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, 1999
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; 9,085,432 shares as of July 31, 1999.
Class A Common Stock, $1 par value; 10,781,844 shares as of July 31, 1999. Class
B Common Stock, $1 par value; 2,045,812 shares as of July 31, 1999.
Page 1 of 19
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BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II : OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
EXHIBITS :
Exhibit 27 - Financial Data Schedule (EDGAR filing only) 19
Exhibit 27.1 - Revised June 1998 Financial Data
Schedule (with EDGAR filing only) 20
Page 2
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BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item l - Financial Statements:
Unaudited Condensed Consolidated Statements of Earnings
Three Months Ended Six Months Ended
June 30, June 30,
In thousands, except per share data 1999 1998 1999 1998
-------- -------- -------- ----------
Net sales $252,120 $266,127 $476,258 $502,058
Other income 2,733 3,954 5,430 7,795
-------- -------- -------- --------
254,853 270,081 481,688 509,853
Cost of products sold 153,328 163,556 288,526 308,740
Engineering, selling,
administrative and other expenses 70,994 77,204 143,055 153,797
Interest expense 2,435 3,295 4,999 5,676
-------- -------- -------- --------
226,757 244,055 436,580 468,213
-------- -------- -------- --------
Earnings before income taxes 28,096 26,026 45,108 41,640
Income taxes 11,970 11,858 18,945 18,322
-------- -------- -------- --------
Net earnings $ 16,126 $ 14,168 $ 26,163 $ 23,318
======== ======== ======== ========
Net earnings per share - Basic $ .74 $ 0.62 $ 1.20 $ 1.02
Net earnings per share - Diluted $ .73 $ 0.62 $ 1.19 $ 1.02
Comprehensive net earnings $ 16,252 $ 14,703 $ 12,365 $ 25,348
Cash dividends per share $ 0.2850 $ 0.2750 $ 0.5700 $ 0.5500
Depreciation included in expense $ 10,498 $ 8,470 $ 20,146 $ 19,370
Goodwill amortization included
in expense $ 2,483 $ 2,200 $ 4,905 $ 4,440
Weighted average shares
outstanding:
Basic 21,873 22,784 21,890 22,784
Diluted 21,941 22,907 21,964 22,903
See notes to condensed consolidated financial statements.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
In thousands June 30, December 31,
1999 1998
-------- --------
ASSETS:
Cash and cash equivalents $ 61,355 $ 37,912
Investments 8,942 9,721
Accounts receivable - net 193,582 217,299
Inventories:
Finished products 102,923 96,889
Materials & work-in-process 17,729 14,845
-------- --------
120,652 111,734
Other current assets 61,851 62,458
-------- --------
Total current assets 446,382 439,124
Property, plant, and equipment 491,522 503,745
Less accumulated depreciation & amortization (289,506) (290,699)
-------- --------
202,016 213,046
Intangible assets 71,105 75,539
Other assets 25,514 28,020
-------- --------
Total assets $745,017 $755,729
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 29,485 $ 38,286
Income taxes payable 20,640 13,704
Accrued employee compensation and benefits 25,098 27,498
Accrued marketing expenses 30,921 37,044
Other accrued expenses 48,727 46,880
Short-term notes payable and other liabilities 5,261 11,497
-------- --------
Total current liabilities 160,132 174,909
Long-term debt and other obligations 109,675 109,757
Deferred income tax liabilities 9,157 3,766
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
issued and outstanding - 9,085,232 shares
in 1999; 9,083,797 in 1998 9,085 9,084
Class A Common stock; $1 par value;
authorized - 50,000,000 shares;
issued and outstanding - 10,781,844 shares
in 1999; 10,824,974 in 1998 10,782 10,825
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
issued and outstanding - 2,046,012 shares
in 1999; 2,046,577 in 1998 2,046 2,047
Additional paid-in capital 7,336 7,287
Retained earnings 464,822 452,274
Equity adjustment from foreign currency
translation (28,018) (14,220)
-------- --------
Total equity 466,053 467,297
-------- --------
Total liabilities & stockholders' equity $745,017 $755,729
======== ========
See notes to condensed consolidated financial statements.
