FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ________ to ________
Commission file number 1-7007
BANDAG, INCORPORATED
(Exact name of registrant as specified in its charter)
Iowa 42-0802143
(State of incorporation) (I.R.S Employer Identification No.)
2905 N HWY 61, Muscatine, Iowa 52761-5886
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: 319/262-1400
Not Applicable
(Former name, address, or fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1 par value; 9,088,726 shares as of April 30, 2000.
Class A Common Stock, $1 par value; 9,637,324 shares as of April 30, 2000. Class
B Common Stock, $1 par value; 2,045,075 shares as of April 30, 2000.
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BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II : OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
EXHIBITS :
Exhibit 10.1 - Termination Agreement between Bandag,
Incorporated and Sam Ferrise II
Exhibit 10.2 - Tire Distribution Systems, Inc. Severance
Agreement for Sam Ferrise II
Exhibit 27 - Financial Data Schedule (EDGAR filing only)
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BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item l - Financial Statements:
Unaudited Condensed Consolidated Statements of Earnings
Three Months Ended
March 31,
In thousands, except per share data 2000 1999
-------- --------
Net sales $224,289 $224,138
Other income 3,868 2,697
-------- --------
228,157 226,835
Cost of products sold 136,841 135,198
Engineering, selling,
administrative and other expenses 71,613 72,061
Interest expense 2,289 2,564
-------- --------
210,743 209,823
-------- --------
Earnings before income taxes 17,414 17,012
Income taxes 7,401 6,975
-------- --------
Net earnings $ 10,013 $ 10,037
======== ========
Net earnings per share - Basic $ 0.48 $ 0.46
Net earnings per share - Diluted $ 0.48 $ 0.46
Comprehensive net earnings (loss) $ 10,254 $ (3,887)
Cash dividends per share $ 0.2950 $ 0.2850
Depreciation included in expense $ 9,892 $ 9,648
Goodwill amortization included
in expense $ 2,510 $ 2,422
Weighted average shares outstanding:
Basic 20,734 21,903
Diluted 20,781 21,990
See notes to condensed consolidated financial statements.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
In thousands March 31, December 31,
2000 1999
-------- --------
ASSETS:
Cash and cash equivalents $ 69,573 $ 50,633
Investments 10,870 9,461
Accounts receivable - net 171,232 199,710
Inventories:
Finished products 105,500 94,278
Materials and work-in-process 16,070 16,244
-------- ---------
121,570 110,522
Other current assets 58,278 57,792
-------- ---------
Total current assets 431,523 428,118
Property, plant, and equipment 506,698 502,787
Less accumulated depreciation & amortization (311,285) (304,802)
-------- ---------
195,413 197,985
Intangible assets 64,818 67,331
Other assets 28,758 28,987
-------- --------
Total assets $720,512 $722,421
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 26,703 $ 33,472
Income taxes payable 22,871 18,998
Accrued employee compensation and benefits 22,645 25,530
Accrued marketing expenses 25,713 27,190
Other accrued expenses 47,130 45,823
Short-term notes payable and current portion of
other obligations 2,587 3,040
-------- --------
Total current liabilities 147,649 154,053
Long-term debt and other obligations 111,278 111,151
Deferred income tax liabilities 3,380 3,142
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
issued and outstanding - 9,088,956 shares
in 2000; 9,088,403 in 1999 9,089 9,088
Class A Common stock; $1 par value;
authorized - 50,000,000 shares;
issued and outstanding - 9,637,554 shares
in 2000; 9,637,187 in 1999 9,638 9,637
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
issued and outstanding - 2,045,075 shares
in 2000; 2,045,251 in 1999 2,045 2,045
Additional paid-in capital 7,524 7,476
Retained earnings 460,086 456,247
Equity adjustment from foreign currency
translation (30,177) (30,418)
-------- --------
Total equity 458,205 454,075
-------- ---------
Total liabilities and stockholders' equity $720,512 $722,421
======== ========
See notes to condensed consolidated financial statements.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
In thousands Three Months Ended
March 31,
2000 1999
-------- --------
Operating Activities
Net earnings $ 10,013 $ 10,037
Provision for depreciation and amortization 12,402 12,070
Increase in operating assets and
liabilities-net 12,239 18,511
-------- --------
Net cash provided by operating activities 34,654 40,618
Investing Activities
Additions to property, plant and equipment (5,859) (9,908)
Purchases of investments (3,740) (3,057)
Maturities of investments 2,331 6,104
Payments for acquisitions of businesses (1,613) (1,698)
-------- --------
Net cash used in investing activities (8,881) (8,559)
Financing Activities
Principal payments on short-term notes payable
and other liabilities (222) (5,840)
Cash dividends (6,127) (6,245)
Purchases of Common Stock and
Class A Common Stock (50) (1,196)
-------- --------
Net cash used in financing activities (6,399) (13,281)
Effect of exchange rate changes on cash and
cash equivalents (434) (2,924)
-------- --------
Increase in cash and cash equivalents 18,940 15,854
Cash and cash equivalents at beginning of year 50,633 37,912
-------- --------
Cash and cash equivalents at end of period $ 69,573 $ 53,766
======== ========
See notes to condensed consolidated financial statements.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Comprehensive Net Earnings (Loss)
Comprehensive net earnings for the three month periods ended March 31, 2000 and
1999 were as follows (in thousands):
Three Months Ended
March 31,
2000 1999
-------- --------
Net earnings $ 10,013 $ 10,037
Other comprehensive income item:
Foreign currency translation 241 (13,924)
------- --------
Comprehensive net earnings $ 10,254 $ (3,887)
======== ========
Tire Distribution Systems, Inc. (TDS) Business Combinations and Operating
Results
For the year-to-date period, Tire Distribution Systems, Inc. (TDS), a wholly
owned subsidiary of Bandag, Incorporated, acquired 1 tire dealership for a total
of $1,703,000 in cash and short-term payables. The accounts and transactions of
the acquired business have been included in consolidated financial statements
from the date of acquisition.
