FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 (Zip Code)
executive offices)
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 - 10,540,853 shares as of April 30, 1995.
Class A Common Stock, $1 par value - 12,855,132 shares as of April 30,
1995. Class B Common Stock, $1 par value - 2,356,331 shares as of
April 30, 1995.
BANDAG, INCORPORATED AND SUBSIDIARIES
INDEX
Part I : FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements (Unaudited)
Consolidated Condensed Statements of Earnings 3
Consolidated Condensed Statements of
Cash Flows 4
Consolidated Condensed Balance Sheets 5
Note to Consolidated Condensed Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II : OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
EXHIBITS :
Exhibit 11 - Computation of Earnings Per Share 13
Exhibit 27 - Financial Data Schedule 14
BANDAG, INCORPORATED AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Item 1 - Financial Statements:
Unaudited Consolidated Condensed Statements of Earnings
(In thousands except per
share data)
Three Months Ended
3/31/95 3/31/94
Net sales $168,243 $131,649
Other income 3,555 4,481
------- -------
171,798 136,130
Cost of products sold 103,109 80,031
Engineering, selling,
administrative and other
expenses 36,926 31,151
Interest expense 496 454
------- -------
140,531 111,636
------- -------
Earnings before income taxes 31,267 24,494
Income taxes 11,688 9,063
------- -------
Net Earnings $ 19,579 $ 15,431
======== ========
Net earnings per share $ 0.75 $ 0.57
Cash dividends per share $ 0.2000 $ 0.1750
Depreciation included in expense $ 8,357 $ 8,382
Average shares outstanding 26,207 27,212
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Three Months Ended
3/31/95 3/31/94
Operating Activities
Net earnings $ 19,579 $ 15,431
Depreciation and amortization 8,592 8,526
Operating assets and liabilities-net 14,957 17,415
------- ------
Net cash provided by operating
activities 43,128 41,372
Investing Activities
Additions to property, plant and
equipment (6,371) (7,960)
Purchases of investments (17,756) (24,958)
Maturities of investments 16,863 14,513
Sale of marketable equity securities --- 2,447
------- ------
Net cash used in investing
activities (7,264) (15,958)
Financing Activities
Proceeds from short-term notes
payable 2,195 ---
Principal payments on short-term
notes payable and other liabilities (4,858) (1,864)
Cash dividends (5,221) (4,746)
Purchases of Common Stock (6,443) (7,973)
------- ------
Net cash used in financing
activities (14,327) (14,583)
Effect of exchange rate changes on cash
and cash equivalents 293 (68)
------- ------
Increase in cash and cash equivalents 21,830 10,763
Cash and cash equivalents at beginning
of year 46,519 58,004
------- ------
Cash and cash equivalents at end of
period $ 68,349 $ 68,767
====== ======
BANDAG, INCORPORATED AND SUBSIDIARIES
Unaudited Consolidated Condensed Balance Sheets
(In thousands)
March 31, December
1995 31, 1994
ASSETS:
Cash and cash equivalents $ 68,349 $ 46,519
Investments 37,757 36,864
Accounts receivable - net 172,206 178,057
Inventories:
Finished products 45,251 37,022
Materials & work-in-process 13,211 14,132
------ ------
58,452 51,154
Other current assets 33,978 32,285
------ ------
Total current assets 370,742 344,879
Property, plant, and equipment 368,491 359,731
Less accumulated depreciation &
amortization (218,954) (207,973)
------ ------
149,537 151,758
Marketable equity securities, at
market value 64,665 64,066
Other assets 14,789 21,443
------ ------
Total assets $599,733 $582,146
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 22,360 $ 20,014
Income taxes payable 17,222 9,999
Accrued employee compensation and
benefits 17,529 17,695
Accrued marketing expenses 23,581 28,609
Other accrued expenses 32,121 28,703
Short-term notes payable and other
liabilities 5,885 8,280
------ ------
Total current liabilities 118,698 113,300
Deferred income tax and other
liabilities 35,496 34,797
Stockholders' equity:
Common stock; $1 par value;
authorized - 21,500,000 shares;
Issued and outstanding -
10,789,509 shares in 1995;
10,788,985 in 1994 10,790 10,789
Class A Common stock; $1 par
value; authorized - 50,000,000
shares;
Issued and outstanding -
12,855,138 shares in 1995;
12,976,211 in 1994 12,855 12,976
Class B Common stock; $1 par
value; authorized - 8,500,000
shares;
Issued and outstanding -
2,357,381 shares in 1995;
2,357,976 in 1994 2,357 2,358
Additional paid-in capital 3,135 3,192
Retained earnings 392,692 384,607
Unrealized gain on securities,
net of related tax effect 24,834 24,491
Equity adjustment from foreign
currency translation (1,124) (4,364)
------ ------
Total equity 445,539 434,049
------ ------
Total liabilities &
stockholders' equity $599,733 $582,146
====== ======
BANDAG, INCORPORATED AND SUBSIDIARIES
Note to Consolidated Condensed Financial Statements
The consolidated condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1995. 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, 1994.
