<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
For the Quarter Ended Commission File Number
December 31, 1999 0-15045
BHA Group Holdings, Inc.
------------------------------------------------------
(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
--------------
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 20, 2000, the number of shares outstanding of the Registrant's
Common Stock was 6,545,790.
<PAGE>
PART I. FINANCIAL INFORMATION
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31, SEPTEMBER 30,
ASSETS 1999 1999
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,266 $ 877
Accounts receivable, less allowance for doubtful receivables
of $1,343 and $1,238, respectively 28,846 28,356
Inventories (note 3) 28,445 28,043
Income taxes receivable -- 319
Prepaid expenses 2,454 1,989
Deferred income taxes 2,360 2,360
-------- --------
Total current assets 63,371 61,944
-------- --------
Property, plant and equipment, at cost 69,119 67,674
Less accumulated depreciation and amortization 33,922 32,770
-------- --------
Net property, plant and equipment 35,197 34,904
-------- --------
Other assets 11,259 11,300
-------- --------
$109,827 $108,148
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and lease obligations $ 3,300 $ 2,922
Accounts payable 8,156 8,881
Accrued expenses and other current liabilities 6,229 6,856
Income tax payable 316 --
-------- --------
Total current liabilities 18,001 18,659
-------- --------
Long-term deferred income taxes 1,632 1,715
Long-term debt, excluding current installments 25,203 20,345
Long-term lease obligations, excluding current installments 7,200 7,600
Other liabilities 906 937
Shareholders' equity:
Common stock $0.01 par value 87 87
Additional paid-in capital 61,799 61,792
Retained earnings 24,267 23,219
Accumulated--other comprehensive income (666) (899)
Unearned compensation -- (4)
Less cost of common stock in treasury (28,602) (25,303)
-------- --------
Total shareholders' equity 56,885 58,892
-------- --------
$109,827 $108,148
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-1-
<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
------- -------
Net sales $39,036 $35,228
Cost of sales 27,414 24,539
------- -------
Gross margin 11,622 10,689
------- -------
Operating expenses
Selling and advertising expense 5,015 4,685
General and administrative expense 4,273 3,595
------- -------
Total operating expenses 9,288 8,280
------- -------
Operating income 2,334 2,409
------- -------
Interest expense, net 459 443
------- -------
Earnings before income taxes 1,875 1,966
------- -------
Income taxes 620 650
------- -------
Net earnings $ 1,255 $ 1,316
======= =======
Basic earnings per common share $ .18 $ .18
Diluted earnings per common share .18 .18
Basic weighted average number of common
shares outstanding 6,830 7,142
Diluted weighted average number of common
shares outstanding 6,890 7,364
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS) 1999 1998
---- ----
Net earnings: $1,255 $1,316
Other comprehensive income -- foreign currency
translation adjustments 233 (194)
------ ------
Comprehensive income $1,488 $1,122
====== ======
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share and per share data) 1999 1998
---- ----
Common stock:
<S> <C> <C>
Balance at beginning period $ 87 $ 87
Issuance of 721 and 20,370 shares of common
stock in 1999 and 1998, respectively -- --
-------- --------
Balance at end of period 87 87
-------- --------
Additional paid-in capital:
Balance at beginning of period 61,792 61,310
Excess over par value of common stock issued 7 7
-------- --------
Balance at end of period 61,799 61,317
-------- --------
Retained earnings:
Balance at beginning of period 23,219 22,983
Net earnings for the period 1,255 1,316
Cash dividends of $.03 per share paid on common stock
during 1999 and 1998 (207) (215)
-------- --------
Balance at end of period 24,267 24,084
-------- --------
Accumulated -- other comprehensive income:
Balance at beginning of period (899) (293)
Equity adjustment from foreign currency translation 233 (194)
-------- --------
Balance at end of period (666) (487)
-------- --------
Unearned compensation:
Balance at beginning of period (4) (108)
Compensation expense 4 26
-------- --------
Balance at end of period -- (82)
-------- --------
Treasury stock:
Balance at beginning of period (25,303) (22,026)
Acquisition of 362,443 and 57,500 shares of common
stock, at cost, during 1999 and 1998, respectively (3,299) (772)
Issuance of 1,454 treasury shares pursuant to stock option
exercises, net, during 1998 -- 62
-------- --------
Balance at end of period (28,602) (22,736)
-------- --------
Total shareholders' equity $ 56,885 $ 62,183
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings: $ 1,255 $ 1,316
Adjustment to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,415 1,377
Deferred Income Tax (83) (9)
Changes in assets and liabilities:
Accounts receivable (490) 4,730
Inventories (402) (177)
Prepaid expenses (465) (673)
Accounts payable (726) (3,867)
Accrued expenses and other liabilities (626) (2,465)
Income taxes payable 635 527
------- -------
Net cash provided by operating activities 513 759
------- -------
Cash flows from investing activities:
Acquisition of property, plant and equipment (1,494) (1,547)
Change in other assets and liabilities (200) (2,186)
------- -------
Net cash used in investing activities (1,694) (3,733)
------- -------
Cash flows from financing activities:
Payment of cash dividend on common stock (207) (215)
Purchase of treasury stock (3,299) (772)
Proceeds from issuance of common stock 7 139