TDS results for the three month periods ended March 31, 2000 and 1999 were as
follows (in thousands):
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BANDAG, INCORPORATED AND SUBSIDIARIES
Three Months
Ended March 31,
2000 1999
-------- --------
Net sales $ 89,776 $ 84,613
Goodwill amortization 2,466 2,378
Loss before interest and
income taxes (2,889) (1,896)
Intercompany sales from Traditional
Business to TDS which have been
eliminated in consolidation $ 13,954 $ 12,621
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
For the Three
Months Ended
March 31,
2000 1999
-------- --------
Numerator:
Net Earnings $10,013 $10,037
Denominator:
Denominator for basic earnings
per share-weighted-average shares 20,734 21,903
Effect of dilutive securities:
Non-vested restricted stock 38 42
Stock options 9 45
------- -------
Dilutive potential common shares 47 87
------- -------
Denominator for diluted earnings
per share-weighted-average
shares and dilutive potential
common shares 20,781 21,990
======= =======
Net Earnings Per Share:
Basic $ 0.48 $ 0.46
======= =======
Diluted $ 0.48 $ 0.46
======= =======
Non-recurring Charges
During the fourth quarter 1999, the Company recorded non-recurring charges
totaling $13,500,000 ($7,671,000 net of tax benefits) for termination benefits.
These termination benefits 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.
The early retirement program announced in the fourth quarter of 1999 offered
unreduced retirement benefits to employees over the
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BANDAG, INCORPORATED AND SUBSIDIARIES
age of 55 and who have accumulated 65 points (points = age + years of service).
The early retirement program charges primarily represent a $4,906,000 increase
in the pension benefit obligation which resulted when 62 employees elected this
program. Of the total number of employees affected by postion eliminations,
benefit payments of $2,161,000 were made in 1999 for 56 employees. In the first
quarter of 2000, the Company paid $3,284,000 relating to the termination of an
additional 57 employees and continued termination benefits for two employees.
Further employee termination costs of $3,078,000 are accrued at March 31, 2000,
which reflects a $71,000 reduction in the original provision due to exchange
rate changes. The majority of these payments will be made in 2000. No charge
related to the manufacturing facility has been expensed as the Company expects
to use the facility in the future for general Corporate purposes.
During 1998, the Company recorded net non-recurring charges totaling $4,205,000
($1,174,000 net of tax benefits). The net non-recurring charges included a
provision of $7,502,000 ($4,471,000 net of tax benefits) for facility closures,
personnel reductions, and other exit costs. Additionally, the net non-recurring
charges 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. In the first quarter of 2000, the Company paid $411,000 related to
the termination of 18 employees. Remaining employee termination costs of
$267,000 have been accrued at March 31, 2000, which reflects a $23,000 reduction
due to changes in exchange rates. Included in the non-recurring charge is
$2,657,000 for facility closure and other exit costs which contains $642,000 for
the write down of assets. In 1999, the Company paid $905,000 for facility
closure and other exit costs and reduced the original provision by $192,000 due
to costs lower than original estimates. In the first quarter of 2000, the
Company paid $9,000 for facility closure and other exit costs and reduced the
original provision by $35,000 due to costs lower than original estimates and
$36,000 due to changes in exchange rates. The Company's remaining obligation for
facility closure and other exit costs as of March 31, 2000 is $838,000.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Operating Segment Information
The Company has two reportable operating segments: the Traditional Business and
TDS. The Traditional Business manufactures precured tread rubber, equipment and
supplies for retreading tires and operates on a worldwide basis. TDS operates
franchised retreading locations and commercial, retail, and wholesale outlets
throughout the United States for the sale and maintenance of new and retread
tires to principally commercial and industrial customers. Other includes results
of operations for the Tire Management Solutions Inc. (TMS) pilot program and
other corporate items.
