Bandag Reports Second Quarter EPS of 57 Cents
MUSCATINE, Iowa, July 24 -- Bandag, Incorporated today announced consolidated net income of $11.7 million, or $0.57 per diluted share, for the quarter ended June 30, 2002. This was a $2.2 million or 23 percent increase over second quarter 2001 reported net income, of $9.5 million, or $0.46 per diluted share. Effective January 1, 2002 the company adopted SFAS 142 and, accordingly, discontinued the amortization of goodwill. Second quarter 2001 net income included $2.0 million goodwill amortization. Accordingly, second quarter net income would have been $11.5 million or $0.56 per share before goodwill amortization. Therefore, Bandag's earnings per diluted share increased $0.2 million, or $0.01 per share on a comparable basis. Consolidated net sales for second quarter 2002 decreased four percent to $231.1 million from net sales of $240.4 million in second quarter 2001.
For the first six months of 2002, Bandag reported a consolidated net loss
of $34.4 million, or $1.67 per diluted share. This loss includes the write
off of $47.3 million net of income tax giving effect to the adoption of the
SFAS 142 as of January 1, 2002. Bandag reported, for the first six months of
2002, consolidated net income of $12.9 million, or $0.63 per diluted share,
before the accounting change. This was a $1.1 million increase from the prior
year reported net income of $11.8 million, or $0.57 per fully diluted share.
Net income for the first six months of 2001 would have been $15.8 million, or
$0.76 per share before goodwill amortization of $4.0 million, or $0.19 per
share. Therefore, on a comparable basis, Bandag's earnings per diluted share
decreased $2.9 million, or $0.13 per diluted share. Consolidated net sales for
the first six months of 2002 decreased five percent to $423.6 million from
$445.5 million in the prior year period.
Financial Highlights
* On a consolidated basis, gross profit for the second quarter
increased by five percent over the prior year period despite a four
percent decrease in consolidated worldwide sales. The improvement in
gross margin was mainly attributable to lower raw material costs in
the traditional business, particularly in North America which had a 15
percent improvement in operating profit. However, market trends
indicate raw material costs may increase through the remainder of the
year.
Operating and other expenses, excluding goodwill amortization,
increased by approximately $3.2 million when compared to the second
quarter of 2001. This increase is largely attributable to higher
costs of doing business at TDS and the increased cost of litigation
with Michelin North America, Inc. and Michelin Retread Technologies,
Inc. As previously announced, the settlement of Bandag's ongoing
litigation with Michelin included dismissal of all financial claims
against all parties. Therefore, no further expense related to this
litigation is anticipated. These litigation costs were $5.7 million
in the second quarter and $9.7 million for the first six months of
2002, respectively. In 2001, the cost of this litigation was
$4.7 million in the second quarter, $8.7 million for the first six
months, and $18.3 million for the full year.
* Bandag's U.S. tread rubber volume, which accounts for the majority of
North America's revenues, was down less than one percent,
year-to-date, which is favorable in comparison to U.S. industry
shipments which are estimated to be down nearly four percent for the
same period.
* Net sales in Europe for the second quarter were down eight percent
from the previous year, but this was an improvement from the
27 percent reduction reported in the first quarter. Earnings were
down 73 percent due primarily to lower volume and foreign exchange
gains in the second quarter of 2001 that did not recur.
* Even though sales for the second quarter decreased 11 percent in
International, earnings improved 62 percent primarily due to
improvement in gross margin and a reduction in operating expenses
coupled with a $1.0 million favorable change in net foreign exchange
gains and losses.
* TDS' second quarter sales of $98.8 million were down approximately
five percent from the second quarter 2001. Further, operating
expenses rose in the areas of health insurance, workers' compensation
costs, vehicle expense and lower purchase discounts from
suppliers.
TDS' second quarter operating loss of $1.4 million was an increase
over the previous year's reported loss of $.9 million. However,
proforma second quarter 2001 results would have shown a profit of
$1.2 million before goodwill amortization of $2.1 million. Therefore,
TDS' loss for second quarter 2002 increased by $2.6 million on a
comparable basis.
