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 SEPTEMBER 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 October 31, 2001.
Class A Common Stock, $1 par value; 9,524,549 shares as of October 31, 2001.
Class B Common Stock, $1 par value; 2,038,570 shares as of October 31, 2001.
BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I: FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -
September 30, 2001 and December 31, 2000 3
Condensed consolidated statements of earnings - Three
months ended September 30, 2001 and 2000;
Nine months ended September 30, 2001 and 2000 4
Condensed consolidated statements of cash flows -
Nine months ended September 30, 2001 and 2000 5
Notes to condensed consolidated financial statements -
September 30, 2001 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 13
Signatures 14
2
PART 1. FINANCIAL INFORMATION
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
In thousands, except share data 2001 2000
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 120,336 $ 86,008
Investments 7,162 7,377
Accounts receivable, net 174,938 177,103
Inventories
Finished products 86,473 84,156
Material and work in process 17,250 17,484
--------- ---------
103,723 101,640
Other current assets 52,645 55,051
--------- ---------
Total current assets 458,804 427,179
Property, plant, and equipment 503,986 502,807
Less accumulated depreciation and amortization (341,486) (325,651)
--------- ---------
162,500 177,156
Intangible assets, net 54,414 62,319
Other assets 54,098 47,895
--------- ---------
Total assets $ 729,816 $ 714,549
========= =========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 23,872 $ 18,294
Accrued employee compensation and benefits 19,192 26,555
Accrued marketing expenses 28,533 29,630
Other accrued expenses 34,515 36,729
Income taxes payable 26,038 13,037
Short-term notes payable and current portion of
other obligations 8,602 8,490
--------- ---------
Total current liabilities 140,752 132,735
Long-term debt and other obligations 104,474 105,163
Deferred income tax liabilities 5,826 2,494
Shareholders' equity
Common stock; $1.00 par value; authorized -
21,500,000 shares; issued and
outstanding - 9,076,430 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 -
2,038,570 shares in 2001; 2,038,745 shares in 2000 2,039 2,039
Additional paid-in capital 10,513 8,256
Retained earnings 492,533 484,987
Foreign currency translation adjustment (44,922) (39,648)
--------- ---------
Total shareholders' equity 478,764 474,157
--------- ---------
Total liabilities and shareholders' equity $ 729,816 $ 714,549
========= =========
See notes to condensed consolidated financial statements.
3
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Earnings
Three Months Ended Nine Months Ended
In thousands, except per share data September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $261,712 $269,905 $715,712 $743,310
Other income 5,095 3,749 13,854 11,346
-------- -------- -------- --------
266,807 273,654 729,566 754,656
Cost of products sold 165,081 168,803 454,147 459,795
Engineering, selling,
administrative and other expenses 74,719 72,092 224,192 210,489
Interest expense 1,809 2,137 5,616 6,476
-------- -------- -------- --------
241,609 243,032 683,955 676,760
-------- -------- -------- --------
Earnings before income taxes 25,198 30,622 45,611 77,896
Income taxes 10,584 12,708 19,157 32,327
-------- -------- -------- --------
Net earnings $ 14,614 $ 17,914 $ 26,454 $ 45,569
======== ======== ======== ========
Net earnings per share - Basic $ 0.71 $ 0.87 $ 1.29 $ 2.20
Net earnings per share - Diluted $ 0.71 $ 0.86 $ 1.28 $ 2.19
Comprehensive net earnings $ 13,904 $ 16,088 $ 21,180 $ 40,929
Cash dividends per share $ 0.305 $ 0.295 $ 0.915 $ 0.885
Depreciation included in expense $ 8,455 $ 10,660 $ 25,149 $ 29,877
Goodwill amortization included in expense $ 2,526 $ 2,521 $ 7,568 $ 7,420
Weighted average shares outstanding:
Basic 20,578 20,697 20,570 20,721
Diluted 20,681 20,793 20,679 20,782
See notes to condensed consolidated financial statements.
