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 March 31, 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; 10,125,271 shares as of April 30, 1996.
Class A Common Stock, $1 par value; 11,587,335 shares as of April 30,
1996. Class B Common Stock, $1 par value; 2,355,152 shares as of April 30,
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 Balance Sheets 4
Consolidated Condensed Statements of Cash Flows 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 10
Signatures 11
EXHIBITS :
Exhibit 11 - Computation of Earnings Per Share 13
Exhibit 27 - Financial Data Schedule 14
<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
3/31/96 3/31/95
Net sales $170,303 $168,243
Other income 3,734 3,555
-------- --------
174,037 171,798
Cost of products sold 104,008 103,109
Engineering, selling, administrative
and other expenses 44,053 36,926
Interest expense 286 496
-------- --------
148,347 140,351
-------- --------
Earnings before income taxes 25,690 31,267
Income taxes 9,824 11,688
-------- --------
Net earnings $ 15,866 $ 19,579
======== ========
Net earnings per share $ 0.65 $ 0.75
Cash dividends per share $ 0.2250 $ 0.2000
Depreciation included in expense $ 8,327 $ 8,357
Average shares outstanding 24,301 26,207
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
March 31, December 31,
1996 1995
ASSETS:
Cash and cash equivalents $ 54,529 $ 31,017
Investments 13,094 9,773
Accounts receivable - net 180,389 200,300
Inventories:
Finished products 41,129 40,252
Materials & work-in-process 16,362 12,811
-------- --------
57,491 53,063
Other current assets 33,311 34,305
-------- --------
Total current assets 338,814 328,458
Property, plant, and equipment 386,147 382,255
Less accumulated depreciation & amortization (242,397) (237,405)
-------- --------
143,750 144,850
Marketable equity securities, at market value 55,115 55,684
Other assets 19,613 25,167
-------- --------
Total assets $557,292 $554,159
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 23,283 $ 24,268
Income taxes payable 16,659 10,124
Accrued employee compensation and benefits 16,625 21,604
Accrued marketing expenses 25,156 32,485
Other accrued expenses 31,829 30,538
Short-term notes payable and other liabilities 3,092 3,015
-------- --------
Total current liabilities 116,644 122,034
Deferred income tax and other liabilities 30,351 32,146
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding - 10,125,279 shares
in 1996; 10,112,164 in 1995 10,125 10,112
Class A Common stock; $1 par value;
authorized - 50,000,000 shares;
Issued and outstanding - 11,724,543 shares
in 1996; 11,711,344 in 1995 11,725 11,711
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
Issued and outstanding - 2,355,152 shares
in 1996; 2,355,352 in 1995 2,355 2,355
Additional paid-in capital 3,810 2,493
Retained earnings 366,211 355,814
Unrealized gain on securities 19,024 19,568
Equity adjustment from foreign currency
translation (2,953) (2,074)
-------- --------
Total equity 410,297 399,979
-------- --------
Total liabilities & stockholders' equity $557,292 $554,159
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Three Months Ended
3/31/96 3/31/95
Operating Activities
Net earnings $ 15,866 $ 19,579
Depreciation and amortization 8,576 8,592
Increase in operating assets and liabilities-net 16,123 14,957
-------- --------
Net cash provided by operating activities 40,565 43,128
Investing Activities
Additions to property, plant and equipment (5,879) (6,136)
Net dispositions of property, plant and equipment (1,597) (235)
Purchases of investments (9,629) (17,756)
Maturities of investments 6,308 16,863
-------- --------
Net cash used in investing activities (10,797) (7,264)
Financing Activities
Proceeds from short-term notes payable -- 2,195
Principal payments on short-term notes payable
and other liabilities (335) (4,858)
Cash dividends (5,446) (5,221)
Purchases of Common Stock (24) (6,443)
-------- --------
Net cash used in financing activities (5,805) (14,327)
Effect of exchange rate changes on cash and
cash equivalents (451) 293
-------- --------
Increase in cash and cash equivalents 23,512 21,830
Cash and cash equivalents at beginning of year 31,017 46,519
-------- --------
Cash and cash equivalents at end of period $ 54,529 $ 68,349
======== ========
<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 three months ended March 31, 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.