The Company evaluates performance and allocates resources based primarily on
profit or loss before interest and income taxes. Intersegment sales and
transfers between the Traditional Business and TDS are recorded at a value
consistent with that to unaffiliated customers.
For the three months ended March 31 (in thousands):
<TABLE>
<CAPTION>
Traditional Business
------------------------------------------------------------------------------------------------------
North America Europe Latin America Asia
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $77,623 $86,294 $21,074 $24,082 $24,643 $22,927 $5,608 $6,222
Transfers between
segments 16,774 15,742 179 280 - - - -
Operating earnings
(loss) 15,983 15,965 4,130 3,246 3,310 4,121 1,620 895
Interest income - - - - - - - -
Interest expense - - - - - - - -
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $15,983 $15,965 $4,130 $3,246 $3,310 $4,121 $1,620 $895
======================================================================================================
<CAPTION>
TDS Other Consolidated
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $89,776 $84,613 5,565 - $224,289 $224,138
Transfers between
segments - - - - 16,953 16,022
Operating earnings
(loss) (2,889) (1,896) (4,030) (4,279) 18,124 18,052
Interest income - - 1,579 1,524 1,579 1,524
Interest expense - - (2,289) (2,564) (2,289) (2,564)
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $(2,889) $(1,896) $(4,740) $(5,319) $17,414 $17,012
======================================================================================================
</TABLE>
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BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 -Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
- -------
Results include the Company's Traditional Business, Tire Distribution Systems,
Inc. (TDS), and Tire Management Solutions, Inc., a pilot operation (TMS). The
comparability of operating results between years is affected by TDS acquisitions
of a tire dealership in the prior year and the first quarter of 2000.
Consolidated net sales for the quarter ended March 31, 2000 remained even with
the prior year period but included a 6% decrease in Traditional Business net
sales. The decrease in Traditional Business net sales resulted from a 4% decline
in retread material unit volume and the lower translated value of the Company's
foreign-currency-denominated sales. The decline in Traditional Business sales
volume was primarily due to competitive pressures and industry consolidation in
the United States, which is expected to continue throughout 2000. The Company
anticipates that future sales volume may be negatively impacted by dealer
separations due to the competitive pressures within the market. However, the
Company has not received any notices of separations that would have a
significant impact on operating results. The decline in Traditional Business
sales was offset by a 6% increase in TDS sales over the prior year period and
sales for TMS. The Company's seasonal sales pattern, which is tied to trucking
activity, was similar to the first quarter in previous years in that it is
seasonally the slowest for both sales and earnings. Both segments were similarly
affected.
A 10% increase in average raw material costs in the U.S. was offset by improved
manufacturing efficiencies due to the closure of a domestic manufacturing
facility in fourth quarter 1999, leaving the Traditional Business gross profit
margin for the quarter ended March 31, 2000 even with the prior year period.
Consolidated gross profit margin for the quarter ended March 31, 2000 decreased
by .7 percentage points from the prior year period due to a higher portion of
consolidated sales coming from TDS and TMS, which operate at lower gross profit
margins.
Consolidated operating and other expenses for the quarter ended March 31, 2000
decreased 1% from the prior year period. Operating and other expenses for the
Traditional Business decreased 9% from the prior year period benefiting from the
prior year restructurings in North America and Europe. This decrease was offset
by a 17% increase in TDS operating and other expenses over the prior year period
due in part to acquisitions. Earnings for the quarter ended March 31, 2000
remained even with the prior year period but diluted earnings per share improved
to $.48, up from diluted earnings per share of $.46 in the prior year period.
The improvement in diluted earnings per share is wholly attributable to the
decrease in the average diluted shares outstanding from the prior year period.
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BANDAG, INCORPORATED AND SUBSIDIARIES
TRADITIONAL BUSINESS
The Company's Traditional Business operations located in the United States and
Canada are integrated and managed as one unit, which is referred to internally
as North America. Net sales in North America for the quarter ended March 31,
2000 were 7% below the prior year period primarily due to 7% lower retread
material unit volume. The North American sales decline was primarily due to
competitive pressures and industry consolidation in the United States, which is
expected to continue throughout 2000. An increase in average raw material costs
in the U.S. was offset by improved manufacturing efficiencies due to the closure
of a domestic manufacturing facility in the fourth quarter of 1999 yielding a
slight improvement in North America's gross margin. North American operating and
other expenses for the quarter ended March 31, 2000 were 7% lower than the prior
year period due to reduced R&D spending and lower marketing and
personnel-related costs. For the quarter ended March 31, 2000, lower sales were
offset by reduced operating and other expenses to yield a slight increase in
earnings before income taxes over the prior year period. Tread rubber prices in
the U.S. and Canada were raised, effective April 1, 2000, to cover anticipated
cost increases for the remainder of the year.