4
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
2001 2000
----------- -----------
Operating Activities
Net earnings $ 26,454 $ 45,569
Provision for depreciation and amortization 32,717 37,297
Increase (decrease) in operating assets and liabilities, net 8,585 (10,818)
--------- ---------
Net cash provided by operating activities 67,756 72,048
Investing Activities
Additions to property, plant, and equipment (15,246) (15,364)
Purchases of investments (9,089) (8,425)
Maturities of investments 9,304 7,944
Payments for acquisitions of businesses -- (4,632)
--------- ---------
Net cash used in investing activities (15,031) (20,477)
Financing Activities
Principal payments on short-term notes payable and
long-term obligations (375) (692)
Cash dividends (18,862) (18,398)
Purchases of Common Stock and Class A Common Stock (24) (1,725)
--------- ---------
Net cash used in financing activities (19,261) (20,815)
Effect of exchange rate changes on cash and cash equivalents 864 (2,116)
--------- ---------
Increase in cash and cash equivalents 34,328 28,640
Cash and cash equivalents at beginning of period 86,008 50,633
--------- ---------
Cash and cash equivalents at end of period $ 120,336 $ 79,273
========= =========
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 nine month periods ended September 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 nine month periods ended September
30, 2001 and 2000 were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------------- --------------- ---------------- ----------------
Net earnings $ 14,614 $ 17,914 $ 26,454 $ 45,569
Other comprehensive income:
Foreign currency translation (710) (1,826) (5,274) (4,640)
--------------- --------------- ---------------- ----------------
Comprehensive net earnings $ 13,904 $ 16,088 $ 21,180 $ 40,929
=============== =============== ================ ================
Note C. Tire Distribution Systems, Inc. (TDS) Operating Results
TDS results for the three and nine month periods ended September 30, 2001 and
2000 were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------------- --------------- ---------------- ---------------
Net sales $ 115,644 $ 113,372 $ 303,870 $ 308,126
Goodwill amortization 2,365 2,389 7,095 7,142
Income (loss) before interest and income taxes 785 2,627 (5,386) 1,616
Intercompany sales from traditional
retread business to TDS which have
been eliminated in consolidation $ 16,507 $ 15,132 $ 44,847 $ 43,578
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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------------- ------------- ------------- --------------
Numerator:
Net earnings $ 14,614 $ 17,914 $ 26,454 $ 45,569
Denominator:
Denominator for basic earnings
per share - weighted-average shares 20,578 20,697 20,570 20,721
Effect of dilutive securities:
Non-vested restricted stock 62 37 44 37
Stock options 41 59 65 24
------------- ------------- ------------- --------------
Dilutive potential common shares 103 96 109 61
Denominator for diluted earnings per
share - weighted-average shares and
dilutive potential common shares 20,681 20,793 20,679 20,782
============= ============= ============= ==============
Net earnings per share:
Basic $ 0.71 $ 0.87 $ 1.29 $ 2.20
============= ============= ============= ==============
Diluted $ 0.71 $ 0.86 $ 1.28 $ 2.19
============= ============= ============= ==============
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 nine months of 2001, the Company did not designate the derivative
instruments that it entered into as hedges. Accordingly, the fair value of the
derivative instruments, $14,000 at September 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 $8,800,000 or $.43 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 May, 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 September 30 (in thousands):
Traditional Business
-------------------------------------------------------------------- TDS
North America Europe International
2001 2000 2001 2000 2001 2000 2001 2000
Net sales to unaffiliated
customers $ 97,104 $ 99,203 $ 17,340 $ 20,599 $ 25,768 $ 31,104 $ 114,952 $ 112,537
Transfers between segments 18,718 18,059 106 91 973 627 692 835
Operating earnings (loss) 30,958 30,602 (40) 1,251 2,588 2,987 785 2,627
Interest income
- - - - - - - -
Interest expense
- - - - - - - -
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------
Earnings (loss) before
income taxes $ 30,958 $ 30,602 $ (40)$ 1,251 $ 2,588 $ 2,987 $ 785 $ 2,627
=========== ========== ========== =========== ========== =========== ========== ==========
Other Consolidated
2001 2000 2001 2000
Net sales to unaffiliated
customers $ 6,548 $ 6,462 $ 261,712 $269,905
Transfers between segments - 20,489 19,612
-
Operating earnings (loss) (9,004) (6,104) 25,287 31,363
Interest income 1,720 1,396 1,720 1,396
Interest expense (1,809) (2,137) (1,809) (2,137)
----------- ---------- ----------- ----------
Earnings (loss) before
