FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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; 9,957,513 shares as of July 31, 1996.
Class A Common Stock, $1 par value; 11,207,031 shares as of July 31, 1996.
Class B Common Stock, $1 par value; 2,354,604 shares as of July 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 4 - Submission of Matters to a Vote of Security Holders 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
EXHIBITS :
Exhibit 11 - Computation of Earnings Per Share 14
Exhibit 27 - Financial Data Schedule 15
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item l - Financial Statements:
Unaudited Consolidated Condensed Statements of Earnings
(In thousands except per share data)
Three Months Ended Six Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
Net sales $188,875 $182,929 $359,178 $351,172
Other income 3,027 3,299 6,761 6,854
------- ------- ------- -------
191,902 186,228 365,939 358,026
Cost of products sold 111,472 109,219 215,480 212,328
Engineering, selling,
administrative and other
expenses 47,618 36,996 91,671 73,922
Interest expense 318 417 604 913
------- ------- ------- -------
159,408 146,632 307,755 287,163
------- ------- ------- -------
Earnings before income taxes 32,494 39,596 58,184 70,863
Income taxes 12,400 14,686 22,224 26,374
------- ------- ------- -------
Net earnings $ 20,094 $ 24,910 $ 35,960 $ 44,489
======= ======= ======= =======
Net earnings per share $ 0.83 $ 0.96 $ 1.48 $ 1.71
Cash dividends per share $ 0.2250 $ 0.2000 $ 0.4500 $ 0.4000
Depreciation included in
expense $ 8,481 $ 8,744 $ 16,808 $ 17,101
Average shares outstanding 24,219 26,014
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Six Months Ended
6/30/96 6/30/95
Operating Activities
Net earnings $ 35,960 $ 44,489
Depreciation and amortization 17,307 17,639
Increase (decrease) in operating assets and
liabilities-net 1,251 (6,403)
------- -------
Net cash provided by operating activities 54,518 55,725
Investing Activities
Additions to property, plant and equipment (12,882) (13,471)
Net dispositions of property, plant and
equipment (3,105) 362
Purchases of investments (18,205) (22,376)
Maturities of investments 12,673 33,060
------- -------
Net cash used in investing activities (21,519) (2,425)
Financing Activities
Proceeds from short-term notes payable 7,000 14,200
Principal payments on short-term notes
payable and other liabilities (5,760) (14,992)
Cash dividends (10,811) (10,313)
Purchases of Common Stock (23,824) (33,915)
------- -------
Net cash used in financing activities (33,395) (45,020)
Effect of exchange rate changes on cash and
cash equivalents (1,142) 431
------- -------
Increase (decrease) in cash and cash
equivalents (1,538) 8,711
Cash and cash equivalents at beginning of
year 31,017 46,519
------- -------
Cash and cash equivalents at end of
period $ 29,479 $ 55,230
======= =======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
June 30, December 31,
1996 1995
ASSETS:
Cash and cash equivalents $ 29,479 $ 31,017
Investments 15,305 9,773
Accounts receivable - net 201,532 200,300
Inventories:
Finished products 42,004 40,252
Materials & work-in-process 15,460 12,811
------- -------
57,464 53,063
Other current assets 35,594 34,305
------- -------
Total current assets 339,374 328,458
Property, plant, and equipment 390,254 382,255
Less accumulated depreciation &
amortization (246,225) (237,405)
------- -------
144,029 144,850
Marketable equity securities, at
market value 68,258 55,684
Other assets 16,688 25,167
------- -------
Total assets $568,349 $554,159
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 22,144 $ 24,268
Income taxes payable 14,067 10,124
Accrued employee compensation and benefits 18,944 21,604
Accrued marketing expenses 29,061 32,485
Other accrued expenses 36,666 30,538
Short-term notes payable and other
liabilities 5,592 3,015
------- -------
Total current liabilities 126,474 122,034
Deferred income tax and other liabilities 35,402 32,126
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding - 10,017,188 shares
in 1996; 10,112,164 in 1995 10,017 10,112
Class A Common stock; $1 par value;
authorized - 50,000,000 shares;
Issued and outstanding - 11,342,165 shares
in 1996; 11,711,344 in 1995 11,342 11,711
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
Issued and outstanding - 2,354,767 shares
in 1996; 2,355,352 in 1995 2,355 2,355
Additional paid-in capital 3,642 2,493
Retained earnings 357,800 355,814
Unrealized gain on securities 27,175 19,568
Equity adjustment from foreign currency
translation (5,858) (2,074)
------- -------
Total equity 406,473 399,979
------- -------
Total liabilities & stockholders' equity $568,349 $554,159
======= =======
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BANDAG, INCORPORATED AND SUBSIDIARIES
Note to Consolidated Condensed Financial Statements
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 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.
