BANDAG, INCORPORATED AND SUBSIDIARIES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2000
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)
(319) 262-1400
(Registrant's Telephone Number, including area code)
Not Applicable
(Former name, former address, and former 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; 9,053,106 shares as of October 31, 2000.
Class A Common Stock, $1 par value; 9,585,234 shares as of October 31, 2000.
Class B Common Stock, $1 par value; 2,039,345 shares as of October 31, 2000.
Page 1
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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 10
PART II : OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
EXHIBITS :
Exhibit 3.1 - Amendment to By-Laws
Exhibit 3.2 - Amended and Restated By-Laws as of May 2, 2000
Exhibit 27 - Financial Data Schedule (EDGAR filing only)
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 Nine Months Ended
In thousands, except per share data September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $269,905 $273,240 $743,310 $749,498
Other income 3,749 2,983 11,346 8,413
-------- -------- -------- --------
273,654 276,223 754,656 757,911
Cost of products sold 168,803 170,122 459,795 458,648
Engineering, selling,
administrative and other expenses 72,092 72,068 210,489 215,123
Interest expense 2,137 2,239 6,476 7,238
-------- -------- -------- --------
243,032 244,429 676,760 681,009
-------- -------- -------- --------
Earnings before income taxes 30,622 31,794 77,896 76,902
Income taxes 12,708 13,738 32,327 32,683
-------- -------- -------- --------
Net earnings $ 17,914 $ 18,056 $ 45,569 $ 44,219
======== ======== ======== ========
Net earnings per share - Basic $ 0.87 $ 0.83 $ 2.20 $ 2.02
Net earnings per share - Diluted $ 0.86 $ 0.82 $ 2.19 $ 2.01
Comprehensive net earnings $ 16,088 $ 16,687 $ 40,929 $ 29,052
Cash dividends per share $ 0.2950 $ 0.2850 $ 0.8850 $ 0.8550
Depreciation included in expense $ 10,660 $ 9,677 $ 29,877 $ 29,823
Goodwill amortization included
in expense $ 2,635 $ 2,493 $ 7,763 $ 7,398
Weighted average shares outstanding:
Basic 20,697 21,873 20,721 21,885
Diluted 20,793 21,940 20,782 21,957
See notes to condensed consolidated financial statements.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Sept. 30,
2000 December 31,
In thousands (Unaudited) 1999
-------- ----------
ASSETS:
Cash and cash equivalents $ 79,273 $ 50,633
Investments 9,942 9,461
Accounts receivable - net 194,596 199,710
Inventories
Finished products 95,808 94,278
Materials and work-in-process 16,333 16,244
-------- --------
112,141 110,522
Other current assets 58,323 57,792
-------- --------
Total current assets 454,275 428,118
Property, plant, and equipment 507,958 502,787
Less accumulated depreciation & amortization (323,688) (304,802)
-------- --------
184,270 197,985
Intangible assets - net 64,243 67,331
Other assets 34,381 28,987
-------- --------
Total assets $737,169 $722,421
======== ========
LIABILITIES AND STOCKHOLDERS'S EQUITY:
Accounts payable $ 24,556 $ 33,472
Income taxes payable 25,579 18,998
Accrued employee compensation and benefits 23,269 25,530
Accrued marketing expenses 27,486 27,190
Other accrued expenses 45,041 45,823
Short-term notes payable and current portion
of other obligations 2,536 3,040
-------- --------
Total current liabilities 148,467 154,053
Long-term debt and other obligations 110,907 111,151
Deferred income tax liabilities 2,827 3,142
Stockholders' equity:
Common Stock; $1.00 par value;
authorized - 21,500,000 shares;
issued and outstanding - 9,052,676 shares
in 2000; 9,088,403 shares in 1999 9,053 9,088
Class A Common Stock; $1.00 par value;
authorized - 50,000,000 shares;
issued and outstanding - 9,614,634 shares
in 2000; 9,637,187 shares in 1999 9,615 9,637
Class B Common Stock; $1.00 par value;
authorized - 8,500,000 shares;
issued and outstanding - 2,039,775 shares
in 2000; 2,045,251 shares in 1999 2,040 2,045
Additional paid-in capital 7,497 7,476
Retained earnings 481,821 456,247
Equity adjustment from foreign currency translation (35,058) (30,418)
-------- --------
Total Equity 474,968 454,075
-------- --------
Total liabilities and stockholders' equity $737,169 $722,421
======== --------
See notes to condensed consolidated financial statements.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
2000 1999
-------- --------
Operating Activities
Net earnings $45,569 $44,219
Provision for depreciation and amortization 37,640 37,221
Increase (decrease) in operating assets
