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Bandag's sales rise, earnings fall in 3Q

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Bandag Inc. posted consolidated net earnings of $18.7 million on consolidated net sales of $245.3 million for third quarter ended Sept. 30, 2005. That compares to earnings of $20.1 million on sales of $239.3 million for the same period a year ago.

Third-quarter consolidated gross margin declined by 2.1 percentage points.

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," according to the company. Other factors that affected third-quarter results include the following, listed by geographical business unit:

* In North America, unit volume increased 2% and net sales increased 11% as compared to third quarter 2004. Net sales also were positively impacted by price increases in December 2004 and May 2005.

Tire Distribution Systems Inc. (TDS) sales declined $13.4 million from the prior year period, reflecting the divestitures of some stores during 2004. The divested locations had net sales of approximately $19.2 million in the third quarter of 2004. TDS' gross margin increased 3.3 percentage points.

Speedco sales increased $5 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 27 tire lanes.

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.

* In Europe, unit volume decreased 7% and net sales decreased 2%. Net sales were positively impacted by a September 2004 price increase.

(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 million in the fourth quarter.)

* Bandag's international business unit volume decreased 17% while net sales increased 7%. All international operations experienced a decrease in volume except for South Africa and Asia, with Brazil experiencing the largest decrease of approximately 30%. 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.

Commenting on the 7% decrease in earnings and 2.5% increase in sales, Chairman and CEO Martin Carver 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."

For the first nine months of 2005, Bandag reported consolidated net earnings of $37.4 million on consolidated net sales of $662.4 million. That compares to earnings of $36 million on sales of $629.2 million for the first nine months of 2004.

"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," says Carver. "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's common stock closed at $42.65 a share on the New York Stock Exchange on Oct. 19. That compares to a 52-week high of $50.83 and low of $41.34. Bandag's Class A common stock closed at $36.82 a share versus a 52-week high of $46.69 and low of $35.91.

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