SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1999;
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7007
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BANDAG, INCORPORATED
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(Exact name of registrant as specified in its charter)
Iowa 42-0802143
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2905 North Highway 61, Muscatine, Iowa 52761-5886
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 319/262-1400
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class Name of each exchange
on which registered
- ------------------------------------- ------------------------------------
Common Stock - $1 Par Value New York Stock Exchange and Chicago
Class A Common Stock - $1 Par Value Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock - $1 Par Value
----------------------------------------
(Title of class)
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 periods 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 13, 2000: Common Stock, $150,878,977; Class A Common
Stock (non-voting), $110,392,503; Class B Common Stock, $634,008.
The number of shares outstanding of the issuer's classes of common stock as of
March 13,2000: Common Stock, 9,089,156 shares; Class A Common Stock, 9,637,754
shares; Class B Common Stock, 2,045,075 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of the
Shareholders to be held May 2, 2000 are incorporated by reference in Part III.
<PAGE>
PART I
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ITEM 1. BUSINESS
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Introduction
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All references herein to the "Company" or "Bandag" refer to Bandag,
Incorporated and its subsidiaries unless the context indicates otherwise.
The Company has two reportable business segments: the manufacture and
sale of precured tread rubber, equipment and supplies for retreading tires (the
"Traditional Business") and the sale and maintenance of new and retread tires to
principally commercial and industrial customers through its wholly-owned
subsidiary Tire Distribution Systems, Inc. ("TDS").
As a result of a recapitalization of the Company approved by the
Company's shareholders on December 30, 1986, and substantially completed in
February 1987, the Carver Family (as hereinafter defined) obtained absolute
voting control of the Company. As of March 13, 2000, the Carver Family
beneficially owned shares of Common Stock and Class B Common Stock constituting
77% of the votes entitled to be cast in the election of directors and other
corporate matters. The "Carver Family" is composed of (i) Lucille A. Carver, a
director and widow of Roy J. Carver, (ii) the lineal descendants of Roy J.
Carver and their spouses, and (iii) certain trusts and other entitles for the
benefit of the Carver Family members.
Effective as of November 1, 1997, the Company acquired five franchised
dealerships through TDS. The aggregate purchase price of the transactions was
approximately $158.6 million, which includes the fair market value of 10,000
shares of the Company's Class A Common Stock. Since the original acquisitions,
TDS has acquired 11 additional smaller dealerships. TDS is operated through Tire
Distribution Systems, Inc. See "TDS" herein.
On February 5, 1999, Tire Management Solutions, Inc. ("TMS"), a
wholly-owned subsidiary of the Company, entered into its first tire management
outsourcing contract. The contract is with Roadway Express. Pursuant to the
contract, the entire fleet tire management program of Roadway Express was
outsourced to TMS. TMS, in turn, subcontracts with over 160 individual Bandag
franchises across the country to provide the outsourced tire services. TMS
anticipates that additional tire management outsourcing contracts will be
obtained in the future.
Traditional Business
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(a) General
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The Traditional Business is engaged primarily in the production and
sale of precured tread rubber and equipment used by its franchisees for the
retreading of tires for trucks, buses, light commercial trucks, industrial
equipment, off-the-road equipment and passenger cars. Bandag specializes in a
patented cold-bonding retreading process which it introduced to the United
States in 1957 (the "Bandag Method"). The Bandag Method separates the process of
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<PAGE>
vulcanizing the tread rubber from the process of bonding the tread rubber to the
tire casing, allowing for optimization of temperature and pressure levels at
each stage of the retreading process.
The Company and its licensees have 1,295 franchisees worldwide, with
31% located in the United States and 69% internationally. The majority of
Bandag's franchisees are independent operators of full service tire
distributorships. The Traditional Business' revenues primarily come from the
sale of retread material and equipment to its franchisees. The Traditional
Business' products compete with new tire sales, as well as retreads produced
using other retread processes. The Company concentrates its marketing efforts on
existing franchisees and on expanding their respective market penetration. Due
to its strong distribution systems, marketing efforts and leading technology,
Bandag, through its independent franchisee network, has been able to maintain
the largest market presence in the retreading industry.
The Traditional Business competes primarily in the light and heavy
truck tire replacement market. Both new tire manufacturers and tread rubber
suppliers compete in this market. While the Company has independent franchisees
in over 109 countries, and competes in all of these geographic markets, its
largest market is the United States. Truck tires retreaded by the Company's
franchisees make up approximately 15% of the U.S. light and heavy truck tire
replacement market. The Company's primary competitors are new tire manufacturers
such as The Goodyear Tire & Rubber Company, Bridgestone Corporation and Groupe
Michelin. The Goodyear Tire & Rubber Company also competes in the U.S. market as
well as in other markets as a tread rubber supplier to a combination of company
owned and independent retreaders, and Groupe Michelin competes in the retread
market in the United States and in other markets.
The Traditional Business consists of the franchising of a patented
process for the retreading of tires primarily for trucks, buses, light
commercial trucks, and the production and sale of precured tread rubber and
related products used in connection with this process.
The Traditional Business can be divided into two main areas: (i)
manufacturing the tread rubber and (ii) bonding the tread to a tire casing.
Bandag manufactures over 500 separate tread designs and sizes, treads
specifically designed for various applications, allowing fleet managers to
fine-tune their tire programs. Bandag tread rubber is vulcanized prior to
shipment to its independent franchisees. The Bandag franchisee prepares the tire
casing for retreading and performs the retreading process of bonding the cured
tread to the prepared tire casing. This two-step process allows utilization of
the optimum temperature and pressure levels at each step. Lower temperature
levels during the bonding process result in a more consistent, higher quality
finished retread with less damage to the casing. Bandag has developed a totally
integrated retreading system with the materials, bonding process and
manufacturing equipment specifically designed to work together as a whole.
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<PAGE>
(b) Markets and Distribution
------------------------
The principal market categories for the Traditional Business are truck
and bus, with more than 90% of the tread rubber sold by the Company used in the
retreading of these tires. Additionally, the Company markets tread rubber for
the retreading of off-the-road equipment, industrial and light commercial
vehicle and passenger car tires; however, historically, sales of tread rubber
for these applications have not contributed materially to the Company's results
of operations.
Trucks and Buses Tread rubber, equipment, and supplies for retreading
and repairing truck and bus tires are sold by the Company primarily to
independent franchisees and TDS which use the Bandag Method for that purpose.
Bandag has 1,295 independent franchisees throughout North America, Central
America, South America, Europe, Africa, Far East, Australia and New Zealand.
These franchisees are owned and operated by independent franchisees, some with
multiple franchises and/or locations. Of these franchisees, 395 are located in
the United States. One hundred fifty nine (159) of Bandag's foreign franchisees
are franchised by a licensee of the Company in Australia, and joint ventures in
India and Sri Lanka. A limited number of franchisees are trucking companies,
which operate retread shops primarily for their own needs. A few franchisees
also offer "hot-cap" retreading and most sell one or more lines of new tires.
The current franchise agreement offered by the Company grants the
franchisee the non-exclusive retread manufacturing rights to use the Bandag
Method for one or more applications and the Bandag trademarks in connection
therewith within a specified territory, but the franchisee is free to market
Bandag retreads outside the territory. No initial franchise fee is paid by a
franchisee for its franchise.
Direct Sales to Transportation Fleets The Company has entered into
contracts with companies pursuant to which Bandag agrees to sell retread tires
directly to transportation fleets of such companies and provide maintenance and
service for the retread tires (the "Direct Sales Contracts"). Bandag
subcontracts the sales, maintenance, and service components of the Direct Sales
Contracts to its independent franchisees and to TDS.
Other Applications The Company continues to manufacture and supply to
its franchisees a limited amount of tread for off-the-road (OTR) tires,
industrial tires, including solid and pneumatic, passenger car tires and light
commercial tires for light trucks and recreational vehicles.
(c) Competition
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The Company faces strong competition in the market for replacement
truck and bus tires, the principal retreading market, which it serves. The
competition comes not only from the major manufacturers of new tires, but also
from manufacturers of retreading materials. Competitors include producers of
"camelback," "strip stock," and "slab stock" for "hot-cap" retreading, as well
as a number of producers of precured tread rubber. Various methods for bonding
precured tread rubber to tire casings are used by competitors.
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<PAGE>
Bandag retreads are often sold at a higher price than tires retreaded
by the "hot-cap" process as well as retreads sold using competitive precured
systems. The Company believes that the superior quality and greater mileage of
Bandag retreads and expanded service programs to franchisees and end-users
outweigh any price differential.
Bandag franchisees compete with many new-tire dealers and retreading
operators of varying sizes, which include shops operated by the major new-tire
manufacturers, large independent retread companies, retreading operations of
large trucking companies, and smaller commercial tire dealers.
For additional information on competition faced by the Traditional
Business see the foregoing discussion in "General" herein.
(d) Sources of Supply
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The Company manufactures the precured tread rubber, cushion gum, and
related supplies in Company-owned and leased manufacturing plants in the United
States, Canada, Brazil, Belgium, South Africa, Mexico, Malaysia and Venezuela.
The Company has entered into joint venture agreements in India and Sri Lanka.
The Company also manufactures pressure chambers, tire casing analyzers, buffers,
tire builders, tire-handling systems, and other items of equipment used in the
Bandag retreading method. Curing rims, chucks, spreaders, rollers, certain
miscellaneous equipment, and various retreading supplies, such as repair patches
sold by the Company, are purchased from others.
The Company purchases rubber and other materials for the production of
tread rubber and other rubber products from a number of suppliers. The rubber
for tread is primarily synthetic and obtained principally from sources, which
most conveniently serve the respective areas in which the Company's plants are
located. Although synthetic rubber and other petrochemical products have
periodically been in short supply and significant cost fluctuations have been
experienced in previous years, the Company to date has not experienced any
significant difficulty in obtaining an adequate supply of such materials.
However, the effect on operations of future shortages will depend upon their
duration and severity and cannot presently be forecast.
The principal source of natural rubber, used for the Company's cushion
gum, is the Far East. The supply of natural rubber has historically been
adequate for the Company's purposes. Natural rubber is a commodity subject to
wide price fluctuations as a result of the forces of supply and demand.
Synthetic prices historically have been related to the cost of petrochemical
feedstocks.
(e) Patents
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The Company owns or has licenses for the use of a number of United
States and foreign patents covering various elements of the Bandag Method. The
Company has patents covering improved features, some of which started expiring
in 1995 and others that will continue to
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<PAGE>
expire through the year 2011, and the Company has applications pending for
additional patents.
The Company does not consider that patent protection is the primary
factor in its successful retreading operation, but rather, that its proprietary
technical "know-how," product quality, franchisee support programs and effective
marketing programs are more important to its success.
The Company has secured registrations for its trademark and service
mark BANDAG, as well as other trademarks and service marks, in the United States
and most of the other important commercial countries.
TDS
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(a) General
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The five dealerships that were acquired in November 1997 by TDS, an
indirect wholly-owned subsidiary of the Company, were: Universal Tire, Inc.
(Nashville, TN); Southern Tire Mart, Inc. (Columbia, MS); J.W. Brewer Tire Co.,
Inc. (Wheat Ridge, CO): Joe Esco Tire Co. (Oklahoma City, OK); and Sound Tire,
Inc. (Auburn, WA). Since the original acquisitions, TDS has acquired 11
additional smaller dealerships. As of December 31, 1999, all of the acquired
dealerships were merged into TDS. TDS, which provides new and retread tire
products and tire management services to national, regional and local fleet
transportation companies, operates 44 Bandag franchise and manufacturing
locations and 109 commercial, retail and wholesale outlets in 17 states.
(b) Markets and Distribution
------------------------
TDS offers complete tire management services including: the complete
line of Bandag retreads, new tires (commercial, retail and off-the-road),
24-hour road service and alignment. The tire management services are provided
over a broad geographic area including the northwest and all across the south.
This geographic coverage allows TDS to provide consistent, cost-effective
programs, information, products, and services to local, regional and national
fleets.
A cost effective tire management service continues to grow in
importance for fleets of all sizes. The trucking industry continues to
consolidate. Trucking fleets are under intense pressure to be cost competitive
and reliable in their services. Tire related costs are one of the top operating
expenses for trucking fleets. Bandag and its dealer alliance network (including
TDS) are able to provide trucking companies comprehensive tire management
services which result in lower tire operating costs for the trucking company
while at the same time helping the trucking company increase its service
reliability through the same tire management programs.
TDS markets its products through sales personnel located at each of its
commercial locations, retread production facilities and retail facilities. TDS's
sales people make personal sales calls on existing customers to ensure
satisfaction and loyalty. TDS facilities are generally
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<PAGE>
located near major highway arteries, industrial centers, and customer locations.
TDS commercial locations operate as points of sale for retread tires, new tires
and services. In addition, the commercial locations operate as a home base for
mobile service trucks which must be able to provide customers with reliable and
timely emergency service as well as regularly scheduled maintenance service.
In an effort to fully service its customers, TDS sells new truck tires
manufactured by Bridgestone Corporation, Continental/General, Kelly Tires,
Yokahama, Cooper, and other manufacturers except for The Goodyear Tire and
Rubber Company and Groupe Michelin.
(c) Competition
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TDS competitors are other tire dealers, which offer competing retread
applications, as well as those which are Bandag franchised dealers. In addition,
such tire dealers typically sell and service new tires produced by new tire
manufacturers and service providers such as The Goodyear Tire and Rubber
Company, Bridgestone Corporation and Groupe Michelin. The Goodyear Tire and
Rubber Company and Groupe Michelin compete in the U.S. market and in other
markets as a tread rubber supplier to a combination of company owned and
independent retreaders.
(d) Sources of Supply
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TDS purchases retread rubber and most of its retreading equipment and
supplies from Bandag and purchases new tires from new tire companies including
Bridgestone Corporation, Yokahama, Continental/General, Cooper and Kelly. Groupe
Michelin and The Goodyear Tire and Rubber Company have terminated their dealer
relationships with TDS dealers and will not sell new tires to TDS dealers. TDS
has not experienced any material adverse effects from such terminations and has
been successful in obtaining and utilizing new tires from other tire
manufacturers in its business.
Regulations
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Various federal and state authorities have adopted safety and other
regulations with respect to motor vehicles and components, including tires, and
various states and the Federal Trade Commission enforce statutes or regulations
imposing obligations on franchisors, primarily a duty to disclose material facts
concerning a franchise to prospective franchisees. Management is unaware of any
present or proposed regulations or statutes which would have a material adverse
effect upon its businesses, but cannot predict what other regulations or
statutes might be adopted or what their effect on the Company's businesses might
be.
Other Information
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The Company conducts research and development of new products,
primarily in the Traditional Business, and the improvement of materials,
equipment, and retreading processes. The cost of this research and development
program was approximately $16,159,000 in 1997, $18,342,000 in 1998, and
$12,325,000 in 1999.
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<PAGE>
The Company's business has seasonal characteristics, which are tied not
only to the overall performance of the economy, but more specifically to the
level of activity in the trucking industry. Tire demand does, however, lag the
seasonality of the trucking industry. The Company's third and fourth quarters
have historically been the strongest in terms of sales volume and earnings.
The Company has sought to comply with all statutory and administrative
requirements concerning environmental quality. The Company has made and will
continue to make necessary capital expenditures for environmental protection. It
is not anticipated that such expenditures will materially affect the Company's
earnings or competitive position.
As of December 31, 1999, the Company had approximately 4,441 employees.
Financial Information about Business Segments and Foreign and Domestic
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Operations and Revenues of Principal Product Groups
---------------------------------------------------
Financial Statement "Operating Segment and Geographic Area Information"
follows on page 9.
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<PAGE>
Operating Segment and Geographic Area Information
The Company has two reportable operating segments: the manufacture of precured
tread rubber, equipment and supplies for retreading tires (Traditional Business)
and the sales and maintenance of new and retread tires to principally commercial
and industrial customers (TDS).
Information concerning operations for the Company's two reportable operating
segments and different geographic areas follows (see Note L to Notes to
<PAGE>
Consolidated Financial Statements):
<TABLE>
<CAPTION>
Traditional Business
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North America(4)(5) Europe(6) Latin America(4) Asia(4)(7)
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In millions: 1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales
Net sales to unaffiliated
customers (1)(2) $373.8 $422.0 $483.4 $103.7 $110.9 $123.0 $99.2 $122.2 $118.1 $25.5 $28.0 $42.7
Transfers between
segments 72.5 65.7 24.1 0.8 1.0 0.5 - - - - - -
-------------------------- ----------------------- ------------------------ ---------------------
Segment area totals $446.3 $487.7 $507.5 $104.5 $111.9 $123.5 $99.2 $122.2 $118.1 $25.5 $28.0 $42.7
Eliminations (deduction)
Total Net Sales
Gross Profit $214.5 $219.1 $217.9 $46.0 $49.6 $53.8 $36.3 $43.8 $41.4 $8.8 $9.1 $13.0
Intangible Amortization 0.2 0.6 1.0 - - - - - - - - -
Depreciation Expense 21.5 19.8 19.5 4.9 6.1 6.7 5.1 5.9 5.1 0.6 1.1 1.4
Earnings (Expenses)
Operating earnings (loss)(3) $95.2 $98.8 $89.3 $11.4 $4.9 $8.8 $13.4 $15.5 $18.9 $4.6 $(1.4) $3.2
Gain on sale of stock - - - - - - - - - - - -
Interest revenue - - - - - - - - - - - -
Interest expense - - - - - - - - - - - -
Corporate expenses - - - - - - - - - - - -
-------------------------- ----------------------- ------------------------ ---------------------
Earnings (Loss) Before
Income Taxes $95.2 $98.8 $89.3 $11.4 $4.9 $8.8 $13.4 $15.5 $18.9 $4.6 $(1.4) $3.2
Total Assets at
December 31 $281.1 $321.8 $312.6 $52.4 $67.1 $73.9 $64.6 $80.4 $74.4 $12.1 $15.1 $21.2
Expenditures for
Long-Lived Assets 20.0 33.3 15.8 3.0 4.3 7.5 4.7 10.0 15.1 0.9 1.3 1.0
Additions to Long-Lived
Assets due to Acquisitions - 0.9 - - - - - - - - - -
Long-Lived Assets 89.6 90.8 86.6 11.4 15.2 16.3 32.0 43.6 40.4 2.9 3.2 5.1
Sales by Product
Retread products $360.1 $404.5 $462.5 $101.8 $104.4 $110.5 $95.8 $117.0 $111.4 $15.3 $15.4 $24.2
New tires - - - - - - - - - 3.0 4.8 8.2
Retread tires - - - - - - - - - 6.4 5.9 7.5
Other 13.7 17.5 20.9 1.9 6.5 12.5 3.4 5.2 6.7 0.8 1.9 2.8
</TABLE>
<TABLE>
<CAPTION>
TDS Other (4) Consolidated
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In millions: 1999 1998 1997 1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales
Net sales to unaffiliated
customers (1)(2) $393.1 $376.6 $55.3 $17.4 - - $1,012.7 $1,059.7 $822.5
Transfers between
segments - - - - - - 73.3 66.7 24.6
-------------------------- ---------------------- ---------------------------
Segment area totals $393.1 $376.6 $55.3 $17.4 - - $1,086.0 $1,126.4 $847.1
Eliminations (deduction) (73.3) (66.7) (24.6)
-----------------------------
Total Net Sales $1,012.7 $1,059.7 $822.5
Gross Profit $92.1 $84.8 $14.0 $(5.0) $- $- $392.7 $406.4 $340.1
Intangible Amortization 9.7 8.0 1.3 - - - 9.9 8.6 2.3
Depreciation Expense 11.0 9.4 1.5 0.8 0.5 0.4 43.9 42.8 34.6
Earnings (Expenses)
Operating earnings (loss)(3) $(2.5) $2.5 $(2.0) $(11.4 $(5.7) $(1.4) $110.7 $114.6 $116.8
Gain on sale of stock - - - - - 95.1 - - 95.1
Interest revenue - - - 6.1 9.0 7.5 6.1 9.0 7.5
Interest expense - - - (9.7) (10.8) (3.3) (9.7) (10.8) (3.3
Corporate expenses - - - (15.0) (13.3) (13.2) (15.0) (13.3) (13.2
-------------------------- ---------------------- ---------------------------
Earnings (Loss) Before
Income Taxes $(2.5) $2.5 $(2.0) $(30.0 $(20.8) $84.7 $92.1 $99.5 $202.9
Total Assets at
December 31 $243.2 $217.2 $217.9 $69.0 $54.1 $199.9 $722.4 $755.7 $899.9
Expenditures for
Long-Lived Assets 10.8 15.6 1.0 2.5 0.9 1.8 41.9 65.4 42.2
Additions to Long-Lived
Assets due to Acquisitions 4.4 12.9 125.1 - - - 4.4 13.8 125.1
Long-Lived Assets 125.8 133.9 123.2 3.6 1.9 1.6 265.3 288.6 273.2
Sales by Product
Retread products $- $- $- $- - - $573.0 $641.3 $708.6
New tires 218.2 214.1 36.5 - - - 221.2 218.9 44.7
Retread tires 96.9 86.6 11.6 - - - 103.3 92.5 19.1
Other 78.0 75.9 7.2 17.4 - - 115.2 107.0 50.1
</TABLE>
<PAGE>
(1) No customer accounted for 10% or more of the Company's sales to
unaffiliated customers in 1999, 1998, or 1997.
