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 June 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 executive offices) (Zip Code)
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 - 10,848,141 shares as of July 31, 1994.
Class A Common Stock, $1 par value - 13,348,571 shares as of July 31,
1994.
Class B Common Stock, $1 par value - 2,358,980 shares as of July 31, 1994.
Page 1 of 13
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BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Statement of Earnings 3
Consolidated Condensed Statement 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 4 - Submission of Matters to a Vote of Security Holders 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
EXHIBITS :
Exhibit 11 - Computation of Earnings Per Share 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1 - Financial Statements:
Unaudited Consolidated Condensed Statements of Earnings
(In thousands except per share data)
Three Months Ended Six Months Ended
6/30/94 6/30/93 6/30/94 6/30/93
Net sales $158,045 $148,950 $289,694 $275,542
Other income 3,284 2,453 7,765 5,358
------- ------- ------- -------
161,329 151,403 297,459 280,900
Cost of products sold 92,318 88,738 172,349 165,603
Engineering, selling,
administrative and other
expenses 34,154 32,042 65,305 62,375
Interest expense 439 520 893 1,103
------- ------- ------- -------
126,911 121,300 238,547 229,081
------- ------- ------- -------
Earnings before income taxes 34,418 30,103 58,912 51,819
Income taxes 12,773 10,837 21,836 18,655
------- ------- ------- -------
Net earnings $ 21,645 $ 19,266 $ 37,076 $ 33,164
======= ======= ======= =======
Net earnings per share $ 0.79 $ 0.70 $ 1.36 $ 1.21
Cash dividends per share $ 0.1750 $0.1625 $0.3500 $ 0.3250
Depreciation included in
expense $ 9,386 $ 7,438 $17,768 $ 14,769
Average shares outstanding 27,164 27,406
NOTE: Year-to-date net earnings increased approximately $983,000 and net
earnings per share increased approximately $.04 as a result of the sale of
a portion of the Company's investment in marketable equity securities in
the first quarter.
<PAGE>
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Six Months Ended
6/30/94 6/30/93
Operating Activities
Net earnings $37,076 $33,164
Depreciation and amortization 18,115 14,769
Operating assets and liabilities - net (8,757) 7,292
------ ------
Net cash provided by operating activities 46,434 55,225
Investing Activities
Additions to property, plant and equipment (23,963) (20,810)
Purchases of investments (29,496) (15,805)
Maturities of investments 21,923 8,000
------- -------
Net cash used in investing activities (31,536) (28,615)
Financing Activities
Sale of marketable equity securities 2,447 ---
Proceeds from short-term notes payable 32,111 9,271
Principal payments on short-term notes payable
and other liabilities (30,800) (9,570)
Cash dividends (9,393) (8,870)
Purchases of Common Stock (29,693) ---
------- ------
Net cash used in financing activities (35,328) (9,169)
------- ------
Effect of exchange rate changes on cash and cash
equivalents 35 (164)
------- ------
Increase (decrease) in cash and cash
equivalents (20,395) (17,277)
Cash and cash equivalents at beginning of year 58,004 33,817
------- ------
Cash and cash equivalents at end of period $37,609 $51,094
======= =======
<PAGE>
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
June 30, December 31,
1994 1993
ASSETS:
Cash and cash equivalents $ 37,609 $ 58,004
Investments 32,616 25,043
Accounts receivable - net 167,662 161,506
Inventories:
Finished products 42,774 34,947
Materials & work-in-process 11,794 8,186
------- ------
54,568 43,133
Other current assets 32,651 28,455
------- ------
Total current assets 325,106 316,141
Property, plant, and equipment 345,245 320,142
Less accumulated depreciation & amortization (192,429) (173,521)
------- -------
152,816 146,621
Marketable equity securities, at fair value 65,862 69,496
Other assets 12,852 18,473
------- -------
Total assets $556,636 $550,731
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 18,157 $ 15,757
Income taxes payable 11,382 11,429
Accrued employee compensation and benefits 18,893 15,391
Accrued marketing expenses 24,327 26,163
Other accrued expenses 23,156 21,585
Short-term notes payable and other liabilities 12,296 12,217
------- -------
Total current liabilities 108,211 102,542
Deferred income tax and other liabilities 37,868 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 10,848 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 2,359 2,361
Additional paid-in capital 2,626 2,859
Retained earnings 360,859 362,040
Unrealized gain on securities 25,610 27,693
Equity adjustment from foreign currency
translation (5,094) (6,653)
------ ------
Total equity 410,557 413,092
------- -------
Total liabilities & stockholders' equity $556,636 $550,731
======= =======
<PAGE>
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 six months ended June 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>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated net sales and unit volume both increased 6% for the second
quarter ended June 30, 1994, compared to the same period a year ago, while
net sales for the six months increased 5% on a 6% increase in unit volume.
