FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ________ to ________
Commission file number 1-7007
BANDAG, INCORPORATED
(Exact name of registrant as specified in its charter)
Iowa 42-0802143
(State of incorporation) (I.R.S Employer Identification
No.)
2905 N HWY 61, Muscatine, Iowa 52761-5886
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, including area code:319/262-1400
Not Applicable
(Former name, address, or fiscal year,
if changed since last report)
Indicate by check mark 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 12 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 ___.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $1 par value - 10,781,841 shares as of October 31, 1994.
Class A Common Stock, $1 par value - 13,346,571 shares as of October 31,
1994. Class B Common Stock, $1 par value - 2,358,280 shares as of October
31, 1994.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Statements of Earnings 3
Consolidated Condensed Statements of Cash Flows 4
Consolidated Condensed Balance Sheets 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II : OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
EXHIBITS :
Exhibit 11 - Computation of Earnings Per Share 14
Exhibit 27 - Financial Data Schedule 15
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item 1 - Financial Statements:
Unaudited Consolidated Condensed Statements of Earnings
(In thousands except per share data)
Three Months Ended Nine Months Ended
9/30/94 9/30/93 9/30/94 9/30/93
Net sales $177,231 $154,300 $466,925 $429,842
Other income 2,684 2,311 10,449 7,669
_______ _______ _______ _______
179,915 156,611 477,374 437,511
Cost of products sold 99,162 89,993 271,511 255,596
Engineering, selling,
administrative and
other expenses 33,554 29,608 98,859 91,983
Interest expense 541 399 1,434 1,502
_______ _______ _______ _______
133,257 120,000 371,804 349,081
_______ _______ _______ _______
Earnings before income
taxes 46,658 36,611 105,570 88,430
Income taxes 17,306 14,064 39,142 32,719
_______ _______ _______ _______
Net Earnings $ 29,352 $ 22,547 $ 66,428 $55,711
======= ======= ======= =======
Net earnings per share $ 1.11 $ 0.83 $ 2.47 $ 2.04
Cash dividends per
share $0.1750 $ 0.1625 $ 0.5250 $0.4875
Depreciation included
in expense $ 8,008 $ 8,041 $ 25,776 $22,810
Average shares
outstanding 26,910 27,359
NOTE: Year-to-date net earnings increased approximately $983,000 and net
earnings per share increased approximately $.03 as a result of the sale of
a portion of the Company's investment in marketable equity securities in
the first quarter.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Nine Months Ended
9/30/94 9/30/93
Operating Activities
Net earnings $66,428 $55,711
Depreciation and amortization 26,358 22,855
Operating assets and liabilities-net (19,794) (12,836)
______ ______
Net cash provided by operating
activities 72,992 65,730
Investing Activities
Additions to property, plant and
equipment (31,816) (28,495)
Purchases of investments (46,138) (33,100)
Maturities of investments 38,635 13,825
______ ______
Net cash used in investing
activities (39,319) (47,770)
Financing Activities
Sale of marketable equity securities 2,447 ---
Proceeds from short-term notes
payable 73,320 14,271
Principal payments on short-term
notes payable and other liabilities (72,261) (10,431)
Cash dividends (14,040) (13,281)
Purchases of Common Stock (29,693) (6,797)
______ ______
Net cash used in financing
activities (40,227) (16,238)
Effect of exchange rate changes on cash
and cash equivalents 25 (853)
______ ______
Increase (decrease) in cash and cash
equivalents (6,529) 869
Cash and cash equivalents at beginning
of year 58,004 33,817
_____ ______
Cash and cash equivalents at end of
period $51,475 $34,686
====== ======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
September December
30, 1994 31, 1993
ASSETS:
Cash and cash equivalents $ 51,475 $ 58,004
Investments 32,547 25,043
Accounts receivable - net 184,182 161,506
Inventories:
Finished products 41,583 34,947
Materials & work-in-process 14,401 8,186
_______ ______
55,984 43,133
Other current assets 31,417 28,455
______ ______
Total current assets 355,605 316,141
Property, plant, and equipment 355,333 320,142
Less accumulated depreciation &
amortization (202,672) (173,521)
______ ______
152,661 146,621
Marketable equity securities, at
fair value 60,474 69,496
Other assets 12,702 18,473
