FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 - 10,484,819 shares as of July 31, 1995.
Class A Common Stock, $1 par value - 12,321,814 shares as of July 31,
1995. Class B Common Stock, $1 par value - 2,355,947 shares as of July
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 4 - Submission of Matters to a Vote of
Security Holders 11
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 Six Months Ended
6/30/95 6/30/94 6/30/95 6/30/94
Net sales $182,929 $158,045 $351,172 $289,694
Other income 3,299 3,284 6,854 7,765
________ ________ ________ ________
186,228 161,329 358,026 297,459
Cost of products sold 109,219 92,318 212,328 172,349
Engineering, selling,
administrative and
other expenses 36,996 34,154 73,922 65,305
Interest expense 417 439 913 893
________ ________ ________ ________
146,632 126,911 287,163 238,547
________ ________ ________ ________
Earnings before income
taxes 39,596 34,418 70,863 58,912
Income taxes 14,686 12,773 26,374 21,836
________ ________ ________ ________
Net Earnings $ 24,910 $ 21,645 $ 44,489 $ 37,076
======== ======== ======== ========
Net earnings per share $ 0.96 $ 0.79 $ 1.71 $ 1.36
Cash dividends per share $ 0.2000 $ 0.1750 $ 0.4000 $ 0.3500
Depreciation included in
expense $ 8,744 $ 9,386 $ 17,101 $ 17,768
Average shares
outstanding 26,014 27,164
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Six Months Ended
Operating Activities 6/30/95 6/30/94
Net earnings $ 44,489 $ 37,076
Depreciation and amortization 17,639 18,115
Increase in operating assets and
liabilities-net (6,403) (8,757)
______ ______
Net cash provided by operating
activities 55,725 46,434
Investing Activities
Additions to property, plant and
equipment (13,109) (23,963)
Purchases of investments (22,376) (29,496)
Maturities of investments 33,060 21,923
Sale of marketable equity securities --- 2,447
______ ______
Net cash used in investing
activities (2,425) (29,089)
Financing Activities
Proceeds from short-term notes
payable 14,200 32,111
Principal payments on short-term
notes payable and other liabilities (14,992) (30,800)
Cash dividends (10,313) (9,393)
Purchases of Common Stock (33,915) (29,693)
______ ______
Net cash used in financing
activities (45,020) (37,775)
Effect of exchange rate changes on cash
and cash equivalents 431 35
______ ______
Increase in cash and cash equivalents 8,711 (20,395)
Cash and cash equivalents at beginning
of year 46,519 58,004
_____ ______
Cash and cash equivalents at end of
period $ 55,230 $ 37,609
====== ======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
June 30, December
1995 31, 1994
ASSETS:
Cash and cash equivalents $ 55,230 $ 46,519
Investments 26,180 36,864
Accounts receivable - net 186,186 178,057
Inventories:
Finished products 50,950 37,022
Materials & work-in-process 14,251 14,132
_______ ______
65,201 51,154
Other current assets 34,137 32,285
______ ______
Total current assets 366,934 344,879
Property, plant, and equipment 375,589 359,731
Less accumulated depreciation &
amortization (228,361) (207,973)
______ ______
147,228 151,758
Marketable equity securities, at
market value 63,468 64,066
Other assets 14,432 21,443
______ ______
Total assets $592,062 $582,146
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 23,912 $ 20,014
Income taxes payable 10,490 9,999
Accrued employee compensation and
benefits 18,781 17,695
Accrued marketing expenses 24,594 28,609
Other accrued expenses 31,459 28,703
Short-term notes payable and other
liabilities 9,276 8,280
_______ ______
Total current liabilities 118,512 113,300
Deferred income tax and other
liabilities 32,695 34,797
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding -
10,541,237 shares in 1995;
10,848,116 in 1994 10,541 10,789
Class A Common stock; $1 par
value; authorized - 50,000,000
shares;
Issued and outstanding -
12,628,432 shares in 1995;
13,348,571 in 1994 12,628 12,976
Class B Common stock; $1 par
value; authorized - 8,500,000
shares;
Issued and outstanding -
2,355,947 shares in 1995;
2,359,005 in 1994 2,356 2,358
Additional paid-in capital 2,917 3,192
Retained earnings 385,731 384,607
Unrealized gain on securities 25,847 24,491
Equity adjustment from foreign
currency translation 835 (4,364)
______ ______
Total equity 440,855 434,049
______ ______
Total liabilities &
stockholders' equity $592,062 $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 six months ended June 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 second quarter ended June 30, 1995
increased 16% over the same period last year on a 2% increase in unit
volume. For the six months to-date, consolidated net sales increased 21%
on a 7% 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 increase in net sales was greater than the increase in unit volume for
both the quarter and six months to-date as a result of higher selling
prices, higher translated value of the Company's foreign currency
denominated sales, and higher retread equipment sales. Second quarter
demand was soft, because of hedge-buying in the first quarter in some
markets in response to price increases and the slowdown in the economy.
