Bandag Reports Second Quarter Results

Bandag, Incorporated reported consolidated net sales for second quarter 2006 of $247.3 million compared to consolidated net sales of $227.3 million in second quarter 2005, an increase of nine percent. Consolidated net sales were positively impacted by approximately $4.1 million due to the effect of translating foreign currency denominated net sales into U.S. dollars. Consolidated net earnings were $10.5 million, or $0.54 per diluted share, for second quarter 2006, compared to second quarter 2005 consolidated net earnings of $12.7 million, or $0.65 per diluted share.

Consolidated net sales for the first six months of 2006 were $459.7 million, an increase of ten percent from consolidated net sales of $417.0 million in the first six months of 2005. For the first six months of 2006, Bandag reported consolidated earnings from continuing operations of $16.2 million, or $0.83 per diluted share, compared to consolidated net earnings of $18.7 million, or $0.95 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 six months of 2006, Bandag recorded a net loss on discontinued operations of $16.4 million, or $0.84 per diluted share, resulting in a consolidated net loss of $0.2 million, or $0.01 per diluted share.

In announcing second quarter 2006 results, Martin G. Carver, Bandag’s Chairman of the Board and Chief Executive Officer, said, “In Bandag’s traditional business, unit volume came in below 2005 levels, reflecting intense pressures from competitive retread tyres and low-priced new tyres. 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.”

“Tire Distribution Systems, Inc. (TDS), Bandag’s tyre distribution subsidiary, turned in a strong second quarter, delivering a second quarter sales increase of 25 percent,” said Carver. “TDS’ sales were strong and benefited from off-the-road tyre sales to companies in the construction and mining industries. 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 tyre sales, customer visits and sales per visit. Speedco plans to open six to eight locations in 2007 which compares to thirteen 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 tyre maintenance, and should lessen the impact on earnings, thus assuring that we’re building real growth in shareholder value.”

Financial Highlights

Factors that affected consolidated net sales for second quarter 2006 were:

– North American business unit volume decreased five percent while net sales increased
seven percent as compared to second quarter 2005. Net sales were positively impacted
by approximately $1.6 million due to the effect of translating foreign currency denominated
net sales into U.S. dollars and by price increases in May 2005 and January 2006.

– European business unit volume decreased four percent and net sales decreased fourteen
percent. Net sales were negatively impacted by intense competitive pressures and by
higher sales deductions.

– International business unit volume decreased nineteen percent and net sales decreased
twelve percent. Unit volume and net sales were negatively impacted by 15 percent and 17
percent, respectively, due to the sale of the South African operations. Net sales were
positively impacted by price increases and by approximately $2.5 million due to the effect
of translating foreign currency denominated net sales into U.S. dollars.

– TDS net sales increased $10.6 million, or 25 percent, from the prior year period. Net sales
were positively impacted by increased unit sales and higher prices.

– Speedco, together with TruckLube1, acquired in the second quarter, are now combined
into one segment, Vehicle Services. TruckLube1, which provides light truck maintenance,
was purchased in April 2006 and contributed $2.4 million to second quarter net sales.
Vehicle Services business unit net sales increased 44 percent primarily due to an increase
in Speedco net sales of $6.1 million compared to the prior year period. Same store
Speedco lube sales increased $2.2 million, or 11%, and same store tyre sales increased
$0.3 million, or 23%. Same store revenue is comprised of locations that have operated for
twelve full months. As of June 30, 2006 same store lube sales included 34 locations and
same store tyre sales included eleven locations. Overall, Speedco had 41 locations, 32
with tyre service capabilities, as of June 30, 2006, compared to 35 locations, 13 with tyre
service capabilities, at the same time last year.

– Second quarter 2006 consolidated gross margin declined by 3.6 percentage points. Vehicle
Services gross margin declined 2.8 percentage points, primarily due to expenses associated
with the start-up of new Speedco stores and the addition of tyre lanes to existing stores.
Traditional business gross margin declined 4.4 percentage points. European business unit
gross margin declined eleven percentage points, primarily due to higher raw material costs,
lower sales volume and a manufacturing shut-down to reduce inventory levels. North
American business unit gross margin declined 4.2 percentage points and International
business unit gross margin declined 2.3 percentage points, primarily due to higher raw
material costs.

– Consolidated operating and other expenses for second quarter 2006 were $2.4 million, or four percent higher than the prior year period. Speedco operating and other expenses increased $2.5 million, primarily related to the additional stores and tyre lanes.

– Capital expenditures were $44.5 million through June 30, 2006, compared to $26.2 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.

Outlook

Commenting on the outlook for the second half of 2006, Martin Carver said, “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. 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. TDS and Speedco are both expected to benefit from continued underlying strength in the trucking industry.”

Bandag, Incorporated manufactures retreading materials and equipment for its worldwide network of more than 900 franchised dealers that produce and market retread tyres and provide tyre management services. Bandag’s traditional business serves end-users through a wide variety of products offered by dealers, ranging from tyre retreading and repairing to tyre management systems outsourcing for commercial truck fleets. TDS sells and services new and retread tyres. In addition, Bandag has an 87.5% interest in Speedco, Inc., a provider of on-highway truck lubrication and routine tyre services to commercial truck owner-operators and fleets.