FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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; 9,057,226 shares as of July 31, 2000.
Class A Common Stock, $1 par value; 9,633,224 shares as of July 31, 2000.
Class B Common Stock, $1 par value; 2,042,375 shares as of July 31, 2000.
Page 1 of 18
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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 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
EXHIBITS :
Exhibit 27 - Financial Data Schedule (EDGAR filing only)
Page 2
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item l - Financial Statements:
Unaudited Condensed Consolidated Statements of Earnings
Three Months Ended Six Months Ended
June 30, June 30,
In thousands, except per share data 2000 1999 2000 1999
-------- -------- -------- --------
Net sales $249,116 $252,120 $473,405 $476,258
Other income 3,729 2,733 7,597 5,430
-------- -------- -------- --------
252,845 254,853 481,002 481,688
Cost of products sold 154,151 153,328 290,992 288,526
Engineering, selling,
administrative and other expenses 66,784 70,994 138,397 143,055
Interest expense 2,050 2,435 4,339 4,999
-------- -------- -------- --------
222,985 226,757 433,728 436,580
-------- -------- -------- --------
Earnings before income taxes 29,860 28,096 47,274 45,108
Income taxes 12,218 11,970 19,619 18,945
-------- -------- -------- --------
Net earnings $ 17,642 $ 16,126 $ 27,655 $ 26,163
======== ======== ======== =========
Net earnings per share - Basic $ 0.85 $ 0.74 $ 1.33 $ 1.20
Net earnings per share - Diluted $ 0.85 $ 0.73 $ 1.33 $ 1.19
Comprehensive net earnings $ 14,587 $ 16,252 $ 24,841 $ 12,365
Cash dividends per share $ 0.2950 $ 0.2850 $ 0.5900 $ 0.5700
Depreciation included in expense $ 9,325 $ 10,498 $ 19,217 $ 20,146
Goodwill amortization included
in expense $ 2,618 $ 2,483 $ 5,128 $ 4,905
Weighted average shares outstanding:
Basic 20,735 21,873 20,734 21,890
Diluted 20,796 21,941 20,787 21,964
See notes to condensed consolidated financial statements.
Page 3
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BANDAG, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30,
In thousands 2000 December 31,
Unaudited 1999
--------- -----------
ASSETS:
Cash and cash equivalents $ 60,365 $ 50,633
Investments 12,950 9,461
Accounts receivable - net 181,268 199,710
Inventories:
Finished products 105,454 94,278
Materials and work-in-process 16,490 16,244
-------- --------
121,944 110,522
Other current assets 56,040 57,792
-------- --------
Total current assets 432,567 428,118
Property, plant, and equipment 508,787 502,787
Less accumulated depreciation & amortization (318,177) (304,802)
-------- --------
190,610 197,985
Intangible assets - net 65,772 67,331
Other assets 32,517 28,987
-------- --------
Total assets $721,466 $722,421
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 24,967 $ 33,472
Income taxes payable 22,106 18,998
Accrued employee compensation and benefits 22,169 25,530
Accrued marketing expenses 24,882 27,190
Other accrued expenses 43,777 45,823
Short-term notes payable and current portion of
other obligations 2,550 3,040
-------- --------
Total current liabilities 140,451 154,053
Long-term debt and other obligations 111,072 111,151
Deferred income tax liabilities 3,290 3,142
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
issued and outstanding - 9,091,426 shares
in 2000; 9,088,403 in 1999 9,091 9,088
Class A Common stock; $1 par value;
authorized - 50,000,000 shares;
issued and outstanding - 9,637,324 shares
in 2000; 9,637,187 in 1999 9,637 9,637
Class B Common stock; $1 par value;
authorized - 8,500,000 shares;
issued and outstanding - 2,042,375 shares
in 2000; 2,045,251 in 1999 2,042 2,045
Additional paid-in capital 7,524 7,476
Retained earnings 471,591 456,247
Equity adjustment from foreign currency
translation (33,232) (30,418)
-------- --------
Total equity 466,653 454,075
-------- --------
Total liabilities and stockholders' equity $721,466 $722,421
======== ========
See notes to condensed consolidated financial statements.
