Bandag Announces Fourth Quarter and Full Year 2002 Results
MUSCATINE, Iowa, Jan. 27 -- Bandag, Incorporated
today announced consolidated net income of $17.5 million, or
$0.91 per diluted share, for the fourth quarter 2002. This is an increase of
$0.1 million from fourth quarter 2001 reported net income of $17.4 million, or
$0.84 per diluted share. Effective January 1, 2002, the Company adopted SFAS
142 and, accordingly, discontinued the amortization of goodwill. Fourth
quarter 2001 net income included $2.0 million of goodwill amortization.
Accordingly, fourth quarter 2001 net income would have been $19.4 million, or
$0.94 per diluted share, excluding goodwill amortization. Therefore, on a
comparable basis, Bandag's fourth quarter 2002 earnings decreased
$1.8 million, or $0.03 per diluted share, from 2001 levels. The effect of
lower average shares outstanding resulting from repurchases of the Company's
common stock during 2002 increased fourth quarter 2002 diluted earnings per
share by $0.05. Fourth quarter 2002 income taxes and resulting net income
benefited approximately $3.0 million, or $0.15 per diluted share, resulting
primarily from the resolution of certain foreign tax issues. Consolidated net
sales for fourth quarter 2002 declined six percent to $231.0 million from net
sales of $246.3 million in fourth quarter 2001.
For the full year, Bandag reported consolidated net income of $2.8 million
or $0.14 per diluted share, after the effect of a change in accounting
resulting from the adoption of SFAS 142, compared to net income of
$43.8 million or $2.12 per diluted share, in the prior year. Income before
the effect of the accounting change in 2002 was $50.1 million, or $2.52 per
diluted share, an increase of $6.3 million, or $0.40 per diluted share, over
the prior year. In connection with the adoption of SFAS 142, there was no
amortization of goodwill in 2002 compared to amortization of $8.0 million in
the prior year. Accordingly, on a comparable basis, income before the
cumulative effect of the accounting change would have been $51.8 million, or
$2.50 per diluted share in 2001. Therefore, on a comparable basis, Bandag's
income before the cumulative effect of the accounting change decreased
$1.7 million from the prior year; however, net income increased by $0.02 per
diluted share. For the full year, the effect of stock repurchases produced a
favorable impact of approximately $0.08 per diluted share. Consolidated net
sales for 2002 decreased five percent to $900.5 million from $949.3 million in
the prior year period.
In announcing fourth quarter and full year results, Martin G. Carver,
Bandag Chairman and Chief Executive Officer, said, "Bandag's traditional
business improved as the year progressed. Even though Bandag's distribution
subsidiary, Tire Distribution Systems, Inc. (TDS) faced several challenges
during the year, as a result of divestitures and other strategic actions, it
emerged by year-end as a smaller, more efficient operation within the Bandag
Strategic Alliance."
Financial Highlights
-- On a consolidated basis, sales and cost of products sold in the
fourth quarter 2002 decreased by six percent and five percent,
respectively, in comparison to the prior year quarter and gross
margin declined by 0.6 percentage points. Several factors
influenced these results, including:
-- Increased sales deductions of approximately $4.7 million
related to dealer marketing programs.
-- Raw material costs, which had remained stable through the first
nine months of the year, increased significantly in the fourth
quarter with the North American business unit alone
experiencing a four percent increase.
-- Restructuring charges in Europe of $3.0 million.
-- Income of $2.4 million and $1.4 million in North America and
Europe, respectively, due to decreased LIFO inventory levels.
-- TDS margin improvements of two percentage points.
For the full year, consolidated sales and cost of products sold
decreased by five percent and eight percent, respectively, from the
prior year. Consolidated gross margin improved two percentage
points from the prior year, even though dealer marketing programs,
recorded as a deduction from sales, increased approximately
$5.2 million over the prior year.
-- Consolidated operating and other expenses in fourth quarter 2002
were $3.2 million below the prior year quarter primarily due to
significantly lower litigation costs, partially offset by losses on
the divestiture of several TDS locations and impairment charges in
the International segment. Fourth quarter litigation costs dropped
from $5.2 million in 2001 to $0.7 million in 2002 and from
$18.3 million in 2001 to $10.7 million in 2002 for the full year.
-- During the fourth quarter, pension income for the Company's major
plans was unchanged from the prior year period. However, for the
full year, pension income for the Company's major plans declined
from $4.4 million in 2001 to $1.1 million in 2002.
-- Bandag's U.S. tread rubber volume, which accounts for the majority
of North America's revenues, rose nearly seven percent for the
quarter in comparison to the prior year period. The Company
believes the fourth quarter tread volume increase is substantially
the result of North American dealers buying ahead of a January 1
price increase announced during the quarter.
