UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-7007
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)
(563) 262-1400
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1 par value; 9,076,430 shares as of July 31, 2001.
Class A Common Stock, $1 par value; 9,524,549 shares as of July 31, 2001.
Class B Common Stock, $1 par value; 2,038,570 shares as of July 31, 2001.
BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I: FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -
June 30, 2001 and December 31, 2000 3
Condensed consolidated statements of earnings - Three
months ended June 30, 2001 and 2000;
Six months ended June 30, 2001 and 2000 4
Condensed consolidated statements of cash flows -
Six months ended June 30, 2001 and 2000 5
Notes to condensed consolidated financial statements -
June 30, 2001 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 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
EXHIBITS:
Exhibit 10.1 Amendment to Bandag, Incorporated Stock Award Plan, as approved by
the Company's shareholders on May 15, 2001.
2
PART 1. FINANCIAL INFORMATION
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
In thousands, except share data 2001 2000
------------ -------------
Assets
Current assets
Cash and cash equivalents $ 93,192 $ 86,008
Investments 6,976 7,377
Accounts receivable, net 160,390 177,103
Inventories
Finished products 90,304 84,156
Material and work in process 18,416 17,484
------------- -------------
108,720 101,640
Other current assets 57,852 55,051
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Total current assets 427,130 427,179
Property, plant, and equipment 502,202 502,807
Less accumulated depreciation and amortization (335,199) (325,651)
------------- -------------
167,003 177,156
Intangible assets, net 56,921 62,319
Other assets 53,209 47,895
------------- -------------
Total assets $ 704,263 $ 714,549
============= =============
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 17,961 $ 18,294
Accrued employee compensation and benefits 19,045 26,555
Accrued marketing expenses 24,207 29,630
Other accrued expenses 32,704 36,729
Income taxes payable 23,224 13,037
Short-term notes payable and current portion
of other obligations 8,441 8,490
------------- -------------
Total current liabilities 125,582 132,735
Long-term debt and other obligations 103,562 105,163
Deferred income tax liabilities 3,964 2,494
Shareholders' equity
Common stock; $1.00 par value; authorized -
21,500,000 shares; issued and
outstanding - 9,076,415 shares in 2001;
9,057,561 shares in 2000 9,076 9,058
Class A common stock; $1.00 par value; authorized -
50,000,000 shares; issued and outstanding -
9,524,549 shares in 2001; 9,465,445 shares in 2000 9,525 9,465
Class B common stock; $1.00 par value; authorized -
8,500,000 shares; issued and outstanding -
2,038,585 shares in 2001; 2,038,745 shares in 2000 2,039 2,039
Additional paid-in capital 10,513 8,256
Retained earnings 484,214 484,987
Foreign currency translation adjustment (44,212) (39,648)
------------- -------------
Total shareholders' equity 471,155 474,157
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Total liabilities and shareholders' equity $ 704,263 $ 714,549
============= =============
See notes to condensed consolidated financial statements.
3
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Earnings
Three Months Ended Six Months Ended
In thousands, except per share data June 30, June 30,
2001 2000 2001 2000
------------ ------------- ------------- ------------
Net sales $ 244,758 $ 249,116 $ 454,000 $ 473,405
Other income 4,479 3,729 8,759 7,597
------------ ------------- ------------- ------------
249,237 252,845 462,759 481,002
Cost of products sold 154,579 154,151 289,066 290,992
Engineering, selling,
administrative and other expenses 76,301 66,784 149,473 138,397
Interest expense 1,923 2,050 3,807 4,339
------------ ------------- ------------- ------------
232,803 222,985 442,346 433,728
------------ ------------- ------------- ------------
Earnings before income taxes 16,434 29,860 20,413 47,274
Income taxes 6,922 12,218 8,573 19,619
------------ ------------- ------------- ------------
Net earnings $ 9,512 $ 17,642 $ 11,840 $ 27,655
============ ============= ============= ============
Net earnings per share - Basic $ 0.46 $ 0.85 $ 0.58 $ 1.33
Net earnings per share - Diluted $ 0.46 $ 0.85 $ 0.57 $ 1.33
Comprehensive net earnings $ 5,217 $ 14,587 $ 7,276 $ 24,841
Cash dividends per share $ 0.305 $ 0.295 $ 0.610 $ 0.590
Depreciation included in expense $ 7,929 $ 9,325 $ 16,694 $ 19,217
Goodwill amortization included in expense $ 2,519 $ 2,487 $ 5,042 $ 4,898
Weighted average shares outstanding:
Basic 20,578 20,735 20,566 20,734
Diluted 20,667 20,779 20,689 20,787
See notes to condensed consolidated financial statements.
