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, 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; 9,724,352 shares as of July 31, 1997.
Class A Common Stock, $1 par value; 11,004,709 shares as of July 31, 1997.
Class B Common Stock, $1 par value; 2,050,443 shares as of July 31, 1997.
<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
Notes 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 (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 Six Months Ended
6/30/97 6/30/96 6/30/97 6/30/96
Net sales $195,748 $188,875 $365,266 $359,178
Other income 2,571 3,027 5,578 6,761
-------- -------- -------- --------
198,319 191,902 370,844 365,939
Cost of products sold 115,302 111,472 215,851 215,480
Engineering, selling,
administrative and other
expenses 53,989 47,618 103,268 91,671
Interest expense 550 318 957 604
-------- -------- -------- --------
169,841 159,408 320,076 307,755
-------- -------- -------- --------
Earnings before income
taxes 28,478 32,494 50,768 58,184
Income taxes 10,918 12,400 19,468 22,224
-------- -------- -------- --------
Net earnings $ 17,560 $ 20,094 $ 31,300 $35,960
======== ======== ======== ========
Net earnings per share $ 0.76 $ 0.83 $ 1.36 $ 1.48
Cash dividends per
share $ 0.2500 $ 0.2250 $ 0.5000 $0.4500
Depreciation included
in expense $ 8,590 $ 8,980 $ 16,784 $17,307
Average shares outstanding 22,952 24,219
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Six Months Ended
6/30/97 6/30/96
Operating Activities
Net earnings $ 31,300 $ 35,960
Depreciation and amortization 17,283 17,307
Increase (decrease) in operating
assets and liabilities-net (11,283) 1,251
-------- --------
Net cash provided by operating
activities 37,300 54,518
Investing Activities
Additions to property, plant
and equipment (17,797) (15,987)
Purchases of investments (2,570) (18,205)
Maturities of investments 1,398 12,673
-------- --------
Net cash used in investing
activities (18,969) (21,519)
Financing Activities
Proceeds from short-term notes
payable 3,768 7,000
Principal payments on short-
term notes payable and other
liabilities (1,234) (5,760)
Cash dividends (11,427) (10,811)
Purchases of Common Stock (7,320) (23,824)
-------- --------
Net cash used in financing
activities (16,213) (33,395)
Effect of exchange rate changes
on cash and cash equivalents (685) (1,142)
-------- --------
Increase (decrease) in cash and
cash equivalents 1,433 (1,538)
Cash and cash equivalents at
beginning of year 31,453 31,017
-------- --------
Cash and cash equivalents at
end of period $ 32,886 $ 29,479
======== ========
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
June 30, Dec. 31,
1997 1996
ASSETS:
Cash and cash equivalents $ 32,886 $ 31,453
Investments 3,261 2,089
Accounts receivable - net 206,214 206,732
Inventories:
Finished products 49,638 44,704
Materials & work-in-process 13,150 14,228
--------- ---------
62,788 58,932
Other current assets 44,453 42,494
--------- ---------
Total current assets 349,602 341,700
Property, plant, and equipment 402,270 394,592
Less accumulated depreciation
& amortization (256,122) (249,457)
--------- ---------
146,148 145,135
Marketable equity securities,
at market value 105,979 79,035
Other assets 16,676 22,472
--------- ---------
Total assets $618,405 $588,342
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 23,939 $ 28,744
Income taxes payable 10,951 12,254
Accrued employee compensation
and benefits 22,340 23,532
Accrued marketing expenses 28,773 32,872
Other accrued expenses 44,674 39,807
Short-term notes payable and
other liabilities 1,812 2,005
--------- --------
Total current liabilities 132,489 139,214
Deferred income tax and other
liabilities 44,551 38,261
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding -
9,724,270 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 -
11,004,909 shares in 1997;
11,027,759 in 1996 11,005 11,028
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
Issued and outstanding -
2,050,725 shares in 1997;
2,051,984 in 1996 2,051 2,052
Additional paid-in capital 4,199 4,069
Retained earnings 368,439 355,663
Unrealized gain on securities 57,043 33,854
Equity adjustment from foreign
currency translation (11,096) (5,642)
--------- ---------
Total equity 441,365 410,867
--------- ---------
Total liabilities & stockholders'
equity $618,405 $588,342
========= =========
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Notes 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, 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 second quarter ended June 30, 1997 or June 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.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated net sales for the second quarter ended June 30, 1997, were 4%
higher than the same period last year on a 6% increase in unit volume. All
geographic reporting areas, except the Asian area, recorded increases in
both sales and unit volume. For the six months to-date, consolidated net
sales and unit volume were 2% and 4% higher, respectively, than last year.
