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, 1995;
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 22, 1996: Common Stock,
$666,164,140; Class A Common Stock (non-voting), $835,117,336; Class B
Common Stock, $246,023,401.
The number of shares outstanding of the issuer's classes of common
stock as of March 22, 1996: Common Stock, 10,125,279 shares; Class A
Common Stock, 11,724,543 shares; Class B Common Stock, 2,355,152 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of the
Shareholders to be held May 7, 1996 are incorporated by reference in Part
III.
<PAGE>
PART I
ITEM 1. BUSINESS
All references herein to the "Company" 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 Company and its licensees have 1,404 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 Company 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 118
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 Company approved by the
Company's shareholders on December 30, 1986, and substantially completed
in February 1987, the Carver Family (as hereinafter defined) obtained
absolute voting control of the Company. As of March 22, 1996 the Carver
Family beneficially owned shares of Common Stock and Class B Common Stock
constituting 76% 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 Company'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 Company also franchises the use of another cold process precured
retreading system, the Vakuum Vulk Method, for which the Company owns
worldwide rights. In connection with the Vakuum Vulk Method, the Company
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 Company used in
the retreading of these tires. Additionally, the Company 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 Company'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 Company to use the Bandag Method for that
purpose. Bandag has 1,346 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 513 are located in the United States. Additionally, the
Company has approximately 58 franchisees in Europe who retread tires using
the Vakuum Vulk Method. One hundred thirty of Bandag's foreign
franchisees are franchised by licensees of the Company in Australia, and
joint ventures in India and Sri Lanka. 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 Company 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 Company 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 Company's
business, but cannot predict what other regulations or statutes might be
adopted or what their effect on the Company's business might be.
Competition
The Company 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 retreading 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 Company 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 Company manufactures the precured tread rubber, cushion gum, and
related supplies in Company-owned manufacturing plants in the United
States, Canada, Brazil, Belgium, South Africa, Mexico, Malaysia and New
Zealand. The Company has entered into joint venture agreements in India
and Sri Lanka. The Company 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
Company, are purchased from others.
The Company 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
Company'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
Company 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 Company's
cushion gum, is the Far East. The supply of natural rubber has
historically been adequate for the Company'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
1995. A relationship between natural rubber and synthetic rubber prices
exists, but it is by no means exact.
Patents
The Company 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 Company has patents covering improved features,
some of which started expiring in 1995 and others that will continue to
expire through the year 2011, and the Company has applications pending for
additional patents.
The Company's patent counsel has advised the Company that the United
States patents are by law presumed valid and that the Company 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 Company that, in his opinion, in the event of litigation placing the
validity of such patents at issue, the Company's United States patent
position should remain adequate.
The protection afforded the Bandag Method by foreign patents owned by
the Company, 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 Company 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 Company has, however, extended
its foreign market penetration to some countries where little or no patent
protection exists.
The Company 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 Company 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 Company 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 $12,321,000 in 1993, $12,056,000 in
1994 and $12,556,000 in 1995.
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 historically 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 1995 was $55.7
million.
The Company has sought to comply with all statutory and
administrative requirements concerning environmental quality. The Company
has made and will continue to make necessary capital expenditures for
environmental protection. It is not anticipated that such expenditures
will materially affect the Company's earnings or competitive position.
As of December 31, 1995, the Company had 2,485 employees.
Financial Information about Industry Segments
As stated above, the Company's continuing operations are conducted in
one principal business and, accordingly, the Company'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 Company's
principal product groups:
1995 1994 1993
Revenues:
Tread rubber, cushion gum,
and retreading supplies $688.8 $613.1 $555.9
Other products (1) 58.4 45.9 39.8
Corporate (2) 8.1 6.7 5.4
------ ------ ------
Total $755.3 $665.7 $601.1
(1) Includes retreading equipment 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.
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. While the Company does business throughout the
world, its principal markets are in the United States and Europe.
Information concerning the Company's operations by geographic area and
sales by principal product for the years ended December 31, 1995, 1994 and
1993 is shown below (in millions):
<TABLE>
<CAPTION>
United States Europe
1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Revenues
Revenues from unaffiliated customers (1) (2) $464.7 $421.5 $376.1 $136.7 $111.8 $104.6
Transfers between areas (3) 24.9 31.2 25.5 0.6 0.6 0.2
------ ------ ------ ------ ------ ------
Geographic area totals $489.6 $452.7 $401.6 $137.3 $112.4 $104.8
Eliminations (deduction)
Corporate revenues
Total Revenues
Earnings (Expenses)
Operations (4) $121.2 $126.7 $110.4 $13.6 $6.8 $1.9
Interest income
Interest expense
General corporate expenses
Earnings Before Income Taxes
Assets at December 31
Operations $290.1 $282.4 $258.2 $84.9 $79.6 $71.8
Corporate (5)
Total Assets
Liabilities at December 31
Operations $79.5 $77.9 $76.6 $31.6 $29.5 $19.5
Corporate (5)
Total Liabilities
Sales Information by Principal Product Group:
Retread materials and supplies
Other
<CAPTION>
Other Consolidated
1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Revenues
Revenues from unaffiliated customers (1) (2) $145.8 $125.7 $115.0 $747.2 $659.0 $595.7
Transfers between areas (3) 1.7 3.5 3.5 27.2 35.3 29.2
------ ------ ------ ------ ------ ------
Geographic area totals $147.5 $129.2 $118.5 $774.4 $694.3 $624.9
Eliminations (deduction) (27.2) (35.3) (29.2)
Corporate revenues 8.1 6.7 5.4
Total Revenues ------ ------ ------
$755.3 $665.7 $601.1
Earnings (Expenses)
Operations (4) $23.1 $19.1 $15.5 $157.9 $152.6 $127.8
Interest income 8.1 6.6 5.3
Interest expense (2.0) (2.1) (2.2)
General corporate expenses (8.9) (7.3) (5.9)
------ ------ ------
Earnings Before Income Taxes $155.1 $149.8 $125.0
Assets at December 31
Operations $78.0 $67.4 $66.2 $453.0 $429.4 $396.2
Corporate (5) 101.2 152.7 154.5
------ ------ ------
Total Assets $554.2 $582.1 $550.7
Liabilities at December 31
Operations $23.8 $16.6 $13.8 $134.9 $124.0 $109.9
Corporate (5) 19.3 24.1 27.7
------ ------ ------
Total Liabilities $154.2 $148.1 $137.6
Sales Information by Principal Product Group:
Retread materials and supplies 92% 93% 93%
Other 8% 7% 7%
----- ----- -----
100% 100% 100%
<FN>
(1) No single customer accounted for 10% or more of the Company's sales
to unaffiliated customers in each of the years 1995, 1994 or 1993.