BANDAG, INCORPORATED AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Consolidated net sales for the first quarter ended March 31, 1995, showed
an increase of 28% over the same period last year as a result of the
combined impact of a 13% increase in unit volume, higher selling prices,
the favorable impact of the weaker U.S. dollar on the translated value of
foreign currency denominated sales, and higher sales of retread equipment.
(The term "unit volume" when used in the context of these comments refers
only to shipments of the Company's major manufactured product, precured
tread rubber used in the retreading of tires.) Net sales and unit volume
were strong in all the Company's major market areas except Mexico where
they declined because of difficult economic conditions. The Company
believes that a small percentage of the increased unit volume in the
quarter was due to dealer hedge-buying in response to the continuing
increase in raw material prices worldwide driven by strong demand and a
tight supply. Present indications are that this situation is expected to
moderate in the second half of the year.
Consolidated gross margin for the first quarter ended March 31, 1995,
decreased 0.5 percentage points compared to the same period last year.
The lower gross margin was due primarily to higher raw material costs not
fully offset by selling price increases.
Consolidated operating expenses for the first quarter increased 16% over
the same period last year, but were two percentage points lower as a
percentage of sales due to the strong sales volume in the quarter. The
majority of the increase was a result of higher spending on
marketing-related programs, with the higher translated value of foreign-
currency-denominated expenses a contributing factor.
Consolidated net earnings and net earnings per share for the first quarter
ended March 31, 1995, increased 27% and 32%, respectively, over the same
period last year. The higher increase in net earnings per share over last
year, in comparison to the increase in net earnings, was due to fewer
average shares outstanding in 1995.
Domestic Operations:
During the first quarter, sales and unit volume for the Company's domestic
operations, which include export shipments to various Latin and South
American areas, were 29% and 11% higher, respectively, in comparison to
last year. The increase in sales was greater than the increase in unit
volume due to very strong equipment sales, which accounted for six
percentage points of the increase, combined with higher retread material
selling prices.
Gross margin for the first quarter was 2.7 percentage points lower than
the same period last year due to raw material costs which were
approximately 9% higher than the fourth quarter 1994 levels. The Company
announced price increases on January 15 in response to the higher raw
material costs, but the Company's practice is to grant its dealers a price
window to give them time to implement higher prices to their customers.
As would be expected, this delay had a negative impact on gross margin.
Raw material costs have since increased further, but the Company has
deferred any additional selling price increases until such time as it is
able to confirm the accuracy of industry forecasts calling for raw
material costs to decline during the second half of the year because of
softer demand and improved supply conditions.
First quarter operating expenses increased 22% over the same period last
year, but were 1.1 percentage points lower than last year as a percentage
of sales due to the higher sales volume. The increase in operating
expenses was primarily for marketing-related programs.
First quarter earnings before income taxes increased 10% over the same
period last year.
Western European Operations:
First quarter results for the Company's Western European operations were
once again strong, following a strong fourth quarter 1994, with sales and
unit volume increasing 24% and 18%, respectively, over the same period
last year. The increase in sales was greater than the increase in unit
volume due mostly to favorable translation rates, with some offset from
lower equipment sales.
