<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 AND EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the Quarter Ended Commission File Number
March 31, 1999 0-15045
</TABLE>
BHA Group Holdings, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 43-1416730
- ----------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
</TABLE>
<TABLE>
<S> <C>
8800 East 63rd Street, Kansas City, Missouri 64133
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
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 April 30, 1999, the number of shares outstanding of the Registrant's
Common Stock was 6,993,330.
<PAGE>
s
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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) MARCH 31, SEPTEMBER 30,
ASSETS 1999 1998
------ --------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 430 $ 193
Accounts receivable, less allowance for doubtful
receivables of $1,187 and $1,139, respectively 31,116 31,338
Inventories (note 4) 25,602 27,363
Prepaid expenses 2,711 1,828
Deferred income taxes 1,850 1,850
Income Tax Receivable 848 --
--------------- ---------------
Total current assets 62,557 62,572
--------------- ---------------
Property, plant and equipment, at cost:
Land and improvements 1,344 1,344
Buildings and improvements 22,825 24,241
Machinery and equipment 39,752 35,947
Office furniture, fixtures and equipment 4,479 4,149
--------------- ---------------
68,400 65,681
Less accumulated depreciation and amortization 31,242 29,125
--------------- ---------------
Net property, plant and equipment 37,158 36,556
--------------- ---------------
Other assets (note 5) 11,461 8,446
--------------- ---------------
$111,176 $107,574
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 4,997 $ 3,988
Current lease obligations (note 5) 400 --
Accounts payable 5,798 8,896
Accrued compensation and employee benefit costs 2,685 3,695
Accrued expenses and other current liabilities 3,689 3,411
Income tax payable -- 359
--------------- ---------------
Total current liabilities 17,569 20,349
--------------- ---------------
Long-term deferred income taxes 2,103 2,116
Long-term debt, excluding current installments 22,942 23,029
Long-term lease obligations, excluding current
installments (note 5) 7,600 --
Other liabilities 933 127
Shareholders' equity:
Common stock $0.01 par value.
Authorized 20,000,000 shares; issued 8,737,979 and
8,666,353, respectively 87 87
Additional paid-in capital 61,608 61,310
Retained earnings 23,715 22,983
Accumulated - other comprehensive income (944) (293)
Unearned compensation (56) (108)
Less cost of 1,740,486 shares and 1,527,856 of common
stock in treasury (24,381) (22,026)
--------------- ---------------
Total shareholders' equity 60,029 61,953
--------------- ---------------
$111,176 $107,574
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-1-
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<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH, 31 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
---- ----
<S> <C> <C>
Net sales $ 40,331 $ 38,881
Cost of sales 30,951 27,209
---------------- ----------------
Gross margin 9,380 11,672
---------------- ----------------
Operating expenses
Selling and advertising expense 5,190 4,419
General and administrative expense 3,935 3,743
---------------- ----------------
Total operating expenses 9,125 8,162
---------------- ----------------
Operating income 255 3,510
---------------- ----------------
Interest expense, net 470 355
---------------- ----------------
Earnings (loss) before income taxes (215) 3,155
---------------- ----------------
Income taxes (60) 1,055
---------------- ----------------
Net earnings (loss) $ (155) $ 2,100
================ ================
Basic earnings (loss) per common share* $ (.02) $ .29
Diluted earnings (loss) per common share* (.02) .27
Basic weighted average number of common shares 7,021 7,172
outstanding*
Diluted weighted average number of common shares 7,021 7,697
outstanding*
</TABLE>
*Earnings per share and weighted average shares have been adjusted to reflect
the 1998 stock dividend of 10%.
See accompanying notes to condensed consolidated financial statements.