(2) Export sales from the United States were less than 10% of sales to
unaffiliated customers in each of the years 1995, 1994 or 1993.
(3) 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.
(4) Aggregate foreign exchange losses included in determining net
earnings amounted to approximately $1,187,000, $3,294,000 and
$611,000 in 1995, 1994 and 1993, respectively.
(5) 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 Company
The following table sets forth the names and ages of all executive
officers of the Company, the period of service of each with the Company,
positions and offices with the Company presently held by each, and the
period during which each officer has served in his present office:
Period of Period
Service Present in
with Position or Present
Name Age Company Office Office
Martin G. Carver* 47 17 Yrs. Chairman of the Board, 15 Yrs.
Chief Executive
Officer and President
Lucille A. Carver* 78 38 Yrs. Treasurer 37 Yrs.
Gary L. Carlson 45 22 Yrs. Sr. Vice President and 2 Yrs.
General Manager
Eastern Hemisphere
Retreading Division
(EHRD)
Donald F. Chester 60 12 Yrs. Sr. Vice President, 12 Yrs.
International
Nathaniel L. Derby II 53 24 Yrs. Vice President, 10 Yrs.
Engineering
Thomas E. Dvorchak 63 25 Yrs. Sr. Vice President and 18 Yrs.
Chief Financial
Officer
Sam Ferrise, II 39 14 Yrs. Vice President, 3 Mos.
Marketing
Stuart C. Green 54 5 Yrs. Sr. Vice President, 5 Yrs.
Manufacturing
Dr. Floyd S. Myers 54 14 Yrs. Vice President, 10 Yrs.
Research and
Development
William A. Sweatman 45 11 Yrs. Vice President, Sales 3 Mos.
* Denotes that officer is also a director of the Company.
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 Company 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. Ferrise joined Bandag in 1981 as a Sales Development Manager. In
January 1985 he was the Manager, Special Segment Marketing. In September
1985 he was named Division Manager, North Division Sales and served in
that capacity until his promotion in February 1993 to Director, Sales &
Marketing. He was elected to his present position on November 14, 1995 as
Vice President, Marketing.
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.
Dr. Myers joined Bandag in 1982 as Vice President, Advanced Research.
In 1985, he was named Vice President, Technical and in 1994 he was named
to his present position of Vice President, Research and Development.
Mr. Sweatman joined Bandag in 1984 as a Sales Development Manager.
In August 1987 he was promoted to Manager, South Division Sales and served
in that capacity until September 1993, when he was promoted to Director,
Sales & Marketing. He was elected to his present position on November 14,
1995 as Vice President, Sales.
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 Company are located in a Company-owned
56,000 square foot office building in Muscatine, Iowa.
The tread rubber manufacturing plants of the Company are located to
service principal markets. The Company 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
Company 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 Europe. The
Company also owns a 26,000 square foot office and warehouse facility in
Muscatine.
In addition, the Company 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 September 1995, Bandag do Brasil acquired 53,820 square feet of
manufacturing facility located on 4.9 acres of land. The facility is
located in Sorocaba in the State of Sao Paulo, Brazil.
In the opinion of the Company, 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, 1995, the net carrying amount of property, plant, and
equipment pledged as collateral on other liabilities was approximately
$11,089,000.
ITEM 3. LEGAL PROCEEDINGS
Treadco, Inc. v. Bandag, Inc., et. al. On October 27, 1995, Treadco,
Inc. ("Treadco"), Bandag's largest franchisee, filed a complaint in the
Sebastian County Chancery Court, Fort Smith, Arkansas, against Bandag
(Treadco, Inc. v. Bandag, Inc., et al., Case No. 95-1224). Treadco
alleges in that action various Arkansas statutory and common law claims
relating to allegations that Bandag wrongfully induced several Treadco
employees to terminate their employment with Treadco and begin working for
Bandag, that Bandag wrongfully induced Treadco customers to switch their
business to other Bandag franchises, and that Bandag wrongfully refused to
renew certain franchise agreements. Treadco seeks an unspecified amount
of money damages and injunctive relief. On November 8, 1995, Bandag filed
an action in the United States District Court for the Western District of
Arkansas to compel the arbitration of Treadco's claims (Bandag, Inc. v.
Treadco, Inc., Case No. 95-2204). The Arkansas Chancery Court stayed all
proceedings pending the federal court's decision on Bandag's petition.
Treadco has conceded that three of its claims against Bandag are subject
to a binding arbitration agreement and Treadco and Bandag have both moved
for judgment in the federal court on the issue of the arbitrability of
Treadco's remaining claims. The federal court has not yet acted on these
motions.
On November 13, 1995, Bandag filed with the American Arbitration
Association a demand for arbitration of all of the claims brought by
Treadco in the Arkansas Chancery Court action. Treadco has joined issue
in the arbitration matter on the three claims against Bandag that it
concedes are subject to arbitration. Treadco also brought a counterclaim
in the arbitration matter in which Treadco alleges that Bandag has engaged
in conduct intended to restrain trade and destroy competition in violation
of antitrust law. No date has been set for the arbitration hearing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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>
1995 % Change 1994 % Change 1993 % Change
<S> <C> <C> <C>
Cash Dividends Per Share-Declared
First Quarter $ 0.2000 $ 0.1750 $ 0.1625
Second Quarter 0.2000 0.1750 0.1625
Third Quarter 0.2000 0.1750 0.1625
Fourth Quarter 0.2250 0.2000 0.1750
-------- ---- -------- --- -------- ---
Total Year $ 0.8250 13.8 $ 0.7250 9.4 $ 0.6625 8.2
-------- ---- -------- --- -------- ---
Stock Price Comparison (A)
Common Stock
First Quarter $57.00 - 62.00 $50.75 - 63.50 $51.50 - 60.25
Second Quarter 56.75 - 64.63 49.13 - 55.13 44.75 - 57.88
Third Quarter 52.25 - 65.88 51.00 - 57.00 45.50 - 57.00
Fourth Quarter 49.00 - 54.88 52.00 - 61.88 52.88 - 56.63
Year-End Closing Price 54.13 60.50 55.38
Class A Common Stock
First Quarter $51.50 - 54.88 $48.25 - 59.50 $52.25 - 58.00
Second Quarter 52.25 - 60.50 44.50 - 52.50 44.25 - 55.00
Third Quarter 47.75 - 59.75 46.00 - 50.25 44.63 - 54.00
Fourth Quarter 47.50 - 53.63 46.25 - 54.63 49.75 - 54.13
Year-End Closing Price 53.00 53.50 51.75
</TABLE>
(A) 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.
