Bandag, Incorporated Reports 2nd Quarter EPS of $0.45
Flash Results Bandag, Inc.
(Numbers in Millions, Except Per Share Data) 6 Mos. 6 Mos. Q2 2003 Q2 2002 2003 2002 Net Sales $204.1 $231.1 $379.4 $423.6 Income before cumulative effect of accounting change* $8.7 $11.7 $11.1 $12.9 Diluted EPS before cumulative effect of accounting change* $0.45 $0.57 $0.57 $0.63 Shares Outstanding - diluted 19.4 20.4 19.3 20.6
*A cumulative effect of accounting change of $47.3 million net of income tax, or $2.29 per diluted share, was recorded in the first quarter of 2002 in accordance with SFAS 142.
MUSCATINE, Iowa, July 17 -- Bandag, Incorporated today reported consolidated net income of $8.7 million, or $0.45 per diluted share for second quarter 2003, compared to second quarter 2002 consolidated net income of $11.7 million, or $0.57 per diluted share, a decrease of 26% and 21% for consolidated net income and diluted earnings per share, respectively. Second quarter 2003 results were reduced by approximately $2.2 million ($1.4 million after tax, or $0.07 per diluted share), due to net foreign exchange losses resulting primarily from revaluing funds held in US Dollars outside the United States into local currencies, which had strengthened relative to the US Dollar. Second quarter 2003 results were also reduced by approximately $1.5 million ($1.0 million after tax, or $0.05 per diluted share) in net charges related to Bandag's distribution subsidiary, Tire Distribution Systems, Inc. (TDS), for store divestitures and a real estate impairment charge. In addition, second quarter 2003 results benefited by $0.02 per share as a result of there being fewer shares outstanding at the end of the quarter. In comparison, second quarter 2002 results were reduced by charges of approximately $5.7 million ($3.6 million after tax, or $0.18 per diluted share) related to litigation expense. Consolidated net sales for second quarter 2003 were $204.1 million, a decline of approximately 12%, compared to consolidated net sales of $231.1 million in the prior year period.
For the first six months of 2003, Bandag reported consolidated net income of $11.1 million, or $0.57 per diluted share. This compares to a consolidated net loss of $1.67 per diluted share for the first six months of 2002, which included the write-off of $47.3 million net of income tax, or $2.29 per diluted share, related to the adoption of SFAS 142 as of January 1, 2002. Results for the first six months of 2003 were impacted by approximately $2.4 million ($1.5 million after tax, or $0.08 per diluted share) due to net foreign exchange losses as well as approximately $1.3 million ($0.8 million after tax, or $0.04 per diluted share) in net charges related to TDS divestitures and real estate impairment charges. In comparison, results for the first six months of 2002 were reduced by charges of approximately $9.7 million ($6.1 million after tax, or $0.30 per diluted share) related to litigation expense and $2.2 million ($1.4 million after tax, or $0.07 per diluted share) related to converting SystemBandag users to the RoadWare(TM) software system. Consolidated net sales for the first six months of 2003 decreased by 11% to $379.4 million, which compares to consolidated net sales of $423.6 million in the prior year period.
In announcing second quarter results, Martin G. Carver, Chairman of the Board and Chief Executive Officer of Bandag said, "Worldwide, the anticipated, but absent, second quarter turnaround and weaker US Dollar were key factors in the decline in Bandag's second quarter earnings performance. In North America, the truck tire replacement market remained soft due to generally flat trucking freight volumes. In Europe, after a relatively strong start in the first quarter, performance gave way to slower sales during the second quarter."
Addressing the performance of TDS, Mr. Carver said, "TDS same-store sales were down somewhat, but relatively consistent with overall Bandag dealer purchase patterns. Following our strategy, TDS continued to selectively divest locations during the quarter, which further tightens its market focus while strengthening the capability of the Bandag Strategic Alliance to serve its fleet customers."
Mr. Carver went on to say, "Despite the difficult economic conditions, our dealers continue to invest in their businesses. Sales of new equipment and technology have clearly signaled our dealers' continued confidence in their future. In the face of a challenging business climate, Bandag and its Alliance are building a stronger, more capable distribution channel."