-2-
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<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
---- ----
<S> <C> <C>
Net sales $ 75,559 $ 68,902
Cost of sales 55,491 47,520
---------------- ----------------
Gross margin 20,068 21,382
---------------- ----------------
Operating expenses
Selling and advertising expense 9,876 8,337
General and administrative expense 7,528 7,229
---------------- ----------------
Total operating expenses 17,404 15,566
---------------- ----------------
Operating income 2,664 5,816
---------------- ----------------
Interest expense, net 914 600
---------------- ----------------
Earnings before income taxes 1,750 5,216
---------------- ----------------
Income taxes 590 1,725
---------------- ----------------
Net earnings $ 1,160 $ 3,491
================ ================
Basic earnings per common share $ .16 $ .49
Diluted earnings per common share .16 .45
Basic weighted average number of common shares 7,082 7,164
outstanding
Diluted weighted average number of common shares 7,249 7,684
outstanding
</TABLE>
*Earnings per share and weighted average shares have been adjusted to reflect
the 1998 stock dividend of 10%.
See accompanying notes to condensed consolidated financial statements.
-3-
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BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Net earnings (loss) $ (155) $ 2,100
Other comprehensive income - foreign currency
translation adjustments (457) (182)
-------------- --------------
-------------- --------------
Comprehensive income (loss) $ (612) $ 1,918
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Net earnings $ 1,160 $ 3,491
Other comprehensive income - foreign currency
translation adjustments (651) (551)
-------------- --------------
-------------- --------------
Comprehensive income $ 509 $ 2,940
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
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<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share and per share data) 1999 1998
---- ----
<S> <C> <C>
Common stock:
Balance at beginning period $ 87 $ 78
Issuance of 71,626 and 38,063 shares of common
stock in 1999 and 1998, respectively -- 1
----------------- -----------------
Balance at end of period 87 79
----------------- -----------------
Additional paid-in capital:
Balance at beginning of period 61,310 47,607
Excess over par value of common stock issued 298 478
----------------- -----------------
Balance at end of period 61,608 48,085
----------------- -----------------
Retained earnings:
Balance at beginning of period 22,983 27,773
Net earnings for the period 1,160 3,491
Cash dividends of $.03 per share paid on common
stock during 1999 and 1998 (428) (391)
----------------- -----------------
Balance at end of period 23,715 30,873
----------------- -----------------
Accumulated - other comprehensive income:
Balance at beginning of period (293) (148)
Equity adjustment from foreign currency translation (651) (551)
----------------- -----------------
Balance at end of period (944) (699)
----------------- -----------------
Unearned compensation:
Balance at beginning of period (108) (211)
Compensation expense 52 51
----------------- -----------------
Balance at end of period (56) (160)
----------------- -----------------
Treasury stock:
Balance at beginning of period (22,026) (18,181)
Acquisition of 220,900 and 7,800 shares of common
stock, at cost, during 1999 and 1998, respectively (2,536) (146)
Issuance of 8,270 and 3,466 treasury shares pursuant
to stock option exercises, net, during 1999 and 1998 181 16
----------------- -----------------
Balance at end of period (24,381) (18,311)
----------------- -----------------
Total shareholders' equity $ 60,029 $ 59,867
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
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<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings: $ 1,160 $ 3,491
Adjustment to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,775 2,760
Deferred income tax (13) --
Changes in assets and liabilities:
Accounts receivable 222 (6,412)
Inventories 1,761 (1,502)
Prepaid expenses (883) (857)
Accounts payable (3,098) (1,684)
Accrued expenses and other liabilities (732) (2,537)
Income taxes payable (1,207) 693
-------------- --------------
Net cash used in operating activities (15) (6,048)
-------------- --------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (2,922) (4,509)
Net assets of businesses acquired, excluding cash -- (1,104)
Acquisition of product rights (700) --
Change in other assets (1,912) (78)
-------------- --------------
Net cash used in investing activities (5,534) (5,691)
-------------- --------------
Cash flows from financing activities:
Payment of cash dividend on common stock (428) (391)
Purchase of treasury stock (2,536) (146)
Proceeds from issuance of common stock 579 313
Net stock options exercised (100) (49)
Proceeds from borrowings under bank term notes 2,997 --
Proceeds from lease obligations 8,000 --
Net proceeds (repayments) from borrowings under
revolving bank lines of credit (1,281) 14,090
Repayments of long-term debt and other long-term
liabilities (794) (104)
-------------- --------------
Net cash provided by financing activities 6,437 13,713
-------------- --------------
Effect of exchange rate changes (651) (551)
-------------- --------------
Net increase in cash and cash equivalents 237 1,423
Cash and cash equivalents at beginning of period 193 2,590
-------------- --------------
Cash and cash equivalents at end of period $ 430 $ 4,013
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-6-
<PAGE>
<PAGE>
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, 1998, and with Management's
Discussion and Analysis of Results of Operations and Financial Condition
appearing within this quarterly report.