The approximate number of record holders of the Company's Common
Stock as of March 22, 1996, was 2,479, the number of holders of Class A
Common Stock was 1,560, and the number of holders of Class B Common Stock
was 319. 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>
1995 1994 1993 1992 1991
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $740,363 $650,567 $590,199 $591,374 $582,913
Earnings Before Cumulative
Effect of Changes in
Accounting Methods $97,027 $93,994 $78,734 $83,023 $79,599
Cumulative Effect of Changes
in Accounting Methods, Net
of Related Tax Effect --- --- --- (220) ---
------- ------- ------- ------- -------
Net Earnings $97,027 $93,994 $78,734 $82,803 $79,599
------- ------- ------- ------- -------
Total Assets (A) $554,159 $582,146 $550,731 $469,239 $442,157
Noncurrent Liabilities $11,857 12,252 11,039 7,366 5,586
Earnings Per Share Before
Cumulative Effect of Changes
in Accounting Methods (B) $3.82 $3.51 $2.88 $2.99 $2.86
Cumulative Effect of Changes
in Accounting Methods, Net
of Related Tax Effect --- --- --- (0.01) ---
------- ------- ------- ------- -------
Earnings Per Share (B) $3.82 $3.51 $2.88 $2.98 $2.86
------- ------- ------- ------- -------
Cash Dividends Per
Per Share-Declared (B) $0.8250 $0.7250 $0.6625 $0.6125 $0.5625
</TABLE>
(A) The change in accounting for certain investments in 1993 effected
comparability with prior periods financial data which have not been
restated.
(B) Adjusted to give retroactive effect to the Company's June 10, 1992
stock dividend of Class A Common Stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
1995-1994
Consolidated net sales increased 14% from 1994. Retread unit volume
increased three percent while the translated value of the Company's
foreign-currency-denominated sales accounted for two percent of the
increase. The remaining nine percent increase was from the cumulative
increases in selling prices in 1994 and 1995 in response to higher raw
material costs. The Company's seasonal sales pattern, which is tied to
trucking industry activity, is similar to previous years with the third
and fourth quarters being the strongest for both sales and earnings.
The Company's consolidated gross profit margin declined by 1.8 percentage
points from 1994, because of some raw material cost increases which were
not passed on to dealers. This, combined with increased operating
expenses related principally to increased spending for marketing programs,
resulted in net earnings improving only 3% from 1994. The Company's
effective income tax rate of 37.4% was comparable to the previous year's
rate.
1995 earnings per share of $3.82 were $.31 higher, a 9% increase from
1994. During the year, the Company acquired 1,946,000 shares of its
outstanding Common Stock and Class A Common Stock for $107,964,000, at
prevailing market prices. This, in combination with the previous year's
purchases, resulted in fewer average shares outstanding in 1995. This had
a favorable impact of $.17 on earnings per share.
Domestic sales in 1995 were 11% higher than a year ago due to increased
selling prices in 1994 and 1995, and higher equipment sales. Tread volume
increased only 1%. Average raw material costs for the year were
approximately 27% higher than the previous year's average. Selling prices
were increased only in the first quarter, as the Company chose to absorb
further increases during the year. This resulted in a gross margin
decline of 3 percentage points. Domestic 1995 earnings before income
taxes declined four percentage points from the prior year due to flat
sales volume and higher raw material costs, as well as increased spending
for marketing programs.
The Company's foreign operations comprised 38% and 24% of 1995's sales
revenue and earnings before income taxes, respectively. This represents a
two percentage-point increase, as a percent of total revenues, and a seven
percentage-point increase, as a percent of total earnings before income
taxes, in comparison with the prior year.
Unit volume in Europe increased 6% over 1994. Sales improved by 22% with
14 percentage points due to the favorable impact on the translated value
of the Company's foreign-currency-denominated sales. Gross profit margin
in 1995 increased 2 percentage points compared to 1994 due to higher
production levels and lower manufacturing spending. Earnings before
income taxes improved by 100% over the prior year.
Unit volume for the Company's other combined foreign operations improved
by 6% over 1994, with sales increasing by 16%. The sales increase
exceeded the unit volume increase due to the favorable impact of the
higher translated value of foreign-currency-denominated sales coupled with
selling price increases initiated during the year in response to higher
raw material costs. Gross profit margin decreased 1 percentage point, but
operating expenses, as a percent of sales, also decreased by approximately
one percentage point from the previous year. Earnings before income taxes
increased by 21% due to the increased sales combined with a substantial
increase in other income.
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 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 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 in 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 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.
Impact of Inflation and Changing Prices
While it has been the Company's long-standing practice to adjust its
effective selling prices to recover increased production and raw material
costs and maintain its gross profit margin, due to competitive conditions,
the Company elected in 1995 not to implement all such increases in its
domestic markets.
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
At the end of 1995, current assets exceeded current liabilities by
$206,424,000. Cash and cash equivalents, which totaled $31,017,000 at
year-end, decreased $15,502,000 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 decreased by $27,091,000 from the prior year.
No major changes in working capital requirements are foreseen, except for
normal business growth. The Company funds its capital expenditures from
the cash flow it generates from operations. During 1995, the Company
spent $28,411,000 for capital expenditures.
