Bandag, Incorporated Reports 4th Quarter and Annual Results
Bandag, Inc.
Flash Results
(Numbers in Millions, Except Per Share Data)
Q4 2004 Q4 2003 12 Mos. 2004 12 Mos. 2003 Net sales $232.8 $225.7 $854.2 $816.4 Net earnings $30.8 $29.1 $66.9 $60.2 Diluted earnings per share $1.56 $1.50 $3.39 $3.11 Shares outstanding - diluted 19.8 19.5 19.7 19.4
MUSCATINE, Iowa, Jan. 31 -- Bandag, Incorporated today reported consolidated net sales for fourth quarter 2004 were $232.8 million, an increase of three percent compared to fourth quarter 2003 consolidated net sales of $225.7 million. Speedco, Bandag's on-highway quick-service truck lubrication subsidiary, which was acquired in the first quarter of 2004, contributed $16.9 million to fourth quarter 2004 net sales. Net sales were positively impacted by approximately $6.5 million due to the effect of translating foreign currency denominated net sales into U.S. dollars.
Consolidated net earnings were $30.8 million, or $1.56 per diluted share, for the fourth quarter of 2004, which compares to fourth quarter 2003 consolidated net earnings of $29.1 million, or $1.50 per diluted share. Net earnings for the fourth quarter of 2004 includes a gain of approximately $6.0 million ($3.7 million after tax, or $0.19 per diluted share), due to the sale of assets. Net earnings for the fourth quarter of 2004 were also favorably impacted by $6.4 million, or $0.32 per diluted share, for the resolution and reassessment of certain tax matters. Fourth quarter 2003 net earnings included favorable tax adjustments of $3.0 million, or $0.15 per diluted share, due to the resolution of certain tax matters.
For the full year 2004, Bandag reported consolidated net earnings of $66.9 million, or $3.39 per diluted share, compared to 2003 consolidated net earnings of $60.2 million, or $3.11 per diluted share. Consolidated net sales for 2004 increased five percent to $854.2 million from $816.4 million in 2003. Speedco contributed $55.1 million to net sales in 2004.
In announcing fourth quarter 2004 results, Martin G. Carver, Bandag's Chairman of the Board and Chief Executive Officer, said, "Bandag's fourth quarter tread shipments were down approximately ten percent, reflecting a combination of factors including the loss of the Roadway business, dealers in Europe and Brazil buying ahead of price increases announced in the third quarter and the reduction in the number of dealers in some markets. In addition, dealers in North America increased purchases in the fourth quarter of 2003 to take advantage of a year-end incentive program that was significantly modified in 2004. Purchases of new trucking equipment increased significantly in 2004. According to some analysts, large fleets have elected to replace rather than expand their capacity which may have adversely impacted the sale of retreads. Typically, an increase in new equipment purchases precedes increased demand for new and retread replacement tires by several months." Noting several challenging market factors such as higher raw material costs and Bandag distribution reductions in Europe and elsewhere, Mr. Carver said, "While fourth quarter tread volume was off approximately ten percent, full-year volume was off by less than one percent." He added that Bandag made significant strategic progress during the quarter, citing the company's December announcement of its new tire management outsourcing agreement with U.S. Xpress Leasing, Inc., the November opening of Speedco's first new full-service location and continued tire lane expansion of existing sites, and continued performance improvement at Tire Distribution Systems, Inc. (TDS), Bandag's tire distribution subsidiary.
Financial Highlights
-- Factors that affected consolidated net sales for the fourth quarter of
2004 as compared to the fourth quarter of 2003 were:
-- North America business unit volume and net sales decreased
nine percent, a portion of which is attributed to the loss of the
Roadway business. The North America business unit announced a
price increase effective December 1, 2004. The increase varies
between products and countries, but the weighted average
increases are approximately five percent.
-- Speedco net sales were $16.9 million for the quarter.
-- European business unit volume decreased fifteen percent and net
sales decreased one percent. Net sales were positively impacted
by approximately $4.3 million due to the effect of translating
foreign currency denominated net sales into U.S. dollars.
-- International business unit volume decreased eight percent while
net sales increased eight percent. Net sales were positively
impacted by price increases and by approximately $1.0 million due
to the effect of translating foreign currency denominated net
sales into U.S. dollars.
-- Net sales from TDS were $48.3 million, compared to $49.3 million
in the fourth quarter of 2003. In November 2004, TDS sold
fifteen Texas locations. These locations had net sales of
$59.6 million in 2004 prior to being sold, and $65.8 million for
the year ended December 31, 2003.
-- Fourth quarter 2004 consolidated gross margin declined by
three percentage points. The decrease in consolidated gross margin is
primarily due to the North America business unit gross margin
decreasing five percentage points, mostly due to an increase in raw
material costs.
-- Consolidated operating and other expenses for fourth quarter 2004 were
$8.4 million higher than the prior year period, primarily due to
$5.0 million in expense related to Speedco operations. Corporate
expense and other was negatively impacted by $1.7 million of net
foreign exchange losses related to U.S. dollar cash balances held
outside the United States, compared to a loss of $0.3 million in the
fourth quarter of 2003.
-- Other income was positively impacted by $6.0 million due to the gain
on sale of assets.
