SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (fee required)
For the fiscal year ended December 31, 1994;
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7007
BANDAG, INCORPORATED
(Exact name of registrant as specified in its charter)
Iowa 42-0802143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2905 North Highway 61, Muscatine, Iowa 52761-5886
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 319/262-1400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock - $1 Par Value New York Stock Exchange and
Class A Common Stock - $1 Par Value Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock - $1 Par Value
(Title of class)
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
periods 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 24, 1995: Common Stock,
$779,258,091; Class A Common Stock (non-voting), $940,927,607; Class B
Common Stock, $273,050,872.
The number of shares outstanding of the issuer's classes of common
stock as of March 24, 1995: Common Stock, 10,789,434 shares; Class A
Common Stock, 12,871,138 shares; Class B Common Stock, 2,357,456 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's Proxy Statement for the Annual Meeting of
the Shareholders to be held May 9, 1995 are incorporated by reference in
Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
All references herein to the "Corporation" or "Bandag" refer to
Bandag, Incorporated and its subsidiaries unless the context indicates
otherwise.
Bandag is engaged in the production and sale of precured tread rubber
and equipment used by its franchisees for the retreading of tires for
trucks, buses, light commercial trucks, industrial equipment, off-the-road
equipment and passenger cars. Bandag specializes in a patented
cold-bonding retreading process which it introduced to the United States
in 1957. The Bandag Method, as it is called, separates the process of
vulcanizing the tread rubber from the process of bonding the tread rubber
to the tire casing, allowing for optimization of temperature and pressure
levels at each stage of the retreading process. Although a Bandag retread
is typically sold at a higher unit price than the alternative "hot-capped"
process, as well as retreads sold using competitive precured systems, the
Bandag product is considered to be superior, resulting in a longer lasting
retread and lower user cost per mile.
The Corporation and its licensees have 1,363 franchisees worldwide,
with 37% located in the United States and 63% internationally. The
majority of Bandag's franchisees are independent operators of full service
tire distributorships. Bandag's revenues primarily come from the sale of
retread material and equipment to its franchisees. Bandag's products
compete with new tire sales, as well as retreads produced using other
retread processes. The Corporation concentrates its marketing effort on
existing franchisees and on expanding their respective market penetration.
Due to its strong distribution system, marketing efforts, and leading
technology, Bandag, through its independent franchisee network, has been
able to maintain the largest market presence in the retreading industry.
The Company as a tread rubber supplier to its independent network of
franchisees competes in the light and heavy truck tire replacement market.
Both new tire manufacturers and tread rubber suppliers compete in this
market. While the Company has independent franchisees in over 116
countries, and competes in all of these geographic markets, its largest
market is the United States. Truck tires retreaded by the Company's
franchisees make up approximately 15% of the U.S. light and heavy truck
tire replacement market. The Company's primary competitors are new tire
manufacturers such as Goodyear Tire and Rubber Company, Bridgestone
Corporation and Groupe Michelin. Goodyear Tire and Rubber Company also
competes in the U.S. market as a tread rubber supplier to a combination of
company owned and independent retreaders.
As a result of a recapitalization of the Corporation approved by the
Corporation's shareholders on December 30, 1986, and substantially
completed in February 1987, the Carver Family (as hereinafter defined)
obtained absolute voting control of the Corporation. As of March 24, 1995
the Carver Family beneficially owned shares of Common Stock and Class B
Common Stock constituting 74% of the votes entitled to be cast in the
election of directors and other corporate matters. The "Carver Family" is
composed of (i) Lucille A. Carver, a director and widow of Roy J. Carver,
(ii) the lineal descendants of Roy J. Carver and their spouses, and (iii)
certain trusts and other entities for the benefit of the Carver Family
members.
Description of Business
The Corporation's business consists of the franchising of patented
processes for the retreading of tires for trucks, buses, light commercial
trucks, industrial equipment, off-the-road equipment, and passenger cars,
and the production and sale of precured tread rubber and related products
used in connection with these processes.
The Bandag process can be divided into two steps: (i) manufacturing
the tread rubber and (ii) bonding the tread to a tire casing. Bandag
manufactures over 500 separate tread designs and sizes, treads
specifically designed for various applications, allowing fleet managers to
fine-tune their tire programs. Bandag tread rubber is vulcanized prior to
shipment to its independent franchisees. The Bandag franchisee performs
the retreading process of bonding the cured tread to a prepared tire
casing. This two-step process allows utilization of the optimum
temperature and pressure levels at each step. Lower temperature levels
during the bonding process result in a more consistent, higher quality
finished retread with less damage to the casing. Bandag has developed a
totally integrated retreading system with the materials, bonding process
and manufacturing equipment specifically designed to work together as a
whole.
The Corporation also franchises the use of another cold process
precured retreading system, the Vakuum Vulk Method, for which the
Corporation owns worldwide rights. In connection with the Vakuum Vulk
Method, the Corporation currently sells tread rubber, equipment, and
supplies to franchisees located in certain European countries.
Markets and Distribution
The principal market categories for tire retreading are truck and
bus, with more than 90% of the tread rubber sold by the Corporation used
in the retreading of these tires. Additionally, the Corporation markets
tread rubber for the retreading of off-the-road equipment, industrial and
light commercial vehicle and passenger car tires; however, historically,
sales of tread rubber for these applications have not contributed
materially to the Corporation's results of operations.
Trucks and Buses Tread rubber, equipment, and supplies for
retreading and repairing truck and bus tires are sold primarily to
independent franchisees by the Corporation to use the Bandag Method for
that purpose. Bandag has 1,302 franchisees throughout North America,
Central America, South America, Europe, Africa, Far East, Australia and
New Zealand. These franchisees are owned and operated by independent
franchisees, some with multiple franchises and/or locations. Of these
franchisees 504 are located in the United States. Additionally, the
Corporation has approximately 61 franchisees in Europe who retread tires
using the Vakuum Vulk Method. One hundred twenty-six of Bandag's foreign
franchisees are franchised by licensees of the Corporation in Australia,
and joint ventures in India, Sri Lanka and Indonesia. A limited number of
franchisees are trucking companies which operate retread shops essentially
for their own needs. A few franchisees also offer "hot-cap" retreading
and most sell one or more lines of new tires.
The current franchise agreement offered by the Corporation grants the
franchisee the non-exclusive retread manufacturing rights to use the
Bandag Method for one or more applications and the Bandag trademarks in
connection therewith within a specified territory, but the franchisee is
free to market Bandag retreads outside the territory. No initial
franchise fee is paid by a franchisee for its franchise.
Other Applications The Corporation continues to manufacture and
supply to its franchisees a limited amount of tread for Off-the-Road (OTR)
tires, industrial tires, including solid and pneumatic, passenger car
tires and light commercial tires for light trucks and recreational
vehicles.
Regulations
Various federal and state authorities have adopted safety and other
regulations with respect to motor vehicles and components, including
tires, and various states and the Federal Trade Commission enforce
statutes or regulations imposing obligations on franchisors, primarily a
duty to disclose material facts concerning a franchise to prospective
franchisees. Management is unaware of any present or proposed regulations
or statutes which would have a material adverse effect upon the
Corporation's business, but cannot predict what other regulations or
statutes might be adopted or what their effect on the Corporation's
business might be.
Competition
The Corporation faces strong competition in the market for
replacement truck and bus tires, the principal retreading market which it
serves. The competition comes not only from the major manufacturers of
new tires, but also from manufacturers of retread-ing materials.
Competitors include producers of "camelback," "strip stock," and "slab
stock" for "hot-cap" retreading, as well as a number of producers of
precured tread rubber. Various methods for bonding precured tread rubber
to tire casings are used by competitors.
Bandag retreads are often sold at a higher price than tires retreaded
by the "hot-cap" process as well as retreads sold using competitive
precured systems. The Corporation believes that the superior quality and
greater mileage of Bandag retreads and expanded service programs to
franchisees and end-users outweigh any price differential.
Bandag franchisees compete with many new-tire dealers and retreading
operators of varying sizes, which include shops operated by the major
new-tire manufacturers, large independent retread companies, retreading
operations of large trucking companies, and smaller commercial tire
dealers.
Sources of Supply
The Corporation manufactures the precured tread rubber, cushion gum,
and related supplies in Corporation-owned manufacturing plants in the
United States, Canada, Brazil, Belgium, South Africa, Mexico, Malaysia and
New Zealand. The Corporation has entered into joint venture agreements in
India, Sri Lanka and Indonesia. The Corporation also manufactures
pressure chambers, tire casing analyzers, buffers, tire builders, tire
handling systems, and other items of equipment used in the Bandag and
Vakuum Vulk retreading methods. Curing rims, chucks, spreaders, rollers,
certain miscellaneous equipment, and various retreading supplies, such as
repair patches sold by the Corporation, are purchased from others.
The Corporation purchases rubber and other materials for the
production of tread rubber and other rubber products from a number of
suppliers. The rubber for tread is primarily synthetic and obtained
principally from sources which most conveniently serve the respective
areas in which the Corporation's plants are located. Although synthetic
rubber and other petrochemical products have periodically been in short
supply and significant cost fluctuations have been experienced in previous
years, the Corporation to date has not experienced any significant
difficulty in obtaining an adequate supply of such materials. However,
the effect on operations of future shortages will depend upon their
duration and severity and cannot presently be forecast.
The principal source of natural rubber, used for the Corporation's
cushion gum, is the Far East. The supply of natural rubber has
historically been adequate for the Corporation's purposes. Natural rubber
is a commodity subject to wide price fluctuations as a result of the
forces of supply and demand. Synthetic prices historically have been
related to the cost of petrochemical feedstocks which were relatively
stable prior to 1994. A relationship between natural rubber and synthetic
rubber prices exists, but it is by no means exact.
Patents
The Corporation owns or has licenses for the use of a number of
United States and foreign patents covering various elements of the Bandag
and Vakuum Vulk Methods. The Corporation has patents covering improved
features, some of which start expiring in 1995 and others that will
continue to expire through the year 2011, and the Corporation has
applications pending for additional patents.