(2) EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net earnings available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed based upon the weighted
average number of common shares and dilutive common equivalent shares
outstanding. Stock options, which are common stock equivalents, have a dilutive
effect on earnings per share in all periods presented, except for the quarter
ended March 31, 1999, and are therefore included in the computation of diluted
earnings per share. A reconciliation of the numerators and the denominators of
the basic and diluted per-share computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
Net Earnings Shares Per-Share Net Earnings Shares Per-Share
(Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt.
---------- -------- ---- ----------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Earnings available to
common shareholders ($ 155) 7,021 ($ 0.02) $ 2,100 7,172 $ 0.29
Effect of dilutive
securities--stock options -- -- -- 525
Diluted earnings per
share: Earnings
available to common
shareholders and assumed ($ 155) 7,021 ($ 0.02) $ 2,100 7,697 $ 0.27
conversion =================================== ===================================
</TABLE>
-7-
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<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1999 March 31, 1998
Net Earnings Shares Per-Share Net Earnings Shares Per-Share
(Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt.
---------- -------- ---- ----------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Earnings available to
common shareholders $ 1,160 7,082 $ 0.16 $ 3,491 7,164 $ 0.49
Effect of dilutive
securities--stock options -- 167 -- 520
Diluted earnings per
share: Earnings
available to common
shareholders and assumed
conversion $ 1,160 7,249 $ 0.16 $ 3,491 7,684 $ 0.45
=================================== ===================================
</TABLE>
A 10% stock dividend was distributed in June 1998. 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) COMPREHENSIVE INCOME
The Company retroactively adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" as of October 1, 1998. This statement
establishes rules for the reporting of comprehensive income and its components.
The adoption of Statement No. 130 had no impact on total shareholders' equity.
(4) 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 March 31, 1999 and September 30, 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
<S> <C> <C>
Raw materials $17,172 $ 17,036
Work-in-process 480 1,174
Finished goods 7,950 9,153
--------- ---------
Total $25,602 $ 27,363
======= =========
</TABLE>
(5) LEASE OBLIGATIONS
On December 22, 1998, BHA Technologies, Inc., a wholly-owned subsidiary of BHA
Group Holdings, Inc., entered into a sales-leaseback transaction with the City
of Lee's Summit, Missouri. In connection with this lease, the city issued
tax-exempt Industrial Development Revenue Bonds ("Bonds") totaling $8 million
and placed the proceeds in a trust to fund future capital expenditures at the
Lee's Summit manufacturing facility. The Company is obligated, through its
lease, for the repayment of these bonds over the next 20 years. The interest
rate on the tax-exempt Bonds is variable based on a weekly published index that
is approximately 67% of LIBOR. As of March 31, 1999, BHA Technologies, Inc. has
$1.9 million in
-8-
<PAGE>
<PAGE>
restricted cash held in the trust for exclusive use for additional qualified
capital expenditures in Lee's Summit, Missouri. This restricted cash is included
in Other Assets. A portion of the proceeds from the transaction was used to
repay the Company's long-term debt.
(6) NOTES PAYABLE TO BANKS
In October 1998, the Company's foreign subsidiary located in Germany entered
into an unsecured credit agreement with a German bank. The credit agreement
includes a DEM 5,000,000 (approximately $2,753,000 at March 31, 1999) term loan
with a fixed interest rate of 4.75%. The term loan matures in December 2003. The
credit agreement also includes a revolving bank line of credit of DEM 2,500,000
(approximately $1,377,000 at March 31, 1999) to be used for working capital
purposes. This revolving line of credit bears interest at a variable rate based
on the German prime rate. This revolving line of credit expires in December
2001. As of March 31, 1999, DEM 1,340,000 (approximately $738,000) was
outstanding under this line of credit at an interest rate of 4.85%.
