FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ________ to ________
Commission file number 1-7007
BANDAG, INCORPORATED
(Exact name of registrant as specified in its charter)
Iowa 42-0802143
(State of incorporation) (I.R.S Employer Identification No.)
2905 N HWY 61, Muscatine, Iowa 52761-5886
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: 319/262-1400
Not Applicable
(Former name, address, or fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days. Yes _X_ No ___.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $1 par value; 9,833,492 shares as of October 31, 1996.
Class A Common Stock, $1 par value; 11,020,149 shares as of October 31,
1996. Class B Common Stock, $1 par value; 2,053,743 shares as of
October 31, 1996.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Statements of Earnings 3
Consolidated Condensed Statements of Cash Flows 4
Consolidated Condensed Balance Sheets 5
Note to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II : OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
EXHIBITS :
Exhibit 11 - Computation of Earnings Per Share 14
Exhibit 27 - Financial Data Schedule (EDGAR filing only) 15
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item l - Financial Statements:
Unaudited Consolidated Condensed Statements of Earnings
(In thousands except per share data)
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
Net sales $194,086 $190,337 $553,264 $541,509
Other income 3,552 4,099 10,313 10,953
------- ------- ------- -------
197,638 194,436 563,577 552,462
Cost of products sold 108,324 112,346 323,804 324,674
Engineering, selling,
administrative and other
expenses 50,403 38,353 142,074 112,275
Interest expense 254 534 858 1,447
------- ------- ------- -------
158,981 151,233 466,736 438,396
------- ------- ------- -------
Earnings before income taxes 38,657 43,203 96,841 114,066
Income taxes 14,712 16,153 36,936 42,527
------- ------- ------- -------
Net earnings $ 23,945 $ 27,050 $ 59,905 $ 71,539
======= ======= ======= =======
Net earnings per share $ 1.02 $ 1.07 $ 2.50 $ 2.78
Cash dividends per share $ 0.2250 $ 0.2000 $ 0.6750 $ 0.6000
Depreciation included in
expense $ 8,087 $ 8,492 $ 24,895 $ 25,593
Average shares outstanding 23,964 25,711
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Nine Months Ended
9/30/96 9/30/95
Operating Activities
Net earnings $ 59,905 $ 71,539
Depreciation and amortization 25,643 26,380
Increase (decrease) in operating assets and
liabilities-net (15,370) (14,477)
------- -------
Net cash provided by operating
activities 70,178 83,442
Investing Activities
Additions to property, plant and equipment (26,460) (19,273)
Net dispositions of property, plant and
equipment 1,454 543
Purchases of investments (18,205) (27,379)
Maturities of investments 21,182 47,506
-------- -------
Net cash used in investing activities (22,029) 1,397
Financing Activities
Proceeds from short-term notes payable 36,500 28,339
Principal payments on short-term notes
payable and other liabilities (11,590) (27,696)
Cash dividends (16,054) (15,210)
Purchases of Common Stock (61,691) (95,060)
-------- -------
Net cash used in financing activities (52,835) (109,627)
Effect of exchange rate changes on cash and
cash equivalents (1,322) 301
-------- -------
Increase (decrease) in cash and cash
equivalents (6,008) (24,487)
Cash and cash equivalents at beginning
of year 31,017 46,519
-------- -------
Cash and cash equivalents at end
of period $ 25,009 $ 22,032
======== =======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
9/30/96 12/31/95
ASSETS:
Cash and cash equivalents $ 25,009 $ 31,017
Investments 6,796 9,773
Accounts receivable - net 217,997 200,300
Inventories:
Finished products 47,699 40,252
Materials & work-in-process 14,855 12,811
------- -------
62,554 53,063
Other current assets 36,191 34,305
------- -------
Total current assets 348,547 328,458
Property, plant, and equipment 389,739 382,255
Less accumulated depreciation & amortization (244,778) (237,405)
------- -------
144,961 144,850
Marketable equity securities, at market value 95,201 55,684
Other assets 17,020 25,167
------- -------
Total assets $605,729 $554,159
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 23,732 $ 24,268
Income taxes payable 9,940 10,124
Accrued employee compensation and benefits 20,311 21,604
Accrued marketing expenses 37,982 32,485
Other accrued expenses 34,180 30,538
Short-term notes payable and other
liabilities 27,566 3,015
------- -------
Total current liabilities 153,711 122,034
Deferred income tax and other liabilities 46,744 32,126
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding - 9,533,372 shares
in 1996; 10,112,164 in 1995 9,533 10,112
Class A Common stock; $1 par value;
authorized - 50,000,000 shares;
Issued and outstanding - 11,020,149 shares
in 1996; 11,711,344 in 1995 11,020 11,711
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
Issued and outstanding - 2,353,863 shares
in 1996; 2,355,352 in 1995 2,354 2,355
Additional paid-in capital 3,370 2,493
Retained earnings 339,703 355,814
Unrealized gain on securities 43,875 19,568
Equity adjustment from foreign currency
translation (4,581) (2,074)
------- -------
Total equity 405,274 399,979
------- -------
Total liabilities & stockholders' equity $605,729 $554,159
======= =======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Note to Consolidated Condensed Financial Statements
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated net sales and unit volume for the third quarter ended
September 30, 1996, were 4% and 2% higher, respectively, than the same
period last year. Increases in both sales and unit volume in the third
quarter by the Company's domestic and Latin America operations more than
offset shortfalls in the other major geographic areas. For the nine
months to-date, consolidated net sales and unit volume both increased 2%
over the same period last year.