As of December 31, 1995, the Company had available uncommitted lines of
credit totaling $78,000,000 in the United States for working capital
purposes. Also, the Company's foreign subsidiaries have approximately
$39,000,000 in credit and overdraft facilities available to them. From
time to time during 1995, the Company's European operations borrowed funds
to supplement their operational cash flow needs or to settle intercompany
transactions. The Company's long-term liabilities totaled $11,857,000 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 1,946,000 shares of its outstanding
Common Stock and Class A Common Stock for $107,964,000 at prevailing
market prices and paid cash dividends amounting to $20,651,000. The
Company generally funds its dividends and stock repurchases from the cash
flow generated from its operations. Historically, the Company has
utilized excess funds to purchase its own shares, believing the
acquisition of the Company's stock to be a good investment.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Auditors 24
Consolidated Balance Sheets as of December 31, 1995,
1994 and 1993 25-26
Consolidated Statements of Earnings for the Years Ended
December 31, 1995, 1994 and 1993 27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 28
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993 29
Notes to Consolidated Financial Statements
30-42
<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, 1995, 1994, and 1993, and
the related consolidated statements of earnings, cash flows, and changes
in stockholders' equity for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Bandag, Incorporated and subsidiaries at December 31, 1995,
1994, and 1993, and the consolidated results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
February 2, 1996
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
December 31
Assets 1995 1994 1993
Current Assets (in thousands)
<S> <C> <C> <C>
Cash and cash equivalents $31,107 $46,519 $58,004
Investments - Note B 9,773 36,864 25,043
Accounts receivable, less allowance
(1995 - $12,327; 1994 - $11,883; 1993 - $11,217) 200,300 178,057 161,506
Inventories:
Finished products 40,252 37,022 34,947
Material and work in process 12,811 14,132 8,186
------- ------ ------
53,063 51,154 43,133
Deferred income tax assets 22,451 21,230 20,210
Prepaid expenses and other current assets 11,854 11,055 8,245
------- ------ ------
Total Current Assets 328,458 344,879 316,141
Property, Plant, and Equipment, on the Basis of Cost:
Land 3,731 3,587 3,332
Buildings and improvements 84,426 79,981 73,016
Machinery and equipment 287,771 267,986 233,143
Construction and equipment installation in progress 6,327 8,177 10,651
------- ------ ------
382,255 359,731 320,142
Less allowances for depreciation and amortization (237,405) (207,973) (173,521)
------- ------ ------
144,850 151,758 146,621
Marketable Equity Securities - Note B 55,684 64,066 69,496
Other Assets 25,167 21,443 18,473
------- ------ ------
Total Assets $554,159 $582,146 $550,731
------- -------- --------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $24,268 $20,014 $15,757
Accrued employee compensation and benefits 21,604 17,695 15,391
Accrued marketing expenses 32,485 28,609 26,163
Other accrued expenses 25,098 23,433 16,833
Dividends payable 5,440 5,270 4,752
Income taxes payable 10,124 9,999 11,429
Short-term notes payable and other liabilities 3,015 8,280 12,217
------- ------ ------
Total Current Liabilities 122,034 113,300 102,542
Other Liabilities 11,857 12,252 11,039
Deferred Income Tax Liabilities 20,289 22,545 24,058
Stockholders' Equity - Note E
Common Stock; $1.00 par value; authorized -
21,500,000 shares; issued and outstanding -
10,112,164 shares in 1995; 10,788,985 shares
in 1994; 11,215,008 shares in 1993 10,112 10,789 11,215
Class A Common Stock; $1.00 par value; authorized -
50,000,000 shares; issued and outstanding -
11,711,344 shares in 1995; 12,976,211 shares
in 1994; 13,576,971 shares in 1993 11,711 12,976 13,577
Class B Common Stock; $1.00 par value; authorized -
8,500,000 shares; issued and outstanding -
2,355,352 shares in 1995; 2,357,976 shares
in 1994; 2,360,513 shares in 1993 2,355 2,358 2,361
Additional paid-in capital 2,493 3,192 2,859
Retained earnings 355,814 384,607 362,040
Unrealized gain on securities available-for-sale,
net of related tax effect (1995 - $11,700; 1994 - $15,159;
1993 - $16,500) 19,568 24,491 27,693
Equity adjustment from foreign currency translation (2,074) (4,364) (6,653)
------- ------ ------
Total Stockholders' Equity 399,979 434,049 413,092
------- ------ ------
Total Liabilities and Stockholders' Equity $554,159 $582,146 $550,731
------- ------ ------
</TABLE>
See notes to consolidated financial statements.
<TABLE>
Consolidated Statements of Earnings
<CAPTION>
Year Ended December 31
1995 1994 1993
(in thousands, except per share data)
Income:
<S> <C> <C> <C>
Net sales $740,363 $650,567 $590,199
Other income 14,911 15,125 10,860
-------- -------- --------
755,274 665,692 601,059
Costs and expenses:
Cost of products sold 442,837 377,385 352,095
Engineering, selling, administrative and other expenses 155,362 136,346 121,823
Interest 1,959 2,126 2,166
-------- -------- --------
600,158 515,857 476,084
-------- -------- --------
Earnings Before Income Taxes 155,116 149,835 124,975
Income Taxes - Note D 58,089 55,841 46,241
-------- -------- --------
Net Earnings $ 97,027 $93,994 $78,734
-------- -------- --------
Net Earnings Per Share - Note E $ 3.82 $ 3.51 $ 2.88
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended December 31
1995 1994 1993
(in thousands)
Operating Activities
<S> <C> <C> <C>
Net earnings $97,027 $93,994 $78,734
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provisions for depreciation and amortization 34,595 35,328 33,322
Change in deferred income taxes (3,462) (2,590) (3,129)
Change in operating assets and liabilities:
Accounts receivable (19,674) (14,211) 567
Inventories (1,148) (6,872) 8,573
Prepaid expenses and other current assets 94 (2,019) (1,686)
Accounts payable and other accrued expenses 11,164 13,219 (6,019)
Income taxes payable 158 (1,357) 1,472
Other assets 443 1,131 1,978
------- ------- -------
Net Cash Provided by Operating Activities 119,197 116,623 109,856
Investing Activities
Additions to property, plant and equipment (28,411) (40,799) (40,472)
Net disposition of property, plant and equipment 724 1,151 3,207
Purchases of investments (27,379) (61,775) (37,868)
Maturities of investments 54,470 49,954 15,775
Sale of marketable equity securities - 2,447 -
------- ------- ------
Net Cash Used in Investing Activities (596) (49,022) (59,358)
Financing Activities
Proceeds from short-term notes payables 41,230 80,425 75,094
Principal payments on short-term notes payable
and other liabilities (46,887) (86,442) (75,623)
Cash dividends (20,651) (19,310) (18,033)
Purchases of Common Stock and Class A Common Stock (107,964) (53,580) (6,797)
-------- ------- -------
Net Cash Used in Financing Activities (134,272) (78,907) (25,359)
Effect of exchange rate changes on cash and cash equivalents 169 (179) (952)
-------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents (15,502) (11,485) 24,187
Cash and cash equivalents at beginning of year 46,519 58,004 33,817
-------- ------- -------
Cash and Cash Equivalents at End of Year $ 31,017 $46,519 $58,004
-------- ------- -------
</TABLE>
See notes to consolidated financial statements.
