SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

   [X]  Annual Report Pursuant to Section 13 or 15(d) of the 
   Securities Exchange Act of 1934

   For the fiscal year ended December 31, 1996;

                                       OR

   [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
   Exchange Act of 1934

   Commission File Number 1-7007

                              BANDAG, INCORPORATED
             (Exact name of registrant as specified in its charter)

                Iowa                         42-0802143
   (State or other jurisdiction of           (I.R.S. Employer
   incorporation or organization)            Identification No.)

   2905 North Highway 61, Muscatine, Iowa                52761-5886
   (Address of principal executive offices)                 (Zip Code)

   Registrant's telephone number, including area code:  319/262-1400

   Securities registered pursuant to Section 12(b) of the Act:

                                           Name of each exchange
   Title of each class                     on which registered  
   Common Stock - $1 Par Value             New York Stock Exchange and
   Class A Common Stock - $1 Par Value     Chicago Stock Exchange

   Securities registered pursuant to Section 12(g) of the Act:
                       Class B Common Stock - $1 Par Value                   
                                (Title of class)


        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
   periods 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 by check mark if disclosure of delinquent filers pursuant to
   Item 405 of Regulation S-K is not contained herein, and will not be
   contained, to the best of registrant's knowledge, in definitive proxy or
   information statements incorporated by reference in Part III of this Form
   10-K or any amendment to this Form 10-K.  [X]

        The aggregate market value of the voting stock held by non-
   affiliates of the registrant as of March 21, 1997:  Common Stock,
   $652,417,649; Class A Common Stock (non-voting), $773,784,185; Class B
   Common Stock, $210,178,539.

        The number of shares outstanding of the issuer's classes of common
   stock as of March 21, 1997:  Common Stock, 9,846,205 shares; Class A
   Common Stock, 11,030,469 shares; Class B Common Stock, 2,051,350 shares.


   DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Company's Proxy Statement for the Annual Meeting of the
   Shareholders to be held May 6, 1997 are incorporated by reference in Part
   III.

   <PAGE>
                                     PART I

   ITEM 1.  BUSINESS

        All references herein to the "Company" or "Bandag" refer to Bandag,
   Incorporated and its subsidiaries unless the context indicates otherwise.

        Bandag is engaged in the production and sale of precured tread rubber
   and equipment used by its franchisees  for the retreading of tires for
   trucks, buses, light commercial trucks, industrial equipment, off-the-road
   equipment and passenger cars.  Bandag specializes in a patented
   cold-bonding retreading process which it introduced to the United States
   in 1957.  The Bandag Method, as it is called, separates the process of
   vulcanizing the tread rubber from the process of bonding the tread rubber
   to the tire casing, allowing for optimization of temperature and pressure
   levels at each stage of the retreading process.  Although a Bandag retread
   is typically sold at a higher unit price than the alternative "hot-capped"
   process, as well as retreads sold using competitive precured systems, the
   Bandag product is considered to be superior, resulting in a longer lasting
   retread and lower user cost per mile.

        The Company and its licensees have 1,383 franchisees worldwide, with
   36% located in the United States and 64% internationally.  The majority of
   Bandag's franchisees are independent operators of full service tire
   distributorships.  Bandag's revenues primarily come from the sale of
   retread material and equipment to its franchisees.  Bandag's products
   compete with new tire sales, as well as retreads produced using other
   retread processes.  The Company concentrates its marketing effort on
   existing franchisees and on expanding their respective market penetration. 
   Due to its strong distribution system, marketing efforts, and  leading
   technology, Bandag, through its independent franchisee network,  has been
   able to maintain the largest market presence in the retreading industry.

        The Company as a tread rubber supplier to its independent network of
   franchisees competes in the light and heavy truck tire replacement market. 
   Both new tire manufacturers and tread rubber suppliers compete in this
   market.  While the Company has independent franchisees in over 120
   countries, and competes in all of these geographic markets, its largest
   market is the United States.  Truck tires retreaded by the Company's
   franchisees make up approximately 15% of the U.S. light and heavy truck
   tire replacement market.  The Company's primary competitors are new tire
   manufacturers such as The Goodyear Tire & Rubber Company, Bridgestone
   Corporation and Groupe Michelin.  The Goodyear Tire & Rubber Company also
   competes in the U.S. market as a tread rubber supplier to a combination of
   company owned and independent retreaders.

        As a result of a recapitalization of the Company approved by the
   Company's shareholders on December 30, 1986, and substantially completed
   in February 1987, the Carver Family (as hereinafter defined) obtained
   absolute voting control of the Company.  As of March 21, 1997 the Carver
   Family beneficially owned shares of Common Stock and Class B Common Stock
   constituting 75% of the votes entitled to be cast in the election of
   directors and other corporate matters.  The "Carver Family" is composed of
   (i) Lucille A. Carver, a director and widow of Roy J. Carver, (ii)  the
   lineal descendants of Roy J. Carver and their spouses, and (iii) certain
   trusts and other entities for the benefit of the Carver Family members.

   Description of Business

        The Company's business consists of the franchising of a patented
   process for the retreading of tires primarily for trucks, buses, light
   commercial trucks, and the production and sale of precured tread rubber
   and related products used in connection with this process.

        The Company's business can be divided into two main areas: 
   (i) manufacturing the tread rubber and (ii) bonding the tread to a tire
   casing.  Bandag manufactures over 500 separate tread designs and sizes,
   treads specifically designed for various applications, allowing fleet
   managers to fine-tune their tire programs.  Bandag tread rubber is
   vulcanized prior to shipment to its independent  franchisees.  The Bandag
   franchisee performs the retreading process of bonding the cured tread to a
   prepared tire casing.  This two-step process allows utilization of the
   optimum temperature and pressure levels at each step.  Lower temperature
   levels during the bonding process result in a more consistent, higher
   quality finished retread with less damage to the casing.  Bandag has
   developed a totally integrated retreading system with the materials,
   bonding process and manufacturing equipment specifically designed to work
   together as a whole.

        The Company also franchises the use of another cold process precured
   retreading system, the Vakuum Vulk Method, for which the Company owns
   worldwide rights.  In connection with the Vakuum Vulk Method, the Company
   currently sells tread rubber, equipment, and supplies to franchisees
   located in certain European countries.

   Markets and Distribution

        The principal market categories for tire retreading are truck and
   bus, with more than 90% of the tread rubber sold by the Company used in
   the retreading of these tires.  Additionally, the Company markets tread
   rubber for the retreading of off-the-road equipment, industrial and light
   commercial vehicle and passenger car tires; however, historically, sales
   of tread rubber for these applications have not contributed materially to
   the Company's results of operations.

        Trucks and Buses  Tread rubber, equipment, and supplies for
   retreading and repairing truck and bus tires are sold primarily to
   independent franchisees by the Company to use the Bandag Method for that
   purpose.  Bandag has 1,333 franchisees throughout North America, Central
   America, South America, Europe, Africa, Far East, Australia and New
   Zealand.  These franchisees are owned and operated by independent
   franchisees, some with multiple franchises and/or locations.  Of these
   franchisees 496 are located in the United States.  Additionally, the
   Company has approximately 50 franchisees in Europe who retread tires using
   the Vakuum Vulk Method.  One hundred forty of Bandag's foreign franchisees
   are franchised by licensees of the Company in Australia, and joint
   ventures in India and Sri Lanka.  A limited number of franchisees are
   trucking companies which operate retread shops essentially for their own
   needs.  A few franchisees also offer "hot-cap" retreading and most sell
   one or more  lines of new tires.

        The current franchise agreement offered by the Company grants the
   franchisee the non-exclusive retread manufacturing  rights to use the
   Bandag Method for one or more applications and the Bandag trademarks in
   connection therewith within a specified territory,  but the franchisee is
   free to market Bandag retreads outside the territory.  No initial
   franchise fee is paid by a franchisee for its franchise.

        Other Applications  The Company continues to manufacture and supply
   to its franchisees a limited amount of tread for Off-the-Road (OTR) tires,
   industrial tires, including solid and pneumatic, passenger car tires and
   light commercial tires for light trucks and recreational vehicles.

   Regulations

        Various federal and state authorities have adopted safety and other
   regulations with respect to motor vehicles and components, including
   tires, and various states and the Federal Trade Commission enforce
   statutes or regulations imposing obligations on franchisors, primarily a
   duty to disclose material facts concerning a franchise to prospective
   franchisees.  Management is unaware of any present or proposed regulations
   or statutes which would have a material adverse effect upon the Company's
   business, but cannot predict what other regulations or statutes might be
   adopted or what their effect on the Company's business might be.

   Competition

        The Company faces strong competition in the market for replacement
   truck and bus tires, the principal retreading market which it serves.  The
   competition comes not only from the major manufacturers of new tires, but
   also from manufacturers of retreading materials.  Competitors include
   producers of "camelback," "strip stock," and "slab stock" for "hot-cap"
   retreading, as well as a number of producers of precured tread rubber. 
   Various methods for bonding precured tread rubber to tire casings are used
   by competitors.

        Bandag retreads are often sold at a higher price than tires retreaded
   by the "hot-cap" process as well as retreads sold using competitive
   precured systems.  The Company believes that the superior quality and
   greater mileage of Bandag retreads and expanded service programs to
   franchisees and end-users outweigh any price differential.

        Bandag franchisees compete with many new-tire dealers and retreading
   operators of varying sizes, which include shops operated by the major
   new-tire manufacturers, large independent retread companies, retreading
   operations of large trucking companies, and smaller commercial tire
   dealers.

   Sources of Supply

        The Company manufactures the precured tread rubber, cushion gum, and
   related supplies in Company-owned manufacturing plants in the United
   States, Canada, Brazil, Belgium, South Africa, Indonesia, Mexico, Malaysia
   and New Zealand.  The Company has entered into joint venture agreements in
   India and Sri Lanka.  The Company also manufactures pressure chambers,
   tire casing analyzers, buffers, tire builders, tire handling systems, and
   other items of equipment used in the Bandag and Vakuum Vulk retreading
   methods.  Curing rims, chucks, spreaders, rollers, certain miscellaneous
   equipment, and various retreading supplies, such as repair patches sold by
   the Company, are purchased from others.

        The Company purchases rubber and other materials for the production
   of tread rubber and other rubber products from a number of suppliers.  The
   rubber for tread is primarily synthetic and obtained principally from
   sources which most conveniently serve the respective areas in which the
   Company's plants are located. Although synthetic rubber and other
   petrochemical products have periodically been in short supply and
   significant cost fluctuations have been experienced in previous years, the
   Company to date has not experienced any significant difficulty in
   obtaining an adequate supply of such materials.  However, the effect on
   operations of future shortages will depend upon their duration and
   severity and cannot presently be forecast.

        The principal source of natural rubber, used for the Company's
   cushion gum, is the Far East.  The supply of natural rubber has
   historically been adequate for the Company's purposes.  Natural rubber is
   a commodity subject to wide price fluctuations as a result of the forces
   of supply and demand.  Synthetic prices historically have been related to
   the cost of petrochemical feedstocks which were relatively stable prior to
   1995.  A relationship between natural rubber and synthetic rubber prices
   exists, but it is by no means exact.