The Corporation's patent counsel has advised the Corporation that the
United States patents are by law presumed valid and that the Corporation
does not infringe upon the patent rights of others. While the outcome of
litigation can never be predicted with certainty, such counsel has advised
the Corporation that, in his opinion, in the event of litigation placing
the validity of such patents at issue, the Corporation's United States
patent position should remain adequate.
The protection afforded the Bandag Method by foreign patents owned by
the Corporation, as well as those under which it is licensed, varies among
different countries depending mainly upon the extent to which the elements
of the Bandag Method are covered, the strength of the patent laws and the
degree to which patent rights are upheld by the courts. Patent counsel
for the Corporation is of the opinion that its patent position in the
foreign countries in which its principal sales are made is adequate and
does not infringe upon the rights of others. The Corporation has,
however, extended its foreign market penetration to some countries where
little or no patent protection exists.
The Corporation does not consider that patent protection is the
primary factor in its successful retreading operation, but rather, that
its proprietary technical "know-how," product quality, franchisee support
programs and effective marketing programs are more important to its
success.
The Corporation has secured registrations for its trademark and
service mark BANDAG, as well as other trademarks and service marks, in the
United States and most of the other important commercial countries.
Other Information
The Corporation conducts research and development of new products,
primarily in the tire retreading field, and the improvement of materials,
equipment, and retreading processes. The cost of this research and
development program was approximately $12,612,000 in 1992, $12,321,000 in
1993, and $12,056,000 in 1994.
The Company's business has seasonal characteristics which are tied
not only to the overall performance of the economy, but more specifically
to the level of activity in the trucking industry. Tire demand does,
however, lag the seasonality of the trucking industry. The Company's
third and fourth quarters have histor-ically been the strongest in terms
of sales volume and earnings.
As stated in the Company's 13D filed pursuant to the acquisition of
the HON Industries common stock, "The shares of Common Stock purchased by
Bandag have been acquired for investment purposes. Bandag believes that
the Common Stock represents an attractive investment opportunity at this
time." The Company continues to believe that HON Industries' common stock
is a good, long-term investment consistent with the Company's overall
corporate strategy to maximize long term shareholder value. The Company
purchased the stock in 1987 and 1988 at a cost of $25.3 million and the
market value of the shares currently held at the end of 1994 was $64.1
million.
The Corporation has sought to comply with all statutory and
administrative requirements concerning environmental quality. The
Corporation has made and will continue to make necessary capital
expenditures for environmental protection. It is not anticipated that
such expenditures will materially affect the Corporation's earnings or
competitive position.
As of December 31, 1994, the Corporation had 2,502 employees.
Financial Information about Industry Segments
As stated above, the Corporation's continuing operations are
conducted in one principal business and, accordingly, the Corporation's
financial statements contain information concerning a single industry
segment.
Revenues of Principal Product Groups
The following table sets forth (in millions of dollars), for each of
the last three fiscal years, revenues attributable to the Corporation's
principal product groups:
1994 1993 1992
Revenues:
Tread rubber, cushion gum,
and retreading supplies $613.1 $555.9 $544.9
Other products (1) 45.9 39.8 51.6
Corporate (2) 6.7 5.4 5.9
------ ------ ------
Total $665.7 $601.1 $602.4
(1) Includes retreading equipment, rubber compounds, and the sale of new
and retreaded tires and related services.
(2) Consists of interest and dividend income.
Financial Information about Foreign and Domestic Operations
Financial Statement "Operations in Different Geographic Areas and Sales by
Principal Products" follows on page 10.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Operations in Different Geographic Areas and Sales by Principal Products
The Company's operations are conducted in one principal business, which
includes the manufacture of precured tread rubber, equipment and supplies
for retreading tires.
Information concerning the Company's operations by geographic area and
sales by principal product for the years ended December 31, 1994, 1993 and
1992 is shown below (in millions):
Information concerning operations in different geographic areas:
<TABLE>
<CAPTION>
United States Western Europe Other Consolidated
1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Revenues from
unaffiliated
customers<F1><F2> $421.5 $376.1 $361.0 $111.8 $104.6 $119.4 $125.7 $115.0 $116.1 $659.0 $595.7 $596.5
Transfers between
areas<F3> 31.2 25.5 26.3 0.6 0.2 0.5 3.5 3.5 5.9 35.3 29.2 32.7
------ ----- ----- ------ ----- ----- ----- ----- ----- ----- ----- -----
Geographic area
totals $452.7 $401.6 $387.3 $112.4 $104.8 $119.9 $129.2 $118.5 $122.0 $694.3 $624.9 $629.2
Eliminations
(deduction) (35.3) (29.2) (32.7)
Corporate revenues 6.7 5.4 5.9
----- ----- -----
Total Revenues $665.7 $601.1 $602.4
Earnings (Expenses)
Operations<F4> $126.7 $110.4 $110.6 $6.8 $1.9 $4.7 $19.1 $15.5 $17.7 $152.6 $127.8 $133.0
Interest
income 6.6 5.3 5.9
Interest
expense (2.1) (2.2) (2.2)
General corporate
expenses (7.3) (5.9) (6.0)
----- ----- -----
Earnings Before
Income Taxes $149.8 $125.0 $130.7
Assets at
December 31
Operations $282.4 $258.2 $256.0 $79.6 $71.8 $85.9 $67.4 $66.2 $63.3 $429.4 $396.2 $405.2
Corporate<F5> 152.7 154.5 64.0
----- ----- -----
Total Assets $582.1 $550.7 $469.2
Liabilities at
December 31
Operations $77.9 $76.6 $64.5 $29.5 $19.5 $24.3 $16.6 $13.8 $16.3 $124.0 $109.9 $105.1
Corporate<F5> 24.1 27.7 29.5
----- ----- -----
Total Liabilities $148.1 $137.6 $134.6
Sales information
by principal
product group:
Retread materials
and supplies 93% 93% 91%
Other 7% 7% 9%
--- --- ---
100% 100% 100%
<FN>
<F1> No single customer accounted for 10% or more of the Company's sales to unaffiliated customers in each of the years 1994,
1993 or 1992.
<F2> Export sales from the United States were less than 10% of sales to unaffiliated customers in each of the years 1994, 1993
or 1992.
<F3> Transfers between geographic areas are made at the transferor's selling price to unaffiliated customers less a
predetermined discount to allow the transferee to recover its costs and earn an operating profit.
<F4> Aggregate foreign exchange losses included in determining net earnings amounted to approximately $3,294,000, $611,000 and
$7,723,000 in 1994, 1993 and 1992, respectively.
<F5> Corporate assets are principally cash, investments, corporate office and related equipment. Corporate liabilities are
principally dividends payable, short-term notes payable and other liabilities.
</TABLE>
Executive Officers of the Corporation
The following table sets forth the names and ages of all executive
officers of the Corporation, the period of service of each with the
Corporation, positions and offices with the Corporation presently held by
each, and the period during which each officer has served in his present
office:
Period of
Service Present Period in
with Position or Present
Name Age Corporation Office Office
Martin G. Carver* 46 16 Yrs. Chairman of the 14 Yrs.
Board, Chief
Executive Officer
and President
Lucille A. Carver* 77 37 Yrs. Treasurer 36 Yrs.
Gary L. Carlson 44 21 Yrs. Sr. Vice President 1 Yr.
and General Manager
Eastern Hemisphere
Retreading Division
(EHRD)
Donald F. Chester 59 12 Yrs. Sr. Vice President, 12 Yrs.
International
Nathaniel L. 52 23 Yrs. Vice President, 9 Yrs.
Derby II Engineering
Thomas E. Dvorchak 62 24 Yrs. Sr. Vice President 17 Yrs.
and Chief Financial
Officer
Stuart C. Green 53 4 Yrs. Sr. Vice President, 4 Yrs.
Manufacturing
William D. Herd 51 17 Yrs. Sr. Vice President, 5 Yrs.
Sales & Marketing
Dr. Floyd S. Myers 54 13 Yrs. Vice President, 9 Yrs.
Research and
Development
* Denotes that officer is also a director of the Corporation.
Mr. Martin G. Carver was elected Chairman of the Board effective June
23, 1981, Chief Executive Officer effective May 18, 1982, and President
effective May 25, 1983. Prior to his present position, Mr. Carver was
also Vice Chairman of the Board from January 5, 1981 to June 23, 1981.
Mrs. Carver has served as a Director and Treasurer of the Corporation
for more than five years.
Mr. Carlson joined Bandag in 1974. In 1985 he was appointed to Vice
President, Personnel Administration and in 1989 was appointed Vice
President, Planning and Development. In November 1993, he was elected to
his current position of Sr. Vice President and General Manager EHRD.
Mr. Chester joined Bandag in 1983 and was elected Senior Vice
President, International.
Mr. Derby joined Bandag in 1971 and was appointed to his present
position in 1985 as Vice President, Engineering.
Mr. Dvorchak joined Bandag in 1971 and was elected to his present
office as Senior Vice President and Chief Financial Officer in 1978.
Mr. Green joined Bandag in 1991 and was elected Senior Vice
President, Manufacturing. From 1981 to that date, he was employed by
Nissan Motor Manufacturing Corporation in various management positions in
manufacturing, the latest of which was Director, Manufacturing Vehicle
Assembly, Component Assembly and Paint Plants, Manufacturing Division.
Mr. Herd joined Bandag in 1977 as Canadian Division Manager and was
appointed to Vice President, North American Sales in August 1982. He was
elected to the position of Senior Vice President, North American Sales in
1983, and in 1990 he was elected to his current office of Senior Vice
President, Sales and Marketing.
Dr. Myers joined Bandag in 1982 as Vice President, Advanced Research
and was appointed to his present position as Vice President, Research and
Development in 1985.
All of the above-named executive officers are elected annually by the
Board of Directors, or are appointed by the Chairman of the Board and
serve at the pleasure of the Board of Directors or the Chairman of the
Board, as the case may be.
ITEM 2. PROPERTIES
The general offices of the Corporation are located in a 56,000 square
foot leased office building in Muscatine, Iowa.