Consolidated gross margin for the second quarter was 1.3 percentages
points lower than the same period last year, and one percentage point
lower for the six months to-date. The lower consolidated gross margin for
the six month period was a direct result of a lower domestic gross margin
which is explained later in this section. Gross margin improved from the
first quarter of 1995 because of increased manufacturing efficiencies from
higher production necessary to increase inventory levels in anticipation
of the higher level of shipments in the third and fourth quarters, which
are the strongest quarters in the Company's normal seasonal business
cycle.
Consolidated operating expenses for the quarter and six months were 8% and
13% higher, respectively, than the same periods last year, although, as a
percentage of sales, they were 1.4 points lower than in the same periods
last year. The dollar increase was primarily due to higher spending on
marketing related programs, professional expenses, and R&D projects. The
unfavorable impact of currency rates on foreign currency denominated
expenses was also a contributing factor.
Consolidated net earnings for the quarter and six months were 15% and 20%
higher, respectively, than the same periods last year, which was in line
with the respective increases in net sales. Consolidated net earnings per
share for the same periods were 22% and 26% higher, respectively, than
last year. The higher increases in net earnings per share, compared to
the increases in net earnings, were 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 second quarter,
including export shipments to various Latin American, South American, and
Asian countries, were 12% higher than the same period last year, while
unit volume was basically even. For the six months, sales and unit volume
were 19% and 5% higher than the same period last year. The sales
increases for both the quarter and six months 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 second quarter was 2.4 percentage points lower than
last year's quarter and 2.6 percentage points lower for the six months
to-date primarily due to higher raw material costs. Raw material costs
increased an additional 8.6% during the second quarter, but the Company
chose not to increase selling prices to its dealers sufficient to maintain
full margin because of industry forecasts calling for raw material costs
to decline later this year.
The domestic operation's operating expenses for the quarter and six months
were 12% and 19% higher, respectively, than the same periods last year,
but spending as a percentage of sales was still equal to or slightly
lower. The increase in spending was primarily for marketing programs and
R&D projects.
Earnings before taxes increased 1% and 5% for the quarter and six months,
respectively, compared to the same periods last year.
Western European Operations
Although not as strong as in the first quarter, second quarter sales and
unit volume for the Company's Western European operations continued well
above last year, with increases of 27% and 7%, respectively. Sales and
unit volume for the six months were 25% and 12% higher, respectively, than
last year. The increase in sales was greater than the increase in unit
volume for both the quarter and six months due to favorable translation
rates and higher selling prices, offset somewhat for the six month period
by lower equipment sales.
Gross margin for the second quarter increased 2.3 percentage points over
the same period last year and was 2.0 percentage points higher for the six
months due to a combination of higher unit production and higher selling
prices relative to cost increases.
Operating expenses in U.S. dollars for the second quarter and six months
increased 15% and 20%, respectively, over the same periods last year,
primarily as a result of unfavorable translation rates. Expenses for the
quarter stated in local currencies were basically even with last year, and
only 5% higher for the six months to-date.
Earnings before income taxes for the second quarter and six months
improved greatly compared to last year's loss position.
Other Foreign Operations
Combined second quarter sales for the other combined geographic areas
increased 21% on a 7% increase in unit volume, while sales and unit volume
for the six months increased 25% and 11%, respectively, over the same
period last year. Except in Mexico, sales for the Company's other foreign
operations were higher than the volume increases as a result of higher
selling prices. In Mexico, sales and unit volume for the second quarter
were 34% and 21% lower, respectively, than last year and 39% and 25%
lower, respectively, for the six months to-date, reflecting the country's
continuing weak economic conditions.
In Brazil, results continued strong with sales and unit volume for the
second quarter 52% and 26% higher, respectively, than the same period last
year, while sales and unit volume for the six months to-date were 59% and
27% higher, respectively.
The combined gross margin for the Company's other foreign operations was
even with the same period last year for the second quarter and two
percentage points higher than last year for the six months to-date. In
Brazil, gross margin improved six percentage points during the quarter,
which offset a margin shortfall in Mexico.