   Patents

        The Company owns or has licenses for the use of a number of United
   States and foreign patents covering various elements of the Bandag and
   Vakuum Vulk Methods.  The Company has patents covering improved features,
   some of which started expiring in 1995 and others that will continue to
   expire through the year 2011, and the Company has applications pending for
   additional patents.

        The Company's patent counsel has advised the Company that the United
   States patents are by law presumed valid and that the Company does not
   infringe upon the patent rights of others.  While the outcome of
   litigation can never be predicted with certainty, such counsel has advised
   the Company that, in his opinion, in the event of litigation placing the
   validity of such patents at issue, the Company's United States patent
   position should remain adequate.

        The protection afforded the Bandag Method by foreign patents owned by
   the Company, as well as those under which it is licensed, varies among
   different countries depending mainly upon the extent to which the elements
   of the Bandag Method are covered, the strength of the patent laws and the
   degree to which patent rights are upheld by the courts.  Patent counsel
   for the Company is of the opinion that its patent position in the foreign
   countries in which its principal sales are made is adequate and does not
   infringe upon the rights of others.  The Company has, however, extended
   its foreign market penetration to some countries where little or no patent
   protection exists.

        The Company does not consider that patent protection is the primary
   factor in its successful retreading operation, but rather, that its
   proprietary technical "know-how," product quality, franchisee support
   programs and effective marketing programs are more important to its
   success.

        The Company has secured registrations for its trademark and service
   mark BANDAG, as well as other trademarks and service marks, in the United
   States and most of the other important commercial countries.

   Other Information

        The Company conducts research and development of new products,
   primarily in the tire retreading field, and the improvement of materials, 
   equipment, and  retreading processes. The cost of this research and
   development program was approximately $12,056,000 in 1994, $12,556,000 in
   1995 and $16,157,000 in 1996.

        The Company's business has seasonal characteristics which are tied
   not only to the overall performance of the economy, but more specifically
   to the level of activity in the trucking industry. Tire demand does,
   however, lag the seasonality of the trucking industry.  The Company's
   third and fourth quarters have historically been the strongest in terms of
   sales volume and earnings.

        As stated in the Company's 13D filed pursuant to the acquisition of
   the HON Industries common stock, "The shares of Common Stock purchased by
   Bandag have been acquired for investment purposes.  Bandag believes that
   the Common Stock represents an attractive investment opportunity at this
   time."  The Company continues to believe that HON Industries' common stock
   is a good, long-term investment consistent with the Company's overall
   corporate strategy to maximize long term shareholder value.  The Company
   purchased the stock in 1987 and 1988 at a cost of $25.3 million and the
   market value of the shares currently held at the end of 1996 was $79
   million.

        The Company has sought to comply with all statutory and
   administrative requirements concerning environmental quality.  The Company
   has made and will continue to make necessary capital expenditures for
   environmental protection.  It is not anticipated that such expenditures
   will materially affect the Company's earnings or competitive position.

        As of December 31, 1996, the Company had 2,591 employees.

   Financial Information about Industry Segments

        As stated above, the Company's continuing operations are conducted in
   one principal business and, accordingly, the Company's financial
   statements contain information concerning a single industry segment. 

   Revenues of Principal Product Groups

        The following table sets forth (in millions of dollars), for each of
   the last three fiscal years, revenues attributable to the Company's
   principal product groups:

                                       1996       1995        1994  
    Revenues:

      Tread rubber, cushion gum,
        and retreading supplies       $700.7     $688.8      $613.1
      Other products (1)                61.0       58.4        45.9

      Corporate (2)                      7.3        8.1         6.7
                                       -----      -----       -----
                  Total               $769.0     $755.3      $665.7

        (1)  Includes retreading equipment and the sale of new and retreaded
             tires and related services.

        (2)  Consists of interest and dividend income.

   Financial Information about Foreign and Domestic Operations

   Financial Statement "Operations in Different Geographic Areas and Sales by
   Principal Products" follows on page 10.

   BANDAG, INCORPORATED AND SUBSIDIARIES
   Operations in Different Geographic Areas and Sales by Principal Products

   The Company's operations are conducted in one principal business, which
   includes the manufacture of precured tread rubber, equipment and supplies
   for retreading tires.  While the Company does business throughout the
   world, its principal markets are in the United States and Europe

   Information concerning the Company's operations by geographic area
   and sales by principal product for the years ended December 31,
   1996, 1995 and 1994 is shown below.

   Information concerning operations in different geographic areas:

   <TABLE>
   <CAPTION>
                                 United States                Europe                   Other                  Consolidated
    In millions              1996    1995     1994    1996     1995    1994     1996    1995    1994     1996     1995     1994

    <S>                    <C>      <C>     <C>      <C>     <C>     <C>      <C>     <C>      <C>     <C>       <C>     <C>
    Revenues
    Revenues from
     unaffiliated
     customers(1)(2)       $476.8   $464.7  $421.5   $130.6  $136.7  $111.8   $154.3  $145.8   $125.7  $761.7    $747.2  $659.0

    Transfers between
     areas(3)                28.8     24.9    31.2      1.1     0.6     0.6      2.0     1.7      3.5    31.9      27.2    35.3
                            -----    -----   -----    -----  ------  ------   ------  ------    -----   -----     -----  ------
    Geographic area
     totals                $505.6   $489.6  $452.7   $131.7  $137.3  $112.4   $156.3  $147.5   $129.2   793.6     774.4   694.3

      Elimination
       (deduction)                                                                                      (31.9)    (27.2)  (35.3)
      Corporate revenues                                                                                  7.3       8.1     6.7
                                                                                                        -----     -----   -----
    Total Revenues                                                                                     $769.0    $755.3  $665.7

    Earnings (Expenses)
      Operations(4)        $109.3   $121.2  $126.7     $9.0   $13.6    $6.8    $16.5   $23.1    $19.1  $134.8    $157.9  $152.6

      Investment income                                                                                   7.3       8.1     6.6
      Interest expense                                                                                   (1.2)     (2.0)   (2.1)
      General corporate
       expenses                                                                                         (10.1)     (8.9)   (7.3)
                                                                                                        -----     -----   -----
    Earnings Before
     Income Taxes                                                                                      $130.8    $155.1  $149.8

    Assets at December 31
      Operations           $301.4   $290.1  $282.4    $79.2   $84.9   $79.6    $91.8   $78.0    $67.4  $472.4    $453.0  $429.4
      Corporate(5)                                                                                      115.9     101.2   152.7
                                                                                                        -----     -----   -----
    Total Assets                                                                                       $588.3    $554.2  $582.1

    Liabilities at
     December 31
      Operations            $99.6    $79.5   $77.9    $28.5   $31.6   $29.5    $34.6   $23.8    $16.6  $162.7    $134.9  $124.0
      Corporate(5)                                                                                       14.8      19.3    24.1
                                                                                                        -----     -----   -----
    Total Liabilities                                                                                  $177.5    $154.2  $148.1

    Sales Information by
     Principal Product
     Group:
      Retread materials
       and supplies                                                                                     92%       92%     93%
      Other                                                                                              8%        8%      7%
                                                                                                      -----     -----   -----
                                                                                                       100%      100%    100%

   (1)  No single customer accounted for 10% or more of the Company's sales
        to unaffiliated customers in any of the years 1996, 1995 or 1994.
   (2)  Export sales from the United States were less than 10% of sales to
        unaffiliated customers in each of the years 1996, 1995 or 1994.
   (3)  Transfers between geographic areas are made at the transferor's
        selling price to unaffiliated customers less a predetermined discount
        to allow the transferee to recover its costs and earn an operating
        profit.
   (4)  Aggregate foreign exchange gains (losses) included in determining net
        earnings amounted to approximately $1,236,000, ($1,187,000) and
        ($3,294,000) in 1996, 1995 and 1994, respectively.
   (5)  Corporate assets are principally cash, investments, corporate office
        and related equipment.  Corporate liabilities are principally
        dividends payable, short-term notes payable and other liabilities.
   </TABLE>

   Executive Officers of the Company

        The following table sets forth the names and ages of all executive
   officers of the Company as of March 21, 1997, the period of service of
   each with the Company, positions and offices with the Company presently
   held by each, and the period during which each officer has served in his
   present office:

   <TABLE>
   <CAPTION>
                                       Period of              Present             Period in
                                     Service with           Position or            Present
              Name           Age        Company               Office                Office

    <S>                      <C>        <C>         <C>                            <C>   
    Martin G. Carver*        48         17 Yrs.     Chairman of the Board,         16 Yrs.
                                                    Chief Executive Officer
                                                    and President

    Lucille A. Carver*       79         39 Yrs.     Treasurer                      38 Yrs.

    Gary L. Carlson          46         23 Yrs.     Sr. Vice President and          3 Yrs.
                                                    General Manager, Eastern
                                                    Hemisphere Retreading
                                                    Division (EHRD)

    Nathaniel L. Derby II    54         25 Yrs.     Vice President,                11 Yrs.
                                                    Engineering

    Thomas E. Dvorchak       64         25 Yrs.     Sr. Vice President             19 Yrs.

    Sam Ferrise II           40         16 Yrs.     Vice President, Sales and       3 Mos.
                                                    Marketing    

    Stuart C. Green          55         5 Yrs.      Sr. Vice President,             5 Yrs.
                                                    Manufacturing

    Warren W. Heidbreder     50         14 Yrs.     Vice President, Chief           3 Mos.
                                                    Financial Officer, and
                                                    Corporate Secretary

    Hong Yan Li, Henry       49         8 Mos.      Vice President, Asian           8 Mos.
                                                    Operations

    Patricio H. Andrade-     69         8 Yrs.      Vice President, Latin           2 Yrs.
     Marin                                          America

    Patrick K. Robbins       56         6 Yrs.      Vice President, Southern        9 Mos.
                                                    Region


   *  Denotes that officer is also a director of the Company.

   </TABLE>

        Mr. Martin G. Carver was elected Chairman of the Board effective June
   23, 1981, Chief Executive Officer effective May 18, 1982, and President
   effective May 25, 1983.  Prior to his present position, Mr. Carver was
   also Vice Chairman of the Board from January 5, 1981 to June 23, 1981.

        Mrs. Carver has served as a Director and Treasurer of the Company for
   more than five years.

        Mr. Carlson joined Bandag in 1974.  In 1985 he was appointed to Vice
   President, Personnel Administration and in 1989 was appointed Vice
   President, Planning and Development.  In November 1993, he was elected to
   his current office of Sr. Vice President and General Manager EHRD.

        Mr. Derby joined Bandag in 1971.  He has served as Vice President,
   Engineering since 1985 and was elected to that office in August 1996.

        Mr. Dvorchak joined Bandag in 1971.  In 1978 he was elected to the
   office of Sr. Vice President, Chief Financial Officer.  Mr. Dvorchak
   announced his decision to retire in 1997 and to step down as Chief
   Financial Officer effective January 1, 1997.  Mr. Dvorchak will continue
   to serve as Senior Vice President of the Corporation until his retirement.

        Mr. Ferrise joined Bandag in 1981.  In 1995 he was elected to the
   office of Vice President, Marketing and held that position until January
   1997 when he was elected to his current office of Vice President, Sales &
   Marketing.