The tread rubber manufacturing plants of the Corporation are located
to service principal markets. The Corporation operates fourteen of such
plants, six of which are located in the United States, and the remainder
in Canada, Belgium, South Africa, Brazil, New Zealand, Mexico, Malaysia
and Venezuela. The plants vary in size from 9,600 square feet to 194,000
square feet with the first plant being placed into production during 1959.
All of the plants are owned in fee or under lease purchase contracts,
except for the plants located in New Zealand, Malaysia and Venezuela,
which are under standard lease contracts.
Retreading equipment is manufactured at company-owned plants located
in Muscatine, Iowa and Campinas, S.P., Brazil, of approximately 60,000
square feet and 10,000 square feet, respectively. In addition, the
Corporation owns a research and development center in Muscatine of
approximately 58,400 square feet and a 26,000 square foot facility used
primarily for training franchisees and franchisee personnel. Similar
training facilities are located in Brazil, South Africa and Western
Europe. The Corporation also owns a 26,000 square foot office and
warehouse facility in Muscatine.
In addition, the Corporation mixes rubber and produces cushion gum at
a company-owned 168,000 square foot plant in California. The Company owns
its European headquarters office in Belgium and a 129,000 square foot
warehouse in the Netherlands.
In the opinion of the Corporation, its properties are maintained in
good operating condition and the production capacity of its plants is
adequate for the near future. Because of the nature of the activities
conducted, necessary additions can be made within a reasonable period of
time.
At December 31, 1994, the net carrying amount of property, plant, and
equipment pledged as collateral on other liabilities was approximately
$14,023,000.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information concerning cash dividends declared and market prices of
the Company's Common Stock and Class A Common Stock for the last three
fiscal years is as follows:
<TABLE>
<CAPTION>
% % %
1994 Change 1993 Change 1992 Change
<S> <C> <C> <C> <C> <C> <C>
Cash Dividends Per Share-
Declared(A)
First Quarter $ 0.1750 $ 0.1625 $ 0.1500
Second Quarter 0.1750 0.1625 0.1500
Third Quarter 0.1750 0.1625 0.1500
Fourth Quarter 0.2000 0.1750 0.1625
-------- ---- -------- ---- -------- ----
Total Year $ 0.7250 9.4 $ 0.6625 8.2 $ 0.6125 8.9
-------- ---- -------- ---- -------- ----
Stock Price Comparison(B)
Common Stock
First Quarter $50.75 - 63.50 $51.50 - 60.25 $58.75 - 67.25
Second Quarter 49.13 - 55.13 44.75 - 57.88 62.00 - 70.00
Third Quarter 51.00 - 57.00 45.50 - 57.00 56.00 - 73.25
Fourth Quarter 52.00 - 61.88 52.88 - 56.63 56.50 - 63.75
Year-End Closing Price 60.50 55.38 58.13
Class A Common Stock
First Quarter $48.25 - 59.50 $52.25 - 58.00 $ - - -
Second Quarter 44.50 - 52.50 44.25 - 55.00 62.38 - 65.63
Third Quarter 46.00 - 50.25 44.63 - 54.00 55.75 - 71.00
Fourth Quarter 46.25 - 54.63 49.75 - 54.13 55.00 - 61.50
Year-End Closing Price 53.50 51.75 56.25
<FN>
(A) Adjusted to give retroactive effect to the Company's June 10, 1992 stock dividend of Class A Common Stock.
(B) High and low composite prices in trading on the New York and Chicago Stock Exchanges (ticker symbol BDG for Common Stock
and BDGA for Class A Common Stock) as reported in The Wall Street Journal. Adjusted to give retroactive effect to the
Company's June 10, 1992 stock dividend of Class A Common Stock.
</TABLE>
The approximate number of record holders of the Corporation's Common
Stock as of March 24, 1995, was 2,274, the number of holders of Class A
Common Stock was 1,846 and the number of holders of Class B Common Stock
was 334. The Common Stock and Class A Common Stock are traded on the New
York Stock Exchange and the Chicago Stock Exchange. There is no
established trading market for the Class B Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain Consolidated Selected
Financial Data for the periods and as of the dates indicated:
<TABLE>
<CAPTION>
(In thousands, except per share data)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Sales $650,567 $590,199 $591,374 $582,913 $586,223
Earnings Before Cumulative Effect of
Changes in Accounting Methods $93,994 $78,734 $83,023 $79,599 $78,783
Cumulative Effect of Changes in
Accounting Methods, Net of Related
Tax Effect --- --- (220) --- ---
------- ------- ------- ------- -------
Net Earnings $93,994 $78,734 $82,803 $79,599 $78,783
-------- ------- ------- ------- -------
Total Assets (A) $582,146 $550,731 $469,239 $442,157 $392,166
Noncurrent Liabilities 12,252 11,039 7,366 5,586 6,497
Earnings Per Share Before Cumulative
Effect of Changes in Accounting Methods
(B) $3.51 $2.88 $2.99 $2.86 $2.75
Cumulative Effect of Changes in
Accounting Methods, Net of Related
Tax Effect --- --- (0.01) -- ---
----- ------ ------ ----- -----
Earnings Per Share (B) $3.51 $2.88 $2.98 $2.86 $2.75
----- ------ ----- ----- -----
Cash Dividends Per Share-Declared (B) $0.7250 $0.6625 $0.6125 $0.5625 $0.5125
<FN>
(A) The effect of the change in accounting for certain investments in 1993 resulted in an additional component of
stockholders' equity in the amount of $24,491,000 (net of $15,159,000 of deferred tax) for 1994 and $27,693,000 (net of
$16,500,000 of deferred tax) for 1993 to reflect the unrealized holding gain on securities classified as
available-for-sale. Prior period financial data has not been restated. See Note B to the consolidated financial
statements.
(B) Adjusted to give retroactive effect to the Company's June 10, 1992 stock dividend of Class A Common Stock.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
1994-1993
Consolidated 1994 net sales increased 10% from 1993, of which six
percentage points were due to unit volume increases and four percentage
points were due to increases in selling prices in response to higher costs
for the Company's major raw materials. The Company's seasonal sales
pattern, which is tied to trucking industry activity, was similar to
previous years. As is normally the case, the third and fourth quarters
were the strongest in terms of both sales volume and earnings.
The Company's consolidated 1994 net earnings increased 19% from 1993 due
to the combined impact of higher unit volume and improved manufacturing
efficiencies. The Company's consolidated gross profit margin improved by
1.7 percentage points due to relatively flat manufacturing expenses but
higher unit volume. This, while an improvement, still leaves the
Company's consolidated gross margin below its 1992 level, which was itself
below historic levels. The higher gross profit was partially offset by
increased operating expenses related principally to increased spending for
marketing programs. The Company's effective income tax rate of 37% was
equal to the previous year's rate.
The Company's earnings per share for 1994 of $3.51, were $.63 higher, a
22% increase from 1993. During the year, the Company acquired 1,043,000
shares of its outstanding Common Stock and Class A Common Stock for
$53,580,000, at prevailing market prices. This, in combination with prior
year purchases, resulted in fewer shares outstanding in 1994 which had a
favorable impact of $.06 on earnings per share.
Domestic sales in 1994 were 11% higher than a year ago due to increased
unit volume (up 5%), increased selling prices and higher equipment sales.
Average raw material costs for the year were approximately 4% higher than
the previous year and selling prices were increased a proportional amount
to maintain gross margin. Domestic 1994 earnings before income taxes
increased 15% over the prior year due to higher sales volume and
relatively flat manufacturing costs, the benefit of which was partially
offset by an increase in spending for marketing programs.
The Company's foreign operations comprised 36% and 17% of 1994's sales
revenue and earnings before income taxes, respectively. This represents a
one percentage-point decline as a percent of total revenues and a three
percentage-point increase as a percent of total earnings before income
taxes in comparison to the previous year.
Unit volume in Western Europe increased 6% over 1993, while sales improved
by 8%. Gross profit margin increased 2.7 percentage points in 1994
compared to 1993 due to higher production volume but relatively flat
manufacturing costs. Selling price increases during 1994 were not as
significant as in the Company's domestic markets because the strong
Belgian franc offset most of Western Europe's raw material cost increases,
which are based on world prices. Overall, earnings before income taxes
improved by 250% over the previous year.
Unit volume for the Company's other combined foreign operations improved
by 11% in 1994 over 1993, with sales increasing by a lesser 9%. The sales
increase was lower than the volume increase due to the unfavorable impact
of the lower translated value of foreign-currency-denominated sales. The
lower translated values more than offset selling price increases initiated
during the year in response to higher raw material costs. Gross profit
margins remained flat, but operating expenses, as a percent of sales,
decreased by approximately one percentage point from the prior year.
Earnings before income taxes increased by 23% from the previous year due
to the unit volume and sales increases combined with flat operating
expenses.
1993-1992
Consolidated net sales were approximately equal with 1992, whereas unit
volume increased by 4%. Selling prices were generally stable, except in
some European markets, but the U.S. dollar strengthened during 1993 and
this had an unfavorable impact on the translated value of the Company's
foreign-currency-denominated sales. The Company's seasonal sales pattern
was comparable to previous years.
Consolidated net earnings decreased by 5% compared to 1992. The Company's
consolidated gross profit margin declined by 2.4 percentage points, but
this was partially offset by a 1.5 percentage-point decline in total
operating expenses as a percent of sales because of generally lower
spending in many categories. The Company's decrease in gross margin was
primarily due to higher depreciation expense, attributable to higher
capital spending in recent years, and higher overall manufacturing costs
in line with generally higher cost levels.
The Company's effective income tax rate increased from 36.5% in 1992 to
37% in 1993, reflecting the higher federal income tax rates enacted for
1993. This increase in tax rate reduced net earnings by $625,000 and
earnings per share by $.02 compared to the prior year.
