MUSCATINE, Iowa, Oct. 17 /PRNewswire-FirstCall/ -- Bandag, Incorporated today reported consolidated net sales for third quarter 2006 of $260.2 million compared to consolidated net sales of $245.3 million in third quarter 2005, an increase of 6 percent. Consolidated net sales were positively impacted by approximately $2.9 million due to the effect of translating foreign currency denominated net sales into U.S. dollars. Consolidated net earnings were $9.2 million, or $0.47 per diluted share, for third quarter 2006, compared to third quarter 2005 consolidated net earnings of $18.7 million, or $0.95 per diluted share.
During third quarter 2006, Bandag incurred pre-tax expenses of $13.3 million, or $0.44 per diluted share, associated with the previously- announced closing of its manufacturing plant in Shawinigan, Quebec, the employment reduction programs in North America, as well as an employee reduction program in International. Estimated 2006 and 2007 pre-tax cost savings for the reduction of United States based employees remains within the guidance previously provided, which estimated a pre-tax savings of $5.0 to $7.0 million, or $0.16 to $0.23 per diluted share, for 2006 and annualized net pre-tax savings for 2007 of $16.0 million to $20.0 million, or $0.52 to $0.65 per share.
Consolidated net sales for the first nine months of 2006 were $719.8 million, an increase of 9 percent from consolidated net sales of $662.4 million in the first nine months of 2005. For the first nine months of 2006, Bandag reported consolidated earnings from continuing operations of $25.4 million, or $1.30 per diluted share, compared to consolidated net earnings of $37.4 million, or $1.90 per diluted share, in the same period of 2005. During the first quarter of 2006, Bandag recorded the previously announced deferred loss on the sale of its business in South Africa. As a result, for the first nine months of 2006, Bandag recorded a net loss on discontinued operations of $16.4 million, or $0.84 per diluted share, resulting in consolidated net earnings of $9.0 million, or $0.46 per diluted share.
In announcing third quarter results, Martin G. Carver, Bandag's Chairman and Chief Executive Officer, said, "Though North American volume in our traditional business was down due to the loss of distribution and ongoing competition from imported new tires, both TDS and Speedco delivered strong revenues and continue to benefit from the relatively strong commercial trucking activity. While it's too soon to see any benefits from lower crude oil prices on either our raw material or operating costs, Bandag has better aligned its operating costs with market needs."
Discussing the company's previously announced voluntary and involuntary reductions-in-force and the closing of a Canadian manufacturing facility, Mr. Carver said, "The benefits to Bandag from the changes we've made in our traditional business in North America are just beginning to emerge and are on track to contribute to fourth quarter results. Outside of North America, similar efforts are underway to identify excess costs, though we don't anticipate seeing the benefits of most of the reductions until 2007. In North America, as we've sharpened our focus on the basics of our business, Bandag Strategic Alliance dealers in both the U.S. and Canada have been supportive."
Financial Highlights
-- Factors that affected consolidated net sales for third quarter 2006
were:
- North American business unit volume decreased 6 percent compared to
third quarter 2005 while net sales remained even. Net sales were
positively impacted by approximately $1.1 million due to the effect
of translating foreign currency denominated net sales into U.S.
dollars and by a price increase in January 2006.
- European business unit volume decreased 3 percent and net sales
decreased 6 percent. Net sales were negatively impacted by a
decrease in fleet sales due to the loss of fleet contract business.
Net sales were positively impacted by approximately $0.3 million due
to the effect of translating foreign currency denominated net sales.
- International business unit volume decreased 11 percent and net
sales decreased 6 percent. Excluding South Africa, unit volume
increased 7 percent and net sales increased 11 percent. Net sales
were positively impacted by price increases and by approximately
$1.5 million due to the effect of translating foreign currency
denominated net sales into U.S. dollars.
- TDS net sales increased $9.2 million, or 19 percent, from the prior
year period. Net sales were positively impacted by increased unit
sales and higher prices.
