Bandag, Inc. (NYSE: BDG and BDGA)
Flash Results
(Numbers in Millions, Except Per Share Data)
Q3 2005 Q3 2004 9 Mos. 2005 9 Mos. 2004
Net sales $245.3 $239.3 $662.4 $629.2
Net earnings $18.7 $20.1 $37.4 $36.0
Diluted earnings per share $0.95 $1.02 $1.90 $1.83
MUSCATINE, Iowa, Oct. 19 - Bandag, Incorporated (NYSE: BDG and BDGA) today reported consolidated net earnings of $18.7 million, or $0.95 per diluted share, for third quarter 2005, compared to third quarter 2004 consolidated net earnings of $20.1 million, or $1.02 per diluted share. Consolidated net sales for third quarter 2005 were $245.3 million, an increase of 2.5 percent, compared to consolidated net sales of $239.3 million in third quarter 2004. Net sales in 2005 were positively impacted by approximately $5.1 million due to the effect of translating foreign currency denominated net sales into U.S. dollars.
For the first nine months of 2005, Bandag reported consolidated net earnings of $37.4 million, or $1.90 per diluted share. This compares to consolidated net earnings of $36.0 million, or $1.83 per diluted share, in the same period of 2004. Consolidated net sales for the first nine months of 2005 were $662.4 million, an increase of five percent from consolidated net sales of $629.2 million in the first nine months of 2004.
In announcing third quarter results, Martin G. Carver, Bandag's Chairman and Chief Executive Officer, said, "While we experienced growth in North American tread volume during the quarter, results from Bandag's European and International businesses declined, primarily due to competitive pressures in individual markets."
Financial Highlights
-- Factors that affected consolidated net sales for third quarter 2005
were:
-- North America business unit volume increased two percent and net
sales increased eleven percent as compared to third quarter 2004.
Net sales were positively impacted by price increases in December
2004 and May 2005.
-- European business unit volume decreased seven percent and net
sales decreased two percent. Net sales were positively impacted
by a September 2004 price increase.
-- International business unit volume decreased seventeen percent
while net sales increased seven percent. All international
operations experienced a decrease in volume except for South
Africa and Asia, with Brazil experiencing the largest decrease of
approximately thirty percent. Net sales were positively impacted
by price increases and by approximately $3.9 million due to the
effect of translating foreign currency denominated net sales into
U.S. dollars.
-- Tire Distribution Systems, Inc. (TDS) sales declined $13.4 million
from the prior year period, reflecting the divestitures during
2004. The divested locations had net sales of approximately
$19.2 million in the third quarter of 2004.
-- Speedco sales increased $5.0 million compared to the prior year
period. Net sales were positively impacted by an increase in
volume at existing locations, the addition of three facilities and
the addition of twenty-seven tire lanes.
-- Third quarter 2005 consolidated gross margin declined by 2.1
percentage points. Speedco's gross margin declined 7.2 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 3.3 percentage points. Traditional business gross
margin declined 4.3 percentage points, primarily due to higher raw
material costs and a decline in the profitability of fleet contract
business.
-- Consolidated operating and other expenses for third quarter 2005 were
$0.5 million lower than the prior year period. North American
business unit operating and other expenses were negatively impacted
by a $1.6 million impairment charge on fixed assets.
-- Interest income increased $0.8 million, primarily due to an increase
in interest rates.
-- Capital expenditures were $39.9 million through September 30, 2005,
compared to $25.4 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.
-- Subsequent to the end of the third quarter, the European business
unit announced a reduction in workforce and expects to record related
charges of approximately $5.0 million in the fourth quarter of 2005.
Outlook
Commenting on the outlook for the remainder of the year, Mr. Carver said, "It was an eventful quarter, particularly in North America where two hurricanes raised havoc with critical oil well and oil refining operations that supply materials for production of our tread products. I am quite proud of the Bandag team that quickly took precautions against the potential impact of these storms to assure our tread manufacturing operations an uninterrupted flow of raw materials in the fourth quarter. Nevertheless, the impact of the hurricanes reduces the likelihood that the raw material and energy price volatility will subside anytime soon. While we are cautious about the continuing strength of the global economy, we carefully monitor energy and raw material prices and manage our business to minimize their impact on Bandag's operations around the world."
