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, 1997
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; 9,723,994 shares as of October 31, 1997.
Class A Common Stock, $1 par value; 11,013,644 shares as of October 31,
1997. Class B Common Stock, $1 par value; 2,049,356 shares as of October
31, 1997.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Statements of Cash Flows 4
Condensed Consolidated Balance 5
Notes to Condensed Consolidated 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 Condensed Consolidated Statements of Earnings
(In thousands except per share data)
Three Months Ended Nine Months Ended
9/30/97 9/30/96 9/30/97 9/30/96
Net sales $201,242 $194,086 $566,508 $553,264
Other income 3,733 3,552 9,311 10,313
------- ------- ------- -------
204,975 197,638 575,819 563,577
Cost of products sold 116,012 108,324 331,863 323,804
Engineering, selling,
administrative and other
expenses 49,871 50,403 153,139 142,074
Interest expense 221 254 1,178 858
------- ------- ------- -------
166,104 158,981 486,180 466,736
------- ------- ------- -------
Earnings before income taxes 38,871 38,657 89,639 96,841
Income taxes 15,077 14,712 34,545 36,936
------- ------- ------- -------
Net earnings $ 23,794 $ 23,945 $ 55,094 $ 59,905
======= ======= ======= =======
Net earnings per share $ 1.04 $ 1.02 $ 2.40 $ 2.50
Cash dividends per share $ 0.2500 $ 0.2250 $ 0.7500 $ 0.6750
Depreciation included in
expense $ 7,965 $ 7,588 $ 24,749 $ 24,895
Average shares outstanding 22,934 23,964
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
9/30/97 9/30/96
Operating Activities
Net earnings $ 55,094 $ 59,905
Depreciation and amortization 25,497 25,643
Decrease in operating assets and
liabilities-net (19,625) (15,370)
-------- -------
Net cash provided by operating activities 60,966 70,178
Investing Activities
Additions to property, plant and equipment (25,220) (25,006)
Purchases of investments (2,570) (18,205)
Maturities of investments 3,533 21,182
-------- -------
Net cash used in investing activities (24,257) (22,029)
Financing Activities
Proceeds from short-term notes payable 35,307 36,500
Principal payments on short-term notes payable
and other liabilities (30,989) (11,590)
Cash dividends (17,121) (16,054)
Purchases of Common Stock (7,340) (61,691)
-------- -------
Net cash used in financing activities (20,143) (52,835)
Effect of exchange rate changes on cash and
cash equivalents (1,221) (1,322)
-------- -------
Increase (decrease) in cash and cash equivalents 15,345 (6,008)
Cash and cash equivalents at beginning of year 31,453 31,017
-------- -------
Cash and cash equivalents at end of period $ 46,798 $ 25,009
======== =======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
Sept. 30, Dec. 31,
1997 1996
ASSETS:
Cash and cash equivalents $ 46,798 $ 31,453
Investments 1,126 2,089
Accounts receivable - net 219,785 206,732
Inventories:
Finished products 43,462 44,704
Materials & work-in-process 13,755 14,228
------- -------
57,217 58,932
Other current assets 45,958 42,494
------- -------
Total current assets 370,884 341,700
Property, plant, and equipment 400,555 394,592
Less accumulated depreciation & amortization (254,949) (249,457)
------- -------
145,606 145,135
Marketable equity securities, at market value 138,910 79,035
Other assets 16,915 22,472
------- -------
Total assets $672,315 $588,342
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 23,751 $ 28,744
Income taxes payable 11,195 12,254
Accrued employee compensation and benefits 20,998 23,532
Accrued marketing expenses 31,768 32,872
Other accrued expenses 47,030 39,807
Short-term notes payable and other liabilities 2,177 2,005
------- -------
Total current liabilities 136,919 139,214
Deferred income tax and other liabilities 64,342 38,261
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding - 9,723,769 shares
in 1997; 9,842,861 in 1996 9,724 9,843
Class A Common stock; $1 par value;
authorized - 50,000,000 shares;
Issued and outstanding - 11,003,644 shares
in 1997; 11,027,759 in 1996 11,004 11,028
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
Issued and outstanding - 2,049,581 shares
in 1997; 2,051,984 in 1996 2,050 2,052
Additional paid-in capital 4,076 4,069
Retained earnings 386,522 355,663
Unrealized gain on securities 71,021 33,854
Equity adjustment from foreign currency
translation (13,343) (5,642)
------- -------
Total equity 471,054 410,867
------- -------
Total liabilities & stockholders' equity $672,315 $588,342
======= =======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The condensed consolidated 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, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded.
The impact is not expected to result in a significant increase in primary
earnings per share for the third quarter ended September 30, 1997 or
September 30, 1996. The impact of Statement 128 on the calculation of
fully diluted earnings per share for these quarters is also not expected
to be material.