(2) Export sales from North America were less than 10% of sales to unaffiliated
customers in each of the years 1999, 1998, and 1997.
(3) Aggregate foreign exchange gains (losses) included in determining net
earnings amounted to approximately $800,000, $(3,200,000) and $1,500,000 in
1999, 1998 and 1997 respectively.
(4) For segment reporting purposes, Mexico and South Africa operations are
included in the Latin America segment and New Zealand and Australia
operations are included in the Asia segment, consistent with management's
groupings for internal purposes. Other includes Corporate activities and in
1999 and 1998, the Tire Management Solutions pilot initiative.
(5) Includes in 1999 non-recurring charges of $12,800,000 related to costs
associated with the closure of a domestic manufacturing facility and other
non-recurring costs. Includes in 1997 non-recurring charges of $16,500,000
related to the closure of a domestic manufacturing facility and exit costs
from a rubber recycling venture.
(6) Includes in 1999 non-recurring charges of $700,000 for termination
benefits. Includes in 1998 non-recurring charges of $4,176,000 for
termination benefits.
(7) Includes in 1998 net non-recurring charges of $29,000 related to costs
associated with the closure of foreign manufacturing facilities and other
non-recurring costs. The net non-recurring charges include a gain of
$3,297,000 consisting of the non-taxable recognition of accumulated
translation gains due to the exit of operations in Indonesia.
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Executive Officers of the Company
The following table sets forth the names and ages of all executive
officers of the Company as of March 13, 2000, the period of service of each with
the Company, positions and offices with the Company presently held by each, and
the period during which each officer has served in his present office:
<TABLE>
<CAPTION>
Period of Period in
Service Present Position Present
Name Age with Company or Office Office
---- --- ------------ --------- ------
<S> <C> <C> <C> <C>
Martin G. Carver* 51 21 Yrs. Chairman of the Board, Chief 19 Yrs.
Executive Officer and President
Lucille A. Carver* 82 42 Yrs. Treasurer 41 Yrs.
Nathaniel L. Derby II 57 29 Yrs. Vice President, Manufacturing Design 3 Yrs.
Warren W. Heidbreder 53 18 Yrs. Vice President, Chief Financial 3 Yrs.
Officer and Secretary
Frederico U. Kopittke 56 5 Yrs. Vice President, Latin America and 1 Yr.
South Africa
John C. McErlane 46 15 Yrs. Vice President, Marketing and Sales 2 Yr.
</TABLE>
* Denotes that officer is also a director of the Company.
Mr. Martin G. Carver was elected Chairman of the Board effective June
23, 1981, Chief Executive Officer effective May 18, 1982, and President
effective May 25, 1983. Prior to his present position, Mr. Carver was also Vice
Chairman of the Board from January 5, 1981 to June 23, 1981.
Mrs. Carver has, for more than five years, served as a Director and
Treasurer of the Company.
Mr. Derby joined Bandag in 1971. In December 1985, he was promoted to
Vice President, Engineering and served in that position until August 1996 when
he was elected to the office of Vice President, Engineering. He served in that
office until May 1997, when he was elected to his current office of Vice
President, Manufacturing Design effective April 28, 1997.
Mr. Heidbreder joined Bandag in 1982. In 1986 he was elected to the
office of Vice President, Legal and Tax Administration, and Secretary. In
November 1996, he was elected to his current office of Vice President, Chief
Financial Officer, and Secretary effective as of January 1, 1997.
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<PAGE>
Mr. Kopittke joined Bandag in July 1994 as Company Manager of Bandag do
Brasil Ltda. He served in that position until March 1998 when he was elected to
the office of Vice President, Latin America. In August 1998, he was elected to
his current office of Vice President Latin America and South Africa, effective
July 13, 1998. Before joining Bandag, Mr. Kopittke was employed for more than 16
years by Nalco Chemical Company in South America.
Mr. McErlane joined Bandag in 1985. From 1985 through 1995, he held
several managerial positions with the Company. In 1996, he was promoted to the
position of Director, Marketing. In January 1997, he was promoted to the office
of Vice President, Marketing and served in that position until March 1998, when
he was elected to his current office of Vice President, Marketing and Sales
effective February 16, 1998.
All of the above-named executive officers have been elected by the
Board of Directors and serve at the pleasure of the Board of Directors.
ITEM 2. PROPERTIES
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Traditional Business
--------------------
The general offices of the Company are located in a company-owned
56,000 square foot office building in Muscatine, Iowa.
The tread rubber manufacturing plants of the Company are located to
service principal markets. The Company owns thirteen of such plants. However,
the Company only operates twelve of these plants, four of which are located in
the United States, and the remainder in Canada, Belgium, South Africa, Brazil
(two plants), Mexico, Malaysia, and Venezuela. Operations in one tread rubber
manufacturing plant located in the United States were suspended in the fourth
quarter of 1999 but the facility remains viable for general corporate purposes.
The plants vary in size from 9,600 square feet to 194,000 square feet with the
first plant being placed into production during 1959. All of the plants are
owned in fee except for the plants located in Malaysia and Venezuela, which are
under standard lease contracts.
Retreading equipment is manufactured at Company-owned plants located in
Muscatine, Iowa and Campinas, S.P., Brazil, of approximately 60,000 square feet
and 10,000 square feet, respectively. In addition, the Company owns a research
and development center in Muscatine of approximately 58,400 square feet and a
26,000 square foot facility used primarily for training franchisees and
franchisee personnel. Similar training facilities are located in Brazil, Mexico
(leased facility), South Africa and Europe. The Company also owns a 26,000
square foot office and machining facility in Muscatine.
Construction of a new 83,000 square foot training and conference center
was completed in early 1999 in Muscatine, Iowa.
In addition, the Company mixes rubber and produces cushion gum and
envelopes at a Company-owned 168,000 square foot plant in California. The
Company owns its European headquarters facility in Belgium and a 129,000 square
foot warehouse in the Netherlands.
-11-
<PAGE>
TDS Business
------------
TDS currently owns 45 and leases 91 facilities. Forty-four contain
space for TDS's retread production and 109 contain space for commercial, retail
and wholesale operations. The Company believes that it will be able to renew its
existing leases as they expire or find suitable alternative locations. The
leases generally provide for a base rental, as well as charges for real estate
taxes, insurance, maintenance and various other items.
In the opinion of the Company, its properties are maintained in good
operating condition and the production capacity of its plants is adequate for
the near future. Because of the nature of the activities conducted, necessary
additions can be made within a reasonable period of time.
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
General
- -------
The Company is a part to a number of lawsuits and claims arising out of
the normal course of business. While the results of such litigation are
uncertain, management believes that the final outcome of any such litigation
will not have a material adverse effect on the Company's consolidated financial
position or the result of operations. Changes in assumptions, as well as actual
experience, could cause estimates made by management to change.
Bandag, Incorporated vs. Michelin Technologies, Inc. and Michelin North America,
- -------------------------------------------------------------------------------
Inc.
- ---
On September 16, 1999, the Company filed a lawsuit in the U.S. District
Court for the Eastern District of Iowa against Michelin North America, Inc. and
Michelin Retread Technologies, Inc. (collectively "Michelin"), subsidiaries of
Compagnie Generale des Etablissements Michelin, a French based company with
global distribution. According to the suit, Michelin has attempted to eliminate
the Company as a competitor in the U.S. replacement tire market for the
commercial trucking industry by undermining the Company's dealer network,
interfering with the Company's contractual and business relationships with its
dealers and fleet customers, and engaging in unfair competition, false
advertising, and violating U.S. anti-trust laws. On November 17, 1999, Michelin
filed a counterclaim against the Company, primarily alleging various violations
of the U.S. anti-trust laws. Both the Company's lawsuit and Michelin's
counterclaim seek compensatory and injunctive relief. While the results of the
Company's suit and Michelin's counterclaim cannot be predicted with certainty, a
victory on Michelin's counterclaim could have a material adverse effect on the
Company's consolidated financial position and results of operations. Management,
however, believes that its claims against Michelin are meritorious and that
Michelin's counterclaim is completely without merit. The Company intends to
vigorously defend its position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
-12-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------------
MATTERS.
- -------
Information concerning cash dividends declared and market prices of the
Company's Common Stock and Class A Common Stock for the last three fiscal years
is as follows:
<TABLE>
<CAPTION>
1999 % Change 1998 % Change 1997
---- -------- ---- -------- ----
Cash Dividends Per Share-
Declared
<S> <C> <C> <C> <C> <C>
First Quarter $ 0.2850 $ 0.2750 $ 0.2500
Second Quarter 0.2850 0.2750 0.2500
Third Quarter 0.2850 0.2750 0.2500
Fourth Quarter 0.2950 0.2850 0.2750
------------------------------------------------------------------------
Total Year 1.1500 3.6 1.1100 8.3 $ 1.0250
Stock Price Comparison (1)
Common Stock
First Quarter $28.13 - 41.63 $53.31 - 59.13 $45.00 - 51.88
Second Quarter 28.38 - 37.25 39.00 - 59.75 46.38 - 51.75
Third Quarter 28.25 - 36.25 29.88 - 42.06 47.94 - 54.13
Fourth Quarter 23.50 - 31.75 28.31 - 39.94 48.38 - 55.75
Year-end Closing Price 24.88 39.94 53.44
Class A Common Stock
First Quarter $23.38 - 37.75 $48.00 - 54.38 $45.25 - 50.38
Second Quarter 23.88 - 32.13 34.50 - 54.00 45.00 - 49.50
Third Quarter 22.50 - 29.56 28.44 - 39.50 47.50 - 53.44
Fourth Quarter 19.94 - 24.50 27.38 - 35.13 46.38 - 52.00
Year-end Closing Price 21.06 34.88 47.88
(1) High and low composite prices in trading on the New York and Chicago Stock Exchanges (ticker symbol
BDG for Common Stock and BDGA for Class A Common Stock).
</TABLE>
The approximate number of record holders of the Company's Common Stock
as of March 13, 2000, was 2,179, the number of holders of Class A Common Stock
was 1,200 and the number of holders of Class B Common Stock was 231. The Common
Stock and Class A Common Stock are traded on the New York Stock Exchange and the
Chicago Stock Exchange. There is no established trading market for the Class B
Common Stock.
Sale of Unregistered Securities
On November 11, 1999, the Company issued 20,000 shares of Common Stock
to Martin G. Carver pursuant to his exercise of stock options for an aggregate
consideration of $469,000. No underwriters were engaged in connection with the
foregoing sale. The issuance of the foregoing securities was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) as a
transaction not involving a public offering.
-13-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------ ------------------------
The following table sets forth certain Selected Financial Data for the
periods and as of the dates indicated:
<TABLE>
<CAPTION>
1999 1998 1997(2) 1996 1995
------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $1,012,665 $1,059,669 $822,523 $756,925 $740,363
Net Earnings(1) 52,330 59,319 121,994 81,604 97,027
------------------------------------------------------------------------
Total Assets $722,421 $755,729 $899,904 $588,342 $554,159
Long-term Debt and Other Obligations 111,151 109,757 123,195 10,125 11,857
Net Earnings Per Share:
Basic Earnings Per Share $2.41 $2.64 $5.35 $3.46 $3.84
Diluted Earnings Per Share $2.40 $2.63 $5.33 $3.44 $3.82
Cash Dividends Per Share-Declared $1.1500 $1.1100 $1.0250 $0.9250 $0.8250
(1) Includes in 1999 the effect of non-recurring charges of $13,500,000 pre-tax, $7,671,000 after-tax, or $.35 per
diluted share, related to costs associated with the closure of a domestic manufacturing facility and other
non-recurring costs.
Includes in 1998 the effect of net non-recurring charges of $4,205,000 pre-tax, $1,174,000 after-tax, or $.05
per diluted share, related to costs associated with the closure of foreign manufacturing facilities and other
non-recurring costs.
Includes in 1997 the effect of a non-recurring gain on the sale of marketable equity securities of $95,087,000
pre-tax, $55,800,000 after-tax, or $2.44 per diluted share, and non-recurring charges of $16,500,000 pre-tax,
$9,900,000 after-tax, or $.43 per diluted share, related to the closing of a manufacturing facility and exit
cost from a rubber recycling venture.
(2) During 1997 the Company's subsidiary, Tire Distribution Systems, Inc., commenced operations with the
acquisition of five tire dealerships whose operations are included in the consolidated financial statements
from November 1, 1997, the effective date of the acquisitions.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
- ------ -------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
GENERAL
Results include the Company's Traditional Business, Tire Distribution Systems,
Inc. (TDS), and Tire Management Solutions, Inc., a pilot operation (TMS). The
comparability of operating results between years is affected by TDS's
acquisition of tire dealerships in each of the years 1999 and 1998 and by
certain non-recurring items.
Consolidated net sales in 1999 decreased 4% from 1998. This included a decrease
of 10% in the Traditional Business. Of this Traditional Business decrease,
approximately 4 percentage points were a result of the lower translated value of
the Company's foreign-currency-
-14-
<PAGE>
denominated sales. The remaining decrease resulted from lower equipment sales
and a 6% decline in retread material unit volume from 1998. The decline in
Traditional Business sales was primarily due to competitive pressures and
industry consolidation in the United States, which is expected to continue into
2000 and beyond. In addition, the Company experienced some dealer separations in
the United States which negatively impacted sales volume. The Company
anticipates that future sales volume may continue to be negatively impacted by
additional dealer separations. The Company has not received any additional
notices of separations that would have a significant impact on operating
results. The decline in Traditional Business sales was offset by a 4% increase
in TDS sales over 1998 and sales for TMS. The increase in TDS net sales is
principally attributable to dealership acquisitions during the year. The
Company's seasonal sales pattern, which is tied to trucking activity, was
similar to previous years with the third and fourth quarters being the strongest
for both sales and earnings. All segments were similarly affected.
Gross profit margin for the Traditional Business increased by 2.4 percentage
points over 1998 mainly due to lower raw material costs in the United States.
Consolidated gross profit margin for 1999 increased by .5 percentage points over
1998, a lower increase than seen in the Traditional Business margin due to a
higher portion of consolidated sales coming from TDS, which operates at a lower
gross margin, and the inclusion of TMS.
Consolidated operating and other expenses in 1999 decreased 3% from 1998. Before
non-recurring items, operating and other expenses of the Traditional Business
decreased 15% from 1998. This decrease was offset by a 15% increase in TDS
operating and other expenses over 1998 due to acquisitions. Earnings benefited
from progress in efforts to return operating expenses to a more traditional
level, but with the decline in unit volume, net earnings declined 1% from 1998
before non-recurring items. The Company's consolidated effective income tax rate
of 43.2% was higher than the 1998 rate of 40.4% principally due to a
non-recurring loss on the exit from a rubber recycling venture and non-taxable
recognition of accumulated translation gains in 1998.
The lower earnings resulted in diluted earnings per share of $2.40 for the year,
down from diluted earnings per share of $2.63 in 1998. Earnings in 1999 included
the effect of non-recurring charges of $7,671,000, net of tax benefits, or $.35
per diluted share. The prior year included the effect of net non-recurring
charges of $1,174,000, net of tax benefits, or $.05 per diluted share. Refer to
Note B of the notes to the consolidated financial statements for discussion of
the non-recurring charges.
Non-recurring charges in 1999 relate to the closure of a North American
manufacturing facility, along with the elimination of certain non-manufacturing
positions. These measures were taken to address a fundamental change in the
nature of our business as it moves from a product-driven organization to a fully
integrated provider of tire management products and services. As a result of the
actions taken in 1999, the Company expects savings in 2000 to approximate
$14,000,000.
-15-
<PAGE>
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 were 9% below 1998 primarily due to
7% lower retread material unit volume. Net sales were also negatively impacted
by a 29% decline in equipment sales. The North American sales decline was due to
competitive pressures and industry consolidation in the United States, which is
expected to continue into 2000 and beyond, as well as some dealer separations in
the United States. A 5% decrease in average raw material costs from 1998 yielded
a 3.2-percentage-point improvement in North America's gross profit margin over
1998. North American operating expenses, which included $12,800,000 of
non-recurring charges, were 8% lower than 1998. However, operating expenses
exclusive of non-recurring charges decreased by 18% due to decreases in R&D
projects, marketing programs, promotional expenses, and personnel-related costs.
Earnings before income taxes for 1999 decreased 4% from 1998.
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
declined 7% from 1998 on a 5% retread material unit volume decrease. The 2
percentage point spread between the net sales decrease and the retread material
unit volume decrease is due to the lower translated value of the Belgium franc.
Gross profit margin decreased .4 percentage points from 1998 due to the
inclusion of lower margin service revenue. Operating expenses decreased 21% from
1998 due to lower personnel and marketing costs in the current year and
non-recurring costs included in 1998. The increase in earnings before income
taxes over 1998 reflected the decline in operating expenses.
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. In general, Latin American operating results were
significantly affected by the devaluation of the Brazilian real. Net sales in
Latin America declined 19% from 1998 on a retread material unit volume decrease
of 3% and lower translated value of foreign-currency-denominated sales. The
decline in retread material unit volume was driven by fewer exports from North
America coupled with lower shipments in South Africa due to South African
economic constraints and increased competition. The gross profit margin
increased by .7 percentage points over 1998 due to price increases in South
Africa and lower production costs and higher margins on locally produced
products in Mexico. Operating expense levels for each country were comparable to
1998 relative to the respective change in unit volume, except for Mexico, which
experienced lower operating expenses in 1999 due to higher severance, bad debt,
and staffing expense incurred in 1998. Primarily as a result of lower sales,
earnings before income taxes were 13% below 1998.
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 declined 9% as a result of a 4% decrease in retread
material unit volume, lower exported equipment sales, and
-16-
<PAGE>
reduced new tire sales in New Zealand. Lower raw material costs and higher
margins on export shipments in Malaysia were partially offset by the higher cost
of imported retread materials in New Zealand, resulting in a
2.1-percentage-point increase in the gross profit margin over 1998. Operating
expenses for the year declined 54% from 1998 mainly due to the non-recurring
charges in 1998 which reduced personnel-related costs and managerial and
administrative support costs. Earnings before income taxes for 1999 showed
significant improvement principally due to lower operating expenses.
TIRE DISTRIBUTION SYSTEMS, INC.
Excluding the effect of acquisitions, TDS sales declined 2% from 1998, from
$376,557,000 to $369,944,000, due primarily to discontinuing the sale of certain
off-the-road tires. From an operating perspective, TDS continued to make
progress in integrating the dealerships it has acquired since 1997. TDS's
operating expenses were 15% above 1998. Operating expenses were unfavorably
impacted in 1999 by the integration of new acquisitions and the consolidation of
the Central Division office into the Eastern Division headquarters. In 1999, TDS
recorded a loss before interest and taxes of $2,510,000 compared to earnings
before interest and taxes of $2,517,000 in 1998. The decrease in earnings before
interest and taxes from 1998 reflect the unfavorable impact of current year
acquisitions and the cost of consolidating certain operations.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
GENERAL
Results include both the Company's Traditional Business and TDS. The
comparability of operating results between years is affected by TDS, which
commenced operations effective November 1, 1997 with the acquisition of five
tire dealerships and which acquired several additional dealerships throughout
1998, and also by certain non-recurring items.
