<PAGE>
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
<TABLE>
<S> <C> <C>
For the Quarter Ended Commission File Number
June 30, 1999 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
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (816) 356-8400
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</TABLE>
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
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As of July 31, 1999, the number of shares outstanding of the Registrant's Common
Stock was 6,987,061.
<PAGE>
PART I. FINANCIAL INFORMATION
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA) JUNE 30, SEPTEMBER 30,
ASSETS 1999 1998
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,796 $ 193
Accounts receivable, less allowance for doubtful receivables
of $1,286 and $1,139, respectively 31,143 31,338
Inventories (note 4) 23,562 27,363
Prepaid expenses 2,564 1,828
Deferred income taxes 1,850 1,850
Income Tax Receivable 716 --
------------------ -------------------
Total current assets 61,631 62,572
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Property, plant and equipment, at cost:
Land and improvements 1,344 1,344
Buildings and improvements 22,254 24,241
Machinery and equipment 41,263 35,947
Office furniture, fixtures and equipment 4,484 4,149
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69,345 65,681
Less accumulated depreciation and amortization 32,312 29,125
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Net property, plant and equipment 37,033 36,556
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Other assets (note 5) 11,309 8,446
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$ 109,973 $ 107,574
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 6) $ 6,601 $ 3,988
Current lease obligations (note 5) 400 --
Accounts payable 3,368 8,896
Accrued compensation and employee benefit costs 2,457 3,695
Accrued expenses and other current liabilities 3,747 3,411
Income tax payable -- 359
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Total current liabilities 16,573 20,349
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Long-term deferred income taxes 2,099 2,116
Long-term debt, excluding current installments (note 6) 22,596 23,029
Long-term lease obligations, excluding current
installments (note 5) 7,600 --
Other liabilities 935 127
Shareholders' equity:
Common stock $0.01 par value
Authorized 20,000,000 shares; issued 8,739,310 and
8,666,353, respectively 87 87
Additional paid-in capital 61,597 61,310
Retained earnings 24,101 22,983
Accumulated - other comprehensive income (1,109) (293)
Unearned compensation (30) (108)
Less cost of 1,752,249 and 1,527,856 shares of common stock
in treasury, respectively (24,476) (22,026)
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Total shareholders' equity 60,170 61,953
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$ 109,973 $ 107,574
================== ===================
</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 JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
---- ----
<S> <C> <C>
Net sales $ 38,943 $ 35,917
Cost of sales 28,355 24,738
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Gross margin 10,588 11,179
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Operating expenses
Selling and advertising expense 5,149 4,473
General and administrative expense 4,023 3,650
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Total operating expenses 9,172 8,123
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Operating income 1,416 3,056
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Interest expense, net 524 361
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Earnings before income taxes 892 2,695
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Income taxes 295 800
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Net earnings $ 597 $ 1,895
=================== ====================
Basic earnings per common share* $ .09 $ .26
Diluted earnings per common share* .08 .25
Basic weighted average number of common shares outstanding* 6,993 7,178
Diluted weighted average number of common shares outstanding* 7,039 7,679
</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.
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<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
---- ----
<S> <C> <C>
Net sales $ 114,502 $ 104,819
Cost of sales 83,846 72,258
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Gross margin 30,656 32,561
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Operating expenses
Selling and advertising expense 15,025 12,810
General and administrative expense 11,551 10,880
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Total operating expenses 26,576 23,690
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Operating income 4,080 8,871
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Interest expense, net 1,438 960
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Earnings before income taxes 2,642 7,911
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Income taxes 885 2,525
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Net earnings $ 1,757 $ 5,386
=================== ====================
Basic earnings per common share* $ .25 $ .75
Diluted earnings per common share* .25 .70
Basic weighted average number of common shares outstanding* 7,052 7,169
Diluted weighted average number of common shares outstanding* 7,169 7,677
</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.
