-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jj5d/hG5k6em7gsOVdYyuoD38Dd9+e0QjV9mbWTuU/uPl7k3lMnZYsmRIVq/qwwk 6OVrE6ep//mJ8CkCfSmfsg== 0000950117-99-001093.txt : 19990518 0000950117-99-001093.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950117-99-001093 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BHA GROUP INC CENTRAL INDEX KEY: 0000801128 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564] IRS NUMBER: 431416730 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15045 FILM NUMBER: 99627669 BUSINESS ADDRESS: STREET 1: 8800 E 63RD ST CITY: KANSAS CITY STATE: MO ZIP: 64133 BUSINESS PHONE: 8163568400 MAIL ADDRESS: STREET 1: 8800 E 63RD STREET CITY: KANSAS CITY STATE: MO ZIP: 64133 10-Q 1 BHA GROUP HOLDINGS, INC. 10-Q 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 March 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 April 30, 1999, the number of shares outstanding of the Registrant's Common Stock was 6,993,330. s PART I. FINANCIAL INFORMATION BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31, SEPTEMBER 30, ASSETS 1999 1998 ------ --------------- ------------- 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 =============== ===============
See accompanying notes to condensed consolidated financial statements. -1- BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED MARCH, 31 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 ---- ---- 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*
*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- BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 ---- ---- 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
*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- BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
Three Months Ended (IN THOUSANDS) 1999 1998 ---- ---- Net earnings (loss) $ (155) $ 2,100 Other comprehensive income - foreign currency translation adjustments (457) (182) -------------- -------------- -------------- -------------- Comprehensive income (loss) $ (612) $ 1,918 ============== ==============
Six Months Ended (IN THOUSANDS) 1999 1998 ---- ---- Net earnings $ 1,160 $ 3,491 Other comprehensive income - foreign currency translation adjustments (651) (551) -------------- -------------- -------------- -------------- Comprehensive income $ 509 $ 2,940 ============== ==============
See accompanying notes to condensed consolidated financial statements. -4- BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(In thousands, except share and per share data) 1999 1998 ---- ---- 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 ================= =================
See accompanying notes to condensed consolidated financial statements. -5- BHA GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS) 1999 1998 ---- ---- 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 ============== ==============
See accompanying notes to condensed consolidated financial statements. -6- 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:
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. ---------- -------- ---- ----------- -------- ---- 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 =================================== ===================================
-7-
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. ---------- -------- ---- ----------- -------- ---- 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 =================================== ===================================
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):
MARCH 31, SEPTEMBER 30, 1999 1998 Raw materials $17,172 $ 17,036 Work-in-process 480 1,174 Finished goods 7,950 9,153 --------- --------- Total $25,602 $ 27,363 ======= =========
(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- 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- 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- 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- 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- 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- 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- 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:
FOR AUTHORITY WITHHELD 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
(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:
FOR AGAINST WITHHELD NON-VOTE 6,232,974 2,244 28,356 0
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- 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- EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION 11 Computation of Earnings Per Common Share 27 Financial Data Schedule
-17- EX-11 2 EXHIBIT 11 Exhibit 11 BHA GROUP HOLDINGS, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
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. ---------- -------- ---- ----------- -------- ---- 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 =================================== ===================================
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. ---------- -------- ---- ----------- -------- ---- 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 =================================== ===================================
-18- EX-27 3 EXHIBIT 27
5 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. 1,000 6-MOS SEP-30-1999 JAN-01-1999 MAR-31-1999 430 0 32,303 1,187 25,602 62,557 68,400 31,242 111,176 17,569 22,942 87 0 0 59,942 111,176 32,511 40,331 24,883 30,951 9,125 94 470 (215) (60) (155) 0 0 0 (155) (.02) (.02)
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