liabilities - net (11,161) 3,302
-------- --------
Net cash provided by operating activities 72,048 84,742
Investing Activities
Additions to property, plant, and equipment (15,364) (28,147)
Purchases of investments (8,425) (11,628)
Maturities of investments 7,944 8,715
Payments for acquisitions of businesses (4,632) (4,357)
-------- --------
Net cash used in investing activities (20,477) (35,417)
Financing Activities
Principal payments on short-term notes payable
and long-term obligations (692) (7,125)
Cash dividends (18,398) (18,744)
Purchase of Common Stock and Class A Common Stock (1,725) (1,212)
-------- --------
Net cash used in financing activities (20,815) (27,081)
Effect of exchange rate changes on cash and
cash equivalents (2,116) (3,288)
-------- --------
Increase in cash and cash equivalents 28,640 18,956
Cash and cash equivalents at beginning of period 50,633 37,912
-------- --------
Cash and cash equivalents at end of period $79,273 $56,868
======== ========
See notes to condensed consolidated financial statements.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
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, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999.
Comprehensive Net Earnings
Comprehensive net earnings for the three month periods ended September 30, 2000
and 1999 and the nine month periods ended September 30, 2000 and 1999 were as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
Net earnings $ 17,914 $ 18,056 $ 45,569 $ 44,219
Other comprehensive income item:
Foreign currency translation (1,826) (1,369) (4,640) (15,167)
-------- -------- -------- --------
Comprehensive net earnings $ 16,088 $ 16,687 $ 40,929 $ 29,052
======== ======== ======== ========
Tire Distribution Systems, Inc. (TDS) Business Combinations and Operating
Results
For the year-to-date period, Tire Distribution Systems, Inc. (TDS), a wholly
owned subsidiary of Bandag, Incorporated, acquired 2 tire dealerships. The
accounts and transactions of the acquired businesses have been included in the
consolidated financial statements from the date of acquisition.
TDS results for the three month periods ended September 30, 2000 and 1999 and
the nine month periods ended September 30, 2000 and 1999 were as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $113,372 $112,649 $308,126 $294,862
Goodwill amortization 2,503 2,449 7,485 7,267
Earnings before interest and
income taxes 2,627 1,716 1,616 662
Intercompany sales from traditional
retread business to TDS which have
been eliminated in consolidation $ 15,132 $ 14,636 $ 43,578 $ 41,192
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BANDAG, INCORPORATED AND SUBSIDIARIES
Quality Design Systems, Inc.
In the second quarter of 2000, the Company acquired the assets of Quality Design
Systems, Inc. (QDS). QDS is a well-established tire and automotive care industry
developer best-known for its TireMaster(R) software package. QDS, based in
Eagle, Idaho, will operate as a wholly-owned subsidiary of the Company and
continue to serve its customers in the retail tire and automotive care
industries. The accounts and transactions of the acquired business have been
included in the consolidated financial statements from the date of acquisition.
Pro forma results of operations for 2000 and 1999, assuming the purchase
transactions of QDS and TDS occurred as of January 1, 1999, would not differ
materially from reported amounts.
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 Nine
Months Ended Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
Numerator:
Net earnings $17,914 $18,056 $45,569 $44,219
Denominator:
Denominator for basic earnings per
per share - weighted-average shares 20,697 21,873 20,721 21,885
Effect of dilutive securities:
Non-vested restricted stock 37 40 37 41
Stock options 59 27 24 31
-------- -------- -------- --------
Dilutive potential common shares 96 67 61 72
Denominator for diluted earnings per
share - weighted-average shares and
dilutive potential common shares 20,793 21,940 20,782 21,957
======== ======== ======== ========
Net earnings per share:
Basic $0.87 $0.83 $2.20 $2.02
======== ======== ======== ========
Diluted $0.86 $0.82 $2.19 $2.01
======== ======== ======== ========
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BANDAG, INCORPORATED AND SUBSIDIARIES
Non-recurring Charges
During the fourth quarter 1999, the Company recorded non-recurring charges
totaling $13,500,000 ($7,671,000 net of tax benefits) for termination benefits.
