Bandag Reports Third Quarter Diluted EPS of $1.02
MUSCATINE, Iowa, Oct. 23, 2002 -Bandag, Incorporated announced consolidated net income of $19.6 million, or $1.02 per diluted share, for the quarter ended September 30, 2002. This was a $5.0 million, or 34 percent increase, over third quarter 2001 reported net income of $14.6 million, or $0.71 per diluted share. Effective January 1, 2002, the Company adopted SFAS 142 and, accordingly, discontinued the amortization of goodwill. Third quarter 2001 net income included $2.0 million of goodwill amortization. Accordingly, third quarter 2001 net income would have been $16.6 million or $0.80 per diluted share before goodwill amortization. Therefore, Bandag's earnings increased $3.0 million, or $0.22 per diluted share on a comparable basis. Consolidated net sales for third quarter 2002 decreased five percent to $245.9 million from net sales of $257.6 million in third quarter 2001.
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Financial Highlights
- On a consolidated basis, cost of products sold for the third quarter decreased by eight percent in comparison to the prior year period, which was a greater decrease than the five percent decrease in consolidated worldwide sales. The resulting improvement in gross margin was mainly attributable to lower raw material costs and increased production efficiency in the traditional business, particularly in North America. While such costs have been favorable so far in 2002, supplier pricing indicates raw material costs will increase for the remainder of the year. Consolidated operating and other expenses, excluding goodwill amortization, decreased by approximately $4.0 million when compared to the third quarter of 2001. This decrease is largely attributable to a $4.8 million decrease in litigation costs and $2.2 million in net foreign exchange gains, offset primarily by a $1.0 million decrease in pension income and a $1.8 million increase in Tire Distributions Systems, Inc.'s (TDS) operating expenses.
- Repurchases of the Company's outstanding common stock during the second quarter had a favorable impact on the third quarter 2002 diluted earnings per share of $0.06.
- Bandag's U.S. tread rubber volume, which accounts for the majority of North America's revenues, while flat, year-to-date, is favorable in comparison to U.S. industry shipments which are estimated to be down nearly two percent for the same period.
- Despite a 10 percent decrease in volume, net sales in Europe for the third quarter reflect a minor increase from the previous year due to the strength of the Euro. The earnings improvement of $0.4 million during the third quarter of 2002, as compared to the same period in 2001, is largely attributable to net foreign exchange losses in 2001 that did not recur.
- Even though sales for the third quarter decreased 13 percent in International, earnings improved 36 percent primarily due to improvement in gross margin and a reduction in operating expenses coupled with $1.1 million of net foreign exchange gains.
- TDS third quarter sales of $104.0 million were down approximately 10 percent from the third quarter 2001. The decrease in sales during the quarter was for the most part due to the loss of several significant customers, most notably the bankruptcy of Consolidated Freightways, and the general impact of the economy. Further, operating expenses rose eight percent, primarily in the areas of health insurance, workers' compensation costs and legal expenses.
While TDS' third quarter operating loss of $1.0 million represents a $1.8 million decline from the previous year's reported income of $.8 million, pro forma third quarter 2001 results would have shown a profit of $2.9 million before goodwill amortization of $2.1 million, resulting in a $3.9 million decrease in earnings for the third quarter 2002 when measured on a comparable basis.
Discussing Bandag's performance in the third quarter, Martin G. Carver, Bandag Chief Executive Officer, said: "Worldwide market conditions were challenging throughout the third quarter. Encouragingly, Bandag's North American business experienced a modest sales increase, reversing the second quarter's slight decrease. Elsewhere, however, both Bandag International and TDS experienced sales declines during the third quarter. Lower raw material costs worldwide helped strengthen Bandag's gross margins.
"At TDS a combination of factors, including the loss of some key customers, most notably the bankruptcy of Consolidated Freightways, depressed TDS' performance from second quarter levels. We sold two retail stores, which will improve our focus on the commercial tire side of the business. TDS also sold three Georgia locations to an independent Bandag franchisee in the Atlanta market and has agreed to sell five locations in Alabama to an independent tire dealer who will become a Bandag dealer," said Mr. Carver. "By selling these locations to strong experienced Bandag dealers, TDS created a win-win for all parties. TDS management continues to closely monitor individual store performance and is working to strengthen both sales and earnings."
Discussing the outlook for the remainder of the year, Mr. Carver said, "Looking forward, we are hopeful that what we saw in the third quarter represents stabilizing market forces in the commercial tire industry and will serve as a base for commercial tire industry recovery beginning in 2003."
