Bandag Announces 3Q Earnings of $14.6 Million

MUSCATINE, Iowa, Oct. 19 -- Bandag, Incorporated today announced consolidated net earnings of $14.6 million for the quarter ended September 30, 2001, a decrease of 18 percent compared to third quarter 2000 net earnings of $17.9 million. Consolidated net sales for the third quarter 2001 declined 3 percent to $261.7 million from net sales of $269.9 million in the same quarter of 2000. Third quarter 2001 earnings per share were $0.71 per diluted share, compared to $0.86 per diluted share for the quarter ended September 30, 2000. Corporate expenses increased significantly due largely to higher legal expenses related to the ongoing Michelin litigation. Expenses for that litigation in the quarter ended September 30, 2001 amounted to approximately $4.5 million, which was in line with the Company's estimates. This compares to $1.6 million for the prior year quarter. Year to date, consolidated net earnings declined to $26.5 million, or $1.28 per diluted share, on net sales of $715.7 million from earnings of $45.6 million, or $2.19 per diluted share, on net sales of $743.3 million in the first nine months of 2000. Reviewing Bandag's overall third quarter performance, Martin G. Carver, Chairman and Chief Executive Officer, said, "Given the severity of the economic slowdown in most major commercial truck tire markets, Bandag performed reasonably well and remained solidly profitable. Overall, we saw a slight reduction in gross margins to 36.9 percent from 37.5 percent in the prior year third quarter, a reflection of both the economic slowdown in Bandag's major markets and higher raw material costs. However, retreading equipment sales remained exceptionally strong, clear evidence of continued confidence at the dealer level." Commenting specifically on Bandag's retread business, Mr. Carver said: "While we found declining volumes in most markets because of the global economic slowdown, we were able to maintain margins except in Europe where market pressures were more severe." Describing the performance of Tire Distribution Systems, Inc. (TDS), Bandag's tire distribution subsidiary, Mr. Carver said: "TDS' sales increased in comparison to the prior year period; however, competitive conditions continued to adversely affect margins, which limited profitability." Looking forward, Mr. Carver said: "Given the uncertainties of the economic slowdown and the aftermath of the terrible events of September 11, we don't anticipate any significant recovery in the commercial truck tire business before the second half of 2002. Nevertheless, Bandag is currently well-positioned to help fleets and our dealers manage their businesses during these difficult times." Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of nearly 1,300 franchised dealerships that produce and market retread tires and provide tire management services. Bandag's wholly owned subsidiary, Tire Management Solutions, Inc. (TMS) provides tire management systems outsourcing for commercial truck fleets. Tire Distribution Systems, Inc. (TDS), also a wholly owned subsidiary, sells and services new and retread tires. This press release contains a "forward-looking" statement that is made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. This forward-looking statement, which is based on certain assumptions, describes future expectations of Bandag, and is identifiable in this press release by the use of the words "we don't anticipate." This statement is based on management's current projections, beliefs and opinions at the date of this press release. It involves known and unknown risks and uncertainties, which may cause the actual results in the future to differ materially from expected results. The Company's ability to predict results or the actual effect of future expectations is inherently uncertain. Factors which could affect the "forward-looking" statement include: (i) the overall health of the United States and foreign economies, (ii) the duration of, and success of, the "war on terrorism," and (iii) the extent to which improvements in the economies of the United States and/or foreign countries lead to significant recovery in the commercial truck tire business.

Bandag, Incorporated Unaudited Financial Highlights (In thousands, except per share data)

Third Quarter Nine Months Consolidated Statements of Ended September 30, Ended September 30, Earnings 2001 2000 2001 2000

Net sales $261,712 $269,905 $715,712 $743,310 Interest income 1,720 1,396 5,383 4,368 Other income 3,375 2,353 8,471 6,978 Total income 266,807 273,654 729,566 754,656

Cost of products sold 165,081 168,803 454,147 459,795 Operating & other expenses 72,193 69,457 216,624 202,726 Goodwill amortization 2,526 2,635 7,568 7,763 Interest expense 1,809 2,137 5,616 6,476 Total expenses 241,609 243,032 683,955 676,760 Earnings before income taxes 25,198 30,622 45,611 77,896 Income taxes 10,584 12,708 19,157 32,327 Net earnings $14,614 $17,914 $26,454 $45,569

Earnings per share Basic $0.71 $0.87 $1.29 $2.20 Diluted $0.71 $0.86 $1.28 $2.19

Weighted average shares outstanding Basic 20,578 20,697 20,570 20,721 Diluted 20,681 20,793 20,679 20,782

Third Quarter Nine Months Ended September 30, Ended September 30, Segment Information 2001 2000 2001 2000

Net Sales

North America $97,104 $99,203 $264,261 $264,435 Europe 17,340 20,599 50,975 62,681 International 25,768 31,104 78,995 92,025 TDS 114,952 112,537 302,063 305,743 Other 6,548 6,462 19,418 18,426 Total net sales $261,712 $269,905 $715,712 $743,310

Segment Operating Profit (Loss)

North America $30,958 $30,602 $68,279 $71,533 Europe (40) 1,251 1,252 9,531 International 2,588 2,987 8,169 12,577 TDS 785 2,627 (5,386) 1,616 Corporate expenses & other (9,004) (6,104) (26,470) (15,253) Net interest (expense) income (89) (741) (233) (2,108) Earnings before income taxes $25,198 $30,622 $45,611 $77,896

Bandag, Incorporated Unaudited Financial Highlights (In thousands)

Sept. 30, Dec. 31, Condensed Consolidated Balance Sheets 2001 2000

Assets: Cash and cash equivalents $120,336 $86,008 Investments 7,162 7,377 Accounts receivable - net 174,938 177,103 Inventories 103,723 101,640 Other current assets 52,645 55,051 Total current assets 458,804 427,179

Property, plant, and equipment - net 162,500 177,156 Other assets 108,512 110,214 Total assets $729,816 $714,549

Liabilities & shareholders' equity: Accounts payable $23,872 $18,294 Income taxes payable 26,038 13,037 Accrued liabilities 82,240 92,914 Short-term notes payable and current portion of other obligations 8,602 8,490 Total current liabilities 140,752 132,735

Long-term debt and other obligations 104,474 105,163 Deferred income tax liabilities 5,826 2,494 Shareholders' equity Common stock 20,640 20,562 Additional paid-in capital 10,513 8,256 Retained earnings 492,533 484,987 Equity adjustment from foreign currency translation (44,922) (39,648) Total shareholders' equity 478,764 474,157 Total liabilities & shareholders' equity $729,816 $714,549

Nine Months Ended September 30, Condensed Consolidated Statements of Cash Flows 2001 2000

Operating Activities Net earnings $26,454 $45,569 Provisions for depreciation and amortization 32,717 37,297 Increase in operating assets and liabilities - net 8,585 (10,818) Net cash provided by operating activities 67,756 72,048 Investing Activities Additions to property, plant and equipment (15,246) (15,364) Sale (purchases) of investments - net 215 (481) Payments for acquisitions of businesses -- (4,632) Net cash used in investing activities (15,031) (20,477) Financing Activities Principal payments on short-term notes payable and other long-term liabilities (375) (692) Cash dividends (18,862) (18,398) Purchases of Common Stock (24) (1,725) Net cash used in financing activities (19,261) (20,815) Effect of exchange rate changes on cash and cash equivalents 864 (2,116) Increase in cash and cash equivalents 34,328 28,640 Cash and cash equivalents at beginning of year 86,008 50,633 Cash and cash equivalents at end of period $120,336 $79,273