FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ________ to ________
Commission file number 1-7007
BANDAG, INCORPORATED
(Exact name of registrant as specified in its charter)
Iowa 42-0802143
(State of incorporation) (I.R.S Employer Identification
No.)
2905 N HWY 61, Muscatine, Iowa 52761-5886
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, including area code:319/262-1400
Not Applicable
(Former name, address, or fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes X No ___.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $1 par value - 10,122,609 shares as of October 31, 1995.
Class A Common Stock, $1 par value - 11,941,324 shares as of October 31,
1995. Class B Common Stock, $1 par value - 2,355,487 shares as of October
31, 1995.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Statements of Earnings 3
Consolidated Condensed Statements of
Cash Flows 4
Consolidated Condensed Balance Sheets 5
Note to Consolidated Condensed Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II : OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
EXHIBITS :
Exhibit 11 - Computation of Earnings Per Share 14
Exhibit 27 - Financial Data Schedule 15
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item 1 - Financial Statements:
Unaudited Consolidated Condensed Statements of Earnings
(In thousands except per share data)
Three Months Ended Nine Months Ended
9/30/95 9/30/94 9/30/95 9/30/94
Net sales $190,337 $177,231 $541,509 $466,925
Other income 4,099 2,684 10,953 10,449
------- ------- -------- --------
194,436 179,915 552,462 477,374
Cost of products sold 112,346 99,162 324,674 271,511
Engineering, selling,
administrative and
other expenses 38,353 33,554 112,275 98,859
Interest expense 534 541 1,447 1,434
------- ------- ------- -------
151,233 133,257 438,396 371,804
------- ------- ------- -------
Earnings before income
taxes 43,203 46,658 114,066 105,570
Income taxes 16,153 17,306 42,527 39,142
------- ------- ------- -------
Net Earnings $ 27,050 $ 29,352 $ 71,539 $ 66,428
======= ======= ======= =======
Net earnings per share $ 1.07 $ 1.11 $ 2.78 $ 2.47
Cash dividends per
share $ 0.2000 $ 0.1750 $ 0.6000 $ 0.5250
Depreciation included
in expense $ 8,492 $ 8,008 $ 25,593 $ 25,776
Average shares
outstanding 25,711 26,910
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Nine Months Ended
9/30/95 9/30/94
Operating Activities
Net earnings $ 71,539 $ 66,428
Depreciation and amortization 26,380 26,358
Decrease in operating assets and
liabilities-net (14,477) (19,794)
-------- ---------
Net cash provided by operating
activities 83,442 72,992
Investing Activities
Additions to property, plant and
equipment (18,730) (31,816)
Purchases of investments (27,379) (46,138)
Maturities of investments 47,506 38,635
Sale of marketable equity securities --- 2,447
------- ---------
Net cash used in investing
activities 1,397 (36,872)
Financing Activities
Proceeds from short-term notes
payable 28,339 73,320
Principal payments on short-term
notes payable and other liabilities (27,696) (72,261)
Cash dividends (15,210) (14,040)
Purchases of Common Stock (95,060) (29,693)
--------- ---------
Net cash used in financing
activities (109,627) (42,674)
Effect of exchange rate changes on cash
and cash equivalents 301 25
-------- --------
Decrease in cash and cash equivalents (24,487) (6,529)
Cash and cash equivalents at beginning
of year 46,519 58,004
-------- ---------
Cash and cash equivalents at end of
period $ 22,032 $ 51,475
====== ======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
Sept. 30, December
1995 31, 1994
ASSETS:
Cash and cash equivalents $ 22,032 $ 46,519
Investments 16,737 36,864
Accounts receivable - net 196,688 178,057
Inventories:
Finished products 46,818 37,022
Materials & work-in-process 14,632 14,132
------- -------
61,450 51,154
Other current assets 34,221 32,285
------- -------
Total current assets 331,128 344,879
Property, plant, and equipment 377,180 359,731
Less accumulated depreciation &
amortization (233,072) (207,973)
-------- --------
144,108 151,758
Marketable equity securities, at
market value 69,455 64,066
Other assets 14,364 21,443
------- -------
Total assets $559,055 $582,146
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 23,636 $ 20,014
Income taxes payable 8,249 9,999
Accrued employee compensation and
benefits 20,525 17,695
Accrued marketing expenses 26,582 28,609
Other accrued expenses 30,881 28,703
Short-term notes payable and other
liabilities 10,543 8,280
------- -------
Total current liabilities 120,416 113,300
Deferred income tax and other
liabilities 34,737 34,797
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding -
10,122,623 shares in 1995;
10,788,985 in 1994 10,123 10,789
Class A Common stock; $1 par
value; authorized - 50,000,000
shares;
Issued and outstanding -
11,941,338 shares in 1995;
12,976,211 in 1994 11,941 12,976
Class B Common stock; $1 par
value; authorized - 8,500,000
shares;
Issued and outstanding -
2,355,487 shares in 1995;
2,357,976 in 1994 2,355 2,358
Additional paid-in capital 2,158 3,192
Retained earnings 348,321 384,607
Unrealized gain on securities 29,801 24,491
Equity adjustment from foreign
currency translation (797) (4,364)
------- -------
Total equity 403,902 434,049
------- -------
Total liabilities &
stockholders' equity $559,055 $582,146
======= =======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Note to Consolidated Condensed Financial Statements
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1994.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Consolidated net sales for the third quarter ended September 30, 1995
increased 7% over the same period last year despite a 3% decrease in unit
volume. For the nine months to-date, consolidated net sales increased 16%
on a 3% increase in unit volume. (The term "unit volume" when used in the
context of these comments refers to the shipments of precured tread rubber
only, the Company's major manufactured product used in retreading tires.)