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<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Net earnings $ 597 $ 1,895
Other comprehensive income - foreign currency
translation adjustments (165) 39
----------------- -----------------
----------------- -----------------
Comprehensive income $ 432 $ 1,934
================= =================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Net earnings $ 1,757 $ 5,386
Other comprehensive income - foreign currency
translation adjustments (816) (512)
----------------- -----------------
----------------- -----------------
Comprehensive income $ 941 $ 4,874
================= =================
</TABLE>
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 NINE MONTHS ENDED JUNE 30, 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 72,957 and 40,199 shares of common
stock in 1999 and 1998, respectively -- 1
Issuance of 787,556 shares of common stock in 1998
pursuant to a 10% stock dividend -- 8
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Balance at end of period 87 87
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Additional paid-in capital:
Balance at beginning of period 61,310 47,607
Excess over par value of common stock issued 287 461
Excess over par value of common stock pursuant to a
stock dividend of 10% -- 13,676
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Balance at end of period 61,597 61,744
---------------------- -------------------
Retained earnings:
Balance at beginning of period 22,983 27,773
Net earnings for the period 1,757 5,386
Distribution of 10% stock dividend -- (11,316)
Cash dividends of $.09 per share paid on common
stock during 1999 and 1998 (639) (591)
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Balance at end of period 24,101 21,252
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Accumulated - other comprehensive income:
Balance at beginning of period (293) (148)
Equity adjustment from foreign currency translation (816) (512)
---------------------- -------------------
Balance at end of period (1,109) (660)
---------------------- -------------------
Unearned compensation:
Balance at beginning of period (108) (211)
Compensation expense 78 77
---------------------- -------------------
Balance at end of period (30) (134)
---------------------- -------------------
Treasury stock:
Balance at beginning of period (22,026) (18,181)
Issuance of 136,275 treasury shares pursuant to a 10%
stock dividend during 1998 -- (2,368)
Acquisition of 233,200 and 32,800 shares of common
stock, at cost, during 1999 and 1998, respectively (2,647) (618)
Issuance of 8,807 and 6,671 treasury shares pursuant to
stock option exercises, net, during 1999 and 1998 197 18
---------------------- -------------------
Balance at end of period (24,476) (21,149)
---------------------- -------------------
Total shareholders' equity $ 60,170 $ 61,140
====================== ===================
</TABLE>
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 NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings: $ 1,757 $ 5,386
Adjustment to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,402 4,069
Deferred income tax (17) --
Changes in assets and liabilities:
Accounts receivable 195 (4,371)
Inventories 3,801 (3,108)
Prepaid expenses (736) (798)
Accounts payable (5,528) (3,071)
Accrued expenses and other liabilities (902) (2,641)
Income taxes payable (1,075) 247
----------------- -----------------
Net cash provided by (used in) operating activities 1,897 (4,287)
----------------- -----------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (4,161) (6,523)
Net assets of businesses acquired, excluding cash -- (1,221)
Acquisition of product rights (700) --
Change in other assets (1,995) (78)
----------------- -----------------
Net cash used in investing activities (6,856) (7,822)
----------------- -----------------
Cash flows from financing activities:
Payment of cash dividend on common stock (639) (591)
Purchase of treasury stock (2,647) (618)
Proceeds from issuance of common stock 287 272
Net stock options exercised 197 208
Proceeds from borrowings under bank term notes 2,997 --
Proceeds from lease obligations 8,000 --
Net proceeds from borrowings under revolving bank lines
of credit 154 13,736
Repayments of long-term debt and other long-term liabilities (971) (104)
----------------- -----------------
Net cash provided by financing activities 7,378 12,903
----------------- -----------------
Effect of exchange rate changes (816) (512)
----------------- -----------------
Net increase in cash and cash equivalents 1,603 282
Cash and cash equivalents at beginning of period 193 2,590
----------------- -----------------
Cash and cash equivalents at end of period $ 1,796 $ 2,872
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<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 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
June 30, 1999 June 30, 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 $ 597 6,993 $ 0.09 $ 1,895 7,178 $ 0.26