-- In Europe, fourth quarter sales increased three percent over the
prior year period, while tread rubber volume was up by two percent
compared to fourth quarter 2001. Gross margins for the quarter,
however, were adversely impacted by approximately $3.0 million in
restructuring costs and favorably impacted by $1.4 million due to
decreased LIFO inventory levels. European fourth quarter 2002
operating expenses decreased approximately nine percent from the
prior year period, despite the Euro's strength and the impact of
approximately $0.5 million in restructuring costs.
-- Fourth quarter tread rubber volume in International decreased
approximately three percent compared to the prior year period. The
decrease was primarily a result of the region's economic issues,
particularly in Argentina, Brazil and Venezuela, which depressed
market activity throughout the region. Higher material costs in
Brazil and Mexico drove a decline in gross margin of nearly seven
percentage points in the International segment. As a result of
charges, taken in accordance with accounting guidance on
impairments, of approximately $1.7 million related to the Company's
India and Venezuela operations, as well as lower margins from other
markets, earnings in the fourth quarter decreased $4.3 million
compared to the same period in 2001. For the full year, earnings
from International operations decreased $2.8 million compared to
2001.
-- TDS fourth quarter net sales of $81.2 million were approximately
16 percent lower compared to the prior year period, or 12 percent
lower on a same store basis after adjusting for the sale of nine
commercial locations across Tennessee, Alabama and Georgia to
independent Bandag dealers and two retail locations in other
markets. Also contributing to the decrease in sales during the
quarter were generally soft market conditions. For the full year,
TDS sales were $364.9 million, a decline of nine percent from
$398.9 million in 2001, due largely to soft market conditions and
the loss of several significant customers, most notably the
bankruptcy of Consolidated Freightways, during 2002. Sales from the
locations divested and closed during the year totaled approximately
$34 million and $42 million for the years 2002 and 2001,
respectively.
-- TDS gross margins improved approximately two percentage points
during the fourth quarter of 2002 and one percentage point for the
full year from the prior year periods. Fourth quarter operating
expenses were $2.0 million less than the prior year quarter. For
the full year, operating expenses rose $3.0 million, due principally
to increases in employee health insurance, workers' compensation
costs and legal expenses.
-- While TDS' fourth quarter operating loss of $3.0 million represents
a decline from the prior year's reported loss of $5.7 million,
fourth quarter 2001 results would have been a loss of $3.6 million
before goodwill amortization of $2.1 million. For full year 2002,
TDS' operating loss was approximately $11.4 million, compared to a
reported loss of $11.1 million in 2001, which included amortization
of goodwill. On a comparable basis, TDS' loss was $2.8 million in
2001, excluding amortization of goodwill.
Discussing the year's performance and outlook for 2003, Mr. Carver said,
"We are encouraged by some signs of fourth quarter strength in the
marketplace, particularly in North America. All things considered,
International did better than anticipated. Our European restructuring is
moving forward. And, while the coming year will continue to challenge TDS, we
believe we are making slow and steady progress and expect improvement as the
year progresses. However, these encouraging factors need to be weighed
against the uncertain implications to our business of the global political
situation and the possibility of larger conflict in the Middle East."
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 "we
are encouraged," "will continue," "we believe" and "expect improvement."
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 which, in turn, is affected by various global factors and
events, both economic and political (including the current Iraq crisis),
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, (v) the extent to which TDS is
able to increase its revenues and/or improve its levels of operating expenses,
and (vi) 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. TDS, a wholly-owned subsidiary,
sells and services new and retread tires.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands, except per share data)
Fourth Quarter Twelve Months
Ended December 31, Ended December 31,
2002 2001 2002 2001
Consolidated Statements
of Earnings
Net sales $230,961 $246,286 $900,503 $949,332
Interest income 1,341 1,891 5,024 7,274
Other income 1,610 1,596 6,426 10,067
Total income 233,912 249,773 911,953 966,673
Cost of products sold 143,975 151,962 563,689 612,639
Operating &
other expenses 68,517 71,757 269,889 276,753
Non-recurring charges - 3,400 - 3,400
Interest expense 1,516 1,760 6,857 7,376
Total expenses 214,008 228,879 840,435 900,168
Income before income