4
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended
June 30,
2001 2000
-------- --------
Operating Activities
Net earnings $ 11,840 $ 27,655
Provision for depreciation and amortization 21,736 24,115
Increase in operating assets and liabilities, net (4,523) (8,772)
-------- --------
Net cash provided by operating activities 29,053 42,998
Investing Activities
Additions to property, plant, and equipment (9,517) (11,328)
Purchases of investments (4,300) (7,835)
Maturities of investments 4,701 4,346
Payments for acquisitions of businesses -- (4,607)
-------- --------
Net cash used in investing activities (9,116) (19,424)
Financing Activities
Principal payments on short-term notes payable
and long-term obligations (375) (503)
Cash dividends (12,567) (12,255)
Purchases of Common Stock and Class A Common Stock (24) (60)
-------- --------
Net cash used in financing activities (12,966) (12,818)
Effect of exchange rate changes on cash and
cash equivalents 213 (1,024)
-------- --------
Increase in cash and cash equivalents 7,184 9,732
Cash and cash equivalents at beginning of period 86,008 50,633
-------- --------
Cash and cash equivalents at end of period $ 93,192 $ 60,365
======== ========
See notes to condensed consolidated financial statements.
5
BANDAG, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
Note A. Basis of Presentation
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 and six month periods ended June 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. 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, 2000.
Note B. Comprehensive Net Earnings
Comprehensive net earnings for the three and six month periods ended June 30,
2001 and 2000 were as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ -------------- -------------
Net earnings $ 9,512 $ 17,642 $ 11,840 $ 27,655
Other comprehensive income:
Foreign currency translation (4,295) (3,055) (4,564) (2,814)
------------ ------------ -------------- --------------
Comprehensive net earnings $ 5,217 $ 14,587 $ 7,276 $ 24,841
============ ============ ============== ==============
Note C. Tire Distribution Systems, Inc. (TDS) Operating Results
TDS results for the three and six month periods ended June 30, 2001 and 2000
were as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales $ 104,826 $ 104,978 $ 188,226 $ 194,754
Goodwill amortization 2,358 2,387 4,730 4,754
Income (loss) before interest and income taxes (902) 1,878 (6,171) (1,011)
Intercompany sales from traditional
retread business to TDS which have
been eliminated in consolidation $ 14,461 $ 14,492 $ 28,335 $ 28,446
6
BANDAG, INCORPORATED AND SUBSIDIARIES
Note D. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- ------- --------- ---------
Numerator:
Net earnings $ 9,512 $17,642 $11,840 $27,655
Denominator:
Denominator for basic earnings
per share - weighted-average shares 20,578 20,735 20,566 20,734
Effect of dilutive securities:
Non-vested restricted stock 61 36 49 27
Stock options 28 25 74 26
------- ------- ------- -------
Dilutive potential common shares 89 61 123 53
Denominator for diluted earnings per
share - weighted-average shares and
dilutive potential common shares 20,667 20,796 20,689 20,787
======= ======= ======= =======
Net earnings per share:
Basic $ 0.46 $ 0.85 $ 0.58 $ 1.33
======= ======= ======= =======
Diluted $ 0.46 $ 0.85 $ 0.57 $ 1.33
======= ======= ======= =======
Note E. Derivative Instruments and Hedging Activities
The Company adopted The Financial Accounting Standards Board (FASB) Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133), as amended by FAS 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - An Amendment of FASB Statement No. 133," effective
January 1, 2001. As of January 1, 2001, the impact of adoption of FAS 133 was
not significant to the financial position of the Company. The Company enters
into derivative financial instruments to manage the risks associated with
certain aspects of its business, but does not actively trade such instruments,
nor does it enter into such agreements for speculative purposes. However, in the
first and second quarters of 2001, the Company did not designate the derivative
instruments that it entered into as hedges. Accordingly, the fair values of the
derivative instruments, $26,000 at June 30, 2001 is recorded as other current
assets on the balance sheet, and changes in the fair values of these instruments
are reflected in current income. The Company may elect to apply hedge
accounting, which has different financial statement effects, to possible future
transactions involving derivative instruments. Such an election would reduce
earnings volatility that might otherwise result if changes in fair values were
recognized in current income.
