Bandag, Incorporated Reports 4th Quarter EPS of $0.62
Bandag, Inc.
Flash Results
(Numbers in Millions, Except Per Share Data)
Q4 2005 Q4 2004 12 Mos. 2005 12 Mos. 2004
Net sales $252.3 $235.2 $914.6 $864.3 Net earnings $12.1 $30.8 $49.5 $66.9 Diluted earnings per share $0.62 $1.56 $2.52 $3.39
MUSCATINE, Iowa, Feb. 1 -- Bandag, Incorporated today reported consolidated net sales for fourth quarter 2005 of $252.3 million, an increase of seven percent, compared to consolidated net sales of $235.2 million in fourth quarter 2004. Net sales in fourth quarter 2005 were positively impacted by approximately $3.5 million due to the effect of translating foreign currency denominated net sales into U.S. dollars.
Consolidated net earnings were $12.1 million, or $0.62 per diluted share, for fourth quarter 2005, compared to fourth quarter 2004 consolidated net earnings of $30.8 million, or $1.56 per diluted share. Net earnings for the fourth quarter of 2004 included 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.
For full year 2005, Bandag reported consolidated net sales of $914.6 million compared to consolidated net sales in 2004 of $864.3 million. Consolidated net earnings for 2005 were $49.5 million, or $2.52 per diluted share, compared to 2004 consolidated net earnings of $66.9 million, or $3.39 per diluted share.
In announcing fourth quarter 2005 results, Martin G. Carver, Bandag's Chairman of the Board and Chief Executive Officer, said, "Bandag's tread volume increased one percent in fourth quarter compared to 2004 and was even for the year compared to 2004. Multiple price increases in the North American, European and International business units could not keep pace with unprecedented volatility in raw materials costs, which exerted pressure on margins."
"Continued strength in the transportation, mining and construction markets throughout the year was clearly evident in the robust performance at Tire Distribution Systems, Inc. (TDS), Bandag's tire distribution subsidiary. And, while Speedco continued to generate strong sales, the earnings contribution was slowed by aggressive investment in new stores and the addition of tire lanes to existing stores," said Mr. Carver.
Financial Highlights
-- Factors that affected consolidated net sales for fourth quarter 2005
were:
- North American business unit volume increased two percent and net
sales increased eight percent as compared to fourth quarter 2004.
Net sales were positively impacted by price increases in December
2004 and May 2005. Net sales were also positively impacted by
approximately $1.1 million due to the effect of translating foreign
currency denominated net sales into U.S. dollars.
- European business unit volume increased four percent and net sales
increased four percent. Net sales were positively impacted by a
September 2004 price increase. Net sales were negatively impacted
by approximately $1.2 million due to the effect of translating
foreign currency denominated net sales into U.S. dollars.
- International business unit volume decreased four percent while net
sales increased fourteen percent. All international operations
experienced a decrease in volume except for Mexico and Asia. Net
sales were positively impacted by price increases and by
approximately $3.6 million due to the effect of translating foreign
currency denominated net sales into U.S. dollars.
- TDS sales declined $2.6 million from the prior year period,
reflecting the divestitures during 2004. The divested locations had
net sales of approximately $9.3 million in the fourth quarter of
2004.
- Speedco sales increased $5.6 million compared to the prior year
period. Net sales were positively impacted by an increase in volume
at existing locations, the addition of two facilities and the
addition of tire lanes to eighteen existing facilities.
-- Fourth quarter 2005 consolidated gross margin declined by 5.1
percentage points. Speedco's gross margin declined 8.9 percentage
points, primarily due to expenses associated with the start-up of new
stores and the addition of tire lanes to existing stores. TDS' gross
margin increased 2.1 percentage points. Traditional business gross
margin declined 6.9 percentage points, primarily due to higher raw
material costs and a decline in the profitability of fleet contract
business. North American business unit gross margin declined 8.5
percentage points. Since the beginning of 2004 the North American
business unit has experienced increases of approximately 33% and 27% in
raw material costs for tread and cushion, respectively. The gross
margin impact of the rising raw material costs was partially offset by
price increases. Continued margin pressure is expected in 2006.
-- Consolidated operating and other expenses for fourth quarter 2005 were
$3.8 million higher than the prior year period. European business unit
operating and other expenses were negatively impacted by approximately
$3.1 million for charges related to a reduction in workforce. Speedco
operating and other expenses increased $2.8 million primarily
related to the additional stores and tire lanes.
-- Consolidated interest income increased $0.5 million and $3.2 million
for the quarter and year-to-date periods ended December 31, 2005,
respectively, from the prior year periods, primarily due to an increase
in interest rates.
-- Capital expenditures were $63.4 million through December 31, 2005,
compared to $39.2 million for the same period last year. The increase
in capital expenditures is primarily due to expenditures made by
Speedco for new facilities and expansions of tire lanes at existing
facilities.