Effect of dilutive
securities--stock options -- 46 -- 501
Diluted earnings per share:
Earnings available to common
shareholders and assumed
conversion $ 597 7,039 $ 0.08 $ 1,895 7,679 $ 0.25
========================================== ===========================================
</TABLE>
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<TABLE>
<CAPTION>
Nine Months Ended
June 30, 1999 June 30, 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 $ 1,757 7,052 $ 0.25 $ 5,386 7,169 $ 0.75
Effect of dilutive
securities--stock options -- 117 -- 508
Diluted earnings per share:
Earnings available to common
shareholders and assumed
conversion $ 1,757 7,169 $ 0.25 $ 5,386 7,677 $ 0.70
========================================== ===========================================
</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 June 30, 1999 and September 30, 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
<S> <C> <C>
Raw materials $ 15,063 $ 17,036
Work-in-process 628 1,174
Finished goods 7,871 9,153
--------- ---------
Total $ 23,562 $ 27,363
========= =========
</TABLE>
(5) LEASE OBLIGATIONS
On December 22, 1998, BHA Technologies, Inc., a wholly-owned subsidiary of BHA
Group Holdings, Inc. (together with its subsidiaries, the "Company"), 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
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<PAGE>
based on a weekly published index that is approximately 67% of LIBOR. As of June
30, 1999, BHA Technologies, Inc. has $1.9 million in 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 $2,738,000 at June 30, 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 $1,369,000 at June 30, 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 June 30, 1999, DEM 1,340,000 (approximately $734,000) 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: 2000 - $9,000,000; 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 June 30, 1999,
$18,635,000 was outstanding under all domestic bank lines of credit at a
weighted average interest rate of 5.85%. At September 30, 1998, $19,300,000 was
outstanding under the Company's domestic bank lines of credit.
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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. 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 nine months
ended June 30, 1999 increased 9% to $114.5 million from $104.8 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 were flat as compared to the prior year.
Net sales for the three months ended June 30, 1999 increased 8% to $38.9 million
from $35.9 million for the same period in fiscal 1998. The sales growth was
attributable to a sharp increase in sales of domestic ESP replacement parts and
services. International sales during the third quarter decreased 13% 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 26.8% for the nine months
ended June 30, 1999 down from 31.1% for the same period a year ago. Consolidated
gross margin as a percentage of sales for the three months ended June 30, 1999
was 27.2% down from 31.1% for the same period in the prior year. The decline in
gross margin as a percentage of sales for both the nine months ended and the
quarter was largely attributable to a cost overrun on a large fixed-price ESP
rebuild project and a $400,000 inventory write-down relating to the
consolidation of the Company's manufacturing operations in Europe. During
the third quarter, we completed the ESP rebuild project and believe the
ultimate loss on this project will not exceed the amount reserved in the
second quarter of $2.4 million. The decline for the three months ended
June 30, 1999 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
Selling and advertising expense as a percentage of sales was 13.1% and 12.2% for
the nine months ended June 30, 1999 and 1998, respectively. For the three months
ended June 30, 1999 and 1998, the corresponding percentages were 13.2% and
12.5%, respectively. The slight increase in selling and advertising costs is
attributable to increased sales and marketing efforts in both the Company's
traditional businesses and BHA Technologies, Inc.
General and administrative expense as a percentage of sales for the three and
nine months ended June 30, 1999 was comparable to the same periods in the prior
year.
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NET INTEREST EXPENSE
Net interest expense for the nine months ended June 30, 1999 and 1998 was $1.4
million and $960,000, respectively. Net interest expense during the third
quarter of fiscal 1999 and 1998 was $524,000 and $361,000, 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 in
bank borrowings was attributable to borrowings relating to the purchase of
treasury shares, the acquisition of an air pollution control product line and
capital expenditures.
INCOME TAXES
The effective income tax rate was 34% for the nine months ended June 30, 1999
and 32% for the same period in the prior year. The effective income tax rate
during the third quarter of fiscal 1999 and 1998 was 33% and 30%, respectively.