        Mr. Green joined Bandag in 1991 and was elected Senior Vice
   President, Manufacturing.  From 1981 to that date, he was employed by
   Nissan Motor Manufacturing Corporation in various management positions in
   manufacturing, the latest of which was Director, Manufacturing Vehicle
   Assembly, Component Assembly and Paint Plants, Manufacturing Division.

        Mr. Heidbreder joined Bandag in 1982.  In 1986 he was elected to the
   office of Vice President, Legal and Tax Administration, and Corporate
   Secretary.  In November 1996, he was elected to his current office of Vice
   President, Chief Financial Officer, and Corporate Secretary effective as
   of January 1, 1997.

        Mr. Li joined Bandag in July 1996 as Vice President, Asian Operations
   and was elected to that office in August 1996.  Before joining Bandag, Mr.
   Li was employed for more than 25 years by the Eastman Kodak Company.

        Mr. Andrade-Marin served as General Manager, South America from 1989
   until January 1995 when he was promoted to the position of Vice President,
   Latin America.  He was elected to that office in August 1996.

        Mr. Robbins served as General Manager, New Zealand from 1991 until
   June 1996 when he was promoted to the position of Vice President, Southern
   Region.  He was elected to that office in August 1996.

        All of the above-named executive officers have been elected by the
   Board of Directors and serve at the pleasure of the Board of Directors.

   ITEM 2.  PROPERTIES

        The general offices of the Company are located in a Company-owned
   56,000 square foot office building in Muscatine, Iowa.

        The tread rubber manufacturing plants of the Company are located to
   service principal markets.  The Company operates fifteen of such plants,
   six of which are located in the United States, and the remainder in
   Canada, Belgium, South Africa, Brazil, New Zealand, Mexico, Malaysia,
   Indonesia and Venezuela.  The plants vary in size from 9,600 square feet
   to 194,000 square feet with the first plant being placed into production
   during 1959.  All of the plants are owned in fee except for the plants
   located in New Zealand, Indonesia, Malaysia and Venezuela, which are under
   standard lease contracts.

        Retreading equipment is manufactured at Company-owned plants located
   in Muscatine, Iowa and Campinas, S.P., Brazil, of approximately 60,000
   square feet and 10,000 square feet, respectively.  In addition, the
   Company owns a research and development center in Muscatine of
   approximately 58,400 square feet and a 26,000 square foot facility used
   primarily for training franchisees and franchisee personnel.  Similar
   training facilities are located in Brazil, Mexico, South Africa and
   Europe.  The Company also owns a 26,000 square foot office and warehouse
   facility in Muscatine.

        In addition, the Company mixes rubber and produces cushion gum at a
   Company-owned 168,000 square foot plant in California.  The Company owns
   its European headquarters office in Belgium and a 129,000 square foot
   warehouse in the Netherlands.

        In September 1995, Bandag do Brasil acquired 53,820 square feet of
   manufacturing facility located on 4.9 acres of land.  The facility is
   located in Sorocaba in the State of Sao Paulo, Brazil.  Bandag do Brasil
   is in the process of building a 77,580 square foot manufacturing and
   warehouse facility on a 23 acre site in Mafra, State of Santa Catarina,
   Brazil.

        In the opinion of the Company, its properties are maintained in good
   operating condition and the production capacity of its plants is adequate
   for the near future.  Because of the nature of the activities conducted,
   necessary additions can be made within a reasonable period of time.

   ITEM 3.  LEGAL PROCEEDINGS

        Treadco, Inc. v. Bandag, Inc., et. al.  On October 27, 1995, Treadco,
   Inc. ("Treadco"), Bandag's largest franchisee, filed a complaint in the
   Sebastian County Chancery Court, Fort Smith, Arkansas, against Bandag
   (Treadco, Inc. v. Bandag, Inc., et al., Case No. 95-1224).  Treadco
   alleges in that action various Arkansas statutory and common law claims
   relating to allegations that Bandag wrongfully induced several Treadco
   employees to terminate their employment with Treadco and begin working for
   Bandag, that Bandag wrongfully induced Treadco customers to switch their
   business to other Bandag franchises, and that Bandag wrongfully refused to
   renew certain franchise agreements.  Treadco seeks an unspecified amount
   of money damages and injunctive relief.  On November 8, 1995, Bandag filed
   an action in the United States District Court for the Western District of
   Arkansas to compel the arbitration of Treadco's claims (Bandag, Inc. v.
   Treadco, Inc., Case No. 95-2204).  The Arkansas Chancery Court stayed all
   proceedings pending the federal court's decision on Bandag's petition. 
   Treadco conceded that three of its claims against Bandag were subject to a
   binding arbitration agreement.  The federal court has ruled that all
   claims should be settled at the arbitration hearing.

        Treadco has brought a counterclaim in the arbitration matter in which
   Treadco alleges that Bandag has engaged in conduct intended to restrain
   trade and destroy competition in violation of antitrust law.  Treadco and
   Bandag have both stated that reports from their experts will be ready
   during July, 1997 and they will be ready for the arbitration hearing by
   October, 1997.  No date has been set for the arbitration hearing by the
   arbitrator.

   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None


                                     PART II

   ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS.

        Information concerning cash dividends declared and market prices of
   the Company's Common Stock and Class A Common Stock for the last three
   fiscal years is as follows:

   <TABLE>
   <CAPTION>
                                  1996   % Change        1995    % Change      1994

    <S>                          <C>                     <C>                <C>
    Cash Dividends Per
     Share-Declared
      First Quarter              $ 0.2250                $ 0.2000           $ 0.1750
      Second Quarter               0.2250                  0.2000             0.1750
      Third Quarter                0.2250                  0.2000             0.1750
      Fourth Quarter               0.2500                  0.2250             0.2000
                                 --------                --------           --------
      Total Year                 $ 0.9250  12.1          $ 0.8250  13.8     $ 0.7250
                                 --------------          --------------     --------
    Stock Price Comparison (A)
       Common Stock
      First Quarter              $50.25 - 55.88          $57.00 - 62.00     $50.75 - 63.50
      Second Quarter              47.38 - 52.75           56.75 - 64.63      49.13 - 55.13
      Third Quarter               44.50 - 49.50           52.25 - 65.88      51.00 - 57.00
      Fourth Quarter              46.13 - 49.38           49.00 - 54.88      52.00 - 61.88
      Year-End Closing
          Price                           47.38                   54.13              60.50

       Class A Common Stock
      First Quarter              $48.75 - 54.00          $51.50 - 54.88     $48.25 - 59.50
      Second Quarter              46.63 - 51.50           52.25 - 60.50      44.50 - 52.50
      Third Quarter               43.30 - 48.00           47.75 - 59.75      46.00 - 50.25
      Fourth Quarter              45.25 - 47.88           47.50 - 53.63      46.25 - 54.63
      Year-End Closing
          Price                           45.75                   53.00              53.50

   (A)  High and low composite prices in trading on the New York and Chicago
        Stock Exchanges (ticker symbol BDG for Common Stock and BDGA for
        Class A Common Stock) as reported in The Wall Street Journal.  
   </TABLE>

   ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS.                                     (Cont.)

      The approximate number of record holders of the Company's Common Stock
   as of March 21, 1997, was 2,623, the number of holders of Class A Common
   Stock was 1,448, and the number of holders of Class B Common Stock was
   296.  The Common Stock and Class A Common Stock are traded on the New York
   Stock Exchange and the Chicago Stock Exchange.  There is no established
   trading market for the Class B Common Stock.

   ITEM 6.   SELECTED FINANCIAL DATA

      The following table sets forth certain Selected Consolidated Financial
   Data for the periods and as of the dates indicated:

   <TABLE>
   <CAPTION>
                                                            1996       1995        1994            1993           1992   
    (in thousands, except per share data)

    <S>                                                   <C>        <C>         <C>             <C>            <C>  
    Net Sales                                             $756,925   $740,363    $650,567        $590,199       $591,374 
    Earnings Before Cumulative Effect of Changes in
       Accounting Methods                                   81,604     97,027      93,994          78,734         83,023 
    Cumulative Effect of Changes in Accounting
       Methods, Net of Related Tax Effect                      ---        ---         ---             ---           (220)
                                                           -------    -------     -------         -------        ------- 
    Net Earnings                                           $81,604    $97,027     $93,994         $78,734        $82,803 
                                                           -------    -------     -------         -------        ------- 
    Total Assets (A)                                      $588,342   $554,159    $582,146        $550,731       $469,239 
    Noncurrent Liabilities                                  10,125     11,857      12,252          11,039          7,366 

    Earnings Per Share Before Cumulative Effect of
       Changes in Accounting Methods (B)                     $3.44      $3.82       $3.51           $2.88          $2.99 
    Cumulative Effect of Changes in Accounting
       Methods, Net of Related Tax Effect                       --        ---         ---             ---          (0.01)
                                                           -------    -------     -------         -------        ------- 
    Earnings Per Share (B)                                   $3.44      $3.82       $3.51           $2.88          $2.98 
                                                           -------    -------     -------         -------        ------- 
    Cash Dividends Per Share-Declared (B)                  $0.9250    $0.8250     $0.7250         $0.6625        $0.6125 


   (A)  The change in accounting for certain investments in 1993 effected
        comparability with prior periods financial data which have not been
        restated.

   (B)  Adjusted to give retroactive effect to the Company's June 10, 1992
        stock dividend of Class A Common Stock.

   </TABLE>

   ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
             AND FINANCIAL CONDITION

   1996-1995

   Consolidated net sales in 1996 increased 2% from 1995 matching the unit
   volume growth for retread materials. The translated value of the Company's
   foreign-currency-denominated sales decreased 1% from 1995 but that
   difference was offset by slightly higher equipment sales.  The Company's
   seasonal sales pattern, which is tied to the trucking industry activity,
   is similar to previous years with the third and fourth quarters being the
   strongest for both sales and earnings. 

   The Company's consolidated gross profit margin increased by 1.4 percentage
   points from 1995 to 41.6% in 1996 as a result of raw material cost
   decreases and manufacturing efficiencies resulting from past investments
   in process improvements.  However, this gain was more than offset by
   higher operating expenses.  The increased operating expenses related
   principally to increased spending for sales & marketing staffing and
   programs, employee training, distribution replacement, and higher R&D,
   resulting in a net earnings decline in 1996 of 16% from 1995.  The Company
   believes that in order to achieve its strategic initiatives for future
   growth it will require heavy investments in people and processes.  This
   will keep the Company's operating expenses at higher than historical
   levels for the near future.  Therefore, growth in earnings will be
   dependent on the Company's ability to achieve revenue growth.  The
   Company's effective income tax rate of 37.6% was comparable to the
   previous year's rate of 37.4%.

   Earnings per share in 1996 of $3.44 were $.38 lower, a 10% decrease from
   1995.  During 1996, the Company acquired 1,298,000 shares of its
   outstanding Common Stock and Class A Common Stock for $61,691,000, at
   prevailing market prices.  This, in addition to the previous year's
   purchases, resulted in fewer average shares outstanding in 1996, which had
   a favorable impact of $.07 on earnings per share.