- Vehicle Services business unit net sales increased $9.1 million, or
41 percent, primarily due to an increase in Speedco net sales of
$6.5 million compared to the prior year period. Same store Speedco
lube sales increased $2.8 million, or 14 percent, and same store
tire sales increased $0.1 million, or 7 percent. Same store revenue
is comprised of locations that have operated for twelve full months.
As of September 30, 2006 same store lube sales included 35 locations
and same store tire sales included 16 locations. Overall, Speedco
had 44 locations, 37 with tire service capabilities, as of September
30, 2006, compared to 35 locations, 17 with tire service
capabilities, at the same time last year. Truck Lube 1 which
provides light truck maintenance, was purchased in April 2006 and
contributed $2.4 million to third quarter net sales.
-- Third quarter 2006 consolidated gross margin declined by 4.1 percentage
points. Traditional Business gross margin declined 5 percentage
points. European business unit gross margin declined 3.1 percentage
points, primarily due to higher raw material costs and lower sales
volume. North American business unit gross margin declined 6.3
percentage points and International business unit gross margin declined
1 percentage point, primarily due to higher raw material costs.
Vehicle Services gross margin increased 2.5 percentage points.
-- Consolidated operating and other expenses for third quarter 2006 were
lower by $2.8 million, or 4 percent, compared to the prior year period.
Increases in Vehicle Services and TDS operating and other expenses were
offset by decreases in the North American, European and International
business units. North America operating and other expenses decreased
$4.0 million primarily due to reduction in workforce and spending
decreases due to the restructuring.
-- Consolidated restructuring expenses of $13.3 million were recorded in
the third quarter of 2006. The North American business unit recorded
$12.4 million in restructuring expense and the International business
unit recorded $0.9 million.
-- Capital expenditures were $58.6 million through September 30, 2006,
compared to $39.9 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 $5.7 million in the fourth quarter of 2006.
Outlook
Commenting on the outlook for the remainder of 2006, Mr. Carver said, "Overall, we're optimistic as we move into fourth quarter 2006 and prepare for 2007. Today, Bandag is leaner and more able to manage market change quickly and responsively than at any time in recent history. While uncertainties will continue in global economic conditions, we're confident that, as an organization, Bandag is in tune with dealers and fleet customers. That customer understanding guides us to take the right steps globally to strengthen the long-term prospects for Bandag and its dealers."
Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of more than 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. Tire Distribution, Inc. (TDS), a wholly-owned subsidiary, 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.
This press release contains "forward-looking" statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are based on certain assumptions, describe future expectations of Bandag, and are identifiable in this press release by the use of the words "estimated" and "expects." These statements are based on management's current projections, beliefs and opinions as of the date of this press release. They involve known and unknown risk and uncertainties, which may cause the actual results in the future to differ materially from expected results. Bandag's ability to predict results of the actual effect of future events is inherently uncertain. Factors which could affect the "forward-looking" statements include unanticipated delays or difficulties in achieving and sustaining the expected cost savings from the reduction in U.S. based employees; unanticipated increases or decreases in the expected fourth quarter charge of approximately $5.7 million for the reduction in workforce in the European business unit; and Bandag's ability to achieve and sustain expected improvements in its competitive position and management of its business.
