Bandag, Incorporated Reports 1st Quarter EPS of $0.12
MUSCATINE, Iowa, April 17 -- Flash Results
Bandag, Incorporated
(In thousands, except per share data) Q1 2003 Q1 2002
Net sales $175.3 $192.5
Income before cumulative effect of
accounting change $2.4 $1.2
Diluted earnings per share before
cumulative effect of accounting change $0.12 $0.06
Bandag, Incorporated today reported consolidated net income of $2.4 million, or $0.12 per diluted share, for first quarter 2003. This compares to first quarter 2002 consolidated net income of $1.2 million, or $0.06 per diluted share, before the effect of an accounting change resulting from the adoption of SFAS No. 142 to recognize impairment of goodwill. Bandag reported a net loss of $46.0 million, or $2.21 per diluted share, including the effects of the required accounting change in first quarter 2002. Consolidated net sales for first quarter 2003 were $175.3 million, a decline of 9% compared to consolidated net sales of $192.5 million in the prior-year period.
In announcing first quarter earnings, Martin G. Carver, Chairman of the Board and Chief Executive Officer of Bandag said, "Bandag's earnings performance fared reasonably well in spite of dealer inventory stocking in the closing months of 2002, which adversely impacted first quarter 2003 results, and economic softness in North America during the first three months of the year. Tire Distributions Systems, Inc. (TDS) showed some improvement over last year as it continued to realign its distribution network, selling 17 of its locations to independent Bandag dealers during first quarter 2003. Customer acceptance of new equipment, service offerings and technology solutions at Bandag's second annual Fleet Executive Symposium and the Bandag Alliance Business Conference was particularly encouraging. Feedback indicates we have the tools and capabilities to improve the predictability of a fleet's tire system cost, and the consistent service coverage and product quality to allow fleets to operate more efficiently."
Financial Highlights
-- Consolidated net sales for first quarter 2003 were $175.3 million, a
decline of 9% compared to consolidated net sales of $192.5 million in
first quarter 2002. The decline primarily reflects the 21% decrease in
sales at TDS, combined with a 4% decline in worldwide traditional
business tread rubber volume.
-- Consolidated gross margin declined nearly 2 percentage points during
first quarter 2003 from the same period in 2002. The decline is
primarily the result of margin erosion in North America, partially
offset by lower sales at TDS which carry lower gross margins than in
the traditional business.
-- Consolidated operating and other expenses declined 15%, or
$10.2 million. The decline was principally due to the absence in first
quarter 2003 of approximately $4.0 million for litigation expense and
$2.2 million related to converting SystemBandag users to the
RoadWare(TM) software system, both of which were recorded in first
quarter 2002.
-- In North America, Bandag's traditional business experienced an 8%
decline in demand for tread rubber during first quarter 2003. Bandag
believes that approximately half of this decline relates to dealer
buying during fourth quarter 2002 as dealers stocked inventories ahead
of a January price increase. First quarter 2003 gross margin in North
America was approximately 9 percentage points lower due to increased
fleet and market-related sales deductions, coupled with higher
manufacturing expenses and lower volume. Operating expenses for first
quarter 2003 were $2.4 million higher than the prior-year period,
primarily as a result of a $1.4 million increase in pension expense.
Overall, North American operating profit decreased $8.7 million during
first quarter 2003 from the prior-year period.
-- In Europe, retread material volume increased approximately 18% over the
prior-year period while sales increased 51%, reflecting the combined
effects of a stronger Euro and increased sales volumes. Gross margin
improved approximately 2.5 percentage points. First quarter 2003
operating profit was $1.4 million compared to a loss of $0.2 million in
the prior-year period, despite an increase of $1.0 million in net
foreign exchange losses from the prior-year period.
-- In the International business unit, retread material volume decreased
5% and sales decreased 10% in first quarter 2003 as compared to first
quarter 2002. Translation of International sales into US Dollars were
negatively impacted by a decrease in the value of the Brazilian Real
and the Mexican Peso. International operating profit, which benefited
from an increase of $2.0 million in net foreign exchange gains from the
prior-year period, increased $1.8 million from first quarter 2002.
-- TDS' first quarter 2003 sales declined 21% to $63.6 million, primarily
due to the 2002 and 2003 divestitures and closures of 44 locations.
These divested and closed locations had sales of approximately
$20.5 million in the first quarter of 2002. The locations that were
divested in 2003 contributed $7.1 million to first quarter 2003 sales.