Consolidated net sales in 1998 increased 29% from 1997. This increase was solely
attributable to the TDS operations, as Traditional Business net sales were 5%
below 1997. Of this 5% decrease, approximately 2 percentage points were a result
of lower translated value of the Company's foreign-currency-denominated sales.
The remaining 3-percentage-point decrease resulted from lower equipment sales.
The Company's seasonal sales pattern was similar to previous years and both
business segments were similarly affected.
Gross profit margin for the Company's Traditional Business increased by 1.7
percentage points due to lower raw material costs in the U.S. and Mexico. Gross
profit margins in Europe, Brazil and South Africa remained steady. Inclusion of
the TDS operations, which operate at a lower gross margin, decreased
consolidated gross margin by 3.1 percentage points.
Consolidated operating and other expenses in 1998 increased 30% from 1997. A
full year of TDS operating and other expenses accounted for 27 percentage points
of this increase. The remaining 3-percentage-point increase in operating and
other expenses was attributable to continued business development, and the
rationalization of unnecessary infrastructure to
-17-
<PAGE>
improve profitability. The additional business development spending was to
improve capabilities to further build the dealer alliance and to prepare the
Company for the introduction of tire management outsourcing in early 1999. The
lower Traditional Business sales and the higher operating expenses resulted in a
net earnings decline of 20% in 1998 before non-recurring items. The Company's
consolidated effective income tax rate of 40.4% was higher than the 1997 rate of
39.9% principally due to the impact of a full year of nondeductible TDS goodwill
amortization.
Diluted earnings per share were $2.63 in 1998 compared to $5.33 in 1997. Diluted
earnings per share in 1997 included the effect of a non-recurring gain on the
sale of marketable equity securities of $55,800,000 after tax, or $2.44 per
diluted share, and non-recurring charges of $9,900,000, net of tax benefits, or
$.43 per diluted share, related to the closing of a manufacturing facility and
exit costs from a rubber recycling venture. Fourth quarter and full year 1998
diluted earnings per share benefited by $.12 per diluted share as a result of a
lower effective tax rate in the fourth quarter compared to 1997. Refer to Note B
of the notes to the consolidated financial statements for discussion of
non-recurring items.
Non-recurring charges in 1998 relate to the closure of foreign manufacturing
facilities, employee reductions and other exit costs. In 1998, the Company
closed manufacturing facilities in Indonesia and New Zealand and a regional
office in Hong Kong, all in response to the economic crisis in the area. The
Company also took actions in Europe to bring expenses more in line with lower
sales volume expectations.
TRADITIONAL BUSINESS
Net sales in North America were 4% below 1997 due to 1% lower retread material
unit volume, 2% from the absence of sales from the rubber recycling venture, and
1% attributable to product mix. Gross profit margin improved 2 percentage points
because average raw material costs were lower than 1997's average. As a result
of the higher gross profit margin and lower expenses, earnings before income
taxes in 1998 increased 11% from 1997.
Net sales in Europe declined 9% from 1997, despite a slight increase in retread
material unit volume. Four percentage points of the decline were due to the
lower translated value of the Belgian franc. The remaining 5-percentage-point
decline resulted mainly from lower equipment sales. Gross profit margin in 1998
increased 1 percentage point from 1997,resulting from decreased lower-margin
equipment sales and lower-per-unit-capacity costs due to higher production.
Operating expenses decreased 1% from 1997 due to the lower translated value of
the Belgian franc. In local currency, 1998 operating expenses were 3% over 1997
due to non-recurring costs and additional bad debt expense. Principally as a
result of the lower sales, earnings before income taxes declined by 45% from
1997.
Latin America exceeded 1997 retread material unit volume by 11%, but net sales
increased only 3% due to lower equipment sales in Brazil, Mexico, the Andean
area and South Africa and the lower translated value of foreign currencies.
Gross profit margin increased by 1 percentage point over 1997 mainly due to
lower raw material costs and higher production in Mexico. The other areas were
basically even with 1997. The volume growth in Brazil and
-18-
<PAGE>
Mexico drove a 25% increase over 1997 in operating expenses. Also contributing
to the operating expense increase were severance and higher staffing expense.
Principally because of the higher operating expenses, earnings before income
taxes were 18% below 1997.
Net sales declined 34% in Asia as a result of a 17% decline in retread material
unit volume, lower equipment sales in Malaysia, reduced new tire sales in New
Zealand and the devaluation of currencies throughout Asia. Gross profit margin
increased 2 percentage points over 1997 due to the absence of lower-margin
equipment sales in Malaysia, increased higher-margin export sales from Malaysia
and higher production in Indonesia. Operating expenses increased slightly over
1997 with the inclusion of non-recurring charges in 1998. The decline in
earnings before income taxes from 1997 reflect the significant drop in net
sales.
TIRE DISTRIBUTION SYSTEMS, INC.
TDS operating results reflect a full year for 1998. Net sales and earnings
before income taxes and interest for TDS were $376,557,000 and $2,517,000,
respectively. TDS had to replace two major new tire brands during the year, but
same store-sales were down only slightly. From an operating perspective, TDS
continued to make progress in integrating the acquired dealerships. The TDS
integration strategy calls for the sale of acquired retail or manufacturing
locations in markets more appropriately served by other independent Bandag
dealers. For this reason, during 1998 several locations were sold to independent
Bandag dealers. In addition, a wholesale business was closed and several retail
locations were consolidated.
IMPACT OF INFLATION AND CHANGING PRICES
It has generally been the Company's practice to adjust its selling prices and
sales allowances to reflect changes in production and raw material costs in
order to maintain its gross profit margin. In the past three years, costs have
remained relatively constant and the Company has not found it necessary to
implement general price increases. However, the Company foresees a rise in raw
material costs in 2000 due to increasing oil prices. Accordingly, the Company
may adjust prices in the near future. The Company's gross profit margin could be
negatively impacted if resulting price adjustments fail to fully offset any
increase in raw material costs.
Replacement of fixed assets requires a greater investment than the original
asset cost due to the impact of general price level increases over the useful
lives of plant and equipment. This increased capital investment would result in
higher depreciation charges affecting both inventories and cost of products
sold.
CAPITAL RESOURCES AND LIQUIDITY
At the end of 1999, current assets exceeded current liabilities by $274,065,000.
Cash and cash equivalents totaled $50,633,000 at December 31, 1999, increasing
by $12,721,000 during the year. The Company invests excess funds over various
terms, but only instruments with an original maturity date of over 90 days are
classified as investments. These investments decreased by $260,000 from 1998.
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<PAGE>
The only changes in working capital requirements are for normal business growth.
The Company funds its capital expenditures from the cash flow it generates from
operations. During 1999, the Company spent $41,903,000 for capital expenditures.
The Company believes that spending in recent years is representative of future
capital spending needs. In addition, the Company made $6,899,000 in cash
payments in 1999 for acquisitions of TDS businesses.
As of December 31, 1999, the Company had available uncommitted lines of credit
totaling $71,924,000 in the United States for working capital purposes. Also,
the Company's foreign subsidiaries had approximately $34,343,000 in credit and
overdraft facilities available to them. From time to time during 1999, the
Company borrowed funds to supplement operational cash flow needs or to settle
intercompany transactions. The Company's long-term liabilities totaled
$111,151,000 at December 31, 1999, which is approximately 20% of the combined
total of long-term liabilities and stockholders' equity; this is an increase of
$1,394,000 from December 31, 1998.
During the year, the Company purchased 1,214,000 shares of its outstanding
Common Stock and Class A Common Stock for $25,082,000 at prevailing market
prices and paid cash dividends amounting to $25,001,000. The Company generally
funds its dividends and stock repurchases from the cash flow generated from its
operations. Historically, the Company has utilized excess funds to purchase its
own shares.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
The Company is exposed to market risk from changes in interest rates, foreign
exchange rates, and commodity prices. To mitigate such risks, the Company enters
into various hedging transactions. All hedging transactions are authorized and
executed pursuant to clearly defined Company policies and procedures, which
strictly prohibit the use of financial instruments for trading purposes.
Analytical techniques and selective hedging instruments are applied to manage
and monitor such market exposures.
Foreign Currency Exposure
Foreign currency exposures arising from cash flow transactions include firm
commitments and anticipatory transactions. Translation exposure is also part of
the overall foreign exchange risk. The Company's exposure to foreign currency
risks exists primarily with the Brazilian real, Canadian dollar, Mexican peso,
Japanese yen and major European currencies. The Company regularly enters into
foreign currency contracts primarily using foreign exchange forward contracts
and options to hedge most of its firm commitment exposures. The Company also
employs foreign exchange forward contracts as well as option contracts to hedge
approximately 40% - 60% of its anticipated future cash flow transactions over a
period of one year. The notional amount of these contracts at December 31, 1999,
was $7,688,000. The Company also limits its exposure to foreign currency
fluctuations by entering into offsetting asset or liability positions and by
establishing and monitoring limits on unmatched positions. The Company's
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<PAGE>
pretax earnings from foreign subsidiaries and affiliates translated into U.S.
dollars using a weighted average exchange rate was $42,904,000 for the year
ending December 31, 1999. On that basis, the potential loss in the value of the
Company's pretax earnings from foreign subsidiaries resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates would
amount to $3,522,000.
Interest Rate Exposure
In order to mitigate the impact of fluctuations in the general level of interest
rates, the Company generally maintains a large portion of its debt as fixed rate
in nature by borrowing on a long-term basis. At December 31, 1999, the Company
had no outstanding short-term debt. The total outstanding long-term debt was
$100,000,000. At year-end, the fair value of the Company's long-term debt was
$98,170,000. In addition, at December 31, 1999, the fair value of securities
held for investment was $11,440,000. The fair value of the Company's total
long-term debt and its securities held for investment would not be materially
affected by a hypothetical 10% adverse change in interest rates. Therefore, the
effects of interest rates changes in the fair value of the Company's financial
instruments are limited.
Commodities Exposure
Due to the nature of its business, the Company procures almost all of its
synthetic rubber used in manufacturing tire tread at quarterly fixed rates using
contracts with the Company's main suppliers. Therefore, the Company's exposure
to changes in commodity prices is insignificant.
IMPACT OF YEAR 2000
The Company completed all Year 2000 readiness work by December 31, 1999, and, as
a result, experienced no significant problems during, and subsequent to, the
change to the new calendar year. The Company does not expect to have any further
exposure to the Year 2000 issue.
The cumulative amount spent related to the Year 2000 issue totaled $11,266,000.
Of this total, $6,665,000 was recorded as expense in the year incurred and the
remaining $4,601,000, which was spent to replace hardware and software and
upgrade existing hardware, was capitalized. The Company does not expect to have
significant expenditures in the future relating to the Year 2000 issue.
EURO CONVERSION
On January 1, 1999, eleven member countries of the European Union established
fixed conversion rates between their existing currencies ("legal currencies")
and one common currency, the euro. The euro is now trading on currency exchanges
and may be used in certain transactions such as electronic payments. Beginning
in January 2002, new euro-denominated notes and coins will be issued, and legal
currencies will be withdrawn from circulation. The conversion to the euro has
eliminated currency exchange rate risk for transactions between the member
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<PAGE>
countries, which for the Company primarily consists of sales to certain
customers and payments to certain suppliers.
The Company has addressed the issues involved with the new currency, which
include converting information technology systems and recalculating currency
risk, and revised its processes for preparing accounting and taxation records.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements. These
forward-looking statements can be identified as such because the context of the
statement includes phrases such as "is expected," "the Company anticipates,"
"the Company expects," "the Company foresees," "the Company believes," "the
Company does not expect," or other words of similar import. Similarly,
statements that describe future plans or strategies are also forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those currently
anticipated. Factors which could affect actual results include the effect of
currency exchange rates; the devaluation of foreign currencies, particularly the
Brazilian real; the effectiveness of the Company's hedging techniques;
additional dealer separations; and the increase in raw material costs. These
factors should be considered in evaluating the forward-looking statements, and
undue reliance should not be placed on such statements. The forward-looking
statements included herein are made as of the date hereof and Bandag,
Incorporated undertakes no obligation to update publicly such statements to
reflect subsequent events or circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
See the discussion under the caption "Quantitative and Qualitative Disclosures
About Market Risk" in Item 7 of this Form 10-K, "Management's Discussion and
Analysis of Operations and Financial Condition," which is incorporated herein by
reference.
-22-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
Index to Consolidated Financial Statements
------------------------------------------
Page
----
Report of Independent Auditors 24
Consolidated Balance Sheets as of December 31, 1999, 1998 and 1997 25
Consolidated Statements of Earnings for the Years Ended
December 31, 1999, 1998 and 1997 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 27
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997 28
Notes to Consolidated Financial Statements 30
-23-
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Bandag, Incorporated
We have audited the accompanying consolidated balance sheets of Bandag,
Incorporated and subsidiaries as of December 31, 1999, 1998, and 1997, and the
related consolidated statements of earnings, cash flows and changes in
stockholders' equity for the years then ended. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bandag,
Incorporated and subsidiaries at December 31, 1999, 1998, and 1997, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
January 27, 2000
-24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets December 31
In thousands 1999 1998 1997
----------- ----------- -----------
Assets
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 50,633 $ 37,912 $ 196,400
Investments - Note D 9,461 9,721 1,575
Accounts receivable, less allowance
(1999 - $20,761; 1998 - $18,724; 1997 - $12,707) 199,710 217,299 231,648
Inventories:
Finished products 94,278 96,889 90,228
Material and work in process 16,244 14,845 17,295
----------- ----------- -----------
110,522 111,734 107,523
Deferred income tax assets 46,804 48,097 41,505
Prepaid expenses and other current assets 10,988 14,361 20,343
----------- ----------- -----------
Total Current Assets 428,118 439,124 598,994
Property, Plant, and Equipment, on the basis of cost:
Land 12,651 12,444 8,494
Buildings and improvements 119,157 107,240 98,769
Machinery and equipment 357,906 351,949 326,632
Construction and equipment installation in progress 13,073 32,112 25,551
----------- ----------- -----------
502,787 503,745 459,446
Less allowances for depreciation and amortization (304,802) (290,699) (261,846)
----------- ----------- -----------
197,985 213,046 197,600
Intangible Assets, less accumulated amortization
(1999 - $24,071; 1998 - $14,157; 1997 - $5,516) 67,331 75,539 75,627
Other Assets 28,987 28,020 27,683
=========== =========== ===========
Total Assets $ 722,421 $ 755,729 $ 899,904
=========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 33,472 $ 38,286 $ 52,100
Accrued employee compensation and benefits 25,530 27,498 28,874
Accrued marketing expenses 27,190 37,044 32,608
Other accrued expenses 39,696 40,623 66,921
Dividends payable 6,127 6,257 6,274
Income taxes payable 18,998 13,704 20,039
Short-term notes payable and current portion of other obligations 3,040 11,497 99,726
----------- ----------- -----------
Total Current Liabilities 154,053 174,909 306,542
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Long-Term Debt and Other Obligations - Note E 111,151 109,757 123,195
Deferred Income Tax Liabilities 3,142 3,766 6,753
Stockholders' Equity - Note I
Common Stock; $1.00 par value; authorized - 21,500,000 shares;
issued and outstanding - 9,088,403 shares in 1999; 9,083,797 shares
in 1998; 9,751,063 shares in 1997 9,088 9,084 9,751
Class A Common Stock; $1.00 par value; authorized - 50,000,000 shares;
issued and outstanding - 9,637,187 shares in 1999; 10,824,974 shares
in 1998; 11,013,561 shares in 1997 9,637 10,825 11,014
Class B Common Stock; $1.00 par value; authorized - 8,500,000 shares;
issued and outstanding - 2,045,251 shares in 1999; 2,046,577 shares
in 1998; 2,048,785 shares in 1997 2,045 2,047 2,049
Additional paid-in capital 7,476 7,287 6,052
Retained earnings 456,247 452,274 445,887
Accumulated other comprehensive income (30,418) (14,220) (11,339)
----------- ----------- -----------
Total Stockholders' Equity 454,075 467,297 463,414
=========== =========== ===========
Total Liabilities and Stockholders' Equity $ 722,421 $ 755,729 $ 899,904
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-25-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Earnings Year Ended December 31
In thousands, except per share data 1999 1998 1997
----------- ----------- -----------
Income
<S> <C> <C> <C>
Net sales $ 1,012,665 $ 1,059,669 $ 822,523
Gain on sale of marketable equity securities - Note D - - 95,087
Other income 15,213 19,829 14,092
----------- ----------- -----------
1,027,878 1,079,498 931,702
Costs and Expenses
Cost of products sold 619,926 653,301 482,387
Engineering, selling, administrative and other expenses 292,635 311,707 226,560
Non-recurring charges - Note B 13,500 4,205 16,500
Interest expense 9,727 10,772 3,339
----------- ----------- -----------
935,788 979,985 728,786
----------- ----------- -----------
Earnings Before Income Taxes 92,090 99,513 202,916
Income Taxes - Note F 39,760 40,194 80,922
=========== =========== ===========
Net Earnings $ 52,330 $ 59,319 $ 121,994
=========== =========== ===========
Net Earnings Per Share - Note G:
Basic $ 2.41 $ 2.64 $ 5.35
=========== =========== ===========
Diluted $ 2.40 $ 2.63 $ 5.33
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows Year Ended December 31
In thousands 1999 1998 1997
----------- ----------- -----------
Operating Activities
<S> <C> <C> <C>
Net earnings $ 52,330 $ 59,319 $ 121,994
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provisions for depreciation and amortization 53,764 51,410 36,857
Change in deferred income taxes 579 (9,758) (13,375)
Gain on sale of marketable equity securities - - (95,087)
Other (4,173) (2,306) (9,680)
Change in operating assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable 13,481 16,964 11,863
Inventories (2,007) (1,378) 847
Prepaid expenses and other current assets 1,466 4,771 (6,824)
Accounts payable and other accrued expenses (9,284) (26,246) 16,577
Income taxes payable 6,263 (6,168) 8,130
----------- ----------- -----------
Net Cash Provided by Operating Activities 112,419 86,608 71,302
Investing Activities
Additions to property, plant and equipment (41,903) (65,375) (42,223)
Proceeds from dispositions of property, plant, and equipment 3,503 4,128 4,117
Purchases of investments (11,784) (20,941) (3,645)
Maturities of investments 12,044 12,795 4,159
Payments for acquisitions of businesses (6,899) (17,542) (47,659)
Sale of marketable equity securities - - 119,558
----------- ----------- -----------
Net Cash Provided by (Used in) Investing Activities (45,039) (86,935) 34,307
Financing Activities
Proceeds from short-term notes payable 538 48,590 11,491
Proceeds from issuance of long-term debt - - 100,000
Principal payments on short-term notes payable and long-term obligations (2,717) (151,328) (18,422)
Cash dividends (25,001) (24,867) (23,395)
Purchases of Common Stock and Class A Common Stock (25,082) (29,353) (8,643)
----------- ----------- -----------
Net Cash Provided by (Used in) Financing Activities (52,262) (156,958) 61,031
Effect of exchange rate changes on cash and cash equivalents (2,397) (1,203) (1,693)
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 12,721 (158,488) 164,947
Cash and cash equivalents at beginning of year 37,912 196,400 31,453
=========== =========== ===========
Cash and Cash Equivalents at End of Year $ 50,633 $ 37,912 $ 196,400
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE>
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Common Stock Class A Common Class B Common Accumulated
Issued and Stock Issued Stock Issued Additional Other
In thousands, except per Outstanding and Outstanding and Outstanding Paid-In Retained Comprehensive Comprehensive
share data Shares Amount Shares Amount Shares Amount Capital Earnings Income Income
---------- ------ ---------- ------- --------- ------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 9,842,861 $9,843 11,027,759 $11,028 2,051,984 $2,052 $4,069 $355,663 $28,212
Net earnings for the year 121,994 $121,994
Other comprehensive income,
net of tax:
Unrealized gain on
securities available-
for-sale (33,854) (33,854)
Adjustment from foreign
currency translation (5,697) (5,697)
---------
Other comprehensive income
for the year (39,551)
---------
Comprehensive income for
the year $82,443
=========
Cash dividends - $1.0250
per share (23,395)
Conversion of Class B
Common Stock to
Common Stock - Note I 3,199 3 (3,199) (3)
Common Stock and Class A
Common Stock issued under
Restricted Stock Grant
Plan - Note I 6,840 6 6,840 7 663
Forfeitures of Common Stock
and Class A Common Stock
under Restricted Stock
Grant Plan - Note I (2,145) (2) (1,765) (2) (193)
Common Stock and Class A
Common Stock issued under
Stock Award Program
Plan - Note I 2,708 3 2,708 3 245
Purchases of Common Stock
and Class A Common Stock (122,400) (122) (51,981) (52) (94) (8,375)
Stock options exercised -
Note I 20,000 20 20,000 20 885
Stock issued in acquisition
of businesses - Note C 10,000 10 477
--------- ------ ----------- ------- --------- ------ ------ -------- ---------
Balance at December 31, 1997 9,751,063 $9,751 11,013,561 $11,014 2,048,785 $2,049 $6,052 $445,887 $(11,339)
Net earnings for the year 59,319 $59,319
Other comprehensive income,
net of tax -
Adjustment from foreign
currency translation (2,881) (2,881)
-------
Comprehensive income for
the year $56,438
=======
Cash dividends - $1.1100
per share (24,867)
Conversion of Class B
Common Stock to Common
Stock - Note I 2,208 2 (2,208) (2)
Common Stock and Class A
Common Stock issued under
Restricted Stock Grant
Plan - Note I 10,635 11 10,635 10 753
Forfeitures of Common Stock
and Class A Common Stock
under Restricted Stock
Grant Plan - Note I (3,865) (4) (2,685) (3) (330)
Common Stock and Class A
Common Stock issued under
Stock Award Program
Plan - Note I 2,838 3 2,838 3 297
Purchases of Common Stock
and Class A Common Stock (699,082) (699) (219,375) (219) (370) (28,065)
Stock options exercised
- Note I 20,000 20 20,000 20 885
--------- ------ ---------- ------- --------- ------ ------ -------- --------
Balance at December 31, 1998 9,083,797 $9,084 10,824,974 $10,825 2,046,577 $2,047 $7,287 $452,274 $(14,220)
</TABLE>
-28-
<PAGE>
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity (continued)
<CAPTION>
Common Stock Class A Common Class B Common Accumulated
Issued and Stock Issued Stock Issued Additional Other
In thousands, except per Outstanding and Outstanding and Outstanding Paid-In Retained Comprehensive Comprehensive
share data Shares Amount Shares Amount Shares Amount Capital Earnings Income Income
---------- ------ ---------- ------- --------- ------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings for the year 52,330 $52,330
Other comprehensive income,
net of tax -
Adjustment from foreign
currency translation (16,198) (16,198)
--------
Comprehensive income for
the year $36,132
========
Cash dividends - $1.1500
per share (24,871)
Conversion of Class B Common
Stock to Common Stock -
Note J 1,326 1 (1,326) (2)
Common Stock and Class A
Common Stock issued under
Restricted Stock Grant
Plan - Note J 5,115 5 5,115 5 218
Forfeitures of Common Stock
and Class A Common Stock
under Restricted Stock
Grant Plan - Note J (3,720) (4) (3,180) (3) (305)
Common Stock and Class A
Common Stock issued under
Stock Award Program Plan-
Note J 3,018 3 3,018 3 209
Purchases of Common Stock
and Class A Common Stock (21,133) (21) (1,192,740) (1,193) (382) (23,486)
Stock options exercised
- Note I 20,000 20 449
---------- ------ ---------- ------ --------- ------ ------ -------- --------
Balance at December 31, 1999 9,088,403 $9,088 9,637,187 $9,637 2,045,251 $2,045 $7,476 $456,247 $(30,418)
========== ====== ========= ====== ========= ====== ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
-29-
<PAGE>
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts and transactions of
all subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amounts
reported in the consolidated balance sheets for cash and cash equivalents
approximates its fair value.