income taxes $ (9,093)$ (6,845)$ 25,198 $ 30,622
=========== ========== =========== ==========
For the nine months ended September 30 (in thousands):
Traditional Business
-------------------------------------------------------------------- TDS
North America Europe International
2001 2000 2001 2000 2001 2000 2001 2000
Net sales to unaffiliated
customers $ 264,261 $ 264,435 $ 50,975 $ 62,681 $ 78,995 $ 92,025 $ 302,063 $ 305,743
Transfers between segments 52,329 51,093 375 394 3,197 627 1,807 2,383
Operating earnings (loss) 68,279 71,533 1,252 9,531 8,169 12,577 (5,386) 1,616
Interest income
- - - - - - - -
Interest expense
- - - - - - - -
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------
Earnings (loss) before
income taxes $ 68,279 $ 71,533 $ 1,252 $ 9,531 $ 8,169 $ 12,577 $ (5,386)$ 1,616
=========== ========== ========== =========== ========== =========== ========== ==========
Other Consolidated
2001 2000 2001 2000
Net sales to unaffiliated
customers $ 19,418 $ 18,426 $715,712 $743,310
Transfers between segments - 57,708 54,497
-
Operating earnings (loss) (26,470) (15,253) 45,844 80,004
Interest income 5,383 4,368 5,383 4,368
Interest expense (5,616) (6,476) (5,616) (6,476)
----------- ---------- ----------- ----------
Earnings (loss) before
income taxes $ (26,703)$ (17,361)$ 45,611 $ 77,896
=========== ========== =========== ==========
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 September
30, 2001 were 3% and 4% lower than the prior year periods, respectively, on a 5%
decrease in Traditional Business net sales for both periods. The decrease in
consolidated and Traditional Business net sales primarily resulted from a 6% and
7% decline in retread material unit volume for the quarter and year-to-date
periods ended September 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 North America. However, there continues to be weakness in Europe
and Latin America. TDS net sales for the quarter and year-to-date periods ended
September 30, 2001 increased 2% and decreased 1% from the prior year periods,
respectively. The Company's seasonal sales pattern, which is tied to trucking
activity, was similar to the third quarters in previous years in that it is
seasonally the strongest quarter for both sales and earnings. Both segments were
similarly affected.
The Traditional Business gross profit margin was 0.3 percentage points higher
than the prior year period for the quarter ended September 30, 2001, due to a
decrease in average raw material costs in the United States. The consolidated
gross profit margin for the quarter ended September 30, 2001 was 0.6 percentage
points lower than the prior year period. The consolidated and Traditional
Business gross profit margins for the year-to-date period ended September 30,
2001 decreased 1.6 percentage points from the prior year periods, reflecting the
5% 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 September 30, 2001 increased 4% and 7% from the prior year
periods, respectively. Traditional Business operating and other expenses for the
quarter and year-to-date periods ended September 30, 2001 increased 4% and 8%
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 September 30, 2001 were
approximately $4,500,000 and $13,100,000, respectively as compared to $1,600,000
and $2,800,000 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 September 30, 2001 were down 18% from the prior year period and diluted
earnings per share decreased to $.71, down from diluted earnings per share of
$.86 in the prior year period. Net earnings for the year-to-date period ended
September 30, 2001 were down 42% from the prior year period and diluted earnings
per share decreased to $1.28, down from diluted earnings per share of $2.19 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 ended September 30,
2001 were 1% below the prior year period. Net sales for the year-to-date
10
BANDAG, INCORPORATED AND SUBSIDIARIES
period ended September 30, 2001 were even with the prior year period. Net sales
for the quarter and year-to-date periods ended September 30, 2001 were
unfavorably impacted by a 4% and 5% 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 1.4 percentage point decrease in North America's gross
profit margin for the year-to-date period ended September 30, 2001 from the
prior year period. North American operating and other expenses for the quarter
and year-to-date period ended September 30, 2001 were 7% and 1% lower than the
prior year periods, respectively, primarily due to lower marketing program
costs. For the quarter ended September 30, 2001, lower sales were offset by
lower operating and other expenses, resulting in a 1% increase in earnings
before income taxes from the prior year period. For the year-to-date period
ended September 30, 2001, the lower gross profit margin was partially offset by
decreased operating and other expenses, resulting in a 5% decrease in earnings
before income taxes from the prior year period.