Earnings per share were $.10 lower in 1993, which represents a 3% decrease
from the previous year. During the third quarter of 1993, the Company
acquired 144,200 shares of its outstanding Common Stock and Class A Common
Stock for $6,797,000 at prevailing market prices. There were fewer shares
outstanding in 1993 as a result of these purchases. The cumulative
current year impact of these purchases and those made in the previous year
had a $.02 favorable impact on earnings per share.
Because of stable selling prices, domestic unit volume and sales showed 5%
and 4% improvements, respectively, over the previous year. Although total
domestic revenues increased by 4%, domestic earnings before income taxes
were relatively unchanged from the previous year, with higher product
costs only partially offset by decreased operating expenses.
The Company's foreign operations for 1993 comprised 37% and 14% of the
consolidated revenues and earnings before income taxes, respectively.
This represented a two percentage-point decline as a percent of total
revenues and a three percentage-point decline as a percent of total
earnings before income taxes compared to the previous year.
The Company's Western European operations, while experiencing a relatively
small 1% decrease in unit volume, showed a 13% decrease in sales revenue.
The relative lower increase in revenues was due to the unfavorable impact
of currency rates and lower selling prices in some European markets, with
the currency rates having the greater impact. Earnings before income
taxes were adversely impacted in 1993, decreasing by 60% from the previous
year. The earnings decrease was due to the lower translation rate,
combined with a five percentage point drop in gross profit margin. The
lower gross profit margin was due to higher raw material and manufacturing
costs, which the Company absorbed because of strong competitive pressures,
and non-recurring inventory valuation adjustments.
Unit volume for the Company's other combined foreign operations improved
7% over the previous year, but sales did not increase proportionately.
This again was due to the stronger U.S. dollar and the resulting
unfavorable impact when translating foreign-currency-denominated sales at
lower rates and, to a lesser extent, due to the discontinuance of sales in
certain of the Company's markets. Earnings before income taxes for the
combined other foreign operations decreased 12% from last year primarily
due to lower gross margins in Brazil and Canada. Brazil's lower margin
was primarily due to a refinement in the methodology used to determine
certain manufacturing costs. Canada's lower gross margin was the result
of a higher than usual amount of finished goods imported from the U.S. in
1993 and the plant being shut down for an extended period in December 1993
in order to relocate its finished goods inventory to a distribution center
closer to major markets in Southeastern Canada.
1992-1991
Consolidated net sales increased 1% from 1991, which was four percentage
points less than the unit volume increase due mainly to the impact of
discontinuing the sale of custom compounding services to outside
customers. Partially offsetting this decrease was the favorable impact of
the higher translated value of foreign- currency-denominated sales.
Consolidated net earnings increased 4% from 1991. The Company's selling
price increases were not sufficient to offset the increases in raw
material and plant costs during the year, which resulted in a slight drop
in gross profit margin. This was offset by a decrease in operating
expenses and higher interest income. The decrease in operating expenses
resulted primarily from reduced spending for R&D and marketing programs,
especially in the United States. R&D spending was lower in 1992 than the
previous year because the previous year included heavy spending on the
development of the Eclipse System, which was completed in 1992.
The Company's effective income tax rate decreased from 38% in 1991 to
36.5% in 1992, having a positive impact on net income. Earnings per share
before the cumulative effect of changes in accounting methods increased
$.13, a 5% increase from 1991. During the year, the Company acquired
451,300 shares of its outstanding Common Stock and Class A Common Stock.
These purchases took place during the latter half of the year and
therefore did not significantly affect the average shares outstanding.
The Company adopted, effective January 1, 1992, Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (FAS 106) and No. 109 "Accounting for Income Taxes"
(FAS 109). The cumulative effect of adopting FAS 106 reduced net earnings
by $.09 per share. The cumulative effect of adopting FAS 109 increased
net earnings by $.08 per share. Adoption of FAS 106 and 109 did not
significantly impact operating results for 1992.
Domestic unit volume showed nominal improvement despite the soft North
American economy, with foreign markets, in total, showing a slightly
better performance than the domestic markets.
Earnings from foreign operations represented 17% and 24% of total earnings
before taxes in 1992 and 1991, respectively.
Net earnings from operations in Western Europe declined by 70% from 1991,
even though net sales were 7% higher on a 4% increase in unit volume. The
percentage differential between the net sales and volume increases was due
primarily to favorable foreign translation rates in U.S. dollars. Net
earnings for the year were adversely impacted by a substantial increase in
operating expenses and unusually high foreign exchange losses due to
devaluations of several European countries' currencies in which sales are
denominated. The Company has undertaken a concerted effort to increase
market share in Western Europe, and spending related to this effort is
primarily responsible for the substantial increase in operating expenses.
Net sales for the other combined foreign operations increased 10% over
last year, with the operations in Mexico and Brazil accounting for the
majority of the increase. Net earnings were 14% higher than last year
primarily due to improved gross margins in Brazil and slightly lower
operating expenses, as a percentage of net sales.
Impact of Inflation and Changing Prices
During 1994, the Company was again able to adjust its effective selling
prices in response to higher raw material costs, after having elected not
to increase selling prices for more than a year due to competitive
conditions in the new tire industry. Before this, it had been the
Company's long-standing practice to adjust its effective selling prices on
a routine basis to recover increased production costs and maintain its
gross profit margin.
Replacement of fixed assets requires a greater investment than the
original asset cost due to the impact of the general price level increases
over the useful lives of plant and equipment. This increased capital
investment would result in higher depreciation charges affecting both
inventories and cost of products sold.
However, the replacement cost depreciation for new assets, calculated on a
straight-line basis, is not significantly greater than historical
depreciation using accelerated methods which result in higher depreciation
charges in the early years of an asset's life.
Capital Resources and Liquidity
Current assets exceeded current liabilities by $231,579,000 at the end of
1994. Cash and cash equivalents, which are included therein, totaled
$46,519,000 at year-end after decreasing $11,485,000 during the year. The
Company invests excess funds over various terms, but only instruments with
an original maturity date of over 90 days are classified as investments.
These investments increased $11,821,000 from the prior year, which was
proportional to the decrease in cash and cash equivalents.
No major changes in working capital requirements are foreseen, except
those normally faced in the growth of the business. The Company funds its
capital expenditures from the cash flow it generates from operations.
During 1994 the Company spent $40,799,000 for this purpose.
As of December 31, 1994, the Company had available uncommitted lines of
credit totaling $83,000,000 in the United States for working capital
purposes. Also, the Company's foreign subsidiaries have approximately
$49,000,000 in credit and overdraft facilities available to them. From
time to time during 1994 the Company's Western European operation borrowed
funds to supplement its operational cash flow needs or to settle
intercompany transactions. The Company's long-term liabilities totaled
$12,252,000 at year end, which are approximately 3% of long-term
liabilities and stockholders' equity combined. The Company has no plans
at this time to undertake additional liabilities of any material amount.
During the year, the Company acquired a total of 1,043,000 shares of its
outstanding Common Stock and Class A Common Stock for $53,580,000 at
prevailing market prices and paid cash dividends amounting to $19,310,000.
The Company generally funds its dividends and stock repurchases from the
cash flow generated from its operations. The Company has historically
utilized excess funds to purchase its own shares, believing the
acquisition of the Company's stock to be a good investment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Auditors 23
Consolidated Balance Sheets as of December 31, 1994,
1993 and 1992 24 - 25
Consolidated Statements of Earnings for the Years
Ended December 31, 1994, 1993 and 1992 26
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1994, 1993
and 1992 27
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992 28
Notes to Consolidated Financial Statements
29 - 41
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Bandag, Incorporated
We have audited the accompanying consolidated balance sheets of Bandag,
Incorporated and subsidiaries as of December 31, 1994, 1993 and 1992, and
the related consolidated statements of earnings, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bandag,
Incorporated and subsidiaries at December 31, 1994, 1993 and 1992, and the
consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles.
As discussed in Note B to the consolidated financial statements, as of
December 31, 1993, the Company changed its method of accounting for
certain investments in debt and equity securities.