The increases in net sales for the quarter and six months to-date were
both lower than their 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 Western Europe, and lower
equipment sales. When comparing this year to the previous year one needs
to take into consideration that the Company's sales in both periods were
impacted by having to replace two of the its larger franchisees.
Consolidated gross margin for the second quarter was basically even with
the same period last year, and even with the first quarter of this year,
but approximately one percentage point higher than last year for the six
month period to-date. The slightly higher consolidated gross margin for
the six month period was due to improved sales mix in the Company's
domestic operations, partially offset by lower margins for Western Europe
and South Africa because of unfavorable manufacturing variances.
Consolidated operating expenses for the second quarter and six months were
both 13% higher than the same periods last year. The increases were due
to additional staffing, higher spending on sales and marketing related
programs, and R&D projects, and spending related to processes associated
with building a strategic alliance with the Company's dealers and
customers.
Consolidated net earnings for the quarter and six months were both 13%
lower than the same periods last year. The higher operating expenses
discussed above were the primary reason for the decrease in net earnings.
Consolidated net earnings per share for the quarter and six months were
both 8% lower 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 1997 because of the Company's
ongoing share repurchase program.
Domestic Operations
Net sales for the second quarter ended June 30, 1997 for the Company's
domestic operations, which includes export shipments to various Latin and
South American countries and some Asian areas, were 5% higher than the
same period last year on a 6% increase in unit volume. For the six
months, sales and unit volume were 3% and 4% higher, respectively, than
the same period last year. The increases in net sales were lower than the
respective increases in unit volume because of lower equipment sales.
Gross margin for the Company's domestic operations was approximately two
percentage points higher than last year for both the second quarter and
six months to-date. The increase in gross margin was due to a combination
of favorable product mix and favorable manufacturing absorption. Raw
material costs were basically even with last year.
Operating expenses for the quarter and six months were 10% and 8% higher,
respectively, than the same periods last year. The majority of the
increases in operating expenses resulted from increased staffing,
primarily in the sales and marketing areas, R&D 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 increased approximately 4% and 8% for the
quarter and six months, respectively, compared to the same periods last
year due to the increase in gross profit margin, more than offsetting the
higher operating expenses.
European Operations
Sales for the second quarter ended June 30, 1997, for the Company's
European operations were 4% lower than the same period last year on a 7%
increase in unit volume. Unit volume for the six months to-date equaled
the volume for the same period last year, but sales were 7% lower. When
stated in local currency, however, sales for the second quarter and six
months to-date were 9% and 4% higher, respectively, than the same periods
last year. The relative strong performance of the U.S. dollar is
reflected in the negative effect of exchange rates used to translate local
currency denominated results into U.S. dollars. The sales increase, in
local currency, for the second quarter was mainly due to special programs
in the Scandinavian countries.
Gross margin for the Company's European operations for the second quarter
ended June 30, 1997 was approximately five percentage points lower than
the same period last year. The lower gross margin resulted from a seven
day manufacturing plant shut-down to adjust inventory to match current
demand levels. This was also the reason for the gross margin for the six
months to-date being two percentage points lower than last year.
Operating expenses for the second quarter increased 20% over the same
period last year and were 18% higher for the six months to-date. These
expenses, when stated in local currency, were 14% and 23% 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 and promotional programs, and increased staffing. The percentage
differences between the U.S. dollar and local currency percentages
reflects the impact of a less favorable exchange rate used to translate
into U.S. dollars.
Earnings before income taxes for the second quarter and six months to-date
were 176% and 161%, respectively, lower than the same periods last year
due to the combination of lower gross margin and higher operating
expenses.
Other Foreign Operations
Combined sales for the Company's other foreign operations increased 5% for
both the second quarter and six months to-date over the same periods last
year on unit volume increases of 6% and 7%, respectively. Sales for the
Company's Brazil operation for the second quarter and six months to-date
ended June 30, 1997 were 6% and 9% higher, respectively, than the same
periods last year on respective unit volume increases of 10% and 15%.
Sales for the Company's Mexico operation for the quarter and six months
to-date were 26% and 42% higher, respectively, than the same periods last
year on respective unit volume increases of 22% and 28%, respectively.