The Company has domestic unsecured bank lines of credit amounting to $28,000,000
for working capital purposes and other corporate matters. These lines bear
interest at variable rates based on LIBOR. These lines expire in the following
fiscal years: 1999 - $5,000,000; 2000 - $4,000,000; 2001 - $4,000,000; 2002 -
$15,000,000. The facilities include revolving credit agreements of $19,000,000,
in which the Company pays a 0.25% commitment fee on the unused portion. At March
31, 1999, $17,200,000 was outstanding under all domestic bank lines of credit at
a weighted average interest rate of 5.9%. At September 30, 1998, $19,300,000 was
outstanding under the Company's domestic bank lines of credit.
-9-
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<PAGE>
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 sells
innovative filtration products and services to domestic and international
customers. Domestic sales for the purpose of this "Management's Discussion and
Analysis" are those to customers in the U.S. and Canada. Consolidated net sales
for the six months ended March 31, 1999 increased 10% to $75.6 million from
$68.9 million for the same period in fiscal 1998. The improvement in sales was
due to higher domestic sales in the Company's core air pollution control
businesses. Both domestic electrostatic precipitator ("ESP") replacement parts
and service sales and domestic fabric filter replacement parts sales increased
over the prior year. The strong performance of the domestic core businesses was
partly offset by lower export sales from the U.S. to customers in Latin America
and Asia. Sales in Europe showed single digit growth over the prior year.
Net sales for the three months ended March 31, 1999 increased 4% to $40.3
million from $38.9 million for the same period in fiscal 1998. The sales growth
was attributable to an increase in sales of domestic fabric filter replacement
parts and services. International sales during the second quarter decreased 9%
from the prior year due to lower export sales from the U.S. and a decline in
sales to customers in Europe.
GROSS MARGIN
Consolidated gross margin as a percentage of sales was 26.6% for the six months
ended March 31, 1999 down from 31.0% for the same period a year ago.
Consolidated gross margin as a percentage of sales for the second quarter of
fiscal 1999 was 23.3% down from 30.0% for the same period a year ago. The
decline in gross margin as a percentage of sales for both the three and six
month periods was largely attributable to a cost overrun of $2.4 million on a
large fixed-price electrostatic precipitator rebuild project that was fully
accrued during the second quarter. The decline was also attributable to costs
associated with BHA Technologies, Inc.'s efforts to establish a business which
will provide expanded PTFE membrane product to customers for use in applications
outside of air pollution control.
OPERATING EXPENSE
Operating expenses as a percentage of sales were 23.0% and 22.6% for the six
months ended March 31, 1999 and March 31, 1998, respectively. For the three
months ended March 31, 1999 and 1998, the corresponding percentages were 22.6%
and 21.0%, respectively. The increase in operating expenses was attributable to
higher costs associated to the Company's sales and marketing efforts in both its
traditional businesses and BHA Technologies, Inc.
NET INTEREST EXPENSE
Net interest expense for the six months ended March 31, 1999 and 1998 was
$914,000 and $600,000. Net interest expense during second quarter of fiscal 1999
and 1998 was $470,000 and $355,000, respectively. The increase for both periods
was attributable to higher average outstanding bank borrowings in the current
period as compared to the prior year. The increase was attributable to
borrowings relating to the purchase of treasury shares, the acquisition of an
air pollution control product line and capital expenditures.
-10-
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<PAGE>
INCOME TAXES
The effective income tax rate for the three and six months ended March 31, 1999
were 28% and 34%, respectively, compared to 33% for the same periods in the
prior year.