These termination benefits covered the company-wide reduction of 175 employees
through a combination of voluntary early retirements, the closing of a North
American tread rubber manufacturing facility and other position eliminations.
The early retirement program announced in the fourth quarter of 1999 offered
unreduced retirement benefits to employees over the age of 55 and who have
accumulated 65 points (points = age + years of service). The early retirement
program charges primarily represent a $4,906,000 increase in the pension benefit
obligation which resulted when 62 employees elected this program. Of the total
number of employees affected by position eliminations, benefit payments of
$2,161,000 were made in 1999 for 56 employees. In the year-to-date period ended
September 30, 2000, the Company paid $3,652,000 relating to the termination of
an additional 57 employees and continued termination benefits for 2 employees.
Further employee termination costs of $2,654,000 are accrued at September 30,
2000, which reflects a $73,000 reduction in the original provision due to
exchange rate changes and a $54,000 reduction due to costs being lower than
original estimates. The majority of these payments will be made in 2000. No
charge related to the manufacturing facility has been expensed as the Company
expects to use the facility in the future for general corporate purposes.
During 1998, the Company recorded net non-recurring charges totaling $4,205,000
($1,174,000 net of tax benefits). The net non-recurring charges included a
provision of $7,502,000 ($4,471,000 net of tax benefits) for facility closures,
personnel reductions, and other exit costs. Additionally, the net non-recurring
charges included a gain of $3,297,000 consisting of the non-taxable recognition
of accumulated translation gains due to the exit of operations in Indonesia.
Included in the non-recurring charges is $4,845,000 related to personnel
reductions. In 1998, the Company paid $1,035,000 related to the termination of
13 employees. In 1999, the Company paid $2,950,000 related to the termination of
99 employees. In the year-to-date period ended September 30, 2000, the Company
paid $508,000 related to the termination of 18 employees. Remaining employee
termination costs of $156,000 have been accrued at September 30, 2000, which
reflects a $37,000 reduction due to changes in exchange rates. Included in the
non-recurring charge is $2,657,000 for facility closure and other exit costs
which contains $642,000 for the write down of assets. In 1999, the Company paid
$905,000 for facility closure and other exit costs and reduced the original
provision by $192,000 due to costs being lower than original estimates. In the
year-to-date period ended September 30, 2000, the Company paid $94,000 for
facility closure and other exit costs and reduced the original provision by
$88,000 due to costs being lower than original estimates and $123,000 due to
changes in exchange rates. The Company's remaining obligation for facility
closure and other exit costs as of September 30, 2000 is $613,000.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Operating Segment Information
The Company has two reportable 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. Other includes results
of operations for the Tire Management Solutions Inc. (TMS) pilot program,
Quality Design Systems, Inc. (QDS) and other corporate items.
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 September 30 (in thousands):
<TABLE>
<CAPTION>
Traditional Business
------------------------------------------------------------------------------------------------------
North America Europe Latin America Asia
------------- ------ ------------- ----
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $99,203 $102,178 $20,599 $22,902 $25,965 $24,576 $5,139 $6,190
Transfers between
segments 18,059 17,839 91 183 627 - - -
Operating earnings
(loss) 30,602 33,318 1,251 1,981 1,877 2,188 1,110 1,321
Interest income - - - - - - - -
Interest expense - - - - - - - -
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $30,602 $33,318 $1,251 $1,981 $1,877 $2,188 $1,110 $1,321
======================================================================================================
<CAPTION>
TDS Other Consolidated
--- ----- ------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $112,537 $111,577 6,462 5,817 $269,905 $273,240
Transfers between
segments 835 1,072 - - 19,612 19,094
Operating earnings
(loss) 2,627 1,716 (6,104) (7,785) 31,363 32,739
Interest income - - 1,396 1,294 1,396 1,294
Interest expense - - (2,137) (2,239) (2,137) (2,239)
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $2,627 $1,716 $(6,845) $(8,730) $30,622 $31,794
======================================================================================================
</TABLE>
<PAGE>
For the nine months ended September 30 (in thousands):
<TABLE>
<CAPTION>
Traditional Business
------------------------------------------------------------------------------------------------------
North America Europe Latin America Asia
------------- ------ ------------- ----
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $264,435 $282,001 $62,681 $70,419 $77,229 $73,853 $14,796 $18,803
Transfers between
segments 51,093 51,072 394 652 627 - - -
Operating earnings
(loss) 71,533 73,883 9,531 8,988 9,188 10,694 3,389 3,042
Interest income - - - - - - - -
Interest expense - - - - - - - -
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $71,533 $73,883 $9,531 $8,988 $9,188 $10,694 $3,389 $3,042
======================================================================================================
<CAPTION>
TDS Other Consolidated
--- ----- ------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $305,743 $293,063 $18,426 $11,359 $743,310 $749,498
Transfers between
segments 2,383 1,799 - - 54,497 53,523
Operating earnings
(loss) 1,616 662 (15,253) (17,692) 80,004 79,577
Interest income - - 4,368 4,563 4,368 4,563
Interest expense - - (6,476) (7,238) (6,476) (7,238)
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $1,616 $662 $(17,361) $(20,367) $77,896 $76,902
======================================================================================================
</TABLE>
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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 the Company's Traditional Business, Tire Distribution Systems,
Inc. (TDS), Tire Management Solutions, Inc., a pilot operation (TMS), and
Quality Design Systems, Inc. (QDS). The comparability of operating results
between years is affected by TDS acquisitions of tire dealerships in the current
and prior year.