The Company's operations located in Europe principally service markets in
European countries, but also export to certain other countries in the Middle
East and Northern and Central Africa. This collection of countries is under one
management group and is referred to internally as Europe. Net sales in Europe
for the quarter ended March 31, 2000 declined 13% from the prior year period on
a retread material unit volume increase of 3%. The spread between the net sales
decrease and the retread material unit volume increase is due to the lower
translated value of the euro and lower equipment sales. Gross profit margin for
the quarter ended March 31, 2000 increased 2.3 percentage points over the prior
year period due to higher production volume and improved margins on service
revenue. Operating expenses for the quarter ended March 31, 2000 decreased 20%
from the prior year period due to the lower translated value of the euro and
lower personnel related and marketing program costs. Principally as a result of
lower operating expenses, earnings before income taxes for the quarter ended
March 31, 2000 increased 27% over the prior year period.
The Company's exports from North America to markets in the Caribbean, Central
America and South America, along with operations in Brazil, Mexico, Venezuela
and South Africa are combined under one management group referred to internally
as Latin America. Net sales in Latin America for the quarter ended March 31,
2000 increased 7% over the prior year period on a retread material unit volume
increase of 5%. The increase in net sales was greater than the increase in
retread material unit volume due to a price increase in Brazil which was
partially offset by the lower translated value of the Brazilian real. The
increase in retread material unit volume was driven by higher shipments in
Brazil, Mexico and South Africa. The gross profit margin for the quarter ended
March 31, 2000 decreased by 2.4 percentage points from the prior year period due
to increased lower margin equipment
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BANDAG, INCORPORATED AND SUBSIDIARIES
sales in Brazil and higher production costs coupled with lower tread production
in South Africa. Operating expenses for the quarter ended March 31, 2000
decreased 11% from the prior year period. A lower translated value of Brazil
operating expenses and lower bad debts in Mexico were partially offset by an
increase in promotional and marketing program costs and higher bad debts in
South Africa. Primarily as a result of the lower gross margin and higher foreign
exchange transaction costs, earnings before income taxes for the quarter ended
March 31, 2000 decreased 20% from the prior year period.
The Company's exports from North America to markets in Asian countries, along
with operations in New Zealand, Indonesia and Malaysia and a licensee in
Australia, are combined under one management group referred to internally as
Asia. Net sales in Asia for the quarter ended March 31, 2000 declined 10% from
the prior year period as a result of a 12% decrease in retread material unit
volume and reduced new tire sales in New Zealand, offset slightly by higher
equipment sales in Malaysia. Gross profit margin in Asia for the quarter ended
March 31, 2000 increased 8.4 percentage points over the prior year period due to
the lower cost of imported retread materials in New Zealand, lower cost on
export sales to Asia, and higher margins on equipment sales in Malaysia.
Operating expenses for the quarter ended March 31, 2000 declined 18% from the
prior year period, benefiting from prior year restructurings which reduced
personnel-related costs and managerial and administrative support costs in New
Zealand. Earnings before income taxes for the quarter ended March 31, 2000
showed significant improvement over the prior year period principally due to
higher gross margins and lower operating expenses.
TIRE DISTRIBUTION SYSTEMS, INC.
Net sales for TDS for the first quarter ended March 31, 2000 increased 6% over
the prior year period. Excluding the effect of acquisitions, TDS sales for the
quarter ended March 31, 2000 remained approximately even with the prior year
period, $85,008,000 compared to $84,613,000, respectively. TDS's operating
expenses, excluding the effect of acquisitions, for the first quarter ended
March 31, 2000 were 12% over the prior year period reflecting added resources
for anticipated business growth. During the current quarter, TDS management took
steps to rationalize current expense levels in order to bring those expenses
more in line with current operating needs. The decrease in earnings before
interest and taxes from the prior year period reflect these higher expense
levels.
Financial Condition:
- -------------------
Operating Activities.
Net cash provided by operating activities for the quarter ended March 31, 2000
was $5,964,000 less than the amount for the same period last year, primarily due
to decreases in deferred taxes and noncurrent assets offset
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BANDAG, INCORPORATED AND SUBSIDIARIES
by an increase in inventory and other working capital items.
Investing Activities.
The Company spent $5,859,000 on capital expenditures through March 31, 2000,
compared to $9,908,000 spent for the same period last year. The Company
typically funds its capital expenditures from operating cash flow. The Company
spent $1,613,000 on a tire dealership acquisition in the first quarter ended
March 31, 2000, compared to $1,698,000 spent for the same period last year.