Consolidated net sales for the first quarter ended March 31, 1996, were
one percent higher than the same period last year despite a three percent
decrease in unit volume. (The term "unit volume" when used in the context
of these comments refers only to shipments of the Company's major
manufactured product, precured tread rubber used in the retreading of
tires.) The impact of the higher translated value of the Company's
foreign currency denominated sales and higher retread equipment sales
account for the majority of the difference between the two percentages.
The lower demand experienced during the last two quarters of 1995 carried
over into 1996, whereas sales last year in the first quarter were
exceptionally strong due in some part to hedge-buying by the Company's
dealers in response to continued raw material price increases. One of the
Company's largest franchisees is in the process of ending its franchise
relationship with the Company. While the Company will experience some
short-term sales decline, it is not expected to be significant as actions
to replace the lost distribution are already well underway.
Consolidated gross margin for the first quarter ended March 31, 1996 was
basically even compared to the same period last year. Slight increases in
gross margin in both the U.S. and European operations were offset by
decreases in the Company's other foreign operations, primarily Brazil.
Consolidated operating expenses for the first quarter ended March 31, 1996
increased 19% over the same period last year. The majority of this
increase was related to strategic initiatives in the sales, marketing,
training, and distribution areas in response to major changes the Company
sees taking place in the world-wide transportation industry. Such
spending is expected to continue through 1996, causing operating expenses
to be disproportionately high when compared to past spending patterns.
The Company's R&D spending during the quarter was also higher than the
same period last year. These operating expense increases are in addition
to expenses related to replacing the major U.S. franchisee discussed
previously.
Consolidated net earnings and net earnings per share for the first quarter
ended March 31, 1996, decreased 19% and 13%, respectively, over the same
periods last year. Approximately one percentage point of the decrease in
net earnings was due to an increase in the Company's effective income tax
rate from 37.4% to 38.2%. The lower percentage decrease in net earnings
per share over last year in comparison to the decrease in net earnings was
due to fewer shares outstanding in 1996 as a result of the Company's
ongoing share repurchase program.
Domestic Operations
First quarter sales, for the period ending March 31, 1996, for the
Domestic operations, which includes export shipments to various Latin and
South American countries and some Far East areas, were approximately 1%
lower than the same period last year on slightly less than a 2% decrease
in unit volume. The sales decrease was less than the unit volume decrease
due to higher equipment sales, and a favorable sales mix of relatively
higher priced retread rubber items.
Even though first quarter raw material costs were approximately 4% higher
than last year, gross margin was basically even due to favorable
manufacturing absorption resulting from operational efficiencies.
Operating expenses for the first quarter were 29% higher than the same
period last year and six percentage points higher as a percent of sales.
The major increases were in sales and marketing related areas as discussed
in the consolidated comments above, along with higher R&D expenditures.
First quarter earnings before income taxes decreased approximately 28%
compared to last year, which was substantially proportional to the
increase in operating expenses.
European Operations
Sales for the first quarter ended March 31, 1996, for the Company's
European operations were 2% higher than the same period last year,
compared to an 11% decrease in unit volume. The lower volume was due to a
basic economic slowdown in some of the larger volume countries that are
served by the Company's European operations. In local currency, sales
were 2% lower than last year with higher selling prices initiated in 1995
accounting for the difference in percentages compared to volume. Sales in
U.S. dollars were 4 percentage points higher than in local currency due to
changes in exchange rates.
Gross margin for the European operations for the first quarter was
approximately one percentage point higher than the same period last year
primarily due to the effect of selling price increases during 1995.
Operating expenses for the first quarter increased 7% over the same period
last year primarily due to increased spending for marketing programs and
increased staffing, with some offset coming from the comparison of
favorable foreign exchange adjustments this year to unfavorable
adjustments last year. The foreign exchange adjustments are the result of
fluctuations in various European currencies relative to the Belgian franc.