* In an effort to provide improved clarity, transparency and accuracy to
our shareholders, the company adopted the fair value method of
accounting for stock options and recognized $0.2 million in after-tax
expense in the second quarter. The amount pertaining to first quarter
2002 net income and earnings per share is immaterial due to the timing
of the annual stock option award grants. The full year 2002 net
income and earnings per share impacts are estimated to be $0.4 million
and $0.02, respectively.
* As previously announced, on June 18, 2002, Bandag purchased
1,114,746 shares of Bandag Class B Common Stock and 418,371 shares of
Bandag Class A Common Stock from Lucille A. Carver, widow of the
company's founder. The cost of the purchased shares totaled
approximately $40.2 million.
Reviewing second quarter results and commenting on the outlook for the second half of 2002, CEO Mr. Martin G. Carver said, "We don't anticipate a near-term increase in global demand for retread products, but the elimination of the distractions caused by the Michelin litigation, and the related legal expenses, should contribute to continued improvement in Bandag performance. At TDS, management is in the process of implementing a plan to rationalize the operations with the objective of significantly improving long-term performance. In the broader economy, U.S. trucking activity appears to be improving in some segments, but has yet to gain any sustained traction overall."
This press release contains certain "forward-looking" statements that are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on certain assumptions, describe future plans, strategies and expectations of Bandag, and are identifiable in this press release by the use of the words "may," "anticipate" and "should". These statements are based on management's current projections, beliefs and opinions at 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 or the actual effect of future plans or strategies is inherently uncertain. Factors which could affect the "forward-looking" statements include: (i) whether raw material costs, which are largely dependent on the price of crude oil, increase or decrease during the remainder of the year, (ii) whether, in the near-term, global demand for retread products increases or decreases substantially, (iii) the loss of one or more significant dealers, (iv) the length of time that the current soft economic conditions continue and whether or not such conditions deteriorate further, and (v) the degree to which additional fleets become new Bandag customers and the degree to which existing fleet customers expand their business with Bandag, or conversely, the degree to which Bandag loses fleet customers or fleet customers reduce their business with Bandag.
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. Tire Distribution Systems, Inc. (TDS), a wholly-owned subsidiary, sells and services new and retread tires.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands, except per share data)
Second Quarter Six Months
Consolidated Ended June 30, Ended June 30,
Statements of Earnings 2002 2001 2002 2001
Net sales $231,147 $240,375 $423,640 $445,487
Interest income 1,308 1,819 2,717 3,663
Other income 1,583 2,660 3,235 5,096
Total income 234,038 244,854 429,592 454,246
Cost of products sold 143,168 156,785 266,167 293,211
Operating & other
expenses 70,603 69,712 139,455 136,815
Interest expense 1,745 1,923 3,512 3,807
Total expenses 215,516 228,420 409,134 433,833
Income before income
taxes and cumulative
effect of accounting
change 18,522 16,434 20,458 20,413
Income taxes 6,853 6,922 7,569 8,573
Income before cumulative
effect of accounting
change 11,669 9,512 12,889 11,840
Cumulative effect of
accounting change
(net of income tax
benefit of $3,704) -- -- (47,260) --
Net income (loss) $11,669 $9,512 $(34,371) $11,840
Basic earnings (loss)
per share
Income before cumulative
effect of accounting
change $0.58 $0.46 $0.63 $0.58
Cumulative effect of
accounting change -- -- (2.32) --
Net income (loss) $0.58 $0.46 $(1.68) $0.58
Diluted earnings (loss)
per share
Income before cumulative
effect of accounting
change $0.57 $0.46 $0.63 $0.57
Cumulative effect of
accounting change -- -- (2.29) --
Net income (loss) $0.57 $0.46 $(1.67) $0.57
Weighted average
shares outstanding
Basic 20,235 20,578 20,413 20,566
