Racing Champions Reports 2000 Third Quarter Results
25 October 2000
Racing Champions Reports 2000 Third Quarter Results; Profitability Shows Continued Improvement
GLEN ELLYN, Ill.--Oct. 24, 2000--Racing Champions today reported results for the third quarter and nine months ended September 30, 2000.Net sales for the third quarter were $65.8 million compared with $82.6 million for the third quarter a year ago. Sales were lower in the quarter compared to the prior year quarter, due to discontinued non-profitable product lines and lower NASCAR sales. Gross margin increased to 48.0% from 42.8% in the 1999 third quarter, reflecting continued improvements in product costs because of better product sourcing and the elimination of lower margin product lines. Operating expenses as a percentage of sales were 26.8% versus 30.4% a year ago, reflecting the full impact of the integration of operations and continued tight expense control. Operating income increased 39% to $13.0 million compared with $9.3 million, in the prior year quarter. Interest expense was $3.3 million versus $2.6 million in the year ago quarter, reflecting higher interest rates associated with the Company's credit facility.
The Company reported net income of $4.9 million or $0.33 per diluted share in the third quarter compared with $3.9 million or $0.23 per diluted share in the same quarter a year ago. Weighted average shares outstanding for the third quarter for earnings per share calculations were 14.9 million in 2000 and 16.7 million in 1999. Total outstanding shares as of September 30, 2000 were approximately 14.7 million.
For the nine months ended September 30, 2000, net sales were $161.3 million compared with $175.4 million for the comparable period in 1999. Operating income increased 133% to $18.2 million compared with $7.8 million in the year ago period. Net income was $5.0 million or $0.33 per diluted share for the nine months of 2000, versus net income of $1.4 million or $0.08 per diluted share in the same period a year ago. The results for 1999 reflect $6.4 million in restructuring and other charges.
During the third quarter, the Company completed negotiations with its bank group to restructure the terms of its credit facility. Under the amended terms of the agreement, the Company can borrow up to $20.0 million on its revolving loan, based upon levels of the Company's accounts receivable and inventory. At September 30, 2000, there was $8.0 million outstanding on the revolving loan and the Company held $9.0 million in cash and cash equivalents. The amended term loan, with a balance of $106.1 million at September 30, 2000, requires lower quarterly principal payments ranging from $3.1 million to $4.0 million per quarter with a final balloon payment on April 1, 2003. All borrowings under the credit facility are secured by substantially all of the assets of the Company and the facility maturity date is set at April 1, 2003.
The term loan and the revolving loan bear interest, at the Company's option, at an alternate base rate plus a margin that varies between 0.15% and 1.75% or at a LIBOR rate plus margin that varies between 0.90% and 3.50%. The applicable margin is based on the Company's leverage ratio of consolidated debt to consolidated EBITDA. Based on the Company's improved leverage ratio at September 30, 2000, the applicable margin was reduced to 3.25% for LIBOR contracts and 1.50% for alternate base rate contracts. At September 30, 2000 the Company was in compliance with all financial covenants including leverage ratio, minimum EBITDA and maximum capital expenditures.
The Company continues to focus on internal operating discipline, seeking to maximize operating cash flow and working capital, while maintaining tight control of expenditures and inventories. The Company's operations have provided cash of $15.3 million during the nine months ended September 30, 2000. Also, during the third quarter the Company reduced outstanding debt by $11.1 million.
Bob Dods, Chairman and Chief Executive Officer said, "We are pleased to report our second consecutive profitable quarter in what continues to be a lackluster retailing environment. Improving Racing Champions profitability is one of our highest priorities. We are in a difficult retail environment and have been very proactive in taking action. We believe we have been a leader in the industry in this regard and our aggressive steps to reduce costs and expenses, streamline operations, improve working capital, reduce headcount and maximize cash flow have all yielded positive results."
Dods continued, "Technology has also played an important role in enabling us to discover new ways to bring products to market faster and to interact with our customers in a more timely and efficient manner. In this regard, we continue to develop and deploy web-based sales and marketing tools which we believe will generate incremental sales for Racing Champions."
Dods added, "Year to date sales of our non-racing collectible die-cast and preschool products increased over $9 million from last year. We continued to release new models of our Ertl Precision Series(TM) agricultural die-cast replicas, American Muscle(TM) die-cast vehicle replicas and model kits and Ertl Preschool(TM) licensed Toy Books and Push `N' Rolls, all of which have been well received in the marketplace."
Dods concluded, "While the retail environment and industry trends remain uncertain, we think we have taken steps to maintain future profitability while continuing to develop longer-term sales opportunities and distribution channels for Racing Champions, particularly in non-mass retail areas."
The Company's Annual Report and SEC filings, as well as news releases are available by accessing the Company's website at www.racingchampions.com.
The Company's quarterly earnings conference call will be held at 3:45 p.m. CDT on Tuesday, October 24, and is available live and in replay to all investors through the Internet by accessing www.vcall.com or www.streetevents.com.
Racing Champions Corporation and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
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2000 1999 2000 1999
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 65,831 $ 82,631 $ 161,336 $ 175,390
Cost of sales 34,219 47,250 88,064 97,834
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Gross profit 31,612 35,381 73,272 77,556
Selling, general and
administrative
expenses 17,673 25,090 52,227 60,753
Amortization of
intangible assets 947 947 2,848 2,578
Restructuring and
other - - - 6,400
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Operating income 12,992 9,344 18,197 7,825
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Interest expense 3,271 2,563 8,562 5,144
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Other expense 526 9 209 78
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Income before income
taxes 9,195 6,772 9,426 2,603
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Income tax expense 4,266 2,897 4,383 1,209
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Net income 4,929 3,875 5,043 1,394
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EBITDA, excluding
non-recurring items $ 16,127 $ 15,808 $ 28,342 $ 26,886
EPS:
Net income per share
Basic $ 0.34 $ 0.24 $ 0.34 $ 0.09
Diluted $ 0.33 $ 0.23 $ 0.33 $ 0.08
Weighted average
shares outstanding
Basic 14,662 16,417 14,882 16,245
Diluted 14,879 16,694 15,113 16,611
Selected Consolidated Balance Sheet Data
September 30, 2000 June 30, 2000 September 30, 1999
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(Unaudited) (Unaudited) (Unaudited)
Cash and cash
equivalents $9,015 $20,718 $13,995
Accounts receivable,
net 56,412 40,519 65,871
Inventory, net 25,176 28,793 39,534
Accounts payable and
accrued expenses 38,150 34,707 49,226
Line of credit 8,000 16,000 27,000
Notes payable 106,125 109,250 115,000
Stockholders' equity $103,336 $97,933 $106,469
Note: Data includes The Ertl Company, Inc. from the acquisition date,
April 13, 1999, forward. As this acquisition was accounted for under
the purchase method of accounting, periods prior to the acquistion
date do not include any amounts for The Ertl Company, Inc.