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Common Stock Class A Class B
Issued and Common Stock Issued and
Outstanding Issued and Outstanding Outstanding
Shares Amount Shares Amount Shares Amount
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 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 under Stock Award
Program Plan - 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
Net earnings for the year
Cash Dividends - $.8250 per share
Conversion of Class B Common
Stock to Common Stock - Note E 2,624 3 (2,624) (3)
Common Stock and Class A Common
Stock issued under Restricted
Stock Grant Plan - Note E 4,430 4 4,430 4
Forfeitures of Common Stock and
Class A Common Stock under
Restricted Stock Grant Plan -
Note E (3,817) (4) (2,939) (3)
Purchases of Common Stock and
Class A Common Stock (680,058) (680) (1,266,358) (1,266)
Unrealized loss on securities
available-for-sale, net of
deferred income taxes of $3,459
Adjustment from foreign currency
translation
---------- ------ ---------- ------ --------- -----
Balance at December 31, 1995 10,112,164 $10,112 11,711,344 $11,711 2,355,352 $2,355
========== ====== ========== ======= ========= =======
<CAPTION>
Unrealized Equity
Gain (Loss) on Adjustment
Additional Securities from Foreign
Paid-In Retained Available-for- Currency
Capital Earnings Sale Translation
(In thousands, except share data)
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $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 (3,402)
translation --------- ------- -------- ------
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 under Stock Award
Program Plan - 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)
Net earnings for the year 97,027
Cash Dividends - $.8250 per share (20,651)
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 436
Forfeitures of Common Stock and
Class A Common Stock under
Restricted Stock Grant Plan -
Note E (287)
Purchases of Common Stock and Class A
Common Stock (848) (105,169)
Unrealized loss on securities
available-for-sale, net of deferred
income taxes of $3,459 (4,923)
Adjustment from foreign currency
translation 2,290
------ -------- ------- -------
Balance at December 31, 1995 $2,493 $355,814 $19,568 $(2,074)
====== ======== ======= =======
</TABLE>
See notes to consolidated financial statements
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.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 dealers 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 $24,479,000, $19,143,000, and
$20,189,000 at December 31, 1995, 1994 and 1993, 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 translations 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
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 (in thousands):
Gross Gross
Un- Un- Esti-
real- real- mated
ized ized Fair
Cost Gains Losses Value
December 31, 1995
Securities Held-to-Maturity
Obligations of states and
political subdivisions $19,028 $6 $ - $19,034
Short-term corporate debt 4,450 - - 4,450
Investment in Eurodollar
time deposits 7,100 - - 7,100
------- --- --- -------
$30,578 $6 $ - $30,584
======= === === =======
Securities Available-for-
Sale
Marketable equity
securities $24,416 $31,268 $ - $55,684
======== ======= === =======
December 31, 1994
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
======= ======= === =======
December 31, 1993
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, 1995, 1994 and 1993, securities held-to-maturity are due
in one year or less and include $20,805,000, $38,815,000 and $51,850,000,
respectively, reported as cash equivalents.
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, 1995
amounted to $117 million.
The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1995, 1994, and 1993, was 10.7%, 7.3%, and 8.3%,
respectively.
Interest paid on short-term notes payable and other obligations amounted
to $2,231,000, $1,747,000, and $1,529,000 in 1995, 1994, and 1993,
respectively.
D. INCOME TAXES
Significant components of the Company's deferred tax assets (liabilities)
reflecting the net tax effects of temporary differences are summarized as
follows:
December 31
1995 1994 1993
(in thousands)
Obligation to provide
postretirement benefits $2,039 $2,093 $1,728
Marketing programs 11,148 10,152 8,515
Accounts receivable valuation
allowances 2,834 3,005 2,690
Unremitted earnings of foreign
subsidiaries (1,999) (3,119) (3,886)
Excess pension funding (3,252) (2,890) (2,761)
Purchased tax benefits (1,531) (1,975) (2,358)
Unrealized holding gain on
marketable equity securities (11,700) (15,159) (16,500)
Other, net 4,623 6,578 8,724
------- ------ ------
Net deferred tax assets $2,162 ($1,315) ($3,848)
(liabilities) ====== ======= =======
The components of earnings before income taxes are summarized as follows:
Year Ended December 31
1995 1994 1993
(in thousands)
Domestic $116,373 $123,715 $107,450
Foreign 38,743 26,120 17,525
-------- -------- --------
$155,116 $149,835 $124,975
======== ======== ========
Significant components of the provision for income tax expense (credit)
are summarized as follows:
Year Ended December 31
1995 1994 1993
(in thousands)
Current:
Federal $39,513 $42,965 $35,200
State 4,900 4,712 3,665
Foreign 14,010 10,118 6,996
Deferred:
Federal (1,555) (3,842) 1,280
State (107) (163) 161
Foreign 1,768 2,434 (736)
Equivalent credit relating to
purchased income tax benefits (440) (383) (325)
------- ------- -------
$58,089 $55,841 $46,241
======= ======= =======
No item, other than state income taxes in 1995, 1994, and 1993, 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 $58,238,000, $61,706,000, and $42,840,000 in
1995, 1994, and 1993, respectively.
E. STOCKHOLDERS' EQUITY
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 automatically converted
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 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, 1995, 1994, and 1993, 4,430 shares,
4,030 shares and 5,150 shares of Common Stock, respectively, were granted
under the Plan. During the years ended December 31, 1995 and 1994, 4,430
shares and 4,030 shares of Class A Common Stock, respectively, were also
granted under the Plan. The resulting charge to earnings amounted to
$770,000, $779,000, and $495,000, in 1995, 1994, and 1993, respectively.
During the year ended December 31, 1995, 3,817 shares of Common Stock and
2,939 shares of Class A Common Stock were forfeited. The credit to 1995
earnings related to the forfeited shares was approximately $291,000. At
December 31, 1995, 49,655 shares of Common Stock and 59,425 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 through November 13, 1997 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. No options were
granted under the Plan in 1995, 1994, or 1993. At December 31, 1995,
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, 1995, 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.