Accounts Receivable and Concentrations of Credit Risk:
Concentrations of credit risk with respect to accounts receivable are limited
due to the number of customers the Company has and their geographic dispersion.
The Company maintains close working relationships with these customers and
performs ongoing credit evaluations of their financial condition. No one
customer is large enough to pose a significant financial risk to the Company.
The Company maintains an allowance for losses based upon the expected
collectibility of accounts receivable. Credit losses have been within
management's expectations.
Inventories:
Inventories are valued at the lower of cost or market. Approximately 43%, 47%
and 52% of year end inventory amounts at December 31, 1999, 1998 and 1997,
respectively, were determined by the last in, first out (LIFO) method and on the
first in, first out method for the remainder.
The excess of current cost over the amount stated for inventories valued by the
LIFO method amounted to approximately $20,138,000, $21,932,000, and $22,635,000,
at December 31, 1999, 1998, and 1997, respectively.
Property, Plant, and Equipment:
Provisions for depreciation of plant and equipment is computed using
straight-line and declining-balance methods, over the following estimated useful
lives:
Buildings 5 to 50 years
Building Improvements 3 to 40 years
Machinery and Equipment 3 to 15 years
-30-
<PAGE>
Depreciation expense approximated $43,850,000, $42,769,000, and $34,576,000 in
1999, 1998, and 1997, respectively.
Intangible Assets:
Intangible assets, which principally represent the cost in excess of the fair
value of the net assets acquired in acquisitions of businesses, are amortized
using the straight-line method over 10 years. At December 31, 1999, 1998, and
1997, net goodwill amounted to $64,621,000, $72,161,000, and $74,600,000,
respectively. Amortization expense approximated $9,914,000, $8,641,000, and
$2,281,000 in 1999, 1998, and 1997, respectively.
Foreign Currency Translation:
Assets and liabilities of foreign subsidiaries are translated at the year end
exchange rate and items of income and expense are translated at the average
exchange rate for the year. Exchange gains and losses arising from translations
denominated in a currency other than the functional currency of the foreign
subsidiary and translation adjustments in countries with highly inflationary
economies or in which operations are directly and integrally linked to the
Company's U.S. operations are included in income.
Long Lived Assets:
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", when indicators of impairment are present, the Company
evaluates the carrying value of property, plant, and equipment and intangibles,
including goodwill, in relation to the operating performance and future
undiscounted cash flows of the underlying businesses. The Company adjusts the
net book value of the underlying assets to fair value if the sum of the expected
future cash flows is less than book value.
Research and Development:
Expenditures for research and development, which are expensed as incurred,
approximated $12,325,000, $18,342,000, and $16,159,000, which includes
$1,050,000, $5,709,000, and $1,407,000 relating to costs associated with the
conceptual design of Tire Management Solutions, Inc. (TMS) business processes,
in 1999, 1998, and 1997, respectively.
Advertising:
The Company expenses all advertising costs in the year incurred. Advertising
expense was $5,305,000, $9,057,000, and $10,931,000 in 1999, 1998, and 1997,
respectively.
Revenue Recognition:
Sales and associated costs are recognized at the time of delivery of products or
performance of services.
Derivative Instruments and Hedging Activities:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
effective for fiscal
-31-
<PAGE>
years beginning after June 15, 2000. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through earnings. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivatives will either be offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
effect of SFAS No. 133 on the earnings and the financial position of the Company
will be significant.
Stock Based Compensation:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the quoted market price
of the company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
Reclassification:
Certain prior year amounts have been reclassified to conform with the current
year presentation.
B. NONRECURRING 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 cover 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. Of
the total number of employees affected, benefit payments of $2,161,000 have been
made during the year for 56 employees. Further employee termination costs of
$6,433,000 are accrued at December 31, 1999. 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.
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.
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
-32-
<PAGE>
$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
include 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 and reduced the original provision by $159,000. Remaining employee
termination costs of $701,000 have been accrued at December 31, 1999. 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 lower than original estimates. The Company's
remaining obligation to be paid in 2000 for facility closure and other exit
costs as of December 31, 1999 is $918,000.
During the fourth quarter of 1997, the Company recorded non-recurring charges
totaling $16,500,000 ($9,900,000 net of tax benefits). The non-recurring charges
include a provision of $13,000,000 to adjust the asset carrying amounts of
$9,733,000 and to cover exit costs from a rubber recycling venture. During 1998,
the Company completed the sale of its investment in the rubber recycling
venture. There were no significant adjustments related to the sale. During 1997,
$3,500,000 was recorded for the 1998 closing of a domestic manufacturing
facility, including attendant personnel reductions. As of December 31, 1998, the
Company had paid $2,270,000 related to the closure of the facility. In 1999, the
Company paid $662,000 to complete the closure of the domestic manufacturing
facility. The remainder of $568,000 was adjusted to income due to reduced costs
on the demolition and disposal of the building. The net sales and results of
operations of the rubber recycling venture included in the Company's
consolidated statements of earnings in 1998 and 1997 were not significant.
C. ACQUISITIONS
During 1999, the Company acquired four tire dealerships that are a part of Tire
Distribution Systems, Inc. (TDS), a wholly-owned subsidiary of the Company. The
dealerships were acquired for a total of $7.1 million in cash and short-term
payables. During 1998, the Company acquired five tire dealerships and two
retread tire facilities that are a part of TDS. The dealerships were acquired
for a total of $20.5 million in cash and short-term payables. Also, during the
fourth quarter of 1997, TDS acquired five tire dealerships for a total of $158.6
million in cash, short-term notes payable and 10,000 shares of Bandag Class A
Common Stock. All of these dealerships were Bandag franchisees at the time of
acquisition and are in the business of selling and servicing new and retread
tires, primarily for commercial and industrial vehicles.
The acquisitions were accounted for using the purchase method of accounting.
Accordingly, the purchase price for each acquisition was allocated to the
respective assets and liabilities based on their estimated fair values as of the
date of acquisition. The accounts and transactions of the acquired businesses
have been included in the consolidated financial statements from the respective
effective dates of the acquisitions.
-33-
<PAGE>
Pro forma results of operations for 1999 and 1998, assuming the purchase
transaction occurred as of January 1, 1998, would not differ materially from
reported amounts.
Certain supplemental non-cash information related to the Company's acquisitions
of businesses are as follows:
In thousands 1999 1998 1997
---------------------------------------------
Assets acquired $7,413 $22,187 $248,724
Less liabilities (1) (514) (4,630) (177,387)
Less stock issued (2) - - (487)
------------------------------------------
Cash paid 6,899 17,557 70,850
Less cash acquired - (15) (23,191)
==========================================
Net cash paid for acquisitions $6,899 $17,542 $ 47,659
==========================================
(1) Includes short-term payables to sellers of $160,000, $2,960,000 and
$87,224,000 in 1999, 1998, and 1997, respectively.
(2) Represents fair market value of Class A Common Stock issued to sellers.
NOTE D. INVESTMENTS
Debt securities are classified as held-to-maturity based upon the positive
intent and ability of the Company to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion is included in investment income. Interest on
securities classified as held-to-maturity is included in investment income. The
cost of securities sold is based on the specific identification method.
During the fourth quarter 1997, the Company sold its investment in marketable
equity securities. As a result, a realized gain of $95,087,000 was included in
the Consolidated Statements of Earnings for 1997. Dividends on securities
classified as available-for-sale are included in investment income.
The following is a summary of securities held-to-maturity:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
In thousands Cost Gains (Losses) Value
---------------------------------------------
December 31, 1999
<S> <C> <C> <C> <C>
Securities Held-to-Maturity
Obligations of states and political subdivisions $11,461 $ 1 $(22) $11,440
=============================================
December 31, 1998
Securities Held-to-Maturity
Obligations of states and political subdivisions $21,221 $15 - $21,236
=============================================
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
<S> <C> <C> <C> <C>
Securities Held-to-Maturity
Obligations of states and political subdivisions $38,561 - - $38,561
Investment in Eurodollar time deposits 2,600 - - 2,600
=============================================
$41,161 - - $41,161
=============================================
</TABLE>
At December 31, 1999, 1998 and 1997, securities held-to-maturity are due in one
year or less and include $2,000,000, $11,500,000, and $39,586,000, respectively,
reported as cash equivalents.
NOTE E. FINANCING ARRANGEMENTS
The following summarizes information concerning the Company's short-term notes
payable:
Year Ended December 31
In thousands 1999 1998 1997
--------------------------------
Total short-term notes payable at year end $ - $2,091 $90,628
Weighted average interest rate at year end - 3.6% 6.4%
Weighted average interest rate for the year 3.9% 5.0% 6.0%
At December 31, 1997, short-term notes payable includes $87,224,000 related to
the businesses acquired in 1997 (See Note C).
The following is a summary of the Company's long-term debt and other obligations
as of December 31:
Interest
In thousands Rates 1999 1998 1997
--------------------------------------
Senior Unsecured Notes Payable, maturing
2002 6.41% $ 60,000 $ 60,000 $ 60,000
Senior Unsecured Notes Payable, maturing
2007 6.50% 40,000 40,000 40,000
------------------------------
Total long-term debt 100,000 100,000 100,000
Other obligations 11,151 9,757 23,195
==============================
Total long-term debt and other obligations $111,151 $109,757 $123,195
==============================
The aggregate amount of scheduled annual maturities of long-term debt and other
obligations for each of the next five years is: $3,040,000 in 2000, $6,713,000
in 2001, $66,594,000 in 2002, $6,138,000 in 2003, $5,930,000 in 2004, and
$25,776,000 thereafter.
Cash payments for interest on debt were $9,189,000, $10,869,000, and $3,143,000
in 1999, 1998, and 1997, respectively.
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<PAGE>
The fair values of the Company's financing arrangements were estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. At December 31,
1999, 1998 and 1997, the fair value of the Company's outstanding long-term debt
was approximately $98,170,00, $105,656,000, and $100,673,000, respectively.
Total available funds under unused lines of credit at December 31, 1999 amounted
to $106,267,000.
NOTE F. INCOME TAXES
Significant components of the Company's deferred tax assets (liabilities)
reflecting the net tax effects of temporary differences are summarized as
follows:
December 31
In thousands 1999 1998 1997
-----------------------------------
Employee benefits $ 4,977 $ 4,698 $ 2,749
Marketing programs 20,381 24,916 15,174
Accounts receivable valuation allowances 3,957 3,746 3,111
Unremitted earnings of foreign subsidiaries (9,909) (6,776) (5,625)
Excess pension funding (7,248) (6,297) (4,482)
Purchased tax benefits - - (445)
Cost to exit rubber recycling venture 115 766 4,980
Basis difference in fixed assets 4,085 523 (1,527)
Other nondeductible reserves 4,906 4,984 4,583
Obsolescence and valuation reserves 2,105 2,820 2,824
Insurance and legal reserves 3,412 2,647 3,387
Foreign tax credits and net operating loss
carryforwards 6,844 3,126 -
Equipment and plant reserves 52 496 2,707
Other, net 9,985 8,682 7,316
===================================
Net deferred tax assets $43,662 $44,331 $34,752
===================================
The components of earnings before income taxes are summarized as follows:
Year Ended December 31
In thousands 1999 1998 1997
---------------------------------------
Domestic $49,186 $69,341 $167,126
Foreign 42,904 30,172 35,790
=======================================
Earnings before income taxes $92,090 $99,513 $202,916
=======================================
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<PAGE>
Significant components of the provision for income tax expense (credit) are
summarized as follows:
Year Ended December 31
In thousands 1999 1998 1997
--------------------------------------
Current:
Federal $20,640 $38,071 $70,354
State 2,894 4,526 14,667
Foreign 9,240 7,176 8,886
Deferred:
Federal 6,238 (8,844) (11,619)
State - - -
Foreign 748 (290) (786)
Equivalent credit relating to
purchased income tax benefits - (445) (580)
======================================
Income taxes $39,760 $40,194 $80,922
======================================
A reconciliation of income tax at the statutory rate to the Company's effective
rate is as follows:
Year Ended December 31
1999 1998 1997
------------------------------
Computed at the expected statutory rate 35.0% 35.0% 35.0%
State income tax - net of federal tax benefit 1.8% 2.9% 4.7%
Amortization of goodwill not deductible 2.7% 2.5% -%
Deferred tax on unremitted earnings of foreign
subsidiaries 2.8% 1.1% 0.3%
Other 0.9% (1.1)% (0.1)%
=============================
Income tax at the effective rate 43.2% 40.4% 39.9%
=============================
Undistributed earnings of subsidiaries on which deferred income taxes have not
been provided are not significant.
Income taxes paid amounted to $33,197,000, $56,108,000, and $86,122,000 in 1999,
1998, and 1997, respectively.
NOTE G. EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average number of shares of
Common Stock, Class A Common Stock, Class B Common Stock and dilutive potential
common shares (non-vested restricted stock and stock options) outstanding during
the year.
The following table sets forth the computation of basic and diluted earnings per
share:
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<PAGE>
Year Ended December 31
In thousands , except per share data 1999 1998 1997
--------------------------------------
Numerator -
Net Earnings $52,330 $59,319 $121,994
Denominator:
Weighted-average shares - Basic 21,707 22,471 22,786
Effect of dilutive:
Non-vested restricted stock 40 34 36
Stock options 17 54 86
-------------------------------------
57 88 122
Weighted-average shares - Diluted 21,764 22,559 22,908
=====================================
Net Earnings Per Share:
Basic $2.41 $2.64 $5.35
=====================================
Diluted $2.40 $2.63 $5.33
=====================================
Options to purchase 60,200 shares of Class A Common Stock at an option price of
$33.875 were outstanding during 1999 but were not included in the computation of
diluted earnings per share because the exercise price was greater than the
average market price of the common shares and, therefore, the effect would have
been antidilutive.
NOTE H. LEASES
Certain equipment and operating properties are rented under non-cancelable and
cancelable operating leases. Total rental expense under operating leases was
$14,049,000, $12,508,000, and $8,303,000 for the years ended December 31, 1999,
1998 and 1997, respectively. At December 31, 1999, future minimum lease payments
under operating leases having initial lease terms in excess of one year are:
$8,000,000 in 2000, $5,199,000 in 2001, $3,727,000 in 2002, $2,390,000 in 2003,
$1,629,000 in 2004, and $5,639,000 thereafter
NOTE I. STOCKHOLDERS' EQUITY
Class A Common Stock and Class B Common Stock have the same rights regarding
dividends and distributions upon liquidation as Common Stock. However, Class A
Common Stockholders are not entitled to vote, Class B Common Stockholders are
entitled to ten votes for each share held and Common Stockholders are entitled
to one vote for each share held. Transfer of shares of Class B Common Stock is
substantially restricted and must be converted to Common Stock prior to sale. In
certain instances, outstanding shares of Class B Common Stock will be
automatically converted to shares of Common Stock. Unless extended for an
-38-
<PAGE>
additional period of five years by the Board of Directors, all then-outstanding
shares of Class B Common Stock will be converted to shares of Common Stock on
January 16, 2002.