Consolidated net sales for the quarter and the year-to-date periods ended
September 30, 2000 were both 1% lower than the prior year periods, on a 3% and
5% decrease in Traditional Business net sales, respectively. The decrease in
Traditional Business net sales resulted from a 5% decline in retread material
unit volume for both the quarter and year-to-date periods ended September 30,
2000, respectively. Net sales were also unfavorably affected by the lower
translated value of the Company's foreign-currency-denominated sales,
particularly the euro and Brazilian real. However, this negative translation
effect was offset by an April price increase in the U.S., price increases at
foreign subsidiaries, and an increase in equipment sales. The Company continues
to see a slowing in North American retread sales which can be attributed to low
new-truck demand which encourages the movement of new tires into the replacement
market and low-priced new tires from overseas. The decline in Traditional
Business sales volume is also due to competitive pressures and industry
consolidation in the United States, which is expected to continue through the
end of 2000 and into 2001. The decline in Traditional Business sales was offset
by a 1% and 5% increase in TDS sales over the prior year quarter and
year-to-date periods, respectively, and a full nine months of revenues for TMS.
The Company's seasonal sales pattern, which is tied to trucking activity, was
similar to the third quarters in previous years in that it is seasonally the
strongest quarter for both sales and earnings. Both segments were similarly
affected.
A 19% increase in average raw material costs in the U.S. for the third quarter
was partially offset by an April price increase in the U.S. and improved margins
on equipment sales, leaving the Traditional Business and consolidated gross
profit margins for the quarter ended September 30, 2000 1.7 and .2 percentage
points lower than the prior year period, respectively. The Traditional Business
and consolidated gross profit margin for the year-to-date period September 30,
2000 decreased 1.1 and .7 percentage points from the prior year period,
respectively, reflecting the 12% increase in average raw material costs in the
U.S for the year. Given softer demand, the Company anticipates that it will be
more difficult to recover future increases in raw material costs through further
price increases.
Consolidated and Traditional Business operating and other expenses for the
quarter ended September 30, 2000 were flat compared to the prior year quarter
but were 2% and 8% lower for the year-to-date period ended
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BANDAG, INCORPORATED AND SUBSIDIARIES
September 30, 2000 compared to the prior year-to-date period, respectively. The
decrease in operating and other expenses for the year-to-date period resulted
from cost control measures and the prior year restructurings in North America
and Europe but were offset by higher marketing program costs in the third
quarter and increased legal expenses in connection with the previously announced
Michelin Litigation. Earnings for the quarter ended September 30, 2000 were down
1% from the prior year period but diluted earnings per share improved to $.86,
up from diluted earnings per share of $.82 in the prior year period. Earnings
for the year-to-date period ended September 30, 2000 were up 3% from the prior
year period and diluted earnings per share improved to $2.19, up from diluted
earnings per share of $2.01 in the prior year period. For the quarter and
year-to-date periods, the combined effect of a lower tax rate and a decrease in
average shares outstanding added $.07 and $.15 to diluted earnings per share in
the periods, respectively.