In 1994, the Company established a stock award program covering
substantially all U.S. and Canadian employees, to promote employee
commitment and ownership in the Company, and awarded 2,810 shares each of
Common Stock and Class A Common Stock. The resulting charge to 1994
earnings amounted to $319,000. In 1995, $284,000 was charged to earnings
for the estimated cost of 1995 awards to be made under the stock award
program in 1996.
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.
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, projected benefit obligations,
as estimated by consulting actuaries, plan net assets and funded status
are as follows:
December 31
1995 1994 1993
(in thousands)
Actuarial present value of
accumulated benefit obligations:
Vested $33,787 $30,535 $29,463
Nonvested 5,810 2,310 2,932
------- ------- -------
$39,597 $32,845 $32,395
======= ======= =======
Plan net assets at fair value $79,291 $63,594 $60,723
Projected benefit obligations 54,496 46,367 50,947
------- ------- -------
Plan net assets in excess of
projected benefit obligations 24,795 17,227 9,776
Unrecognized prior service cost 1,278 1,214 1,653
Unamortized actuarial net loss
(gain) (12,988) (5,728) 481
Unamortized net transition gain (6,332) (7,080) (7,939)
------ ------ -------
Prepaid pension cost included in
the consolidated balance sheet $ 6,753 $ 5,633 $ 3,971
======= ======= =======
Assumptions used in the determination of the actuarial present value of
the projected benefit obligation and net pension cost are as follows:
December 31
1995 1994 1993
Weighted average discount rate 7.00% 7.50% 6.50%
Rate of increase in future compensation 4.75% 5.00% 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, common stock, and stock mutual funds.
Pension expense (credit) is composed of the following:
Year Ended December 31
1995 1994 1993
(in thousands)
Service cost for benefits earned
during the year $1,929 $3,183 $2,957
Interest cost on projected benefit
obligations 2,899 3,343 3,079
Investment return on plan assets (14,510) (1,454) (3,958)
Net amortization and deferral 8,964 (4,161) (1,269)
------ ----- ------
Net periodic pension expense (credit) $ (718) $ 911 $ 809
====== ===== ======
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 expense for contributions in the amount of $3,578,000,
$2,892,000, and $2,921,000 in 1995, 1994, and 1993, respectively.
Employees in most foreign countries are covered by various retirement
benefit arrangements generally sponsored by the foreign governments. The
Company's contributions to foreign plans were not significant in 1995,
1994, and 1993.
G. OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The Company provides medical benefits under its self-insured health
benefit plan to certain individuals who retired from employment before
January 1, 1993. Employees who retire after December 31, 1992 and are at
least age 62 with 5 years of service are eligible for temporary medical
benefits that cease at age 65. 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.
The following table sets forth amounts recognized in the Company's
consolidated balance sheet:
December 31
1995 1994 1993
(in thousands)
Accumulated postretirement benefit
obligation:
Retirees $2,109 $1,847 $1,998
Fully eligible active plan
participants 111 92 114
Other active plan participants 2,754 1,801 1,958
------ ----- -----
Accumulated postretirement benefit
obligation 4,974 3,740 4,070
Unrecognized net gain and prior
service cost 351 1,105 443
------ ------ ------
Accrued postretirement benefit cost $5,325 $4,845 $4,513
Net periodic postretirement benefit-
cost includes the following
components:
Service cost $200 $167 $195
Interest cost on accumulated
postretirement benefit obligation 321 261 293
Net amortization and deferral 33 (2) 4
---- ---- ----
Net periodic postretirement benefit $554 $426 $492
cost ==== ==== ====
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits is 11% for 1996 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, 1995, by $705,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for
1995 by $86,000. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7.0% for 1995, 7.5%
for 1994, and 6.5% for 1993.
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.
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, 1995 and 1994, the Company had approximately $18,156,000
and $10,513,000, respectively, in foreign currency forward exchange
contracts and foreign currency option contracts designated and effective
as hedges which became due in various amounts and at various dates through
September of the following year. Such contracts were principally for the
purpose of hedging commitments arising from forecasted material purchases
and intercompany export sales, respectively. Unrealized gains and losses
on the forward exchange contracts and the currency option contracts are
deferred and will be recognized in income in the same period as the hedged
transaction. The difference between the contract amounts and their fair
value, in the aggregate, was insignificant at December 31, 1995 and 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,
1995 and 1994 are summarized as follows:
Quarter Ended
(In thousands, except Mar. 31 Jun. 30 Sep. 30 Dec. 31
for share data)
1995:
Net sales $168,243 $182,929 $190,337 $198,854
Gross profit 65,134 73,710 77,991 80,691
Net earnings 19,579 24,910 27,050 25,488
Net earnings per share $0.75 $0.96 $1.07 $1.04
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
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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, 1995. In accordance with General Instruction G (3) to Form 10-K, the
information with respect to executive officers of the Company 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, 1995.
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, 1995.
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, 1995.
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,
1995, 1994 and 1993 25-26
Consolidated Statements of Earnings for the Years
Ended December 31, 1995, 1994 and 1993 27
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 28
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1995, 1994 and 1993 29
Notes to Consolidated Financial Statements 30-42
(2) Financial Statement Schedule
Page
Schedule II - Valuation and qualifying accounts and
reserves. 45
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.
<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, 1995:
Allowance for
doubtful accounts $11,883,000 $1,964,000 $1,520,000 (A) $12,327,000
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
(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 Company'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
Company'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
Company'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 Company's
Form 10-K for the year ended December 31, 1992.)
The Company 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 Company'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
Company's Form 10-K for the year ended
December 31, 1992.)
10.3 *Miscellaneous Fringe Benefits for Executives.
10.4 *Nonqualified Stock Option Plan, as amended
May 6, 1992. (Incorporated by reference as
Exhibit No. 10.6 to the Company's Form 10-K
for the year ended December 31, 1992.)
10.5 *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 Company's Form 10-K for the year
ended December 31, 1992.)
10.6 *Form of Participation Agreement under the
1984 Bandag, Incorporated Restricted Stock
Grant Plan (Incorporated by reference as
Exhibit 10.7 to the Company's Form 10-K for
the year ended December 31, 1994).
