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, 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 (Zip Code)
offices)
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 - 9,723,675 shares as of April 30, 1997.
Class A Common Stock, $1 par value - 11,004,909 shares as of April 30,
1997. Class B Common Stock, $1 par value - 2,051,320 shares as of
April 30, 1997.
Page 1 of 14
<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 Sheets 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 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 1 - Financial Statements:
Unaudited Condensed Consolidated Statements of Earnings
(In thousands except per
share data)
Three Months Ended
3/31/97 3/31/96
Net sales $169,518 $170,303
Other income 3,007 3,734
________ ________
172,525 174,037
Cost of products sold 100,549 104,008
Engineering, selling,
administrative and other
expenses 49,279 44,053
Interest expense 407 286
________ ________
150,235 148,347
________ ________
Earnings before income taxes 22,290 25,690
Income taxes 8,550 9,824
________ ________
Net Earnings $ 13,740 $ 15,866
======== ========
Net earnings per share $ 0.60 $ 0.65
Cash dividends per share $ 0.250 $ 0.225
Depreciation included in expense $ 8,194 $ 8,327
Average shares outstanding 23,004 24,301
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1997 1996
ASSETS:
Cash and cash equivalents $ 45,282 $ 31,453
Investments 2,179 2,089
Accounts receivable - net 184,335 206,732
Inventories:
Finished products 47,001 44,704
Materials & work-in-process 19,315 14,228
_______ ______
66,316 58,932
Other current assets 44,698 42,494
______ ______
Total current assets 342,810 341,700
Property, plant, and equipment 396,723 394,592
Less accumulated depreciation &
amortization (251,764) (249,457)
______ ______
144,959 145,135
Marketable equity securities, at
market value 88,914 79,035
Other assets 16,999 22,472
______ ______
Total assets $593,682 $588,342
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 24,239 $ 28,744
Income taxes payable 15,044 12,254
Accrued employee compensation and
benefits 20,474 23,532
Accrued marketing expenses 28,999 32,872
Other accrued expenses 44,402 39,807
Short-term notes payable and other
liabilities 2,252 2,005
_______ ______
Total current liabilities 135,410 139,214
Deferred income tax and other
liabilities 43,019 38,261
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding -
9,746,005 shares in 1997;
9,842,861 in 1996 9,746 9,843
Class A Common stock; $1 par
value; authorized - 50,000,000
shares;
Issued and outstanding -
11,030,269 shares in 1997;
11,027,759 in 1996 11,030 11,028
Class B Common stock; $1 par
value; authorized - 8,500,000
shares;
Issued and outstanding -
2,051,350 shares in 1997;
2,051,984 in 1996 2,051 2,052
Additional paid-in capital 4,259 4,069
Retained earnings 358,711 355,663
Unrealized gain on securities 39,898 33,854
Equity adjustment from foreign
currency translation (10,442) (5,642)
______ ______
Total equity 415,253 410,867
______ ______
Total liabilities &
stockholders' equity $593,682 $588,342
====== ======
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
3/31/97 3/31/96
Operating Activities
Net earnings $ 13,740 $ 15,866
Depreciation and amortization 8,443 8,576
Increase in operating assets and
liabilities-net 10,281 16,123
______ ______
Net cash provided by operating
activities 32,464 40,565
Investing Activities
Additions to property, plant and
equipment (8,018) (7,476)
Purchases of investments (604) (9,629)
Maturities of investments 514 6,308
______ ______
Net cash used in investing
activities (8,108) (10,797)
Financing Activities
Proceeds from short-term notes
payable 1,118 ---
Principal payments on short-term
notes payable and other liabilities (162) (335)
Cash dividends (5,732) (5,446)
Purchases of Common Stock (5,114) (24)
______ ______
Net cash used in financing
activities (9,890) (5,805)
Effect of exchange rate changes on cash
and cash equivalents (637) (451)
______ ______
Increase in cash and cash equivalents 13,829 23,501
Cash and cash equivalents at beginning
of year 31,453 31,017
_____ ______
Cash and cash equivalents at end of
period $ 45,282 $ 54,529
====== ======
<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 three months ended March 31, 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 first quarter ended March 31, 1997 or March 31,
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.
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, 1997 were
basically even with the same period last year on a two percent increase in
unit volume. When comparing this year to last year one needs to take into
consideration that, as reported in previous quarters, the Company's sales
in both periods were impacted by having to replace two of its larger
franchisees. The impact of the lower translated value of the Company's
foreign currency denominated sales and lower retread equipment sales
account for the difference between the percentage increase in consolidated
net sales and that for unit volume.
Consolidated gross margin for the first quarter ended March 31, 1997 was
approximately two percentage points higher than last year. This was
mostly due to improved gross margins in the Company's domestic operations
as gross margins for the Company's foreign operations, in total, were
about even with the same period last year.
Consolidated operating expenses for the first quarter ended March 31, 1997
were 12% higher than the same period last year. The majority of this
increase was a result of spending for additional personnel and improved
processes to achieve the capabilities needed to meet the Company's goals
for building a strategic alliance with its dealers and its customers. The
Company expects the higher spending level relative to sales to continue at
least through 1997.
Consolidated net earnings and net earnings per share for the first quarter
ended March 31, 1997 were 13% and 8% lower, respectively, than the same
period last year due to the reasons cited above. 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 1997 as a
result of the Company's ongoing share repurchase program.