Page 4
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BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
In thousands Six Months Ended
June 30,
1999 1998
------- -------
Operating Activities
Net earnings $ 26,163 $ 23,318
Provision for depreciation and amortization 25,051 23,810
Increase in operating assets and
liabilities-net 13,992 617
-------- --------
Net cash provided by operating activities 65,206 47,745
Investing Activities
Additions to property, plant and equipment (18,153) (28,453)
Purchases of investments (6,459) (19,206)
Maturities of investments 7,238 3,513
Payments for acquisitions of businesses (1,698) (4,550)
-------- ---------
Net cash used in investing activities (19,072) (48,696)
Financing Activities
Proceeds from short-term notes payable - 2,576
Proceeds from long-term notes payable 59 -
Principal payments on short-term notes payable
and other liabilities (6,225) (98,335)
Cash dividends (12,475) (12,548)
Purchases of Common Stock and
Class A Common Stock (1,196) (405)
-------- --------
Net cash used in financing activities (19,837) (108,712)
Effect of exchange rate changes on cash and
cash equivalents (2,854) (835)
-------- --------
Increase (decrease) in cash and cash equivalents 23,443 (110,498)
Cash and cash equivalents at beginning of year 37,912 196,400
-------- --------
Cash and cash equivalents at end of period $ 61,355 $ 85,902
======== ========
See notes to condensed consolidated financial statements.
Page 5
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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 six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. 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, 1998.
Comprehensive Net Earnings
Comprehensive net earnings for the three month periods ended June 30, 1999 and
1998 and the six month periods ended June 30, 1999 and 1998 were as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
Net earnings $ 16,126 $ 14,168 $ 26,163 $ 23,318
Other comprehensive income item:
Foreign currency translation 126 535 (13,798) 2,030
-------- -------- -------- --------
Comprehensive net earnings $ 16,252 $ 14,703 $ 12,365 $ 25,348
======== ======== ======== ========
Tire Distribution Systems, Inc. (TDS) Operating Results
TDS results for the three month periods ended June 30, 1999 and 1998 and the six
month periods ended June 30, 1999 and 1998 were as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $ 97,600 $ 96,630 $182,213 $176,280
Goodwill amortization 2,440 1,952 4,818 3,908
Earnings (loss) before interest
and income taxes 842 2,060 (1,054) 1,002
Intercompany sales from Traditional
Business to TDS which have been
eliminated in consolidation $ 13,935 $ 12,934 $ 26,556 $ 25,293
Page 6
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BANDAG, INCORPORATED AND SUBSIDIARIES
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- ------
Numerator:
Net Earnings $16,126 $14,168 $26,163 $23,318
Denominator:
Denominator for basic earnings
per share-weighted-average shares 21,873 22,784 21,890 22,784
Effect of dilutive securities:
Non-vested restricted stock 40 33 41 32
Stock options 28 90 33 87
------- ------- ------- ------
Dilutive potential common shares 68 123 74 119
------- ------- ------- ------
Denominator for diluted earnings
per share-weighted-average
shares and dilutive potential
common shares 21,941 22,907 21,964 22,903
======= ======= ======= =======
Net Earnings Per Share:
Basic $ .74 $ 0.62 $ 1.20 $ 1.02
======= ======= ======= =======
Diluted $ .73 $ 0.62 $ 1.19 $ 1.02
======= ======= ======= =======
Page 7
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BANDAG, INCORPORATED AND SUBSIDIARIES
Operating Segment Information
The Company has two operating segments: the Traditional Business and TDS. The
Traditional Business manufactures precured tread rubber, equipment and supplies
for retreading tires and operates on a worldwide basis. TDS operates franchised
retreading locations and commercial, retail, and wholesale outlets throughout
the United States for the sale and maintenance of new and retread tires to
principally commercial and industrial customers.
The Company evaluates performance and allocates resources based primarily on
profit or loss before interest and income taxes. Intersegment sales and
transfers between the Traditional Business and TDS are recorded at a value
consistent with that to unaffiliated customers.
