Bandag announces a 3% decrease in net sales in 2001

Jan. 26, 2002

Bandag Inc. reported consolidated net sales of $965 million and net earnings of $43.8 million in 2001. Sales were down 3% and earnings were down 27% compared to 2000.

For the quarter ended Dec. 31, 2001, Bandag posted earnings of $17.4 million, a 17.5% increase over the same period in 2000.

Bandag's fourth-quarter results included a non-recurring pretax charge of $3.4 million representing the cost of closing its manufacturing facility in Chino, Calif.; realigning its North American sales force; and instituting a "provision for certain post-retirement health care costs for terminated employees, partially offset by the reduction of other accrued expenses."

Consolidated net sales for the fourth quarter 2001 declined 1.4% to $249.2 million.

"Strong fourth quarter results in Bandag's North American traditional business, where net sales increased 5% over fourth quarter 2000, were offset by a weak performance in its offshore operations," said Martin Carver, chairman and CEO.

"Gross margin improved by six percentage points

during the fourth quarter in Bandag's traditional North American business, but this was largely offset by operating expense increases due primarily to changes in provisions relating to litigation."

Carver says he was encouraged by the level of business activity at Bandag dealerships during the fourth quarter, even though there appeared to have been some fourth quarter hedge-buying by North American dealers as a result of a dealer incentive program, the magnitude of which cannot be estimated. The purchases could result in reduced first quarter 2002 purchases, he added.

"Bandag equipment sales remained relatively

strong in the fourth quarter, pushing 2001 full-year equipment sales to the highest level in recent years."

Commenting on Tire Distribution Systems Inc. (TDS), Bandag's tire distribution subsidiary, Carver said, "TDS sales improved for the quarter

by 4% from prior-year levels, while gross margin increased by 0.5 percentage points. But operating and other expenses increased by 12%, offsetting the increase in sales and gross margin.

"TDS moves into 2002 with its sights clearly set on internal process improvements and

operating expense reductions. Overall, we believe TDS is well-positioned to benefit from improvements in the transportation sector."

Commenting on the future, Carver said, "While there still exists a high degree of uncertainty in the economic outlook for 2002, by December, it appeared from several indicators that the recent oversupply of new replacement tires was

beginning to work its way through the distribution channel.

"New tire producers, which had cut production capacity throughout 2001, announced new tire price increases, indicating reduced supply. In addition, we began to see some of the lowest casing prices in several years, which indicated a coming influx of tire casings readily available for retreading, along with initial signs of improvement in the retread vs. new tire sales mix at the dealer level during the fourth quarter.

"Thus, Bandag continues to view market conditions cautiously and doesn't expect the economy will begin to recover before the

second half of the year."