NET EARNINGS
Net earnings for the nine months ended June 30, 1999 declined to $1.8 million
from $5.4 million the prior year with earnings per diluted share decreasing to
$.25 for the nine months ended June 30, 1999 from $.70 in the same period
in fiscal 1998. Net earnings for the quarter were $597,000 or $.08 per diluted
share down from $1.9 million or $.25 per diluted share for the same period in
the prior year. The decline in profits for the 1999 periods presented was
primarily attributable to a substantial cost overrun on an ESP project,
inventory write-down costs associated with the consolidation of manufacturing
in Europe, losses in BHA Technologies, Inc. and higher interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position continued to be strong during the third
quarter. Net working capital was $45.1 million at June 30, 1999 compared to
$42.2 at September 30, 1998. The current ratio at June 30, 1999 and September
30, 1998 was 3.7 and 3.1, respectively. The Company's cash increased from
$193,000 at September 30, 1998 to $1.8 million at June 30, 1999. Cash provided
by operating activities for the nine months ended June 30, 1999 was $1.9 million
as compared to a net use of cash of $4.3 million the prior year.
Investing activities resulted in a net use of cash of $6.9 million and $7.8
million for the nine months ended June 30, 1999 and 1998, respectively. The
current year investing 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 nine months ended June 30, 1999 and 1998, net cash provided by
financing activities was $7.4 million and $12.9 million, respectively. The
Company's financing activities during fiscal 1999 primarily 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, and
cash dividend requirements.
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 $2,738,000 at June 30, 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 $1,369,000 at June 30, 1999) to be used for working capital
purposes. This revolving line of credit bears interest at a variable rate based
on the German
-11-
<PAGE>
prime rate. This revolving line of credit expires in December 2001. In December
1998, BHA Technologies, Inc. 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 June 30, 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 $9.4 million at June 30, 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.
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
and software applications were completed by June 30, 1999. All remaining
corrective actions are covered under existing maintenance contracts or will be
completed by the Management Information Systems department and are scheduled for
completion by September 1999.
The task force is currently finalizing its review of inventory lists 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 has been 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.
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<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 that 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 of these suppliers or
their 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
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<PAGE>
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.
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 end 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 on 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 June 30, 1999 and September 30, 1998, the
aggregate amount of such forward exchange contracts was approximately $2,300,000
and $1,950,000, respectively. The fair value of the outstanding forward exchange
contracts approximates the aggregate amount outstanding at June 30, 1999.
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<PAGE>
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 June 30, 1999, there were no reports on Form
8-K filed by the Company.
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<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)
<TABLE>
<S> <C>
August 16, 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
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
-17-
</TABLE>
<PAGE>
Exhibit 11
BHA GROUP HOLDINGS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999 June 30, 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 $ 597 6,993 $ 0.09 $ 1,895 7,178 $ 0.26
Effect of dilutive
securities--stock options -- 46 -- 501
Diluted earnings per share:
Earnings available to common
shareholders and assumed
conversion $ 597 7,039 $ 0.08 $ 1,895 7,679 $ 0.25
========================================== ===========================================
<CAPTION>
Nine Months Ended
June 30, 1999 June 30, 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 $ 1,757 7,052 $ 0.25 $ 5,386 7,169 $ 0.75
Effect of dilutive
securities--stock options -- 117 -- 508
Diluted earnings per share:
Earnings available to common
shareholders and assumed
conversion $ 1,757 7,169 $ 0.25 $ 5,386 7,677 $ 0.70
========================================== ===========================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
condensed consolidated financial statements for the three months ended June 30,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,796
<SECURITIES> 0
<RECEIVABLES> 32,429
<ALLOWANCES> 1,286
<INVENTORY> 23,562
<CURRENT-ASSETS> 61,631
<PP&E> 69,345
<DEPRECIATION> 32,312
<TOTAL-ASSETS> 109,973
<CURRENT-LIABILITIES> 16,573
<BONDS> 22,596
<COMMON> 87
0
0
<OTHER-SE> 60,083
<TOTAL-LIABILITY-AND-EQUITY> 109,973
<SALES> 30,463
<TOTAL-REVENUES> 38,943
<CGS> 21,633
<TOTAL-COSTS> 28,355
<OTHER-EXPENSES> 9,172
<LOSS-PROVISION> 185
<INTEREST-EXPENSE> 524
<INCOME-PRETAX> 892
<INCOME-TAX> 295
<INCOME-CONTINUING> 597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597
<EPS-BASIC> .09
<EPS-DILUTED> .08
</TABLE>