Page 4
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BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
In thousands Six Months Ended
June 30,
2000 1999
-------- --------
Operating Activities
Net earnings $ 27,655 $ 26,163
Provision for depreciation and amortization 24,345 25,051
Increase (decrease) in operating assets and
liabilities-net (9,002) 13,992
-------- --------
Net cash provided by operating activities 42,998 65,206
Investing Activities
Additions to property, plant and equipment (11,328) (18,153)
Purchases of investments (7,835) (6,459)
Maturities of investments 4,346 7,238
Payments for acquisitions of businesses (4,607) (1,698)
-------- --------
Net cash used in investing activities (19,424) (19,072)
Financing Activities
Proceeds from long-term notes payable - 59
Principal payments on short-term notes payable
and long-term obligations (503) (6,225)
Cash dividends (12,255) (12,475)
Purchases of Common Stock and
Class A Common Stock (60) (1,196)
-------- --------
Net cash used in financing activities (12,818) (19,837)
Effect of exchange rate changes on cash and
cash equivalents (1,024) (2,854)
-------- --------
Increase in cash and cash equivalents 9,732 23,443
Cash and cash equivalents at beginning of period 50,633 37,912
-------- --------
Cash and cash equivalents at end of period $ 60,365 $ 61,355
======== ========
See notes to condensed consolidated financial statements.
Page 5
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
The condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Comprehensive Net Earnings
Comprehensive net earnings for the three month periods ended June 30, 2000 and
1999 and the six month periods ended June 30, 2000 and 1999 were as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Net earnings $ 17,642 $ 16,126 $ 27,655 $ 26,163
Other comprehensive income item:
Foreign currency translation (3,055) 126 (2,814) (13,798)
------- -------- -------- --------
Comprehensive net earnings $ 14,587 $ 16,252 $ 24,841 $ 12,365
======== ======== ======== ========
Tire Distribution Systems, Inc. (TDS) Business Combinations and Operating
Results
For the year-to-date period, Tire Distribution Systems, Inc. (TDS), a wholly
owned subsidiary of Bandag, Incorporated, acquired 2 tire dealerships. The
accounts and transactions of the acquired businesses have been included in the
consolidated financial statements from the date of acquisition.
TDS results for the three month periods ended June 30, 2000 and 1999 and the six
month periods ended June 30, 2000 and 1999 were as follows (in thousands):
Page 6
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $104,978 $ 97,600 $194,754 $182,213
Goodwill amortization 2,516 2,440 4,982 4,818
Earnings (loss) before interest and
income taxes 1,878 842 (1,011) (1,054)
Intercompany sales from Traditional
Business to TDS which have been
eliminated in consolidation $ 14,492 $ 13,935 $ 28,446 $ 26,556
Quality Design Systems, Inc.
During the quarter, the Company acquired the assets of Quality Design Systems,
Inc. (QDS). QDS is a well-established tire and automotive care industry
developer best-known for its TireMaster (R) software package. QDS, based in
Eagle, Idaho, will operate as a wholly-owned subsidiary of the Company and
continue to serve its customers in the retail tire and automotive care
industries. The accounts and transactions of the acquired business have been
included in the consolidated financial statements from the date of acquisition.
Pro forma results of operations for 2000 and 1999, assuming the purchase
transactions occurred as of January 1, 1999, would not differ materially from
reported amounts.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
Numerator: 2000 1999 2000 1999
------- ------ ------- ------
Net Earnings $17,642 $16,126 $27,655 $26,163
Denominator:
Denominator for basic earnings
per share-weighted-average shares 20,735 21,873 20,734 21,890
Effect of dilutive securities:
Non-vested restricted stock 36 40 27 41
Stock options 25 28 26 33
------- ------- ------- -------
Dilutive potential common shares 61 68 53 74
------- ------- ------- -------
Denominator for diluted earnings
per share-weighted-average
shares and dilutive potential
common shares 20,796 21,941 20,787 21,964
======= ======= ======= =======
Net Earnings Per Share:
Basic $ 0.85 $ 0.74 $ 1.33 $ 1.20
======= ======= ======= =======
Diluted $ 0.85 $ 0.73 $ 1.33 $ 1.19
======= ======= ======= =======
Page 7
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BANDAG, INCORPORATED AND SUBSIDIARIES
Non-recurring Charges
During the fourth quarter 1999, the Company recorded non-recurring charges
totaling $13,500,000 ($7,671,000 net of tax benefits) for termination benefits.
These termination benefits covered the company-wide reduction of 175 employees
+through a combination of voluntary early retirements, the closing of a North
American tread rubber manufacturing facility and other position eliminations.