Outlook
Commenting on the overall outlook for 2006, Mr. Carver said, "Unprecedented increases in energy prices and rapid globalization of the tire industry are clear evidence that the business norms we have managed to are quickly changing. TDS and Speedco act as bellwethers for Bandag, providing useful insight to the direction and trends in the trucking and off-the-road markets for commercial tires. Both indicate that the trucking economy remains vibrant, giving us confidence in the continued strength of Bandag, Speedco and TDS to take advantage of opportunities in the marketplace. Nevertheless, we are well aware of the more volatile aspects of the business, particularly raw material costs, and we are inclined to manage conservatively in order to minimize their impact on Bandag and the Bandag Strategic Alliance of Dealers."
Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of approximately 900 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)
Fourth Quarter Twelve Months
Consolidated Statements Ended December 31, Ended December 31,
of Earnings 2005 2004 2005 2004
Income
Net sales $252,278 $235,171 $914,640 $864,343
Other 1,639 7,583 6,299 12,305
253,917 242,754 920,939 876,648
Costs and expenses
Cost of products sold 169,387 145,869 598,433 543,956
Operating & other expenses 71,483 67,653 255,291 250,683
240,870 213,522 853,724 794,639
Income from operations 13,047 29,232 67,215 82,009
Interest income 1,963 1,502 8,090 4,883
Interest expense (435) (596) (1,951) (1,990)
Earnings before income
taxes and minority
interest 14,575 30,138 73,354 84,902
Income taxes 1,994 (793) 22,954 17,648
Minority interest 527 88 921 374
Net earnings $12,054 $30,843 $49,479 $66,880
Earnings per share
Basic $0.62 $1.60 $2.55 $ 3.47
Diluted $0.62 $1.56 $2.52 $ 3.39
Weighted average shares
outstanding
Basic 19,350 19,333 19,393 19,293
Diluted 19,591 19,795 19,671 19,707
Fourth Quarter Twelve Months
Ended December 31, Ended December 31,
Segment Information 2005 2004 2005 2004
Net Sales
Traditional Business
North America $122,198 $113,090 $447,434 $411,928
Europe 29,221 28,168 91,398 90,689
International 32,666 28,714 124,578 105,866
TDS 45,659 48,268 168,522 200,795
Speedco 22,534 16,931 82,708 55,065
Total net sales $252,278 $235,171 $914,640 $864,343
Segment Operating Profit (Loss)
Traditional Business
North America $15,137 $26,102 $63,026 $72,529
Europe (1,038) 2,456 (262) 2,789
International 3,834 4,177 14,821 14,886
TDS 1,670 818 6,584 1,506
Speedco (1,152) 1,613 581 6,249
Corporate expenses & other (5,404) (5,934) (17,535) (15,950)
Net interest income 1,528 906 6,139 2,893
Earnings before income
taxes and minority
interest $14,575 $30,138 $73,354 $84,902
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 2005 2004
Assets:
Cash and cash equivalents $97,071 $66,646
Investments 60,150 136,115
Accounts receivable - net 174,017 157,809
Inventories 84,668 69,892
Other current assets 59,960 55,793
Total current assets 475,866 486,255
Property, plant, and equipment - net 209,640 170,018
Other assets 69,531 74,454
Total assets $755,037 $730,727
Liabilities & shareholders' equity:
Accounts payable $45,794 $33,138
Income taxes payable 2,477 2,995
Accrued liabilities 100,647 104,580
Short-term notes payable and current
portion of other obligations 15,351 17,845
Total current liabilities 164,269 158,558
Long-term debt and other obligations 24,061 29,963
Deferred income tax liabilities 4,771 7,502
Minority interest 2,779 2,417
Shareholders' equity
Common stock 19,436 19,452
Additional paid-in capital 37,191 28,839
Retained earnings 529,372 513,152
Accumulated other comprehensive loss (26,842) (29,156)
Total shareholders' equity 559,157 532,287
Total liabilities & shareholders' equity $755,037 $730,727
Twelve Months
Ended December 31,
Condensed Consolidated Statements of Cash Flows 2005 2004
Operating Activities
Net earnings $49,479 $66,880
Provision for depreciation 26,302 27,182
(Increase) decrease in operating assets
and liabilities - net (18,798) 1,023
Net cash provided by operating activities 56,983 95,085
Investing Activities
Additions to property, plant and equipment (63,428) (39,230)
Sales (purchases) of investments - net 75,965 (46,465)
Payments for acquisitions of businesses (2,978) (73,488)
Proceeds from divestiture of businesses 2,251 15,255
Proceeds from sale of tire and wheel assets - 34,023
Net cash (provided by) used in investing
activities 11,810 (109,905)
Financing Activities
Principal payments on short-term notes payable
and other long-term liabilities (16,938) (7,368)
Proceeds from short-term notes payable 6,645 -
Cash dividends (25,774) (25,164)
Purchases of common stock (8,053) (2,844)
Stock options exercised 2,235 4,154
Net cash used in financing activities (41,885) (31,222)
Effect of exchange rate changes on cash
and cash equivalents 3,517 1,554
Increase (decrease) in cash and cash
equivalents 30,425 (44,488)
Cash and cash equivalents at beginning of year 66,646 111,134
Cash and cash equivalents at end of period $97,071 $66,646
Note: Certain prior year amounts have been reclassified to conform with
the current year presentation.