Under the terms of the Bandag, Incorporated Restricted Stock Grant Plan, the
Company is authorized to grant up to an aggregate of 100,000 shares of Common
Stock and 100,000 shares of Class A Common Stock to certain key employees. The
shares granted under the Plan will entitle the grantee to all dividends and
voting rights; however, such shares will not vest until seven years after the
date of grant. If a grantee's employment is terminated prior to the end of the
seven-year period for any reason other than death, disability or termination of
employment after age 60, the shares will be forfeited and made available for
future grants. A grantee who has attained age 60 and whose employment is then
terminated prior to the end of the seven-year vesting period does not forfeit
the non-vested shares. During the years ended December 31, 1999, 1998, and 1997,
5,115 shares, 10,635 shares and 6,840 shares of Common Stock, respectively, were
granted under the Plan. During the years ended December 31, 1999, 1998 and 1997,
5,115 shares, 10,635 shares and 6,840 shares of Class A Common Stock,
respectively, were also granted under the Plan. The resulting charge to earnings
amounted to $385,000, $1,300,000, and $1,177,000, in 1999, 1998, and 1997,
respectively. During the year ended December 31, 1999, 3,720 shares of Common
Stock and 3,180 shares of Class A Common Stock were forfeited. During the year
ended December 31, 1998, 3,865 shares of Common Stock and 2,685 shares of Class
A Common Stock were forfeited. During the year ended December 31, 1997, 2,145
shares of Common Stock and 1,765 shares of Class A Common Stock were forfeited.
The credit to 1999, 1998 and 1997 earnings related to the shares forfeited was
approximately $312,000, $337,000, and $197,000, respectively. At December 31,
1999, 29,295 shares of Common Stock and 36,965 shares of Class A Common Stock
are available for grant under the Plan.
Under the terms of the Bandag, Incorporated Nonqualified Stock Option Plan, the
Company was authorized through November 13, 1997 to grant options to purchase up
to 500,000 shares of Common Stock and 500,000 shares of Class A Common Stock to
certain key employees at an option price equal to the market value of the shares
on the date of grant. During 1999, options to purchase 20,000 shares of Common
Stock were exercised and during each of 1998 and 1997 options to purchase 20,000
shares of Common Stock and 20,000 shares of Class A Common Stock were exercised.
At December 31, 1999, options to purchase 40,000 shares of Common Stock and
40,000 shares of Class A Common Stock were outstanding and exercisable at
$23.458 per share for Common Stock options and $22.792 per share for Class A
Common Stock options. Options to purchase 20,000 shares of Common Stock and
20,000 shares of Class A Common Stock expire on November 13, 2000, and November
13, 2001.
Under the terms of the Bandag, Incorporated Stock Award Plan, the Company may
award to certain eligible employees and directors incentive stock options,
nonqualified stock options, and restricted stock. Up to 900,000 shares of Class
A Common Stock is authorized for issuance under the Plan. All employees of
Bandag and its subsidiaries and directors of Bandag who are not employees of
Bandag or its subsidiaries are eligible to participate in the Plan. In 1999, the
Company granted options to purchase 60,200 shares of Class A Common Stock to
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<PAGE>
certain key employees at an option price of $33.875 per share. The options
granted under this plan vest over five years and have an option term of ten
years. As of December 31, 1999, options to purchase 60,200 shares of Class A
Common Stock were outstanding at an average exercise price of $33.875 per share.
No options issued under this plan were exercisable at December 31, 1999. The
fair value of the options granted is estimated on the grant date using the
Black-Scholes model. The estimated fair value of the options granted assumes a
dividend yield of 2.15%, a risk free interest rate of 4.9%, an expected option
life of 10 years, and a stock price volatility of 20.67%. The fair value of
options granted during 1999 is $9.96 per option. The Company did not award any
restricted Class A Common Stock under this Plan during the year.
The Company has a stock award program covering substantially all U.S. and
Canadian Traditional Business, corporate, and TMS employees which was
established to promote employee commitment and ownership in the Company. In
1999, 1998, and 1997, $120,000, $225,000, and $283,000, respectively, were
charged to earnings for the estimated cost of awards to be made under the stock
award program.
NOTE J. RETIREMENT BENEFIT PLANS
The Company sponsors defined-benefit pension plans covering full-time employees
directly employed by Bandag, Incorporated, Bandag Licensing Corporation (BLC),
Bandag Canada Ltd., and certain employees in the Company's European operations.
Certain employees of TDS are also covered by defined-benefit plans. In addition
to providing pension benefits, the Company provides certain postretirement
medical benefits to certain individuals who retired from employment before
January 1, 1993. Employees who retire after December 31, 1992 and are at least
age 62 with 15 years of service of direct employment with Bandag, Incorporated,
BLC, and Kendon are eligible for temporary medical benefits that cease at age
65.
The reconciliations of the benefit obligations, the reconciliations of the fair
value of plan assets, and the reconciliations of funded status of the plans, as
determined by consulting actuaries are as follows:
-40-
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
In thousands 1999 1998 1997 1999 1998 1997
------------------------------------------------------------------
Change in benefit obligations:
<S> <C> <C> <C> <C> <C> <C>
Benefit obligations at the beginning of the year $ 73,603 $62,305 $58,357 $4,432 $5,899 $5,427
Service cost 3,796 3,117 2,420 213 264 247
Interest cost 4,785 4,326 3,382 283 407 375
Participants' contributions 51 40 46 - - -
Plan amendments 347 - (539) - - -
Plan merger - - 2,204 - - -
Exchange rate changes 164 (180) (96) - - -
Curtailment gain (459) - - - - -
Settlement loss 190 - - - - -
Special termination benefits 5,629 - - - - -
Settlement payments (898) - - - - -
Benefits paid (2,125) (2,232) (1,637) (67) (85) (306)
Actuarial (gain) or loss (11,445) 6,227 (1,832) (735) (2,053) 156
==================================================================
Benefit obligations at end of year $ 73,638 $73,603 $62,305 $4,126 $4,432 $5,899
==================================================================
Change in plan assets at fair value:
Fair value of plan assets at beginning of year $115,347 $116,304 $ 90,775 $ - $ - $ -
Actual return on plan assets 18,378 966 23,582 - - -
Plan merger - - 2,798 - - -
Employer contributions 100 477 859 67 85 306
Participants' contributions 51 40 46 - - -
Benefits paid (2,125) (2,232) (1,637) (67) (85) (306)
Settlement payments (898) - - - - -
Exchange rate changes 171 (208) (119) - - -
==================================================================
Fair value of plan assets at end of year $131,024 $115,347 $116,304 $ - $ - $ -
==================================================================
Reconciliation of funded status:
Funded status $ 57,386 $ 41,744 $ 53,999 $(4,126) $(4,432) $(5,899)
Unrecognized actuarial gain (41,026) (22,119) (38,737) (3,099) (2,386) (334)
Unrecognized transition asset (3,509) (4,171) (4,968) - - -
Unrecognized prior service cost 748 413 1,054 51 54 58
==================================================================
Prepaid (accrued) benefit cost $ 13,599 $ 15,867 $ 11,348 $(7,174) $(6,764) $(6,175)
==================================================================
Weighted average assumptions:
Discount rate 7.5% 6.5% 7.0% 7.5% 6.5% 7.0%
Rate of increase in future compensation 4.0% 4.5% 4.5% N/A N/A N/A
Expected long-term rate of return on assets 8.0% 8.0% 8.0% N/A N/A N/A
</TABLE>
Assets of the plans are principally invested in U.S. domestic common stocks, and
short term notes and bonds (fixed income securities) with maturities under five
years.
Net periodic (benefit) cost is composed of the following:
-41-
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
In thousands 1999 1998 1997 1999 1998 1997
------------------------------------------------------------------
Components of net periodic (benefit) cost:
<S> <C> <C> <C> <C> <C> <C>
Service cost $3,796 $3,117 $2,420 $213 $264 $247
Interest cost 4,785 4,326 3,382 283 407 375
Expected return on plan assets (9,262) (9,421) (6,950) - - -
Amortization of prior service cost 110 88 123 3 3 3
Amortization of transitional assets (820) (749) (748) - - -
Recognized actuarial gain (617) (1,547) (622) (112) - -
==================================================================
Net periodic (benefit) cost $(2,008) $(4,186) $(2,395) $387 $674 $625
==================================================================
Additional (gain) or loss recognized due to:
Curtailment $5,090 - - - - -
Settlement (184) - - - - -
</TABLE>
The assumed health care cost trend rate is 7% for 2000 and is assumed to
decrease to 6% in 2001. A one-percentage-point change in the assumed health care
cost trend rates would have the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
----------------- ---------------
In thousands
----------------- ---------------
Effect on total of service and interest
cost components $71 $(59)
Effect on postretirement benefit obligation $508 $(435)
The Company also sponsors defined-contribution plans, covering substantially all
employees in the United States. Annual contributions are made in such amounts as
determined by the Company's Board of Directors. Although employees may
contribute up to 15% of their annual compensation from the Company, they are
generally not required to make contributions in order to participate in the
plans. The Company currently provides plans with a variety of contribution
levels (including employee contribution match provisions). The Company recorded
expense for contributions in the amount of $4,132,000, $4,626,000, and
$3,439,000 in 1999, 1998, and 1997, respectively.
Employees in most foreign countries are covered by various retirement benefit
arrangements generally sponsored by the foreign governments. The Company's
contributions to foreign plans were not significant in 1999, 1998, and 1997.
NOTE K. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into agreements (derivative financial instruments) to manage
the risks associated with certain aspects of its business, but does not actively
trade such instruments nor enter into such agreements for speculative purposes.
The Company principally utilizes foreign currency forward exchange contracts and
foreign currency option contracts.
-42-
<PAGE>
Option contracts that are designated as hedges are marked to market with
realized and unrealized gains and losses deferred and recognized in earnings as
an adjustment to sales when the future sales occur (the deferral accounting
method). Realized and unrealized gains and losses on options that are not
designated as hedges, that fail to be effective hedges, or that relate to sales
that are no longer probable of occurring would be included in income as foreign
exchange gains or losses. The unrealized gains and losses are included in other
assets and liabilities.
The Company periodically uses foreign currency forward exchange contracts to
reduce its exposure to foreign currency risk from receivables denominated in
foreign currencies and certain firm purchase commitments. For contracts that are
designated and effective as hedges, discounts or premiums are accreted or
amortized to other operating expenses over the contract lives using the straight
line method while the realized and unrealized gains and losses resulting from
changes in the spot exchange rate, net of related taxes, are included in the
cumulative translation adjustment account in stockholders' equity. The related
amounts due to or from counterparties are included in other assets or other
liabilities. Contract amounts, after considering tax effects, in excess of the
carrying value of the Company's obligations are marked to market, with changes
in market value recorded in earnings as foreign exchange gains or losses.
Realized and unrealized gains or losses at the time of maturity, termination,
sale or repayment of a derivative contract or designated item are recorded in a
manner consistent with the original designation of the derivative in view of the
nature of the termination, sale, or repayment transaction. Amounts arising at
the settlement of currency forward or option contracts require no special
accounting because such amounts are periodically recorded. Realized and
unrealized changes in fair value of derivatives designated with items that no
longer exist or are no longer probable of occurring are recorded as a component
of the gain or loss arising from the disposition of the designated item.
At December 31, 1999, 1998 and 1997, the Company had approximately $7,688,000,
$4,781,000, and $12,301,000, respectively, in foreign currency forward exchange
contracts and foreign currency option contracts designated and effective as
hedges which become due in various amounts and at various dates through the
following year. The difference between the contract amounts and their fair
value, in the aggregate, was insignificant at December 31, 1999, 1998 and 1997.
NOTE L. OPERATING SEGMENT AND GEOGRAPHIC AREA INFORMATION
Description of Types of Products and Services:
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. SFAS No. 131
requires segment information to be reported based on how management internally
evaluates the operating performance of their business units. The operations of
the Traditional Business segment are
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<PAGE>
evaluated by worldwide geographic region. For segment reporting purposes, the
Company's operations located in the United States and Canada are integrated and
managed as one unit, which is referred to internally as "North America." The
Company's operations located in Europe principally service those European
countries, but also export to certain other countries in the Middle East and
Northern and Central Africa. 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." 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."
TDS operates 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.
Measurement of Segment Profit and Loss and Segment Assets:
The Company evaluates performance and allocates resources based primarily on
profit or loss before interest and income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
Intersegment sales and transfers are recorded at fair market value less a
discount between geographic areas within the Traditional Business and for
transactions between the Traditional Business and TDS at a value consistent with
that to unaffiliated customers.
Other segment assets are principally cash and cash equivalents, investments,
corporate office and related equipment, and assets relating to TMS operations.
The information regarding segment operations and other geographic information is
presented on page 9 of this report, and is incorporated herein by reference.
The following tables present information concerning net sales and long-lived
assets for countries which exceed 5% of the respective totals:
Net Sales (a) Year Ended December 31
(In thousands) 1999 1998 1997
--------------------------------------------------
United States $727,030 $762,549 $499,043
Brazil 54,935 73,488 67,470
Other 230,700 223,632 256,010
=================================================
Consolidated $1,012,665 $1,059,669 $822,523
=================================================
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<PAGE>
Long-lived Assets (b) December 31
(In thousands) 1999 1998 1997
----------------------------------------------
United States $216,896 $224,277 $208,598
Brazil 17,434 27,030 26,324
Other 30,986 37,278 38,305
----------------------------------------------
Consolidated $265,316 $288,585 $273,227
==============================================
(a) Revenues are attributed to countries based on the location of customers.
(b) Corporate long-lived assets are included in the United States.
NOTE M. SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
Unaudited quarterly results of operations for the years ended December 31, 1999
and 1998 are summarized as follows:
Quarter Ended 1999
In thousands, except per share data Mar. 31 Jun. 30 Sep. 30 Dec. 31
-------------------------------------------
Net sales $224,138 $252,120 $273,240 $263,167
Gross profit 88,940 98,792 103,118 101,889
Net earnings 10,037 16,126 18,056 8,111
Net earnings per share:
Basic $0.46 $0.74 $0.83 $0.38
Diluted $0.46 $0.73 $0.82 $0.38
Quarter Ended 1998
In thousands, except per share data Mar. 31 Jun. 30 Sep. 30 Dec. 31
-------------------------------------------
Net sales $235,931 $266,127 $282,636 $274,975
Gross profit 90,747 102,571 109,137 103,913
Net earnings 9,150 14,168 17,456 18,545
Net earnings per share:
Basic $0.40 $0.62 $0.78 $0.84
Diluted $0.40 $0.62 $0.77 $0.84
Fourth quarter 1999 earnings reflect a non-recurring after-tax charge of
$7,671,000 ($.35 per diluted share) as a result of a restructuring of North
American operations which includes a company-wide reduction in jobs through a
combination of voluntary early retirements, the closure of a North American
tread rubber manufacturing facility, and other position eliminations. See Note
B.
Third quarter 1998 earnings reflect a non-recurring after-tax charge of
$2,491,000 ($.11 per diluted share) and fourth quarter 1998 earnings reflect a
net non-recurring after-tax gain of $1,317,000 ($.06 per diluted share). The
non-recurring items in the third and fourth quarters of 1998 relate to the
closure of two manufacturing facilities, the elimination of employee positions,
and other exit costs. See Note B.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The information called for by Item 10 (with respect to the directors of
the registrant and with respect to the information required to be furnished
under Rule 405 of Regulation S-K) is incorporated herein by reference from the
registrant's definitive Proxy Statement involving the election of directors
filed or to be filed pursuant to Regulation 14A not later than 120 days after
December 31, 1999. In accordance with General Instruction G (3) to Form 10-K,
the information with respect to executive officers of the Company required by
Item 10 has been included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
- ------- ----------------------
The information called for by Item 11 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not later
than 120 days after December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
The information called for by Item 12 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not later
than 120 days after December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The information called for by Item 13 is incorporated herein by
reference from the registrant's definitive Proxy Statement involving the
election of directors filed or to be filed pursuant to Regulation 14A not later
than 120 days after December 31, 1999.
-46-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------- ----------------------------------------------------------------
(a)(1) Financial Statements
The following consolidated financial statements are included in Part
II, Item 8:
Page
----
Consolidated Balance Sheets as of December 31, 1999,
1998 and 1997....................................25
Consolidated Statements of Earnings for the Years
Ended December 31, 1999, 1998 and 1997.............................26
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 ............................27
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1999, 1998 and
1997...............................................................28
Notes to Consolidated Financial Statements..........................30
(2) Financial Statement Schedule
Schedule II - Valuation and qualifying accounts and reserves.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits
Exhibit No. Description
3.1 Bylaws: As amended August 24, 1999
3.2 Restated Articles of Incorporation, effective December 30,
1986. (Incorporated by reference to Exhibit No. 3.2 to the
Company's Form 10-K for the year ended December 31, 1992.)
3.3 Articles of Amendment to Bandag, Incorporated's Articles of
Incorporation, effective May 6, 1992. (Incorporated by
reference to Exhibit No. 3.3 to the Company's Form 10-K for
the year ended December 31, 1992.)
4.1 Instruments defining the rights of security holders.
(Incorporated by reference to Exhibit Nos. 3.2 and 3.3 to the
Company's Form 10-K for the year ended December 31, 1992.)
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<PAGE>
4.2 Note Purchase Agreement dated December 15, 1997 for
$60,000,000 of 6.41% Senior Notes due December 15, 2002.
(Incorporated by reference to Exhibit 4.2 to the Company's
Form 10-K for the year ended December 31, 1997.)
4.3 Note Purchase Agreement dated December 15, 1997 for
$40,000,000 of 6.50% Senior Notes due December 15, 2007.
(Incorporated by reference to Exhibit 4.3 to the Company's
Form 10-K for the year ended December 31, 1997.)
10.1* Bandag, Incorporated Restricted Stock Grant Plan, as amended
August 24, 1999.
10.2 U.S. Bandag System Franchise Agreement Truck and Bus Tires.
(Incorporated by reference to Exhibit No. 10.2 to the
Company's Form 10-K for the year ended December 31, 1993.)
10.2(a) U.S. Bandag System Franchise Agreement Truck and Bus Tires, as
revised April 1996. (Incorporated by reference to Exhibit No.
10.2(a) to the Company's Form 10-K for the year ended December
31, 1996.)
10.2(b) Bandag System Franchise Agreement, as revised November 1998
(Incorporated by reference to Exhibit 10.2(a) to the Company's
form 10-K for the year ended December 31, 1998.)
10.3* Miscellaneous Fringe Benefits for Executives. (Incorporated by
reference to Exhibit No. 10.3 to the Company's Form 10-K for
the year ended December 31, 1996.)
10.4* Nonqualified Stock Option Plan, as amended November 12, 1996
(Incorporated by reference to Exhibit No. 10.4 to the
Company's Form 10-K for the year ended December 31, 1996.)
10.5* Nonqualified Stock Option Agreement of Martin G. Carver dated
November 13, 1987, as amended by an Addendum dated June 12,
1992. (Incorporated by reference to Exhibit No. 10.7 to the
Company's Form 10-K for the year ended December 31, 1992.)
10.6* Form of Participation Agreement under the Bandag, Incorporated
Restricted Stock Grant Plan. (Incorporated by reference as
Exhibit 10.7 to the Company's Form 10-K for the year ended
December 31, 1994.)
10.7* Separation and Release Agreement with Henry H. Li regarding
termination of employment, effective July 31, 1998.
(Incorporated by reference to Exhibit No. 10.7 to the
Company's Form 10-K for the year ended December 31, 1998).
10.8* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Martin G. Carver (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
-48-
<PAGE>
10.9* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Nathaniel L. Derby, II (incorporated
by reference to Exhibit 10.2 to the Company's Form 10-Q/A for
the quarter ended June 30, 1999).
10.10* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Sam Ferrise II (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
10.11* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Warren W. Heidbreder (incorporated by
reference to Exhibit 10.4 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
10.12* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and John C. McErlane (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
10.13* Bandag, Incorporated Stock Award Plan, as amended August 24,
1999.
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with EDGAR filing only)
27.1 Revised December 1998 Financial Data Schedule (EDGAR filing
only)
*Represents a management compensatory plan or arrangement.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on October 21, 1999 reporting
under Item 5. The Current Report included unaudited condensed
consolidated balance sheets for the quarter ended September 30, 1999
and the year ended December 31, 1998, unaudited condensed consolidated
statements of earnings for the three and nine month periods ended
September 30, 1999 and 1998, respectively, and unaudited condensed
consolidated statements of cash flows for the nine months periods ended
September 30, 1999 and 1998.