The net sales increase for both periods would have been aprpoximately two
percentage points higher except for the negative impact of exchange rates
on the translated value of foreign currency denominated sales.
Net sales and unit volume for the Company's domestic operation, which
includes sales to export markets, were 11% and 7% higher for the quarter,
and 8% and 6% higher for the first six months, respectively, compared to
the same periods last year. The percentage differential between the sales
and unit volume (retread materials) increases was primarily due to higher-
than-usual equipment sales.
Second quarter unit volume for the Company's European operations was 3%
higher than the same period last year but the Company does not yet view
this improvement as significant because of the continuing overall weak
economic conditions in the European markets. Western European sales
increased 2% and 4% for the quarter and six months, respectively, in local
currency, but were approximately 2% lower for both periods when translated
to U.S. dollars.
Unit volume for the other foreign geographic areas in the aggregate
increased approximately 6% for the quarter, with South Africa and Brazil
posting strong results, but sales were 2% lower due to the lower
translated value of foreign currency denominated sales. For the six
months, unit volume was 11% higher than last year, but sales were only 1%
higher after translation.
Price increases for most retread material products are announced during
the second quarter for the U.S. and Canadian markets in response to
continued higher material costs, but this increase had a minimal impact on
second quarter net sales and net earnings due to the timing of the
effective date of the increases.
Consolidated gross margin for the second quarter ended June 30, 1994,
improved 1.2 percentage points compared to the same quarter last year.
The improvement in gross margin was due primarily to higher production
levels during the quarter accomplished without significant increases in
manufacturing costs. Gross margin for the first six months of the year
was 0.6 percentage points higher than the same period last year for the
same reason.
Consolidated net earnings for the second quarter increased 12% over the
same period last year and earnings per share increased 13%, both net of
the impact of a one percentage point increase in the Company's effective
income tax rate. For the six months, both consolidated net earnings and
earnings per share increased 12%. The increase in net earnings was
primarily due to the increase in unit volume and improved gross margins.
Consolidated operating and other expenses for the quarter increased 6.6%
compared to the same period last year, but the majority of this increase
was due to unfavorable foreign exchange adjustments as a result of lower
currency values in certain countries in the Western European business
area. Excluding the unfavorable foreign exchange adjustments,
consolidated operating expenses would have been only slightly higher than
last year in absolute terms and, even with last year as a percentage of
sales. Year-to-date other income inclued a non-recurring after-tax
capital gain of $983,000, $.04 per share, from the sale of a portion of
the Company's long-term marketable equity securities for the purpose of
offsetting expiring prior period capital losses. Earnings per share for
the quarter was one percentage point higher than the increase in net
earnings because of fewer shares outstanding due to purchases of the
Company's shares.
The Company's domestic earnings before income taxes for both the second
quarter and six months increased approximately 4% over the same periods
last year, excluding the gain from the sale of equity securities booked in
the first quarter, which was proportional to the increase in net sales.
Although operating expenses increased 10% and 8% for the second quarter
and six months compared to last year, they were both even with the prior
periods as a percentage of sales.