7
BANDAG, INCORPORATED AND SUBSIDIARIES
Note F. New Accounting Standards
In June 2001, the FASB issued Statements of Financial Accounting Standards No.
141, "Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets," effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of approximately $10,100,000 or $.49 per share per year. During
2002, the Company will perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of January 1, 2002 and has
not yet determined what the effect of these tests will be on the earnings and
financial position of the Company.
Note G. Legal Proceedings
Bandag, Incorporated vs. Michelin Retread Technologies, Incorporated et al.,
United States District Court for the Southern District of Iowa, 3-99-CV-80165.
On September 16, 1999, Bandag, Inc. filed an action against Michelin Retread
Technologies and affiliated companies for violations of state and federal law,
including applicable antitrust laws and the Lanham Act. The Company moved in
December 2000 to amend its complaint to name additional Michelin entities.
Michelin entities have filed counterclaims alleging, among other things, that
the Company injured Michelin by violating the antitrust laws and the Lanham Act
and by conspiring with Bridgestone/Firestone, Inc. to injure Michelin in
violation of the antitrust laws. Both the Company's lawsuit and Michelin's
counterclaims seek compensatory (including treble damages) and injunctive
relief. Neither the Company's claim nor Michelin's counterclaims seek a specific
amount of monetary relief. While the results of the Company's suit and
Michelin's counterclaims cannot be predicted with certainty, a victory on
Michelin's counterclaims 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
counterclaims are without merit. The Company intends to vigorously defend its
position. The trial in the underlying case is currently scheduled for January,
2002.
On February 2, 2001, Michelin moved for a preliminary injunction against the
Company and Bridgestone/ Firestone. Michelin sought broad-based relief. Among
other things, Michelin asked the Court to prevent the Company from enforcing
agreements with certain franchisees and from enforcing certain terms in other
franchise agreements (including exclusivity provisions), communicating with
Bridgestone/Firestone about certain subjects or engaging in any joint
undertaking, merger or alliance with Bridgestone/Firestone. The preliminary
injunction hearing took place on April 16-17, 2001. The Court denied Michelin's
request for a preliminary injunction on May 4, 2001.
8
BANDAG, INCORPORATED AND SUBSIDIARIES
Note H. 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. The operations
of the Traditional Business segment are evaluated by worldwide geographic
region. 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. This collection of countries is under one
management group and is referred to internally as Europe. The Company's exports
from North America to markets in the Caribbean, Central America, South America
and Asian countries, along with operations in Brazil, Mexico, Venezuela, South
Africa, New Zealand, Indonesia and Malaysia and a licensee in Australia, are
combined under one management group referred to internally as International.