The Company's excess funds are invested in financial instruments with various
maturities, but only instruments with an original maturity date of over 90 days
are classified as investments for balance sheet purposes. The Company's
purchases of investments exceeded maturities by $1,409,000 during the three
months, bringing total investments to approximately $10,870,000 as of March 31,
2000.
Financing Activities.
Cash dividends totaled $6,127,000 for the first quarter, compared to $6,245,000
for the same period last year. The Company purchased 2,170 shares of its
outstanding Common and Class A Common stock, at prevailing market prices, for
$50,000 during the three months ended March 31, 2000. Cash dividends and stock
purchases were funded from operational cash flows.
As of March 31, 2000, the Company had $106,000,000 in funds available under
unused lines of credit.
Forward-Looking Information - Safe Harbor Statement.
- ---------------------------------------------------
In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements regarding events and trends which may affect
the Company's future operating results and financial position. Such statements
are identified by the use of such words as "is expected to continue,"
"anticipates," "anticipated," or other words of similar import. Future
operations are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Such uncertainties and risks include the 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.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Termination Agreement between Bandag, Incorporated and Sam
Ferrise II, dated January 20, 2000.
10.2 Tire Distribution Systems, Inc. Severance Agreement for Sam
Ferrise II, dated as of January 20, 2000, by and between Tire
Distribution Systems, Inc. and Sam Ferrise II.
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on February 11, 2000. The
Current Report included unaudited condensed consolidated balance
sheets for the years ended December 31, 1999 and 1998, unaudited
condensed consolidated statements of earnings for the three and twelve
month periods ended December 31, 1999 and 1998, respectively, and
unaudited condensed consolidated statements of cash flows for the
twelve months ended December 31, 1999 and 1998.
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BANDAG, INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date: May 12, 2000 \S\ Martin G. Carver
--------------------------------------------
Martin G. Carver
Chairman and Chief Executive Officer
Date: May 12, 2000 \S\ Warren W. Heidbreder
--------------------------------------------
Warren W. Heidbreder
Vice President, Chief Financial Officer
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BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ ------------------------------------------------------------
10.1 Termination Agreement between Bandag, Incorporated and Sam
Ferrise II, dated January 20, 2000.
10.2 Tire Disribution Systems, Inc. Severance Agreement for Sam
Ferrise II, dated as of January 20, 2000, by and between
Tire Distribution Systems, Inc. and Sam Ferrise II.
27 Financial Data Schedule (EDGAR filing only)
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BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 10.1
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT is entered into as of the 20th day of
January, 2000 by and between Bandag, Incorporated, an Iowa corporation
("Bandag") and Sam Ferrise II ("Employee").
RECITALS
WHEREAS, Bandag and Employee are parties to that certain Severance
Agreement dated as of the 4th day of May, 1999 (the "Bandag Severance
Agreement"); and
WHEREAS, Employee is voluntarily terminating his employment and all
positions with Bandag and is simultaneously being employed as an at-will
employee by Tire Distribution Systems, Inc. ("TDS"), an indirect wholly-owned
subsidiary of Bandag; and
WHEREAS, contemporaneously with the execution of a new severance
agreement between Employee and TDS, the parties hereto wish to terminate the
Bandag Severance Agreement in its entirety;
NOW, THEREFORE, in consideration of the covenants and agreements of
the parties herein contained, the sufficiency of which is acknowledged by each
party, the parties hereto agree as follows:
1. Effective with the execution and delivery by Employee and TDS of
a severance agreement between Employee and TDS, the Bandag
Severance Agreement shall be terminated and shall be of no
further force or effect and all obligations of Bandag and
Employee thereunder shall thereupon terminate.
IN WITNESS WHEREOF, the parties hereto have executed this Termination
Agreement as of the day and year first above written.
Employee: Bandag, Incorporated
/s/ Sam Ferrise II By: /s/ Martin G. Carver
- --------------------------------- -------------------------------------
Sam Ferrise II Martin G. Carver, Chairman of the
Board, Chief Executive Officer and
President
BANDAG, INCORPORATED AND SUBSIDIARIES
Exhibit 10.2
TIRE DISTRIBUTION SYSTEMS, INC.
SEVERANCE AGREEMENT FOR SAM FERRISE II
THIS SEVERANCE AGREEMENT ("Agreement") is entered into as of the 20th
day of January, 2000, by and between TIRE DISTRIBUTION SYSTEMS, INC., a Delaware
corporation ("TDS") and SAM FERRISE II ("Employee").