______ ______
Total assets $581,442 $550,731
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 18,822 $ 15,757
Income taxes payable 8,933 11,429
Accrued employee compensation and
benefits 13,606 15,391
Accrued marketing expenses 27,827 26,163
Other accrued expenses 28,549 21,585
Short-term notes payable and other
liabilities 12,344 12,217
_______ ______
Total current liabilities 110,081 102,542
Deferred income tax and other
liabilities 36,931 35,097
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding -
10,848,116 shares in 1994;
11,215,008 in 1993 10,849 11,215
Class A Common stock; $1 par
value; authorized - 50,000,000
shares;
Issued and outstanding -
13,348,571 shares in 1994;
13,576,971 in 1993 13,349 13,577
Class B Common stock; $1 par
value; authorized - 8,500,000
shares;
Issued and outstanding -
2,359,005 shares in 1994;
2,360,513 in 1993 2,358 2,361
Additional paid-in capital 2,626 2,859
Retained earnings 385,564 362,040
Unrealized gain on securities 22,421 27,693
Equity adjustment from foreign
currency translation (2,737) (6,653)
______ ______
Total equity 434,430 413,092
______ ______
Total liabilities &
stockholders' equity $581,442 $550,731
====== ======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1994, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1994. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1993.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Consolidated net sales for the third quarter ended September 30, 1994 were
15% higher than the same period last year, on a 9% increase in unit
volume, with most of the Company's major markets experiencing strong sales
demand. The sales increase was higher than the unit volume increase due
to higher domestic selling prices and the favorable impact of relatively
higher average exchange rates on the translated value of foreign currency
denominated sales.
Consolidated net sales for the nine months were 9% higher than the same
period last year on a 7% increase in unit volume. This is a five
percentage-point improvement over the six month to-date comparison,
reflecting the impact of the strong third quarter results. Higher
domestic selling prices were mostly offset by the unfavorable impact of
relatively lower year-to-date average exchange rates on the translated
value of foreign currency denominated sales.
Consolidated gross margin for the third quarter ended September 30, 1994,
improved 2.3 percentage points compared to the same quarter last year.
The higher gross margin was due primarily to improved manufacturing
efficiencies and the strong worldwide sales volume.
Gross margin for the nine months to-date was 1.4 percentage points higher
than the same period last year as a result of the strong third quarter
results.
As discussed in the previous quarter's Form 10-Q report, the Company
increased selling prices to U.S. and Canadian dealers for most retread
material on April 15, 1994, with those increases taking effect in the
latter part of the second quarter. Since then, the prices of synthetic
rubber, the Company's major raw material, have increased approximately 6%
and natural rubber approximately 5%, and further increases of 9% and 27%,
respectively, are expected during the fourth quarter. Because of these
cost increases, the Company announced further selling price increases in
these markets effective October 1, 1994. As is the practice, special
allowances to the Company's dealers will delay the effective date by
approximately one month to allow time for them to implement these
increases with their customers.
Consolidated operating and other expenses for the quarter increased 13%
from the same period last year, with the majority of this increase due to
the timing of domestic expenditures for marketing programs and research
and development projects. Consolidated foreign exchange adjustments were
nil for the quarter, as unfavorable foreign exchange adjustments in
Western Europe were offset by favorable adjustments in the Company's other
operations.
Consolidated net earnings and earnings per share for the third quarter
increased 30% and 34%, respectively, from the same period last year.
Income tax expense for third quarter 1993 included a retroactive rate
adjustment from 36% to 37%, which accounts for the three-percentage point
difference between the increase in third quarter 1994 pretax earnings and
net earnings when compared to the previous year.