/s/ Ernst & Young LLP
Chicago, Illinois
February 2, 1995
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets (In thousands)
December 31
Assets 1994 1993 1992
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 46,519 $58,004 $33,817
Investments - Note B 36,864 25,043 2,950
Accounts receivable, less allowance
(1994 - $11,883; 1993 - $11,217; 1992 - $10,415) 178,057 161,506 166,225
Inventories:
Finished products 37,022 34,947 43,453
Material and work in process 14,132 8,186 10,018
-------- ------ ------
51,154 43,133 53,471
Deferred income tax assets 21,230 20,210 21,061
Prepaid expenses and other current assets 11,055 8,245 7,069
-------- ------- -------
Total Current Assets 344,879 316,141 284,593
Property, Plant, and Equipment, on the basis of cost:
Land 3,587 3,332 3,421
Buildings and improvements 79,981 73,016 68,697
Machinery and equipment 267,986 233,143 191,727
Construction and equipment installation in progress 8,177 10,651 28,072
------- ------- -------
359,731 320,142 291,917
Less allowances for depreciation and amortization (207,973) (173,521) (149,622)
------- ------- -------
151,758 146,621 142,295
Marketable Equity Securities - Note B 64,066 69,496 25,303
Other Assets 21,443 18,473 17,048
-------- -------- --------
Total Assets $582,146 $550,731 $469,239
-------- -------- --------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 20,014 $15,757 $15,702
Accrued employee compensation and benefits 17,695 15,391 16,846
Accrued marketing expenses 28,609 26,163 30,456
Other accrued expenses 23,433 16,833 20,187
Dividends payable 5,270 4,752 4,435
Income taxes payable 9,999 11,429 10,248
Short-term notes payable and other liabilities 8,280 12,217 17,759
------- ------- -------
Total Current Liabilities 113,300 102,542 115,633
Other Liabilities 12,252 11,039 7,366
Deferred Income Tax Liabilities 22,545 24,058 11,630
Stockholders' Equity - Note E
Common Stock; $1.00 par value; authorized - 21,500,000 shares;
issued and outstanding - 10,788,985 shares in 1994; 11,215,008
shares in 1993; 11,233,382 shares in 1992 10,789 11,215 11,233
Class A Common Stock; $1.00 par value; authorized - 50,000,000 shares;
issued and outstanding - 12,976,211 shares in 1994; 13,576,971
shares in 1993; 13,646,971 shares in 1992 12,976 13,577 13,647
Class B Common Stock; $1.00 par value; authorized - 8,500,000 shares;
issued and outstanding - 2,357,976 shares in 1994; 2,360,513 shares
in 1993; 2,411,189 shares in 1992 2,358 2,361 2,411
Additional paid-in capital 3,192 2,859 2,631
Retained earnings 384,607 362,040 307,939
Unrealized gain on securities available-for-sale,
net of related tax effect (1994-$15,159; 1993-$16,500) 24,491 27,693 -
Equity adjustment from foreign currency translation (4,364) (6,653) (3,251)
-------- -------- --------
Total Stockholders' Equity 434,049 413,092 334,610
-------- -------- --------
Total Liabilities and Stockholders' Equity $582,146 $550,731 $469,239
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Earnings
<CAPTION>
(In thousands, except per share data)
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Income:
Net sales $650,567 $590,199 $591,374
Other income 15,125 10,860 11,014
-------- -------- -------
665,692 601,059 602,388
Costs and expenses:
Cost of products sold 377,385 352,095 338,610
Engineering, selling, administrative and other expenses 136,346 121,823 130,834
Interest 2,126 2,166 2,198
-------- ------- -------
515,857 476,084 471,642
-------- ------- -------
Earnings Before Income Taxes 149,835 124,975 130,746
Income Taxes - Note D 55,841 46,241 47,723
-------- -------- --------
Earnings before cumulative effect of
changes in accounting methods 93,994 78,734 83,023
Cumulative effect of changes in accounting methods,
net of related tax effect - Notes D and G - - (220)
-------- -------- --------
Net Earnings $ 93,994 $78,734 $82,803
-------- -------- --------
Earnings per share before cumulative effect of
changes in accounting methods $3.51 $2.88 $2.99
Cumulative effect of changes in accounting methods,
net of related tax effect - Notes D and G - - (0.01)
----- ----- -----
Net earnings per share - Note E $3.51 $2.88 $2.98
----- ----- -----
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
(In thousands, except share Common Stock Issued and Class A Common Stock Issued Class B Common Stock
data) Outstanding and Outstanding Issued and Outstanding
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 11,154,664 $11,155 2,714,007 $2,714
Net earnings for the year
Cash Dividends - $.6125 per share
Class A Common Stock Dividend -
Note E 13,868,671 $ 13,869
Conversion of Class B Common
Stock to Common Stock - Note E 302,818 303 (302,818) (303)
Common Stock issued under
Restricted Stock Grant Plan -
Note E 5,500 5
Purchases of Common Stock and
Class A Common Stock (229,600) (230) (221,700) (222)
Adjustment from foreign currency
translation
---------- ------- ----------- -------- ---------- -------
Balance at December 31, 1992 11,233,382 11,233 13,646,971 13,647 2,411,189 2,411
Net earnings for the year
Cash Dividends - $.6625 per share
Conversion of Class B Common
Stock to Common Stock - Note E 50,676 51 (50,676) (50)
Common Stock issued under
Restricted Stock Grant Plan -
Note E 5,150 5
Purchases of Common Stock and
Class A Common Stock (74,200) (74) (70,000) (70)
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of
$16,500
Adjustment from foreign currency
translation
---------- ------- ----------- ------- ---------- -------
Balance at December 31, 1993 11,215,008 11,215 13,576,971 13,577 2,360,513 2,361
Net earnings for the year
Cash Dividends - $.7250 per share
Conversion of Class B Common
Stock to Common Stock - Note E 2,537 2 (2,537) (3)
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan - Note E 4,030 4 4,030 4
Common Stock and Class A Common
Stock issued as stock award -
Note E 2,810 3 2,810 3
Purchases of Common Stock and
Class A Common Stock (435,400) (435) (607,600) (608)
Unrealized loss on securities
available-for-sale, net of
deferred income taxes of
$1,341
Adjustment from foreign currency
translation
---------- -------- ----------- -------- ---------- --------
Balance at December 31, 1994 10,788,985 $10,789 12,976,211 $12,976 2,357,976 $2,358
<CAPTION>
(In thousands, except share Unrealized Gain Equity Adjustment
data) (Loss) on from Foreign
Additional Paid-In Securities Currency
Capital Retained Earnings Available-for-Sale Translation
<S> <C> <C> <C> <C>
Balance at January 1, 1992 $2,535 $281,479 $ (831)
Net earnings for the year 82,803
Cash Dividends - $.6125 per share (16,917)
Class A Common Stock Dividend -
Note E (13,869)
Conversion of Class B Common
Stock to Common Stock - Note E
Common Stock issued under
Restricted Stock Grant Plan -
Note E 328
Purchases of Common Stock and
Class A Common Stock (232) (25,557)
Adjustment from foreign currency
translation (2,420)
-------- --------- ---------- --------
Balance at December 31, 1992 2,631 307,939 (3,251)
Net earnings for the year 78,734
Cash Dividends - $.6625 per share (18,033)
Conversion of Class B Common
Stock to Common Stock - Note E
Common Stock issued under
Restricted Stock Grant Plan -
Note E 281
Purchases of Common Stock and
Class A Common Stock (53) (6,600)
Unrealized gain on securities
available-for-sale, net of
deferred income taxes of
$16,500 $27,693
Adjustment from foreign currency
translation (3,402)
-------- --------- --------- --------
Balance at December 31, 1993 2,859 362,040 27,693 (6,653)
Net earnings for the year 93,994
Cash Dividends - $.7250 per share (19,310)
Conversion of Class B Common
Stock to Common Stock - Note E
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan - Note E 440
Common Stock and Class A Common
Stock issued as stock award -
Note E 313
Purchases of Common Stock and
Class A Common Stock (420) (52,117)
Unrealized loss on securities
available-for-sale, net of
deferred income taxes of
$1,341 (3,202)
Adjustment from foreign currency
translation 2,289
-------- --------- --------- --------
Balance at December 31, 1994 $3,192 $384,607 $24,491 $(4,364)
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
(In thousands)
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Operating activities
Net earnings $93,994 $78,734 $82,803
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provisions for depreciation and amortization 35,328 33,322 27,550
Change in deferred income taxes (2,590) (3,129) (2,342)
Cumulative effect of change in accounting methods - - 220
Change in operating assets and liabilities:
Accounts receivable (14,211) 567 5,470
Inventories (6,872) 8,573 (2,820)
Prepaid expenses and other current assets (2,019) (1,686) (1,624)
Accounts payable and other accrued expenses 13,219 (6,019) (8,648)
Income taxes payable (1,357) 1,472 (7,058)
Other assets 1,131 (1,978) (8,529)
------- ------- -------
Net cash provided by operating activities 116,623 109,856 85,022
Investing activities
Additions to property, plant and equipment (40,799) (40,472) (60,591)
Net disposition of property, plant and equipment 1,151 3,207 1,846
Purchases of investments (61,775) (37,868) (2,950)
Maturities of investments 49,954 15,775 -
Sale of marketable equity securities 2,447 - -
------- ------- -------
Net cash used in investing activities (49,022) (59,358) (61,695)
Financing activities
Proceeds from short-term notes payable 80,425 75,094 100,023
Principal payments on short-term notes payable and other liabilities (86,442) (75,623) (83,218)
Cash dividends (19,310) (18,033) (16,917)
Purchases of Common Stock and Class A Common Stock (53,580) (6,797) (26,241)
------- ------- -------
Net cash used in financing activities (78,907) (25,359) (26,353)
Effect of exchange rate changes on cash and cash equivalents (179) (952) (340)
------- ------- -------
Increase (decrease) in cash and cash equivalents (11,485) 24,187 (3,366)
Cash and cash equivalents at beginning of year 58,004 33,817 37,183
------- ------- -------
Cash and cash equivalents at end of year $ 46,519 $58,004 $33,817
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts and
transactions of all subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amount reported in the consolidated balance sheet for cash and cash
equivalents approximates its fair value.
Accounts Receivable and Concentrations of Credit Risk:
Concentrations of credit risk with respect to accounts receivable are
limited due to the number of customers the Company has and their
geographic dispersion. The Company maintains close working relationships
with these customers and performs ongoing credit evaluations of their
financial condition. No one customer is large enough to pose a
significant financial risk to the Company. The Company maintains an
allowance for losses based upon the expected collectibility of accounts
receivable. Credit losses have been within management's expectations.
Inventories:
Inventories are valued at the lower of cost, determined by the last in,
first out (LIFO) method, or market. The excess of current cost over the
amount stated for inventories valued by the LIFO method amounted to
approximately $19,143,000, $20,189,000 and $18,145,000 at December 31,
1994, 1993, and 1992, respectively.
Property, Plant and Equipment:
Provisions for depreciation and amortization of plant and equipment are
principally computed using declining-balance methods, based upon the
estimated useful lives of the various classes of depreciable assets.
Foreign Currency Translation:
Assets and liabilities of foreign subsidiaries are translated at the
current exchange rate and items of income and expense are translated at
the average exchange rate for the year. Exchange gains and losses arising
from transactions denominated in a currency other than the functional
currency of the foreign subsidiary and translation adjustments in
countries with highly inflationary economies or in which operations are
directly and integrally linked to the Company's U.S. operations are
included in income.
Research and Development:
Expenditures for research and development are expensed as incurred.
Revenue Recognition:
Sales and associated costs are recognized when products are shipped to
dealers.
B. INVESTMENTS
The Company elected to adopt the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" as of December 31, 1993. In accordance with the
Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. The effect of adopting the
Statement increased stockholders' equity at December 31, 1993, by
$27,693,000 (net of related deferred income taxes of $16,500,000) to
reflect the net unrealized holding gain on marketable equity securities
classified as available-for-sale.
Under Statement 115, management determines the appropriate classification
of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are classified
as held-to-maturity based upon the positive intent and ability of the
Company to hold the securities to maturity. Held-to-maturity securities
are stated at amortized cost, adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion is
included in investment income. Interest on securities classified as held-
to-maturity is included in investment income.