-49-
<PAGE>
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BANDAG, INCORPORATED AND SUBSIDIARIES
<CAPTION>
COL. C
COL. A COL. B ADDITIONS COL. D COL. E
- -------------------------------------------------------------------------------------------------------------------------
1 2
Balance at Charged to Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End of
DESCRIPTION of Period Expenses Describe Describe Period
-----------------------------------------------------------------------------------
Year ended December 31, 1999:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $18,724,000 $9,286,000 $7,249,000(1) $20,761,000
Year ended December 31, 1998:
Allowance for doubtful accounts $12,707,000 $8,460,000 $2,443,000(1) $18,724,000
Year ended December 31, 1997:
Allowance for doubtful accounts $13,320,000 $3,491,000 $4,104,000(1) $12,707,000
(1) - Uncollectible accounts written off, net of recoveries and foreign exchange fluctuations.
</TABLE>
-50-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Martin G. Carver
--------------------------------
Martin G. Carver
Chairman of the Board,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert T. Blanchard
- -------------------------------- ---------------------------------------
Robert T. Blanchard Lucille A. Carver
Director Director
/s/ Roy J. Carver, Jr. /s/ Gary E. Dewel
- -------------------------------- ---------------------------------------
Roy J. Carver, Jr. Gary E. Dewel
Director Director
/s/ James R. Everline /s/ Phillip J. Hanrahan
- -------------------------------- ---------------------------------------
James R. Everline Phillip J. Hanrahan
Director Director
/s/ Edgar D. Jannotta /s/ R. Stephen Newman
- -------------------------------- ---------------------------------------
Edgar D. Jannotta R. Stephen Newman
Director Director
/s/ Martin G. Carver /s/ Warren W. Heidbreder
- -------------------------------- ---------------------------------------
Martin G. Carver Warren W. Heidbreder
Chairman of the Board, Vice President, Chief Financial
Chief Executive Officer, Officer(Principal Financial Officer)
President and Director
(Principal Executive Officer) /s/ Charles W. Vesey
---------------------------------------
Charles W. Vesey
Corporate Controller
(Principal Accounting Officer)
Date: March 28, 2000
-51-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
3.1 Bylaws: As amended August 24, 1999
3.2 Restated Articles of Incorporation, effective December 30,
1986. (Incorporated by reference to Exhibit No. 3.2 to the
Company's Form 10-K for the year ended December 31, 1992.)
3.3 Articles of Amendment to Bandag, Incorporated's Articles of
Incorporation, effective May 6, 1992. (Incorporated by
reference to Exhibit No. 3.3 to the Company's Form 10-K for
the year ended December 31, 1992.)
4.1 Instruments defining the rights of security holders.
(Incorporated by reference to Exhibit Nos. 3.2 and 3.3 to the
Company's Form 10-K for the year ended December 31, 1992.)
4.2 Note Purchase Agreement dated December 15, 1997 for
$60,000,000 of 6.41% Senior Notes due December 15, 2002.
(Incorporated by reference to Exhibit 4.2 to the Company's
Form 10-K for the year ended December 31, 1997.)
4.3 Note Purchase Agreement dated December 15, 1997 for
$40,000,000 of 6.50% Senior Notes due December 15, 2007.
(Incorporated by reference to Exhibit 4.3 to the Company's
Form 10-K for the year ended December 31, 1997.)
10.1* Bandag, Incorporated Restricted Stock Grant Plan, as amended
August 24, 1999.
10.2 U.S. Bandag System Franchise Agreement Truck and Bus Tires.
(Incorporated by reference to Exhibit No. 10.2 to the
Company's Form 10-K for the year ended December 31, 1993.)
10.2(a) U.S. Bandag System Franchise Agreement Truck and Bus Tires, as
revised April 1996. (Incorporated by reference to Exhibit No.
10.2(a) to the Company's Form 10-K for the year ended December
31, 1996.)
10.2(b) Bandag System Franchise Agreement, as revised November 1998
(Incorporated by reference to Exhibit 10.2(a) tot he Company's
form 10-K for the year ended December 31, 1998.)
10.3* Miscellaneous Fringe Benefits for Executives. (Incorporated by
reference to Exhibit No. 10.3 to the Company's Form 10-K for
the year ended December 31, 1996.)
10.4* Nonqualified Stock Option Plan, as amended November 12, 1996
(Incorporated by reference to Exhibit No. 10.4 to the
Company's Form 10-K for the year ended December 31, 1996.)
10.5* Nonqualified Stock Option Agreement of Martin G. Carver dated
November 13, 1987, as amended by an Addendum dated June 12,
1992. (Incorporated by reference to Exhibit No. 10.7 to the
Company's Form 10-K for the year ended December 31, 1992.)
-52-
<PAGE>
10.6* Form of Participation Agreement under the Bandag, Incorporated
Restricted Stock Grant Plan. (Incorporated by reference as
Exhibit 10.7 to the Company's Form 10-K for the year ended
December 31, 1994.)
10.7* Separation and Release Agreement with Henry H. Li regarding
termination of employment, effective July 31, 1998.
(Incorporated by reference to Exhibit No. 10.7 to the
Company's Form 10-K for the year ended December 31, 1998).
10.8* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Martin G. Carver (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
10.9* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Nathaniel L. Derby, II (incorporated
by reference to Exhibit 10.2 to the Company's Form 10-Q/A for
the quarter ended June 30, 1999).
10.10* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Sam Ferrise II (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
10.11* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and Warren W. Heidbreder (incorporated by
reference to Exhibit 10.4 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
10.12* Severance Agreement, dated as of May 4, 1999, by and between
Bandag, Incorporated and John C. McErlane (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999).
10.13* Bandag, Incorporated Stock Award Plan, as amended August 24,
1999.
21 Subsidiaries of Registrant.
27 Financial Data Schedule (with EDGAR filing only)
27.1 Revised December 1998 Financial Data Schedule (EDGAR filing
only)
*Represents a management compensatory plan or arrangement.
-53-
BY-LAWS
OF
BANDAG, INCORPORATED
As Amended August 24, 1999
ARTICLE I
---------
OFFICES
-------
The principal office of the Corporation in the State of Iowa shall be
located in the City of Muscatine, County of Muscatine. The Corporation may have
such other offices, either within or without the State of Iowa, as the Board of
Directors may designate or as the business of the Corporation may require from
time to time.
The registered office of the Corporation required by the Iowa Business
Corporation Act to be maintained in the State of Iowa may be, but need not be,
identical with the principal office in the State of Iowa, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
----------
SHAREHOLDERS
------------
Section 1. Annual Meeting. An annual meeting of the shareholders shall
be held at such time during the month of May in each year as shall be designated
by the Board of Directors at least sixty (60) days prior to the date of the
meeting, or if no such date is designated by the Board of Directors then at 10
o'clock in the forenoon on the third Wednesday in May, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the election of directors shall not be held on the day
designated as herein provided for any annual meeting of the shareholders, or at
any adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the shareholders as soon thereafter as conveniently
may be.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Chairman of the Board, the Board of Directors or the holders of not less
than one-tenth of all the outstanding shares of the Corporation entitled to vote
at the meeting.
<PAGE>
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Iowa, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Iowa, as the place
for the holding of such meeting. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be the registered office
of the Corporation in the State of Iowa.
Section 4. Notice of Meeting. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid.
Section 5. Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the Corporation and shall be subject to
inspection of any shareholder during the whole time of the meeting. The original
stock transfer book shall be prima facie evidence as to who are the shareholders
entitled to examine such lists or transfer books or to vote at any meeting of
shareholders.
Section 6. Quorum. A majority of the votes entitled to be cast,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If less than a majority of the votes entitled to be cast are
represented at a meeting, a majority of the votes so represented may adjourn the
meeting from time to time without further notice. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of sufficient votes
to leave less than a quorum.
Section 7. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
Corporation
2
<PAGE>
before or at the time of the meeting. Proxies shall apply only to the meeting
for which they are solicited.
Section 8. Voting of Shares. Each outstanding share of Common Stock
shall be entitled to one (1) vote per share, and each outstanding share of Class
B Common Stock shall be entitled to ten (10) votes per share, upon each matter
submitted to a vote at a meeting of shareholders.
Section 9. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors shall fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than sixty days and, in case of a meeting
of shareholders, not less than ten days prior to the date of which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors
of the Corporation shall be nine (9). Each director shall serve for the term for
which elected and until a successor shall have been elected and qualified,
except in the event of resignation, removal, death or other incapacity.
Directors need not be residents of the State of Iowa or shareholders of the
Corporation.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Iowa, for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Iowa,
3
<PAGE>
as the place for holding any special meeting of the Board of Directors called by
them.
Section 5. Notice. Notice of any special meeting shall be given at
least two days previously thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. Vacancies. During the intervals between annual meetings of
shareholders, any vacancy occurring in the Board of Directors caused by
resignation, removal, death or incapacity, and any newly created directorships
resulting from an increase in the number of directors, shall be filled by a
majority vote of the directors then in office, whether or not a quorum. Each
director chosen to fill a newly created directorship or to fill a vacancy shall
hold office until the next annual meeting of the shareholders.
Section 9. Compensation. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
4
<PAGE>
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the Secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 11. Informal Action by Directors. Any action required to be
taken at a meeting of the directors, or any other action which may be taken at a
meeting of the directors, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors entitled to vote with respect to the subject matter thereof.
Section 12. Indemnification
(1) The Corporation shall indemnify every person who is or was a party
or involved (as a witness or otherwise) or is threatened to be made a party or
involved (as a witness or otherwise) (hereafter "Indemnitee") in any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (including a grand jury proceeding), formal or
informal, and whether or not by or in the right of the Corporation or otherwise
(hereafter a "Proceeding"), by reason of the fact that he is or was a director
or officer of the Corporation, or while a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, or by reason of any action alleged to have been taken or not taken
by him while acting in any such capacity, against reasonable expenses (including
counsel fees and expenses when incurred) (hereafter "Expenses") and all
liability and loss, including judgments, fines, (including excise taxes assessed
with respect to an employee benefit plan), and penalties and amounts paid or to
be paid in settlement (whether with or without court approval) (hereafter
"Liabilities"), actually incurred by him in connection with such Proceeding, to
the fullest extent permitted by law as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment).
Notwithstanding anything in this Section 12 to the contrary, except with respect
to a proceeding to enforce rights to indemnification or advancement of Expenses
under this Section 12, the Corporation shall provide indemnification and
advancement of Expenses under this Section 12 to persons seeking indemnification
in connection with a proceeding initiated by such person only if such proceeding
was authorized by the Board of Directors. In addition to the foregoing mandatory
modification provisions, the Corporation may indemnify an
5
<PAGE>
employee of the Corporation to the same extent as to an officer or director
pursuant to the provisions of this Section 12.
(2) The right to indemnification conferred in this Section 12 shall
include the right to be paid or reimbursed by the Corporation the Expenses
incurred in connection with the Proceeding in advance of the final disposition
thereof promptly after a written request therefor; provided, however, that to
the extent required by law, the payment of such Expenses in advance of the final
disposition of a proceeding shall be made only upon the Corporation's receipt of
a written undertaking by or on behalf of such person to repay such amounts if it
shall ultimately be determined that he is not entitled to be indemnified under
this Section 12 or otherwise (this undertaking need not be secured and must be
accepted without reference to the ability to repay).
(3) Any indemnification, under this Section 12 (unless ordered by a
court or as otherwise provided in Section 12(2) for the advancement of Expenses)
shall be made by the Corporation upon a determination that the indemnification
of the Indemnitee is proper in the circumstances because he has met the
applicable standard of conduct required by Section 490.851 of the Iowa Business
Corporation Act. Such determination shall be made (a) by the Board of Directors
by majority vote of a quorum consisting of directors not at the time parties to
the Proceeding, (b) if a quorum cannot be obtained, by a majority vote of a
committee duly designated by the Board of Directors, in which designation
directors who are parties may participate, consisting solely of two or more
directors not at the time parties to the Proceeding, (c) by special legal
counsel selected by the Board of Directors by vote as set forth in clause (a) or
(b) of this Section 12(3), or, if a quorum of the Board of Directors cannot be
obtained and a committee cannot be designated, selected by majority vote of the
full Board of Directors, in which selection directors who are parties may
participate, or (d) by the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the Proceeding shall not be
voted on the determination.
(4) If a person is entitled under this Section 12 to indemnification by
the Corporation for some or a portion of Liabilities and Expenses but not,
however, for all of the total amounts thereof, the Corporation shall
nevertheless indemnify such person for the portion thereof to which he is
entitled.
(5) Notwithstanding anything in these By-laws to the contrary, the
Corporation shall not be obligated to make any payment under this Section 12 for
indemnification for Liabilities and Expenses in connection with Proceedings
settled without the consent of the Corporation, which consent, however, shall
not be unreasonably withheld.
6
<PAGE>
(6) If a claim for indemnification or advancement of Expenses under
this Section 12 is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, the claimant may, at
anytime thereafter, bring suit against the Corporation to recover the unpaid
amount of the claim. The claimant shall also be entitled to be paid the expenses
of prosecuting such claim to the extent he is successful in whole or in part on
the merits or otherwise in establishing his right to indemnification or to the
advancement of Expenses. Neither (a) the failure of the Corporation (including
its Board of Directors, special legal counsel or the shareholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 490.851 of the Iowa Business
Corporation Act, nor (b) the fact that there has been an actual determination by
the Corporation (including its Board of Directors, special legal counsel or the
shareholders) that the claimant has not met such applicable standard of conduct,
shall create a presumption that the claimant has not met the applicable standard
of conduct.
(7) The right to indemnification, including the right to the
advancement of Expenses, conferred in this Section 12 shall not be exclusive of
any other rights to which a person seeking indemnification or advancement of
Expenses hereunder may be entitled under any Articles of Incorporation, By-laws,
agreement, vote of shareholders or directors, or otherwise. Subject to
applicable law, to the extent that any rights to indemnification or advancement
of Expenses of such person under any such Article of Incorporation, By-law,
agreement, vote of shareholders or directors, or otherwise, are broader or more
favorable to such person, the broader or more favorable rights shall control.
The Corporation shall have the express authority to enter into such agreements
as the Board of Directors deems appropriate for the indemnification of,
including the advancement of Expenses to, present or future directors or
officers of the Corporation in connection with their service to, or status with,
the Corporation or any other corporation, partnership, joint venture, trust or
other enterprise, including any employee benefit plan, for whom such person is
serving at the request of the Corporation.
(8) The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any person who is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan
against any Liability asserted against such person and incurred by such person
in such capacity, or arising out of such person's status as such, whether or not
the Corporation would have the power to indemnify such person against such
Liability under the provisions of this Section 12, the Iowa Business Corporation
Act or otherwise. The Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit,
7
<PAGE>
surety bonds and/or similar arrangements), as well as enter into contracts
providing for indemnification to the maximum extent permitted by law and
including as part thereof any or all of the foregoing, to ensure the payment of
such sums as may become necessary to effect full indemnification. The
Corporation's obligation to make indemnification and pay Expenses pursuant to
this Section 12 shall be in excess of any insurance purchased and maintained by
the Corporation and such insurance shall be primary. To the extent that
indemnity or Expenses of a person entitled to indemnification and payment of
Expenses pursuant to this Section 12 are paid on behalf of or to such person by
such insurance such payments shall be deemed to be in satisfaction of the
Corporation's obligation to such person to make indemnification and pay Expenses
pursuant to this Section 12.
(9) The right to indemnification, including the right to advancement of
Expenses provided herein, shall be a contract right, shall continue as to a
person who has ceased to be a director or officer or to serve in any other of
the capacities described in this Section 12, and shall inure to the benefit of
the heirs, personal representatives, executors and administrators of such
person. Notwithstanding any amendment, alteration, or repeal of this Section 12
or any of its provisions or the adoption of any provision inconsistent with this
Section 12 or any of its provisions, any person shall be entitled to
indemnification, including the right to the advancement of Expenses, in
accordance with the provisions hereof with respect to any action taken or
omitted prior to such amendment, alteration, or repeal or adoption of such
inconsistent provision, except to the extent such amendment, alteration, repeal,
or inconsistent provision provides broader rights with respect to
indemnification, including the advancement of Expenses, than the Corporation was
permitted to provide prior to the amendment, alteration, repeal, or the adoption
of such inconsistent provision or to the extent otherwise prescribed by law.
(10) In the event of any payment under this Section 12, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Corporation to bring suit to enforce such rights.
(11) Indemnitee agrees promptly to notify the Corporation in writing
upon being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding or matter which may be
subject to indemnification or advancement of Expenses covered hereunder, but
Indemnitee's omission to so notify the Corporation shall not relieve the
Corporation from any liability which it may have to Indemnitee under this
Section 12 unless such omission materially prejudices the rights of the
Corporation (including, without limitation, the Corporation having lost
significant substantive or procedural rights with respect to the defense of any
Proceeding). If such omission does materially prejudice the rights of the
Corporation, the
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Corporation shall be relieved from liability under this Section 12 only to the
extent of such prejudice; but such omission will not relieve the Corporation
from any liability which it may have to Indemnitee otherwise than under this
Section 12.
(12) The Corporation will be entitled to participate at its own expense
in any Proceeding of which it has notice. The Corporation jointly with any other
indemnifying party similarly notified of any Proceeding will be entitled to
assume the defense of Indemnitee therein, with counsel reasonably satisfactory
to Indemnitee. After notice from the Corporation to Indemnitee of its election
to assume the defense of Indemnitee in any Proceeding, the Corporation will not
be liable to Indemnitee under this Section 12 for any Expenses subsequently
incurred by Indemnitee in connection with the defense thereof, except as
otherwise provided below. Indemnitee shall have the right to employ its own
counsel in any such Proceeding but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of Indemnitee unless: (i) the employment of
counsel by Indemnitee has been authorized by the Corporation; or (ii) the
Corporation shall not in fact have employed counsel to or cannot in good faith
without conflict assume the defense of Indemnitee in such Proceeding or such
counsel has not in fact assumed such defense; in each of which case the fees and
expenses of Indemnitee's counsel shall be advanced by the Corporation.
(13) A director or officer is considered to be serving an employee
benefit plan at the Corporation's request if such person's duties to the
Corporation also imposed duties on, or otherwise involves services by, that
person to the plan or to the participants in or beneficiaries of the plan.
(14) Notwithstanding anything to the contrary herein contained, no
indemnification shall be made pursuant to this Section 12 for (i) breach of a
person's duty of loyalty to the Corporation or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, (iii) a transaction from which the person seeking
indemnification derives an improper personal benefit, or (iv) for liability
under Section 490.833 of the Iowa Business Corporation Law.
Section 13. Committees. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees each of which,
to the extent provided in such resolution or in the articles of incorporation or
the By-Laws of the Corporation, shall have and may exercise all the authority of
the Board of Directors, except that no such committee shall have the authority
to:
(1) Authorize distributions;
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(2) Approve or propose to shareholders action required by Chapter 490
of the Iowa Business Corporation Act to be approved by shareholders;
(3) Fill vacancies on the Board of Directors or any of its committees;
(4) Amend the articles of incorporation of the Corporation;
(5) Approve a plan of merger not requiring shareholder approval;
(6) Adopt, amend or repeal the By-Laws of the Corporation;
(7) Authorize or approve the reacquisition of shares, except according
to a formula or method prescribed by the Board of Directors; or
(8) Authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a class or series of shares, except that the Board of Directors
may authorize a committee or a senior executive officer of the Corporation to do
so within limits specifically prescribed by the Board of Directors;
however, the Board of Directors, having acted regarding general authorization
for the issuance or sale of shares, or any contract for issuance or sale, and,
in the case of a series, the designation of the series, may, pursuant to a
general formula or method specified by the Board by resolution or by adoption of
a stock option or other plan, authorize a committee to fix the terms of any
contract for the sale of the shares and to fix the terms upon which such shares
may be issued or sold, including, without limitation, the price, the dividend
rate, provisions for redemption, sinking fund, conversion, voting or
preferential rights, and provisions for other features of a class of shares, or
a series of a class of shares, with full power in such committee to adopt any
final resolution setting forth all the terms and to authorize the statement of
the terms of a series for filing with the Secretary of State. Written notice of
all Executive Committee actions shall be mailed or delivered to all Directors of
the Corporation within three (3) days after such action is taken.