10.7 *Employment Agreement with Michel Petiot
effective January 1, 1994, dated December
20, 1993 (Incorporated by reference to
Exhibit No. 10.8 to the Company's Form 10-K
for the year ended December 31, 1993.)
10.8 *Agreement with William D. Herd regarding
termination of employment, dated
September 12, 1995.
11 Computation of earnings per share.
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with EDGAR filing
only)
* 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, 1996
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/ Lucille A. Carver
Stephen A. Keller Lucille A. Carver
Director Director
/s/ Roy J. Carver, Jr.
Roy J. Carver, Jr.
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, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Bylaws: As amended November 13, 1987.
(Incorporated by reference to Exhibit No. 3.1 to
the Company'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 Company'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 Company'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
Company's Form 10-K for the
year ended December 31, 1992.)
The Company 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 Company'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 Company's Form 10-K
for the year ended December 31, 1993.)
10.3 *Miscellaneous Fringe Benefits
for Executives.
10.4 *Nonqualified Stock Option
Plan, as amended May 6, 1992.
(Incorporated by reference as
Exhibit No. 10.6 to the
Company's Form 10-K for the
year ended December 31, 1992.)
10.5 *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 Company's Form 10-K for the
year ended December 31, 1992.)
10.6 *Form of Participation
Agreement under the 1984
Bandag, Incorporated Restricted
Stock Grant Plan.
(Incorporated by reference as
Exhibit No. 10.7 to the
Company's Form 10-K for the
year ended December 31, 1994.)
10.7 *Employment Agreement with
Michel Petiot effective January 1, 1994,
dated December 20, 1993 (Incorporated by
reference to Exhibit No. 10.8 to the
Company's Form 10-K for the
year ended December 31, 1993.)
10.8 *Agreement with William D. Herd
regarding termination of
employment dated September 12, 1995.
11 Computation of earnings per share.
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with
EDGAR filing only)
* Represents a management compensatory plan or arrangement.
EXHIBIT 10.3
MISCELLANEOUS FRINGE BENEFITS FOR EXECUTIVES
BLANKET TRAVEL ACCIDENT INSURANCE
For those employees who are required to travel in carrying out their job
responsibilities, the Company 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 Company business.
PERSONAL EXCESS LIABILITY POLICIES
The Company reimburses certain executive officers for the cost of personal
excess liability policies.
EXHIBIT 10.8
AGREEMENT
THIS AGREEMENT made this 12th day of September, 1995, by and
between BANDAG, INCORPORATED, an Iowa Corporation, ("Bandag") and WILLIAM
D. HERD ("Herd").
WHEREAS, Herd has been employed by Bandag in a senior executive
capacity for a number of years; and
WHEREAS, the parties hereto desire to cease this relationship
under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
following mutual agreements, it is agreed between the parties hereto as
follows:
1. Herd agrees to consult with an attorney prior to signing
this agreement and shall have twenty-one (21) days within which to
consider this agreement. If this agreement is signed by Herd, he may
revoke this agreement within seven (7) days following signing of this
agreement by Bandag and this agreement will become effective and
enforceable on, but not before, the date on which the seven-(7)-day
revocation period has expired.
2. Herd has voluntarily resigned as an officer and employee of
Bandag effective September 1, 1995.
3. Bandag agrees to pay Herd twelve (12) payments of
$103,750.00 each, subject to withholding of applicable federal and state
taxes. Herd acknowledges receipt from Bandag on September 8, 1995, of the
amount of $207,500.00 as an interest free loan due for repayment in full
on January 1, 1996. Effective January 1, 1996, Bandag shall accelerate
the first four (4) of the above-mentioned twelve (12) payments. Herd
irrevocably authorizes and directs that $207,500.00 of the net after tax
amount shall be retained by Bandag in full repayment of the above loan and
the balance of the net after tax amount shall be remitted to Herd. The
remaining eight (8) payments shall be paid on a quarterly basis commencing
April 1, 1996 and ending January 1, 1998.
4. Bandag shall retain an outplacement agency (selected by
Herd) and pay the reasonable cost thereof through September 1, 1996.
5. Bandag shall provide or reimburse Herd for the reasonable
and necessary costs of telephone and secretarial services associated with
his employment search prior to September 1, 1996.
6. Herd and his eligible dependents shall continue to receive
medical and dental insurance benefits under the group plan of Bandag until
his qualification for immediate coverage under the plan of another
employer or September 1, 1998, whichever first occurs. Bandag agrees to
waive COBRA premiums but shall not be responsible for any taxes on
payments to Herd or his dependents other than withholding required under
federal or state tax laws.
7. Subject to the performance by Bandag of its obligations
under this agreement, Herd agrees as to Bandag and all corporations,
divisions, subsidiaries, parent organizations, directors, officers,
shareholders, employees, agents, consultants, predecessors, successors,
assigns, heirs or other entities or persons that are now, have been, or
may in the future be directly or indirectly related to or affiliated with
Bandag in any way (the "Releasees") that he unconditionally releases,
discharges, waives and promises not to sue with respect to all claims,
demands, actions, causes of action, rights, obligations, liabilities,
damages or losses or any kind, known or unknown, fixed or contingent
("Claims"), that he may have or subsequently claim to have against the
Releasees or any one of them relating to his employment with Bandag or his
separation from that employment, which released Claims include but are not
limited to all Claims arising under any constitution, law, statute,
ordinance, regulations, rule, guideline or common-law theory, and
specifically all claims arising under all employment, discrimination, or
wrongful discharge laws, regulations, or common-law theories, including
but not limited to the Age Discrimination in Employment Act of 1967, the
Iowa Statutes, the Employment Income Retirement Security Act of 1974, the
Civil Rights Act of 1866, the Civil Rights Act of 1964, the Civil Rights
Act of 1991, and the Americans with Disabilities Act of 1990 (all as
amended from time to time). He agrees that he cannot and will not bring
any lawsuit or charges on his behalf, whether civil, criminal, or
administrative, against the Releasees or any one of them with respect to
such released Claims, and that he unconditionally releases, discharges,
waives, and gives up his right to accept any relief obtained by any other
party on his behalf with respect to such released Claims.
8. Herd agrees that in the event that Bandag becomes involved
in any legal or administrative claims or other proceedings relating to
events that occurred during his employment and as to which he might in the
opinion of Bandag have personal knowledge, he will cooperate to the
fullest extent possible in the preparation and presentation by Bandag of
its prosecution or defense, including but not limited to the signing of
affidavits or other documents providing information requested by Bandag.