TDS first quarter 2003 operating loss was $4.1 million, an improvement
from the $6.0 million loss in the prior-year period.
Commenting on the prospects for 2003, Mr. Carver said, "The economic outlook remains uncertain for the near term. Nevertheless, we're encouraged by the continued progress at TDS and our dealers' and fleet customers' positive response to Bandag's advancements as an innovative solutions provider for commercial tire dealers and the transportation industry."
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 2003 2002
Net sales $175,279 $192,493
Interest income 1,156 1,409
Other income 1,844 1,652
Total income 178,279 195,554
Cost of products sold 115,331 122,999
Operating & other expenses 58,608 68,852
Interest expense 659 1,767
Total expenses 174,598 193,618
Income before income taxes and cumulative
effect of accounting change 3,681 1,936
Income taxes 1,288 716
Income before cumulative effect of accounting
change 2,393 1,220
Cumulative effect of accounting change (net of
income tax benefit of $3,704) - (47,260)
Net income (loss) $2,393 $(46,040)
Basic earnings (loss) per share
Income before cumulative effect of accounting
change $0.13 $0.06
Cumulative effect of accounting change - (2.30)
Net income (loss) $0.13 $ (2.24)
Diluted earnings (loss) per share
Income before cumulative effect of accounting
change $0.12 $0.06
Cumulative effect of accounting change - (2.27)
Net income (loss) $0.12 $ (2.21)
Weighted average shares outstanding
Basic 19,118 20,591
Diluted 19,277 20,781
First Quarter
Ended March 31,
Segment Information 2003 2002
Net Sales
North America $72,212 $76,291
Europe 18,981 12,560
International 20,472 22,750
TDS 63,614 80,892
Total net sales $175,279 $192,493
Segment Operating Profit (Loss)
North America $3,916 $12,663
Europe 1,390 (172)
International 3,671 1,907
TDS (4,052) (5,965)
Corporate expenses & other (1,741) (6,139)
Net interest (expense) income 497 (358)
Income before income taxes and cumulative effect
of accounting change $3,681 $1,936
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Mar. 31, Dec. 31,
Condensed Consolidated Balance Sheets 2003 2002
Assets:
Cash and cash equivalents $146,839 $129,412
Investments 11,218 14,261
Accounts receivable - net 125,353 154,484
Inventories 61,899 59,447
Other current assets 75,238 76,453
Total current assets 420,547 434,057
Property, plant, and equipment - net 112,608 116,698
Other assets 67,939 67,072
Total assets $601,094 $617,827
Liabilities & shareholders' equity:
Accounts payable $21,751 $26,813
Income taxes payable 15,534 19,883
Accrued liabilities 86,083 93,459
Short-term notes payable and current portion of
other obligations 7,451 7,706
Total current liabilities 130,819 147,861
Long-term debt and other obligations 44,899 45,373
Deferred income tax liabilities - -
Shareholders' equity
Common stock 19,218 19,152
Additional paid-in capital 14,821 13,034
Retained earnings 438,461 442,251
Equity adjustment from foreign currency
translation (47,124) (49,844)
Total shareholders' equity 425,376 424,593
Total liabilities & shareholders' equity $601,094 $617,827
Three Months
Ended March 31,
Condensed Consolidated Statements of Cash Flows 2003 2002
Operating Activities
Net income $2,393 $(46,040)
Cumulative effect of accounting change - 50,964
Provisions for depreciation and amortization 7,200 7,687
Decrease in operating assets and
liabilities - net 10,482 27,792
Net cash provided by operating activities 20,075 40,403
Investing Activities
Additions to property, plant and equipment (4,520) (3,162)
Purchases of investments - net 3,043 (1,457)
Payments for acquisitions of businesses - (2,000)
Proceeds from divestiture of businesses 3,867 -
Net cash provided by (used in) investing
activities 2,390 (6,619)
Financing Activities
Principal payments on short-term notes payable
and other long-term liabilities (21) (77)
Cash dividends (6,128) (6,502)
Purchases of Common Stock (33) (41)
Net cash used in financing activities (6,182) (6,620)
Effect of exchange rate changes on cash and
cash equivalents 1,144 1,042
Increase in cash and cash equivalents 17,427 28,206
Cash and cash equivalents at beginning of year 129,412 145,625
Cash and cash equivalents at end of period $146,839 $173,831