R E C I T A L S
WHEREAS, Employee has been a key executive employee of Bandag,
Incorporated ("Bandag"), the ultimate owner of 100% of the issued and
outstanding common stock of TDS, and possesses an extensive knowledge of the
business and affairs of Bandag and TDS, their proprietary information, trade
secrets, policies, methods, personnel, and problems;
WHEREAS, as of the date hereof, Employee has resigned as executive
vice president and chief operating officer of Bandag and is now an at-will key
executive employee of TDS and desires to continue to be employed at-will by TDS,
and acknowledges that this Agreement provides for severance payments from TDS to
which he is not otherwise entitled by any contract or any other legal
obligation;
WHEREAS, as a key executive employee of TDS, Employee acknowledges
that he will obtain extensive knowledge of the business and affairs of Bandag
and TDS, their proprietary information, trade secrets, policies, methods,
personnel and problems;
WHEREAS, the parties agree and acknowledge that this Agreement is not
intended to constitute an employment contract; does not create any employment
rights other than those expressly set forth herein; does not alter or modify
Employee's status as an "at-will" employee of TDS or the terms and conditions of
his employment except as expressly set forth herein, and does not create any
rights to continued employment or to termination only "for cause"; but rather,
is intended solely to provide for the availability of severance payments to
Employee under the terms and conditions set forth herein in consideration and
exchange for Employee's agreement to be bound by the Non-Competition and
Confidentiality provisions contained in this Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements of
the parties herein contained, the sufficiency of which is acknowledged by each
party, the parties hereto agree as follows:
1. Employee Covenants. Employee covenants and agrees to be bound by
the terms of the Non-Competition and Confidentiality provisions set forth in
paragraph 2, below.
2. Covenant Not to Compete and Confidentiality.
(a) Employee has obtained or acquired and will, during the
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BANDAG, INCORPORATED AND SUBSIDIARIES
course of Employee's employment with TDS, obtain or acquire, knowledge of
Confidential Information, which knowledge would, in the event Employee were to
become employed by or associated with a competitor of TDS, become available and
provide invaluable benefits to such competitor and cause irreparable harm to
TDS. In consideration of the severance payments provided herein, Employee will
not, within the geographic location provided herein, from the date hereof until
the number of months set forth in the immediately following sentence has elapsed
following termination of Employee's employment with TDS for any reason, directly
or indirectly, as a director, officer, employee, or as an owner of any equity
proprietary interest in (except for ownership of shares in a publicly traded
company not exceeding five percent (5%) of any class of outstanding equity
securities), or as a consultant or otherwise, render services to, have any
financial interest in, or otherwise participate in the affairs of, any business
("Competitive Business") which is, or is planning or organizing to be, engaged
in the manufacture and/or sale of products or the rendering of services
competitive with the products manufactured or sold or the services rendered by
TDS. Employee shall be restricted (as set forth in this Section 2(a)) for
twenty-four (24) months following termination of Employee's employment with TDS,
unless the reason for such termination is the voluntary termination of Employee,
in which event the period of restriction shall be twelve (12) months, provided,
however, that, in the event of Employee's voluntary termination, TDS shall have
the right, exercisable in its sole discretion, to cause such period of
restriction to be twenty-four (24) months (such twenty-four (24) or twelve (12)
month period is hereinafter referred to as the Period of Restriction). TDS may
exercise such right by giving employee written notice of TDS' exercise of such
right as soon as reasonably practicable after the effective date of Employee's
voluntary termination. TDS' right to cause the Period of Restriction to be
twenty-four months shall expire after the first installment payment provided by
Section 4 hereof has been made. The geographic limitation of the foregoing
covenant not to compete shall extend to any state of the United States in which
TDS sold or actively attempted to sell its products or services within the one
(1) year period prior to the termination of Employee's employment with TDS. In
the event that Employee is employed by a Competitive Business which is engaged
in the manufacture or sale of multiple products, this Section 2 shall apply to
only those portions of said Competitive Business which are directly or
indirectly competitive with TDS.
(b) Employee has, during the course of his employment with Bandag and
will, during the course of Employee's employment with TDS, obtain or acquire
knowledge of Confidential Information, which knowledge would, in the event
Employee were to become employed by or associated with a competitor of Bandag or
of any corporation or other entity in which Bandag owns, directly or indirectly,
a majority of such corporation's or other entity's outstanding voting securities
(a "Subsidiary"), become available and provide invaluable benefits to such
competitor and cause irreparable harm to Bandag or any such
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BANDAG, INCORPORATED AND SUBSIDIARIES
Subsidiary. In consideration of the severance payments provided herein, Employee
will not, within the geographic location provided herein, from the date hereof
until the expiration of the applicable Period of Restriction (as provided in
Section 2(a) above) following termination of Employee's employment with TDS or
any Subsidiary for any reason, directly or indirectly, as a director, officer,
employee, or as an owner of any equity proprietary interest in (except for
ownership of shares in a publicly traded company not exceeding five percent (5%)
of any class of outstanding equity securities), or as a consultant or otherwise,
render services to, have any financial interest in, or otherwise participate in
the affairs of, any business ("Competitive Business") which is, or is planning
or organizing to be, engaged in the manufacture and/or sale of products or the
rendering of services competitive with the products manufactured or sold or the
services rendered by Bandag or any Subsidiary. The geographic limitation of the
foregoing covenant not to compete shall extend to any state of the United States
in which Bandag or any Subsidiary sold or actively attempted to sell its
products or services within the one (1) year period prior to the termination of
Employee's employment with TDS. In the event that Employee is employed by a
Competitive Business which is engaged in the manufacture or sale of multiple
products, this Section 2 shall apply to only those portions of said Competitive
Business which are directly or indirectly competitive with Bandag or any
Subsidiary.