NET EARNINGS
Net earnings for the six months ended March 31, 1999 declined to $1.2 million
from $3.5 million in the prior year with earnings per diluted share decreasing
to $.16 from $.45 in fiscal 1998. The net loss during the second quarter of
fiscal 1999 was $155,000 or ($.02) per diluted share, compared to net earnings
of $2.1 million or $.27 per diluted share during the same period in the prior
year. The decline in profits for the 1999 periods presented was attributable to
a substantial cost overrun on a domestic ESP rebuild project and losses in BHA
Technologies, Inc.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong at March 31, 1999. Net working
capital was $45.0 million at March 31, 1999 compared to $42.2 at September 30,
1998. The current ratio at March 31, 1999 and September 30, 1998 was 3.3 and
3.1, respectively. The Company's cash increased from $193,000 to $430,000. Cash
used in operating activities for the six months ended March 31, 1999 and 1998
was $15,000 and $6 million, respectively.
Investing activities resulted in a net use of cash of $5.5 million and $5.7
million for the six months ended March 31, 1999 and 1998, respectively. The
current year activity consisted of capital expenditures, the investment of the
proceeds from an Industrial Development Revenue Bond issue and the acquisition
of an acoustic cleaning product line from Drayton Corporation.
During the six months ended March 31, 1999 and 1998, net cash provided by
financing activities was $6.4 million and $13.7 million, respectively. The
Company's financing activities during fiscal 1999 consisted of borrowings under
the newly established credit facility in Europe and the issuance of Industrial
Development Revenue Bonds. The borrowings were used to fund the Company's
capital expenditures, treasury share repurchases, cash dividend requirements and
repayment of revolving bank lines of credit.
In October 1998, the Company's foreign subsidiary located in Germany entered
into a credit agreement with a German bank. The credit agreement includes a DEM
5,000,000 (approximately $2,753,000 at March 31, 1999) term loan with a fixed
interest rate of 4.75%. The term loan matures in December 2003. The credit
agreement also includes a revolving bank line of credit of DEM 2,500,000
(approximately $1,377,000 at March 31, 1999) to be used for working capital
purposes. This revolving line of credit bears interest at a variable rate based
on the German prime rate. This revolving line of credit expires in December
2001. In December 1998, BHA Technologies entered into a sales-leaseback
transaction with the City of Lee's Summit, Missouri for the purpose of issuing
Industrial Development Revenue Bonds ("Bonds") to fund the capital expenditures
at the Lee's Summit manufacturing facility. As of March 31, 1999, $8 million in
tax-exempt Bonds were issued and outstanding and will be repaid over the next
twenty years. In addition to the above two facilities, the company had unused
domestic bank lines of credit aggregating $10.8 million at March 31, 1999. The
Company believes that cash flows from operations and available credit lines will
be sufficient to meet its capital needs for the foreseeable future.
-11-
<PAGE>
<PAGE>
YEAR 2000
The Company has established a task force to address and assess Year 2000
compliance for the Company's computer system and software applications,
facilities throughout the world, the products that include date-sensitive
microprocessors, and suppliers providing both goods and services.
THE STATE OF READINESS OF THE COMPANY
During the past several years, the Company has replaced its significant computer
software applications through normal system upgrades. These computer systems
include personal computers, mainframe systems, and worldwide network
applications. All of the new systems are, according to the software vendors,
Year 2000 compliant to support the proper processing of date-sensitive
transactions. Internal testing of a majority of the Company's computer systems
software applications was completed on March 31, 1999. All remaining corrective
actions are covered under existing maintenance contracts and are scheduled for
completion by September 1999.
The task force is currently preparing an inventory list of all machinery, office
equipment, and building equipment that utilize microprocessors at the Company's
facilities around the world to determine Year 2000 compliance. An evaluation of
this inventory list by the task force will be used to prioritize the need to
test and correct any Year 2000 compliance issues. The Company has identified all
Year 2000 compliance issues which the Company believes could have a material
impact on the business. The plans also call for the completion of final system
testing and any required remediation by September 1999.
The Company has a number of products that have date-sensitive microprocessors.
The Company has identified those products that have Year 2000 compliance issues
and proactively notified the customers to whom these products have been sold.