Neither the designation of any such committee, the delegation to it of
authority, nor action by such committee pursuant to such authority shall alone
constitute compliance by any member of the Board of Directors, not a member of
the committee in question, with such director's responsibility to act in good
faith, in a manner such director reasonably believes to be in the best interests
of the Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
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Section 14. Meetings by Conference Telephone. Members of the Board of
Directors or any committee designated by the Board of Directors may participate
in a meeting of the Board of Directors or committee by conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
provision shall constitute presence in person at such meeting.
Section 15. Removal of Directors. A director may be removed from office
at any time by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote for the election of directors at a meeting
of the shareholders called for that purpose.
Section 16. Composition of the Board of Directors. So long as any
shares of Class B Common Stock, $1.00 par value, remain outstanding, the
Nominating Committee shall not recommend to the Board of Directors any
individual or individuals for election or appointment to the Board of Directors,
and the Board of Directors shall not nominate, elect or appoint any such
individual or individuals if, after such election or appointment, a majority of
the members of the Board of Directors shall not consist of "independent
directors" (as defined below).
For purposes of determining an "independent director" eligible for
membership on the Board of Directors, an "independent director" is a director
who, at the time of determination, and at any time within the three years
preceding such time, was not employed by the Corporation or any of its
subsidiaries in any capacity and who is not (i) a surviving spouse of Roy J.
Carver, (ii) a brother or sister of a surviving spouse of Roy J. Carver, or a
child (including an adopted child) of any such person, (iii) a lineal descendant
of Roy J. Carver, (iv) a spouse of a lineal descendant of Roy J. Carver, (v) a
brother-in-law or sister-in-law of a lineal descendant of Roy J. Carver, and
(vi) a brother or sister of Roy J. Carver or a child (including an adopted
child) of any such person. For purposes of the foregoing definition, the term
"lineal descendant" includes an adopted child.
No substantive amendment to this Section 16 may be made except with the
affirmative vote of the holders of a majority of the then outstanding shares of
Common Stock and Class B Common Stock, each voting separately as a class.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Corporate Officers. The officers designated as Corporate
Officers shall be elected by the Board of Directors and shall consist of a
Chairman of the Board, a President, one or more Senior Vice Presidents, one or
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more Vice Presidents, a Treasurer, a Secretary, one or more Assistant
Treasurers, and one or more Assistant Secretaries. The Board of Directors from
time to time also may elect one or more Vice Chairmen of the Board and one or
more Executive Vice Presidents. Any two or more of such offices may be held by
the same person. Corporate officers shall have the power, authority and duties
hereinafter set forth relative to their respective offices.
Section 2. Appointive Officers. Upon approval of the Chairman of the
Board, an appropriate title may be given from time to time to certain employees
of the Corporation who are managing one or several groups, divisions or other
operations of the Corporation, provided, however, that any employee who has been
given a title shall not be deemed to be a Corporate Officer of the Corporation
for any purpose solely by virtue of such title. Each person given any such title
shall hold such title at the will of the Chairman of the Board and shall cease
to use such title when directed by the Chairman of the Board. He shall have such
powers and perform such duties with respect to a group, division or other
operation of the Corporation as shall be assigned to him by the Chairman of the
Board. Vacancies in appointive offices may be filled by the Chairman of the
Board.
Section 3. Election and Term of Office. The Corporate Officers shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each Annual Meeting of the Shareholders or as soon
thereafter as conveniently may be. Each Corporate Officer shall hold office
until his successor is elected and shall have qualified or until his death or
until he shall resign or have been removed from office in the manner hereinafter
provided. Vacancies may be filled and new offices created and filled at any
meeting of the Board of Directors.
Section 4. Removal. Any Corporate Officer elected by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the Corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 5. Vacancies. A vacancy in any Corporate Office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 6. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and directors. He shall be the chief
executive officer of the Corporation and shall have general supervision of the
business, affairs and property of the Corporation and over its several officers,
subject, however, to the control of the Board of Directors. He shall be ex
officio a member of all standing committees, other than the Audit Committee and
the Stock Option Committee, and shall see that all orders of the Board of
Directors
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and resolutions of the Board of Directors are carried into effect. He shall have
authority to execute bonds, mortgages and other contracts requiring the seal,
under the seal of the Corporation, except where required and permitted by law to
be otherwise signed and executed, and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
Section 6 (a). Vice Chairman of the Board. Each Vice Chairman of the
Board shall perform such duties as may be assigned to him by the Board of
Directors.
Section 7. The President. The President shall perform such duties as
may be assigned to him by the Board or Directors. In the absence or disability
of the Chairman of the Board, the President shall preside at meetings of the
shareholders and of the Board of Directors. He shall have authority to execute
bonds, mortgages and other contracts requiring the seal, under the seal of the
Corporation, except where required and permitted by law to be otherwise signed
and executed, and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
Section 8. Executive Vice Presidents. Each Executive Vice President
shall perform such duties as may be assigned to him by the Board of Directors.
Section 9. Senior Vice Presidents - Vice Presidents. Each Senior Vice
President and each Vice President elected as a Corporate Officer shall perform
such duties as from time to time may be assigned to him by the Chairman of the
Board or by the Board of Directors.
Section 10. The Secretary. The Secretary shall: (a) keep the minutes of
the Shareholders' and Board of Directors' meetings in one or more books provided
for that purpose; (b) see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholders; (e) sign with the Chairman of the Board, or the
President, or an Executive Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the Corporation; and (g) in general perform all duties incident to the office of
the Secretary and such other duties as from time to time may be assigned to him
by the Chairman of the Board or by the Board of Directors.
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Section 11. The Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. He
shall: (a) have charge and custody of and be responsible for all funds and
securities of the Corporation; receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with the provisions of Article V
of these By-Laws; and (b) in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the Chairman of the Board or by the Board of Directors.
Section 12. Assistant Secretary. The Assistant Secretary, when
authorized by the Board of Directors, may sign with the President or an
Executive Vice President certificates for shares of the Corporation, the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Secretary, in general, shall perform such duties as
shall be assigned to him by the Chairman of the Board.
Section 13. Salaries. The salaries of the Corporate Officers shall be
fixed from time to time by the Board of Directors. No officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. Contracts. The Board of Directors, the President or any
officer designated by the Chairman of the Board, may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances, subject to such limitations as
the Board may prescribe.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors, or, subject to such
limitations as the Board may prescribe, unless authorized in writing by the
Chairman of the Board or any officer designated by the Chairman of the Board.
Any such authority may be general or confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of
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<PAGE>
the Corporation and in such manner as shall from time to time be determined by
resolutions of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositaries as the Board of Directors
may select or may be selected by officers pursuant to authority granted by the
Board of Directors.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificates for Shares. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman of the Board, the
President or a Senior Vice President and by the Secretary or an Assistant
Secretary. The signatures of the Chairman of the Board, the President or a
Senior Vice President and the Secretary or an Assistant Secretary upon a
certificate may be facsimiles if the certificates is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself, or an
employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed on such certificate for the Corporation
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the time of its issue. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the Corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
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Section 3. Issuance of Fractional Shares or Script. No fractional
shares of the Corporation shall be issued and no transfer of a fraction of a
share shall be permitted. In lieu of issuing a fraction of a share the Board of
Directors may authorize payment in cash of the fair value of fractions of a
share as of the time when those entitled to receive such fractions are
determined, or may authorize the issuance of script in registered or bearer form
which shall entitle the holder to receive a certificate for a full share upon
the surrender of such script aggregating a full share. The Board of Directors
may cause such script to be issued subject to the condition that it shall become
void if not exchanged for certificates representing full shares before a
specified date or subject to the condition that the shares for which such script
is exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of such script or subject to any other conditions
which the Board of Directors may deem advisable.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall end on the thirty-first day of
December in each year.
ARTICLE VIII
------------
DIVIDENDS
---------
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its articles of incorporation.
ARTICLE IX
----------
SEAL
----
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words "Corporate Seal." The Corporation
may use the seal by causing it, or a facsimile thereof, to be impressed or
affixed or in any other manner reproduced.
ARTICLE X
---------
WAIVER OF NOTICE
----------------
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Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of the articles of
incorporation or under the provisions of the Iowa Business Corporation Act, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI
----------
AMENDMENTS
----------
These By-Laws may be altered, amended or repealed and new By-Laws may
be adopted by the Board of Directors at any regular or special meeting of the
Board of Directors, but only in a manner consistent with the provisions of the
Restated Articles of Incorporation of the Corporation, as amended from time to
time.
17
BANDAG INCORPORATED
RESTRICTED STOCK GRANT PLAN
(As Amended August 24, 1999)
1. PURPOSE. The purpose of the Bandag Incorporated Restricted Stock Grant
Plan (the "Plan") of BANDAG, INCORPORATED and its subsidiaries (the "Company")
is to promote the long-term financial interest of the Company, including its
growth, through the award of Restricted Stock by the Board of Directors of
Bandag, Incorporated (the "Board") in accordance with the terms and conditions
of the Plan, by (i) attracting and retaining executive personnel possessing
outstanding ability; (ii) motivating executive personnel, by means of
growth-related incentives, to achieve long-range goals; (iii) providing
incentive compensation opportunities which are competitive with those of other
major corporations; and (iv) furthering the identity of interests of
Participants with those of the Company's stockholders through opportunities for
increased stock ownership.
2. DEFINITIONS. The following definitions are applicable to this Plan:
(a) "Change in Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the following
conditions shall have been satisfied:
(i) A sale, exchange, transfer, or other disposition of any
ownership interest in the Company which results in the
"Carver Family" as defined in Section 4.(f).(iv) of the
Restated Articles of Incorporation of the Company, owning,
in the aggregate, directly or indirectly, less than 51%
voting control of the Company; provided that the conversion
of Class B Common Stock into Common Stock pursuant to
Section 4.(f) of Article IV of the Company's Restated
Articles of Incorporation shall not be deemed to be a "sale,
exchange, transfer or other disposition" for purposes of
this Section 2.(a);
(ii) The consummation of a transaction that results in a sale,
exchange, transfer, or other disposition of all, or
substantially all, of the assets of the Company; or
(iii)The consummation of a transaction that results in the
merger or consolidation of the Company with or into any
other corporation under circumstances where the shareholders
of the Company immediately prior to such merger or
consolidation, will own, directly or
<PAGE>
indirectly, after such merger or consolidation, securities
representing less than 51% voting control of the corporation
surviving any such merger or consolidation.
(b) The term "Common Stock" means the Common Stock of the Company.
(c) The term "Non-Employee Director" means a person who is so defined
for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended.
(d) The term "Disability" shall mean a physical or mental condition
which in the judgment of the Committee, based on medical examination by a
doctor or clinic appointed by the Committee, totally and permanently
prevents a Participant from engaging in any substantial gainful activity.
(e) The term "Participant" means any employee who is selected by the
board to participate in the Plan.
(f) The term "Plan Year" means the Company's fiscal year, beginning
with its 1984 fiscal year.
(g) The term "Restricted Period" has the meaning ascribed to it in
Section 5 hereof.
(h) The term "Restricted Stock" has the meaning ascribed to it in
Section 5 hereof.
(i) The term "Subsidiary" means any corporation of which Bandag,
Incorporated owns, directly or indirectly, 50% or more of the total
combined voting power of all classes of stock entitled to vote.
3. ADMINISTRATION. The Plan shall be administered by the Stock Option
Committee (the "Committee") which shall consist of not less than two directors,
each of whom shall qualify as a Non-Employee Director. The Committee shall,
subject to the express provisions of the Plan, have sole and complete authority
to (i) select the Participants, (ii) determine the number of shares of Common
Stock (subject to the limitations of Section 6 hereof) to be awarded to each of
the Participants in the Plan and (iii) interpret the Plan and make all
determinations deemed necessary or advisable for the administration of the Plan.
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<PAGE>
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be the acts of the Committee.
4. PARTICIPATION. After the end of the third quarter of each Plan Year, and
no later than the end of November of the Plan Year involved, the Committee shall
select the persons who are to be Participants in the Plan for that Plan Year and
shall determine the number of shares of Restricted Stock to be awarded to each
participant in the Plan for that Plan Year. Participants are to be selected from
those employees of the Company who, in the opinion of the Committee, have the
capacity for contributing in a substantial measure to the successful performance
of the Company. No director who is not also a full-time employee of the Company
shall be selected to be a Participant. The date that the Committee makes such
selections and determinations shall be deemed to be the effective date of the
awards of Restricted Stock for such Plan Year.
5. TERMS AND CONDITIONS OF AWARDS. All shares of Common Stock awarded to
Participants under the Plan (the "Restricted Stock") shall be subject to the
following terms and conditions and to such other terms and conditions, not
inconsistent with the Plan, as may be prescribed by the Committee in its sole
discretion:
(a) Restricted Stock awarded to a Participant may not be sold,
assigned, transferred, pledged or otherwise encumbered for a period (the
"Restricted Period") ending as of the earlier of (i) seven (7) years after
the effective date of the award of such stock or (ii) the Participant's
termination of employment for any reason after attainment of age sixty (60)
or (iii) the death or disability of the Participant. So long as such shares
are subject to such restrictions, they shall be held by a nominee of the
Committee. The nominee shall have no obligation to solicit proxies or vote
shares.
(b) Upon the occurrence of a Change in Control, unless otherwise
specifically prohibited under applicable laws or by the rules and
regulations of any governing governmental agencies or national securities
exchanges, the Restricted Period shall end and restrictions imposed on the
Restricted Stock which are not performance-based shall lapse.
Notwithstanding any other provision of this Plan, the provisions of this
Section 5(b) may not be terminated, amended or modified on or after the
date of a Change in Control to affect adversely any award granted under the
Plan without the prior written consent of the Participant with respect to
said Participant's outstanding awards; provided, however, the Board may
terminate, amend, or modify this Section 5(b) at any time prior to the date
of a Change in Control.
(c) Within thirty (30) days after the effective date of an award of
Restricted Stock, a Participant may file an election pursuant to and in
accordance
3
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with Section 83(b) of the Internal Revenue Code of 1986, as amended, to
have the appropriate value of such award included in gross income for the
taxable year in which that award occurs. In the event such an election is
made, the Company shall, prior to the end of such taxable year, pay to the
Participant the amount determined by the Committee to be sufficient
remuneration for the resultant income tax consequences. Any dividends paid
on shares of Restricted Stock subject as to which an election has been
made, shall be distributed to the Participant at such times as dividends on
the Company's Common Stock are generally payable. In the event the
Participant does not exercise the Section 83(b) election, all dividends
attributable to such shares shall be held by the nominee until distributed
or forfeited as hereinafter provided. The account in which these dividends
are held need not be interest bearing.
(d) At the end of the Restricted Period as to any given Restricted
Stock award, the shares constituting such award shall cease to be
Restricted Stock, and shall be delivered free of all restrictions to the
Participant or, in the event such Restricted Period ends as a result of
death, the Participant's legal representative, beneficiary or heir. The
Committee shall deliver to the Participant a certificate or certificates
for such shares and a check for all undistributed dividends accumulated on
such shares during the Restricted Period.
(e) In the event of the death or disability of a Participant, the
Restricted Period shall end as to any shares already awarded, but neither
the Participant nor the legal representative of his estate, his beneficiary
or his heir shall have any interest in awards of stock made after the date
of death or disability.
(f) A Participant whose employment with the Company is terminated,
whether voluntarily or involuntarily, for any reason other than death or
disability, shall forfeit all shares of Restricted Stock and any
undistributed dividends thereon then being held, and any other rights under
the Plan, upon such termination of employment. Such shares shall be
forfeited to the Company and may be awarded again to Participants in the
Plan.
(g) The Participant shall enter into an Agreement with the Company in
a form specified by the Committee agreeing to the terms and conditions of
the award and such other matters as the Committee shall in its sole
discretion determine.
6. SHARES SUBJECT TO THE PLAN; REGISTRATION UNDER THE SECURITIES ACT. The
shares to be awarded under the Plan shall be shares of Common Stock and may be
authorized but unissued shares, or shares acquired by the Company and held in
its treasury, as the Committee may from time to time determine. Subject to
adjustment in the number and kind of shares as provided
4
<PAGE>
in Section 7 hereof, fifty thousand (50,000)* shares of Common Stock may be
awarded to Participants pursuant to the Plan. All shares to be awarded under the
Plan will be listed on such stock exchanges as the Common Stock of the Company
is listed from time to time.
7. CHANGES IN CAPITALIZATION AND SIMILAR CHANGES. In the event of any
change in the outstanding shares of Common Stock by reason of any stock dividend
or split, recapitalization, merger, consolidation, combination or exchange of
shares or other similar corporate change, the maximum aggregate number and class
of shares as to which awards may be granted under the Plan shall be equitably
adjusted by the Committee. Any shares of stock or other securities distributable
or deliverable with respect to Restricted Stock will be subject to the same
restrictions as such Restricted Stock.
If the Company shall be consolidated or merged with another corporation,
any stock, securities or other property (including cash) distributable with
respect to Restricted Stock or into which any share of Restricted Stock shall be
converted, shall also be subject to the same restrictions as such Restricted
Stock.
If any person files a statement under Section 14(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act") in connection with a tender
offer within the meaning of Section 14(d) of the Exchange Act or the Regulations
thereunder for Common stock, the Participant shall have the right to direct the
nominee which holds Restricted Stock awarded to the Participant whether or not
to tender such Restricted Stock pursuant to the Offer, including tendering in
whole or in part or conditionally or unconditionally; provided, however, no
Participant shall have the foregoing right if counsel to the Company advises it
that tendering such Restricted Stock would be prohibited by any provision of the
Exchange Act or any Regulation thereunder, including without limitation Rule
10b-4. Any consideration received with respect to Restricted Stock which is
tendered shall be subject to the same restrictions as such Restricted Stock.
In the event any cash is received in connection with the conversion or
disposition of Restricted Stock, the Committee shall direct its nominee to
invest such cash and any earnings thereon in such investment media as the
Committee deems appropriate. All earnings from such investments (and any loss
thereon or diminution in the value there) shall be for the account of the
Participant.
If any of the events referred to in this Section occurs or is pending, and
the Committee is advised by counsel to the Company that disposition of
Restricted
- ----------------
* Due to issuance of the Class B Stock dividend and the Class A Stock dividend
in 1987 and 1992, respectively, the number of shares authorized under the Plan
consists of 100,000 shares of Common Stock and 100,000 shares of Class A Common
Stock.
5
<PAGE>
Stock will result in the recognition of taxable income to the Participant
awarded such Restricted Stock, the Committee shall have discretion to enter into
such arrangements as it deems appropriate to minimize or eliminate the
recognition of such taxable income, provided that any property substituted for
Restricted Stock pursuant to any such arrangement shall be subject to the same
restrictions as Restricted Stock.
8. WITHHOLDING TAX. With respect to any payments made to Participants under
the Plan, the Company shall have the right to withhold any taxes required by
law.
9. EMPLOYEE RIGHTS UNDER THE PLAN. No employee or other person shall have
any claim or right to be granted Common Stock under the Plan except as shall
have been conferred in accordance with the terms and conditions of the Plan.
Neither the Plan nor any action taken thereunder shall be construed as giving
any employee any right to be retained in the employ of the Company.
10. AMENDMENT OR TERMINATION. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, but no amendment shall be made without
stockholder approval which shall (i) increase the total number of shares which
may be awarded under Section 6 of the Plan (subject to Section 7 hereof) or (ii)
withdraw the administration of the Plan from the Committee; provided that no
amendment, suspension or termination shall impair the rights of any Participant,
without his consent, in any Restricted Stock awarded pursuant to the Plan prior
to such action by the Board.
11. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective as of
January 1, 1984, if and only if approved by the stockholders of Bandag,
Incorporated and shall continue in effect until the last expiration date of any
Restricted Period operative under the Plan; provided, however, that no awards of
Restricted Stock shall be made after the Company's fiscal year ending in 2000 or
such earlier date as the Board may specify pursuant to Section 10 hereof.
