Bandag, Incorporated Reports 2nd Quarter EPS of $0.60
Flash Results
Bandag, Inc.
(Numbers in Millions, Except Per Share Data)
Q2 2004 Q2 2003 6 Mos. 2004 6 Mos. 2003 Net sales $211.1 $204.1 $384.6 $379.4 Net earnings $11.9 $8.7 $15.9 $11.1 Diluted earnings per share $0.60 $0.45 $0.81 $0.57 Shares outstanding - diluted 19.7 19.4 19.7 19.3
MUSCATINE, Iowa, July 16 -- Bandag, Incorporated today reported consolidated net earnings of $11.9 million, or $0.60 per diluted share, for second quarter 2004, compared to second quarter 2003 consolidated net earnings of $8.7 million, or $0.45 per diluted share, an increase of 37% and 33% for consolidated net earnings and diluted earnings per share, respectively. Consolidated net earnings for second quarter 2004 included favorable tax adjustments of $1.0 million, or $0.05 per diluted share, resulting primarily from the reassessment of certain tax matters. Consolidated net sales for second quarter 2004 were $211.1 million, an increase of approximately three percent compared to second quarter 2003 consolidated net sales of $204.1 million.
For the first six months of 2004, Bandag reported consolidated net earnings of $15.9 million, or $0.81 per diluted share. This compares to consolidated net earnings of $11.1 million, or $0.57 per diluted share, in the first six months of 2003. Consolidated net sales for the first six months of 2004 increased one percent to $384.6 million from $379.4 million in the first six months of 2003.
In announcing second quarter results, Martin G. Carver, Chairman of the Board and Chief Executive Officer of Bandag, said, "Several factors contributed to our performance in the second quarter. Globally, tread volume was up by five percent during the quarter, reflecting increased trucking activity, particularly in North America. In its first full quarter as part of Bandag, Speedco, Inc. demonstrated both its fit to Bandag and the validity of our strategy to offer our customers a wider range of vehicle services." In June, Speedco purchased its six licensed locations and now operates 32 on-highway quick-service truck lubrication locations.
"Also important, Tire Distribution Systems, Inc.'s (TDS) performance improved significantly during the quarter, as Bandag's distribution subsidiary reduced its net loss from $2.4 million a year ago to a loss of $34,000, reflecting the benefits of selected divestitures and sales increases in some of the remaining locations," said Mr. Carver.
Financial Highlights
-- Factors that affected consolidated net sales for second quarter 2004
were:
-- North America business unit volume was approximately three percent
higher than the prior year period. Net sales increased by
$4.2 million primarily due to higher volume and the reduction in
intercompany sales due to the shift of TDS sales to the
independent dealers acquiring the divested TDS locations.
-- Speedco net sales were $14.4 million for the second quarter of
2004.
-- TDS net sales declined by $15.8 million due to divestitures and
closures in 2003 and 2004, offset by increases at some of the
remaining locations. Second quarter 2004 and 2003 sales by
divested and closed TDS locations were approximately $0.3 million
and $18.1 million, respectively.
-- European business unit volume increased two percent while net
sales increased $1.7 million, or ten percent, primarily due to the
effect of translating foreign currency denominated net sales into
U.S. dollars.
-- International business unit volume increased twelve percent and
net sales increased $2.5 million, or eleven percent, of which
approximately $1.0 million was due to the effect of translating
foreign currency denominated net sales into U.S. dollars.
-- Overall, translating foreign currency denominated net sales into
U.S. dollars produced a favorable impact of approximately
$3.2 million on consolidated net sales.
-- Second quarter 2004 consolidated gross margin was even with the prior
year.
-- Consolidated operating and other expenses were $1.4 million below the
prior year despite an additional $3.8 million in expenses related to
Speedco operations and the unfavorable impact of the translation rates.
TDS operating and other expenses were $5.6 million below the previous
year, primarily reflecting the divestitures in 2003 and 2004.
Consolidated foreign exchange gain was $0.8 million compared to
$2.2 million of loss in second quarter 2003, both of which were
primarily related to U.S. dollar cash balances held outside the United
States.
-- Operating income for the North America business unit in second quarter
2004 decreased $1.5 million, primarily due to raw material cost
increases and higher operating and other expenses.
-- Operating income in the European business unit in second quarter 2004
decreased $1.4 million compared to the previous year, primarily due to
a decline of 5.6 percentage points in gross margin and higher operating
and other expenses.
-- Operating income for the International business unit in second quarter
2004 decreased $0.6 million compared to the prior year period,
primarily due to a decline of 0.8 percentage points in gross margin and
higher operating and other expenses.
-- TDS reduced its operating loss from $2.4 million in second quarter 2003
to $34,000 in second quarter 2004. Second quarter 2003 results
included $1.5 million in losses from divestitures compared to a loss of
$0.4 million in the second quarter of 2004.
-- Speedco operating income for the second quarter of 2004 was
$1.8 million. In June, Speedco purchased its six licensed locations
from PM Express for $15.6 million, and began opening its tire
operations at various Speedco facilities. Results of the former
licensees did not have a material impact on second quarter 2004 results
as they were only included for the final three weeks of the quarter.
-- Corporate expenses and other was $2.2 million for the second quarter of
2004 compared to $5.4 million in the previous year. The $3.2 million
decrease includes the favorable impact of $3.6 million in foreign
exchange gains related to U.S. dollar cash balances held outside the
United States.