Sales and unit volume for the Company's South Africa operation continue to
be impacted by the cancellation of its largest dealer, with sales for the
quarter and six months to-date 40% lower than the same periods last year
on decreases in unit volume of 42% and 38% for the quarter and six months
to-date, respectively.
Combined second quarter gross margin for the Company's other foreign
operations was approximately two percentage points lower than last year
for both the quarter and six months to-date due to lower production by the
Company's South Africa operation.
Combined operating expenses for the quarter and six months for the
Company's other foreign operations were 22% and 29% higher, respectively,
than the same periods last year. The higher operating expenses for both
the quarter and six months included higher spending on sales and marketing
promotional programs, increased staffing, and professional fees.
Earnings before income taxes for the second quarter and six months were
13% and 28% lower than the same periods last year due to the increased
operating expenses and the lower South Africa sales volume.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the six months ended June
30, 1997, was $17.2 million less than the amount for the same period last
year. The lower earnings and a $12.5 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 $17.8 million for the six
months ended June 30, 1997, compared to $16 million for the same period
last year. 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 $1.2 million
during the six months, bringing total investments to $3.3 million at
June 30, 1997.
Financing Activities.
Cash dividends totaled $5.7 million and $11.4 million for the quarter and
six months, respectively, compared to totals of $5.4 million and $10.8
million for the same periods last year. The Company purchased 47,000
shares of its outstanding Common and Class A Common stock, at prevailing
market prices, for $2.2 million during the second quarter bringing the six
month total to $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.
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 6, 1997.
(c) Two matters were voted upon at the annual meeting. First, the
following two nominees, both of whom were incumbent directors,
were elected as directors for a three-year term ending in 2000
by the following vote:
Votes Broker
Name Votes For Against Abstentions Non-Votes
Robert T. Blanchard 29,007,523 241,594 22,543 - 0 -
R. Stephen Newman 29,086,492 179,484 5,684 - 0 -
The other matter voted upon was a proposal to ratify the
selection of Ernst & Young LLP as independent auditors of the
Company for the year ending December 31, 1997. The shareholders
ratified the selection by the following vote:
Votes For Votes Against Abstentions Broker Non-Votes
29,252,908 8,940 9,812 - 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, 1997.
<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: August 12, 1997 \s\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive Officer
Date: August 12, 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
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
For The Three For The Six
Months Ended Months Ended
June, 30 June, 30
1997 1996 1997 1996
(In thousands except per share data)
<S> <C> <C> <C> <C>
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 22,792 24,020 22,849 24,091
Additional shares assuming exercise
of dilutive stock options -based on
treasury stock method using average
market price 106 103 103 128
------- ------- ------- -------
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 22,898 24,123 22,952 24,219
======= ======= ======= =======
Net earnings $17,560 $20,094 $31,300 $35,960
======= ======= ======= =======
Net earnings per common and common
equivalent share $ 0.76 $0.83 $1.36 $1.48
======= ======= ======= =======
Net earnings per common share assuming
full dilution:
Weighted average shares outstanding 22,792 24,020 22,849 24,091
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 106 103 106 128
------- -------- -------- -------
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES 22,898 24,123 22,955 24,219
======= ======== ======== =======
Net earnings $17,560 $20,094 $31,300 $35,960
======= ======== ======== =======
Net earnings per common and common
equivalent share $ 0.76 $0.83 $1.36 $1.48
======= ======== ======== =======
</TABLE>
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,886
<SECURITIES> 3,261
<RECEIVABLES> 206,214
<ALLOWANCES> 13,056
<INVENTORY> 62,788
<CURRENT-ASSETS> 349,602
<PP&E> 402,270
<DEPRECIATION> 256,122
<TOTAL-ASSETS> 618,405
<CURRENT-LIABILITIES> 132,489
<BONDS> 11,664
0
0
<COMMON> 22,780
<OTHER-SE> 4,199
<TOTAL-LIABILITY-AND-EQUITY> 618,405
<SALES> 365,266
<TOTAL-REVENUES> 370,844
<CGS> 215,851
<TOTAL-COSTS> 215,851
<OTHER-EXPENSES> 103,268
<LOSS-PROVISION> 825
<INTEREST-EXPENSE> 957
<INCOME-PRETAX> 50,768
<INCOME-TAX> 19,468
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,300
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
</TABLE>