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Both consolidated net sales and unit volume for the second quarter ended
June 30, 1996, were three percent higher than the same period last year.
Increases in both sales and unit volume were recorded in all geographic
areas except for Europe and the Far East. For the six months to-date,
consolidated net sales increased 2% while unit volume was even with last
year. The increase in net sales for the six months to-date was higher
relative to the increase in unit volume because of the favorable impact of
product and country mix, combined with higher retread equipment sales,
partially offset by the negative impact of the lower translated value of
the Company's foreign currency denominated sales. On June 18, 1996, the
Company announced that the franchise agreements for the Company's South
African subsidiary's largest franchisee would not be renewed when they
expired on June 27, 1996. The Company believes that it is in the
Company's long term interest to work with independent dealers who are
fully committed to the Bandag System and that this franchisee could not
commit its best efforts to the manufacture, sale and service of Bandag
retread products due to its manufacture and sale of competitive tread
rubber products and the retreading of tires utilizing this competitive
rubber. Our South African subsidiary has begun the challenging process of
replacing the lost distribution.
Consolidated gross margin for the second quarter was approximately one
percentage point higher than the same period last year, bringing it even
with last year for the six months to-date. The slightly higher
consolidated gross margin for the quarter was due to lower raw material
costs, which more than offset lower manufacturing absorption resulting
from lower production. Gross margin improved two percentage points from
the first quarter of 1996 for the same reasons cited above.
Consolidated operating expenses for the second quarter and six months were
29% and 24% 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 six months were both 19%
lower 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 14%
and 13% 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 second quarter ended
June 30, 1996, which includes export shipments to various Latin American,
South American, and Far East countries, were 3% higher than the same
period last year on a 3% increase in unit volume. For the six months,
sales and unit volume were both 1% higher than the same period last year.
Gross margin for the Company's domestic operations was basically even for
both the second quarter and six months to-date compared to last year. Raw
material costs decreased during the first six months of this year in
comparison to the same period last year. The impact of the lower raw
material costs were offset by unfavorable manufacturing expense absorption
as a result of lower production.
The domestic operation's operating expenses for the quarter and six months
were 42% and 35% higher, respectively, 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, along with expenses related to replacing the
distribution lost when the Company ended its relationship with one of its
largest franchisees. Earnings before taxes decreased 20% and 23% for the
quarter and six months, respectively, compared to the same periods last
year, primarily due to the above noted increase in operating expenses.
Western European Operations
Sales and unit volume for the second quarter ended June 30, 1996, for
Western Europe were 6% and 9% lower, respectively, while sales and unit
volume for the six months were 2% and 10% lower, respectively, than the
same periods last year. The lower volume continues to reflect the
economic slowdown within major European countries that are served by the
Company's European operation. 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 even with last year for the quarter
and 1% lower for the six months. The sales decreases were less than the
decrease in unit volume due to higher selling prices initiated in 1995.
Western Europe's gross margin was 1.8 and 1.4 percentage points higher
than last year for the quarter and six months to-date, respectively, due
to a combination of slightly lower raw material costs and higher selling
prices.
Operating expenses decreased 4.7% for the second quarter but were 1%
higher for the six months to-date than the same periods last year
reflecting the impact of a less favorable exchange rate used to translate
into U.S. dollars. Expenses for the quarter and six months, stated in
local currency, were 12% and 14% 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 increased 37% and 27% for the second quarter
and six months to-date, respectively.
Other Foreign Operations
Combined sales and unit volume for the other combined geographic areas
both increased 12% for the second quarter and 7% and 10%, respectively,
for the six months to-date over the same periods last year. Brazil and
Mexico accounted for the majority of these increases. Brazil's sales and
unit volume for the second quarter were 26% and 22% higher, respectively,
than the same periods last year, while sales and unit volume for the six
months to-date were 17% and 15% higher. Mexico's results have improved
greatly from last year's depressed conditions with sales and unit volume
for the quarter both 54% higher than last year and 58% and 53% higher,
respectively, for the six months to-date. Except for South Africa, sales
and unit volume for all the other foreign operations were higher than last
year in both the quarter and six months, but their increases were not as
high as Brazil or Mexico, there-by diluting the overall increases. South
Africa's sales and unit volume improved over the first quarter's results
but unit volume for the six months to-date was 4% short of last year. The
Company expects South Africa's results to be impacted by the cancellation
of its largest dealer, cited above, but that it will be able to replace
the lost business over time.