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 Third Quarter Nine Months
Statements of Ended September 30, Ended September 30,
Earnings 2005 2004 2005 2004
Income
Net sales $245,345 $239,311 $662,362 $629,172
Other 1,512 2,076 4,660 4,722
246,857 241,387 667,022 633,894
Costs and expenses
Cost of products sold 155,742 146,803 429,046 398,087
Operating & other
expenses 64,128 64,676 183,808 183,030
219,870 211,479 612,854 581,117
Income from operations 26,987 29,908 54,168 52,777
Interest income 2,155 1,339 6,127 3,381
Interest expense (431) (275) (1,516) (1,394)
Earnings before income
taxes and minority
interest 28,711 30,972 58,779 54,764
Income taxes 9,738 10,757 20,960 18,441
Minority interest 249 91 394 286
Net earnings $18,724 $20,124 $37,425 $36,037
Earnings per share
Basic $0.96 $1.04 $1.93 $1.87
Diluted $0.95 $1.02 $1.90 $1.83
Weighted average shares
outstanding
Basic 19,404 19,285 19,408 19,278
Diluted 19,673 19,690 19,697 19,677
Third Quarter Nine Months
Ended September 30, Ended September 30,
Segment Information 2005 2004 2005 2004
Net Sales
Traditional Business
North America $123,534 $110,835 $325,236 $298,838
Europe 21,409 21,751 62,177 62,521
International 31,091 29,061 91,912 77,152
TDS 47,265 60,651 122,863 152,527
Speedco 22,046 17,013 60,174 38,134
Total net sales $245,345 $239,311 $662,362 $629,172
Segment Operating
Profit (Loss)
Traditional Business
North America $24,310 $24,797 $47,889 $46,427
Europe (418) 307 776 333
International 4,103 4,796 10,987 10,709
TDS 3,341 3,563 4,914 688
Speedco 96 1,979 1,733 4,636
Corporate expenses &
other (4,445) (5,534) (12,131) (10,016)
Net interest income 1,724 1,064 4,611 1,987
Earnings before income
taxes and minority
interest $28,711 $30,972 $58,779 $54,764
Note: Certain prior year amounts have been reclassified to conform with
the current year presentation.
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Sept. 30, Dec. 31,
Condensed Consolidated Balance Sheets 2005 2004
Assets:
Cash and cash equivalents $78,660 $66,646
Investments 106,100 136,115
Accounts receivable - net 176,937 157,809
Inventories 83,951 69,892
Other current assets 53,696 55,793
Total current assets 499,344 486,255
Property, plant, and equipment - net 191,982 170,018
Other assets 73,866 74,454
Total assets $765,192 $730,727
Liabilities & shareholders' equity:
Accounts payable $40,106 $33,138
Income taxes payable 12,774 2,995
Accrued liabilities 97,934 104,580
Short-term notes payable and current
portion of other obligations 17,860 17,845
Total current liabilities 168,674 158,558
Long-term debt and other obligations 32,296 29,963
Deferred income tax liabilities 4,714 7,502
Minority interest 2,597 2,417
Shareholders' equity
Common stock 19,517 19,452
Additional paid-in capital 36,164 28,839
Retained earnings 526,271 513,152
Accumulated other comprehensive loss (25,041) (29,156)
Total shareholders' equity 556,911 532,287
Total liabilities & shareholders' equity $765,192 $730,727
Nine Months
Ended September 30,
Condensed Consolidated Statements of Cash Flows 2005 2004
Operating Activities
Net earnings $37,425 $36,037
Provision for depreciation 19,160 18,198
(Increase) decrease in operating assets
and liabilities - net (15,731) 14,367
Net cash provided by operating activities 40,854 68,602
Investing Activities
Additions to property, plant and equipment (39,909) (25,393)
Sales (purchases) of investments - net 30,015 (28,557)
Payments for acquisitions of businesses - (72,682)
Proceeds from divestiture of businesses 2,251 1,946
Proceeds from sale of tire and wheel assets - 34,023
Net cash used in investing activities (7,643) (90,663)
Financing Activities
Principal payments on short-term notes
payable and other long-term liabilities (2,378) (763)
Cash dividends (19,329) (18,862)
Purchases of common stock (4,852) (2,477)
Stock options exercised 2,057 2,500
Net cash used in financing activities (24,502) (19,602)
Effect of exchange rate changes on cash and
cash equivalents 3,305 46
Increase (decrease) in cash and
cash equivalents 12,014 (41,617)
Cash and cash equivalents at beginning of year 66,646 100,326
Cash and cash equivalents at end of period $78,660 $58,709
Note: Certain prior year amounts have been reclassified to conform with
the current year presentation.