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 and year-to-date
periods ended September 30, 2000 were 2% and 5% below the prior year periods,
respectively, primarily due to an 8% lower retread material unit volume for both
periods. The decrease in net sales was less than the shortfall in retread
material unit volume due to a price increase in April of 2000 in the U.S. and
Canada and an increase in equipment sales. The Company continues to see a
softness in North American sales trends due to competitive pressures and
industry consolidation in the United States. The slowing in North American sales
trends can also be attributed to an oversupply of new tires. The oversupply of
new tires is caused by an increase in imported tires and reduced OEM demand for
new tires. Our distribution channel has shown some recent stability, but we
expect more competitive pressures in the future. An increase in average raw
material costs in the U.S. and Canada were partially offset by April price
increases, resulting in a .7 percentage point decrease in North America's gross
margin for the year-to-date period from the prior year period. North American
operating and other expenses for the year-to-date period ended September 30,
2000 were down 8% from the prior year period due to restructuring in 1999 and
lower personnel related and professional costs. However, operating and other
expenses for the quarter ended September 30, 2000 were 13% higher than the prior
year period due to higher marketing program costs. For the quarter ended
September 30, 2000, lower sales and higher marketing program costs resulted in a
8% decrease in earnings before income taxes from the prior year period. For the
year-to-date period ended September 30, 2000, lower sales were partially offset
by lower operating and other expenses, resulting in a 3% decrease in earnings
before income taxes from the prior year period.
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
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BANDAG, INCORPORATED AND SUBSIDIARIES
is under one management group and is referred to internally as Europe. Net sales
in Europe for the quarter and year-to-date periods ended September 30, 2000
declined 10% and 11% from the prior year periods, respectively. Retread material
unit volume in Europe for the quarter and year-to-date periods ended September
30, 2000 remained even with the prior year periods. Europe's lower sales in the
quarter and year-to-date period are primarily due to the lower translated value
of the euro. Gross profit margin for the quarter and year-to-date periods ended
September 30, 2000 were 5.9 and 1.6 percentage points lower, respectively, than
the prior year periods due to higher material costs. Operating expenses for the
quarter and year-to-date periods ended September 30, 2000 decreased 4% and 15%
from the prior year periods, respectively, mainly due to the lower translated
value of the euro. In local currency, third quarter 2000 operating expenses were
slightly higher than the prior year period due to higher marketing program
costs. Principally as a result of a lower gross margin and the lower translated
value of the euro, earnings before income taxes for the quarter ended September
30, 2000 decreased 37% from the prior year period. For the year-to-date period
ended September 30, 2000, a lower gross margin and the lower translated value of
the euro were offset by lower operating and support expenses, resulting in an
earnings before income taxes increase of 6% over the prior year period.
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 to internally
as Latin America. Net sales in Latin America for the quarter and year-to-date
periods ended September 30, 2000 increased 8% and 5% over the prior year
periods, respectively, as retread material unit volume in both the quarter and
year-to-date periods increased 3% over the prior year periods. The increase in
net sales was greater than the increase in retread material unit volume for the
quarter and year-to-date periods due to price increases in Brazil and South
Africa. In the year-to-date period this price increase was partially offset by
the lower translated value of the Brazilian real and South African rand. The
increase in retread material unit volume was driven by higher shipments in
Brazil and Mexico. The gross profit margin for the quarter and year-to-date
periods ended September 30, 2000 decreased approximately 2.1 and 2.3 percentage
points from the prior year periods, respectively, due mainly to higher raw
materials costs. An increase in the provision for bad debts and marketing
program costs were partially offset by the lower translated value of the
Brazilian real and South African rand, resulting in an increase in Latin
American operating expenses for the quarter and year-to-date periods ended
September 30, 2000 of 7% and 2% over the prior year periods, respectively.
Primarily as a result of lower gross margins, earnings before income taxes for
both the quarter and year-to-date periods ended September 30, 2000 decreased 14%
from the prior year periods.
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
Page 12
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
periods ended September 30, 2000 declined 17% and 21% from the prior year
periods as a result of a 9% and 18% decrease in retread material unit volume,
respectively, and reduced new tire sales in New Zealand. Gross profit margin in
Asia for the quarter and year-to-date periods ended September 30, 2000 increased
1.6 and 4.8 percentage points over the prior year periods, respectively, due to
the lower cost of imported retread materials in New Zealand and improved margins
on new tire sales in New Zealand. Operating expenses for the quarter and
year-to-date periods ended September 30, 2000 both declined 22% from the prior
year periods, benefiting from prior year restructurings which reduced
personnel-related costs and managerial and administrative support costs in New
Zealand and Indonesia. Earnings before income taxes for the quarter ended
September 30, 2000 decreased 16% from the prior year period due to the reduction
in sales. Earnings before income taxes for the year-to-date period ended
September 30, 2000 increased 11% from the prior year period due to the reduction
in operating expenses and improved gross margins.