Diluted 20,405 20,667 20,593 20,689
Second Quarter Six Months
Ended June 30, Ended June 30,
Additional Information 2002 2001 2002 2001
Reported income before
cumulative effect
of accounting change $11,669 $9,512 $12,889 $11,840
Add goodwill
amortization -- 1,988 -- 3,976
Adjusted income before
cumulative effect of
accounting change $11,669 $11,500 $12,889 $15,816
Basic earnings per share
Reported income before
cumulative effect of
accounting change $0.58 $0.46 $0.63 $0.58
Add goodwill
amortization -- 0.10 -- 0.19
Adjusted income before
cumulative effect
of accounting change $0.58 $0.56 $0.63 $0.77
Diluted earnings per share
Reported income before
cumulative effect of
accounting change $0.57 $0.46 $0.63 $0.57
Add goodwill
amortization -- 0.10 -- 0.19
Adjusted income
before cumulative
effect of accounting
change $0.57 $0.56 $0.63 $0.76
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)
Second Quarter Six Months
Ended June 30, Ended June 30,
Segment Information 2002 2001 2002 2001
Net Sales
North America $93,587 $93,136 $169,878 $172,609
Europe 14,808 16,155 27,368 33,438
International 23,923 26,845 46,673 52,329
TDS 98,829 104,239 179,721 187,111
Total net sales $231,147 $240,375 $423,640 $445,487
Segment Operating
Profit (Loss)
North America $23,271 $20,247 $ 35,934 $33,579
Europe 361 1,360 189 1,292
International 4,255 2,634 6,162 5,581
TDS (1,445) (902) (7,410) (6,171)
Corporate expenses
& other (7,483) (6,801) (13,622) (13,724)
Net interest
(expense) income (437) (104) (795) (144)
Income before income
taxes and cumulative
effect of accounting
change $18,522 $16,434 $ 20,458 $20,413
Note: Income before income taxes and cumulative effect of accounting
change includes goodwill amortization of $0.1 and $0.2 million
for North America and $2.1 and $2.1 million for TDS for the first
and second quarter of 2001, respectively.
June 30, Dec. 31,
Condensed Consolidated Balance Sheets 2002 2001
Assets:
Cash and cash equivalents $143,023 $145,625
Investments 8,676 9,394
Accounts receivable - net 139,764 164,708
Inventories 90,412 89,795
Other current assets 41,305 40,652
Total current assets 423,180 450,174
Property, plant, and equipment - net 151,302 158,008
Other assets 63,127 110,390
Total assets $637,609 $718,572
Liabilities & shareholders' equity:
Accounts payable $30,051 $22,153
Income taxes payable 15,122 14,947
Accrued liabilities 74,195 81,736
Short-term notes payable and
current portion of other obligations 67,931 67,239
Total current liabilities 187,299 186,075
Long-term debt and other obligations 43,665 40,921
Deferred income tax liabilities 2,551 2,580
Shareholders' equity
Common stock 19,139 20,641
Additional paid-in capital 11,446 11,399
Retained earnings 417,278 502,517
Equity adjustment from
foreign currency translation (43,769) (45,561)
Total shareholders' equity 404,094 488,996
Total liabilities & shareholders' equity $637,609 $718,572
Note: The decrease in total shareholders' equity is primarily due to
effects of the purchase of $40.3 million of outstanding shares
and the $34.4 million net loss for the first six months of 2002,
which includes the cumulative effect upon adoption of SFAS 142
of $47.3 million net of income taxes.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Six Months
Ended June 30,
Condensed Consolidated Statements of Cash Flows 2002 2001
Operating Activities
Net income (loss) $(34,371) $11,840
Cumulative effect of accounting change 50,964 --
Provisions for depreciation and amortization 16,303 21,736
Decrease (increase) in operating
assets and liabilities - net 26,111 (4,523)
Net cash provided by operating activities 59,007 29,053
Investing Activities
Additions to property, plant and equipment (8,938) (9,517)
Purchases of investments - net 1,718 401
Payments for acquisitions of businesses (2,000) --
Net cash used in investing activities (9,220) (9,116)
Financing Activities
Principal payments on short-term notes
payable and other long-term liabilities (77) (375)
Cash dividends (13,008) (12,567)
Purchases of Common Stock (40,309) (24)
Net cash used in financing activities (53,394) (12,966)
Effect of exchange rate
changes on cash and cash equivalents 1,005 213
Increase (decrease) in cash and cash equivalents (2,602) 7,184
Cash and cash equivalents at beginning of year 145,625 86,008
Cash and cash equivalents at end of period $143,023 $93,192