The combined impact of higher selling prices, higher translated value of
the Company's foreign currency denominated sales, and higher retread
equipment sales accounts for the percentage increase in net sales being
higher than the unit volume comparisons for both the quarter and nine
months.
Consolidated gross margin for the third quarter ended September 30, 1995
was 3 percentage points lower than the same period last year, but showed a
0.7 percentage point improvement over the second quarter of 1995, due
primarily to improved third quarter margins in the Company's foreign
operations. Consolidated gross margin for the nine months to-date was 2
percentage points lower than the same period last year. The lower
consolidated gross margin for the nine months to-date was due to lower
gross margin in the Company's domestic operations, which is explained in
the geographic area comments below.
Consolidated operating expenses for both the quarter and nine months were
14% higher than the same periods last year. As a percentage of sales,
third quarter operating expenses were 1.3 points higher than the same
period last year, but 0.5 points lower for the nine months to-date. The
dollar increase in operating expenses for both the quarter and nine months
to-date was primarily due to higher spending on marketing related
programs, professional expenses, and the unfavorable impact of currency
rates on foreign currency denominated expenses.
The Company's consolidated net earnings for the quarter were 8% lower than
the same period last year because of the lower gross margin and higher
operating expenses. For the nine months to-date, net earnings were 8%
higher than the same period last year due to the higher sales, with some
offset coming from the lower gross margin and higher operating expenses.
Consolidated net earnings per share for the quarter were 4% lower and for
the nine months were 13% higher than the same periods last year. The net
earnings per share comparisons to last year were better than the net
earnings for both the quarter and nine months due to the impact of fewer
average shares outstanding in 1995 because of the Company's ongoing share
repurchase program.
Domestic Operations
Sales for the Company's domestic operations for the third quarter ended
September 30, 1995, which include export shipments to various foreign
countries, were 4% higher than the same period last year, on a 4% decrease
in unit volume. Sales and unit volume for the nine months were 13% and 2%
higher, respectively, than the same period last year. The sales increases
for both the quarter and nine months to-date were higher than the unit
volume increases due to the combination of higher retread material selling
prices and higher equipment sales.
Gross margin for the third quarter was 4.8 percentage points lower than
last year's exceptionally strong quarter. Gross margin in the quarter was
impacted by lower unit volume, higher raw material costs, and a lower
margin on equipment sales than a year ago. For the nine months, gross
margin was 3.5 percentage points lower than the same period last year,
primarily due to higher raw material costs. Raw material average weighted
costs for the nine months to-date have increased approximately 24% during
1995 from last year's year-end average weighted cost. Other than a
selling price increase made early in the first quarter, the Company chose
not to further increase selling prices to its dealers because of
competitive conditions in the industry and forecasts calling for raw
material costs to decline later in the year.
Operating expenses for the third quarter and nine months to-date increased
13% and 15%, respectively, over the same periods last year. Spending for
the third quarter, as a percentage of sales, was about two points higher
than last year, but was basically even with last year for the nine months.
The increase in spending was primarily for marketing programs,
professional related expenses, and R&D projects.
Earnings before taxes decreased 14% and 3% for the quarter and nine
months, respectively, compared to the same periods last year.
Western European Operations
Sales for the Company's Western European operations increased 18% over the
same period last year on a 4% decrease in unit volume. Sales and unit
volume for the nine months were 23% and 7% higher, respectively, than last
year. The increase in sales was greater than the unit volume for both the
quarter and nine months primarily due to favorable translation rates and
higher selling prices.
Gross margin for the third quarter was 2.8 percentage points higher than
the third quarter last year and 2.3 percentage points higher for the nine
months to-date. The improved margins reflect higher selling prices
relative to increased raw material costs and improved manufacturing
efficiencies from higher production volume.
Western Europe's operating expenses increased 17% and 19%, respectively,
for the third quarter and nine months over the last year, primarily due to
unfavorable translation rates.
As a result of the above factors, earnings before income taxes for the
Company's Western European operations' third quarter and nine months
to-date increased 67% and 133%, respectively, as compared to last year's
rather weak results.
Other Foreign Operations
Sales for the third quarter ended September 30, 1995 for the combined
other foreign geographic areas increased 11% over the same period last
year despite flat unit volume, while sales and unit volume for the nine
months increased 20% and 7%, respectively, over the same period last year.