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 Tire Management Solutions, Inc. (TMS),
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):
Traditional Business TDS
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North America Europe International
2001 2000 2001 2000 2001 2000 2001 2000
Net sales
to unaffiliated
customers $ 90,332 $ 86,826 $ 16,119 $ 21,008 $ 27,452 $ 30,670 $ 104,239 $ 104,213
Transfers between
segments 16,561 17,043 77 124 1,101 - 587 765
Operating earnings
(loss) 22,601 24,948 1,360 4,150 2,634 4,660 (902) 1,878
Interest income - - - - - - - -
Interest expense - - - - - - - -
-------- -------- -------- --------- --------- --------- --------- ---------
Earnings (loss)
before income
taxes $ 22,601 $ 24,948 $ 1,360 $ 4,150 $ 2,634 $ 4,660 $ (902) $ 1,878
======== ======== ======== ========= ========= ========= ========= =========
Other Consolidated
2001 2000 2001 2000
Net sales
to unaffiliated
customers $ 6,616 $ 6,399 $ 244,758 $249,116
Transfers between
segments - - 18,326 17,932
Operating earnings
(loss) (9,155) (5,119) 16,538 30,517
Interest income 1,819 1,393 1,819 1,393
Interest expense (1,923) (2,050) (1,923) (2,050)
-------- --------- ---------- ---------
Earnings (loss)
before income
taxes $ (9,259) $ (5,776) $ 16,434 $ 29,860
======== ========= ========== =========
For the six months ended June 30 (in thousands):
Traditional Business TDS
--------------------------------------------------------------------
North America Europe International
2001 2000 2001 2000 2001 2000 2001 2000
Net sales
to unaffiliated
customers $ 167,157 $ 165,232 $ 33,635 $ 42,082 $ 53,227 $ 60,921 $ 187,111 $ 193,206
Transfers between
segments 33,611 33,034 269 303 2,224 - 1,115 1,548
Operating earnings
(loss) 37,321 40,931 1,292 8,280 5,581 9,590 (6,171) (1,011)
Interest income - - - - - - - -
Interest expense - - - - - - - -
--------- --------- --------- ---------- --------- ---------- --------- --------
Earnings (loss)
before income
taxes $ 37,321 $ 40,931 $ 1,292 $ 8,280 $ 5,581 $ 9,590 $ (6,171) $ (1,011)
========= ========= ========= ========== ========= ========== ========= ========
Other Consolidated
2001 2000 2001 2000
Net sales
to unaffiliated
customers $ 12,870 $ 11,964 $454,000 $473,405
Transfers between
segments - - 37,219 34,885
Operating earnings
(loss) (17,466) (9,149) 20,557 48,641
Interest income 3,663 2,972 3,663 2,972
Interest expense (3,807) (4,339) (3,807) (4,339)
--------- -------- -------- -------
Earnings (loss)
before income
taxes $ (17,610) $ (10,516) $ 20,413 $ 47,274
========= ========= ======== ========
9
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
Results include the Company's two reportable operating segments - its
Traditional Business and Tire Distribution Systems, Inc. (TDS) - as well as Tire
Management Solutions, Inc. (TMS) and Quality Design Systems, Inc. (QDS).
Consolidated net sales for the quarter and year-to-date periods ended June 30,
2001 were 2% and 4% lower than the prior year periods, respectively, on a 3% and
5% decrease in Traditional Business net sales, respectively. The decrease in
consolidated and Traditional Business net sales primarily resulted from a 5% and
8% decline in retread material unit volume for the quarter and year-to-date
periods ended June 30, 2001, respectively. Net sales were also unfavorably
affected by the lower translated value of the Company's
foreign-currency-denominated sales, particularly the euro, Brazilian real and
South African rand. However, the lower sales volume and negative translation
effect were partially offset by price increases and an increase in equipment
sales. While tread volume was down, the Company's tread volume trend showed
improvement in most geographic areas, particularly in North America. However,
there continues to be weakness in Europe and Latin America. TDS net sales
decreased 3% for the year-to-date period ended June 30, 2001 from the prior year
period due to the general economic conditions. The Company's seasonal sales
pattern, which is tied to trucking activity, was similar to previous years in
that it is seasonally stronger than the first quarter for both sales and
earnings. Both segments were similarly affected.
A 5% increase in average raw material costs in the United States for the second
quarter was partially offset by a May price increase in the United States,
leaving the consolidated and Traditional Business gross profit margins for the
quarter ended June 30, 2001 1.3 and 0.7 percentage points lower than the prior
year period, respectively. The consolidated and Traditional Business gross
profit margins for the year-to-date period ended June 30, 2001 decreased 2.2 and
2.5 percentage points from the prior year period, respectively, reflecting the
9% increase in average raw material costs in the United States for the year.