The early retirement program announced in the fourth quarter of 1999 offered
unreduced retirement benefits to employees over the age of 55 and who have
accumulated 65 points (points = age + years of service). The early retirement
program charges primarily represent a $4,906,000 increase in the pension benefit
obligation which resulted when 62 employees elected this program. Of the total
number of employees affected by position eliminations, benefit payments of
$2,161,000 were made in 1999 for 56 employees. In the year-to-date period ended
June 30, 2000, the Company paid $3,508,000 relating to the termination of an
additional 57 employees and continued termination benefits for 2 employees.
Further employee termination costs of $2,799,000 are accrued at June 30, 2000,
which reflects a $72,000 reduction in the original provision due to exchange
rate changes and a $54,000 reduction due to costs being lower than original
estimates. The majority of these payments will be made in 2000. No charge
related to the manufacturing facility has been expensed as the Company expects
to use the facility in the future for general corporate purposes.
During 1998, the Company recorded net non-recurring charges totaling $4,205,000
($1,174,000 net of tax benefits). The net non-recurring charges included a
provision of $7,502,000 ($4,471,000 net of tax benefits) for facility closures,
personnel reductions, and other exit costs. Additionally, the net non-recurring
charges included a gain of $3,297,000 consisting of the non-taxable recognition
of accumulated translation gains due to the exit of operations in Indonesia.
Included in the non-recurring charges is $4,845,000 related to personnel
reductions. In 1998, the Company paid $1,035,000 related to the termination of
13 employees. In 1999, the Company paid $2,950,000 related to the termination of
99 employees. In the year-to-date period ended June 30, 2000, the Company paid
$483,000 related to the termination of 18 employees. Remaining employee
termination costs of $189,000 have been accrued at June 30, 2000, which reflects
a $29,000 reduction due to changes in exchange rates. Included in the
non-recurring charge is $2,657,000 for facility closure and other exit costs
which contains $642,000 for the write down of assets. In 1999, the Company paid
$905,000 for facility closure and other exit costs and reduced the original
provision by $192,000 due to costs being lower than original estimates. In the
year-to-date period ended June 30, 2000, the Company paid $38,000 for facility
closure and other exit costs and reduced the original provision by $54,000 due
to costs being lower than original estimates and $86,000 due to changes in
exchange rates. The Company's remaining obligation for facility closure and
other exit costs as of June 30, 2000 is $740,000.
Page 8
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BANDAG, INCORPORATED AND SUBSIDIARIES
Operating Segment Information
The Company has two reportable operating segments: the Traditional Business and
TDS. The Traditional Business manufactures precured tread rubber, equipment and
supplies for retreading tires and operates on a worldwide basis. TDS operates
franchised retreading locations and commercial, retail, and wholesale outlets
throughout the United States for the sale and maintenance of new and retread
tires to principally commercial and industrial customers. Other includes results
of operations for the Tire Management Solutions Inc. (TMS) pilot program,
Quality Design Systems, Inc. (QDS) and other corporate items.
The Company evaluates performance and allocates resources based primarily on
profit or loss before interest and income taxes. Intersegment sales and
transfers between the Traditional Business and TDS are recorded at a value
consistent with that to unaffiliated customers.