The Company's operations located in Europe principally service markets in
European countries, but also export to certain other countries in the Middle
East and Northern and Central Africa. This collection of countries is under one
management group and is referred to internally as Europe. Net sales in Europe
for the quarter and year-to-date periods ended September 30, 2001 declined 16%
and 19% from the prior year periods, respectively. Retread material unit volume
decreased 8% and 12% 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 September 30, 2001 was 3.8 and 6.5
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 September 30, 2001 decreased 24% and 14% from the prior year periods,
respectively, due to the lower translated value of the euro, lower marketing
program costs and lower personnel related costs. Principally as a result of a
lower gross profit margin, earnings before income taxes for the quarter and
year-to-date periods ended September 30, 2001 decreased 103% and 87% 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 September 30, 2001 declined 16% and 11% from the
prior year periods, respectively, as a result of an 8% decrease in retread
material unit volume. 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 ended September 30, 2001 was even with the
prior year period. The gross profit margin for the year-to-date period ended
September 30, 2001 decreased 1.5 percentage points from the prior year period,
due mainly to higher raw material costs. Operating expenses for the quarter
ended September 30, 2001 decreased 5% 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 September 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 September 30, 2001 decreased 13% and 35% from the
prior year periods, respectively, primarily due to the reduction in sales.
11
BANDAG, INCORPORATED AND SUBSIDIARIES
TIRE DISTRIBUTION SYSTEMS, INC.
TDS net sales for the year-to-date period ended September 30, 2001 decreased 1%
from the prior year period. TDS net sales for the quarter ended September 30,
2001 increased 2% 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. Price increases were unable to fully offset higher product costs, and
the lower sales volume reduced manufacturing absorption and dealer rebates,
resulting in a 1.2 and 1.8 percentage point decrease in gross profit margin for
the quarter and year-to-date periods ended September 30, 2001, respectively from
the prior year periods. The gross profit margin was also impacted by the lower
ratio of retreads to new tires sold during the period. Retreads typically
experience higher gross profit margins 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 September 30, 2001 were 0.2 and 0.7
percentage points higher than the prior year periods, respectively. Primarily as
a result of the lower gross profit margins, TDS recorded income before interest
and taxes of $785,000 for the quarter ended September 30, 2001 as compared to
$2,627,000 for the prior year period. For the year-to-date period ended
September 30, 2001, TDS recorded a loss before interest and taxes of $5,386,000
as compared to income before interest and taxes of $1,616,000 for the prior year
period.
Financial Condition:
Liquidity
At September 30, 2001, the Company had cash and cash equivalents of
$120,336,000, as compared to $86,008,000 at December 31, 2000. The Company's
ratio of total current assets to total current liabilities was 3.26 to 1 at
September 30, 2001 as compared to 3.22 to 1 at December 31, 2000. In addition,
at September 30, 2001, the Company had approximately $101,968,000 in borrowings
available under unused lines of credit.
Operating Activities
Net cash provided by operating activities for the nine months ended September
30, 2001 was $4,292,000 less than the amount for the same period last year,
primarily due to a reduction in net earnings which was partially offset by
management of working capital.
Investing Activities
The Company spent $15,246,000 on capital expenditures through September 30,
2001, compared to $15,364,000 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 nine months ended September 30, 2001,
compared to $4,632,000 spent on two tire dealership acquisition and the purchase
of QDS 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 $215,000 during the nine months,
resulting in total investments of approximately $8,462,000 as of September 30,
2001, which includes $1,300,000 classified as long-term.
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BANDAG, INCORPORATED AND SUBSIDIARIES
Financing Activities
Cash dividends totaled $6,295,000 and $18,862,000 for the quarter and
year-to-date periods, respectively, compared to $6,143,000 and $18,398,000 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 nine months ended September 30, 2001. Cash dividends and stock purchases
were funded from operational cash flows.
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Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date: November 14, 2001 /s/ Martin G. Carver
--------------------
Martin G. Carver
Chairman and Chief Executive Officer
Date: November 14, 2001 /s/ Warren W. Heidbreder
------------------------
Warren W. Heidbreder
Vice President, Chief Financial Officer
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