   Domestic net sales in 1996 were 3% higher than a year ago, as was the
   tread volume.  Average raw material costs for the year were approximately
   4% lower than the previous year's average.  As a result, gross margin
   increased by 2 percentage points compared to a margin decrease experienced
   in the previous year.  Domestic 1996 earnings before income taxes declined
   10 percentage points from the previous year due to the same increases in
   operating expenses as discussed in the consolidated comments above.

   The Company's foreign operations comprised 37% and 20% of 1996's net sales
   and earnings before income taxes, respectively.  This compares to 38% and
   24%, respectively, of last year's net sales and earnings before income
   taxes.

   Net sales in Europe declined 5% from 1995.  The decline was the result of
   a 7% decrease in unit volume and a 3% decrease because of the unfavorable
   impact on the translated value of the Company's foreign-currency-
   denominated sales, which was partially offset with price increases of
   approximately 4%.  Gross profit margin in 1996 increased approximately
   1 percentage point compared to 1995 due to lower per unit manufacturing
   costs.  Earnings before income taxes declined by 33% over the previous
   year.

   Unit volume for the Company's other combined foreign operations improved
   by 5% over 1995, and net sales increased by 6%.  Gross profit margin
   remained the same, but operating and other expenses, as a percent of
   sales, increased by approximately 6 percentage points from the previous
   year due principally to a provision related to a tax dispute in Brazil and
   the Company's commitment to building a global organizational structure. 
   Earnings before income taxes declined by 28% due to the increased
   operating expenses.

   1995-1994

   Consolidated net sales increased 14% from 1994.  Retread unit volume
   increased 3% while the translated value of the Company's foreign-currency-
   denominated sales increased 2%.  The remaining 9% increase was from the
   cumulative increases in selling prices in 1994 and 1995 in response to
   higher raw material costs.  The Company's seasonal sales pattern, which is
   tied to the trucking industry activity, is similar to previous years with
   the third and fourth quarters being the strongest for both sales and
   earnings.

   The Company's consolidated gross profit margin declined by 1.8 percentage
   points from 1994, because of raw material cost increases which were not
   passed on to dealers.  This, combined with increased operating expenses
   related principally to increased spending for marketing programs, resulted
   in net earnings improving only 3% above 1994.  The Company's effective
   income tax rate of 37.4% was comparable to the previous year's rate.

   1995 earnings per share of $3.82 were $.31 higher, a 9% increase from
   1994.  During the year, the Company acquired 1,946,000 shares of its
   outstanding Common Stock and Class A Common Stock for $107,964,000, at
   prevailing market prices.  This, in addition to the previous year's
   purchases, resulted in fewer average shares outstanding in 1995.  This had
   a favorable impact of $.17 on earnings per share.

   Domestic net sales in 1995 were 11% higher than in 1994 due to increased
   selling prices in 1994 and 1995, and higher equipment sales.  Tread volume
   increased only 1%.  Average raw material costs for the year were
   approximately 27% higher than the previous year's average.  Selling prices
   were increased only in the first quarter, as the Company chose to absorb
   further increases during the year.  This resulted in a gross margin
   decline of 3 percentage points.  Domestic 1995 earnings before income
   taxes declined 4 percentage points over the prior year due to flat sales
   volume and higher raw material costs, as well as increased spending for
   marketing programs.

   The Company's foreign operations comprised 38% and 24% of 1995's net sales
   and earnings before income taxes, respectively.  This represents a
   2 percentage-point increase, as a percent of total revenues, and a
   7 percentage-point increase, as a percent of total earnings before income
   taxes, in comparison with the prior year.

   Unit volume in Europe increased 6% over 1994.  Net sales improved by 22%,
   with 8 percentage points due to the favorable impact on the translated
   value of the Company's foreign-currency-denominated sales.  Gross profit
   margin in 1995 increased 2 percentage points compared to 1994 due to
   higher production levels and lower manufacturing spending.  Earnings
   before income taxes improved by 100% over the prior year.

   Unit volume for the Company's other combined foreign operations improved
   by 6% over 1994, with net sales increasing by 16%.  The sales increase
   exceeded the volume increase due to the favorable impact of the higher
   translated value of  foreign-currency-denominated sales coupled with
   selling price increases initiated during the year in response to higher
   raw material costs.  Gross profit margin decreased 1 percentage point, but
   operating expenses, as a percent of sales, decreased by approximately
   1 percentage point from 1994.  Earnings before income taxes increased by
   21% due to the increased sales combined with a 5% increase in other
   income.

   1994-1993

   Consolidated 1994 net sales increased 10% from 1993, of which six
   percentage points were due to unit volume increases and four percentage
   points were due to increases in selling prices in response to higher costs
   for the Company's major raw materials.  The Company's seasonal sales
   pattern, which is tied to trucking industry activity, was similar to
   previous years.  As is normally the case, the third and fourth quarters
   were the strongest in terms of both sales volume and earnings.

   The Company's consolidated 1994 net earnings increased 19% from 1993 due
   to the combined impact of higher unit volume and improved manufacturing
   efficiencies.  The Company's consolidated gross profit margin improved by
   1.7 percentage points due to relatively flat manufacturing expenses but
   higher unit volume.  This, while an improvement,  still leaves the
   Company's consolidated gross margin below its 1992 level, which was itself
   below historic levels.  The higher gross profit was partially offset by
   increased operating expenses related principally to increased spending for
   marketing programs.  The Company's effective income tax rate of 37% was
   equal to the previous year's rate.

   The Company's earnings per share for 1994 of $3.51, were $.63 higher, a
   22% increase from 1993.  During the year, the Company acquired 1,043,000
   shares of its outstanding Common Stock and Class A Common Stock for
   $53,580,000, at prevailing market prices.  This, in combination with prior
   year purchases, resulted in fewer shares outstanding in 1994 which had a
   favorable impact of $.06 on earnings per share.

   Domestic net sales in 1994 were 11% higher than a year ago due to
   increased unit volume (up 5%), increased selling prices and higher
   equipment sales.  Average raw material costs for the year were
   approximately 4% higher than the previous year and selling prices were
   increased a proportional amount to maintain gross margin.  Domestic 1994
   earnings before income taxes increased 15% over the prior year due to
   higher sales volume and relatively flat manufacturing costs, the benefit
   of which was partially offset by an increase in spending for marketing
   programs.

   The Company's foreign operations comprised 36% and 17% of 1994's net sales
   and earnings before income taxes, respectively.  This represents a one
   percentage-point decline as a percent of total revenues and a three
   percentage-point increase as a percent of total earnings before income
   taxes in comparison to the previous year.

   Unit volume in Europe increased 6% over 1993, while net sales improved by
   8%.  Gross profit margin increased 2.7 percentage points in 1994 compared
   to 1993 due to higher production volume but relatively flat manufacturing
   costs.  Selling price increases during 1994 were not as significant as in
   the Company's domestic markets because the strong Belgian franc offset
   most of Europe's raw material cost increases, which are based on world
   prices.  Overall, earnings before income taxes improved by 250% over the
   previous year.

   Unit volume for the Company's other combined foreign operations improved
   by 11% in 1994 over 1993, with net sales increasing by a lesser 9%.  The
   sales increase was lower than the volume increase due to the unfavorable
   impact of the lower translated value of  foreign-currency-denominated
   sales.  The lower translated values more than offset selling price
   increases initiated during the year in response to higher raw material
   costs.  Gross profit margins remained flat, but operating expenses, as a
   percent of sales, decreased by approximately one percentage point from the
   prior year.  Earnings before income taxes increased by 23% from the
   previous year due to the unit volume and sales increases combined with
   flat operating expenses.

   Impact of Inflation and Changing Prices

   It has generally been the Company's practice to adjust its selling prices
   to recover increased production and raw material costs in order to
   maintain its gross profit margin.  Since the Company's raw material costs
   declined in 1996, the Company used the increased margin to partially
   offset the increase in operating expenses.

   Replacement of fixed assets requires a greater investment than the
   original asset cost due to the impact of the general price level increases
   over the useful lives of plant and equipment.  This increased capital
   investment would result in higher depreciation charges affecting both
   inventories and cost of products sold.

   However, the replacement cost depreciation for new assets, calculated on a
   straight-line basis, is not significantly greater than historical
   depreciation using accelerated methods which result in higher depreciation
   charges in the early years of an asset's life.

   Capital Resources and Liquidity

   At the end of 1996, current assets exceeded current liabilities by
   $202,486,000.  Cash and cash equivalents totaled $31,453,000 at year-end,
   increasing by $436,000 during the year.  The Company invests excess funds
   over various terms, but only instruments with an original maturity date of
   over 90 days are classified as investments.  These investments decreased
   by $7,684,000 from the prior year.

   The only changes in working capital requirements are for normal business 
   growth.  The Company funds its capital expenditures from the cash flow it
   generates from operations.  During 1996, the Company spent $34,388,000 for
   capital expenditures.  The Company expects that 1997 capital expenditures
   will be at a higher level than 1996.

   As of December 31, 1996, the Company  had available uncommitted lines of
   credit totaling $91,000,000 in the United States for working capital
   purposes.  Also, the Company's foreign subsidiaries have approximately
   $28,000,000 in credit and overdraft facilities available to them.  From
   time to time during 1996, the Company borrowed funds to supplement
   operational cash flow needs or to settle intercompany transactions. The
   Company's long-term liabilities totaled $10,125,000 at year end, which are
   approximately 2% of long-term liabilities and stockholders' equity
   combined.  The Company has no plans at this time to undertake additional
   liabilities of any substantial amount.

   During the year, the Company purchased 1,298,000 shares of its outstanding
   Common Stock and Class A Common Stock for $61,691,000 at prevailing market
   prices and paid cash dividends amounting to $21,785,000.  The Company
   generally funds its dividends and stock repurchases from the cash flow
   generated from its operations.  Historically the Company has utilized
   excess funds to purchase its own shares, believing the acquisition of the
   Company's stock to be a good investment.

   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
               Index to Consolidated Financial Statements

                                                             Page

    Report of Independent Auditors                               23
    Consolidated Balance Sheets as of December 31, 1996,
    1995 and 1994                                           24 - 25

    Consolidated Statements of Earnings for the Years
    Ended December 31, 1996, 1995 and 1994                       26

    Consolidated Statements of Cash Flows for the Years
    Ended December 31, 1996, 1995 and 1994                       27

    Consolidated Statements of Changes in Stockholders'
    Equity for the Years Ended December 31, 1996, 1995
    and 1994                                                     28

    Notes to Consolidated Financial Statements              29 - 38


   <PAGE>
                         Report of Independent Auditors

   Stockholders and Board of Directors
   Bandag, Incorporated


   We have audited the accompanying consolidated balance sheets of Bandag,
   Incorporated and subsidiaries as of December 31, 1996, 1995, and 1994, and
   the related consolidated statements of earnings, cash flows, and changes
   in stockholders' equity for the years then ended.  Our audits also
   included the financial statement schedule listed in the Index at
   Item 14(a).  These financial statements and schedule are the
   responsibility of the Company's management.  Our responsibility is to
   express an opinion on these financial statements and schedule based on our
   audits.