The Plan was adopted by the Board of Directors of Bandag, Incorporated
on March 1, 1984.
6
Stock Award Plan
Bandag, Incorporated
(As amended August 24, 1999)
Approved by Shareholders on 5-4-99
Amended 8-24-99
<PAGE>
Contents
- --------------------------------------------------------------------------------
Article 1. Establishment, Objectives, and Duration 1
Article 2. Definitions 1
Article 3. Administration 4
Article 4. Shares Subject to the Plan and Maximum Awards 4
Article 5. Eligibility and Participation 5
Article 6. Stock Options 5
Article 7. Restricted Stock 6
Article 8. Performance Measures 8
Article 9. Beneficiary Designation 9
Article 10. Deferrals 9
Article 11. Rights of Employees/Directors 9
Article 12. Change in Control 9
Article 13. Amendment, Modification, and Termination 10
Article 14. Withholding 10
Article 15. Indemnification 11
Article 16. Successors 11
Article 17. Legal Construction 11
Approved by Shareholders on 5-4-99
Amended 8-24-99
<PAGE>
Bandag, Incorporated
Stock Award Plan
Article 1. Establishment, Objectives, and Duration
1.1 Establishment of the Plan. Bandag, Incorporated, an Iowa corporation
(hereinafter referred to as the "Company"), hereby establishes a compensation
reward plan to be known as the "Bandag, Incorporated Stock Award Plan"
(hereinafter referred to as the "Plan"), as set forth in this document. The Plan
permits the grant of Nonqualified Stock Options, Incentive Stock Options, and
Restricted Stock.
Subject to approval by the Company's shareholders, the Plan shall become
effective as of February 8, 1999 (the "Effective Date") and shall remain in
effect as provided in Section 1.3 hereof.
1.2 Objectives of the Plan. The objectives of the Plan are to 1) create a
better link between the interests of the Participants and the Company's
shareholders; 2) promote teamwork and provide Participants with rewards for
excellence in the Company's performance; 3) provide flexibility to the Company
in its ability to compensate, attract, and retain the services of individuals
who make significant contributions to the Company's success; and 4) allow
Participants to further share in the success of the Company.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 13 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, or Restricted
Stock.
2.2 "Award Agreement" means an agreement entered into by the Company and a
Participant setting forth the terms and provisions applicable to
Awards granted to the Participant under this Plan.
2.3 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.4 "Change in Control" of the Company shall be deemed to have occurred as
of the first day that any one or more of the following conditions
shall have been satisfied:
(a) A sale, exchange, transfer, or other disposition of any ownership
interest in the Company which results in the "Carver Family" as
defined in Section 4. (f). (iv) of the Restated Articles of
Incorporation of the Company, owning, in the aggregate, directly
or indirectly, less
Approved by Shareholders on 5-4-99
Amended 8-24-99 1
<PAGE>
than 51% voting control of the Company; provided that the
conversion of Class B Common Stock into Common Stock pursuant to
Section 4. (f) of Article IV of the Company's Restated Articles
of Incorporation shall not be deemed t be a "sale, exchange,
transfer or other disposition" for purposes of this Section 2.4;
(b) The consummation of a transaction that results in a sale,
exchange, transfer, or other disposition of all, or substantially
all, of the assets of the Company; or
(b) The consummation of a transaction that results in the merger or
consolidation of the Company with or into any other corporation
under circumstances where the shareholders of the Company
immediately prior to such merger or consolidation, will own,
directly or indirectly, after such merger or consolidation,
securities representing less than 51% voting control of the
corporation surviving any such merger or consolidation.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.6 "Committee" means any committee appointed by the Board to administer
the Plan, as specified in Article 3 herein, except for any Awards to
Directors which shall only be granted by the Board. Any such committee
shall be comprised entirely of Directors.
2.7 "Company" means Bandag, Incorporated, an Iowa corporation, including
any and all Subsidiaries, and any successor thereto as provided in
Article 16 herein.
2.8 "Director" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary and who is not an employee
of the Company or any Subsidiary.
2.9 "Disability" shall have the meaning ascribed to such term in the
Company's or Subsidiary's long-term disability plan governing a
Participant, or if no such plan exists, at the discretion of the
Board.
2.10 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.11 "Employee" means any employee of the Company or a Subsidiary.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.13 "Fair Market Value" of a Share shall be determined on the basis of the
average of the opening and closing sale prices on the principal
securities exchange or market on which the Shares are traded or, if no
such sale prices are available on the relevant date, then on the last
previous day on which a sale was reported. If the above methods are
otherwise
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Amended 8-24-99 2
<PAGE>
inapplicable, then the Fair market Value of the Shares shall be
determined in good faith by the Board.
2.14 "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive
Stock Option and which is intended to meet the requirements of Code
Section 422.
2.15 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to
meet the requirements of Code Section 422.
2.16 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.17 "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.18 "Participant" means an Employee or Director who has been selected to
receive an Award or who has outstanding an Award granted under the
Plan.
2.19 "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.20 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the
occurrence of other events as determined by the Board, at its
discretion), and the Shares are subject to a substantial risk of
forfeiture, as provided in Article 7 herein.
2.21 "Restricted Stock" means an Award granted to a Participant pursuant to
Article 7 herein.
2.22 "Retirement" means the Participant's termination of employment (other
than due to death or Disability) on or after age 60 with ten or more
years of service for vesting purposes as determined under any
qualified retirement plan of the Company or any Subsidiary covering
the Participant.
2.23 "Shares" means the shares of Class A common stock of the Company.
2.24 "Subsidiary" means any company during any period in which it is a
"subsidiary corporation" (as that term is defined in Code Section
424(f)) with respect to the Company.
Article 3. Administration
3.1 General. The Plan shall be administered by the Board, or (subject to
the following) by any Committee appointed by the Board. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors. The Board may delegate
Approved by Shareholders on 5-4-99
Amended 8-24-99 3
<PAGE>
to the Committee any or all of the administration of the Plan; provided,
however, that the administration of the Plan with respect to Awards granted to
Directors may not be so delegated. To the extent that the Board has delegated to
the Committee any authority and responsibility under the Plan, all applicable
references to the Board in the Plan shall be to the Committee.
3.2 Authority of the Board. Except as limited by law or by the Restated
Articles of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Board shall have full power to select Employees and
Directors who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent with
the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend, or waive rules and regulations
for the Plan's administration; and (subject to the provisions of Article 13
herein) amend the terms and conditions of any outstanding Award as provided in
the Plan. Further, the Board shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law
(and subject to Section 3.1 herein), the Board may delegate its authority as
identified herein.
3.3 Decisions Binding. All determinations and decisions made by the Board
pursuant to the provisions of the Plan and all related orders and resolutions of
the Board shall be final, conclusive and binding on all persons, including the
Company, its stockholders, Directors, Employees, Participants, and their estates
and beneficiaries.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be nine hundred thousand
(900,000), no more than three hundred thousand (300,000) of which may be granted
in the form of Restricted Shares. The Shares may be authorized, but unissued, or
reacquired Shares. The Board shall determine the appropriate methodology for
calculating the number of shares issued pursuant to the Plan. If any Shares
covered by an Award are forfeited or if any Award otherwise terminates, expires
or is cancelled prior to the delivery of all the Shares, then the number of
Shares counted against the number of Shares available under the Plan in
connection with the grant of such Award, to the extent of any such forfeiture,
termination, expiration or cancellation, shall again be available for granting
of additional Awards under the Plan. Unless and until the Board determines that
an Award shall not be designed to comply with the Performance-Based Exception,
the following rules shall apply to grants of such Awards under the Plan:
(a) Stock Options: The maximum aggregate number of Shares that may be
granted in the form of Stock Options, pursuant to any Award
granted in any one fiscal year to any one single Participant
shall be ninety thousand (90,000).
(b) Restricted Stock: The maximum aggregate grant with respect to
Awards of Restricted Stock granted in any one fiscal year to any
one single Participant shall be thirty thousand (30,000).
4.2 Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code
Approved by Shareholders on 5-4-99
Amended 8-24-99 4
<PAGE>
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares which may be
delivered under Section 4.1, in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, and in the Award limits
set forth in subsections 4.1(a) and 4.1(b), as may be determined to be
appropriate and equitable by the Board, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number.
Article 5. Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in this Plan shall be all
Employees and Directors.
5.2 Actual Participation. Subject to the provisions of the Plan, the Board
may, from time to time, select from all Employees and Directors, those to whom
Awards shall be granted and shall determine the nature and amount of each Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Board.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Board shall determine. The Award Agreement also shall specify whether the Option
is intended to be an ISO within the meaning of Code Section 422, or an NQSO
whose grant is intended not to fall under the provisions of Code Section 422.
6.3 Option Price. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4 Duration of Options. Each Option granted to a Participant shall expire
at such time as the Board shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5 Exercise of Options. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for each
grant or for each Participant.
6.6 Payment. Options granted under this Article 6 shall be exercised by the
delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares, except that, in the case of a
cashless exercise as described below, payment shall be made as soon as
practicable after exercise.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired shares of stock of the Company having an aggregate Fair
Market Value at the time of exercise equal to the total Option Price
Approved by Shareholders on 5-4-99
Amended 8-24-99 5
<PAGE>
(provided that the shares of stock of the Company which are tendered must have
been held by the Participant for at least six (6) months prior to their tender
to satisfy the Option Price), or (c) by a combination of (a) and (b).
The Board also may allow cashless exercises as permitted under the Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Board determines to be consistent with the
Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, the Company
shall deliver to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares purchased under the
Option(s).
6.7 Restrictions on Share Transferability. The Board may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8 Termination of Employment/Directorship. Each Participant's Award
Agreement shall set forth the extent to which the Participant shall have the
right to exercise the Option following termination of the Participant's
employment or directorship with the Company. Such provisions shall be determined
in the sole discretion of the Board, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Options issued
pursuant to this Article 6, and may reflect distinctions based on the reasons
for termination.
6.9 Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the Plan
shall be exercisable during his or her lifetime by only such Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under this Article 6
shall be exercisable during his or her lifetime by only such Participant,
or the Participant's legal representative.
Article 7. Restricted Stock
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Board, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Board shall determine.
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Amended 8-24-99 6
<PAGE>
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Board shall determine.
7.3 Transferability. Except as provided in this Article 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Board and specified in the Restricted Stock Award
Agreement, or upon earlier satisfaction of any other conditions, as specified by
the Board in its sole discretion and set forth in the Restricted Stock Award
Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime to only
such Participant.
7.4 Other Restrictions. Subject to Article 9 herein, the Board shall impose
such other conditions and/or restrictions on any Shares of Restricted Stock
granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional, etc.), time-based
restrictions on vesting following the attainment of the performance goals,
and/or restrictions under applicable federal or state securities laws.
The Company may retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
7.5 Voting Rights. To the extent applicable, Participants holding Shares of
Restricted Stock granted hereunder may be granted the right to exercise full
voting rights with respect to those Shares during the Period of Restriction.
7.6 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
entitled to receive regular cash dividends paid with respect to the underlying
Shares while they are so held. The Board may apply any restrictions to the
dividends that the Board deems appropriate. Without limiting the generality of
the preceding sentence, if the grant or vesting of Restricted Shares is designed
to comply with the requirements of the Performance-Based Exception, the Board
may apply any restrictions it deems appropriate to the payment of dividends
declared with respect to such Restricted Shares, such that the dividends and/or
the Restricted Shares maintain eligibility for the Performance-Based Exception.
The Board may also approve payments by the Company to Participants in cash
or its equivalent, amounts of which the Board deems appropriate to be sufficient
remuneration for all or a portion of the resulting income tax consequences to
the Participant of the Restricted Shares. The conditions under which such
payments, if any, shall be made shall be set forth in the Participant's Award
Agreement.
Approved by Shareholders on 5-4-99
Amended 8-24-99 7
<PAGE>
7.7 Termination of Employment/Directorship. Each Restricted Stock Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive unvested Restricted Shares following termination of the
Participant's employment or directorship with the Company. Such provisions shall
be determined in the sole discretion of the Board, shall be included in the
Award Agreement entered into with each Participant, need not be uniform among
all Shares of Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination; provided, however that,
except in the cases of terminations connected with a Change in Control and
terminations by reason of death or Disability, the vesting of Shares of
Restricted Stock which qualify for the Performance-Based Exception shall occur
at the time they otherwise would have, but for the termination.
Article 8. Performance Measures
Unless and until the Board proposes for shareholder vote and shareholders
approve a change in the general performance measures set forth in this Article
8, the attainment of which may determine the degree of payout and/or vesting
with respect to Awards which are designed to qualify for the Performance-Based
Exception, the performance measure(s) to be used for purposes of such grants
shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return measures (including, but not limited to, return on assets,
equity, or sales);
(d) Cash flow return on investments which equals net cash flows divided by
owners equity;
(e) Earnings before or after taxes;
(f) Gross revenues;
(g) Share price (including, but no limited to, growth measures and total
shareholder return); and
(h) Economic profit (generally defined as, but not limited to, after-tax
operating profit less the cost of capital).
The Board shall have the discretion to adjust the amount of the Award
depending upon the degree of attainment of the preestablished performance goals;
provided, however, that no discretion may be exercised with respect to Awards
which are designed to qualify for the Performance-Based Exception (other than
discretion by the Board to decrease the amount of the Award otherwise payable
upon attainment of the preestablished performance goals).
In the event that applicable tax laws change to permit Board discretion to
alter the governing performance measures without obtaining shareholder approval
of such changes, the Board shall have sole discretion to make such changes
without obtaining shareholder approval. In addition, in the event that the Board
determines that it is advisable to grant Awards which shall not qualify for the
Approved by Shareholders on 5-4-99
Amended 8-24-99 8
<PAGE>
Performance-Based Exception, the Board may make such grants without satisfying
the requirements of Code Section 162(m).
Article 9. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
Article 10. Deferrals
The Board may permit or require a Participant to defer such Participant's
receipt of the delivery of Shares that would otherwise be due to such
Participant by virtue of the exercise of an Option or the lapse or waiver of
restrictions with respect to Restricted Stock. If any such deferral election is
required or permitted, the Board shall, in its sole discretion, establish rules
and procedures for such payment deferrals.
Article 11. Rights of Employees/Directors
11.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
11.2 Participation. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
Article 12. Change in Control
12.1 Treatment of Outstanding Awards. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options granted hereunder shall become immediately
exercisable, and shall remain exercisable throughout their entire
term;
(b) Any restriction periods and restrictions imposed on Restricted
Stock which are not performance-based shall lapse;
12.2 Termination, Amendment, and Modifications of Change-in-Control
Provisions. Notwithstanding any other provision of this Plan (but subject to the
limitations of Section 12.3 hereof) or any Award Agreement provision, the
provisions of this Article 12 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award theretofore
granted under the Plan without the prior written consent of the Participant with
respect to said Participant's outstanding Awards; provided, however, the Board
may terminate, amend, or modify this Article 12 at any time and from time to
time prior to the date of a Change in Control.
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Amended 8-24-99 9
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12.3 Pooling of Interests Accounting. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using pooling of interests accounting methodology, the
Board may take any action necessary to preserve the use of pooling of interests
accounting, including, but not limited to, unilateral amendment of existing
Award Agreements.
Article 13. Amendment, Modification, and Termination
13.1 Amendment, Modification, and Termination. Subject to the terms of the
Plan, the Board may at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part.
13.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Board may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Board determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that, unless the Board determines
otherwise at the time such adjustment is considered, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended.
13.3 Awards Previously Granted. Notwithstanding any other provision of the
Plan to the contrary (but subject to Section 12.3 hereof), no termination,
amendment, or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant holding such Award.
13.4 Compliance with Code Section 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Board determines that such compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then compliance with Code Section
162(m) will not be required. In addition, in the event that changes are made to
Code Section 162(m) to permit greater flexibility with respect to any Award or
Awards available under the Plan, the Board may, subject to this Article 13, make
any adjustments it deems appropriate.
Article 14. Withholding
14.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
14.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted Stock, or upon
any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Board, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing,
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Amended 8-24-99 10
<PAGE>
signed by the Participant, and shall be subject to any restrictions or
limitations that the Board, in its sole discretion, deems appropriate.
Article 15. Indemnification
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgement in any such action, suit, or proceeding against him or her, provided
he or she shall give the Company an opportunity, at its own expense, to handle
and defend the same before he or she undertakes to handle and defend it on his
or her own behalf. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
Article 16. Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase of
all or substantially all of the business and/or assets of the Company, or the
result of a merger, consolidation or otherwise.
Article 17. Legal Construction
17.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
17.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
17.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.4 Governing Law. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Iowa.
Approved by Shareholders on 5-4-99
Amended 8-24-99 11
EXHIBIT 21
----------
SUBSIDIARIES OF REGISTRANT
- --------------------------
The Company has the following subsidiaries including significant
subsidiaries as defined in Regulation S-X, each incorporated in the jurisdiction
stated opposite its name. All of the following subsidiaries are 100% owned by
the Company. The Company has additional subsidiaries, which, if considered in
the aggregate as a single subsidiary, would not constitute a "significant
subsidiary" as such term is defined in Regulation S-X.
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Bandag A.G. ........................................................Switzerland
Bandag Canada Ltd. ......................................................Canada
Bandag Europe N.V. .....................................................Belgium
Bandag Licensing Corporation. ............................................Iowa
Bandag Incorporated of S.A. (Proprietary) Limited .................South Africa
Bandag New Zealand Limited .........................................New Zealand
Bandag do Brasil Ltda ...................................................Brazil
Bandag B.V. ........................................................Netherlands
Bandag de Mexico, S.A. de C.V. ..........................................Mexico
BTC, Inc. .............................................................Delaware
Tire Distribution Systems, Inc. .......................................Delaware
Tire Management Solutions, Inc. ...........................................Iowa
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED STATEMENT OF EARNINGS AND THE AUDITED CONSOLIDATED BALANCE SHEETS
OF THE REGISTRANT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 50,633
<SECURITIES> 9,461
<RECEIVABLES> 220,471
<ALLOWANCES> 20,761
<INVENTORY> 110,522
<CURRENT-ASSETS> 428,118
<PP&E> 502,787
<DEPRECIATION> 304,802
<TOTAL-ASSETS> 722,421
<CURRENT-LIABILITIES> 154,053
<BONDS> 111,151
0
0
<COMMON> 20,770
<OTHER-SE> 433,305
<TOTAL-LIABILITY-AND-EQUITY> 722,421
<SALES> 1,012,665
<TOTAL-REVENUES> 1,027,878
<CGS> 619,926
<TOTAL-COSTS> 619,926
<OTHER-EXPENSES> 306,135
<LOSS-PROVISION> 9,286
<INTEREST-EXPENSE> 9,727
<INCOME-PRETAX> 92,090
<INCOME-TAX> 39,760
<INCOME-CONTINUING> 52,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,330
<EPS-BASIC> 2.41
<EPS-DILUTED> 2.40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED STATEMENT OF EARNINGS AND THE AUDITED CONSOLIDATED BALANCE SHEETS
OF THE REGISTRANT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,912
<SECURITIES> 9,712
<RECEIVABLES> 236,023
<ALLOWANCES> 18,724
<INVENTORY> 111,734
<CURRENT-ASSETS> 439,124
<PP&E> 503,745
<DEPRECIATION> 290,699
<TOTAL-ASSETS> 755,729
<CURRENT-LIABILITIES> 174,909
<BONDS> 109,757
0
0
<COMMON> 21,956
<OTHER-SE> 445,341
<TOTAL-LIABILITY-AND-EQUITY> 755,729
<SALES> 1,059,669
<TOTAL-REVENUES> 1,079,498
<CGS> 653,301
<TOTAL-COSTS> 653,301
<OTHER-EXPENSES> 315,912
<LOSS-PROVISION> 8,460
<INTEREST-EXPENSE> 10,772
<INCOME-PRETAX> 99,513
<INCOME-TAX> 40,194
<INCOME-CONTINUING> 59,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,319
<EPS-BASIC> 2.64
<EPS-DILUTED> 2.63
</TABLE>