For the nine months, consolidated net earnings and earnings per share
increased 19% and 21%, respectively, from the same period last year.
Operating and other expenses for the nine months increased 7% from last
year, which basically follows trend, and were equal to last year as a
percent of sales. Unfavorable foreign exchange adjustments in the period
were higher than those recorded last year because of lower currency values
in Europe relative to the Belgian franc, but the impact was partially
offset by the lower translated value of expenses denominated in foreign
currencies. Earnings per share were two percentage points higher than the
increase in net earnings because of fewer shares outstanding due to
purchases of the Company's shares.
Domestic Operations:
Net sales and unit volume for the Company's domestic operations, which
include sales to a number of export markets, were 14% and 7% higher,
respectively, during the third quarter in comparison to the prior year,
while the nine months were 11% and 6% higher, respectively. The net sales
increases exceeded the unit volume increases as a result of stronger
equipment sales in combination with higher retread material selling
prices.
Operating expenses for the third quarter increased 20% over the same
period last year but were only one percentage point higher as a percent of
sales. The increase in expenses was primarily due to the timing of
domestic expenditures related to marketing programs and research and
development projects. Operating expenses for the nine months increased
11% over the same period last year but were even with last year as a
percent of sales.
Earnings before income taxes for the third quarter and nine months were
18% and 16% higher, respectively, than the same periods last year. The
two percentage-point improvement between the third quarter and nine month
comparisons to last year was basically due to higher gross margin from
improved manufacturing efficiencies during the third quarter.
Western European Operations:
Results for the Company's Western European operations were very strong in
the third quarter, with net sales 16% higher than the same period last
year on a 9% increase in unit volume. The net sales increase was higher
than the volume increase in the third quarter due to higher average
exchange rates relative to the U.S. dollar, though the translation rates
for the nine month comparison still fell below last year's levels. For
the nine months, both net sales and unit volume increased 4% over the same
period last year.
Earnings before income taxes improved to 9.5% of net sales from a negative
2.8% for the same period last year. In addition to the strong increase in
unit volume, earnings before income taxes also benefited from a 1.3%
decrease in operating expenses. Unfavorable foreign exchange adjustments
continued during the quarter but they were well below what was experienced
during the first half of the year. For the nine months, earnings before
income taxes were 4.1% of net sales compared to break even last year.
Other Foreign Operations:
Combined third quarter net sales and unit volume for the Company's other
foreign geographic areas increased approximately 15% in comparison to the
same period last year. Brazil once again posted strong results for sales
and unit volume with increases of 42% and 25%, respectively, during this
period. All of the Company's other foreign operations, except Canada,
also had strong increases in unit volume, but their combined sales
increases were not as high as their combined unit volume increases due to
lower translation rates.
Net sales and unit volume for the nine months were 6% and 12% higher than
last year, respectively. Results basically mirror the quarter, except the
foreign translation rates were less favorable than last year.
Combined earnings before income taxes for the other foreign operations for
the third quarter were 27% higher than the same period last year.
Brazil's results were very strong compared to the other operations due to
its 42% increase in sales volume, coupled with a seven percentage-point
improvement in gross margin and a minimal increase in operating expenses.
For the nine months, combined earnings before income taxes were
approximately 2% lower than the same period last year. This shortfall was
basically due to the negative impact of the lower translated value of the
foreign currency denominated operations, primarily Canada and South
Africa. The Canadian subsidiary has not fully recouped the cost
associated with the move to a new distribution center and the repair to a
major piece of manufacturing equipment during the first part of the year,
as noted in the first quarter Form 10-Q report, which negatively impacts
year-to-date results.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the nine months ended
September 30, 1994 was $7.3 million higher than the same period last year,
even though net operating assets and liabilities increased $7.0 million
compared to the same period last year. The major changes were from
increases in accounts receivable and inventory, as a result of increased
sales levels and higher finished goods inventory to meet anticipated sales
demand with some offset coming from higher deferred income taxes.