For the three months ended June 30 (in thousands):
<TABLE>
<CAPTION>
Traditional Business
------------------------------------------------------------------------------------------------------
North America Europe Latin America Asia
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $86,826 $93,529 $21,008 $23,435 $26,621 $26,350 $4,049 $6,391
Transfers between
segments 17,043 17,491 124 189 - - - -
Operating earnings
(loss) 24,948 24,600 4,150 3,761 4,001 4,385 659 826
Interest income - - - - - - - -
Interest expense - - - - - - - -
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $24,948 $24,600 $4,150 $3,761 $4,001 $4,385 $659 $826
======================================================================================================
<CAPTION>
TDS Other Consolidated
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $104,978 $97,600 5,634 4,815 $249,116 $252,120
Transfers between
segments - - 765 727 17,932 18,407
Operating earnings
(loss) 1,878 842 (5,119) (5,628) 30,517 28,786
Interest income - - 1,393 1,745 1,393 1,745
Interest expense - - (2,050) (2,435) (2,050) (2,435)
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $1,878 $842 $(5,776) $(6,318) $29,860 $28,096
======================================================================================================
</TABLE>
<PAGE>
For the six months ended June 30 (in thousands):
<TABLE>
<CAPTION>
Traditional Business
------------------------------------------------------------------------------------------------------
North America Europe Latin America Asia
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $165,232 $179,823 $42,082 $47,517 $51,264 $49,277 $9,657 $12,613
Transfers between
segments 33,034 33,233 303 469 - - - -
Operating earnings
(loss) 40,931 40,565 8,280 7,007 7,311 8,506 2,279 1,721
Interest income - - - - - - - -
Interest expense - - - - - - - -
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $40,931 $40,565 $8,280 $7,007 $7,311 $8,506 $2,279 $1,721
======================================================================================================
<CAPTION>
TDS Other Consolidated
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
unaffiliated
customers $194,754 $182,213 $10,416 $4,815 $473,405 $476,258
Transfers between
segments - - 1,548 727 34,885 34,429
Operating earnings
(loss) (1,011) (1,054) (9,149) (9,907) 48,641 46,838
Interest income - - 2,972 3,269 2,972 3,269
Interest expense - - (4,339) (4,999) (4,339) (4,999)
------------------------------------------------------------------------------------------------------
Earnings(loss) before
income taxes $(1,011) $(1,054) $(10,516) $(11,637) $47,274 $45,108
======================================================================================================
</TABLE>
Page 9
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BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 -Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
-------
Results include the Company's Traditional Business, Tire Distribution Systems,
Inc. (TDS), Tire Management Solutions, Inc., a pilot operation (TMS), and
Quality Design Systems, Inc. (QDS). The comparability of operating results
between years is affected by TDS acquisitions of tire dealerships in the current
and prior year.
Consolidated net sales for the quarter and the year-to-date periods ended June
30, 2000 were both 1% lower than the prior year periods, but included a 7% and
6% decrease in Traditional Business net sales, respectively. The decrease in
Traditional Business net sales resulted from a 7% and 6% decline in retread
material unit volume for the quarter and year-to-date periods ended June 30,
2000, respectively. Net sales were also unfavorably affected by the lower
translated value of the Company's foreign-currency-denominated sales,
particularly the euro and Brazilian real. However, this negative translation
effect was offset by an April price increase in the U.S. along with an increase
in equipment sales. The Company continues to see a slowing in North American
retread sales which can be attributed to low new-truck demand which encourages
the movement of new tires into the replacement market and low-priced new tires
from overseas. The decline in Traditional Business sales volume is also due to
competitive pressures and industry consolidation in the United States, which is
expected to continue throughout 2000. The decline in Traditional Business sales
was offset by an 8% and 7% increase in TDS sales over the prior year quarter and
year-to-date period and a full six months of sales for TMS. The Company's
seasonal sales pattern, which is tied to trucking activity, was similar to the
second quarters in previous years in that it is seasonally stronger than the
first quarter for both sales and earnings. Both segments were similarly
affected.
A 14% increase in average raw material costs in the U.S. for the second quarter
was partially offset by an April price increase in the U.S. and improved margins
on equipment sales, leaving the Traditional Business and consolidated gross
profit margins for the quarter ended June 30, 2000 1.7 and 1.1 percentage points
lower than the prior year period, respectively. The consolidated and Traditional
Business gross profit margin for the year-to-date period both decreased .9
percentage points from the prior year periods reflecting the 9% increase in
average raw material costs in the U.S for the year. Given softer demand, the
Company anticipates that it will be more difficult to recover future increases
in raw material costs through further price increases.
Consolidated operating and other expenses for the quarter and year-to-date
periods ended June 30, 2000 decreased 6% and 3% from the prior year periods,
respectively. Traditional Business operating and other expenses
Page 10
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BANDAG, INCORPORATED AND SUBSIDIARIES
for the quarter and year-to-date periods ended June 30, 2000 decreased 14% and
11% from the prior year periods, respectively, benefiting from the prior year
restructurings in North America and Europe and cost control measures. This
decrease was offset by an 8% and 12% increase in TDS operating and other
expenses over the prior year quarter and year-to-date periods due in part to
acquisitions. Earnings for the quarter ended June 30, 2000 were up 9% from the
prior year period and diluted earnings per share improved to $.85, up from
diluted earnings per share of $.73 in the prior year period. Earnings for the
year-to-date period ended June 30, 2000 were up 6% from the prior year period
and diluted earnings per share improved to $1.33, up from diluted earnings per
share of $1.19 in the prior year period. For the quarter and year-to-date
periods, the combined effect of a lower tax rate and a decrease in the diluted
shares outstanding added $.08 to diluted earnings per share for both periods.