Additional testing of the Year 2000 compliance of the Company's products will
continue to be performed as upgrades or new products are developed. As potential
Year 2000 issues are identified, the Company will communicate directly with
those customers to provide them with additional information. The communication
with customers is expected to continue through the remainder of the year.
The task force has prepared a list of significant suppliers of goods and
services whose Year 2000 compliance could potentially impact the Company's
business. The Company is in the process of proactively addressing and evaluating
Year 2000 compliance with these suppliers, determining the impact on the
Company's business and developing necessary contingency plans. The Company
expects to complete this evaluation and contingency planning by September 1999.
-12-
<PAGE>
<PAGE>
THE COSTS OF YEAR 2000 COMPLIANCE
The costs incurred to upgrade the Company's computer systems and software
applications were normal, planned system upgrades. In 1996, the Company made the
decision to consolidate its business into one entity for operating purposes.
This consolidation process included an upgrade to the Company's mainframe legacy
systems. The Company believes that all Year 2000 issues were addressed and
corrected at this time. The Company completed its personal computer rollout
during 1998. The rollout was part of an overall strategy to standardize on a
single platform using a current level of technology. Based on representations
received from vendors, the Company believes that all new equipment and software
purchased is Year 2000 compliant.
The costs associated with the Year 2000 compliance of the Company's equipment
are not expected to be material based on the preliminary review of the inventory
listing by the task force. Any equipment that is not Year 2000 compliant will be
replaced.
The costs associated with any potential non-compliance of the Company's products
for Year 2000 are mitigated by the terms and conditions under which these
products were sold. The Company's terms and conditions do not include any
representations or warranties regarding Year 2000 compliance and exclude any
liability for incidental or consequential damages including those which could
arise out of a Year 2000 issue. The Company does not anticipate that the costs
associated with Year 2000 issues relating to its products will be material.
The costs associated with the Year 2000 compliance of the Company's suppliers of
goods and services are not expected to be material. The Company will continue to
evaluate each supplier's state of readiness to determine if alternative plans
need to be developed prior to January 1, 2000. These plans could include
procuring additional quantities of inventory from certain vendors during the
fourth quarter of calendar 1999.
The Company does not separately track the internal costs incurred relating to
Year 2000 compliance since these costs are principally payroll and related costs
for the task force and Management Information Systems department.
THE RISKS OF YEAR 2000 NON-COMPLIANCE TO THE COMPANY
The task force believes that the most significant risk that relates to Year 2000
compliance may be the state of readiness of the Company's significant suppliers
of goods and services. Although the Company has taken a proactive approach to
communicate with these suppliers, the Company's relationship with these
suppliers cannot impact or ensure Year 2000 compliance in these suppliers'
ability to continue to provide the necessary goods and services to the Company.
As stated above, the Company has not completed the evaluation and testing of all
of its business systems, products and vendor relationships. The task force does
not believe that there are other significant risks related to Year 2000 that
would have a material negative impact on the Company. The costs and timetables
in which the Company plans to complete the Year 2000 readiness activities are
based on management's best estimates, which were derived using numerous
assumptions of future events including the continued availability of certain
resources, third party readiness plans and other factors. The Company can make
no guarantee that these estimates will be achieved, and actual results could
differ from such plans.
-13-
<PAGE>
<PAGE>
THE YEAR 2000 CONTINGENCY PLANS OF THE COMPANY
The task force is currently assessing the Year 2000 compliance of the Company's
significant suppliers of goods and services. The Company will then determine if
additional quantities of inventory or services need to be provided prior to
January 1, 2000 to allow the Company to maintain its own production schedule.
The Company will also evaluate whether alternative suppliers should be found.
The Company will continue to evaluate alternatives for other contingency plans
for mission critical issues involving utility and telephone service based on
proactive communication with these service providers.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 131, "Disclosures about Segments
of an Enterprise and Related Information," is effective for the Company's fiscal
year 1999. This standard will expand and modify current segment disclosures.
