Racing Champions Continues Profitable Results in 2001 Second Quarter; Higher Gross Margins, Lower Operating and Interest Expenses Drive Performance
GLEN ELLYN, Ill.--July 24, 2001--Racing Champions today announced profitable results for the second quarter and six months ended June 30, 2001. The Company earned $0.14 per diluted share as compared with $0.06 per share in the year ago second quarter. For the first six months the Company earned $0.19 per diluted share as compared with $0.01 per diluted share in the first half of 2000.The Company's continuing focus on improving margins and reducing costs as well as lower interest expense resulted in net income for the second quarter of $2.1 million compared with net income of $0.9 million in the year ago quarter. Net sales for the second quarter were $43.1 million compared with $50.1 million for the second quarter a year ago, primarily due to lower sales of die-cast collectible products and due to lower sales of inventory liquidations. Gross margin for the 2001 second quarter increased to 53.5% from 45.6%. The Company continued to make progress in its efforts to eliminate lower margin product sales, reduce product costs and achieve a more favorable mix of higher margin product sales during the quarter. Operating expenses were $16.3 million versus $17.9 million a year ago reflecting continued efforts to control expenses in light of lower sales levels. Operating income increased by 46.8% to $5.8 million compared with $4.0 million in the year ago quarter, while EBITDA was up 20.6% to $8.9 million. Cash flow from operations was $5.9 million in the second quarter of 2001, up from $2.8 million in the second quarter of 2000.
For the six months ended June 30, 2001, net sales were $79.5 million compared with $95.5 million for the comparable period in 2000. Gross profit margin increased to 50.7% from 43.6% in the previous year. Operating income increased 79.0% to $9.3 million compared with $5.2 million in the year ago period. Net income was $2.9 million for the first six months of 2001, versus net income of $0.1 million in the same period a year ago. Year-to-date, the Company has generated approximately $19.7 million in operating cash flow as a result of tight control of expenditures and focused management of working capital.
Interest expense for the second quarter was $1.7 million compared with $2.9 million in the year ago quarter and $3.9 million for the first six months of 2001 compared with $5.3 million in the first six months of 2000. Debt was reduced by $6.5 million in the quarter, as a result of scheduled and voluntary payments on its credit facility, bringing 2001 year-to-date payments to $13.6 million. The Company also voluntarily reduced the committed amount on its revolving line of credit by $5.0 million, from $20.0 million to $15.0 million. There have been no amounts outstanding on this revolving line of credit during 2001. As of June 30, 2001 the Company had approximately $16.0 million in cash, had a debt to EBITDA ratio of less than two times and was in compliance with all financial covenants under its credit facility.
The Company's Board of Directors has authorized an open market discretionary stock purchase program. The authorization is for a term of one year and allows the Company to purchase up to $5.0 million of its outstanding common stock.
Bob Dods, Chairman and Chief Executive Officer said, "We are very pleased with Racing Champions' operating results and the Company's increased profitability. We continue to operate in a difficult retail environment but have taken actions on an ongoing basis to enhance gross margins and reduce product costs while maintaining tight control over operating expenses."
Dods added, "We have also focused on maintaining a strong balance sheet, with an emphasis on maximizing working capital and increasing cash flow. Our pay-down of debt in the first six months is almost equal to the required payments for the current year under the Company's credit facility, and lower debt levels as well as lower interest rates have resulted in reduced interest expense for the Company."
Dods stated, "Our wide channels of distribution have been a positive with 66.5% of our sales made to non-mass retail customers in the quarter. Increased product sales of our Precision Agricultural, Ford Precision 100 and trading cards, apparel and souvenirs has helped offset lower sales of products in some of our other die-cast collectible lines. We have also experienced lower sales of inventory liquidations to date in 2001 versus the prior year."
Dods continued, "We have a number of new products currently shipping. These include Outdoor Sportsman(TM), a new line of licensed collectible figures, die-cast recreational and outdoor sports vehicles and related equipment and Little Muscle(TM), a line of kid-friendly die-cast and plastic push and roll vehicles targeted to pre-schoolers and officially licensed by GM, Ford and Chrysler."
Dods also commented, "We are extremely pleased that Racing Champions has entered into a multi-year extension and expanded the scope of our licensing agreement with Deere & Company, the world's leading producer of agricultural, construction and other work equipment. The agreement gives Racing Champions worldwide rights to produce under its Ertl brand, a wide range of toy and collectible products based on both past and present products manufactured by Deere. It also allows the products to be distributed worldwide through John Deere dealer networks as well as through independent retailers and traditional direct marketing channels."
Consistent with results through June 30, 2001, net sales increases versus the prior year are not expected in the second half of 2001. Despite lower net sales, improved margins and lower operating and interest expenses are expected to result in EPS for the second half of 2001 comparable to the EPS achieved in the last two quarters of 2000 of $0.48, excluding the special charge taken in the fourth quarter of 2000. Based on the timing of orders and shipments, there may be some shifting of sales and profits between the last two quarters of 2001. The Company expects to continue to achieve positive cash flows and continued debt reductions, which are expected to further strengthen its balance sheet.