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated net sales for the third quarter ended September 30, 1997,
were 4% higher than the same period last year on an 8% increase in unit
volume. For the nine months, consolidated net sales and unit volume were
2% and 5% higher, respectively, than the previous year. The increases in
net sales for both the quarter and nine months to-date were lower than the
respective increases in unit volume because of the negative impact of the
lower translated value of the Company's foreign currency denominated
sales, primarily in Europe. Lower equipment sales were also a factor in
the year-to-date comparison. When comparing this year to the previous
year one should consider that the Company's sales in both periods were
impacted by having to replace two of the its larger franchisees (one in
the U.S. and one in South Africa).
Consolidated gross margin for the third quarter was two percentage points
lower compared to the same period last year, but equal in comparison to
the first nine months to-date. The lower gross margin in the quarter was
due to higher costs related to new products in the Company's domestic
market and lower margins in Europe because of unfavorable manufacturing
variances.
Consolidated operating expenses for the third quarter were 1% lower than
the same period last year as increased spending for sales promotional
projects and additional staffing was more than offset by lower spending on
marketing programs and the impact of weaker foreign exchange rates used to
translate foreign expenses into U.S. dollars. Consolidated operating
expenses for the nine months were 8% higher than the same period last year
due to increased staffing and higher spending on sales promotional
projects, research and development projects, and actions directed at
processes associated with building strategic alliance programs with the
Company's dealers and customers.
Consolidated net earnings for the third quarter were approximately 1%
lower than the same period last year, and 8% lower for the nine months to-
date. The higher operating expenses discussed above were the primary
reason for the decrease in net earnings for both the quarter and nine
months, with slightly higher income tax rates also a contributing factor.
Consolidated net earnings per share for the third quarter were 2% higher
than last year but 4% lower for the nine months. The more favorable
comparison for net earnings per share for the third quarter reflects the
impact of fewer average shares outstanding in 1997 as a result of the
Company's ongoing share repurchase program.
Domestic Operations
Net sales for the third quarter ended September 30, 1997 for the Company's
domestic operations, which includes export shipments to various Latin and
South American countries and some Asian areas, were 2% higher than the
same period last year on a 4% increase in unit volume. For the nine
months, sales were 3% higher than last year on a 4% increase in unit
volume. The increases in net sales were lower than the respective
increases in unit volume primarily because of lower equipment sales.
The gross margin for the Company's domestic operations for the third
quarter was approximately two percentage points lower than the same period
last year due to higher costs related to new products but gross margin for
the nine months was still approximately 1% higher than last year. The
year-to-date increase in gross margin was due to a combination of
favorable product mix and favorable manufacturing absorption, as raw
material unit costs were basically even with last year.
Operating expenses for the third quarter were 3% lower than the same
period last year, but 3% higher for the nine months. The lower expenses
for the quarter were due to the timing of marketing programs. For the nine
months, the increase in operating expenses was due to increased staffing,
primarily in the sales and marketing areas, research and development
projects, and spending related to improving the processes associated with
building a strategic alliance with the Company's dealers and customers.
Earnings before income taxes for the third quarter were basically even
with the same period last year as a lower gross margin was offset by lower
operating expenses. Earnings before income taxes for the nine months were
approximately 4% higher compared to the same period last year because of
the higher gross margin, more than offsetting the higher operating
expenses.
European Operations
Sales for the Company's European operations, stated in U.S. dollars, were
4% lower than the same period last year for the third quarter ended
September 30, 1997, and 6% lower for the nine months to-date. When stated
in local currency , sales for the third quarter and nine months were 14%
and 7% higher, respectively, than the same periods last year on respective
unit volume increases of 4% and 2%. The weaker U.S. dollar performance
reflects the impact of a relatively strong U.S. dollar on the exchange
rates used to translate local currency denominated results. The majority
of the third quarter sales increase, in local currency, was due to
unusually high equipment sales related to the addition of several new
customers.
Gross margin for the Company's European operations for the third quarter
ended September 30, 1997 was four percentage points lower than the same
period last year due to higher equipment sales, which carry lower margins
than retread products. Gross margin for the nine months was approximately
three percentage points lower than the same period last year due to the
combination of the increase in lower-margined equipment sales and the
impact of a seven day scheduled manufacturing plant shut-down during the
second quarter of 1997.
Operating expenses, stated in U.S. dollars, were 4% lower than the same
period last year for the third quarter, but 5% higher for the nine months
to-date. When stated in local currency, these expenses were 15% and 20%
higher, respectively than the same periods last year. The increase in
operating expenses in local currencies for both the quarter and nine
months were due to higher spending related to sales and marketing
promotional programs and increased staffing.
Due to the factors discussed above, earnings before income taxes for the
third quarter and nine months to-date were 58% and 55% lower,
respectively, than the same periods last year.
Other Foreign Operations
Combined sales for the Company's other foreign operations were 15% higher
than the same period last year for the third quarter and 8% higher for the
nine months to-date on unit volume increases of 20% and 11%, respectively.