For the three months ended June 30 (in thousands):
<TABLE>
<CAPTION>
Traditional Business
------------------------------------------------------------------------------------
North America Europe Latin America Asia TDS
-------------------- -------------------- --------------------- -------------------- ---------------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $98,344 $105,000 $23,435 $23,800 $26,350 $33,623 $6,391 $7,074 $97,600 $96,630
Transfers between
segments 17,491 16,240 189 208 - - - - - -
Operating earnings 21,703 23,528 3,761 735 4,385 4,979 826 (1,199) 842 2,060
Interest revenue - - - - - - - - - -
Interest expense - - - - - - - - - -
Corporate expenses - - - - - - - - - -
--------- ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- ----------
Earnings before
income taxes $21,703 $23,528 $3,761 $735 $4,385 $4,979 $826 $(1,199) $842 $2,060
<CAPTION>
For the six months ended June 30 (in thousands):
Traditional Business
------------------------------------------------------------------------------------
North America Europe Latin America Asia TDS
-------------------- -------------------- --------------------- -------------------- ---------------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $184,638 $199,995 $47,517 $48,636 $49,277 $63,321 $12,613 $13,826 $182,213 $176,280
Transfers between
segments 33,233 31,935 469 513 - - - - - -
Operating earnings 36,614 39,041 7,007 3,168 8,506 9,526 1,721 (4,650) (1,054) 1,002
Interest revenue - - - - - - - - - -
Interest expense - - - - - - - - - -
Corporate expenses - - - - - - - - - -
--------- ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- ----------
Earnings before
income taxes $36,614 $39,041 $7,007 $3,168 $8,506 $9,526 $1,721 $(4,650) $(1,054) $1,002
<PAGE>
<CAPTION>
Corporate Consolidated
-------------------- --------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales to
unaffiliated
customers - - $252,120 $266,127
Transfers between
segments - - 17,680 16,448
Operating earnings - - 31,517 30,103
Interest revenue 1,745 2,471 1,745 2,471
Interest expense (2,435) (3,295) (2,435) (3,295)
Corporate expenses (2,731) (3,253) (2,731) (3,253)
--------- ---------- ---------- ---------
Earnings before
income taxes $(3,421) $(4,077) $28,096 $26,026
<CAPTION>
For the six months ended June 30 (in thousands):
Corporate Consolidated
-------------------- --------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales to
unaffiliated
customers - - $476,258 $502,058
Transfers between
segments - - 33,702 32,448
Operating earnings - - 52,794 48,087
Interest revenue 3,269 4,913 3,269 4,913
Interest expense (4,999) (5,676) (4,999) (5,676)
Corporate expenses (5,956) (5,684) (5,956) (5,684)
--------- ---------- ---------- ---------
Earnings before
income taxes $(7,686) $(6,447) $45,108 $41,640
</TABLE>
Page 8
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BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 -Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Results include both the Company's Traditional Business and Tire Distribution
Systems, Inc. (TDS).
Consolidated net sales for the quarter and year-to-date ended June 30, 1999,
were both 5% lower than the prior year periods. Traditional Business net sales
were 8% and 9% below the prior year quarter and year-to-date periods,
respectively. Of these decreases, approximately 5 percentage points were a
result of the lower translated value of the Company's
foreign-currency-denominated sales. The remaining decreases resulted from lower
equipment sales and a 7% and 6% decline in retread material unit volume from the
prior year quarter and year-to-date periods, respectively. The Traditional
Business sales decline was primarily due to intense competitive pressures and
industry consolidation in the United States, which is expected to continue
throughout 1999. In addition, the Company has recently experienced some dealer
separations in the United States which has also negatively impacted sales
volume. The decline in Traditional Business sales was slightly offset by a 1%
and 3% increase in TDS sales over the prior year quarter and year-to-date
periods, respectively. The Company's seasonal sales pattern, which is tied to
trucking activity, was similar to second quarters in previous years in that it
is seasonally stronger than the first quarter for both sales and earnings. Both
business segments were similarly affected.
Gross profit margin for the Company's Traditional Business increased by 1.4
percentage points over the prior year-to-date period due to lower raw material
costs in the U.S., Brazil, and Mexico. In the U.S., raw material costs decreased
7% from the prior year-to-date period. The consolidated gross profit margin
increased by .9 percentage points over the prior year-to-date period, a lower
increase than seen in the Traditional Business due to the inclusion of the TDS
operations whose gross margin increased 1 percentage point.