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. You should consult the section
entitled "Factors Affecting Earnings and Stock Price" in the Company's annual
report of Form 10-K.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FORWARD EXCHANGE CONTRACTS
BHA periodically enters into forward exchange contracts in order to fix the
currency exchange rate related to intercompany transactions with its foreign
subsidiaries. Changes in the value of these instruments due to currency
movements offset the foreign exchange gains and losses of the corresponding
intercompany transactions. At March 31, 1999 and September 30, 1998, the
aggregate amount of such forward exchange contracts was approximately $1,900,000
and $1,950,000, respectively. The fair value of the outstanding forward exchange
contracts approximates the aggregate amount outstanding at March 31, 1999.
-14-
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On February 23, 1999, at the Annual Meeting of Shareholders of BHA Group
Holdings, Inc.
(a) The following persons were elected as Directors by the following vote:
<TABLE>
<CAPTION>
FOR AUTHORITY WITHHELD
<S> <C> <C>
Don H. Alexander 6,165,953 97,621
Robert D. Freeland 6,165,288 98,286
Richard C. Green 6,165,953 97,621
James E. Lund 6,156,635 106,939
Thomas A. McDonnell 6,165,953 97,621
Lamson Rheinfrank, Jr. 6,165,953 97,621
James J. Thome 6,165,187 98,387
Michael T. Zak 6,165,187 98,387
</TABLE>
(b) Voting for the ratification of KPMG LLP as the independent auditors of
the Company for the fiscal year ending September 30, 1999 was as
follows:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD NON-VOTE
<S> <C> <C> <C>
6,232,974 2,244 28,356 0
</TABLE>
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 March 31, 1999, there were no reports on Form
8-K filed by the Company.
-15-
<PAGE>
<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 HOLDINGS, INC.
(Registrant)
May 14, 1999 By: /s/ James C. Shay
- ------------------------------------ ---------------------------------
Date (Signature)
James C. Shay
Secretary, Treasurer, Principal
Financial and Accounting Officer
By: /s/ James E. Lund
-------------------------------
(Signature)
James E. Lund
President and
Chief Executive Officer
-16-
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
</TABLE>
-17-
<PAGE>
<PAGE>
Exhibit 11
BHA GROUP HOLDINGS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
Net Earnings Shares Per-Share Net Earnings Shares Per-Share
(Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt.
---------- -------- ---- ----------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Earnings available to
common shareholders ($ 155) 7,021 ($ 0.02) $ 2,100 7,172 $ 0.29
Effect of dilutive
securities--stock options -- -- -- 525
Diluted earnings per
share: Earnings
available to common
shareholders and assumed
conversion ($ 155) 7,021 ($ 0.02) $ 2,100 7,697 $ 0.27
=================================== ===================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1999 March 31, 1998
Net Earnings Shares Per-Share Net Earnings Shares Per-Share
(Numerator) (Denom.) Amt. (Numerator) (Denom.) Amt.
---------- -------- ---- ----------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Earnings available to
common shareholders $ 1,160 7,082 $ 0.16 $ 3,491 7,164 $ 0.49
Effect of dilutive
securities--stock options -- 167 -- 520
Diluted earnings per
share: Earnings
available to common
shareholders and assumed
conversion $ 1,160 7,249 $ 0.16 $ 3,491 7,684 $ 0.45
=================================== ===================================
</TABLE>
-18-
<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,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 430
<SECURITIES> 0
<RECEIVABLES> 32,303
<ALLOWANCES> 1,187
<INVENTORY> 25,602
<CURRENT-ASSETS> 62,557
<PP&E> 68,400
<DEPRECIATION> 31,242
<TOTAL-ASSETS> 111,176
<CURRENT-LIABILITIES> 17,569
<BONDS> 22,942
<COMMON> 87
0
0
<OTHER-SE> 59,942
<TOTAL-LIABILITY-AND-EQUITY> 111,176
<SALES> 32,511
<TOTAL-REVENUES> 40,331
<CGS> 24,883
<TOTAL-COSTS> 30,951
<OTHER-EXPENSES> 9,125
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 470
<INCOME-PRETAX> (215)
<INCOME-TAX> (60)
<INCOME-CONTINUING> (155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (155)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