The Company's Western European operations recorded a loss equal to 1.7% of
sales in the second quarter due to the unfavorable foreign exchange
adjustments mentioned above, but this was 1.6 percentage points better
than the same period last year. Excluding the unfavorable foreign
exchange adjustments, second quarter earnings before income taxes would
have been equal to 2.5% of sales compared to a negative 2.4% for last
year. For the six month period, earnings before income taxes were 0.6% of
sales, which was a 1.4 percentage point improvement over the same period
last year.
Earnings before income taxes for the other foreign operations in the
aggregate decreased approximately 18% and 22%, respectively, for the
quarter and six months compared to the same periods last year. This too
was primarily due to the negative impact of the lower translated value of
the foreign currency denominated operations. The Canadian subsidiary's
move to a new distribution center and the repair to a major piece of
manufacturing equipment as discussed in the firt quarter Form 10-Q also
negatively impacted the six month results.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the six months ended June
30, 1994 was $8.8 million less than in the same period last year. The
increase in cash flow from higher earnings and increased non-cash charges
for depreciation and amortization was more than offset by this year's net
change in operating assets (higher accounts receivable and inventory in
line with higher volume) and liabilities (higher deferred income taxes).
Investing Activities.
During the quarter the Company spent approximately $16 million on capital
expenditures, bringing the total to $24 million for the six months to-
date. This compares to $11.3 and $20.8 million, respectively, for the
same periods in the previous year. The Company funded these capital
expenditures from its operational cash flow. The Company's excess funds
are invested over various terms, but only instruments with an original
maturity date of over 90 days are classified as investments.
Financing Activities.
Cash dividends totaled $4.6 million for the quarter and $9.4 million for
the six months to-date. The Company purchased 438,800 shares of its
outstanding Common and Class A Common stock during the quarter, at
prevailing market prices, for $21.7 million, bringing the total for the
six months to-date to 596,800 shares purchased for $29.7 million. Cash
dividends and stock purchases were both funded from operational cash
flows. The short-term borrowing activity 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>
PART II
OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the shareholders of the Company was held on
May 5, 1994.
(c) Two matters were voted upon at the annual meeting. First, the
following three nominees, all of whom were incumbent directors, were
elected as directors for a three-year term ending in 1997 by the
following vote:
Votes Broker
Name Votes for Against Abstentions Non-votes
Stanley E. G. Hillman 32,081,745 20,724 35,770 -0-
Stephen A. Keller 32,096,023 18,171 24,045 -0-
R. Stephen Newman 32,089,114 12,992 36,134 -0-
The other matter voted upon was a proposal to ratify the selection
of Ernst & Young as independent auditors of the Company for the year
ending December 31, 1994. The shareholders ratified the selection
by the following vote:
Votes for Votes Against Abstentions Broker Non-Votes
32,116,610 9,390 12,239 -0-
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter
ended June 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 August 10, 1994 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief
Executive Officer
Date August 10, 1994 \S\ Thomas E. Dvorchak
Thomas E. Dvorchak
Sr. Vice President and
Chief Financial
Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Page
11 Computation of Earnings Per Share 13
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For the Three Months For the Six Months
Ended June, 30 Ended June 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 26,994 27,292 27,052 27,292
Additional shares assuming
exercise of dilutive stock
options - based on treasury
stock method using average
market price 112 113 112 114
-------- -------- -------- --------
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 27,106 27,405 27,164 27,406
====== ====== ====== ======
Net earnings $21,645 $19,266 $37,076 $33,164
======= ======= ======= =======
Net earnings per common and
common equivalent share 0.79 $0.70 $1.36 $1.21
====== ======= ======= =======
Net earnings per common share
assuming full dilution:
Weighted average shares
outstanding 26,994 27,292 27,052 27,292
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 105 113 105 114
------- ------- ------- ------
FULLY-DILUTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 27,099 27,405 27,157 27,406
======== ======== ======== ========
Net earnings $21,645 $19,266 $37,076 $33,164
======= ======= ======= =======
Net earnings per common and
common equivalent share $0.80 $0.70 $1.37 $1.21
======== ======= ======= =======