Consolidated operating and other expenses for the quarter and year-to-date ended
June 30, 1999 decreased 8% and 7% from the prior quarter and year-to-date
periods, respectively. Despite a decline in unit volume for the quarter and
year-to-date periods ended June 30, 1999, consolidated earnings improved 14% and
12% from the prior year periods, respectively. The earnings improvement is
attributable to the decreases in operating and other expenses for the
Traditional Business, particularly in Europe. Earnings benefited from progress
in efforts to return operating expenses to a more traditional level and the
absence of a $3.4 million foreign exchange transaction loss, net of related
hedge gains, on the Indonesian rupiah that existed in the prior year-to-date
period. The improved earnings resulted in diluted earnings per share of $.73 and
$1.19 for the quarter and year-to-date ended June 30, 1999, up from $.62 and
$1.02 in the prior year periods, respectively.
Page 9
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BANDAG, INCORPORATED AND SUBSIDIARIES
TRADITIONAL BUSINESS
The Company's Traditional Business operations located in the United States and
Canada are integrated and managed as one unit, which is referred to internally
as North America. Net sales in North America for the quarter ended June 30, 1999
were 4% below the prior year period due to 6% lower retread material unit volume
and a 44% decline in equipment sales. The North American year-to-date sales
experienced very similar results with a 6% sales decline over the prior year
period attributable to a 6% decline in retread material unit volume and a 42%
decline in equipment sales. The North American sales decline was also due to
intense competitive pressures and industry consolidation in the United States,
which is expected to continue throughout 1999 as well as some dealer
terminations in the United States. The decreases in raw material costs during
the year have improved North America's gross profit margin by 1.5 percentage
points over the prior year-to-date period. North American operating expenses for
the quarter ended June 30, 1999 were 20% lower than the prior year period due to
decreases in R&D projects, promotional expenses, and personnel related costs. As
a result of the lower sales, earnings before income taxes for the quarter and
year-to-date decreased 8% and 6% from the prior year periods.
The Company's operations located in Europe principally service markets in
European countries, but also export to certain other countries in the Middle
East and Northern and Central Africa. This collection of countries is under one
management group and is referred to internally as Europe. Net sales in Europe
for the quarter ended June 30, 1999 declined 2% from the prior year period on a
retread material unit volume increase of 2% over the prior year period. The 4
percentage point spread between the net sales decrease and the retread material
unit volume increase is due to a lower translated value of the Belgian franc and
a 45% decrease in equipment sales. Europe's year-to-date retread material unit
volume decreased 3% from the prior year period, resulting in a 2% decline in net
sales from the same prior year period. The spread between Europe's year-to-date
net sales decrease and retread material unit volume decrease is due to the
higher translated value of the Belgian franc which was partially offset by a
decrease in equipment sales. Gross profit margin for year-to-date ended June 30,
1999 decreased 1.5 percentage points from the prior year period due to expenses
related to the termination of agreements with an equipment supplier. Operating
expenses for the quarter and year-to-date ended June 30, 1999 decreased 23% and
19% from the prior year periods, respectively, due to lower personnel related
and marketing program costs. Principally as a result of the lower operating
expenses, earnings before income taxes for the quarter and year-to-date ended
June 30, 1999 increased by 412% and 121% over the prior year periods,
respectively.
The Company's exports from North America to markets in the Caribbean, Central
America and South America, along with operations in Brazil, Mexico, Venezuela
and South Africa are combined under one management group referred
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BANDAG, INCORPORATED AND SUBSIDIARIES
to internally as Latin America. Net sales in Latin America for both the quarter
and year-to-date ended June 30, 1999 declined 22% from the prior year periods on
a retread material unit volume decrease of 5% and 7% from the prior year
periods, respectively. The spread between the decrease in net sales and the
decrease in material unit volume for the quarter and year-to-date periods is
mainly due to the lower translated value of foreign currency, particularly the
Brazilian real, and the decrease in equipment sales in Brazil. The gross profit
margin for the quarter ended June 30, 1999 increased by 2.8 percentage points
over the prior year period due to a reduction in raw material and production
costs in Brazil and Mexico. Operating expenses for both the quarter and
year-to-date ended June 30, 1999 declined 4% from the prior year periods mainly
due to the real devaluation in Brazil and the lower translated value of other
foreign currencies. In local currency, Brazil operating expenses for the quarter
and year-to-date were 31% and 38% above prior year periods, respectively, due in
part to increases in global support for managerial and administrative
activities. Principally because of the lower sales, earnings before income taxes
for the quarter and year-to-date ended June 30, 1999 were 12% and 11% below the
prior year periods, respectively.
