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Bandag posts 2Q net earnings of $10.5 million

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Bandag Inc. reported consolidated net earnings of $10.5 million on consolidated net sales of $247.3 million for the second quarter ended June 30, 2006. That compares to net earnings of $12.7 million on net sales of $227.3 million in second quarter of 2005.

North American business unit volume decreased 5% while net sales increased 7% compared to the same period in 2005. European business unit volume decreased 4% and net sales decreased 14%.

"In Bandag's 'traditional business,' unit volume came in below 2005

levels, reflecting intense pressures from competitive retread tires and low-priced new tires," says Chairman and CEO Martin Carver. "Also,

margin pressure from continued increases in raw material prices again outpaced the effect of product price increases.

"To address these and other fundamental changes, we initiated several programs globally to simplify our operations and reduce costs. These programs include closing our Shawinigan, Quebec, production facility, freezing our U.S. and Canadian pension plans, and announcing a

workforce reduction program to eliminate approximately 175 jobs in North America.

"Overall, we anticipate that the steps we're taking in our traditional business globally will simplify our operations

and reduce our cost structure, better aligning operations with the forces shaping today's markets and our dealers' needs," he says.

Bandag's Tire Distribution Systems Inc. (TDS) and Speedco Inc. subsidiaries turned in positive 2Q performances.

* TDS' net sales of $53.5 million were an increase $10.6 million, or 25%, compared to the prior year period. Net sales were positively impacted by increased unit sales and higher prices. Specifically, sales benefited from off-the-road tire sales to companies in the construction and mining industries, according to Carver.

* Speedco's net sales at its 41 locations totalled $27.1 million, up $6.1 million compared to the prior year period. Same-store lube sales increased $2.2 million, or 11%, and same-store tire sales increased $300,000, or 23%. (Same-store revenue is comprised of locations that have operated for 12 full months. As of June 30, 2006, same-store lube sales were based on 34 locations, while same-store tire sales were based on 11 locations.)

Speedco, together with TruckLube1, were combined into one segment, "Vehicle Services," during the second quarter. TruckLube1, which provides light truck maintenance, was purchased in April 2006 and contributed $2.4 million to second quarter net sales.

"At Speedco, investment in new on-highway locations reduced its operating contribution significantly, even though the business continued to deliver real growth in terms of lube and tire sales, customer visits and sales per visit," says Carver. "Speedco plans to open six to eight locations in 2007, which compares to 13 locations scheduled to open in 2006.

"The moderated 2007 expansion schedule should assure that the business continues to deliver both superior quality service and real growth in lube service and routine tire maintenance, and should lessen the impact on earnings, thus assuring that we're building real growth in shareholder value."

Bandag's consolidated net sales for the first six months of 2006 were $459.7 million, an increase of 10% from consolidated net sales of $417 million in the first six months of 2005.

In the first quarter of 2006, Bandag reported a net loss of $12.6 million on consolidated net sales of $212.4 million. Earnings from continued operations were $5.7 million. (During the first quarter of 2006, Bandag recorded the previously announced deferred $16.4 million loss on the sale of its business in South Africa.)

"As you would expect, several of the actions initiated during the second quarter will negatively impact the last half of 2006,

particularly the third quarter," says Carver. "Though we don't anticipate any relief from rising raw material costs globally, we're hopeful that our simplified operations and slimmer cost structure will begin to offset the impact of the rising raw material costs in 2007."

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