   We conducted our audits in accordance with generally accepted auditing
   standards.  Those standards require that we plan and perform the audit to
   obtain reasonable assurance about whether the financial statements are
   free of material misstatement.  An audit includes examining, on a test
   basis, evidence supporting the amounts and disclosures in the financial
   statements.  An audit also includes assessing the accounting principles
   used and significant estimates made by management as well as evaluating
   the overall financial statement presentation.  We believe that our audits
   provide a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
   present fairly, in all material respects, the consolidated financial
   position of Bandag, Incorporated and subsidiaries at December 31, 1996,
   1995, and 1994, and the consolidated results of their operations and their
   cash flows for the years then ended in conformity with generally accepted
   accounting principles.  Also, in our opinion, the related financial
   statement schedule, when considered in relation to the basic financial
   statements taken as a whole, presents fairly in all material respects the
   information set forth therein.

   /s/ Ernst & Young LLP


   Chicago, Illinois
   January 31, 1997

   <PAGE>
   BANDAG, INCORPORATED AND SUBSIDIARIES

   Consolidated Balance Sheets
                                                    December 31       
   Assets                                   1996        1995        1994
   Current Assets                                 (In thousands)
     Cash and cash
      equivalents                         $ 31,453   $ 31,017   $ 46,519
     Investments - Note B                    2,089      9,773     36,864
     Accounts receivable,
      less allowance (1996 -
      $13,320; 1995 - $12,327;
      1994 - $11,883)                      206,732    200,300    178,057
     Inventories:
       Finished products                    44,704     40,252     37,022
       Material and work in process         14,228     12,811     14,132
                                          --------    -------    -------
                                            58,932     53,063     51,154

     Deferred income tax assets             29,138     22,451     21,230
     Prepaid expenses and other
       current assets                       13,356     11,854     11,055
                                          --------    -------    -------
         Total Current Assets              341,700    328,458    344,879

   Property, Plant, and Equipment,
    on the Basis of Cost:
     Land                                    3,671      3,731      3,587
     Buildings and improvements             85,445     84,426     79,981
     Machinery and equipment               292,956    287,771    267,986
     Construction and equipment
       installation in progress             12,520      6,327      8,177
                                          --------    -------    -------      
                                           394,592    382,255    359,731
     Less allowances for depreciation
       and amortization                   (249,457)  (237,405)  (207,973)
                                          --------    -------    -------      
                                           145,135    144,850    151,758

   Marketable Equity Securities -
     Note B                                 79,035     55,684     64,066
   Other Assets                             22,472     25,167     21,443
                                          --------    -------    -------
       Total Assets                       $588,342   $554,159   $582,146
                                          ========    =======    =======

    Liabilities and Stockholders' Equity
    Current Liabilities
      Accounts payable                    $ 28,744   $ 24,268   $ 20,014
      Accrued employee compensation and
        benefits                            23,532     21,604     17,695
      Accrued marketing expenses            32,872     32,485     28,609
      Other accrued expenses                34,076     25,098     23,433
      Dividends payable                      5,731      5,440      5,270
      Income taxes payable                  12,254     10,124      9,999
      Short-term notes payable and other
        liabilities                          2,005      3,015      8,280
                                           -------    -------    -------
      Total Current Liabilities            139,214    122,034    113,300

    Other Liabilities                       10,125     11,857     12,252
    Deferred Income Tax Liabilities         28,136     20,289     22,545
    Stockholders' Equity - Note E
      Common Stock; $1.00 par value,
        authorized - 21,500,000 shares;
        issued and outstanding - 9,842,861
        shares in 1996; 10,112,164 shares
        in 1995; 10,788,985 shares in 1994   9,843     10,112     10,789
      Class A Common Stock; $1.00 par value;
        authorized - 50,000,000 shares;
        issued and outstanding -11,027,759
        shares in 1996; 11,711,344 shares
        in 1995; 12,976,211 shares in 1994  11,028     11,711     12,976
      Class B Common Stock; $1.00 par value;
        authorized - 8,500,000 shares;
        issued and outstanding - 2,051,984
        shares in 1996; 2,355,352 shares in
        1995; 2,357,976 shares in 1994       2,052      2,355      2,358
      Additional paid-in capital             4,069      2,493      3,192
      Retained earnings                    355,663    355,814    384,607
      Unrealized gain on securities
        available-for-sale, net of related
        tax effect (1996 - $20,765; 1995 -
        $11,700; 1994 - $15,159)            33,854     19,568     24,491
      Equity adjustment from foreign
        currency translation                (5,642)    (2,074)    (4,364)
                                          --------   --------   --------
      Total Stockholders' Equity           410,867    399,979    434,049
                                          --------   --------   --------
        Total Liabilities and
               Stockholders' Equity       $588,342    554,159    582,146
                                          ========   ========   ========

    See notes to consolidated financial statements.

   <PAGE>

   BANDAG, INCORPORATED AND SUBSIDIARIES

   Consolidated Statements of Earnings

                                              Year Ended December 31
                                         1996           1995          1994
                                       (In thousands, except per share data)
    Income:
      Net Sales                         $756,925      $740,363      $650,567
      Other income                        12,074        14,911        15,125
                                         -------       -------       -------
                                         768,999       755,274       665,692
    Costs and expenses:
      Cost of products sold              442,149       442,837       377,385
      Engineering, selling,
       administrative and other
       expenses                          194,834       155,362       136,346
      Interest                             1,236         1,959         2,126
                                         -------       -------       -------
                                         638,219       600,158       515,857
                                         -------       -------       -------
       Earnings Before Income
        Taxes                            130,780       155,116       149,835
      Income Taxes - Note D               49,176        58,089        55,841
                                         -------       -------       -------
       Net Earnings                     $ 81,604      $ 97,027      $ 93,994
                                         =======       =======       =======
       Net Earnings Per Share -
        Note E                          $   3.44      $   3.82      $   3.51
                                         =======       =======       =======

   See notes to consolidated financial statements.

   <PAGE>
   Consolidated Statements of Cash Flows
                                                  Year Ended December 31        
                                             1996         1995          1994  
                                                      (In thousands)
    Operating Activities
      Net earnings                        $ 81,604     $ 97,027      $ 93,994
      Adjustments to reconcile net
       earnings to net cash provided by
       operating activities:
       Provisions for depreciation and
        amortization                        34,595       34,595        35,328
       Change in deferred income taxes       1,367       (3,462)       (2,590)
       Change in operating assets and
        liabilities:
      Accounts receivable                   (9,959)     (19,674)      (14,211)
      Inventories                           (7,401)      (1,148)       (6,872)
      Prepaid expenses and other
            current assets                  (1,921)          94        (2,019)
      Accounts payable and other
            accrued expenses                19,063       11,164        13,219
      Income taxes payable                   2,582          158        (1,357)
      Other assets                          (5,883)         443         1,131
                                           -------      -------       -------
       Net Cash Provided by Operating
        Activities                         114,047      119,197       116,623

    Investing Activities
      Additions to property, plant and
       equipment                           (34,388)     (28,411)      (40,799)
      Net dispositions of property,
       plant and equipment                     506          724         1,151
      Purchases of investments             (18,205)     (27,379)      (61,775)
      Maturities of investments             25,889       54,470        49,954
      Sale of marketable equity
       securities                               --           --         2,447
                                           -------      -------       -------
       Net Cash Used in Investing
         Activities                        (26,198)        (596)      (49,022)

    Financing Activities
      Proceeds from short-term notes
       payable                              42,902       41,230        80,425
      Principal payments on short-term
       notes payable and other
       liabilities                         (45,246)     (46,887)      (86,442)
      Cash dividends                       (21,785)     (20,651)      (19,310)
      Purchases of Common Stock and
       Class A Common Stock                (61,691)    (107,964)      (53,580)
                                           -------      -------       -------
       Net Cash Used in Financing
        Activities                         (85,820)    (134,272)      (78,907)

    Effect of exchange rate changes on 
     cash and cash equivalents              (1,593)         169          (179)
                                           -------      -------       -------
      Increase (Decrease) in Cash and
       Cash Equivalents                        436      (15,502)      (11,485)
    Cash and cash equivalents at
      beginning of year                     31,017       46,519        58,004
                                           -------      -------       -------
      Cash and Cash Equivalents at End
        of Year                           $ 31,453     $ 31,017      $ 46,519
                                           =======      =======       =======

   See notes to consolidated financial statements.

   <PAGE>
   BANDAG, INCORPORATED AND SUBSIDIARIES

   Consolidated Statements of Changes in Stockholders' Equity

   <TABLE>
   <CAPTION>
                                                                              Class A Common
                                              Common Stock Issued            Stock Issued and           Class B Common Stock
                                                and Outstanding                 Outstanding            Issued and Outstanding
    (In thousands, except                     Shares        Amount         Shares         Amount       Shares         Amount 
     share data)

    <S>                                     <C>              <C>         <C>               <C>          <C>              <C> 
    Balance at January 1, 1994              11,215,008       $11,215     13,576,971        $13,577      2,360,513        $2,361

      Net earnings for the year
      Cash dividends-$.7250 per share
      Conversion of Class B Common Stock
        to Common Stock-Note E                   2,537             2                                       (2,537)           (3)
      Common Stock and Class A Common
        Stock issued under Restricted
        Stock Grant Plan-Note E                  4,030             4          4,030              4
      Common Stock and Class A Common
        Stock issued under Stock Award
        Program Plan-Note E                      2,810             3          2,810              3
      Purchases of Common Stock and
        Class A Common Stock                  (435,400)         (435)      (607,600)          (608)
      Unrealized loss on securities   
        available-for-sale, net of
        deferred income taxes of $1,341
      Adjustment from foreign currency 
        translation
                                            ----------       -------     ----------         ------      ---------        ------
    Balance at December 31, 1994            10,788,985        10,789     12,976,211         12,976      2,357,976         2,358
      Net earnings for the year
      Cash Dividends-$.8250 per share
      Conversion of Class B Common Stock
        to Common Stock-Note E                   2,624             3                                       (2,624)           (3)
      Common Stock and Class A Common
        Stock issued under Restricted
        Stock Grant Plan-Note E                  4,430             4          4,430              4
      Forfeitures of Common Stock and
        Class A Common Stock under 
        Restricted Stock Grant Plan-Note
        E                                       (3,817)           (4)        (2,939)            (3)
      Purchases of Common Stock and
        Class A Common Stock                  (680,058)         (680)    (1,266,358)        (1,266)
      Unrealized loss on securities
        available-for-sale, net of
        deferred income taxes of $3,459
      Adjustment from foreign currency
        translation
                                            ----------        ------     ----------         ------     ----------        ------
    Balance at December 31, 1995            10,112,164        10,112     11,711,344         11,711      2,355,352         2,355
      Net earnings for the year 
      Cash dividends-$.9250 per share
      Conversion of Class B Common Stock
        to Common Stock-Note E                 303,368           303                                     (303,368)         (303)
      Common Stock and Class A Common
        Stock issued under Restricted
        Stock Grant Plan-Note E                  7,610             8          7,610              8
      Forfeitures of Common Stock and
        Class A Common Stock under 
        Restricted Stock Grant Plan-Note
        E                                         (110)           --           (110)            --
      Common Stock and Class A Common
        Stock issued under Stock Award
        Program Plan-Note E                      2,636             3          2,638              2
      Common Stock and Class A Common
        Stock issued under Defined-
        Contribution Plan-Note F                10,450            10         10,738             11
      Purchase of Common Stock and Class
        A Common Stock                        (593,257)         (593)      (704,461)          (704)
      Unrealized gain on securities
        available-for-sale, net of
        deferred income taxes of $9,065
      Adjustment from foreign currency
        translation 
                                            ----------       -------     ----------         ------     ----------        ------
    Balance at December 31, 1996             9,842,861       $ 9,843     11,027,759        $11,028      2,051,984        $2,052
                                            ==========       =======     ==========         ======     ==========        ======