On January 20, 2005, Bandag notified the Securities and Exchange Commission through a filing of Form 8-K that reported earnings for fiscal years 1997 through 2002 will be restated to correct for an accounting error in 1997 and 1998 related to the acquisition of tire dealerships by TDS. The restatement will have no impact on Bandag's previously reported revenues or cash flows and will not change net earnings for fiscal years 2003 or 2004.
Commenting on the overall outlook for 2005, Mr. Carver said, "Even though 2004 had its challenges, we made considerable strategic progress, including the acquisition of an 87.5% interest in Speedco, and in demonstrating the strength and attractiveness of Bandag's fleet offerings. While strong trucking activity in North America is cause for optimism as we enter 2005, we continue to take a conservative view of the global economy given continued uncertainties concerning the strength of the U.S. dollar and the volatility of raw material costs."
Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of approximately 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% interest in Speedco, Inc., a provider of on-highway truck lubrication and routine tire services to commercial truck owner-operators and fleets.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands, except per share data)
Consolidated Fourth Quarter Twelve Months
Statements of Ended December 31, Ended December 31,
Earnings 2004 2003 2004 2003
Income
Net sales $232,783 $225,651 $854,193 $816,397
Other 7,786 1,795 13,760 6,954
240,569 227,446 867,953 823,351
Costs and expenses
Cost of products sold 144,038 133,482 536,116 508,139
Operating & other
expenses 67,299 58,915 249,828 233,744
211,337 192,397 785,944 741,883
Income from operations 29,232 35,049 82,009 81,468
Interest income 1,502 1,329 4,883 4,835
Interest expense (596) (666) (1,990) (2,403)
Earnings before income
taxes and minority
interest 30,138 35,712 84,902 83,900
Income taxes (793) 6,593 17,648 23,700
Minority interest 88 - 374 -
Net earnings $30,843 $29,119 $66,880 $60,200
Earnings per share
Basic $1.60 $1.52 $3.47 $3.14
Diluted $1.56 $1.50 $3.39 $3.11
Weighted average
shares outstanding
Basic 19,333 19,193 19,293 19,161
Diluted 19,795 19,451 19,707 19,369
Fourth Quarter Twelve Months
Ended December 31, Ended December 31,
Segment Information 2004 2003 2004 2003
Net Sales
North America $110,702 $121,380 $401,778 $399,939
Europe 28,168 28,403 90,689 83,064
International 28,714 26,587 105,866 93,667
TDS 48,268 49,281 200,795 239,727
Speedco 16,931 - 55,065 -
Total net sales $232,783 $225,651 $854,193 $816,397
Segment Operating
Profit (Loss)
North America $26,102 $29,957 $72,529 $78,524
Europe 2,456 2,402 2,789 3,442
International 4,177 4,049 14,886 13,102
TDS 818 1,598 1,506 (3,017)
Speedco 1,613 - 6,249 -
Corporate expenses
& other (5,934) (2,957) (15,950) (10,583)
Net interest income 906 663 2,893 2,432
Earnings before income
taxes and minority
interest $30,138 $35,712 $84,902 $83,900
Note: Certain prior year amounts have been reclassified to conform with
the current year presentation.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Dec. 31, Dec. 31,
Condensed Consolidated Balance Sheets 2004 2003
Assets:
Cash and cash equivalents $202,761 $189,976
Investments - 10,808
Accounts receivable - net 157,809 156,894
Inventories 69,892 62,765
Other current assets 55,793 78,733
Total current assets 486,255 499,176
Property, plant, and equipment - net 170,018 107,975
Other assets 74,454 50,136
Total assets $730,727 $657,287
Liabilities & shareholders' equity:
Accounts payable $33,138 $25,710
Income taxes payable 2,995 14,946
Accrued liabilities 104,559 97,285
Short-term notes payable and current portion
of other obligations 17,480 10,252
Total current liabilities 158,172 148,193
Long-term debt and other obligations 30,328 35,259
Deferred income tax liabilities 7,502 -
Minority interest 2,417 -
Shareholders' equity
Common stock 19,451 19,269
Additional paid-in capital 28,861 17,903
Retained earnings 513,152 474,257
Accumulated other comprehensive loss (29,156) (37,594)
Total shareholders' equity 532,308 473,835
Total liabilities & shareholders' equity $730,727 $657,287
Twelve Months
Ended December 31,
Condensed Consolidated Statements of Cash Flows 2004 2003
Operating Activities
Net earnings $66,880 $60,200
Provisions for depreciation and amortization 28,200 27,179
Decrease (increase) in operating assets and
liabilities - net (23) (9,257)
Net cash provided by operating activities 95,057 78,122
Investing Activities
Additions to property, plant and equipment (39,230) (16,265)
Sales of investments - net 10,808 3,453
Payments for acquisitions of businesses (73,460) -
Proceeds from divestiture of businesses 15,255 21,315
Proceeds from sale of tire and wheel assets 34,023 -
Net cash provided by (used in)
investing activities (52,604) 8,503
Financing Activities
Principal payments on short-term notes
payable and other long-term liabilities (7,368) (7,066)
Cash dividends (25,164) (24,595)
Purchases of common stock (2,844) (238)
Stock options exercised 4,154 1,300
Net cash used in financing activities (31,222) (30,599)
Effect of exchange rate changes on cash and
cash equivalents 1,554 4,538
Increase (decrease) in cash and
cash equivalents 12,785 60,564
Cash and cash equivalents at beginning of year 189,976 129,412
Cash and cash equivalents at end of period $202,761 $189,976