TIRE DISTRIBUTION SYSTEMS, INC.
-------------------------------
TDS net sales for the quarter and year-to-date periods ended September 30, 2000
increased 1% and 5% over the prior year periods, respectively. Excluding the
effect of acquisitions, TDS sales for the quarter and year-to-date periods ended
September 30, 2000 were 3% lower and even with the prior year periods,
respectively. TDS's operating expenses as a percentage of sales for the
year-to-date period ended September 30, 2000 are .7 percentage points higher
than the prior year period. However, reflecting the continued focus on expense
control measures, TDS's operating expenses as a percentage of sales for the
quarter ended September 30, 2000 are .4 percentage points down from the prior
year period. Earnings before income taxes for the quarter and year-to-date
periods ended September 30, 2000 increased 53% and 144% over the prior year
periods, respectively. The profit improvement can be attributed to TDS's ability
to utilize purchase discounts in the current year and management initiatives to
control expenses.
Financial Condition:
-------------------
Operating Activities
Net cash provided by operating activities for the nine months ended September
30, 2000 was $12,694,000 less than the amount for the same period last year of
$84,742,000, primarily due to a reduction in accounts receivables offset by
other working capital items.
Investing Activities
The Company spent $15,364,000 on capital expenditures through September 30,
2000, compared to $28,147,000 spent for the same period last year. The Company
typically funds its capital expenditures from operating cash flow. The Company
spent $4,632,000 on two tire dealership acquisitions
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BANDAG, INCORPORATED AND SUBSIDIARIES
and the purchase of QDS through September 30, 2000, compared to $4,357,000 spent
for the purchase of tire dealerships in 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 over 90 days
are classified as investments for balance sheet purposes. The Company's
purchases of investments exceeded maturities by $481,000 during the nine months,
bringing total investments to approximately $9,942,000 as of September 30, 2000.
Financing Activities
Cash dividends totaled $6,143,000 and $18,398,000 for the quarter and
year-to-date, respectively, and compared to $6,269,000 and $18,744,000 for the
same periods last year. The Company purchased 66,670 shares of its outstanding
Common and Class A Common stock, at prevailing market prices, for $1,725,000
during the nine months ended September 30, 2000. Cash dividends and stock
purchases were funded from operational cash flows. As of September 30, 2000, the
Company had $118,000,000 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 "the Company continues to see," "is
expected to continue," "the Company anticipates," and "we expect" 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 whether the slowing in North American retread tire sales continues to be
impacted by low new truck demand, the influx of imported tires and the diversion
of imported tires into the replacement market; the effect of continued
competitive pressures within the U.S., the extent of additional industry
consolidation and the effect of increased competition in our distribution
channel; the uncertainty of Bandag's ability to recover future increases in raw
material costs, if any, through further price increases; and whether the market
pressures resulting from the influx of imported tires and the reduced OEM demand
for new tires will continue depends upon continuing manufacturing overcapacity
in the foreign countries and the level of demand of new truck manufacturers for
new tires.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amendment to By-Laws
3.2 Amended and Restated By-Laws as of May 2, 2000
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on July 26, 2000. The Current Report
included unaudited condensed consolidated balance sheets for the quarter ended
June 30, 2000 and the year ended December 31, 1999, unaudited condensed
consolidated statements of earnings for the six month period ended June 30, 2000
and 1999, respectively, and unaudited condensed consolidated statements of cash
flows for the six months ended June 30, 2000 and 1999.
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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 14, 2000 \S\ Martin G. Carver
--------------------
Martin G. Carver
Chairman and Chief Executive Officer
Date: November 14, 2000 \S\ Warren W. Heidbreder
------------------------
Warren W. Heidbreder
Vice President, Chief Financial Officer
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BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit
------ -------
3.1 Amendment to By-Laws
3.2 Amended and Restated By-Laws as of May 2, 2000
27 Financial Data Schedule (EDGAR filing only)