The Company's exports from North America to markets in Asian countries, along
with operations in New Zealand, Indonesia and Malaysia and a licensee in
Australia are combined under one management group referred to internally as
Asia. Net sales in Asia for the quarter and year-to-date ended June 30, 1999
declined 10% and 9% from the prior year periods on a 6% and 2% decrease in
retread material unit volume, respectively. The spread between the decrease in
net sales and the decrease in retread material unit volume for the quarter and
year-to-date periods is due to lower exported equipment sales, reduced new tire
sales in New Zealand, and the lower translated value of foreign currencies.
Lower raw material costs in Malaysia were offset by the higher cost of imported
retread materials, resulting in the gross profit margin for the quarter and
year-to-date ended June 30, 1999 being down .7 and .4 percentage points from the
prior year periods, respectively. Operating expenses for the quarter and
year-to-date declined 38% and 45% from the prior year periods, respectively,
mainly due to the restructuring done in the prior year which reduced personnel
related costs and managerial and administrative support costs. Principally
because of the absence of a $3.4 million foreign exchange transaction loss, net
of related hedge gains, on the Indonesian rupiah that existed in the prior
year-to-date period and lower operating expenses, earnings before income taxes
for the quarter and year-to-date were 169% and 137% above the prior year
periods, respectively.
TIRE DISTRIBUTION SYSTEMS, INC.
Net sales for the quarter were $97,600,000, an increase of 1% over the prior
year period. On a "same store" basis, sales declined 4% from the prior year
period. From an operating perspective, TDS continued to make progress in
integrating the dealerships it has acquired since 1997. TDS operating expenses
for the quarter and year-to-date were 7% and 11% above
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BANDAG, INCORPORATED AND SUBSIDIARIES
the prior year periods, respectively, with much of the increase attributable to
acquisitions made in 1998. Actions to bring operating expenses down to
acceptable levels include the consolidation of the Central Division office into
the Eastern Division headquarters. Due to higher than expected operating
expenses, earnings before interest and taxes for the quarter and year-to-date
ended June 30, 1999 declined 59% and 205% from the prior year periods,
respectively.
IMPACT OF YEAR 2000
The Company operates with a combination of purchased and internally developed
software systems. Many of the older computer systems were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations. The Company will be required
to modify or replace software that is not Year 2000 compliant so that its
computer systems will function properly with respect to dates related to the
Year 2000.
Purchased software systems account for a significant portion of the Company's
global software environment, especially for date-sensitive applications such as
payroll and accounts receivable. The Company has performed inventories in recent
years to identify clearly non-compliant software systems and to initiate
replacement activities.
The Company has completed its assessment of the Year 2000 issue in North America
and the Company anticipates finishing its Year 2000 remediation process for
mission critical mainframe and mid-range applications by fourth quarter 1999,
although work to address cosmetic changes for non-failure date usage could
extend into first quarter 2000. Plans call for client-server technology to be
compliant by third quarter 1999, communication and network-technology to be
compliant by third quarter 1999 and desktop technology to be compliant by
year-end 1999. Required changes outside of the information systems area should
not be significant.
The installed base for the Company's software outside of North America consists
primarily of purchased commercial software, or applications written after 1990
which were written Year 2000 compliant. The assessment process has been
completed for all locations and all identified compliance issues have been
addressed.
The Company is shifting new software development efforts to the client-server
platform, and has so far been able to obtain sufficient resources in this area,
but mainframe development resources remain in short supply and this will affect
development on this platform into the Year 2000. This delay has not, to this
point, significantly affected the Company's business initiatives.
