Racing Champions Ertl To Acquire Learning Curve International
GLEN ELLYN, Ill.--Feb. 3, 2003--Racing Champions Ertl Corporation , a leading producer and marketer of innovative collectibles and toys, today announced they have signed a definitive purchase agreement to acquire Chicago-based Learning Curve International, Inc. Subject to regulatory approvals and other customary closing conditions, the acquisition is expected to close by March 15, 2003. The purchase agreement calls for closing consideration of $106.7 million of cash, less debt and capital leases, and 666,667 shares of Racing Champions Ertl's common stock. Additional consideration of up to $6.5 million may be earned based on achieved sales and margin targets for 2003. The majority of the stock consideration will be held by the founders and continuing management of Learning Curve International.
Learning Curve, the exclusive producer of Thomas the Tank Engine wooden and die-cast toy trains, was founded in 1993 by Dick Rothkopf and John Lee, the Company's current Chairman and President, respectively, who will retain their roles within Learning Curve International and serve as Executive Vice Presidents with Racing Champions Ertl. In addition, Dick Rothkopf is expected to join Racing Champions Ertl's Board of Directors.
Learning Curve develops and markets a variety of high-quality, award winning traditional children's toys for every stage of childhood from birth through age eight. Learning Curve products are often created with input from leading child development experts. Their product lines include Thomas & Friends, the top selling brand of expandable wooden toy railway systems in the U.S., and the recently introduced Take Along Thomas die-cast train series and play sets. Other products include Lamaze infant toys, Madeline dolls and accessories, Eden(R) plush, Feltkids(R) activity boards, and Lionel battery powered train systems.
Each product line contains age-graded educational and developmental toys that help children advance physically and cognitively and are dedicated to encouraging creative and imaginative play. Learning Curve is a leading supplier to independent specialty toy, train, gift and educational stores which account for approximately 40% of sales. In addition, about 50% of the Learning Curve's sales are made to chain retailers including toy and mid-tier mass chain stores, as well as juvenile, book, and department store chains. The remaining sales are through catalogers and internet retailers and as promotional incentives. In total, Learning Curve sells to more than 4,000 customers located in the U.S. and in key international markets.
Curt Stoelting, CEO of Racing Champions Ertl, said, "We are delighted to have reached agreement with Learning Curve. They have a great team of motivated business people who are leaders and innovators in the traditional children's toy industry. Learning Curve is a great fit as it further broadens Racing Champions Ertl's already diverse product lines, broad distribution channels and extensive licensing profile. We are extremely pleased that Dick Rothkopf and John Lee will be joining our already strong management team. Both bring tremendous industry experience and an entrepreneurial spirit consistent with that of Racing Champions Ertl."
Peter Henseler, President of Racing Champions Ertl, added, "We believe this acquisition will substantially improve Racing Champions Ertl's capabilities in the traditional children's toy business in the U.S. as well as in key international markets. Learning Curve is well positioned to produce and market a variety of high-quality branded and licensed toys designed, using proven play patterns, to support cognitive development and creative play. Because there is very little overlap in our product lines, this acquisition further strengthens our presence in both chain and independent stores. On a combined basis, we believe we will have one of the broadest customer bases in the industry."
Learning Curve's net sales for the year ended December 31, 2002 are estimated at approximately $137.2 million (unaudited) with estimated EBITDA, excluding non-recurring expenses, of $16.9 million (unaudited). After closing the transaction, the Company expects to achieve annual integration cost savings ranging from $5.0 million to $10.0 million over the first 18 months. The transaction is expected in be accretive to full year results in both 2003 and 2004 with the initial estimated EPS increases ranging from 6% to 12% in 2003. Due to the seasonal nature of sales in the first half of the year, the timing of the closing of the transaction and the timing of achieving cost savings, there could be some EPS dilution in the first half of 2003.
The Company plans to finance this transaction and future working capital needs with a new $140.0 million credit facility to be provided by a group of banks led by Harris Trust and Savings Bank. After closing the transaction, the funded debt to combined EBITDA ratio is expected to be less than two times.
Conference Call Information
Racing Champions Ertl will conduct a conference call today, Monday, February 3, 2003 at 4:00 pm CST. The call will be available live and in replay to all analysts/investors through a webcast service. To listen to the live call, go to www.vcall.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 Vcall and will be available until February 17.
Racing Champions Ertl (www.rcertl.com) is a leading producer and marketer of innovative collectibles and toys targeted at adult collectors and children. The Company's diverse product offerings include scaled die-cast replicas of John Deere agricultural equipment and NASCAR stock cars, other licensed vehicle replicas, pre-teen toys, sports trading cards, racing apparel, souvenirs and collectible figures. These products are sold under the Company's market-focused brand names, including Racing Champions(R), Ertl(R), Ertl Collectibles(R), American Muscle(TM), AMT(R), W. Britain(R), Press Pass(R) and JoyRide Studios(TM). The Company supports its brands and enhances the authenticity of its products by linking them with highly recognized licensed properties including NASCAR, NHRA, John Deere, Harley-Davidson, Case, Polaris, Honda, Caterpillar, Ford, GM, Chrysler, Texaco, Universal Studios, Warner Brothers, Hit Entertainment, Nintendo, Sega and Electronic Arts. The Company's products are marketed through multiple channels of distribution, including mass retailers and specialty and hobby wholesalers and retailers, OEM dealers and to corporate accounts for promotional purposes. The Company sells through more than 20,000 retail outlets located in North America, Europe and Asia Pacific.
Forward-looking Statements
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 acquisition of Learning Curve is subject to the satisfaction of a number of conditions, including the receipt of necessary regulatory approvals and other customary closing conditions, and no assurance can be given that the acquisition will be consummated or, if consummated, that the terms of the acquisition will be as presently contemplated; the Company may not be able to manufacture, source and ship new and continuing products on a timely basis; the Company is dependant upon timely shipping of product and unloading of product through West Coast ports as well as timely rail/truck delivery to the Company's warehouse and/or customer's warehouse; 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
EBITDA is defined as earnings before interest, taxes, depreciation and amortization and represents operating profit. 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 Ertl's profitability of liquidity as more fully discussed in the Company's financial statements and securities filings.