Net stock options exercised -- (70)
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 5,236 (5,455)
Repayments of long-term debt and other long-term liabilities (400) (441)
------- -------
Net cash provided by financing activities 1,337 4,183
------- -------
Effect of exchange rate changes 233 (194)
------- -------
Net increase in cash and cash equivalents 389 1,015
Cash and cash equivalents at beginning of period 877 193
------- -------
Cash and cash equivalents at end of period $ 1,266 $ 1,208
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<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 (the "Company" or
"BHA") Annual Report to Shareholders for the fiscal year ended September 30,
1999, 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:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
December 31, 1999 December 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 $ 1,255 6,830 $ 0.18 $ 1,316 7,142 $ 0.18
Effect of dilutive
securities--stock options -- 60 -- 222
Diluted earnings per share:
Earnings available to common
shareholders and assumed
conversion $ 1,255 6,890 $ 0.18 $ 1,316 7,364 $ 0.18
================================= ================================
</TABLE>
-6-
<PAGE>
(3) INVENTORIES
BHA 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, 1999 and September 30, 1999 were as
follows (in thousands):
DECEMBER 31, SEPTEMBER 30,
1999 1999
------- -------
Raw materials $19,050 $16,173
Work-in-process 830 2,150
Finished goods 8,565 9,720
------- -------
Total $28,445 $28,043
======= =======
(4) BUSINESS SEGMENTS
BHA reports its operations as three business segments, Domestic Air Pollution
Control (Domestic APC), Europe Air Pollution Control (Europe APC), and BHA
Technologies. Domestic APC consists of the air pollution control products and
services sold or managed from the United States. Such sales include shipments
and services throughout North America, Latin America, Asia, and the Pacific Rim,
as such revenues are derived from BHA's U.S. based management group. The Europe
APC segment represents sales of products and services managed from BHA's
European manufacturing, distribution, and sales offices. BHA Europe generally
services customers throughout Europe, as well as in Northern Africa. BHA
Technologies supplies ePTFE membrane products to BHA's APC business, and is also
developing a market for such products outside of air pollution control.
BHA manages these segments as strategic business units. Europe APC represents a
distinct business unit as it maintains its own manufacturing, sales, marketing,
and project management resources. Sales to other international locations are
included in the Domestic APC business segment, as most or all of the key
manufacturing, engineering, and sales support functions are performed from the
United States. BHA Technologies operates as a distinct entity due to its unique
technologies, as well as the marketing of products unrelated to air pollution
control.
Reportable segment data for the three months ended December 31, 1999 and 1998
were as follows (in thousands):
NET SALES
DECEMBER 31, DECEMBER 31,
1999 1998
------- -------
Domestic APC $32,640 $29,568
Europe APC 5,675 5,306
BHA Technologies 721 354
------- -------
Total $39,036 $35,228
======= =======
Net sales represent revenues from sales to unaffiliated customers.
-7-
<PAGE>
EARNINGS (LOSS) BEFORE INCOME TAXES
DECEMBER 31, DECEMBER 31,
1999 1998
------- -------
Domestic APC $ 2,699 $ 2,988
Europe APC (310) 11
BHA Technologies (514) (1,033)
------- -------
Total $ 1,875 $ 1,966
======= =======
-8-
<PAGE>
BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
For purposes of this "Management's Discussion and Analysis," as well as the
segment reporting information included in Note 4 to the Condensed Consolidated
Financial Statements, Domestic Air Pollution Control ("Domestic APC") represents
all business for which the products or services are sold or managed from the
United States. Generally, this includes revenues to customers in the U.S. and
exports to customers in Canada, Latin America, and Asia. Europe APC represents
all business for which the products or services are sold or managed primarily
from Europe. Such revenues are typically generated in Europe and Northern
Africa. BHA Technologies, a subsidiary engaged in the production and sale of
ePTFE membrane for both APC and non-APC applications, represents BHA's third
business segment.
NET SALES
Consolidated net sales for the three months ended December 31, 1999 ("first
quarter") increased 11% to $39.0 million from $35.2 million for the same period
in fiscal 1999. Each of the Company's business segments reported increased
sales. Sales in Domestic APC increased 10% to $32.6 million primarily on the
strength of fabric filter products in the U.S. and Canada. Europe APC sales
increased 7% to $5.7 million. Shipments of ePTFE membrane from BHA Technologies
to third party customers, primarily for air pollution control applications,
increased from $0.4 million to $0.7 million for the quarter.
GROSS MARGIN
Consolidated gross margin was 29.8% of sales in the first quarter compared to
30.3% for the same period in the prior year. Gross margin as a percentage of
sales declined slightly for the Domestic APC and Europe APC business segments.
Due to the competitive environment, the Company's sales prices did not keep pace
with the modest production cost increases that were attributable to higher wage
and benefit costs. As compared to the fourth quarter of fiscal 1999, gross
margin improved by approximately 1.2% of sales due to a higher mix of fine
filtration product sales.