Traditional Business
--------------------
The Company's Traditional Business operations located in the United States and
Canada are integrated and managed as one unit, which is referred to internally
as North America. Net sales in North America for the quarter and year-to-date
periods ended June 30, 2000 were 6% and 7% below the prior year periods,
respectively, primarily due to a 10% lower retread material unit volume for both
periods. The decrease in net sales was less than the shortfall in retread
material unit volume due to a price increase in April of 2000 in the U.S. and an
increase in equipment sales. The Company continues to see a softness in North
American sales trends due to competitive pressures and industry consolidation in
the United States. However, the Company is beginning to see an increased
stability in the North American distribution channel. An increase in average raw
material costs in the U.S. was partially offset by improved manufacturing
efficiencies and an April price increase in the U.S., resulting in a .6
percentage point decrease in North America's gross margin for the year-to-date
period. North American operating and other expenses for the quarter and
year-to-date periods ended June 30, 2000 were 27% and 17% lower than the prior
year periods due to lower professional, promotional, and personnel-related
costs. For the quarter and year-to-date periods ended June 30, 2000, lower sales
were offset by reduced operating and other expenses, resulting in a slight
increase in earnings before income taxes over the prior year periods.
The Company's operations located in Europe principally service markets in
European countries, but also export to certain other countries in the Middle
East and Northern and Central Africa. This collection of countries is under one
management group and is referred to internally as Europe. Net sales in Europe
for the quarter and year-to-date periods ended June 30, 2000 declined 11% and
12% from the prior year periods, respectively. Retread material unit volume
decreased 3% from the prior year quarter but remained even with the prior
year-to-date period. The spread between the net sales decrease and the retread
material unit volume decrease is primarily due to the lower translated value of
the euro. Gross profit
Page 11
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
margin for the year-to-date period ended June 30, 2000 was up slightly over the
prior year period due to improved margins on equipment sales and service
revenue, but was 1.5 percentage points lower than the prior year quarter due to
higher material costs. Operating expenses for the quarter and year-to-date
periods ended June 30, 2000 decreased 25% and 22% from the prior year periods,
respectively, due to the lower translated value of the euro and lower
personnel-related costs. Principally as a result of lower operating expenses,
earnings before income taxes for the quarter and year-to-date periods ended June
30, 2000 increased 10% and 18% over the prior year periods, respectively.
The Company's exports from North America to markets in the Caribbean, Central
America and South America, along with operations in Brazil, Mexico, Venezuela
and South Africa are combined under one management group referred to internally
as Latin America. Net sales in Latin America for the quarter and year-to-date
periods ended June 30, 2000 increased 1% and 4% over the prior year periods,
respectively, as retread material unit volume remained even and increased 3%,
respectively. 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 for the year-to-date period was driven by higher
shipments in Brazil and Mexico. The gross profit margin for the quarter and
year-to-date periods ended June 30, 2000 both decreased approximately 2.4
percentage points from the prior year periods due to higher raw materials and
production costs. An increase in Brazil's marketing and professional costs was
partially offset by a lower translated value of Brazil operating expenses,
resulting in a 7% increase in Latin American operating expenses for the quarter
ended June 30, 2000 over the prior year period. Primarily as a result of lower
gross margins, earnings before income taxes for the quarter and year-to-date
periods ended June 30, 2000 decreased 9% and 14% from the prior year periods,
respectively.
The Company's exports from North America to markets in Asian countries, along
with operations in New Zealand, Indonesia and Malaysia and a licensee in
Australia, are combined under one management group referred to internally as
Asia. Net sales in Asia for the quarter and year-to-date periods ended June 30,
2000 declined 37% and 23% from the prior year periods as a result of a 33% and
22% decrease in retread material unit volume, respectively, and reduced new tire
sales in New Zealand. Gross profit margin in Asia for the quarter ended June 30,
2000 increased 4.1 percentage points over the prior year period due to the lower
cost of imported retread materials in New Zealand and improved margins on new
tire sales in New Zealand. Operating expenses for the quarter and year-to-date
periods ended June 30, 2000 declined 25% and 22% from the prior year periods,
respectively, benefiting from prior year restructurings which reduced
personnel-related costs and managerial and administrative support costs in New
Zealand and Indonesia. Earnings before income taxes for the quarter ended June
30, 2000 decreased 20% from the prior year period due to the reduction in sales.