   <CAPTION>
                                                                                                 Equity
                                                                             Unrealized        Adjustment
                                                                             Gain (Loss)          From
                                             Additional                     on Securities       Foreign
    (In thousands, except                     Paid-in         Retained       Available-         Currency
     share data)                              Capital         Earnings        for-Sale        Translation

    <S>                                          <C>         <C>                 <C>             <C> 
    Balance at January 1, 1994                   $2,859      $362,040            $27,693         $(6,653)
      Net earnings for the year                                93,994
      Cash dividends-$.7250 per share                         (19,310)
      Conversion of Class B Common Stock
        to Common Stock-Note E 
      Common Stock and Class A Common
        Stock issued under Restricted
        Stock Grant Plan-Note E                     440
      Common Stock and Class A Common
        Stock issued under Stock Award
        Program Plan-Note E                         313
      Purchases of Common Stock and
        Class A Common Stock                       (420)      (52,117)
      Unrealized loss on securities   
        available-for-sale, net of
        deferred income taxes of $1,341                                           (3,202)
      Adjustment from foreign currency 
        translation                                                                                2,289
                                                -------       -------            -------        --------
    Balance at December 31, 1994                  3,192       384,607             24,491          (4,364)
      Net earnings for the year                                97,027
      Cash Dividends-$.8250 per share                         (20,651)
      Conversion of Class B Common Stock
        to Common Stock-Note E 
      Common Stock and Class A Common
        Stock issued under Restricted
        Stock Grant Plan-Note E                     436
      Forfeitures of Common Stock and
        Class A Common Stock under 
        Restricted Stock Grant Plan-Note
        E                                          (287)
      Purchases of Common Stock and
        Class A Common Stock                       (848)     (105,169)
      Unrealized loss on securities
        available-for-sale, net of
        deferred income taxes of $3,459                                           (4,923)
      Adjustment from foreign currency
        translation                                                                                2,290
                                                -------       -------            -------         -------
    Balance at December 31, 1995                  2,493       355,814             19,568          (2,074)
      Net earnings for the year                                81,604
      Cash dividends-$.9250 per share                         (21,785)
      Conversion of Class B Common Stock
        to Common Stock-Note E
      Common Stock and Class A Common
        Stock issued under Restricted
        Stock Grant Plan-Note E                     698
      Forfeitures of Common Stock and
        Class A Common Stock under 
        Restricted Stock Grant Plan-Note
        E                                           (10)
      Common Stock and Class A Common
        Stock issued under Stock Award
        Program Plan-Note E                         262
      Common Stock and Class A Common
        Stock issued under Defined-
        Contribution Plan-Note F                  1,050
      Purchase of Common Stock and Class
        A Common Stock                             (424)      (59,970)
      Unrealized gain on securities
        available-for-sale, net of
        deferred income taxes of $9,065                                           14,286
      Adjustment from foreign currency
        translation                                                                               (3,568)
                                                 ------       -------             ------          ------
    Balance at December 31, 1996                 $4,069      $355,663            $33,854         $(5,642)
                                                 ======       =======             ======          ======
   </TABLE>

   See notes to consolidated financial statements.

   <PAGE>

   Notes to Consolidated Financial Statements

   A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Principles of Consolidation:
   The consolidated financial statements include the accounts and
   transactions of all subsidiaries.  Significant intercompany accounts and
   transactions have been eliminated in consolidation.

   Use of Estimates:
   The preparation of financial statements in conformity with generally
   accepted accounting principles requires management to make estimates and
   assumptions that affect the amounts reported in the financial statements
   and accompanying notes.  Actual results could differ from those estimates.

   Cash Equivalents:
   The Company considers all highly liquid investments with a maturity of
   three months or less when purchased to be cash equivalents. The carrying
   amount reported in the consolidated balance sheet for cash and cash
   equivalents approximates its fair value.

   Accounts Receivable and Concentrations of Credit Risk:  
   Concentrations of credit risk with respect to accounts receivable are
   limited due to the number of dealers the Company has and their geographic
   dispersion. The Company maintains close working relationships with these
   customers and performs ongoing credit evaluations of their financial
   condition. No one customer is large enough to pose a significant financial
   risk to the Company. The Company maintains an allowance for losses based
   upon the expected collectibility of accounts receivable. Credit losses
   have been within management's expectations.

   Inventories: 
   Inventories are valued at the lower of cost, determined by the last in,
   first out (LlFO) method, or market.  

   The excess of current cost over the amount stated for inventories valued
   by the LIFO method amounted to approximately $23,111,000, $24,479,000, and
   $19,143,000 at December 31, 1996, 1995, and 1994, respectively. 

   Property, Plant, and Equipment:
   Provisions for depreciation and amortization of plant and equipment are
   principally computed using declining-balance methods, based upon the
   estimated useful lives of the various classes of  depreciable assets.

   Foreign Currency Translation:
   Assets and liabilities of foreign subsidiaries are translated at the
   current exchange rate and items of income and expense are translated at
   the average exchange rate for the year.   Exchange gains and losses
   arising from translations denominated in a currency other than the
   functional currency of the foreign subsidiary and translation adjustments
   in countries with highly inflationary economies or in which operations are
   directly and integrally linked to the Company's U.S. operations are
   included in income.

   Research and Development:
   Expenditures for research and development are expensed as incurred.

   Revenue Recognition:
   Sales and associated costs are recognized when products are shipped to
   dealers.

   B. INVESTMENTS

   Debt securities are classified as held-to-maturity based upon the positive
   intent and ability of the Company to hold the securities to maturity. 
   Held-to-maturity securities are stated at amortized cost, adjusted for
   amortization of premiums and accretion of discounts to maturity. Such
   amortization and accretion is included in investment income. Interest on
   securities classified as held-to-maturity is included in investment
   income.

   Marketable equity securities are classified as available-for-sale. 
   Available-for-sale securities are carried at fair value with the
   unrealized gains, net of tax, reported as a separate component of
   stockholders' equity.  Realized gains and losses and declines in value
   judged to be other-than-temporary on available-for-sale securities are
   included in investment income.  The cost of securities sold is based on
   the specific identification method.  Dividends on securities classified as
   available-for-sale are included in investment income.

   The following is a summary of securities held-to-maturity and available-
   for-sale (in thousands):

   <TABLE>
   <CAPTION>
                                                      Gross          Gross
                                                   Unrealized     Unrealized     Estimated
                                       Cost           Gains         Losses       Fair Value

    <S>                               <C>            <C>            <C>           <C>
    December 31, 1996
    Securities Held-to-Maturity
    Obligations of states and
      political subdivisions          $10,694             $5             $0       $10,699
    Short-term corporate debt           3,350              -              -         3,350
    Investment in Eurodollar time
      deposits                          3,000              -              -         3,000
                                      -------        -------        -------       -------
                                      $17,044             $5             $0       $17,049
                                      =======        =======        =======       =======
    Securities Available-for-Sale
    Marketable equity securities      $24,416        $54,619              -       $79,035
                                      =======        =======        =======       =======
    December 31, 1995
    Securities Held-to-Maturity
    Obligations of states and
      political subdivisions          $19,028             $6             $0       $19,034
    Short-term corporate debt           4,450              -              -         4,450
    Investment in Eurodollar time
      deposits                          7,100              -              -         7,100
                                      -------        -------        -------       -------
                                      $30,578             $6             $0       $30,584
                                      =======        =======        =======       =======
    Securities Available-for-Sale
    Marketable equity securities      $24,416        $31,268              -       $55,684
                                      =======        =======        =======       =======
    December 31, 1994
    Securities Held-to-Maturity
    Obligations of states and
      political subdivisions          $44,779            $23           ($66)      $44,736
    Short-term corporate debt           8,450              -              -         8,450
    Investment in Eurodollar time
      deposits                         22,450              -              -        22,450
                                      -------        -------        -------       -------
                                      $75,679            $23           $(66)      $75,636
                                      =======        =======        =======       =======
    Securities Available-for-Sale
    Marketable equity securities      $24,416        $39,650              -       $64,066
                                      =======        =======        =======       =======

   </TABLE>

   At December 31, 1996, 1995 and 1994, securities held-to-maturity are due
   in one year or less and include $14,955,000, $20,805,000 and $38,815,000,
   respectively, reported as cash equivalents.

   C. SHORT-TERM NOTES PAYABLE AND LINES OF CREDIT

   The carrying amount reported in the consolidated balance sheet of the
   Company's short-term notes payable approximates its fair value.

   Total available funds under unused lines of credit at December 31, 1996
   amounted to $119,000,000.

   The weighted average interest rate on short-term borrowings outstanding
   for the full years of 1996, 1995, and 1994, were 5.8%, 7.9%, and 5.3%,
   respectively.

   Interest paid on short-term notes payable and other obligations amounted
   to $1,764,000, $2,231,000, and $1,747,000 in 1996, 1995, and 1994,
   respectively. 

   D. INCOME TAXES

   Significant components of the Company's deferred tax assets (liabilities)
   reflecting the net tax effects of temporary differences are summarized as
   follows:
                                                December 31
                                       1996         1995        1994
                                               (In thousands)
    Obligation to provide
      postretirement benefits         $2,243      $2,039      $2,093
    Marketing programs                14,012      11,148      10,152
    Accounts receivable valuation
      allowances                       2,696       2,834       3,005
    Unremitted earnings of
      foreign subsidiaries            (3,488)     (1,999)     (3,119)
    Excess pension funding            (3,953)     (3,252)     (2,890)
    Purchased tax benefits            (1,025)     (1,531)     (1,975)
    Unrealized holding gain on
      marketable equity
      securities                     (20,765)    (11,700)    (15,159)
    Other, net                        11,282       4,623       6,578
                                      ------      ------     -------
    Net deferred tax assets
      (liabilities)                   $1,002      $2,162     ($1,315)
                                      ======      ======     =======

    The components of earnings before income taxes are summarized as
    follows:

                                          Year Ended December 31
                                      1996         1995        1994
                                              (In thousands)

    Domestic                        $102,099    $116,373    $123,715
    Foreign                           28,681      38,743      26,120
                                     -------     -------     -------
                                    $130,780    $155,116    $149,835
                                     =======     =======     =======

    Significant components of the provision for income tax expense
    (credit) are summarized as follows:

                                          Year Ended December 31
                                      1996         1995        1994
                                              (In thousands)
    Current:
      Federal                        $39,570     $39,513     $42,965
      State                            4,900       4,900       4,712
      Foreign                         11,353      14,010      10,118
    Deferred:
      Federal                         (4,354)     (1,555)     (3,842)
      State                             (486)       (107)       (163)
      Foreign                         (1,301)      1,768       2,434
    Equivalent credit relating to
      purchased income tax
      benefits                          (506)       (440)       (383)
                                     -------     -------     -------
                                     $49,176     $58,089     $55,841
                                     =======     =======     =======

   No item, other than state income taxes in 1996, 1995, and 1994 affects the
   Company's effective income tax rate by an amount which exceeds 5% of the
   income tax expense computed at the statutory rate.  