Weak economic conditions in Mexico continue to impact the Company's
Mexican operation, resulting in sales and unit volume well below last year
for both the quarter and nine months to-date. Excluding the Mexican
operation, sales and unit volume increased 15% and 2%, respectively, for
the quarter and 25% and 10%, respectively, for the nine months. Sales for
these operations were higher than their respective volume increases due
primarily to higher selling prices, with higher translation rates
accounting for approximately 1% of the total sales increase.
The combined gross margin for the third quarter for the Company's other
foreign operations was two percentage points lower than the same period
last year, but one percentage point higher than last year for the nine
months. The lower gross margin in the quarter was due primarily to higher
raw material costs not being fully passed on to our dealers through higher
selling prices.
Combined operating expenses for the third quarter for the Company's other
foreign operations were 8% higher than the same period last year, but 4%
lower for the nine months to-date. The increase in operating expenses for
the quarter was due to higher-than-usual expenditures, in general. Lower
spending for the nine months for the Mexican operation basically offset
the higher spending for the other combined operations.
Earnings before income taxes for the third quarter and nine months to-date
were 8% and 55% higher, respectively, than the same periods last year.
The strong results for the nine months, compared to last year, were due
primarily to the strong results recorded by the Brazilian operation.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the nine months ended
September 30, 1995 was $10.5 million higher than the amount for the same
period last year as a result of a $5.1 million increase in earnings and a
$5.3 million favorable net change in operating assets and liabilities
(higher receivables and inventory, partially offset by increased current
liabilities).
Investing Activities.
The Company's capital expenditures totaled $5.6 million for the third
quarter ended September 30, 1995, bringing the year-to-date total to $18.7
million. This compares to $7.8 million and $31.8 million, respectively,
for the same periods last year.
The Company's investments decreased $20.1 million from last year with the
funds being used primarily to finance dividends paid and the purchases of
the Company's Common Stock. The Company's excess funds are invested over
various terms, but only instruments with an original maturity date of over
90 days are classified as investments.
Financing Activities.
Cash dividends totaled $4.9 million and $15.2 million for the quarter and
nine months, respectively. The Company purchased 1,099,568 shares of its
outstanding Common and Class A Common stock, at prevailing market prices,
for $61.1 million during the third quarter, bringing the total purchased
for the nine months to 1,696,968 shares at a cost of $95.1 million. Both
cash dividends and stock purchases are funded from operational cash flows.
The short-term borrowing during the quarter and nine months was primarily
by the Company's Western European operation to fund its current cash flow
needs.
The Company continues to have $132 million available under unused lines of
credit, and foreign credit and overdraft facilities.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings Per Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
September 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date: November 8, 1995 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive
Officer
Date: November 8, 1995 \S\ Thomas E. Dvorchak
Thomas E. Dvorchak
Sr. Vice President and Chief
Financial Officer
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit
11 Computation of Earnings Per Share
27 Financial Data Schedule
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For The Three For the Nine
Months Ended Months Ended
September 30, September 30,
1995 1994 1995 1994
(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 25,043 26,556 25,591 26,800
Additional shares assuming
exercise of dilutive stock
options - based on treasury
stock method using average
market price 120 109 120 110
------ ------ ------ ------
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES 25,163 26,665 25,711 26,910
====== ====== ====== ======
Net earnings $27,050 $29,352 $71,539 $66,428
====== ====== ====== ======
Net earnings per common and common
equivalent share $1.07 $1.11 $2.78 $2.47
====== ====== ====== ======
Net earnings per common share
assuming full dilution:
Weighted average shares
outstanding 25,043 26,556 25,591 26,800
Additional shares assuming
exercise of dilutive stock
options-based on the treasury
stock method using the month-end
price if higher than the average
market price 120 109 120 110
------ ----- ------ ------
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES 25,163 26,665 25,711 26,910
====== ====== ====== ======
Net earnings $27,050 $29,352 $71,539 $66,428
====== ====== ====== ======
Net earnings per common and common
equivalent share $1.07 $1.11 $2.78 $2.47
====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS AND THE UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEET OF THE REGISTRANT FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. AMOUNTS ARE IN THOUSANDS OF DOLLARS EXCEPT PER SHARE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 22,032
<SECURITIES> 16,737
<RECEIVABLES> 196,688
<ALLOWANCES> 12,576
<INVENTORY> 61,450
<CURRENT-ASSETS> 331,128
<PP&E> 377,180
<DEPRECIATION> 233,072
<TOTAL-ASSETS> 559,055
<CURRENT-LIABILITIES> 120,416
<BONDS> 9,264
<COMMON> 24,419
0
0
<OTHER-SE> 379,483
<TOTAL-LIABILITY-AND-EQUITY> 559,055
<SALES> 541,509
<TOTAL-REVENUES> 552,462
<CGS> 324,674
<TOTAL-COSTS> 324,674
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,276
<INTEREST-EXPENSE> 1,447
<INCOME-PRETAX> 114,066
<INCOME-TAX> 42,527
<INCOME-CONTINUING> 71,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,539
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.78
</TABLE>