Consolidated gross margin for the third quarter was approximately three
percentage points higher than both the same period last year and the
second quarter 1996. The higher consolidated gross margin for the quarter
was due to lower raw material costs and higher manufacturing absorption
resulting from higher production.
Consolidated operating expenses for the third quarter and nine months were
31% and 26% higher, respectively, than the same periods last year. The
increases were due to higher spending on sales and marketing related
programs, dealer system development programs, training and global
development, R&D projects, and expenses related to replacing lost
distribution from the cancellation of a major U.S. franchisee, as
discussed in the Company's first quarter 1996 Form 10-Q, with some offset
coming from the lower currency rates used to translate foreign currency
denominated expenses.
Consolidated net earnings for the quarter and nine months were 12% and 16%
lower, respectively, than the same periods last year. The primary reason
for the lower net earnings was the higher operating expenses as discussed
above combined with a one percentage point increase in the Company's
effective income tax rate. Consolidated net earnings per share for the
same periods were 5% and 10% lower, respectively, than last year. The
lesser decreases in net earnings per share, in comparison to the decreases
in net earnings, reflect the impact of fewer average shares outstanding in
1996 because of the Company's ongoing share repurchase program.
Domestic Operations
Sales for the Company's domestic operations for the third quarter ended
September 30, 1996, which includes export shipments to various Latin
American and Asian countries, were 3% higher than the same period last
year on a 5% increase in unit volume. For the nine months, both sales and
unit volume were 3% higher than the same period last year.
Gross margin for the Company's domestic operations for the third quarter
was higher than the same period last year, slightly improving the nine
months to-date comparisons over last year. Raw material costs for the
first nine months of this year have been trending lower than in comparison
to the same period last year. The impact of the lower raw material costs
combined with favorable manufacturing expense absorption as a result of
higher production during the third quarter was the primary reason for the
increase in gross margin in the third quarter.
The domestic operation's operating expenses for the quarter and nine
months were both 25% higher than the same periods last year. The
significant increase in spending was due to the Company investing heavily
on systems development, sales and marketing programs, training, research
and development, and expenses related to replacing the distribution lost
when the Company ended its relationship with its largest franchisee.
Earnings before taxes decreased 26% and 21% for the quarter and nine
months, respectively, compared to the same periods last year, primarily
due to the increase in operating expenses.
Western European Operations
Sales and unit volume for the third quarter ended September 30, 1996, for
Western Europe were 7% and 2% lower, respectively, while sales and unit
volume for the nine months were 3% and 7% lower, respectively, than the
same periods last year. The economic slowdown within major European
countries that are served by the Company's European operation is reflected
in the lower unit volume. The sales comparison stated in U.S. dollars was
less favorable than in local currency due to the negative effect of
exchange rates used to translate local currency denominated results.
Sales stated in local currency were 2% lower than last year for both the
quarter and nine months. The sales decrease for the nine months was less
than the decrease in unit volume due to the full year impact of selling
price increases initiated in 1995.
Western Europe's gross margin was approximately two percentage points
lower than last year for both the third quarter and nine months to-date
due to higher raw material costs with some offset coming from higher
selling prices.
Operating expenses increased 21% for the third quarter but were only 7%
higher for the nine months to-date compared to the same periods last year
reflecting the impact of a less favorable exchange rate used to translate
local currency results into U.S. dollars. Expenses for the quarter and
nine months, stated in local currency, were 11% and 13% higher than the
same periods last year. The increase in operating expenses in local
currencies was primarily due to higher spending related to sales and
marketing programs and increased staffing.
Earnings before income taxes decreased 82% and 36% for the third quarter
and nine months to-date, respectively.
Other Foreign Operations
Combined sales for the third quarter ended September 30, 1996 for the
other geographic areas were approximately 1% lower than the same period
last year while unit volume was basically even. For the nine months to-
date sales and unit volume were 4% and 6% higher, respectively, than the
same period last year. Brazil and Mexico both recorded double-digit
increases in sales and unit volume for the quarter and nine months, but
South Africa's results were negatively impacted by the cancellation of its
largest dealer which offset the gains in the other market areas. For
additional information, see the discussion cited in Management's
Discussion and Analysis of Financial Condition and Results of Operations
in the Form 10-Q for the quarter ended June 30, 1996.