Consolidated operating and other expenses for the quarter and year-to-date
periods ended June 30, 2001 increased 15% and 8% from the prior year periods,
respectively. Traditional Business operating and other expenses for the quarter
and year-to-date periods ended June 30, 2001 increased 19% and 10% from the
prior year periods, respectively. The increase in operating and other expenses
primarily resulted from increased expenses in connection with the previously
announced Michelin Litigation. Expenses for the Michelin litigation for the
quarter and year-to-date periods ended June 30, 2001 were approximately
$4,700,000 and $8,700,000, respectively as compared to $1,200,000 and $1,250,000
for the prior year periods, respectively. The Company currently estimates that
expenses for the Michelin litigation in 2001 will range from $17,000,000 to
$19,000,000 on a pre-tax basis. Net earnings for the quarter ended June 30, 2001
were down 46% from the prior year period and diluted earnings per share
decreased to $.46, down from diluted earnings per share of $.85 in the prior
year period. Net earnings for the year-to-date period ended June 30, 2001 were
down 57% from the prior year period and diluted earnings per share decreased to
$.57, down from diluted earnings per share of $1.33 in the prior year period.
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, 2001 were 3% and 1% above the prior year periods,
10
BANDAG, INCORPORATED AND SUBSIDIARIES
respectively, primarily due to an increase in equipment sales. Net sales for the
quarter and year-to-date periods ended June 30, 2001 were unfavorably impacted
by a 2% and 7% decline in retread material unit volume, respectively, which was
partially offset by a May price increase in the United States and Canada and an
increase in equipment sales. An increase in average raw material costs in the
United States and Canada was partially offset by May price increases, resulting
in a 2.5 percentage point decrease in North America's gross margin for the
year-to-date period ended June 30, 2001 from the prior year period. North
American operating and other expenses for the quarter and year-to-date period
ended June 30, 2001 were 22% and 2% higher than the prior year periods,
respectively, primarily due to continued efforts to build capabilities and
strengthen alliances throughout the Bandag distribution network. For the quarter
and year-to-date periods ended June 30, 2001, slightly higher sales were offset
by increased operating and other expenses, resulting in a 9% decrease in
earnings before income taxes from the prior year periods.
The Company's operations located in Europe principally service markets in
European countries, but also export to certain other countries in the Middle
East and Northern and Central Africa. This collection of countries is under one
management group and is referred to internally as Europe. Net sales in Europe
for the quarter and year-to-date periods ended June 30, 2001 declined 23% and
20% from the prior year periods, respectively. Retread material unit volume
decreased 17% and 14% from the prior year periods, respectively. The spread
between the net sales decrease and the retread material unit volume decrease is
due to the lower translated value of the euro. Gross profit margin for the
quarter and year-to-date periods ended June 30, 2001 was 5.1 and 7.7 percentage
points lower than the prior year periods, respectively, due to higher material
costs. Operating expenses for the quarter and year-to-date periods ended June
30, 2001 decreased 2% and 10% 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 a lower gross margin, earnings before income taxes
for the quarter and year-to-date periods ended June 30, 2001 decreased 67% and
84% from the prior year periods, respectively.
The Company's exports from North America to markets in the Caribbean, Central
America, South America and Asian countries, along with operations in Brazil,
Mexico, Venezuela, South Africa, New Zealand, Indonesia and Malaysia and a
licensee in Australia, are combined under one management group referred to
internally as International. Net sales in International for the quarter and
year-to-date periods ended June 30, 2001 declined 7% and 9% from the prior year
periods, respectively, as a result of a 3% and 9% decrease in retread material
unit volume, respectively. The spread between the net sales decrease and the
retread material unit volume decrease is due to the lower translated value of
the Brazilian real and South African rand, partially offset by price increases.
The gross profit margin for the quarter and year-to-date periods ended June 30,
2001 decreased 2.8 and 2.4 percentage points from the prior year periods,
respectively, due mainly to higher raw material costs. Operating expenses for
the quarter ended June 30, 2001 decreased 8% from the prior year period
primarily due to the lower translated value of the Brazilian real. Operating
expenses for the year-to-date period ended June 30, 2001 increased 2% from the
prior year period due to increases in the provision for bad debts and marketing
program costs which were partially offset by the lower translated value of the
Brazilian real and South African rand. Earnings before income taxes for the
quarter and year-to-date periods ended June 30, 2001 decreased 43% and 42% from
the prior year periods, respectively, primarily due to the reduction in sales.
TIRE DISTRIBUTION SYSTEMS, INC.