Combined operating expenses for the quarter and six months for the
Company's other foreign operations were 18% and 9% lower, respectively,
than the same periods last year. Operating expenses in Brazil and New
Zealand were higher than last year for both the quarter and six months,
but this was offset by lower spending in the other foreign operations,
with the Mexico operation showing the majority of the decrease due to
lower personnel related expenses.
Earnings before income taxes for the quarter and six months were 81% and
112% higher, respectively, than the same periods last year, due primarily
to the strong results in the quarter in Brazil and in the six months
to-date by the Brazilian and Canadian operations.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the six months ended June
30, 1995 was $9.3 million higher than the amount for the same period last
year as a result of a $7.4 million increase in earnings and a $2.3 million
favorable net change in operating assets and liabilities (higher
receivables and inventory, partially offset by increased current
liabilities), somewhat offset by lower depreciation and amortization.
Investing Activities.
The Company's capital expenditures totaled $6.7 million for the second
quarter ended June 30, 1995, bringing the year-to-date total to $13.1
million. This compares to $16.0 million and $24.0 million, respectively,
for the same periods last year.
The Company's investments decreased $6.4 million from last year with the
funds being used, in part, to finance increased dividends paid and the
purchases of 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 $5.1 million and $10.3 million for the quarter and
six months, respectively. The Company purchased 476,400 shares of its
outstanding Common and Class A Common stock, at prevailing market prices,
for $27.5 million during the second quarter, bringing the total for the
six months to 597,400 shares purchased for $33.9 million. Both cash
dividends and stock purchases are funded from operational cash flows. The
short-term borrowing during the quarter and six 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 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the Company was held on
May 9, 1995.
(b) Two matters were voted upon at the annual meeting. First, the
following three nominees, all of whom were incumbent directors,
were elected as directors for a three-year term ending in 1998
by the following vote:
Votes Broker
Name Votes For Against Abstentions Non-Votes
Roy J. Carver, Jr. 32,289,946 77,117 75,920 -0-
Robert K. Drummond 32,288,951 79,025 75,007 -0-
James R. Everline 32,287,996 79,501 75,486 -0-
The other matter voted upon was a proposal to ratify the
selection of Ernst & Young as independent auditors of the
Company for the year ending December 31, 1995. The shareholders
ratified the selection by the following vote:
Broker
Votes For Votes Against Abstentions Non-Votes
32,428,429 6,723 7,831 -0-
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended June
30, 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: August 10, 1995 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive
Officer
Date: August 10, 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 Page
11 Computation of Earnings Per Share 14
27 Financial Data Schedule 15
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For The Three For the Six
Months Ended Months Ended
June 30, June 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 25,728 26,994 25,895 27,052
Additional shares assuming
exercise of dilutive stock
options - based on treasury
stock method using average
market price 119 112 119 112
______ ______ ______ ______
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES 25,847 27,106 26,014 27,164
====== ====== ====== ======
Net earnings $24,910 $21,645 $44,489 $37,076
====== ====== ====== ======
Net earnings per common and common
equivalent share $0.96 $0.79 $1.71 $1.36
====== ====== ====== ======
Net earnings per common share
assuming full dilution:
Weighted average shares
outstanding 25,728 26,994 25,895 27,052
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 123 112 123 112
______ ______ ______ ______
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES 25,851 27,106 26,018 27,164
====== ====== ====== ======
Net earnings $24,910 $21,645 $44,489 $37,076
====== ====== ====== ======
Net earnings per common and common
equivalent share $0.96 $0.79 $1.71 $1.36
====== ====== ====== ======
<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 SIX MONTHS ENDED
JUNE 30, 1995 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 55,230
<SECURITIES> 26,180
<RECEIVABLES> 186,186
<ALLOWANCES> 12,739
<INVENTORY> 65,201
<CURRENT-ASSETS> 366,934
<PP&E> 375,589
<DEPRECIATION> 228,361
<TOTAL-ASSETS> 592,062
<CURRENT-LIABILITIES> 118,512
<BONDS> 9,648
<COMMON> 25,525
0
0
<OTHER-SE> 415,330
<TOTAL-LIABILITY-AND-EQUITY> 592,062
<SALES> 351,172
<TOTAL-REVENUES> 358,056
<CGS> 212,328
<TOTAL-COSTS> 212,328
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 822
<INTEREST-EXPENSE> 913
<INCOME-PRETAX> 70,863
<INCOME-TAX> 26,374
<INCOME-CONTINUING> 44,489
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,489
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
