Bandag Inc. today reported consolidated net income of $8.7 million for the second quarter of 2003 compared to second quarter 2002 consolidated net income of $11.7 million, a decrease of 26%.
Second quarter 2003 results were reduced by approximately $2.2 million ($1.4 million after tax), due to net foreign exchange losses resulting primarily from revaluing funds held in U.S. dollars outside the United States into local currencies, which had strengthened relative to the U.S. dollar, the company said.
Second quarter 2003 results were also reduced by approximately $1.5 million ($1 million after tax) in net charges related to Bandag's distribution subsidiary, Tire Distribution Systems Inc. (TDS), for store divestitures and a real estate impairment charge, Bandag added.
In addition, second quarter 2003 results benefited by $0.02 per share as a result of there being fewer shares outstanding at the end of the quarter. In comparison, second quarter 2002 results were reduced by charges of approximately $5.7 million ($3.6 million after tax) related to litigation expense.
Consolidated net sales for second quarter 2003 were $204.1 million, a decline of approximately 12%, compared to consolidated net sales of $231.1 million in the prior year period.
For the first six months of 2003, Bandag reported consolidated net income of $11.1 million. This compares to a consolidated net loss of $1.67 per diluted share for the first six months of 2002, which included the write-off of $47.3 million net of income tax, or $2.29 per diluted share, related to the adoption of SFAS 142 as of Jan. 1, 2002.
Results for the first six months of 2003 were impacted by approximately $2.4 million ($1.5 million after tax) due to net foreign exchange losses as well as approximately $1.3 million ($0.8 million after tax) in net charges related to TDS divestitures and real estate impairment charges.
In comparison, results for the first six months of 2002 were reduced by charges of approximately $9.7 million ($6.1 million after tax) related to litigation expense and $2.2 million ($1.4 million after tax) related to converting SystemBandag users to the RoadWare(TM) software system.
Consolidated net sales for the first six months of 2003 decreased by 11% to $379.4 million, which compares to consolidated net sales of $423.6 million in the prior year period.
In announcing second quarter results, Martin Carver, chairman of the board and CEO, said, "Worldwide, the anticipated, but absent, second quarter turnaround and weaker U.S. dollar were key factors in the decline in Bandag's second quarter earnings performance.
"In North America, the truck tire replacement market remained soft due to generally flat trucking freight volumes. In Europe, after a relatively strong start in the first quarter, performance gave way to slower sales during the second quarter."
Addressing the performance of TDS, Carver said, "TDS same-store sales were down somewhat, but relatively consistent with overall Bandag dealer purchase patterns. Following our strategy, TDS continued to selectively divest locations during the quarter, which further tightens its market focus while strengthening the capability of the Bandag Strategic Alliance to serve its fleet customers.
"Despite the difficult economic conditions, our dealers continue to invest in their businesses. Sales of new equipment and technology have clearly signaled our dealers' continued confidence in their future. In the face of a challenging business climate, Bandag and its Alliance are building a stronger, more capable distribution channel."
Bandag's financial highlights:
* Consolidated net sales for second quarter 2003 were $204.1 million,compared to consolidated net sales of $231.1 million in the second quarter of 2002, a decline of approximately 12%. Affecting the decline were several factors:
1. There was soft retread demand, which reflected the generally flat freight traffic experienced by many major North American fleets, and pressure from new replacement truck tires in the traditional retread market.
2. The 2002 year-end opportunity buying by North American dealers appears to have resulted in lower demand through the end of May, but also appears to have finally worked its way through the Bandag distribution channel.
3. Despite a slight decline in volume, European sales were 20% higher compared to second quarter 2002, reflecting the effects of a stronger Euro when translated into U.S. dollars.
4. International tread rubber volume declined by 13%; however, the effect after currency translation and sales price increases was only a 3% decline in sales compared to 2002 second quarter sales.
5. There was a general softening of economic conditions in many major overseas markets during second quarter 2003.
6. Divestitures at TDS also contributed to the decline in sales, but were partly offset by lower intercompany sales eliminations.
* Operating and other expenses were $63.2 million, a decline of 10% from expenses of $70.6 million in the prior-year period. Second quarter 2002 operating results included legal expenses of approximately $5.7 million related to litigation.
* North American business experienced a 6% decline in tread rubber volume during second quarter 2003, due primarily to flat freight volumes and pressure from new replacement truck tires in the retread market.
* Overall, during second quarter 2003, North American operating profit decreased by approximately 30%, or $6.9 million, from second quarter 2002 levels, primarily as a result of lower production volumes, higher raw material costs and increased fleet-related sales deductions.
* After a good first quarter 2003, Europe experienced a decrease in tread rubber volume of approximately 1% and net foreign exchange losses that resulted in a European operating loss of approximately $0.7 million for second quarter 2003. This compares to an operating profit of approximately $0.4 million in second quarter 2002.
* After a strong first quarter in both Brazil and Mexico, International experienced tread rubber volume declines -- 19% and 6%, respectively -- during second quarter 2003. Net foreign exchange losses also affected international results, which produced an operating profit of $2.4 million for second quarter 2003 compared to an operating profit of
$4.3 million in second quarter 2002.
* TDS second quarter 2003 sales declined 32% to $66.7 million, primarily due to the 2002 and 2003 divestitures and closures. These divested or closed locations had sales of approximately $36.3 million in the second quarter of 2002. The locations that were divested or closed in 2003 contributed $7.9 million to second quarter 2003 sales.
* For second quarter 2003, TDS recorded an operating loss of $2.4 million which includes charges of $1.5 million for divestitures and a real estate impairment charge. This compares to an operating loss of $1.4 million in second quarter 2002.