Marketable equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value with the
unrealized gains, net of tax, reported as a separate component of
stockholders' equity. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are
included in investment income. The cost of securities sold is based on
the specific identification method. Dividends on securities classified as
available-for-sale are included in investment income.
The following is a summary of securities held-to-maturity and available-
for-sale:
Gross Gross Esti-
Unreal- Unreal- mated
ized ized Fair
Cost Gains Losses Value
December 31, 1994 (In thousands)
Securities Held-to-Maturity
Obligations of states and
political subdivisions $44,779 $ 23 $ (66) $44,736
Short-term corporate debt 8,450 - - 8,450
Investment in Eurodollar
time deposits 22,450 - - 22,450
------- ------ ----- -------
$75,679 $ 23 $ (66) $75,636
====== ====== ==== =======
Securities Available-for-
Sale
Marketable equity
securities $24,416 $39,650 - $64,066
====== ======= ===== =======
Gross Gross Esti-
Unreal- Unreal- mated
ized ized Fair
Cost Gains Losses Value
December 31, 1993 (In thousands)
Securities Held-to-Maturity
Obligations of states and
political subdivisions $27,343 $ 28 $ (14) $27,357
Short-term corporate debt 16,500 - - 16,500
Investment in Eurodollar
time deposits 33,050 - - 33,050
------ ------ ------ ------
$76,893 $ 28 $ (14) $76,907
====== ===== ===== ======
Securities Available-for-
Sale
Marketable equity
securities $25,303 $44,193 - $69,496
======= ====== ====== =======
At December 31, 1994 and 1993, securities held-to-maturity are due in one
year or less and include $38,815,000 and $51,850,000, respectively,
reported as cash equivalents.
Prior to the adoption of Statement 115, investments other than marketable
equity securities were carried at cost and included short-term investments
with maturities greater than three months when purchased. The carrying
amount of such investments approximated its fair value. Marketable equity
securities, prior to the adoption of Statement 115, were carried at the
lower of cost or market value. At December 31, 1992, the market value of
the investment in marketable equity securities based on quoted market
prices was $58,327,000, which exceeded cost by $33,024,000.
C. SHORT-TERM NOTES PAYABLE AND LINES OF CREDIT
The carrying amount reported in the consolidated balance sheet of the
Company's short-term notes payable approximates its fair value.
Total available funds under unused lines of credit at December 31, 1994
amounted to $132 million.
The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1994, 1993, and 1992, was 7.3%, 8.3%, and 8.1%,
respectively.
Interest paid on short-term notes payable and other obligations amounted
to $1,747,000, $1,529,000, and $1,598,000 in 1994, 1993, and 1992,
respectively.
D. INCOME TAXES
Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
and changed its method of accounting for income taxes. The cumulative
effect of adopting Statement 109 as of January 1, 1992, was to increase
net earnings by $2,215,000 or $.08 per share. Other than the cumulative
effect of adoption, Statement 109 did not have a material effect on
operating results for 1992.
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Significant components of the Company's deferred tax assets (liabilities)
reflecting the net tax effects or temporary differences are summarized as
follows:
(In thousands)
December 31
1994 1993 1992
Obligation to provide
postretirement benefits $ 2,093 $ 1,728 $ 2,242
Marketing programs 10,152 8,515 9,994
Accounts receivable valuation
allowances 3,005 2,690 2,445
Unremitted earnings of foreign
subsidiaries (3,119) (3,886) (4,760)
Excess pension funding (2,890) (2,761) (2,512)
Purchased tax benefits (1,975) (2,358) (2,622)
Unrealized holding gain on
marketable equity securities (15,159) (16,500) -
Other, net 6,578 8,724 4,644
------- -------- -------
Net deferred tax assets
(liabilities) ($1,315) ($3,848) $ 9,431
======= ======= =======
The components of earnings before income taxes are summarized as follows:
(In thousands)
Year Ended December 31
1994 1993 1992
Domestic $123,715 $107,450 $107,094
Foreign 26,120 17,525 23,652
------- ------- -------
$149,835 $124,975 $130,746
======= ======= =======
Significant components of the provision for income tax expense (credit)
are summarized as follows:
(In thousands)
Year Ended December 31
1994 1993 1992
Current:
Federal $42,965 $35,200 $32,048
State 4,712 3,665 3,939
Foreign 10,118 6,996 12,601
Deferred:
Federal (3,842) 1,280 1,040
State (163) 161 21
Foreign 2,434 (736) 843
Equivalent credit relating to
purchased income tax
benefits (383) (325) (2,769)
------ ------ ------
$55,841 $46,241 $47,723
====== ====== =======
No item, other than state income taxes in 1994, 1993, and 1992, affects
the Company's effective income tax rate by an amount which exceeds 5% of
the income tax expense computed at the statutory rate.
Undistributed earnings of subsidiaries on which deferred income taxes have
not been provided are not significant.
Income taxes paid amounted to $61,706,000, $42,840,000, and $56,319,000 in
1994, 1993, and 1992, respectively.
E. STOCKHOLDERS' EQUITY
On May 6, 1992, the Company's stockholders adopted an amendment to the
Company's articles of incorporation establishing a new class of common
stock, Class A Common Stock, and the Board of Directors authorized a stock
dividend whereby one share of Class A Common Stock was distributed for
each share of Common Stock and Class B Common Stock outstanding at the
close of business on May 27, 1992.
Class A Common Stock and Class B Common Stock have the same rights
regarding dividends and distributions upon liquidation as Common Stock.
However, Class A Common Stockholders are not entitled to vote, Class B
Common Stockholders are entitled to ten votes for each share held and
Common Stockholders are entitled to one vote for each share held.
Transfer of shares of Class B Common Stock is substantially restricted and
must be converted to Common Stock prior to sale. In certain instances,
outstanding shares of Class B Common Stock will be converted automatically
to shares of Common Stock. Unless extended for an additional period of
five years by the Board of Directors, all then-outstanding shares of
Class B Common Stock will be converted to shares of Common Stock on
January 16, 2002.
Under the terms of the Bandag, Incorporated Restricted Stock Grant Plan,
the Company is authorized to grant up to an aggregate of 100,000 shares of
Common Stock and 100,000 shares of Class A Common Stock to certain key
employees. The shares granted under the plan will entitle the grantee to
all dividends and voting rights; however, such shares will not vest until
seven years after the date of grant. If a grantee's employment is
terminated prior to the end of the seven-year period for any reason other
than death, disability or termination of employment after age 60, the
shares will be forfeited and made available for future grants. A grantee
who has attained age 60 and whose employment is then terminated prior to
the end of the seven-year vesting period does not forfeit the nonvested
shares. During the years ended December 31, 1994, 1993, and 1992, 4,030
shares, 5,150 shares and 5,500 shares of Common Stock, respectively, were
granted under the Plan. During the year ended December 31, 1994, 4,030
shares of Class A Common Stock were also granted under the Plan. The
resulting charge to earnings amounted to $779,000, $495,000, and $532,000
in 1994, 1993, and 1992, respectively. At December 31, 1994, 50,295
shares of Common Stock and 64,945 shares of Class A Common Stock are
available for grant under the Plan.
Under the terms of the Bandag, Incorporated Nonqualified Stock Option
Plan, the Company is authorized to grant options to purchase up to 500,000
shares of Common Stock and 500,000 shares of Class A Common Stock to
certain key employees. The option price is equal to the market value of
the shares on the date of grant. At December 31, 1994, options to
purchase 100,000 shares of Common Stock and 100,000 shares of Class A
Common Stock are outstanding and exercisable at $23.458 per share for
Common Stock options and $22.792 per share for Class A Common Stock
options. Options to purchase 20,000 shares of Common Stock and 20,000
shares of Class A Common Stock expire on November 13, 1997, and each of
the four anniversaries thereafter. At December 31, 1994, no options
granted under this Plan have been exercised and options to purchase
400,000 shares of Common Stock and 400,000 shares of Class A Common Stock
are available for grant. No options may be granted after November 13,
1997.
In November 1994, the Board of Directors authorized a stock award to
substantially all U.S. and Canadian employees, to promote employee
commitment and ownership in the Company. As of December 31, 1994, 2,810
shares each of Common Stock and Class A Common Stock have been awarded and
are being held in trust for the employees. The resulting charge to
earnings amounted to $319,000.
Earnings per share amounts are based upon the weighted average number of
shares of Common Stock, Class A Common Stock, Class B Common Stock, and
common stock equivalents (dilutive stock options) outstanding during each
year. These amounts and the related earnings and cash dividend per share
information have been adjusted to reflect the 1992 stock dividend on a
retroactive basis.
F. EMPLOYEE PENSION PLANS
The Company sponsors defined-benefit pension plans covering substantially
all of its full-time employees in North America and certain employees in
the Company's European operations. Benefits are based on years of service
and, for salaried employees, the employee's average annual compensation
for the last five years of employment. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for income tax
purposes. Contributions are intended to provide for benefits attributed
to service to date and those expected to be earned in the future.
Aggregate accumulated benefit obligations and projected benefit
obligations, as estimated by consulting actuaries, and plan net assets and
funded status are as follows:
(In thousands)
December 31
1994 1993 1992
Actuarial present value of
accumulated benefit obligations:
Vested $30,535 $29,463 $25,211
Nonvested 2,310 2,932 3,017
------ ------- -------
$32,845 $32,395 $28,228
====== ====== ======
Plan net assets at fair value $63,594 $60,723 $57,180
Projected benefit obligations 46,367 50,947 42,711
------ ------ -------
Plan net assets in excess of
projected benefit obligations 17,227 9,776 14,469
Unrecognized prior service cost 1,214 1,653 1,764
Unamortized actuarial net loss
(gain) (5,728) 481 (4,011)
Unamortized net transition gain (7,080) (7,939) (8,614)
------- ------- -------
Prepaid pension cost included in
the consolidated balance sheet $ 5,633 $ 3,971 $ 3,608
====== ====== ======
Assumptions used in the determination of the actuarial present value of
the projected benefit obligation and net pension cost are as follows:
December 31
1994 1993 1992
Weighted average discount rate 7.50% 6.50% 6.50%
Rate of increase in future compensation 5.00% 5.25% 5.25%
Expected long-term rate of return on
assets 8.00% 8.00% 8.00%
Assets of the plans are principally invested in guaranteed interest
contracts and common stock.