taxes and cumulative
effect of accounting
change 19,904 20,894 71,518 66,505
Income taxes 2,368 3,516 21,465 22,673
Income before cumulative
effect of accounting
change 17,536 17,378 50,053 43,832
Cumulative effect of
accounting change
(net of income tax
benefit of $3,704) - - (47,260) -
Net income (loss) $17,536 $17,378 $2,793 $43,832
Basic earnings (loss)
per share
Income before
cumulative effect of
accounting change $0.92 $0.84 $2.53 $2.13
Cumulative effect of
accounting change - - (2.39) -
Net income (loss) $0.92 $0.84 $0.14 $2.13
Diluted earnings (loss)
per share
Income before
cumulative effect of
accounting change $0.91 $0.84 $2.52 $2.12
Cumulative effect of
accounting change - - (2.38) -
Net income (loss) $0.91 $0.84 $0.14 $2.12
Weighted average
shares outstanding
Basic 19,099 20,581 19,754 20,573
Diluted 19,277 20,707 19,888 20,686
Fourth Quarter Twelve Months
Ended December 31, Ended December 31,
2002 2001 2002 2001
Additional Information
Reported income before
cumulative effect of
accounting change $17,536 $17,378 $50,053 $43,832
Add goodwill
amortization - 1,988 - 7,952
Adjusted income before
cumulative effect of
accounting change $17,536 $19,366 $50,053 $51,784
Basic earnings
per share
Reported income before
cumulative effect of
accounting change $0.92 $0.84 $2.53 $2.13
Add goodwill
amortization - 0.10 - 0.39
Adjusted income before
cumulative effect of
accounting change $0.92 $0.94 $2.53 $2.52
Diluted earnings
per share
Reported income before
cumulative effect of
accounting change $0.91 $0.84 $2.52 $2.12
Add goodwill
amortization - 0.10 - 0.38
Adjusted income before
cumulative effect of
accounting change $0.91 $0.94 $2.52 $2.50
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)
Fourth Quarter Twelve Months
Ended December 31, Ended December 31,
2002 2001 2002 2001
Segment Information
Net Sales
North America $107,347 $104,076 $380,278 $377,116
Europe 22,925 22,253 67,176 72,473
International 19,441 23,114 88,114 100,837
TDS 81,248 96,843 364,935 398,906
Total net sales $230,961 $246,286 $900,503 $949,332
Segment Operating
Profit (Loss)
North America $29,235 $28,099 $95,251 $90,030
Europe (2,060) 1,212 (1,511) 2,464
International (593) 3,742 9,083 11,911
TDS (3,013) (5,713) (11,382) (11,099)
Corporate expenses
& other (3,490) (6,577) (18,090) (26,699)
Net interest
(expense) income (175) 131 (1,833) (102)
Income before income
taxes and cumulative
effect of
accounting change $19,904 $20,894 $71,518 $66,505
Note: Income before income taxes and cumulative effect of accounting
change includes goodwill amortization of $0.1 and $0.6 million for North
America and $2.1 and $8.3 million for TDS for the fourth quarter and
year-to-date periods ended December 31, 2001, respectively. The 2001
non-recurring charges are included in North America.
Dec. 31, Dec. 31,
2002 2001
Condensed Consolidated
Balance Sheets
Assets:
Cash and cash equivalents $129,412 $145,625
Investments 14,261 9,394
Accounts receivable - net 146,498 164,708
Inventories 69,717 89,795
Other current assets 48,208 40,652
Total current assets 408,096 450,174
Property, plant, and
equipment - net 134,673 158,008
Other assets 67,072 110,390
Total assets $609,841 $718,572
Liabilities &
shareholders' equity:
Accounts payable $26,813 $22,153
Income taxes payable 19,883 14,947
Accrued liabilities 93,459 81,736
Short-term notes payable
and current portion
of other obligations 7,392 67,239
Total current liabilities 147,547 186,075
Long-term debt and
other obligations 37,701 40,921
Deferred income tax liabilities - 2,580
Shareholders' equity
Common stock 19,152 20,641
Additional paid-in capital 13,034 11,399
Retained earnings 442,251 502,517
Equity adjustment from
foreign currency translation (49,844) (45,561)
Total shareholders' equity 424,593 488,996
Total liabilities &
shareholders' equity $609,841 $718,572
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Twelve Months
Ended December 31,
2002 2001
Condensed Consolidated Statements of Cash Flows
Operating Activities
Net income $2,793 $43,832
Cumulative effect of
accounting change 50,964 -
Provisions for depreciation
and amortization 32,333 46,155
Decrease in operating assets
and liabilities - net 43,486 26,510
Net cash provided by
operating activities 129,576 116,497
Investing Activities
Additions to property, plant
and equipment (17,938) (25,270)
Proceeds from the disposition
of property, plant, and equipment 3,137 4,221
Purchases of investments - net (3,567) (2,267)
Payments for acquisitions
of businesses (1,951) -
Proceeds from divestiture
of businesses 6,604 -
Net cash used in
investing activities (13,715) (23,316)
Financing Activities
Principal payments on
short-term notes payable
and other long-term liabilities (66,208) (7,396)
Cash dividends (25,550) (25,157)
Purchases of Common Stock (40,334) (971)
Net cash used in
financing activities (132,092) (33,524)
Effect of exchange rate changes
on cash and cash equivalents 18 (40)
Increase (decrease) in cash
and cash equivalents (16,213) 59,617
Cash and cash equivalents
at beginning of year 145,625 86,008
Cash and cash equivalents
at end of period $129,412 $145,625