Investing Activities.
The Company spent approximately $7.8 million on capital expenditures
during the third quarter, bringing the total to $31.8 million for the nine
months to-date. This compares to $7.7 and $28.5 million, respectively,
for the same periods in the previous year. Funding for these capital
expenditures came from operational cash flows.
While the Company's excess funds are invested over various terms, only
instruments with an original maturity date of over 90 days are classified
as investments; the total of which was $32.6 million at September 30,
1994.
Financing Activities.
Cash dividends totaled $4.6 million for the quarter and $14.0 million for
the nine months to-date. Since the beginning of the year the Company has
purchased 596,800 shares of its outstanding Common and Class A Common
stock at prevailing market prices, for a total outlay of $29.7 million.
Funding for these cash dividends and stock purchases was provided from
operational cash flows. Short-term borrowing during the quarter was
primarily by the Company's Western European operation to fund its current
cash flow needs. The Company continues to have $117 million in funds
available under unused lines of credit and foreign credit and overdraft
facilities.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings Per Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
September 30, 1994.
<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.
BANDAG, INCORPORATED
(Registrant)
Date: November 8, 1994 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive
Officer
Date: November 8, 1994 \S\ Thomas E. Dvorchak
Thomas E. Dvorchak
Sr. Vice President and Chief
Financial Officer
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Page
11 Computation of Earnings Per Share 14
27 Financial Data Schedule 15
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For the Three For the Nine
Months Ended Months Ended
September 30 September 30
1994 1993 1994 1993
(In thousands except per share data)
Net earnings per common
and common equivalent
share:
Weighted average number
of shares of Common
Stock, Class A Common
Stock and Class B
Common Stock
outstanding 26,556 27,183 26,800 27,248
Additional shares
assuming exercise of
dilutive stock options
- based on treasury
stock method using
average market price 109 109 110 111
_______ _______ _______ _______
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES 26,665 27,292 26,910 27,359
======= ======= ======= =======
Net earnings $29,352 $22,547 $66,428 $55,711
======= ======= ======= =======
Net earnings per common
and common equivalent
share $1.11 $0.83 $2.47 $2.04
======= ======= ======= =======
Net earnings per common
share assuming full
dilution:
Weighted average shares
outstanding 26,566 27,183 26,800 27,248
Additional shares
assuming exercise of
dilutive stock options-
based on the treasury
stock method using the
month-end price if
higher than the average
market price 109 115 110 115
______ _______ _______ _______
FULLY-DILUTED AVERAGE
NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 26,665 27,298 26,910 27,363
======= ======= ======= =======
Net earnings $29,352 $22,547 $66,428 $55,711
======= ======= ======= =======
Net earnings per common
and common equivalent
share $1.11 $0.83 $2.47 $2.04
======= ======= ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS AND THE UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEET OF THE REGISTRANT FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 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> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 51,475
<SECURITIES> 32,547
<RECEIVABLES> 184,182
<ALLOWANCES> 13,225
<INVENTORY> 55,984
<CURRENT-ASSETS> 355,605
<PP&E> 355,333
<DEPRECIATION> 202,672
<TOTAL-ASSETS> 581,442
<CURRENT-LIABILITIES> 110,081
<BONDS> 12,051
<COMMON> 26,556
0
0
<OTHER-SE> 407,874
<TOTAL-LIABILITY-AND-EQUITY> 581,442
<SALES> 466,925
<TOTAL-REVENUES> 477,374
<CGS> 271,511
<TOTAL-COSTS> 91,226
<OTHER-EXPENSES> 7,633
<LOSS-PROVISION> 2,242
<INTEREST-EXPENSE> 1,434
<INCOME-PRETAX> 105,570
<INCOME-TAX> 39,142
<INCOME-CONTINUING> 66,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,428
<EPS-PRIMARY> 2.47
<EPS-DILUTED> 2.47
</TABLE>