   Undistributed earnings of subsidiaries on which deferred income taxes have
   not been provided are not significant.  

   Income taxes paid amounted to $52,992,000, $58,238,000, and $61,706,000 in
   1996, 1995, and 1994, respectively. 

   E. STOCKHOLDERS' EQUITY

   Class A Common Stock and Class B Common Stock have the same rights
   regarding dividends and distributions upon liquidation as Common Stock.
   However, Class A Common Stockholders are not entitled to vote, Class B
   Common Stockholders are entitled to ten votes for each share held and
   Common Stockholders are entitled to one vote for each share held. Transfer
   of shares of Class B Common Stock is substantially restricted and must be
   converted to Common Stock prior to sale. In certain instances, outstanding
   shares of Class B Common Stock will be automatically converted to shares
   of Common Stock. Unless extended for an additional period of five years by
   the Board of Directors, all then-outstanding shares of Class B Common
   Stock will be converted to shares of Common Stock on January 16, 2002.

   Under the terms of the Bandag, Incorporated Restricted Stock Grant Plan,
   the Company is authorized to grant up to an aggregate of 100,000 shares of
   Common Stock and 100,000 shares of Class A Common Stock to certain key
   employees. The shares granted under the Plan will entitle the grantee to
   all dividends and voting rights; however, such shares will not vest until
   seven years after the date of grant. If a grantee's employment is
   terminated prior to the end of the seven-year period for any reason other
   than death, disability or termination of employment after age 60, the
   shares will be forfeited and made available for future grants. A grantee
   who has attained age 60 and whose employment is then terminated prior to
   the end of the seven-year vesting period does not forfeit the nonvested
   shares.  During the years ended December 31, 1996, 1995, and 1994, 7,610
   shares, 4,430 shares and 4,030 shares of Common Stock, respectively, were
   granted under the Plan. During the years ended December 31, 1996, 1995 and
   1994, 7,610 shares, 4,430 shares and 4,030 shares of Class A Common Stock,
   respectively, were also granted under the Plan. The resulting charge to
   earnings amounted to $1,245,000, $770,000, and $779,000, in 1996, 1995,
   and 1994, respectively. During the year ended December 31, 1996, 110
   shares of Common Stock and 110 shares of Class A Common Stock were
   forfeited.  The credit to 1996 earnings related to the forfeited shares
   was approximately $12,000.  At December 31, 1996, 42,155 shares of Common
   Stock and 51,925 shares of Class A Common Stock are available for grant
   under the Plan.

   Under the terms of the Bandag, Incorporated Nonqualified Stock Option
   Plan, the Company is authorized through November 13, 1997 to grant options
   to purchase up to 500,000 shares of Common Stock and 500,000 shares of
   Class A Common Stock to certain key employees. The option price is equal
   to the market value of the shares on the date of grant. No options were
   granted under the Plan in 1996, 1995 or 1994.  At December 31, 1996,
   options to purchase 100,000 shares of Common Stock and 100,000 shares of
   Class A Common Stock are outstanding and exercisable at $23.458 per share
   for Common Stock options and $22.792 per share for Class A Common Stock
   options. Options to purchase 20,000 shares of Common Stock and 20,000
   shares of Class A Common Stock expire on November 13, 1997, and each of
   the four anniversaries thereafter. At December 31, 1996, no options
   granted under this Plan have been exercised and options to purchase
   400,000 shares of Common Stock and 400,000 shares of Class A Common Stock
   are available for grant. 

   The Company has a stock award program covering substantially all U.S. and
   Canadian employees, which was established to  promote employee commitment
   and ownership in the Company. In 1996, 1995 and 1994, $250,000, $284,000
   and $319,000, respectively, were charged to earnings for the estimated
   cost of awards to be made under the stock award program.

   Earnings per share amounts are based upon the weighted average number of
   shares of Common Stock, Class A Common Stock, Class B Common Stock, and
   common stock equivalents (dilutive stock options) outstanding during each
   year.

   F. EMPLOYEE PENSION PLANS   

   The Company sponsors defined-benefit pension plans covering substantially
   all of its full-time employees in North America and certain employees in
   the Company's European operations. Benefits are based on years of service
   and, for salaried employees, the employee's average annual compensation
   for the last five years of employment. The Company's funding policy is to
   contribute annually the maximum amount that can be deducted for income tax
   purposes. Contributions are intended to provide for benefits attributed to
   service to date and those expected to be earned in the future.

   Aggregate accumulated benefit obligations, projected benefit obligations,
   as estimated by consulting actuaries, plan net assets and funded status
   are as follows:
                                               December 31
                                       1996        1995          1994
                                                  (In thousands)
    Actuarial present value of
      accumulated benefit
      obligations:
    Vested                             $40,944      $33,787      $30,535
    Nonvested                            3,145        5,810        2,310
                                       -------      -------      -------
                                       $44,089      $39,597      $32,845
                                       =======      =======      =======
    Plan net assets at fair value      $90,775      $79,291      $63,594
    Projected benefit obligations       58,357       54,496       46,367
                                       -------      -------      -------
    Plan net assets in excess of
      projected benefit obligations     32,418       24,795       17,227
    Unrecognized prior service cost      1,187        1,278        1,214
    Unamortized actuarial net loss
      (gain)                           (19,557)     (12,988)      (5,728)
    Unamortized net transition
       gain                             (5,591)      (6,332)      (7,080)
                                       -------      -------      -------
    Prepaid pension cost included
      in the consolidated balance
       sheet                            $8,457       $6,753       $5,633
                                        ======       ======       ======

    Assumptions used in the determination of the actuarial present value of
    the projected benefit obligations and net pension cost are as follows:

    Weighted average discount rate       7.00%        7.00%        7.50%
    Rate of increase in future
      compensation                       4.50%        4.75%        5.00%
    Expected long-term rate of
      return on assets                   8.00%        8.00%        8.00%

    Assets of the plans are principally invested in guaranteed interest
    contracts, common stock, and stock mutual funds.

    Pension expense (credit) is composed of the following:

                                           Year Ended December 31 
                                         1996         1995         1994
                                                (In thousands)
    Service cost for benefits earned
      during the year                   $2,193       $1,929       $3,183
    Interest cost on projected
      benefit obligations                3,153        2,899        3,343
    Investment return on plan assets   (12,025)     (14,510)      (1,454)
    Net amortization and deferral        5,045        8,964       (4,161)
                                       -------      -------      -------
    Net periodic pension expense
      (credit)                         ($1,634)       ($718)        $911
                                       =======      =======      =======


   The Company also sponsors defined-contribution plans, covering
   substantially all salaried employees in the United States. Annual
   contributions are made in such amounts as determined by the Company's
   Board of Directors. Although employees may contribute up to 12% of their
   annual compensation from the Company, they are generally not required to
   make contributions in order to participate in the plans. The Company
   recorded expense for contributions in the amount of $2,796,000,
   $3,578,000, and $2,892,000 in 1996, 1995, and 1994, respectively.

   Employees in most foreign countries are covered by various retirement
   benefit arrangements generally sponsored by the foreign governments. The
   Company's contributions to foreign plans were not significant in 1996,
   1995, and 1994.

   G. OTHER POSTRETIREMENT EMPLOYEE BENEFITS  

   The Company provides medical benefits under its self-insured health
   benefit plan to certain individuals who retired from employment before
   January 1, 1993. Employees who retire after December 31, 1992 and are at
   least age 62 with 5 years of service are eligible for temporary medical
   benefits that cease at age 65. The program is contributory, with retiree
   contributions adjusted periodically. The program also contains co-
   insurance provisions, which result in shared costs between the Company and
   the retiree.  The Company's postretirement medical obligations are
   unfunded.

   The following table sets forth amounts recognized in the Company's
   consolidated balance sheet:

                                                   December 31
                                          1996         1995        1994
                                                  (In thousands)
    Accumulated postretirement
      benefit obligation:
    Retirees                             $2,146      $2,109      $1,847
    Fully eligible active plan
      participants                          104         111          92
    Other active plan participants        3,177       2,754       1,801
                                        -------     -------     -------
    Accumulated postretirement
      benefit obligation                  5,427       4,974       3,740
    Unrecognized net gain and prior
      service cost                          429         351       1,105
                                        -------     -------     -------
    Accrued postretirement benefit
      cost                               $5,856      $5,325      $4,845
                                        =======     =======     =======

    Net periodic postretirement benefit cost includes the following
    components:

    Service cost                           $231        $200        $167
    Interest cost on accumulated
      postretirement benefit
      obligation                            344         321         261
    Net amortization and deferral             3          33          (2)
                                         ------      ------      ------
    Net periodic postretirement
      benefit cost                         $578        $554        $426
                                         ======      ======      ======

   The weighted-average annual assumed rate of increase in the per capita
   cost of covered benefits is 10% for 1997 and is assumed to decrease
   gradually to 6% for 2001 and remain at that level thereafter. Increasing
   the assumed health care cost trend rates by one percentage point in each
   year would increase the accumulated postretirement benefit obligation as
   of December 31, 1996, by $770,000 and the aggregate of the service and
   interest cost components of net periodic postretirement benefit cost for
   1996 by $95,000. The weighted-average discount rate used in determining
   the accumulated postretirement benefit obligation was 7.0% for 1996 and 
   1995, and 7.5% for 1994.

   Substantially all United States employees with the Company on and after
   January 1, 1993 are covered by the Bandag Security Program, which provides
   fully vested benefits after 5 years of service. Benefits under this
   program are available upon retirement or separation for any other reason
   and may be used in connection with medical expense, insurance premiums, or
   for any other purpose. The periodic cost and benefit obligation
   information for the Bandag Security Program is reflected in Note F.   

   H. DERIVATIVE FINANCIAL INSTRUMENTS

   The Company enters into agreements (derivative financial instruments) to
   manage the risks associated with certain aspects of its business.  The
   Company does not actively trade such instruments nor enter into such
   agreements for speculative purposes.  The Company principally utilizes 
   foreign currency forward exchange contracts and foreign currency option
   contracts.

   At December 31, 1996, 1995 and 1994, the Company had approximately
   $23,862,000, $18,156,000 and $10,513,000, respectively, in foreign
   currency forward exchange contracts and foreign currency option contracts
   designated and effective as hedges which become due in various amounts and
   at various dates throughout the following year.  Such contracts were
   principally for the purpose of hedging commitments arising from forecasted
   material purchases and intercompany export sales, respectively. 
   Unrealized gains and losses on the forward exchange contracts and the
   currency option contracts are deferred and will be recognized in income in
   the same period as the hedged transaction.  The difference between the
   contract amounts and their fair value, in the aggregate, was insignificant
   at December 31, 1996, 1995 and 1994.