Domestic Operations
Net sales for the quarter ended March 31, 1997 for the Company's domestic
operations, which includes export shipments to various Latin and South
American countries and some Asian areas, were approximately 1% higher than
the same period last year on a 2% increase in unit volume. The increase
in sales was less than the increase in unit volume because of lower
equipment sales, and an unfavorable sales mix of other retreating supply
items.
First quarter raw material costs were basically even with last year, but
gross margin was approximately two percentage points higher due primarily
to favorable manufacturing absorption from higher production volume.
Operating expenses for the first quarter were 6% higher than the same
period last year and approximately one percentage point higher as a
percent of sales. The majority of the increased operating expenses were
for sales and marketing personnel and for process improvements related to
building the Company's strategic alliance with its dealers and customers.
First quarter earnings before income taxes increased approximately 14%
compared to last year due to the improved gross profit, partially offset
by the increase in operating expenses.
European Operations
Sales for the first quarter ended March 31, 1997 for the Company's
European operations were 10% lower than the same period last year on a 6%
decrease in unit volume. Sales were approximately eight percentage points
lower in U.S. dollars than in local currencies because of lower exchange
rates resulting from the stronger U.S. dollar during the period. The
lower volume was due to the continued economic slowdown in some of the
larger volume countries that are served by the Company's European
operations. In local currency, sales were only 2% lower than last year
with higher selling prices initiated in 1996 accounting for the difference
between the percentages for sales revenue and unit volume.
Gross margin for the Company's European operations for the first quarter
was basically even with last year with lower raw material costs offset by
unfavorable overhead absorption as a result of lower production levels.
Operating expenses for the first quarter increased 15% over the same
period last year primarily due to increased spending for staffing, higher
marketing programs and promotional programs.
Earnings before income taxes for the first quarter were 143% lower than
the same period last year primarily due to the combination of lower gross
profit and higher operating expenses.
Other Foreign Operations
Sales for the Company's other combined foreign operations for the first
quarter ended March 31, 1997 were approximately 5% higher than the same
period last year on an 8% increase in unit volume. The sales increase was
primarily due to unit volume increases in both Brazil and Mexico, 21% and
35%, respectively, partially offset by a sales decrease in South Africa
caused by having to replace the Company's largest dealer in that country.
First quarter gross margin for the Company's other foreign operations, on
a combined basis, was approximately one percentage point lower than the
same period last year.
First quarter combined operating expenses for the Company's other foreign
operations increased 38% over the same period last year. The majority of
the increase was due to higher spending in Brazil related to government
mandated benefit increases and overall increases in Brazilian advertising
and sales promotional expenses, combined with overall inflationary
increases in most other foreign geographic areas.
Earnings before income taxes for the quarter decreased approximately 42%
from the same period last year due to lower earnings in New Zealand (last
year included a sizable gain on the sales of assets) and the impact of the
loss of South Africa's largest dealer.
Financial Condition
Operating Activities.
Net cash provided by operating activities for the first quarter ended
March 31, 1997 was $8.1 million less than in the same period last year
with changes in operating assets and liabilities accounting for $5.8
million of this total.
Investing Activities.
The Company spent $8 million on capital expenditures in the first quarter
which was slightly higher than last year's disbursements during 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 maturities of investments were approximately equal to
purchases during the quarter, leaving total investments at $2.1 million as
of March 31, 1997.
Financing Activities.
Cash dividends totaled $5.7 million for the first quarter compared to $5.4
million last year. The Company purchased $5.1 million of Common Stock and
Class A Common Stock during the quarter ended March 31, 1997. Purchases
in the first quarter last year were immaterial. Both cash dividends and
stock purchases were funded from the Company's operating cash flows.
The Company has approximately $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 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, 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: May 13, 1997 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive
Officer
Date: May 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 13
27 Financial Data Schedule 14
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For the Three
Months Ended
March 31
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 22,900 24,191
Additional shares assuming
exercise of dilutive stock
options - based on treasury
stock method using average market
price 104 110
_______ _______
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES 23,004 24,301
======= =======
Net earnings $13,740 $15,866
======= =======
Net earnings per common and common
equivalent share $0.60 $0.65
======= =======
Net earnings per common share
assuming full dilution:
Weighted average shares
outstanding 22,900 24,191
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 106 111
______ _______
FULLY-DILUTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES 23,006 24,302
======= =======
Net earnings $13,740 $15,866
======= =======
Net earnings per common and common
equivalent share $0.60 $0.65
======= =======
<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 SHEET OF THE REGISTRANT FOR THE THREE
MONTHS ENDED MARCH 31, 1997 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 45,282
<SECURITIES> 2,179
<RECEIVABLES> 198,104
<ALLOWANCES> 13,769
<INVENTORY> 66,316
<CURRENT-ASSETS> 342,810
<PP&E> 396,723
<DEPRECIATION> 251,764
<TOTAL-ASSETS> 593,682
<CURRENT-LIABILITIES> 135,410
<BONDS> 9,709
0
0
<COMMON> 22,827
<OTHER-SE> 392,426
<TOTAL-LIABILITY-AND-EQUITY> 593,682
<SALES> 169,518
<TOTAL-REVENUES> 172,525
<CGS> 100,549
<TOTAL-COSTS> 100,549
<OTHER-EXPENSES> 49,279
<LOSS-PROVISION> 426
<INTEREST-EXPENSE> 407
<INCOME-PRETAX> 22,290
<INCOME-TAX> 8,550
<INCOME-CONTINUING> 13,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,740
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