The pension expense is composed of the following:
(In thousands)
Year Ended December 31
1994 1993 1992
Service cost for benefits earned
during the year $3,183 $2,957 $2,302
Interest cost on projected benefit
obligations 3,343 3,079 2,556
Investment return on plan assets (1,454) (3,958) (4,500)
Net amortization and deferral (4,161) (1,269) 1,060
----- ----- -----
$ 911 $ 809 $1,418
===== ====== =====
The Company also sponsors defined-contribution plans, covering
substantially all salaried employees in the United States. Annual
contributions are made in such amounts as determined by the Company's
Board of Directors. Although employees may contribute up to 12% of their
annual compensation from the Company, they are generally not required to
make contributions in order to participate in the plans. The Company
recorded expenses for contributions in the amount of $2,892,000,
$2,921,000, and $2,685,000 in 1994, 1993, and 1992, respectively.
Employees in most foreign countries are covered by various retirement
benefit arrangements generally sponsored by the foreign governments. The
Company's contributions to the foreign plans were not significant in 1994,
1993, and 1992.
G. OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The Company provides certain medical benefits under its self-insured
health benefit plan to certain individuals who retired from employment
before January 1, 1993. The program is contributory, with retiree
contributions adjusted periodically. The program also contains co-
insurance provisions, which result in shared costs between the Company and
the retiree. The Company's postretirement medical obligations are
unfunded.
Substantially all United States employees with the Company on and after
January 1, 1993 are covered by the Bandag Security Program, which provides
fully vested benefits after 5 years of service. Benefits under this
program are available upon retirement or separation for any other reason
and may be used in connection with medical expense, insurance premiums or
for any other purpose. The periodic cost and benefit obligation
information for the Bandag Security Program is reflected in Note F.
Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and, as permitted by the
Statement, elected to immediately recognize the transition obligation.
The cumulative effect of adopting Statement 106 was to decrease 1992 net
earnings by approximately $2,435,000 or $.09 per share (net of the related
tax effect of approximately $1,400,000 or $.05 per share).
Other than the cumulative effect of adoption, Statement 106 did not have a
material effect on the operating results for 1992.
The following table sets forth amounts recognized in the Company's
consolidated balance sheet:
(In thousands)
December 31
1994 1993 1992
Accumulated postretirement benefit
obligation:
Retirees $1,847 $1,998 $2,080
Fully eligible active plan
participants 92 114 120
Other active plan participants 1,801 1,958 2,470
------ ------- -------
Accumulated postretirement benefit
obligation 3,740 4,070 4,670
Unrecognized net gain (loss) 1,105 443 (559)
------ ------ ------
Accrued postretirement benefit cost $4,845 $4,513 $4,111
====== ====== ======
Net periodic postretirement benefit
cost includes the following components:
(In thousands)
December 31
1994 1993 1992
Service cost $167 $195 $185
Interest cost on accumulated
postretirement benefit obligation 261 293 267
Net amortization and deferral (2) 4 -
----- ----- -----
Net periodic postretirement benefit
cost $426 $492 $452
===== ===== =====
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits is 12% for 1995 and is assumed to decrease
gradually to 6% for 2001 and remain at that level thereafter. Increasing
the assumed health care cost trend rates by one percentage point in each
year would increase the accumulated postretirement benefit obligation as
of December 31, 1994, by $523,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for
1994 by $74,000. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7.5% for 1994, and
6.5% for 1993 and 1992.
H. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into agreements (derivative financial instruments) to
manage the risks associated with certain aspects of its business. The
Company does not actively trade such instruments nor enter into such
agreements for speculative purposes. The Company principally utilizes
foreign currency forward exchange contracts and foreign currency option
contracts.
At December 31, 1994, the Company had approximately $10,513,000 in foreign
currency forward exchange contracts and foreign currency option contracts
designated and effective as hedges which become due in various amounts and
at various dates through April 30, 1995. Such contracts at December 31,
1994 were principally for the purpose of hedging commitments arising from
intercompany export sales and forecasted material purchases. Unrealized
gains and losses on the forward exchange contracts and currency option
contracts are deferred and will be recognized in income in the same period
as the hedged transaction. The difference between the contract amount and
the fair value, in the aggregate, was insignificant at December 31, 1994.
I. BUSINESS INFORMATION BY GEOGRAPHIC AREA
The information regarding operations in different geographic areas is
presented on page 10 of this report, and is included herein by reference.
J. SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31,
1994 and 1993 are summarized as follows:
(In thousands, except per share data)
Quarter Ended
Mar. 31 Jun. 30 Sep. 30 Dec. 31
1994:
Net sales $131,649 $158,045 $177,231 $183,642
Gross profit 51,618 65,727 78,069 77,768
Net earnings 15,431 21,645 29,352 27,566
Net earnings per share $0.57 $0.79 $1.11 $1.04
1993:
Net sales $126,592 $148,950 $154,300 $160,357
Gross profit 49,727 60,212 64,307 63,858
Net earnings 13,898 19,266 22,547 23,023
Net earnings per share $0.51 $0.70 $0.83 $0.84
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 (with respect to the directors of
the registrant) is incorporated herein by reference from the registrant's
definitive Proxy Statement involving the election of directors filed or to
be filed pursuant to Regulation 14A not later than 120 days after December
31, 1994. In accordance with General Instruction G (3) to Form 10-K, the
information with respect to executive officers of the Corporation required
by Item 10 has been included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by Item 12 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not
later than 120 days after December 31, 1994.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements are
included in Part II, Item 8:
Page
Consolidated Balance Sheets as of December 31,
1994, 1993 and 1992 24-25
Consolidated Statements of Earnings for the
Years Ended December 31, 1994, 1993 and 1992 26
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1994, 1993 and
1992 27
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992 28
Notes to Consolidated Financial Statements 29-41
(2) Financial Statement Schedule
Page
Schedule II - Valuation and qualifying accounts
and reserves. 44
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
<PAGE>
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BANDAG, INCORPORATED AND SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
1 2
Balance at Charged to Charged to Balance
Beginning Cost and Other Accounts Deductions - at end
DESCRIPTION of Period Expenses -Describe Describe of Period
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $11,217,000 $1,683,000 $1,017,000 (A) $11,883,000
Year ended December 31, 1993
Allowance for doubtful accounts $10,415,000 $2,816,000 $2,014,000 (A) $11,217,000
Year ended December 31, 1992
Allowance for doubtful accounts $9,176,000 $3,207,000 $1,968,000 (A) $10,415,000
(A) - Uncollectible accounts written off, net of recoveries and foreign exchange fluctuations.
</TABLE>
Item 14 (Cont.)
(3) Exhibits
Exhibit No. Description
3.1 Bylaws: As amended November 13,
1987. (Incorporated by reference
to Exhibit No. 3.1 to the
Corporation's Form 10-K for the
year ended December 31, 1987.)
3.2 Restated Articles of
Incorporation, effective December
30, 1986. (Incorporated by
reference to Exhibit No. 3.2 to
the Corporation's Form 10-K for
the year ended December 31, 1992.)
3.3 Articles of Amendment to Bandag,
Incorporated's Articles of
Incorporation, effective May 6,
1992. (Incorporated by reference
to Exhibit No. 3.3 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
4 Instruments defining the rights of
security holders. (Incorporated
by reference to Exhibit Nos. 3.2
and 3.3 to the Corporation's Form
10-K for the year ended December
31, 1992.)
The Corporation agrees to furnish
copies of its long-term debt
agreements to the Commission on
request.
10.1 *1984 Bandag, Incorporated
Restricted Stock Grant Plan, as
amended May 6, 1992.
(Incorporated by reference to
Exhibit No. 10.1 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
10.2 U. S. Bandag System Franchise
Agreement Truck and Bus Tires
(Incorporated by reference to
Exhibit No. 10.2 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
10.3 Agreement of Lease dated June 27,
1975 and Amendment dated November
14, 1982 by and between Bandag,
Incorporated and Macomb Motel,
Inc. (Incorporated by reference as
Exhibit No. 10.5 to the
Corporation's Form 10-K for the
year ended December 31, 1985.)
10.4 *Miscellaneous Fringe Benefits for
Executives.
10.5 *Nonqualified Stock Option Plan,
as amended May 6, 1992.
(Incorporated by reference as
Exhibit No. 10.6 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
10.6 *Nonqualified Stock Option
Agreement of Martin G. Carver
dated November 13, 1987, as
amended by an Addendum dated June
12, 1992. (Incorporated by
reference as Exhibit No. 10.7 to
the Corporation's Form 10-K for
the year ended December 31, 1992.)
10.7 *Form of Participation Agreement
under the 1984 Bandag,
Incorporated Restricted Stock
Grant Plan.
10.8 *Employment Agreement with Michel
Petiot effective January 1, 1994,
dated December 20, 1993
(Incorporated by reference to
Exhibit No. 10.8 to the
Corporation's Form 10-K for the
year ended December 31, 1993.)
11 Computation of earnings per share.
21 Subsidiaries of Registrant.
27 Financial Data Schedule
*Represents a management compensatory plan or arrangement.
(b) Reports on Form 8-K: No report on Form 8-K was filed during the last
quarter of the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Martin G. Carver
Martin G. Carver
Chairman of the Board,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Stephen A. Keller /s/ Stanley E. G. Hillman
Stephen A. Keller Stanley E. G. Hillman
Director Director
/s/ Edgar D. Jannotta /s/ R. Stephen Newman
Edgar D. Jannotta R. Stephen Newman
Director Director
/s/ James R. Everline /s/ Martin G. Carver
James R. Everline Martin G. Carver
Director Chairman of the Board,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
/s/ Thomas E. Dvorchak
Thomas E. Dvorchak
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
Date: March 29, 1995
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No. Description
3.1 Bylaws: As amended November 13,
1987. (Incorporated by reference
to Exhibit No. 3.1 to the
Corporation's Form 10-K for the
year ended December 31, 1987.)
