Bandag Reports First Quarter EPS of 6 Cents Before Accounting Change
MUSCATINE, Iowa, April 24 Bandag, Incorporated today announced consolidated net earnings before a required accounting change of $1.2 million, or $0.06 per diluted share, for the quarter ended March 31, 2002, a decline of $1.1 million compared to first quarter 2001 consolidated net earnings of $2.3 million, or $0.11 per diluted share. Consolidated net sales for first quarter 2002 were $192.5 million, a decline of approximately 6 percent compared to net sales of $205.1 million in the same quarter of 2001.
During the first quarter of 2002 Bandag adopted Statement of Financial Accounting Standards 142 (SFAS 142), which resulted in a non-cash transition charge in the quarter of $47.3 million, or $2.30 per diluted share, to recognize impairment of goodwill, substantially all of which is related to Tire Distribution Systems, Inc. (TDS), Bandag's tire distribution subsidiary. Pursuant to SFAS 142 the $47.3 million charge is treated as a change in accounting method. Bandag's net loss after the cumulative effect of accounting change totaled $46.0 million, or $2.24 per diluted share.
Bandag stopped amortizing goodwill as of January 1, 2002 in accordance with the adoption of SFAS 142. Excluding goodwill amortization in first quarter 2001, net income would have been $4.3 million, or $.21 per diluted share.
Commenting on first quarter results, Martin G. Carver, Chairman and Chief
Executive Officer, said, ``Worldwide, commercial retread truck tire markets
remained soft, reflecting the continued effects of sluggish business
conditions in the truck tire segment of the industry, resulting in a 6%
reduction in our global traditional business tread volume.
Difficult market
conditions were also evident in the results of TDS, where sales were off
2 percent from the year-earlier period.
We are pleased to see that in light
of these challenging market conditions we generated $40.7 million of cash from
operations, as a result of our prudent management of working capital.''
Financial Highlights:
-- North American traditional business sales decreased by 4%, on a 5%
decrease in retread material volume, and operating profit decreased by
5%. Improved pricing and lower raw material costs partially offset a
15% increase in operating and other expenses, which included lower
pension income, higher marketing costs and approximately $2 million in
expense related to converting SystemBandag users to the RoadWare(TM)
software system.
-- During the first quarter Bandag acquired the assets of Open Road
Technologies, Inc., the supplier of RoadWare(TM) retread shop
management software, with annual sales of approximately $5 million.
-- Results for the European and International segments reflect lower
volume due to weak market conditions, particularly in Europe. This was
compounded by the negative impact on translated values of the weaker
Euro and Brazilian real. Operating profit in Europe did not decline in
proportion to the sales decrease because of $1.2 million in exchange
losses in 2001. Within the International segment, results for Mexico
and South Africa were stronger, but not enough to offset the weakness
in Brazil.
-- TDS sales for the quarter were $80.9 million, down 2 percent from the
year-earlier levels. TDS' first quarter 2002 operating loss of
$6 million was an increase of $0.7 million over the previous year's
reported loss of $5.3 million. However, proforma first quarter 2001
results would have been a loss of $3.2 million before goodwill
amortization of $2.1 million, so TDS' loss increased by $2.8 million on
a comparable basis.
-- Corporate expenses and other in first quarter 2002 and 2001 each
included legal fees related to Bandag's current litigation against
Michelin North America of approximately $4 million.
Discussing prospects for a market recovery, Mr. Carver said, ``Current rising energy prices and uncertainty in the Middle East continue to complicate the near term economic outlook worldwide. Energy prices impact not only the operating cost structure of our fleet customers, but also the costs of our oil-derived raw materials and tread production.''
Despite the near term uncertainty in the marketplace, Mr. Carver said: ``Bandag and its Alliance of dealers are uniquely positioned to serve the evolving needs of the trucking industry. We continue to develop new capabilities to serve our fleet customers and we look forward to the favorable resolution of Bandag's litigation with Michelin this summer. We are confident that the initiatives we have in place will enable us to capitalize on both the eventual industry recovery and the new opportunities that emerge as the trucking industry moves forward.''
This Press Release contains ``forward-looking'' statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are based on certain assumptions, describe future expectations of Bandag, and are identifiable in this Press Release by the use of words ``continue to complicate,'' ``we look forward,'' ``will enable us'' and ``that emerge as.'' Similarly, statements that describe future plans or strategies are also forward-looking statements. These statements are based on management's current projections, beliefs and opinions as of the date of this Press Release. They involve 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 of the actual effect of future expectations is inherently uncertain. Factors which could affect the ``forward-looking'' statements include: (i) the extent to which the cost of petroleum-based raw materials, which are a key component of the Company's manufacturing costs, rise, moderate, or fall, (ii) whether the litigation with Michelin is resolved on a favorable basis for the Company and (iii) the extent to which the commercial retread truck tire market recovers from its past and current softness, which is dependent in large part on the recovery of the trucking industry and the general economy. The forward-looking statements included herein are made as of the date hereof and Bandag undertakes no obligation to update publicly such statements to reflect subsequent events or conditions.
Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of over 1,100 franchised dealers that produce and market retread tires and provide tire management services. Bandag's traditional business serves end-users through a wide variety of products offered by dealers, ranging from tire retreading and repairing to tire management systems outsourcing for commercial truck fleets. TDS, a wholly owned subsidiary, sells and services new and retread tires.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands, except per share data)
First Quarter
Ended March 31,
Consolidated Statements of Earnings 2002 2001
Net sales $192,493 $205,112
Interest income 1,409 1,844
Other income 1,652 2,436
Total income 195,554 209,392
Cost of products sold 122,999 136,426
Operating & other expenses 68,852 67,103
Interest expense 1,767 1,884
Total expenses 193,618 205,413
Income before income taxes and cumulative
effect of accounting change 1,936 3,979
Income taxes 716 1,651
Income before cumulative effect of
accounting change 1,220 2,328
Cumulative effect of accounting change
(net of income tax benefit of $3,704) (47,260) 0
Net income (loss) $(46,040) $2,328
Basic earnings (loss) per share
Income before cumulative effect of
accounting change $0.06 $0.11
Cumulative effect of accounting change (2.30) 0
Net income (loss) $(2.24) $0.11
Diluted earnings (loss) per share
Income before cumulative effect of
accounting change $0.06 $0.11
Cumulative effect of accounting change (2.30) 0
Net income (loss) $(2.24) $0.11
Weighted average shares outstanding
Basic 20,591 20,553
Diluted 20,591 20,689
First Quarter
Ended March 31,
Proforma Information 2002 2001
Reported income before cumulative
effect of accounting change $1,220 $2,328
Add goodwill amortization 0 1,988
Proforma income before cumulative effect
of accounting change $1,220 $4,316
Basic and diluted earnings per share
Reported income before cumulative effect
of accounting change $0.06 $0.11
Add goodwill amortization 0 0.10
Proforma income before cumulative effect
of accounting change $0.06 $0.21
Note: Bandag adopted Emerging Issues Task Force #00-25 as of January 1,
2002. As a result, fleet subsidies and certain marketing programs
are now classified as a sales deduction rather than as operating
and other expenses. Results for 2001 have been reclassified
accordingly.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
First Quarter
Ended March 31,
Segment Information 2002 2001
Net Sales
North America $76,291 $79,473
Europe 12,560 17,283
International 22,750 25,484
TDS 80,892 82,872
Total net sales $192,493 $205,112
Segment Operating Profit (Loss)
North America $12,663 $13,332
Europe (172) (68)
International 1,907 2,947
TDS (5,965) (5,269)
Corporate expenses & other (6,139) (6,923)
Net interest (expense) income (358) (40)
Income before income taxes and cumulative
effect of accounting change $1,936 $3,979
Note: First quarter 2001 income before income taxes and cumulative effect
of accounting change includes goodwill amortization of $0.1 million
for North America and $2.1 million for TDS.
March 31, Dec. 31,
Condensed Consolidated Balance Sheets 2002 2001
Assets:
Cash and cash equivalents $173,831 $145,625
Investments 12,151 9,394
Accounts receivable -- net 127,782 164,708
Inventories 90,367 89,795
Other current assets 40,803 40,652
Total current assets 444,934 450,174
Property, plant, and equipment -- net 154,065 158,008
Other assets 60,580 110,390
Total assets $659,579 $718,572
Liabilities & shareholders' equity:
Accounts payable $20,695 $22,153
Income taxes payable 11,118 14,947
Accrued liabilities 78,474 81,736
Short-term notes payable and current
portion of other obligations 67,233 67,239
Total current liabilities 177,520 186,075
Long-term debt and other obligations 40,991 40,921
Deferred income tax liabilities 2,937 2,580
Shareholders' equity
Common stock 20,657 20,641
Additional paid-in capital 11,789 11,399
Retained earnings 449,930 502,517
Equity adjustment from foreign
currency translation (44,245) (45,561)
Total shareholders' equity 438,131 488,996
Total liabilities & shareholders' equity $659,579 $718,572
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Three Months
Ended March 31,
Condensed Consolidated Statements of Cash Flows 2002 2001
Operating Activities
Net income (loss) $(46,040) $2,328
Cumulative effect of accounting change 50,964 --
Provisions for depreciation and amortization 7,687 11,288
Decrease in operating assets and
liabilities -- net 28,092 12,524
Net cash provided by operating activities 40,703 26,140
Investing Activities
Additions to property, plant and equipment (3,162) (5,515)
Purchases of investments -- net (1,757) (3,389)
Payments for acquisitions of businesses (2,000) --
Net cash used in investing activities (6,919) (8,904)
Financing Activities
Principal payments on short-term notes
payable and other long-term liabilities (77) (236)
Cash dividends (6,502) (6,272)
Purchases of Common Stock (41) (24)
Net cash used in financing activities (6,620) (6,532)
Effect of exchange rate changes on cash
and cash equivalents 1,042 178
Increase in cash and cash equivalents 28,206 10,882
Cash and cash equivalents at beginning of year 145,625 86,008
Cash and cash equivalents at end of period $173,831 $96,890