(c) From the date hereof until twenty-four (24) months following the
termination of Employee's employment, Employee will not, on behalf of any
Competitive Business, be connected in any way with soliciting or hiring any
employees of Bandag, TDS or any Subsidiary who were subject to Employee's
general supervision during employment by Bandag or TDS, until such employees
have not been employed by Bandag, TDS or any Subsidiary for six (6) months.
(d) In addition to all duties of loyalty imposed on Employee by law,
Employee shall maintain Confidential Information (as defined in subsection (e)
below) in strict confidence and secrecy and shall not at any time after the date
hereof, or at any time after termination of, employment with TDS, directly or
indirectly, use or disclose to others any Confidential Information, or use any
Confidential Information for the benefit of any person or entity (including the
Employee) other than Bandag or TDS, without the prior written consent of TDS or
Bandag, as the case may be (except for disclosures to persons acting on Bandag's
or TDS's behalf with a need to know such information, provided such persons
agree to hold such information in confidence on terms acceptable to Bandag or
TDS, as the case may be, and except for disclosures that may be required by a
court of competent jurisdiction, provided Employee notifies TDS or Bandag, as
the case may be, a reasonable time prior to any such disclosure).
(e) "Confidential Information" means Proprietary Ideas (as defined in
subsection (f) below) and other information (excluding
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BANDAG, INCORPORATED AND SUBSIDIARIES
information that is generally known to the public by means other than disclosure
by Employee) related to Bandag's, TDS's or any Subsidiary's business, whether or
not in written or printed form, not generally known in the trade or industry, of
which Employee has become informed during his employment by Bandag or TDS or has
or will become informed during his employment by TDS, including without
limitation, product specifications, service specifications, manufacturing
procedures, methods, equipment, compositions, technology, designing, business
plans, marketing plans, formulae, trade secrets, know-how, research and
development programs, sales methods, customer lists, strategic plans, mailing
lists, sales levels and quantities, customer usages and requirements, computer
programs and other confidential technical or business information and data.
(f) "Proprietary Ideas" means ideas, suggestions, Inventions (as
defined in subsection (g) below) and work relating in any way to the business
and activities of Bandag or TDS, which are or may be subjects of protection
under applicable law concerning patents, copyrights, trade secrets, trademarks,
service marks or other intellectual property rights.
(g) "Inventions" means designs, discoveries, improvements, ideas,
conceptions, works of authorship, know how, innovations, inventions,
enhancements, modifications, methods, techniques, technological developments and
suggestions, whether or not patentable, copyrightable or susceptible to any
other form of legal protection, including without limitation, products,
processes, machines, tooling, articles, compositions of matter, promotional and
advertising materials, data processing programs and systems, manufacturing and
sales techniques, artwork, drawings, plans and specifications which either (i)
relate to the business of Bandag, TDS or any Subsidiary as conducted from time
to time, or (ii) relate to Bandag's, TDS's or any Subsidiary's actual or
demonstrably anticipated research or development, or (iii) result from any work
performed by Employee for TDS or Bandag, as the case may be.
3. Specific Enforcement; Injunctive Relief. The parties acknowledge
that damages would be an inadequate remedy for any breach of the provisions of
Section 2 by Employee. Therefore, the obligations of Employee under Section 2
shall be specifically enforceable and Employee agrees that TDS or Bandag, as the
case may be, shall be entitled to an injunction, restraining order or other
equitable relief from any court of competent jurisdiction, restraining Employee
from committing any violations of the provisions of Section 2 of this Agreement,
and should such injunction or decree issue in favor of TDS or Bandag, as the
case may be, TDS or Bandag, as the case may be, shall also be entitled to all
costs, expenses, and fees (including, without limitation, attorneys' fees)
incurred in connection with such action. Such remedies shall be cumulative and
not exclusive, and shall be in addition to any other remedy TDS or Bandag, as
the case may be, may have.