3.2 Restated Articles of
Incorporation, effective December
30, 1986. (Incorporated by
reference to Exhibit No. 3.2 to
the Corporation's Form 10-K for
the year ended December 31,
1992.)
3.3 Articles of Amendment to Bandag,
Incorporated's Articles of
Incorporation, effective May 6,
1992. (Incorporated by reference
to Exhibit No. 3.3 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
4 Instruments defining the rights
of Security Holders.
(Incorporated by reference to
Exhibit Nos. 3.2 and 3.3 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
The Corporation agrees to furnish
copies of its long-term debt
agreements to the Commission on
request.
10.1 *1984 Bandag, Incorporated
Restricted Stock Grant Plan, as
amended May 6, 1992.
(Incorporated by reference to
Exhibit No. 10.1 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
10.2 U. S. Bandag System Franchise
Agreement Truck and Bus Tires
(Incorporated by reference to
Exhibit No. 10.2 to the
Corporation's Form 10-K for the
year ended December 31, 1993.)
10.3 Agreement of Lease dated June 27,
1975 and Amendment dated November
14, 1982 by and between Bandag,
Incorporated and Macomb Motel,
Inc. (Incorporated by reference
as Exhibit No. 10.5 to the
Corporation's Form 10-K for the
year ended December 31, 1985.)
10.4 *Miscellaneous Fringe Benefits
for Executives.
10.5 *Nonqualified Stock Option Plan,
as amended May 6, 1992.
(Incorporated by reference as
Exhibit No. 10.6 to the
Corporation's Form 10-K for the
year ended December 31, 1992.)
10.6 *Nonqualified Stock Option
Agreement of Martin G. Carver
dated November 13, 1987, as
amended by an Addendum dated June
12, 1992. (Incorporated by
reference as Exhibit No. 10.7 to
the Corporation's Form 10-K for
the year ended December 31,
1992.)
10.7 *Form of Participation Agreement
under the 1984 Bandag,
Incorporated Restricted Stock
Grant Plan.
10.8 *Employment Agreement with Michel
Petiot effective January 1, 1994,
dated December 20, 1993
(Incorporated by reference to
Exhibit No. 10.8 to the
Corporation's Form 10-K for the
year ended December 31, 1993.)
11 Computation of earnings per
share.
21 Subsidiaries of Registrant.
27 Financial Data Schedule
* Represents a management compensatory plan or arrangement.
EXHIBIT 10.4
MISCELLANEOUS FRINGE BENEFITS FOR EXECUTIVES
BLANKET TRAVEL ACCIDENT INSURANCE
For those employees who are required to travel in carrying out their job
responsibilities, the Corporation provides at no cost a travel accident
insurance plan. The coverage is based on position title with Senior Vice
Presidents insured for $200,000 and the Chairman of the Board for
$400,000. This plan provides coverage for accidental death while
traveling and while away from home on Corporation business.
PERSONAL EXCESS LIABILITY POLICIES
The Corporation reimburses certain executive officers for the cost of
personal excess liability policies.
EXHIBIT 10.7
BANDAG, INCORPORATED
RESTRICTED STOCK GRANT PLAN
PARTICIPATION AGREEMENT
This Agreement is made and entered into this ____ day of _________,
19__ by and between _______________________________, of
__________(Address)__________ (the "Participant") and BANDAG,
INCORPORATED, of Muscatine, Iowa, (the "Company").
WITNESSETH
WHEREAS, effective January 1, 1984, the Company adopted, with the
approval of its shareholders, the Bandag Incorporated Restricted Stock
Grant Plan (the "Plan"), and
WHEREAS, on ____________, 19__ the Company's Board of Directors (the
"Board") made an award to the Participant of certain shares of Company
stock under the Plan, subject to the terms of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties
hereto agree as follows:
(1) It is understood and agreed that this Agreement is subject to
all the terms and conditions of the Plan, which are incorporated herein by
reference.
(2) The Company agrees to transfer __________ shares of its Common
Stock and __________ shares of its Class A Common Stock to The First
National Bank of Boston, Boston, Massachusetts, or such other nominee as
may be designated by the Stock Grant Committee (the "Committee") which
administers the Plan, to hold such shares in accordance with the Plan.
(3) Such shares shall be held on behalf of the Participant for a
period (the "Restricted Period" as defined in the Plan), beginning on
____________, 19__ and ending on the earliest to occur of (i)
____________, 19__, (ii) the Participant's severance from service for any
reason after attaining age sixty (60), (iii) his death, or (iv) his
severance from service at any age due to physical or mental disability.
Immediately after the termination of the Restricted Period, the
Participant (or, in event of death, his legal representative, beneficiary
or heir) shall be entitled to receive all the shares awarded herein free
of restrictions, together with the payment of any undistributed dividends
accumulated on such shares during the Restricted Period.
(4) In the event the Participant files on or before December 15,
19__, a valid election under Section 83(b) of the Internal Revenue Code of
1954, as amended, to have the value of all the shares awarded herein
included in his 19__ gross income, the Company shall, on or before
December 31, 19__ pay the Participant the amount of additional
compensation which the Committee has determined to be sufficient
remuneration for the resultant income tax consequences of such election.
(5) Any right, title or interest of the Participant granted by this
Agreement shall not be assignable or otherwise transfer- able by the
Participant.
(6) The award of shares herein shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or Class
A Common Stock of the Company, or the rights thereof, or any dissolution
or liqui- dation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceed-
ing, whether of a similar character or otherwise.
(7) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns and the Participant and his
heirs and personal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and affixed their hand and seal as of the date first above written.
BANDAG, INCORPORATED PARTICIPANT
By ___________________________ ______________________________
Chairman of the Board
Attest: ______________________
Senior Vice President
(Corporate Seal)
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
BANDAG, INCORPORATED AND SUBSIDIARIES
Year Ended December 31
1994 1993 1992
(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. 26,689 27,226 27,617
Additional shares assuming
exercise of dilutive stock
options - based on the treasury
stock method using average
market price 112 111 126
------- ------ -------
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 26,801 27,337 27,743
====== ====== ======
Net earnings before cumulative
effect of changes in accounting
methods $93,994 $78,734 $83,023
Cumulative effect of changes in
accounting methods, net of
related tax effect --- --- (220)
------- ------- ------
Net Earnings $93,994 $78,734 $82,803
====== ======= =======
Net earnings per Common and Common
equivalent share:
Before cumulative effect of
changes in accounting methods $3.51 $2.88 $2.99
Cumulative effect of changes in
accounting methods, net of
related tax effect --- --- (.01)
------ ------ ------
Net Earnings $3.51 $2.88 $2.98
===== ===== =====
Net earnings per Common share -
assuming full dilution:
Average shares outstanding 26,689 27,226 27,617
Additional shares assuming
exercise of dilutive stock
options - based on the treasury
stock method using the year-end
price if higher than the average
market price 119 113 119
----- ----- -----
FULLY DILUTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 26,808 27,339 27,736
======= ======= =======
Net earnings before cumulative
effect of changes in accounting
methods $93,994 $78,734 $83,023
Cumulative effect of changes in
accounting methods, net of
related tax effect --- --- (220)
------ ------- -------
Net earnings $93,994 $78,734 $82,803
======= ======= =======
Net earnings per Common and
Common equivalent share:
Before cumulative effect of
changes in accounting methods $3.51 $2.88 $2.99
Cumulative effect of changes in
accounting methods, net of
related tax effect --- --- (.01)
------- -------- ------
Net earnings $3.51 $2.88 $2.98
======= ======= ======
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Corporation has the following subsidiaries including significant
subsidiaries as defined in Regulation S-X, each incorporated in the
jurisdiction stated opposite its name. All of the following subsidiaries
are 100% owned by the Corporation. The Corporation has additional
subsidiaries which, if considered in the aggregate as a single subsidiary,
would not constitute a "significant subsidiary" as such term is defined in
Regulation S-X.
Jurisdiction of
Name of Subsidiary Incorporation
Bandag A.G..........................................Switzerland
Bandag Canada Ltd...................................Canada
Bandag Europe N.V...................................Belgium
VV-System AG........................................Switzerland
Bandag Licensing Corporation........................Iowa
Bandag Incorporated of S.A. (Proprietary) Limited...South Africa
Bandag Group Limited................................New Zealand
Bandag do Brasil Ltda...............................Brazil
Bandag B.V..........................................Netherlands
Bandag de Mexico, S.A. de C.V.......................Mexico
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED STATEMENT OF EARNINGS AND THE AUDITED CONSOLIDATED BALANCE SHEET OF
THE REGISTRANT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. AMOUNTS ARE IN THOUSANDS
OF DOLLARS EXCEPT PER SHARE DATA.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 46,519
<SECURITIES> 36,864
<RECEIVABLES> 178,057
<ALLOWANCES> 11,883
<INVENTORY> 51,154
<CURRENT-ASSETS> 344,879
<PP&E> 359,731
<DEPRECIATION> 207,973
<TOTAL-ASSETS> 582,146
<CURRENT-LIABILITIES> 113,300
<BONDS> 12,252
<COMMON> 26,123
0
0
<OTHER-SE> 407,926
<TOTAL-LIABILITY-AND-EQUITY> 582,146
<SALES> 650,567
<TOTAL-REVENUES> 665,692
<CGS> 377,385
<TOTAL-COSTS> 124,394
<OTHER-EXPENSES> 11,952
<LOSS-PROVISION> 1,683
<INTEREST-EXPENSE> 2,126
<INCOME-PRETAX> 149,835
<INCOME-TAX> 55,841
<INCOME-CONTINUING> 93,994
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,994
<EPS-PRIMARY> 3.51
<EPS-DILUTED> 3.51
</TABLE>