The costs related to the Year 2000 issue are expected to total
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BANDAG, INCORPORATED AND SUBSIDIARIES
approximately $12,700,000. To date, $9,100,000 of this amount has been spent and
contracts and purchase orders have been executed for an additional $1,900,000.
The Company expects approximately 50% of total costs, which are for contracted
services, to be recorded as current expense and the remaining half of the costs,
which are to replace hardware and software and upgrade existing hardware, to be
capitalized.
The Company presently believes that with a combination of actions, including
modification of existing software, conversion to newer versions of purchased
software and replacement with new systems, the Year 2000 issue will not pose
significant operational problems for its computer systems. On the other hand, if
such modifications and conversions are not made or are not completed on a timely
basis, the Year 2000 issue could have a material impact on the operations of the
Company. In addition to remediation actions, the Company's contingency plans
will be reviewed and updated to address Year 2000 risks.
During 1999, the Company will continue to have formal communications with its
significant suppliers and large customers to determine the extent to which the
Company's activities would be impacted by those third parties' failure to
remediate their own Year 2000 issues. However, there can be no guarantee that
the systems of other companies on which the Company relies will be corrected on
a timely basis and therefore have no adverse effect on the Company.
The Company has assessed its own products to determine if it has exposure to
contingencies related to the Year 2000 issue and it believes any such exposure
will not be material.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the six months ended June 30,
1999, was $17,461,000 more than the amount for the same period last year
primarily due to a decrease in accounts receivable offset by other working
capital items.
Investing Activities.
The Company spent $18,153,000 on capital expenditures as of June 30, 1999,
compared to $28,453,000 spent for the same period last year. The Company
typically funds its capital expenditures from operating cash flow. The Company
has spent $1,698,000 on tire dealership acquisitions as of June 30, 1999,
compared to $4,550,000 spent for the same period last year.
The Company's excess funds are invested in financial instruments with various
maturities, but only instruments with an original maturity date of
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BANDAG, INCORPORATED AND SUBSIDIARIES
over 90 days are classified as investments for balance sheet purposes. The
Company's maturities of investments exceeded purchases by $779,000 during the
six months, reducing total investments to approximately $8,942,000 as of June
30, 1999.
Financing Activities.
Cash dividends totaled $6,230,000 and $12,475,000 for the quarter and
year-to-date, respectively, and compare to $6,273,000 and $12,548,000 for the
same periods last year. The Company purchased 44,700 shares of its outstanding
Common and Class A Common stock, at prevailing market prices, for $1,196,000
during the six months ended June 30, 1999. Cash dividends and stock purchases
were funded from operational cash flows.
As of June 30, 1999, the Company had $103,000,000 in funds available under
unused lines of credit.
Forward-Looking Information - Safe Harbor Statement.
In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements regarding events and trends which may affect
the Company's future operating results and financial position. Such statements
are identified by the use of such words as "is expected to continue," "the
Company anticipates," "plans call for," "should not be," "are expected," "the
Company expects," "the Company presently believes," "it believes," or other
words of similar import. Future operations are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Such uncertainties and risks
include the likelihood of increased competitive pressures and industry
consolidation in the United States for the remainder of 1999, and the timely
remediation of Year 2000 problems by the Company, its suppliers and its
customers.
The cost of the Year 2000 issue and the date on which the Company believes it
will complete Year 2000 modifications are based on management's best estimates
which are based on numerous assumptions of future events, including the
continued availability of certain resources, third party plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to purchase
Year 2000 systems, the ability to locate and correct all relevant computer
codes, the complexity of the Year 2000 issue due to dispersed operating units
and geographic locations and similar uncertainties.
Page 14
<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 4, 1999.