Sales for the Company's Brazil operation for the third quarter and nine
months were 13% and 10% higher, respectively, than the same periods last
year on corresponding unit volume increases of 16% and 15%. Sales for the
Company's Mexico operation for the quarter and nine months to-date were
53% and 46% higher, respectively, than the same periods last year on
corresponding unit volume increases of 37% and 32%. Third quarter results
for the Company's South Africa operation showed a marked improvement over
the same period last year as sales and unit volume increased 55% and 35%,
respectively, due to replacing business lost after the cancellation of its
largest dealer during the second quarter of last year, but the nine months
to-date continues to show the impact of the cancellation, as sales and
unit volume were both 23% lower than the same period last year.
Combined gross margin for the Company's other foreign operations for the
third quarter and nine months was even with the same periods last year,
but the third quarter improved by approximately two percentage points
compared to the second quarter of this year due to higher production
levels in South Africa and Mexico.
Combined operating expenses for the third quarter and nine months for the
Company's other foreign operations were 44% and 34% higher, respectively,
than the same periods last year. The higher operating expenses for both
the quarter and nine months included higher spending on sales and
marketing programs, increased staffing, and professional fees.
Earnings before income taxes for the third quarter and nine months were 8%
and 21% lower than the same periods last year due to the increased level
of operating expenses.
Financial Condition:
During the quarter the Company announced that it had entered into
agreements to acquire a 100% interest in five of the Company's dealerships
through a new subsidiary, Tire Distribution Systems, Inc. The closings of
these transactions is expected to take place during the fourth quarter of
1997. The Company also announced its intent to sell its marketable equity
securities investment during the fourth quarter with the intent of using
the proceeds in the funding of the purchase of the five dealerships. A
portion of the acquisitions may also be financed by debt borrowing.
Operating Activities.
Net cash provided by operating activities for the nine months ended
September 30, 1997, was $9.2 million less than the amount for the same
period last year. The decrease in earnings of $4.8 million and a $4.2
million decrease in operating assets and liabilities over the same period
last year basically account for the decrease in net cash provided by
operating activities.
Investing Activities.
The Company's capital expenditures totaled $7.4 million for the quarter
bringing the total for the nine months to $25.2 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 period
exceeding 90 days are classified as investments for balance sheet
purposes. The Company's investment maturities exceeded purchases of
investments by $1.0 million during the nine months, bringing total
investments to $1.1 million at September 30, 1997.
Financing Activities.
Cash dividends totaled $5.7 million for the third quarter and $17.1
million for the nine months to-date. This compares to $5.2 million and
$16.1 million for the same periods last year. The Company's purchases of
its outstanding Common and Class A Common stock were minimal during the
third quarter giving a nine month total for stock purchases of $7.3
million. Cash dividends and stock purchases were funded from operational
cash flows. The Company continues to have $119 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 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, 1997.
<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: November 13, 1997 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive Officer
Date: November 13, 1997 \S\ Warren W. Heidbreder
Warren W. Heidbreder
Vice President, 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,
1997 1996 1997 1996
(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 22,779 23,415 22,828 23,858
Additional shares assuming exercise
of dilutive stock options -based
on treasury stock method using
average market price 106 107 106 106
------- ------ ------ ------
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 22,885 23,522 22,934 23,964
======= ====== ====== ======
Net earnings $23,794 $23,945 $55,094 $59,905
======= ====== ====== ======
Net earnings per common and
common equivalent share $1.04 $1.02 $2.40 $2.50
======= ====== ====== ======
Net earnings per common share
assuming full dilution:
Weighted average shares
outstanding 22,779 23,415 22,828 23,858
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 106 107 106 106
------- ------ ------ ------
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES 22,885 23,522 22,934 23,964
======= ====== ====== ======
Net earnings $23,794 $23,945 $55,094 $59,905
======= ====== ====== ======
Net earnings per common and common
equivalent share $1.04 $1.02 $2.40 $2.50
======= ====== ====== ======
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 46,798
<SECURITIES> 1,126
<RECEIVABLES> 219,785
<ALLOWANCES> 12,392
<INVENTORY> 57,217
<CURRENT-ASSETS> 370,884
<PP&E> 400,555
<DEPRECIATION> 254,949
<TOTAL-ASSETS> 672,315
<CURRENT-LIABILITIES> 136,919
<BONDS> 12,929
0
0
<COMMON> 22,778
<OTHER-SE> 4,076
<TOTAL-LIABILITY-AND-EQUITY> 672,315
<SALES> 566,508
<TOTAL-REVENUES> 575,819
<CGS> 331,863
<TOTAL-COSTS> 331,863
<OTHER-EXPENSES> 153,139
<LOSS-PROVISION> 1,218
<INTEREST-EXPENSE> 1,178
<INCOME-PRETAX> 89,639
<INCOME-TAX> 34,545
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,094
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
</TABLE>