Gross margin for the first quarter in Western Europe was 1.7 percentage
points higher than last year's depressed gross margin because of the
increased unit volume. Though raw material costs somewhat lag the U.S.,
they have followed the U.S. trend and selling prices have been increased
accordingly.
Operating expenses for the first quarter increased 26% over the same
period last year, but were approximately even with last year when viewed
as a percentage of sales. Expenses increased only 9% in local currencies,
which was in line with the sales increase. First quarter operating
expenses included unfavorable foreign exchange adjustments which were
higher than those recorded last year. Foreign exchange losses in both
years resulted from fluctuations in exchange rates in the various
currencies in which the Company's Western European operation conducts
business.
Earnings before income taxes for the first quarter increased 56% over the
relatively weak first quarter results last year.
Other Foreign Operations:
Sales and unit volume for the other combined geographic areas increased
29% and 16%, respectively. Except for Mexico, results were strong for all
of the Company's other foreign operations. The Company's sales and unit
volume in Mexico was 48% and 31% lower, respectively, than last year due
to the country's weak economic conditions. Results for Brazil were very
strong in the quarter with sales and unit volume increases of 67% and 29%,
respectively. Brazil's large increase in sales in comparison to unit
volume was due to its ability to increase selling prices on a regular
basis this year to catch up with, and keep ahead of, local inflation. The
effect of foreign translation rates was nil in comparison to last year's
first quarter.
Gross margin for the first quarter was 4.9 percentage points higher than
the same period last year for the Company's other foreign operations. The
margin increase was primarily due to the margin recovery recorded by the
Company's Canadian operation. Last year's Canadian margin was depressed
due to its manufacturing operation being shut down for a period of time to
repair a major piece of equipment
First quarter operating expenses for the Company's other foreign
operations were 1.5% higher than the same period last year, but 3.7
percentage points lower than last year as a percentage of sales. Brazil's
operating expenses increased due to inflationary factors, but this was
basically offset by lower spending in the other operations.
Earnings before income taxes for the quarter increased 168% compared to
the same period last year due to the stronger results recorded by Brazil
and Canada.
Financial Condition:
Operating Activities.
Net cash provided by operating activities for the first quarter ended
March 31, 1995 was $1.8 million higher than the same period last year,
with a $2.5 million increase in net cash resulting from the net change in
operating assets and liabilities partially offsetting a $4.1 million
increase in net earnings.
Investing Activities.
The Company spent $6.4 million on capital expenditures during the first
quarter ended March 31, 1995, which was $1.6 million lower than the amount
spent during the same period last year. It is expected that capital
expenditures will be proportionately higher in the second half of the
year. Funding for the Company's capital expenditures comes from
operational cash flows.
The Company's excess funds are invested over various terms, but only
instruments with an original maturity date of over 90 days are classified
as investments for balance sheet purposes. This amount totaled
$37.8 million at March 31, 1995, compared to $36.9 million at March 31,
1994.
Financing Activities.
Cash dividends totaled $5.2 million for the quarter ended March 31, 1995,
compared to $4.7 million for the previous year. During the first quarter
the Company purchased 121,000 shares of its outstanding Class A Common
Stock at prevailing market prices for $6.4 million. Both cash dividends
and stock purchases were funded from the Company's operational cash flows.
The short-term borrowing activity during the quarter was by the Company's
Western European operation to fund its current cash flow needs.
The Company has $132 million in funds available under unused lines of
credit and foreign credit and overdraft facilities.
BANDAG, INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings Per Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANDAG, INCORPORATED
(Registrant)
Date: May 9, 1995 \S\ Martin G. Carver
Martin G. Carver
Chairman and Chief Executive
Officer
Date: May 9, 1995 \S\ Thomas E. Dvorchak
Thomas E. Dvorchak
Sr. Vice President and Chief
Financial Officer
BANDAG, INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Page
11 Computation of Earnings Per Share 13
27 Financial Data Schedule 14