(b) Four 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 2002 by the following vote:
Votes Broker
Name Votes For Against Abstentions Non-Votes
- ------------------ ---------- ------- ----------- ---------
Lucille A. Carver 27,854,738 103,777 - 0 - - 0 -
Martin G. Carver 27,870,208 88,307 - 0 - - 0 -
Edgar D. Jannotta 27,871,786 86,729 - 0 - - 0 -
A vote was held to act upon a proposal to approve and adopt the Bandag,
Incorporated Employee Stock Award Plan. The shareholders ratified the proposal
by the following vote:
Votes For Votes Against Abstentions Broker Non-Votes
---------- ------------- ----------- ----------------
27,935,765 16,200 6,551 - 0 -
Shareholders also voted upon a proposal to ratify the selection of Ernst
& Young LLP as independent auditors of the Company for the year ending December
31, 1999. The shareholders ratified the selection by the following vote:
Votes For Votes Against Abstentions Broker Non-Votes
---------- ------------- ----------- ----------------
25,497,127 1,958,512 28,239 474,637
A vote was held to act upon a proposal to amend the By-Laws to provide
that the board of directors consist of a majority of independent directors. The
shareholders rejected this proposal by the following vote:
Votes For Votes Against Abstentions Broker Non-Votes
---------- ------------- ----------- ----------------
1,905,973 25,130,970 446,936 474,637
Page 15
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (EDGAR filing only)
27.1 Revised June 1998 Financial Data Schedule
(EDGAR filing only)
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on July 22, 1999. The
Current Report included unaudited condensed consolidated balance
sheets for the quarter ended June 30, 1999 and the year ended
December 31, 1998, unaudited condensed consolidated statements of
earnings for the three and six month periods ended June 30, 1999
and 1998, respectively, and unaudited condensed consolidated
statements of cash flows for the six months ended June 30, 1999
and 1998.
Page 16
<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 13, 1999 \S\ Martin G. Carver
--------------------------------------------
Martin G. Carver
Chairman and Chief Executive Officer
Date: August 13, 1999 \S\ Warren W. Heidbreder
--------------------------------------------
Warren W. Heidbreder
Vice President, Chief Financial Officer
Page 17
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Page
------ ------------------------------------------- ----
27 Financial Data Schedule (EDGAR filing only) 19
27.1 Revised June 1998 Financial Data Schedule
(EDGAR filing only) 20
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND THE UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS OF THE REGISTRANT AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1999, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. AMOUNTS ARE IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 61,355
<SECURITIES> 8,942
<RECEIVABLES> 211,437
<ALLOWANCES> 17,855
<INVENTORY> 120,652
<CURRENT-ASSETS> 446,382
<PP&E> 491,522
<DEPRECIATION> 289,506
<TOTAL-ASSETS> 745,017
<CURRENT-LIABILITIES> 160,132
<BONDS> 109,675
0
0
<COMMON> 21,913
<OTHER-SE> 444,140
<TOTAL-LIABILITY-AND-EQUITY> 745,017
<SALES> 476,258
<TOTAL-REVENUES> 481,688
<CGS> 288,526
<TOTAL-COSTS> 288,526
<OTHER-EXPENSES> 143,055
<LOSS-PROVISION> 1,066
<INTEREST-EXPENSE> 4,999
<INCOME-PRETAX> 45,108
<INCOME-TAX> 18,945
<INCOME-CONTINUING> 26,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,163
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND THE UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS OF THE REGISTRANT AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1998, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. AMOUNTS ARE IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 85,902
<SECURITIES> 17,268
<RECEIVABLES> 234,089
<ALLOWANCES> 13,839
<INVENTORY> 122,869
<CURRENT-ASSETS> 504,486
<PP&E> 485,183
<DEPRECIATION> 277,310
<TOTAL-ASSETS> 806,495
<CURRENT-LIABILITIES> 203,093
<BONDS> 112,960
0
0
<COMMON> 22,809
<OTHER-SE> 453,302
<TOTAL-LIABILITY-AND-EQUITY> 806,495
<SALES> 502,058
<TOTAL-REVENUES> 509,853
<CGS> 308,740
<TOTAL-COSTS> 308,740
<OTHER-EXPENSES> 153,797
<LOSS-PROVISION> 2,499
<INTEREST-EXPENSE> 5,676
<INCOME-PRETAX> 41,640
<INCOME-TAX> 18,322
<INCOME-CONTINUING> 23,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,318
<EPS-BASIC> 1.02
<EPS-DILUTED> 1.02
</TABLE>