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
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)
Third Quarter Nine Months
Ended September 30, Ended September 30,
Consolidated Statements
of Earnings 2002 2001 2002 2001
Net sales $245,902 $257,559 $669,542 $703,046
Interest income 966 1,720 3,683 5,383
Other income 1,581 3,375 4,816 8,471
Total income 248,449 262,654 678,041 716,900
Cost of products sold 153,547 167,466 419,714 460,677
Operating & other expenses 61,917 68,181 201,372 204,996
Interest expense 1,829 1,809 5,341 5,616
Total expenses 217,293 237,456 626,427 671,289
Income before income
taxes and cumulative
effect of accounting
change 31,156 25,198 51,614 45,611
Income taxes 11,528 10,584 19,097 19,157
Income before cumulative
effect of accounting
change 19,628 14,614 32,517 26,454
Cumulative effect of
accounting change (net
of income tax benefit
of $3,704) --- --- (47,260) ---
Net income (loss) $19,628 $14,614 $(14,743) $26,454
Basic earnings (loss)
per share
Income before cumulative
effect of accounting
change $1.03 $0.71 $1.63 $1.29
Cumulative effect of
accounting change --- --- (2.37) ---
Net income (loss) $1.03 $0.71 $(0.74) $1.29
Diluted earnings (loss)
per share
Income before cumulative
effect of accounting
change $1.02 $0.71 $1.62 $1.28
Cumulative effect of
accounting change --- --- (2.35) ---
Net income (loss) $1.02 $0.71 $(0.73) $1.28
Weighted average shares
outstanding
Basic 19,091 20,578 19,972 20,570
Diluted 19,237 20,681 20,141 20,679
Third Quarter Nine Months
Ended September 30, Ended September 30,
Additional Information 2002 2001 2002 2001
Reported income before
cumulative effect of
accounting change $19,628 $14,614 $32,517 $26,454
Add goodwill
amortization --- 1,988 --- 5,964
Adjusted income before
cumulative effect of
accounting change $19,628 $16,602 $32,517 $32,418
Basic earnings per share
Reported income before
cumulative effect of
accounting change $1.03 $0.71 $1.63 $1.29
Add goodwill
amortization --- 0.10 --- 0.29
Adjusted income before
cumulative effect of
accounting change $1.03 $0.81 $1.63 $1.58
Diluted earnings per share
Reported income before
cumulative effect of
accounting change $1.02 $0.71 $1.62 $1.28
Add goodwill
amortization --- 0.09 --- 0.29
Adjusted income before
cumulative effect of
accounting change $1.02 $0.80 $1.62 $1.57
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)
Third Quarter Nine Months
Ended September 30, Ended September 30,
Segment Information 2002 2001 2002 2001
Net Sales
North America $103,053 $100,431 $272,931 $273,040
Europe 16,883 16,782 44,251 50,220
International 22,000 25,394 68,673 77,723
TDS 103,966 114,952 283,687 302,063
Total net sales $245,902 $257,559 $669,542 $703,046
Segment Operating
Profit (Loss)
North America $30,082 $28,352 $66,016 $61,931
Europe 360 (40) 549 1,252
International 3,514 2,588 9,676 8,169
TDS (959) 785 (8,369) (5,386)
Corporate expenses &
other (978) (6,398) (14,600) (20,122)
Net interest (expense)
income (863) (89) (1,658) (233)
Income before income
taxes and cumulative
effect of accounting
change $31,156 $25,198 $51,614 $45,611
Note: Income before income taxes and cumulative effect of accounting
change includes goodwill amortization of $0.1 and $0.5 million for North
America and $2.1 and $6.2 million for TDS for the third quarter and
year-to-date periods ended September 30, 2001, respectively.
Sept. 30, Dec. 31,
Condensed Consolidated Balance Sheets 2002 2001
Assets:
Cash and cash equivalents $167,831 $145,625
Investments 13,051 9,394
Accounts receivable - net 149,047 164,708
Inventories 82,070 89,795
Other current assets 39,355 40,652
Total current assets 451,354 450,174
Property, plant, and equipment - net 143,865 158,008
Other assets 63,926 110,390
Total assets $659,145 $718,572
Liabilities & shareholders' equity:
Accounts payable $29,637 $22,153
Income taxes payable 20,040 14,947
Accrued liabilities 79,455 81,736
Short-term notes payable and current
portion of other obligations 67,845 67,239
Total current liabilities 196,977 186,075
Long-term debt and other obligations 43,905 40,921
Deferred income tax liabilities 4,621 2,580
Shareholders' equity
Common stock 19,143 20,641
Additional paid-in capital 11,740 11,399
Retained earnings 430,864 502,517
Equity adjustment from foreign currency
translation (48,105) (45,561)
Total shareholders' equity 413,642 488,996
Total liabilities & shareholders' equity $659,145 $718,572
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Nine Months
Ended September 30,
Condensed Consolidated Statements of Cash Flows 2002 2001
Operating Activities
Net income (loss) $(14,743) $26,454
Cumulative effect of accounting change 50,964 ---
Provisions for depreciation and amortization 23,756 32,717
Decrease in operating assets and
liabilities - net 36,050 8,585
Net cash provided by operating activities 96,027 67,756
Investing Activities
Additions to property, plant and equipment (12,618) (15,246)
Purchases of investments - net (2,357) 215
Payments for acquisitions of businesses (1,951) ---
Proceeds from divestiture of businesses 3,379 ---
Net cash used in investing activities (13,547) (15,031)
Financing Activities
Principal payments on short-term notes
payable and other long-term liabilities (169) (375)
Cash dividends (19,520) (18,862)
Purchases of Common Stock (40,313) (24)
Net cash used in financing activities (60,002) (19,261)
Effect of exchange rate changes on cash
and cash equivalents (272) 864
Increase in cash and cash equivalents 22,206 34,328
Cash and cash equivalents at beginning of year 145,625 86,008
Cash and cash equivalents at end of period $167,831 $120,336