9. Herd agrees that he will not attempt to cause or induce any
employees to leave their employment with Bandag or otherwise interfere
with their employment for a period of two (2) years. He agrees that he
will not at any time speak or act in any manner that is intended to or
does damage to the goodwill or the business or personal reputations of the
Releasees or any one of them, and that he will not engage in any other
conduct or communications that disparages the Releasees or any one of
them.
10. Herd agrees that he will treat as the confidential property
of Bandag and will not disclose or use any information or knowledge
obtained or developed by him during his employment with Bandag which is
not in the public domain and which consists of or related to Bandag's
products, inventions, discoveries, processes, techniques, formulas,
substances, designs, patterns, improvements, plans, projects, programs,
research, test results, writings, notes, patents, copyrights, trademarks,
know-how, trade secrets, customer and supplier lists, or business,
financial, marketing, sales, pricing, engineering, manufacturing, or other
operational matters and plans.
11. Herd agrees to keep all matters concerning this agreement,
including but not limited to the circumstances and contents of this
agreement, completely confidential, except as may be otherwise
specifically authorized in writing by Bandag.
12. Herd agrees to deliver to Bandag all information in any
recorded or retrievable form, records, documents, drawings, materials,
equipment, and other items belonging to Bandag which are in his possession
or control.
13. Subject to the performance by Herd of his obligations under
this agreement, Bandag unconditionally releases, discharges, waives, and
promises not to sue with respect to all claims, demands, actions, causes
of action, rights, obligations, liabilities, damages, or losses of any
kind, known or unknown, fixed or contingent that Bandag may have or
subsequently claim to have against Herd relating to his employment with
Bandag or his separation from that employment.
14. Bandag and Herd agree that all vested benefits accrued
under qualified benefit plans sponsored by Bandag are payable in
accordance with the terms of such plans on the basis of his resignation
and severance of employment effective September 1, 1995. Herd agrees that
neither the payments under this agreement nor the term thereof shall be
considered as employment or service beyond September 1, 1995 for purposes
of benefits provided by Bandag to any of its employees. In this regard
Herd expressly acknowledges that by virtue of Paragraph 5(e) of the
Bandag, Incorporated Restricted Stock Grant Plan he shall forfeit all
shares of Restricted Stock and any undistributed dividends thereon being
held by the nominee of the Committee administering said Plan as of
September 1, 1995 and shall have no other rights under the Plan.
15. Herd agrees that he shall not, prior to August 31, 1998
(without express written consent of Bandag), engage directly or
indirectly, whether as an employee, consultant or independent contractor,
alone or in conjunction with others in any tire retreading venture, or in
the manufacture, sale, or distribution of any machinery, equipment or
product relating thereto, which is in competition with the process,
products or retreading system, of Bandag. This covenant not to compete
shall extend to any geographical area within North America or Western
Europe in which the products of Bandag or any Bandag affiliate are
manufactured or marketed into any customers or markets of Bandag or any
Bandag affiliates which now exist. The parties agree that the
aforementioned covenant not to compete shall be subject to specific
performance in any jurisdiction selected by Bandag in which it conducts
business.
16. This agreement constitutes the entire agreement between the
parties and shall be binding upon the successors and assigns of the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the day and year first above written.
/s/ William D. Herd
William D. Herd
BANDAG, INCORPORATED
By:
/s/ Warren W. Heidbreder
Warren W. Heidbreder, Secretary
<PAGE>
William D. Herd
Severance Payments
12-Sep-95 Loan $207,500
01-Jan-96 Loan Repayment (207,500)
01-Jan-96 4 415,000*
01-Apr-96 1 103,750*
01-Jul-96 1 103,750*
01-Oct-96 1 103,750*
01-Jan-97 1 103,750*
01-Apr-97 1 103,750*
01-Jul-97 1 103,750*
01-Oct-97 1 103,750*
01-Jan-98 1 103,750*
Total $1,245,000*
==========
* Subject to Tax Withholding
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
BANDAG, INCORPORATED AND SUBSIDIARIES
Year Ended December 31
1995 1994 1993
(In thousands, except per
share data)
Net earnings per Common and Common
equivalent share:
Weighted average number of
shares of Common Stock, Class A
Common Stock and Class B Common
Stock outstanding. 25,303 26,689 27,226
Additional shares assuming
exercise of dilutive stock
options - based on the treasury
stock method using average
market price 117 112 111
--- --- ---
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 25,420 26,801 27,337
====== ====== ======
Net earnings $97,027 $93,994 $78,734
Net earnings per Common and Common
equivalent share $3.82 $3.51 $2.88
===== ===== =====
Net earnings per Common share -
assuming full dilution:
Average shares outstanding 25,303 26,689 27,226
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 117 119 113
--- --- ---
FULLY DILUTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 25,420 26,808 27,339
====== ====== ======
Net earnings $97,027 $93,994 $78,734
Net earnings per Common and
Common equivalent share $3.82 $3.51 $2.88
===== ===== =====
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The Company 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 Company. The Company 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 New Zealand 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 SHEETS
OF THE REGISTRANT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. AMOUNTS ARE IN
THOUSAND OF DOLLARS EXCEPT PER SHARE DATA.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 31,017
<SECURITIES> 9,773
<RECEIVABLES> 200,300
<ALLOWANCES> 12,327
<INVENTORY> 53,063
<CURRENT-ASSETS> 328,458
<PP&E> 382,255
<DEPRECIATION> 237,405
<TOTAL-ASSETS> 554,159
<CURRENT-LIABILITIES> 122,034
<BONDS> 11,857
0
0
<COMMON> 24,178
<OTHER-SE> 358,307
<TOTAL-LIABILITY-AND-EQUITY> 554,159
<SALES> 740,363
<TOTAL-REVENUES> 755,274
<CGS> 442,837
<TOTAL-COSTS> 442,837
<OTHER-EXPENSES> 155,362
<LOSS-PROVISION> 1,964
<INTEREST-EXPENSE> 1,959
<INCOME-PRETAX> 155,116
<INCOME-TAX> 58,089
<INCOME-CONTINUING> 97,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,027
<EPS-PRIMARY> 3.82
<EPS-DILUTED> 3.82
</TABLE>