TDS net sales for the year-to-date period ended June 30, 2001 decreased 3% from
the prior year period. TDS net sales for the quarter ended June 30, 2001 was up
slightly from the prior year period. The decrease in year-to-date net sales
resulted from the slowed economy's effect on the demand for trucking services.
11
BANDAG, INCORPORATED AND SUBSIDIARIES
Price increases were unable to fully offset higher product costs, and the lower
sales volume reduced manufacturing absorption and dealer rebates, resulting in a
2.1 percentage point decrease in gross profit margin for the quarter and
year-to-date periods ended June 30, 2001 from the prior year periods. The gross
profit was also impacted by the lower mix of retreads sold during the period
which typically experience higher gross profits relative to commercial truck
tires (new tires). The ratio of retreads to new tires declined during both the
quarter and year-to-date periods. TDS's operating expenses as a percentage of
sales for the quarter and year-to-date periods ended June 30, 2001 were 0.5 and
0.6 percentage points higher than the prior year periods, respectively.
Primarily as a result of the lower sales volume, TDS recorded a loss before
interest and taxes of $902,000 and $6,171,000 for the quarter and year-to-date
periods ended June 30, 2001, respectively, as compared to income before interest
and taxes of $1,878,000 and a loss before interest and taxes of $1,011,000 for
the prior year periods, respectively.
Financial Condition:
Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2001
was $13,945,000 less than the amount for the same period last year, primarily
due to a reduction in net earnings.
Investing Activities
The Company spent $9,517,000 on capital expenditures through June 30, 2001,
compared to $11,328,000 spent for the same period last year. The Company
typically funds its capital expenditures from operating cash flows. The Company
did not have any acquisitions for the six months ended June 30, 2001, compared
to $4,607,000 spent on a tire dealership acquisition 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
maturities of investments exceeded purchases by $401,000 during the six months,
resulting in total investments of approximately $8,026,000 as of June 30, 2001,
which includes $1,050,000 classified as long-term.
Financing Activities
Cash dividends totaled $6,295,000 and $12,567,000 for the quarter and
year-to-date periods, respectively, compared to $6,128,000 and $12,255,000 for
the same periods last year. The Company purchased 605 shares of its outstanding
Common and Class A Common stock, at prevailing market prices, for $24,000 during
the six months ended June 30, 2001. Cash dividends and stock purchases were
funded from operational cash flows. As of June 30, 2001, the Company had
$98,413,000 in funds available under unused lines of credit.
12
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 15,
2001.
(b) Three 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 2004 by the following vote:
Name Votes For Votes Against Abstentions
- ---- --------- ------------- -----------
Roy J. Carver, Jr. 27,432,287 194,404 800,695
James R. Everline 27,657,844 119,696 649,846
Phillip J. Hanrahan 27,660,261 116,311 650,814
A vote was held to act upon a proposal to amend the Bandag,
Incorporated Stock Award Plan. The shareholders ratified the proposal by the
following vote:
Broker
Votes For Votes Against Abstentions Non-Votes
- --------- ------------- ----------- ---------
24,666,091 3,189,856 32,194 539,246
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, 2001. The shareholders ratified the selection by the following
vote:
Votes For Votes Against Abstentions
- --------- ------------- -----------
28,408,167 11,941 7,278
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment to Bandag, Incorporated Stock Award Plan, as approved
by the Company's shareholders on May 15, 2001 (incorporated by
reference to Appendix B to the Notice of Annual Meeting and
Proxy Statement of Bandag, Incorporated for the Annual Meeting
of the Shareholders held on May 15, 2001 [File No. 1-7007])
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 2001.
13
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 10, 2001 /s/ Martin G. Carver
--------------------
Martin G. Carver
Chairman and Chief Executive Officer
Date: August 10, 2001 /s/ Warren W. Heidbreder
------------------------
Warren W. Heidbreder
Vice President, Chief Financial Officer
14
Exhibit Index
Exhibit
Number Exhibit
10.1 Amendment to Bandag, Incorporated Stock Award Plan, as approved
by the Company's shareholders on May 15, 2001 (incorporated by
reference to Appendix B to the Notice of Annual Meeting and
Proxy Statement of Bandag, Incorporated for the Annual Meeting
of the Shareholders held on May 15, 2001 [File No. 1-7007])