The combined third quarter gross margin for the Company's other foreign
operations decreased 2.6 percentage points over the previous year but was
equal to the previous year for the nine months to-date.
Combined operating expenses for the quarter and nine months for the
Company's other foreign operations were 17% and 25% higher, respectively,
than the same periods last year. The higher operating expenses for both
the quarter and nine months were primarily due to higher expenses in
Brazil and Mexico. Brazil's expenses were higher because of increased
sales and marketing efforts. Expenses for Mexico reflect increases in
spending related to staffing and marketing programs associated with the
increase in unit volume.
Earnings before income taxes for the third quarter were 18% lower than the
same period last year due to the increase in operating expenses during the
quarter. These higher expenses also impacted the nine months to-date
earnings before income taxes, which were 6% lower than the same period
last year.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the nine months ended
September 30, 1996, was $13.2 million less than the amount for the same
period last year with net earnings decreasing $11.6 million and decreases
of $0.9 million from changes in operating assets and liabilities and $0.7
million in depreciation.
Investing Activities.
The Company's capital expenditures totaled $13.6 million for the quarter
ended September 30, 1996, bringing the year-to-date total to $26.5
million. The Company typically funds its capital expenditures from
operating cash flows.
The Company's excess funds are invested in financial instruments with
various maturities, but only instruments with an original maturity date of
over 90 days are classified as investments for balance sheet purposes.
The Company's purchases of investments were less than maturities by $5.2
million during the third quarter, bringing total investments to $6.8
million at September 30, 1996.
Financing Activities.
Cash dividends totaled $5.3 million and $16.1 million for the quarter and
nine months, respectively, compared to totals of $4.9 million and $15.2
million for the same periods last year. The Company purchased 806,512
shares of its outstanding Common and Class A Common stock, at prevailing
market prices, for $37.9 million during the third quarter, bringing the
total for the nine months to-date to 1,297,718 shares purchased for $61.7
million. Cash dividends and stock purchases were funded from operational
cash flows and supplemented by approximately $25 million in short-term
borrowing during the quarter. The Company continues to have $92 million
in unused lines of credit and foreign credit and overdraft facilities.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date November 11, 1996 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive Officer
Date November 11, 1996 \S\ Thomas E. Dvorchak
Thomas E. Dvorchak
Sr. Vice President and Chief
Financial Officer
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Page
11 Computation of Earnings Per Share 14
27 Financial Data Schedule (EDGAR filing only) 15
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For The Three For The Nine
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
(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 23,415 25,043 23,858 25,591
Additional shares assuming exercise
of dilutive stock options -based
on treasury stock method using
average market price 107 120 106 120
------- ------- ------- -------
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 23,522 25,163 23,964 25,711
======= ======= ======= =======
Net earnings $23,945 $27,050 $59,905 $71,539
======= ======= ======= =======
Net earnings per common and common
equivalent share 1.02 $1.07 $2.50 $2.78
======= ======= ======= ======
Net earnings per common share
assuming full dilution:
Weighted average shares
outstanding 23,415 25,043 23,858 25,591
Additional shares assuming exercise
of dilutive stock options -based
on the treasury stock method using
the month-end price if higher than
the average market price 107 120 106 120
------- ------ ------ ------
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES 23,522 25,163 23,964 25,711
======= ======= ======= ======
Net earnings $23,945 $27,050 $59,905 $71,539
======= ======= ======= ======
Net earnings per common and common
equivalent share $1.02 $1.07 $2.50 $2.78
======= ======= ======= ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS AND THE UNAUDITED
CONSOLIDATED CONDENSED BALANCE SHEETS OF THE REGISTRANT FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,009
<SECURITIES> 6,796
<RECEIVABLES> 217,997
<ALLOWANCES> 12,624
<INVENTORY> 62,554
<CURRENT-ASSETS> 348,547
<PP&E> 389,739
<DEPRECIATION> 244,778
<TOTAL-ASSETS> 605,729
<CURRENT-LIABILITIES> 153,711
<BONDS> 11,067
0
0
<COMMON> 22,907
<OTHER-SE> 3,370
<TOTAL-LIABILITY-AND-EQUITY> 605,729
<SALES> 553,264
<TOTAL-REVENUES> 563,577
<CGS> 323,804
<TOTAL-COSTS> 323,804
<OTHER-EXPENSES> 142,074
<LOSS-PROVISION> 1,183
<INTEREST-EXPENSE> 858
<INCOME-PRETAX> 96,841
<INCOME-TAX> 36,936
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,905
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.50
</TABLE>