Page 12
<PAGE>
BANDAG, INCORPORATED AND SUBSIDIARIES
Tire Distribution Systems, Inc.
-------------------------------
TDS net sales for the quarter and year-to-date periods ended June 30, 2000
increased 8% and 7% over the prior year periods, respectively. Excluding the
effect of acquisitions, TDS sales for the quarter and year-to-date periods ended
June 30, 2000 were 2% and 1% higher than the prior year periods, respectively.
TDS's operating expenses, excluding the effect of acquisitions, for the quarter
and year-to-date periods ended June 30, 2000 were 3% and 7% higher than the
prior year periods, respectively, reflecting added resources for anticipated
business growth. During the first quarter, TDS management took steps to
rationalize current expense levels in order to bring those expenses more in line
with current operating needs. Earnings before income taxes for the quarter and
year-to-date periods ended June 30, 2000 increased 123% and 4% over the prior
year periods, respectively. The profit improvement can be attributed to TDS's
ability to utilize purchase discounts in the current year and management
initiatives to control expenses.
Financial Condition:
-------------------
Operating Activities.
Net cash provided by operating activities for the six months ended June 30, 2000
was $22,208,000 less than the amount for the same period last year, primarily
due to decreases in account payables and other current liabilities offset by
other working capital items.
Investing Activities.
The Company spent $11,328,000 on capital expenditures through June 30, 2000,
compared to $18,153,000 spent for the same period last year. The Company
typically funds its capital expenditures from operating cash flow. The Company
spent $4,607,000 on two tire dealership acquisitions and the purchase of QDS
through June 30, 2000, compared to $1,698,000 spent for the purchase of tire
dealerships in the same period last year.
The Company's excess funds are invested in financial instruments with various
maturities, but only instruments with an original maturity date of over 90 days
are classified as investments for balance sheet purposes. The Company's
purchases of investments exceeded maturities by $3,489,000 during the six
months, bringing total investments to approximately $12,950,000 as of June 30,
2000.
Financing Activities.
Cash dividends totaled $6,128,000 and $12,255,000 for the quarter and
year-to-date, respectively, and compared to $6,230,000 and $12,475,000 for the
same periods last year. The Company purchased 2,630 shares of its outstanding
Common and Class A Common stock, at prevailing market prices,
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BANDAG, INCORPORATED AND SUBSIDIARIES
for $60,000 during the six months ended June 30, 2000. Cash dividends and stock
purchases were funded from operational cash flows. As of June 30, 2000, the
Company had $111,000,000 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," and "the
Company anticipates," 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 continued competitive pressures
within the U.S. and the extent of additional industry consolidation; and the
uncertainty of Bandag's ability to recover future increases in raw material
costs, if any, through further price increases.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Annual meeting of the shareholders of the Company was held on May
2, 2000.
(b) Two matters were voted upon at the annual meeting. First, the following
three nominees, all of whom were incumbent directors, were elected as directors
for a three-year term ending in 2003 by the following vote:
Votes Broker
Name Votes For Against Abstentions Non-Votes
------------------- ---------- ------- ----------- ---------
Robert T. Blanchard 27,901,026 74,264 172,326 4,209
Gary E. Dewel 27,905,281 69,068 173,267 4,209
R. Stephen Newman 27,913,280 65,196 169,139 4,209
Shareholders also voted upon a proposal to ratify the selection of Ernst &
Young LLP as independent auditors of the Company for the year ending December
31, 2000. The shareholders ratified the selection by the following vote:
Votes For Votes Against Abstentions Broker Non-votes
---------- ------------- ----------- ----------------
28,114,294 17,731 15,591 4,209
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BANDAG, INCORPORATED AND SUBSIDIARIES
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on April 27, 2000. The Current
Report included unaudited condensed consolidated balance sheets for
the quarter ended March 31, 2000 and the year ended December 31, 1999,
unaudited condensed consolidated statements of earnings for the three
month period ended March 31, 2000 and 1999, respectively, and
unaudited condensed consolidated statements of cash flows for the
three months ended March 31, 2000 and 1999.
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BANDAG, INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date: August 14, 2000 \S\ Martin G. Carver
-----------------------------------------
Martin G. Carver
Chairman and Chief Executive Officer
Date: August 14, 2000 \S\ Warren W. Heidbreder
-----------------------------------------
Warren W. Heidbreder
Vice President, Chief Financial Officer
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BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit
------ --------------------------------------------
27 Financial Data Schedule (EDGAR filing only)
Page 18