Operating expenses in local currency increased approximately 2% over the
same period last year.
Earnings before income taxes for the first quarter increased 18% over the
same period last year.
Other Foreign Operations
Sales for the Company's other combined foreign operations for the first
quarter ended March 31, 1996 were 7% higher than the same period last year
on a 1% increase in unit volume. The sales increase was primarily due to
a 9% increase by both Brazil and Canada on unit volume increases of 7% and
3%, respectively, partially offset by a sales decrease in South Africa of
2% on 13% lower unit volume. The lower unit volume in South Africa was
due to the combination of last year's hedge buying prior to a February
price increase and the competitive effect due to the availability of low
price new tires imported from the Far East.
First quarter gross margin on a combined basis for the Company's other
foreign operations was 1.6 percentage points lower than the same period
last year . The gross margin shortfall was primarily due to not fully
passing higher raw material costs on to our dealers in the form of higher
selling prices and the impact of lower volume in South Africa.
First quarter combined operating expenses for the Company's other foreign
operations were 13% higher than the same period last year. The majority
of the increase was due to higher spending in Brazil related to
maintenance and advertising expenses combined with overall inflationary
increases in the other geographic areas.
Earnings before income taxes for the quarter increased 16% over the same
period last year due to strong results in New Zealand, which included a
gain on the sale of assets accounting for eight percentage points of the
earnings increase.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the first quarter ended
March 31, 1996, was $2.6 million less than in the same period last year.
Net earnings, which decreased by $3.7 million, were offset by an increase
of $1.2 million due to changes in operating assets and liabilities.
Investing Activities.
The Company spent $5.9 million on capital expenditures in the first
quarter which was slightly less than last year's disbursements for the
same period. 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 $3.3 million
during the quarter, bringing its total investments to $13.1 million at
March 31, 1996.
Financing Activities.
Cash dividends totaled $5.4 million for the first quarter compared to $5.2
million last year. The Company's purchases of Common Stock and Class A
Common Stock were immaterial in the quarter compared to the $6.4 million
spent on share repurchases last year. Both cash dividends and stock
purchases were funded from the Company's operating cash flows.
The Company has $117 million in funds available under unused lines of
credit and foreign credit and overdraft facilities.
BANDAG, INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date May 10, 1996 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive Officer
Date May 10, 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 12
27 Financial Data Schedule 13
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For The Three
Months Ended
March 31,
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 24,191 26,089
Additional shares assuming exercise of
dilutive stock options - based on
treasury stock method using average
market price 110 118
------- -------
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES 24,301 26,207
======= =======
Net earnings $15,866 $19,579
======= =======
Net earnings per common and common
equivalent share 0.65 $0.75
======= =======
Net earnings per common share assuming
full dilution:
Weighted average shares outstanding 24,191 26,089
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 111 118
------- -------
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT SHARES 24,302 26,207
======= =======
Net earnings $15,866 $19,579
======= =======
Net earnings per common and common
equivalent share $0.65 $0.75
======= =======
<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 THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 54,529
<SECURITIES> 13,094
<RECEIVABLES> 180,389
<ALLOWANCES> 12,291
<INVENTORY> 57,491
<CURRENT-ASSETS> 338,814
<PP&E> 386,147
<DEPRECIATION> 242,397
<TOTAL-ASSETS> 557,292
<CURRENT-LIABILITIES> 116,644
<BONDS> 10,339
0
0
<COMMON> 24,205
<OTHER-SE> 386,092
<TOTAL-LIABILITY-AND-EQUITY> 557,292
<SALES> 170,303
<TOTAL-REVENUES> 174,037
<CGS> 104,008
<TOTAL-COSTS> 104,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 389
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> 25,690
<INCOME-TAX> 9,824
<INCOME-CONTINUING> 15,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,866
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