Founded in 1989, Racing Champions (www.rcertl.com) is a leading producer and marketer of innovative collectibles and toys sold in multiple channels of distribution and available at more than 20,000 retail outlets. The Company sells American Muscletm collectible die-cast vehicle replicas, NASCAR and NHRA die-cast racing replicas, officially licensed die-cast and preschool products of automobiles, trucks, agricultural, heavy equipment and powered-recreational and outdoor sports vehicles, AMT(R) model kits, Press Pass(R) trading cards and NASCAR souvenirs and apparel. High-profile licensing partners include NASCAR, NHRA, John Deere, Case, Polaris, Honda, Caterpillar, Ford, GM, Chrysler, Texaco, Warner Brothers and Gullane Entertainment (Thomas).
The Company's quarterly earnings conference call will be held at 4:45 p.m. EST on Tuesday, July 24, and is available live and in replay to all analysts/investors through a webcast service. To listen to the live call, go to www.streetevents.com at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, replays will be available shortly after the call on Streetevents.
Certain statements contained in this release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend," "may," "planned," "potential," "should," "will" and "would." Such forward-looking statements are inherently subject to known and unknown risks and uncertainties. The Company's actual results and future developments could differ materially from the results or developments expressed in, or implied by, these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to, the following: the Company may not be able to manufacture, source and ship new and continuing products on a timely basis and customers and consumers may not accept those products at prices sufficient for the Company to profitably recover development, manufacturing, marketing, royalty and other costs; the inventory policies of retailers, together with increased reliance by retailers on quick response inventory management techniques, may increase the risk of underproduction of popular items, overproduction of less popular items and failure to achieve tight shipping schedules; competition in the markets for the Company's products may increase significantly; the Company is dependent upon continuing licensing arrangements with vehicle manufacturers, agricultural equipment manufacturers, major race sanctioning bodies, race team owners, drivers, sponsors, agents and other licensors; the Company may experience unanticipated negative results of litigation; the Company relies upon a limited number of independently owned factories located in China to manufacture a significant portion of its vehicle replicas and certain other products; the Company is dependent upon the continuing willingness of leading retailers to purchase and provide shelf space for the Company's products; and general economic conditions in the Company's markets. Such uncertainties and other operational matters are discussed further in the Company's quarterly and annual filings with the Securities and Exchange Commission. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this release or to update them to reflect events or circumstances occurring after the date of this release.
EBITDA (earnings before interest, taxes, depreciation and amortization) represents operating profit plus non-recurring and other charges. EBITDA is not adjusted for all non-cash expenses or for working capital, capital expenditures or other investment requirements and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. Thus, EBITDA should not be considered in isolation or as a substitute for net earnings or cash provided by operating activities, each prepared in accordance with generally accepted accounting principles, when measuring Racing Champions' profitability of liquidity as more fully discussed in the Company's financial statements and securities filings.
Racing Champions Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 43,077 $ 50,078 $ 79,533 $ 95,505
Cost of sales 20,042 27,234 39,242 53,845
---------- ---------- ---------- ----------
Gross profit 23,035 22,844 40,291 41,660
Selling, general
and administrative
expenses 16,353 17,920 29,271 34,554
Amortization of
intangible assets 851 953 1,702 1,901
---------- ---------- ---------- ----------
Operating income 5,831 3,971 9,318 5,205
Interest expense 1,677 2,923 3,920 5,291
Other expense
(income) 489 (284) 466 (317)
---------- ---------- ---------- ----------
Income before
income taxes 3,665 1,332 4,932 231
Income tax expense 1,539 407 2,072 117
---------- ---------- ---------- ----------
Net income $ 2,126 $ 925 $ 2,860 $ 114
========== ========== ========== ==========
EBITDA,
excluding
non-recurring
items $ 8,948 $ 7,420 $ 15,561 $ 12,216
EPS:
Net income per share
Basic $ 0.14 $ 0.06 $ 0.19 $ 0.01
Diluted $ 0.14 $ 0.06 $ 0.19 $ 0.01
Weighted average
shares outstanding
Basic 14,686 14,663 14,677 14,993
Diluted 15,121 14,889 15,080 15,228
Selected Consolidated Balance Sheet Data
June 30, 2001 March 31, 2001 June 30, 2000
------------- -------------- -------------
(Unaudited) (Unaudited) (Unaudited)
Cash and cash equivalents $16,139 $18,887 $20,718
Accounts receivable, net 28,854 29,614 40,519
Inventory, net 25,444 19,849 28,793
Accounts payable
and accrued expenses 33,869 30,443 34,707
Line of credit 0 0 16,000
Notes payable 83,425 89,925 109,250
Stockholders' equity $107,602 $105,264 $97,933