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October 11, 1999 02:00 AM

EARNINGS SLUMP HAS BANDAG RESTRUCTURING: CLOSING OF TREAD PLANT EXPECTED

Vera Fedchenko
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    MUSCATINE, Iowa—Bandag Inc. will likely close its Muscatine tread rubber plant as part of a company-wide reduction of 180 jobs. The Muscatine-based retread materials and equipment supplier will make a final decision on the Muscatine facility's future in the next two to four weeks, but that plant is likely to be shut down, a company spokesman said. The firm already has notified the United Steelworkers of America of its plans.

    The 100,000-sq.-ft. Muscatine unit employs about 100, including 75 production workers, the company said.

    In July, Bandag announced it would eliminate more than 100 manufacturing and administrative jobs—including 34 in Muscatine.

    Between the plant closure and the previously announced cutbacks, Bandag said it expects to reduce the work force by 180.

    Besides the Muscatine facility, Bandag operates five tread rubber plants in North America: Chino, Calif.; Abilene, Texas; Oxford, N.C.; Griffin, Ga.; and Shawinigan, Quebec.

    No single factor is influencing Bandag's probable decision to close the Muscatine plant, the spokesman said. The firm is considering several factors—production costs, transportation and logistics costs and plant capability.

    Bandag is hopeful that the number of permanent layoffs will be reduced through a voluntary early retirement option, CEO Martin Carver said.

    The Muscatine plant closure comes on the heels of a Sept. 30 announcement that Bandag expects its 1999 earnings to fall 20 to 25 percent below analysts' estimates of $2.72 per share—which would be approximately $59.5 million to $59.7 million, based on about 21.9 million shares outstanding as of June 30.

    Bandag also projected its third-quarter earnings to be even with 1998 and in line with consensus estimates of 78 cents per share, which would be approximately $17.1 million.

    The company attributed its falling earnings to higher than expected expense levels in its start-up subsidiary, Tire Management Solutions Inc., and a non-recurring fourth-quarter pre-tax charge of approximately $15 million for the restructuring of its North American operations, which the firm will implement during the fourth quarter of 1999.

    It expects to save approximately $14.5 million annually before taxes after the restructuring.

    Bandag's need to restructure in North America is a result of slowing demand for its products, Mr. Carver said. He placed a large share of the blame on Michelin North America Inc.'s ``excessively aggressive tactics'' in signing former large Bandag dealerships as a key cause of decreasing demand for the firm's products.

    On Sept. 16, Bandag filed a lawsuit against Michelin, accusing the tire maker of using illegal tactics to injure Bandag's business and eliminate it as a competitor.

    Bandag's restructuring is limited to its core business of manufacturing tread rubber and equipment for retreading, Mr. Carver said. The firm in 1998 completed restructuring of its European and Asian operations and most recently consolidated the central and eastern divisions of its TDS subsidiary.

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