11.0% for the three months ended December 31, 1997 and 1996, respectively.
The $483,000 increase in selling and advertising expense was attributable to
higher expenses associated with the Company's international business and higher
costs relating to its BHA Technologies, Inc.subsidiary.
General and administrative expense as a percentage of sales for the first
quarter of fiscal 1998 was 11.6% compared to 9.8% for the first quarter in
fiscal 1997. The increase was due in part to higher expenses associated with
the enhancements of the Company's information technology systems.
NET INTEREST EXPENSE
Net interest expense for the three months ended 1998 and 1997 was $246,000 and
$179,000, respectively. The increase in net interest expense was attributable to
higher bank borrowings under the Company's credit facilities. Proceeds from the
borrowings were used to fund working capital requirements, the acquisition of
Purfilter in Spain and capital expenditures relating to the Company's existing
businesses.
INCOME TAXES
The effective income tax rate was 33% for the three-month periods ended December
31, 1997 and 1996.
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NET EARNINGS
Net earnings for the three month period decreased 23% to $1.4 million from $1.8
million for the same period in the prior year. Basic and diluted earnings per
share for the three months ended December 31, 1997 were $0.21 per share and
$0.20 per share, respectively. This compares to basic and diluted earnings per
share of $0.27 and $0.26 during the same period in the prior year. The decrease
in net earnings and net earnings per share was attributable to a decrease in
sales combined with higher selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong at December 31, 1997. Net
working capital increased 17% to $37.6 million from $32.1 million at September
30, 1997. The increase was attributable to increases in accounts receivable,
inventory and prepaid expenses combined with a decrease in accounts payable and
accrued expenses. The current ratio at December 31, 1997 and September 30, 1997
was 4.5 and 3.1, respectively. The Company's cash and cash equivalents decreased
from $2.6 million at September 30, 1997 to $935,000 at December 31, 1997. Cash
used in operating activities of $4.7 million for the three months ended December
31, 1997 was attributable to a decrease in accounts payable and accrued
expenses.
Net cash used in investment activities was $3.6 million and $1.9 million for the
three months ended December 31, 1997 and 1996, respectively. The increase was
attributable to higher capital expenditures and the purchase of Purfilter in
Spain.
During the first quarter of fiscal 1998, net cash provided by financing
activities was $7.1 million as compared to $3.7 million during the same period
in the prior year. The increase was primarily attributable to an increase in
bank borrowings which was necessary to fund the Company's investment activities.
At December 31, 1997 and September 30, 1997, the Company had unused domestic
lines of credit of $10.8 million and $18.2 million. The Company also had unused
foreign bank lines of credit of $1.1 million and $1.2 million at December 31,
1997 and September 30, 1997, respectively. BHA believes the cash flow from
operations and available credit lines will be sufficient to meet its capital
needs for the foreseeable future.
OTHER INFORMATION
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. The
Company is currently utilizing internal resources to verify that its systems are
Year 2000 compliant. These tests will be completed by December 1998. The costs
associated with these tests have been charged to expense. Management does not
believe the total expenses associated with Year 2000 compliance will be material
to the consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
During fiscal year 1997 the Financial Accounting Standards Board issued a number
of new pronouncements. Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income", is effective for the Company's fiscal
1999. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", is effective for the Company's fiscal 1999. Management does not
expect the adoption of these statements to have a significant impact on the
consolidated financial statements.
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FORWARD LOOKING INFORMATION
This report contains forward looking statements that reflect the Company's
current views with respect to future events and financial performance. The
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or those
anticipated. The words "should," "believe," "anticipate," "expect," and other
expressions that indicate future events and trends identify forward looking
statements. Actual future results and trends may differ materially from
historical results or those anticipated depending on a variety of factors,
including, but not limited to, competition, the performance of newly established
domestic and international operations, demand and price for the Company's
products and services, and other factors. Information on factors that could
affect the Company's financial results is set forth in the Company's filings
with the Securities and Exchange Commission including the report on Form 10-K
for the Company's fiscal year ended September 30, 1997.
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PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of earnings per common share
(b) Exhibit 27: Financial Data Schedule
Reports on Form 8-K:
(c) During the quarter ended December 31, 1997, 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 HOLDINGS, INC.
(Registrant)
<TABLE>
<S> <C>
February 13, 1998 By: /s/ James C. Shay
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Date (Signature)
James C. Shay
Secretary, Treasurer, Principal Financial
and Accounting Officer
By: /s/ James E. Lund
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(Signature)
James E. Lund
President and
Chief Executive Officer
</TABLE>
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EXHIBIT INDEX
Exhibit No. Description
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
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EXHIBIT 11
BHA GROUP HOLDINGS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
(In thousands, except per share data) 1997 1996
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<S> <C> <C>
Net earnings $1,390 $1,795
Weighted average number of common shares:
Basic weighted average number of outstanding
common shares 6,507 6,606
Basic earnings per common shares: $ .21 $ .27
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Weighted average number of common and common stock
equivalent shares:
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) 475 177
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6,982 6,783
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Diluted earnings per common and common stock equivalent shares:
$ .20 $ .26
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</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
condensed consolidated financial statements for the three months ended December
31, 1997 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> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 935
<SECURITIES> 0
<RECEIVABLES> 24,917
<ALLOWANCES> 925
<INVENTORY> 20,172
<CURRENT-ASSETS> 48,364
<PP&E> 60,023
<DEPRECIATION> 25,706
<TOTAL-ASSETS> 91,494
<CURRENT-LIABILITIES> 10,760
<BONDS> 19,621
<COMMON> 79
0
0
<OTHER-SE> 57,856
<TOTAL-LIABILITY-AND-EQUITY> 91,494
<SALES> 26,008
<TOTAL-REVENUES> 30,022
<CGS> 17,393
<TOTAL-COSTS> 20,312
<OTHER-EXPENSES> 7,404
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> 2,060
<INCOME-TAX> 670
<INCOME-CONTINUING> 1,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,390
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