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 2006 2005 2006 2005
Income
Net sales $260,166 $245,345 $719,836 $662,362
Other 1,845 1,512 7,730 4,660
262,011 246,857 727,566 667,022
Costs and expenses
Cost of products sold 175,874 155,742 490,001 429,046
Operating & other
expenses 61,306 64,128 190,980 183,808
Restructuring 13,330 0 13,504 0
250,510 219,870 694,485 612,854
Income from operations 11,501 26,987 33,081 54,168
Interest income 1,931 2,155 6,263 6,127
Interest expense (358) (431) (1,045) (1,516)
Earnings before income
taxes, minority
interest and
discontinued
operations 13,074 28,711 38,299 58,779
Income taxes 3,929 9,738 13,268 20,960
Minority interest (53) 249 (355) 394
Earnings from
continuing operations 9,198 18,724 25,386 37,425
Net loss on
discontinued
operations 0 - (16,356) -
Net earnings $9,198 $18,724 $9,030 $37,425
Basic earnings (loss)
per share
Earnings from
continuing
operations $0.48 $0.96 $ 1.31 $ 1.93
Net loss on
discontinued
operations - - (0.85) -
Net earnings $0.48 $0.96 $ 0.47 $ 1.93
Diluted earnings (loss)
per share
Earnings from
continuing
operations $0.47 $0.95 $ 1.30 $ 1.90
Net loss on
discontinued
operations - - (0.84) -
Net earnings $0.47 $0.95 $ 0.46 $ 1.90
Weighted average
shares outstanding
Basic 19,323 19,404 19,334 19,408
Diluted 19,445 19,673 19,510 19,697
Third Quarter Nine Months
Ended September 30, Ended September 30,
Segment Information 2006 2005 2006 2005
Net Sales
Traditional Business
North America $123,083 $123,534 $341,121 $325,236
Europe 20,031 21,409 57,899 62,177
International 29,479 31,091 84,159 91,912
TDS 56,418 47,265 152,364 122,863
Vehicle Services 31,155 22,046 84,293 60,174
Total net sales $260,166 $245,345 $719,836 $662,362
Segment Operating
Profit (Loss)
Traditional Business
North America $8,108 $24,310 $30,703 $47,889
Europe (847) (418) (2,550) 776
International 3,129 4,103 7,722 10,987
TDS 3,307 3,341 7,900 4,914
Vehicle Services 293 96 (1,497) 1,733
Corporate expenses
& other (2,489) (4,445) (9,197) (12,131)
Net interest income 1,573 1,724 5,218 4,611
Earnings before income
taxes and minority
interest $13,074 $28,711 $38,299 $58,779
Bandag, Incorporated
Unaudited Financial Highlights
(In thousands)
Sept. 30, Dec. 31,
Condensed Consolidated Balance Sheets 2006 2005
Assets:
Cash and cash equivalents $47,187 $97,071
Investments 67,100 60,150
Accounts receivable - net 169,403 174,017
Inventories 95,529 84,668
Other current assets 54,676 59,960
Total current assets 433,895 475,866
Property, plant, and equipment - net 245,272 209,640
Other assets 75,690 69,531
Total assets $754,857 $755,037
Liabilities & shareholders' equity:
Accounts payable $42,420 $45,794
Income taxes payable 1,379 2,477
Accrued liabilities 97,524 100,647
Short-term notes payable and current portion
of other obligations 12,600 15,351
Total current liabilities 153,923 164,269
Long-term debt and other obligations 26,778 24,061
Deferred income tax liabilities 5,908 4,771
Minority interest 1,411 2,779
Shareholders' equity
Common stock 19,419 19,436
Additional paid-in capital 44,213 37,191
Retained earnings 512,289 529,372
Accumulated other comprehensive loss (9,084) (26,842)
Total shareholders' equity 566,837 559,157
Total liabilities & shareholders' equity $754,857 $755,037
Nine Months
Ended September 30,
Condensed Consolidated Statements of Cash Flows 2006 2005
Operating Activities
Net earnings $9,030 $37,425
Non-cash translation adjustment due to sale
of South Africa 14,212 -
Provision for depreciation 20,178 19,160
(Increase) decrease in operating assets and
liabilities - net 1,910 (15,731)
Net cash provided by operating activities 45,330 40,854
Investing Activities
Additions to property, plant and equipment (58,581) (39,909)
(Purchases) maturities of investments - net (6,950) 30,015
Payments for acquisitions of businesses (8,091) -
Proceeds from divestiture of businesses 460 2,251
Net cash used in investing activities (73,162) (7,643)
Financing Activities
Principal payments on short-term notes
payable & other long-term liabilities (1,939) (2,378)
Cash dividends (19,554) (19,329)
Purchases of common stock (7,306) (4,852)
Stock options exercised 5,290 2,057
Excess tax benefits from share-based
compensation expense 212 -
Net cash used in financing activities (23,297) (24,502)
Effect of exchange rate changes on cash and
cash equivalents 1,245 3,305
Decrease in cash and cash equivalents (49,884) 12,014
Cash and cash equivalents at beginning of year 97,071 66,646
Cash and cash equivalents at end of period $47,187 $78,660