Outlook
In May, Bandag announced that Yellow Roadway Corporation would not be renewing the outsourcing agreement for Roadway Express tire and wheel services and, in accordance with the terms of the agreement, would be repurchasing tire and wheel assets from Bandag. Mr. Carver indicated that the transition process was proceeding smoothly and on schedule, and that Bandag received an initial payment of approximately $32 million on July 9, 2004. Bandag anticipates completing the transition and final settlement in August 2004.
Commenting on the outlook for the second half of 2004, Mr. Carver said, "The improved performance we experienced during the second quarter is heartening, and, while we're hopeful that the renewed strength we're seeing in trucking activity gains momentum, we continue to moderate our optimism and closely monitor global economic activity."
Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of more than 1,000 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 sells and services new and retread tires. In addition, Bandag has an 87.5 percent interest in Speedco, Inc., a provider of on-highway truck lubrication services to commercial truck owner-operators and fleets.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands, except per share data)
Consolidated Second Quarter Six Months
Statements Ended June 30, Ended June 30,
of Earnings 2004 2003 2004 2003
Income
Net sales $211,088 $204,077 $384,617 $379,356
Other 1,725 1,691 3,487 3,535
212,813 205,768 388,104 382,891
Costs and expenses
Cost of products sold 134,087 129,535 246,890 244,866
Operating & other
expenses 61,789 63,228 118,345 121,836
195,876 192,763 365,235 366,702
Income from operations 16,937 13,005 22,869 16,189
Interest income 992 1,052 2,042 2,208
Interest expense (557) (551) (1,119) (1,210)
Earnings before income
taxes and
minority interest 17,372 13,506 23,792 17,187
Income taxes 5,341 4,813 7,684 6,101
Minority interest 137 - 195 -
Net earnings $11,894 $8,693 $15,913 $11,086
Earnings per share
Basic $0.62 $0.45 $0.83 $0.58
Diluted $0.60 $0.45 $0.81 $0.57
Weighted average
shares outstanding
Basic 19,299 19,156 19,275 19,137
Diluted 19,688 19,371 19,672 19,324
Second Quarter Six Months
Ended June 30, Ended June 30,
Segment Information 2004 2003 2004 2003
Net Sales
North America $100,542 $96,361 $182,759 $168,573
Europe 19,574 17,835 40,770 36,816
International 25,648 23,154 48,091 43,626
TDS 50,937 66,727 91,876 130,341
Speedco 14,387 - 21,121 -
Total net sales $211,088 $204,077 $384,617 $379,356
Segment Operating Profit (Loss)
North America $16,176 $17,651 $21,630 $21,567
Europe (1,664) (281) 26 1,512
International 2,874 3,486 5,913 6,158
TDS (34) (2,430) (2,875) (6,482)
Speedco 1,754 - 2,657 -
Corporate expenses
& other (2,169) (5,421) (4,482) (6,566)
Net interest income 435 501 923 998
Earnings before income
taxes and
minority interest $17,372 $13,506 $23,792 $17,187
Note: Certain prior year amounts have been reclassified to conform with
the current year presentation.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
June 30, Dec. 31,
Condensed Consolidated Balance Sheets 2004 2003
Assets:
Cash and cash equivalents $130,492 $189,976
Investments 8,088 10,808
Accounts receivable - net 136,976 156,894
Inventories 69,859 62,765
Other current assets 92,696 77,533
Total current assets 438,111 497,976
Property, plant, and equipment - net 156,883 107,975
Other assets 78,370 54,578
Total assets $673,364 $660,529
Liabilities & shareholders' equity:
Accounts payable $32,633 $25,710
Income taxes payable 9,414 14,946
Accrued liabilities 94,809 97,285
Short-term notes payable and current portion
of other obligations 10,721 10,252
Total current liabilities 147,577 148,193
Long-term debt and other obligations 40,405 35,259
Minority interest 2,238 -
Shareholders' equity
Common stock 19,374 19,269
Additional paid-in capital 24,824 17,903
Retained earnings 478,612 477,499
Accumulated other comprehensive loss (39,666) (37,594)
Total shareholders' equity 483,144 477,077
Total liabilities & shareholders' equity $673,364 $660,529
Six Months
Ended June 30,
Condensed Consolidated Statements of Cash Flows 2004 2003
Operating Activities
Net earnings $15,913 $11,086
Provisions for depreciation and amortization 11,708 14,010
Decrease in operating assets and
liabilities - net 9,036 (4,991)
Net cash provided by operating activities 36,657 20,105
Investing Activities
Additions to property, plant and equipment (12,857) (8,647)
Purchases of investments - net 2,720 (2,133)
Payments for acquisitions of businesses (71,868) -
Proceeds from divestiture of businesses 882 11,115
Net cash provided by (used in)
investing activities (81,123) 335
Financing Activities
Principal payments on short-term notes
payable and other long-term liabilities (760) (31)
Cash dividends (12,567) (12,279)
Purchases of common stock (2,348) (110)
Stock options exercised 1,891 616
Net cash used in financing activities (13,784) (11,804)
Effect of exchange rate changes on cash and
cash equivalents (1,234) 3,906
Increase (decrease) in cash and
cash equivalents (59,484) 12,542
Cash and cash equivalents at beginning of year 189,976 129,412
Cash and cash equivalents at end of period $130,492 $141,954