OPERATING EXPENSE
Operating expense was $9.3 million (23.8% of sales) for the first quarter of
fiscal 2000 compared to $8.3 million (23.5% of sales) for the same period in the
prior year. The increase in operating expenses includes a foreign exchange loss
of $0.2 million during the current period as compared to a gain of $0.1 million
in the prior year. The foreign exchange loss resulted from the weakening of the
European currencies as compared to the U.S. dollar. Other increases in operating
expenses were consistent with the growth in sales volume.
INTEREST EXPENSE
Interest expense was virtually unchanged in the first quarter as compared to the
same period in the prior year at $0.5 million. Although average borrowings
increased, the average interest rate declined in fiscal 2000 as compared to the
prior year due to an $8.0 million tax exempt industrial development revenue bond
issue that was completed in December 1998.
-9-
<PAGE>
INCOME TAXES
The effective income tax rate was 33.1% during the first quarter of both fiscal
2000 and fiscal 1999.
NET EARNINGS
Net earnings for the first quarter of fiscal 2000 was $1,255,000 compared to net
earnings of $1,316,000 in the first quarter of fiscal 1999. Earnings per share
was $0.18 during each period as the average number of common and common
equivalent shares declined from 7.4 million shares to 6.9 million shares.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased from $43.3 million at September 30, 1999 to $45.4
million at December 31, 1999. The current ratio at December 31, 1999 and
September 30, 1999 was 3.5 and 3.3, respectively. The Company's cash increased
from $0.9 million to $1.3 million. Cash provided by operating activities for the
three months ended December 31, 1999 was $0.5 million compared to cash provided
by operating activities for the three months ended December 31, 1998 of $0.8
million.
Investing activities resulted in a net use of cash of $1.7 million and $3.7
million for the three months ended December 31, 1999 and 1998, respectively. The
investment in capital expenditures was substantially the same in both years. The
fiscal 1999 activity also included the investment of proceeds from a
sales-leaseback transaction related to the issuance of industrial development
revenue bonds.
During the three months ended December 31, 1999 and 1998, net cash provided by
financing activities was $1.3 million and $4.2 million, respectively. The
Company's financing activities during fiscal 2000 consisted of borrowings on its
revolving credit facility to support its investment in capital expenditures and
the repurchase of $3.3 million in BHA stock.
The Company has financing commitments that include a $15.0 million U.S. term
note with a final maturity in 2005, an $18.0 million U.S. revolving credit
facility maturing in 2002, and credit lines in Germany for a U.S. equivalent of
approximately $5.0 million maturing in 2003. The Company's unused commitments as
of December 31, 1999 were approximately $7.8 million. 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
In previous years, the Company established a task force to address and assess
Year 2000 ("Y2K") 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 Company did not experience any significant problems related to Y2K.
Management continues to monitor its systems, as well as the documents being
received from its trading partners, however, no significant Y2K problems are
anticipated.
-10-
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," is effective for BHA's fiscal
year 2001. The statement establishes accounting and reporting standards for
derivative instruments and all hedging activities. This statement will not have
any impact on BHA's results of operations, as all derivative instruments are
designated as hedges against foreign currency exposures.
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 December 31, 1999, the aggregate amount of such
forward exchange contracts was approximately $2,100,000. The fair value of the
outstanding forward exchange contracts approximates the aggregate amount
outstanding at December 31, 1999.
-11-
<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 December 31, 1999, there were no reports on
Form 8-K filed by the Company.
-12-
<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)
January 24, 2000 By: /s/ James C. Shay
- ------------------------------ -------------------------------------------
Date (Signature)
James C. Shay
Senior Vice President, Finance and
Administration, Principal Financial and
Accounting Officer
By: /s/ James E. Lund
-------------------------------------------
(Signature)
James E. Lund
President and
Chief Executive Officer
-13-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
-14-
<PAGE>
Exhibit 11
BHA GROUP HOLDINGS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, 1999 December 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 $1,255 6,830 $0.18 $1,316 7,142 $0.18
Effect of dilutive
securities--stock options -- 60 -- 222
Diluted earnings per share:
Earnings available to common
shareholders and assumed
conversion $1,255 6,890 $0.18 $1,316 7,364 $0.18
================================= =================================
</TABLE>
-15-
<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, 1999 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-30-2000
<PERIOD-START> SEP-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,266
<SECURITIES> 0
<RECEIVABLES> 30,189
<ALLOWANCES> 1,343
<INVENTORY> 28,445
<CURRENT-ASSETS> 63,371
<PP&E> 69,119
<DEPRECIATION> 33,922
<TOTAL-ASSETS> 109,827
<CURRENT-LIABILITIES> 18,001
<BONDS> 25,203
<COMMON> 87
0
0
<OTHER-SE> 56,798
<TOTAL-LIABILITY-AND-EQUITY> 109,827
<SALES> 33,549
<TOTAL-REVENUES> 39,036
<CGS> 25,335
<TOTAL-COSTS> 27,414
<OTHER-EXPENSES> 9,288
<LOSS-PROVISION> 85
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> 1,875
<INCOME-TAX> 620
<INCOME-CONTINUING> 1,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,255
<EPS-BASIC> .18
<EPS-DILUTED> .18
</TABLE>