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BANDAG, INCORPORATED AND SUBSIDIARIES
4. Severance Payments. TDS agrees that if TDS terminates Employee's
employment with TDS, it will pay Employee a severance payment of $680,000, or if
Employee voluntarily terminates his employment with TDS, it will pay Employee a
severance benefit of $340,000 if the Period of Restriction is twelve (12) months
or a severance benefit of $680,000 if the Period of Restriction is twenty-four
(24) months (subject in all cases to all required federal, state and local
payroll withholding), and payable as set forth herein. TDS will pay Employee the
severance amount in twenty-four (24) or twelve (12) equal monthly installment
payments, depending upon the length of the Period of Restriction, commencing
thirty (30) days after the date of Employee's termination of employment, with
monthly installment payments made thereafter on the 1st day of each month for
twenty-three (23) or eleven (11) months, as the case may be. For purposes of
this paragraph, the date of Employee's termination of employment is defined as
the last date on which Employee renders services to TDS.
(a) It is understood and agreed to by the parties that, as used in
this paragraph 4, the terms "terminates" or "voluntarily terminates" does not
include the termination of Employee's employment with TDS due to death,
disability or retirement.
(b) It is further understood and agreed to by the parties that in the
event Employee engages in any conduct in violation of, or inconsistent with, his
obligations under paragraph 2, in addition to all other rights and remedies
available to TDS or Bandag, as the case may be, TDS's obligation to make further
severance payments under this Agreement shall be immediately and forever
discharged and released and Employee shall be obligated to reimburse TDS for all
severance payments theretofore made by TDS.
(c) As a condition precedent to Employee's entitlement to receive
severance payments and to TDS's obligation to provide such payments under this
Agreement, Employee agrees that, in the event of his termination by TDS or his
voluntary termination, he will execute and be bound by the terms of a general
release of all claims against TDS ("Release") arising up to and including the
date of his execution of the Release. Employee understands and agrees that such
Release will include, at a minimum, a release of all claims against TDS and its
affiliated companies and successors, and its and their officers, directors,
employees, and agents, arising under federal, state and local
anti-discrimination or civil rights laws, as well as all claims, statutory or
common-law, arising out of Employee's employment with TDS or its termination.
5. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties pertaining to the subject matter contained
herein and supersedes all prior and contemporaneous agreements, representations
and understandings, whether written or oral, as to the matters set forth herein.
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BANDAG, INCORPORATED AND SUBSIDIARIES
6. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such a waiver, modification or discharge
is agreed to in writing signed by the parties hereto.
7. No Other Agreements. No agreements, representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
8. Costs of Enforcement. In the event that a court of competent
jurisdiction determines that Employee has breached this Agreement, Employee
shall be liable to TDS or Bandag, as the case may be, for all of its actual
costs (statutory and nonstatutory), expenses and attorneys' fees, incurred to
enforce this Agreement.
9. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of TDS and Bandag, their successors and assigns, including
the purchaser of all or substantially all of the assets of TDS or Bandag, as the
case may be, and Employee and his heirs, executors, administrators and legal
representatives. Employee may not assign this Agreement, in whole or in any
part.
10. Bandag as Third Party Beneficiary. TDS and Employee acknowledge
that the provisions in Section 2 as they relate to Bandag or any Subsidiary are
intended for the benefit of Bandag. Accordingly, the parties agree that Bandag
shall be entitled to enforce against Employee the provisions of Section 2 as
they relate to Bandag or any Subsidiary as fully as TDS could enforce against
Employee the provisions of Section 2 as they relate to TDS.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of Iowa
applicable to contracts made and to be performed therein between residents
thereof.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EMPLOYEE TIRE DISTRIBUTION SERVICES, INC.
/s/ Sam Ferrise II By: /s/ Warren W. Heidbreder
- --------------------------------- -------------------------------------
Its: Secretary
-----------------------------------
/s/ Janet R. Sichterman /s/ Janet R. Sichterman
- --------------------------------- -------------------------------------
Witness Witness
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND THE UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS OF THE REGISTRANT AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 2000, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 69,573
<SECURITIES> 10,870
<RECEIVABLES> 190,233
<ALLOWANCES> 19,001
<INVENTORY> 121,570
<CURRENT-ASSETS> 431,523
<PP&E> 506,698
<DEPRECIATION> 311,285
<TOTAL-ASSETS> 720,512
<CURRENT-LIABILITIES> 147,649
<BONDS> 111,278
0
0
<COMMON> 20,772
<OTHER-SE> 454,568
<TOTAL-LIABILITY-AND-EQUITY> 737,433
<SALES> 224,289
<TOTAL-REVENUES> 228,157
<CGS> 136,841
<TOTAL-COSTS> 136,841
<OTHER-EXPENSES> 71,613
<LOSS-PROVISION> 1,105
<INTEREST-EXPENSE> 2,289
<INCOME-PRETAX> 17,414
<INCOME-TAX> 7,401
<INCOME-CONTINUING> 10,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,013
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
</TABLE>