   I. BUSINESS INFORMATION BY GEOGRAPHIC AREA

   The information regarding operations in different geographic areas is
   presented on page 10 of this report, and is included herein by reference.

   J. SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS

   Unaudited quarterly results of operations for the years ended December 31,
   1996 and 1995 are summarized as follows:

                                           Quarter Ended            
                            Mar. 31     Jun. 30     Sep. 30     Dec. 31
                               (In thousands, except per share data)
    1996:
    Net sales               $170,303    $188,875    $194,086     $203,661
    Gross profit              66,295      77,403      85,762       85,316
    Net earnings              15,866      20,094      23,945       21,699
    Net earnings per
      share                    $0.65       $0.83       $1.02        $0.94

    1995:
    Net sales               $168,243    $182,929    $190,337     $198,854
    Gross profit              65,134      73,710      77,991       80,691
    Net earnings              19,579      24,910      27,050       25,488
    Net earnings per
      share                    $0.75       $0.96       $1.07        $1.04


   ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
   FINANCIAL DISCLOSURE

      None.

                                    PART III

   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information called for by Item 10 (with respect to the directors of
   the registrant) is incorporated herein by reference from the registrant's
   definitive Proxy Statement involving the election of directors filed or to
   be filed pursuant to Regulation 14A not later than 120 days after December
   31, 1996.  In accordance with General Instruction G (3) to Form 10-K, the
   information with respect to executive officers of the Company required by
   Item 10 has been included in Part I hereof.

   ITEM 11.  EXECUTIVE COMPENSATION

      The information called for by Item 11 is incorporated herein by
   reference from the registrant's definitive Proxy Statement involving the
   election of directors filed or to be filed pursuant to Regulation 14A not
   later than 120 days after December 31, 1996.

   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
   MANAGEMENT

      The information called for by Item 12 is incorporated herein by
   reference from the registrant's definitive Proxy Statement involving the
   election of directors filed or to be filed pursuant to Regulation 14A not
   later than 120 days after December 31, 1996.

   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information called for by Item 13 is incorporated herein by
   reference from the registrant's definitive Proxy Statement involving the
   election of directors filed or to be filed pursuant to Regulation 14A not
   later than 120 days after December 31, 1996.

                                     PART IV

   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a)  (1)  Financial Statements

              The following consolidated financial statements are
      included in Part II, Item 8:

                                                                Page
              Consolidated Balance Sheets as of December 31,
              1996, 1995 and 1994                               24-25

              Consolidated Statements of Earnings for the
              Years Ended December 31, 1996, 1995 and 1994         26

              Consolidated Statements of Cash Flows for the
              Years Ended December 31, 1996, 1995 and 1994         27

              Consolidated Statements of Changes in
              Stockholders' Equity for the Years Ended
              December 31, 1996, 1995 and 1994                     28

              Notes to Consolidated Financial Statements        29-38

         (2)  Financial Statement Schedule

              Schedule II - Valuation and qualifying accounts
              and reserves.                                        41

      All other schedules for which provision is made in the applicable
      accounting regulation of the Securities and Exchange Commission are not
      required under the related instructions or are inapplicable, and
      therefore have been omitted.

   <PAGE>
   <TABLE>
          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                      BANDAG, INCORPORATED AND SUBSIDIARIES
   <CAPTION>

              COL. A                     COL. B                   COL. C                      COL. D              COL. E
                                                                ADDITIONS
                                                            1             2
                                         Balance at     Charged to     Charged to                                Balance 
                                         Beginning      Costs and      Other Accounts       Deductions -         at End
             DESCRIPTION                 of Period      Expenses       -Describe            Describe             of Period

   <S>                                  <C>             <C>                                <C>                 <C> 
   Year ended December 31, 1996:
      Allowance for doubtful accounts   $12,327,000     $3,289,000                         $2,296,000  (A)     $13,320,000

   Year ended December 31, 1995:
      Allowance for doubtful accounts   $11,883,000     $1,964,000                         $1,520,000  (A)     $12,327,000

   Year ended December 31, 1994:
      Allowance for doubtful accounts   $11,217,000     $1,683,000                         $1,017,000  (A)     $11,883,000



   (A) - Uncollectible accounts written off, net of recoveries and foreign exchange fluctuations.
   </TABLE>

   <PAGE>

   Item 14 (Cont.)

      (3)    Exhibits

          Exhibit No.                     Description

              3.1           Bylaws:  As amended February 5, 1997

              3.2           Restated Articles of Incorporation,
                            effective December 30, 1986. 
                            (Incorporated by reference to Exhibit
                            No. 3.2 to the Company's Form 10-K for
                            the year ended December 31, 1992.)

              3.3           Articles of Amendment to Bandag,
                            Incorporated's Articles of
                            Incorporation, effective May 6, 1992. 
                            (Incorporated by reference to Exhibit
                            No. 3.3 to the Company's Form 10-K for
                            the year ended December 31, 1992.)

               4            Instruments defining the rights of
                            security holders.  (Incorporated by
                            reference to Exhibit Nos. 3.2 and 3.3
                            to the Company's Form 10-K for the
                            year ended December 31, 1992.)

                            The Company agrees to furnish copies
                            of its long-term debt agreements to
                            the Commission on request.

             10.1           *Bandag, Incorporated Restricted Stock
                            Grant Plan, as amended November 12,
                            1996

             10.2           U. S. Bandag System Franchise
                            Agreement Truck and Bus Tires.
                            (Incorporated by reference to Exhibit
                            No. 10.2 to the Company's Form 10-K
                            for the year ended December 31, 1993.)

            10.2(a)         U.S. Bandag System Franchise Agreement
                            Truck and Bus Tires (revised
                            April 1996.)

             10.3           *Miscellaneous Fringe Benefits for
                            Executives.

             10.4           *Nonqualified Stock Option Plan, as
                            amended November 12, 1996

             10.5           *Nonqualified Stock Option Agreement
                            of Martin G. Carver dated November 13,
                            1987, as amended by an Addendum dated
                            June 12, 1992. (Incorporated by
                            reference to Exhibit No. 10.7 to the
                            Company's Form 10-K for the year ended
                            December 31, 1992.)

             10.6           *Form of Participation Agreement under
                            the Bandag, Incorporated Restricted
                            Stock Grant Plan.  (Incorporated by
                            reference as Exhibit 10.7 to the
                            Company's Form 10-K for the year ended
                            December 31, 1994.)

             10.7           *Employment Agreement with Michel
                            Petiot effective January 1, 1994,
                            dated December 20, 1993 (Incorporated
                            by reference to Exhibit No. 10.8 to
                            the Company's Form 10-K for the year
                            ended December 31, 1993.)

             10.8           *Agreement with William D. Herd
                            regarding termination of employment,
                            dated September 12, 1995 (Incorporated
                            by reference to Exhibit 10.8 to the
                            Company's Form 10-K for the year ended
                            December 31, 1995.)

              11            Computation of earnings per share.

              21            Subsidiaries of Registrant.

              27            Financial Data Schedule (with EDGAR
                            filing only)


   *Represents a management compensatory plan or arrangement.

   (b)  Reports on Form 8-K:  No report on Form 8-K was filed during the last
        quarter of the period covered by this report.


   <PAGE>
                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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


                                           By /s/  Martin G. Carver       
                                              Martin G. Carver
                                              Chairman of the Board,
                                              Chief Executive Officer,
                                              President and Director
                                              (Principal Executive Officer)

   Date:   March 26, 1997

        Pursuant to the requirements of the Securities Exchange Act of 1934,
   this report has been signed below by the following persons on behalf of
   the Registrant and in the capacities and on the dates indicated.

   /s/ Robert T. Blanchard                                          
       Robert T. Blanchard                Lucille A. Carver
       Director                           Director

   /s/ Roy J. Carver, Jr.             /s/  Robert K. Drummond       
       Roy J. Carver, Jr.                  Robert K. Drummond
       Director                            Director

   /s/ James R. Everline                                            
       James R. Everline                   Edgar D. Jannotta
       Director                            Director

                                      /s/  Warren W. Heidbreder     
   /s/ R. Stephen Newman                   Warren W. Heidbreder
       R. Stephen Newman                   Vice President,
                                           Chief Financial Officer
   /s/ Martin G. Carver                    (Chief Accounting Officer)
       Martin G. Carver
       Chairman of the Board,
       Chief Executive Officer,
       President and Director
       (Principal Executive Officer)

   Date:  March 26, 1997

   <PAGE>
                                  EXHIBIT INDEX
    
       Exhibit No.    Description

           3.1        Bylaws:  As amended February 5, 1997

           3.2        Restated Articles of Incorporation, effective
                      December 30, 1986. (Incorporated by reference to
                      Exhibit No. 3.2 to the Company's Form 10-K for
                      the year ended December 31, 1992.)

           3.3        Articles of Amendment to Bandag, Incorporated's
                      Articles of Incorporation, effective May 6, 1992. 
                      (Incorporated by reference to Exhibit No. 3.3 to
                      the Company's Form 10-K for the year ended
                      December 31, 1992.)

            4         Instruments defining the rights of Security
                      Holders.  (Incorporated by reference to Exhibit
                      Nos. 3.2 and 3.3 to the Company's Form 10-K for
                      the year ended December 31, 1992.)

                      The Company agrees to furnish copies of its long-
                      term debt agreements to the Commission on
                      request.

          10.1        *Bandag, Incorporated Restricted Stock Grant Plan,
                      as amended November 12, 1996.

          10.2        U. S. Bandag System Franchise Agreement Truck
                      and Bus Tires.  (Incorporated by reference to
                      Exhibit No. 10.2 to the Company's Form 10-K for
                      the year ended December 31, 1993.)

         10.2(a)      U. S. Bandag System Franchise Agreement Truck and
                      Bus Tires (revised April 1996).

          10.3        *Miscellaneous Fringe Benefits for Executives.

          10.4        *Nonqualified Stock Option Plan, as amended
                      November 12, 1996. 

          10.5        *Nonqualified Stock Option Agreement of Martin G.
                      Carver dated November 13, 1987, as amended by an
                      Addendum dated June 12, 1992.  (Incorporated by
                      reference to Exhibit No. 10.7 to the Company's
                      Form 10-K for the year ended December 31, 1992.)

          10.6        *Form of Participation Agreement under the
                      Bandag, Incorporated Restricted Stock Grant Plan. 
                      (Incorporated by reference to Exhibit No. 10.7 to
                      the Company's Form 10-K for the year ended
                      December 31, 1994.)

          10.7        *Employment Agreement with Michel Petiot
                      effective January 1, 1994, dated December 20,
                      1993 (Incorporated by reference to Exhibit No.
                      10.8 to the Company's Form 10-K for the year
                      ended December 31, 1993.)

          10.8        *Agreement with William D. Herd regarding
                      termination of employment dated September 12,
                      1995 (incorporated by reference to Exhibit 10.8
                      to the Company's Form 10-K for the year ended
                      December 31, 1995.)

           11         Computation of earnings per share.

           21         Subsidiaries of Registrant.

           27         Financial Data Schedule (with EDGAR filing only)



   * Represents a management compensatory plan or arrangement.