Financial Highlights
-- Consolidated net sales for second quarter 2003 were $204.1 million,
compared to consolidated net sales of $231.1 million in the second
quarter of 2002, a decline of approximately 12%. Affecting the decline
were several factors:
-- There was soft retread demand, which reflected the generally flat
freight traffic experienced by many major North American fleets, and
pressure from new replacement truck tires in the traditional retread
market.
-- The 2002 year-end opportunity buying by North American dealers
appears to have resulted in lower demand through the end of May, but
also appears to have finally worked its way through the Bandag
distribution channel.
-- Despite a slight decline in volume, European sales were 20% higher
compared to second quarter 2002, reflecting the effects of a
stronger Euro when translated into US Dollars.
-- International tread rubber volume declined by 13%; however, the
effect after currency translation and sales price increases was only
a 3% decline in sales compared to 2002 second quarter sales.
-- There was a general softening of economic conditions in many major
overseas markets during second quarter 2003.
-- Divestitures at TDS also contributed to the decline in sales, but
were partly offset by lower intercompany sales eliminations.
-- Operating and other expenses were $63.2 million, a decline of 10% from
expenses of $70.6 million in the prior-year period. Second quarter
2002 operating results included legal expenses of approximately
$5.7 million related to litigation.
-- North American business experienced a 6% decline in tread rubber volume
during second quarter 2003, due primarily to flat freight volumes and
pressure from new replacement truck tires in the retread market.
-- Overall, during second quarter 2003, North American operating profit
decreased by approximately 30%, or $6.9 million, from second quarter
2002 levels, primarily as a result of lower production volumes, higher
raw material costs and increased fleet-related sales deductions.
-- After a good first quarter 2003, Europe experienced a decrease in tread
rubber volume of approximately 1% and net foreign exchange losses that
resulted in a European operating loss of approximately $0.7 million for
second quarter 2003. This compares to an operating profit of
approximately $0.4 million in second quarter 2002.
-- After a strong first quarter in both Brazil and Mexico, International
experienced tread rubber volume declines - 19% and 6%, respectively -
during second quarter 2003. Net foreign exchange losses also affected
International results, which produced an operating profit of
$2.4 million for second quarter 2003 compared to an operating profit of
$4.3 million in second quarter 2002.
-- TDS second quarter 2003 sales declined 32% to $66.7 million, primarily
due to the 2002 and 2003 divestitures and closures. These divested or
closed locations had sales of approximately $36.3 million in the second
quarter of 2002. The locations that were divested or closed in 2003
contributed $7.9 million to second quarter 2003 sales.
-- For second quarter 2003, TDS recorded an operating loss of $2.4 million
which includes charges of $1.5 million for divestitures and a real
estate impairment charge. This compares to an operating loss of
$1.4 million in second quarter 2002.
Noting that Bandag anticipates little general economic improvement for the remainder of 2003, Mr. Carver said, "While the business outlook remains uncertain, each Bandag business unit continues to focus on improving its fundamentals and its ability to perform under a variety of economic scenarios. Likewise, we are continuing to improve and enhance the capabilities of our distribution network to serve fleet customers, and we are doing so with a company-wide attitude toward improving the efficiencies of our overall system. Our current advertising campaign characterizes that attitude as "no detours" and that is aptly put. No detours is how we think, how we work and how we will succeed in the future."
Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of more than 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)
Consolidated Statements Second Quarter Six Months
of Earnings Ended June 30, Ended June 30,
2003 2002 2003 2002
Net sales $204,077 $231,147 $379,356 $423,640
Interest income 1,052 1,308 2,208 2,717
Other income 1,691 1,583 3,535 3,235
Total income 206,820 234,038 385,099 429,592
Cost of products sold 129,535 143,168 244,866 266,167
Operating & other expenses 63,228 70,603 121,836 139,455
Interest expense 551 1,745 1,210 3,512
Total expenses 193,314 215,516 367,912 409,134
Income before income taxes
and cumulative effect of
accounting change 13,506 18,522 17,187 20,458
Income taxes 4,813 6,853 6,101 7,569
Income before cumulative
effect of
accounting change 8,693 11,669 11,086 12,889
Cumulative effect of
accounting change (net of
income tax benefit of $3,704) - - - (47,260)
Net income (loss) $8,693 $11,669 $11,086 $(34,371)
Basic earnings (loss) per share
Income before cumulative
effect of accounting
change $0.45 $ 0.58 $ 0.58 $0.63
Cumulative effect of
accounting change - - - (2.32)
Net income (loss) $0.45 $ 0.58 $ 0.58 $ (1.68)
Diluted earnings (loss) per share
Income before cumulative
effect of accounting
change $0.45 $ 0.57 $ 0.57 $0.63
Cumulative effect of
accounting change - - - (2.29)
Net income (loss) $0.45 $ 0.57 $ 0.57 $ (1.67)
Weighted average shares
outstanding
Basic 19,156 20,235 19,137 20,413
Diluted 19,371 20,405 19,324 20,593
Second Quarter Six Months
Ended June 30, Ended June 30,
Segment Information 2003 2002 2003 2002
Net Sales
North America $96,361 $93,587 $168,573 $169,878
Europe 17,835 14,808 36,816 27,368
International 23,154 23,923 43,626 46,673
TDS 66,727 98,829 130,341 179,721
Total net sales $204,077 $231,147 $379,356 $423,640
Segment Operating Profit (Loss)
North America $16,379 $23,271 $20,295 $35,934
Europe (679) 361 711 189
International 2,429 4,255 6,100 6,162
TDS (2,430) (1,445) (6,482) (7,410)
Corporate expenses & other (2,694) (7,483) (4,435) (13,622)
Net interest (expense) income 501 (437) 998 (795)
Income before income taxes
and cumulative effect of
accounting change $13,506 $18,522 $17,187 $20,458
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
June 30, Dec. 31,
Condensed Consolidated Balance Sheets 2003 2002
Assets:
Cash and cash equivalents $141,954 $129,412
Investments 16,394 14,261
Accounts receivable - net 144,251 154,484
Inventories 63,395 59,447
Other current assets 66,349 76,453
Total current assets 432,343 434,057
Property, plant, and equipment - net 113,249 116,698
Other assets 68,218 67,072
Total assets $613,810 $617,827
Liabilities & shareholders' equity:
Accounts payable $23,472 $26,813
Income taxes payable 14,403 19,883
Accrued liabilities 85,320 93,459
Short-term notes payable and current portion
of other obligations 7,441 7,706
Total current liabilities 130,636 147,861
Long-term debt and other obligations 45,323 45,373
Deferred income tax liabilities - -
Shareholders' equity
Common stock 19,241 19,152
Additional paid-in capital 15,979 13,034
Retained earnings 440,928 442,251
Equity adjustment from foreign currency
translation (38,297) (49,844)
Total shareholders' equity 437,851 424,593
Total liabilities & shareholders' equity $613,810 $617,827
Six Months
Ended June 30,
Condensed Consolidated Statements of Cash Flows 2003 2002
Operating Activities
Net income $11,086 $(34,371)
Cumulative effect of accounting change - 50,964
Provisions for depreciation and amortization 14,010 16,303
(Increase) decrease in operating assets and
liabilities - net (4,375) 26,111
Net cash provided by operating activities 20,721 59,007
Investing Activities
Additions to property, plant and equipment (8,647) (8,938)
Purchases of investments - net (2,133) 1,718
Payments for acquisitions of businesses - (2,000)
Proceeds from divestiture of businesses 11,115 -
Net cash provided by (used in) investing
activities 335 (9,220)
Financing Activities
Principal payments on short-term notes payable
and other long-term liabilities (31) (77)
Cash dividends (12,279) (13,008)
Purchases of Common Stock (110) (40,309)
Net cash used in financing activities (12,420) (53,394)
Effect of exchange rate changes on cash and cash
equivalents 3,906 1,005
Increase (decrease) in cash and cash
equivalents 12,542 (2,602)
Cash and cash equivalents at beginning of year 129,412 145,625
Cash and cash equivalents at end of period $141,954 $143,023