The combined second quarter gross margin for the Company's other foreign
operations improved 1.7 percentage points over the previous year to bring
it even with the previous year for the six months to-date. Mexico's gross
margin improved greatly over last year's depressed conditions because of
its increased manufacturing levels, which more than offset the five
percentage point decrease in South Africa's gross margin due to its lower
volume.
Combined operating expenses for the quarter and six months for the
Company's other foreign operations were 48% and 30% higher, respectively,
than the same periods last year. The higher operating expenses for both
the quarter and six months were primarily due to higher expenses in Brazil
and Mexico. Brazil's expenses were higher because of increased spending
on sales and marketing. 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 second quarter were 9% lower than the
same period last year due to the increase in operating expenses during the
quarter. These higher expenses also impacted the six months to-date
earnings before income taxes, which were 2% higher than the same period
last year after posting a 16% increase for the first quarter.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the six months ended June
30, 1996, was $1.2 million less than the amount for the same period last
year. Net earnings, which decreased $8.5 million, were partially offset
by an increase of $7.6 million from changes in operating assets and
liabilities and an $0.3 million decrease in depreciation.
Investing Activities.
The Company's capital expenditures totaled $7.0 million for the quarter
ended June 30, 1996, bringing the year-to-date total to $12.9 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 exceeded maturities by $2.2 million
during the second quarter, bringing total investments to $15.3 million at
June 30, 1996.
Financing Activities.
Cash dividends totaled $5.4 million and $10.8 million for the quarter and
six months, respectively, compared to totals of $5.1 million and $10.3
million for the same periods last year. The Company purchased 490,740
shares of its outstanding Common and Class A Common stock, at prevailing
market prices, for $33.9 million during the second quarter. No purchases
were made during the first quarter so these are also the totals for the
six months to-date. Cash dividends and stock purchases were funded from
operational cash flows. The Company continues to have $117 million in
funds available under unused lines of credit and foreign credit and
overdraft facilities.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the shareholders of the Company was
held on May 7, 1996.
(c) Two matters were voted upon at the annual meeting.
First, the following three nominees, all of whom were
incumbent directors, were elected as directors for a
three-year term ending in 1999 by the following vote:
Votes Broker
Name Votes For Against Abstentions Non-Votes
Lucille A. Carver 31,674,438 50,368 16,022 - 0 -
Martin G. Carver 31,705,264 18,493 17,072 - 0 -
Edgar D. Jannotta 31,709,724 14,459 16,646 - 0 -
The other matter voted upon was a proposal to ratify the
selection of Ernst & Young as independent auditors of the
Company for the year ending December 31, 1996. The
shareholders ratified the selection by the following vote:
Votes For Votes Against Abstentions Broker Non-Votes
31,715,835 8,225 16,769 - 0 -
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 June 30, 1996.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date August 12, 1996 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive
Officer
Date August 12, 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 Six
Months Ended Months Ended
June, 30 June, 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 24,020 25,728 24,091 25,895
Additional shares assuming
exercise of dilutive stock
options -based on treasury stock
method using average market price 103 119 128 119
------- ------- ------- -------
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 24,123 25,847 24,219 26,014
======= ======= ======= =======
Net earnings $20,094 $24,910 $35,960 $44,489
======= ======= ======= =======
Net earnings per common and common
equivalent share 0.83 $0.96 $1.48 $1.71
======= ======= ======= =======
Net earnings per common share
assuming full dilution:
Weighted average shares outstanding 24,020 25,728 24,091 25,895
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 103 123 128 123
------- ------ ------ ------
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES 24,123 25,851 24,219 26,018
======= ======= ======= =======
Net earnings $20,094 $24,910 $35,960 $44,489
======= ======= ======= =======
Net earnings per common and common
equivalent share $0.83 $0.96 $1.48 $1.71
======= ======= ======= =======
<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 SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. AMOUNTS ARE IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 29,479
<SECURITIES> 15,305
<RECEIVABLES> 201,532
<ALLOWANCES> 12,045
<INVENTORY> 57,464
<CURRENT-ASSETS> 339,374
<PP&E> 390,254
<DEPRECIATION> 246,225
<TOTAL-ASSETS> 568,349
<CURRENT-LIABILITIES> 126,474
<BONDS> 9,286
0
0
<COMMON> 23,714
<OTHER-SE> 3,642
<TOTAL-LIABILITY-AND-EQUITY> 568,349
<SALES> 359,178
<TOTAL-REVENUES> 365,939
<CGS> 215,480
<TOTAL-COSTS> 215,480
<OTHER-EXPENSES> 91,671
<LOSS-PROVISION> 912
<INTEREST-EXPENSE> 604
<INCOME-PRETAX> 58,184
<INCOME-TAX> 22,224
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,960
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
</TABLE>
