<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 13, 1999
RACING CHAMPIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
--------------------------------------------------------
(State or other jurisdiction or incorporation)
0-22635 36-4088307
---------------------------- -------------------------------
(Commission File Number) (I.R.S. Employer I.D. Number)
800 Roosevelt Road
Building C, Suite 320
Glen Ellyn, Illinois 60137
----------------------------------------------- ------------------------
(Address of Principal Executive Offices) (Zip Code)
630-790-3507
-----------------------------------------------------------------
(Registrant's telephone number; including area code)
<PAGE> 2
Item 7. Financial Statements and Exhibits.
The following financial statements are filed herewith.
(a) Financial statements of business acquired. Combined Financial
Statements of the Ertl Group:
Report of Independent Auditors
Combined Balance Sheets as of September 30, 1998 and 1997
Combined Statements of Operations for the years ended September 30,
1998, 1997 and 1996
Combined Statements of Changes in Invested Capital for the years
ended September 30, 1998, 1997 and 1996
Combined Statements of Cash Flows for the years ended September 30,
1998, 1997 and 1996
Notes to Combined Financial Statements
(b) Pro Forma financial information.
Pro Forma Combined Statement of Operations for the year ended
December 31, 1998
Pro Forma Combined Statement of Operations for the three months
ended March 31, 1999
Pro Forma Balance Sheet as of March 31, 1999
Exhibits
The following exhibit is filed herewith:
Exhibit 23.1 - Consents of Ernst & Young LLP
2
<PAGE> 3
Combined Financial Statements
The Ertl, Group
Years ended September 30, 1998, 1997 and 1996
with Report of Independent Auditors
3
<PAGE> 4
The Ertl Group
Combined Financial Statements
Years ended September 30, 1998, 1997 and 1996
Contents
<TABLE>
<S> <C>
Report of Independent Auditors .....................................................................5
Audited Financial Statements
Combined Balance Sheets.............................................................................6
Combined Statements of Operations...................................................................7
Combined Statements of Changes in Invested Capital..................................................8
Combined Statements of Cash Flows...................................................................9
Notes to Combined Financial Statements..............................................................10
</TABLE>
4
<PAGE> 5
Report of Independent Auditors
The Board of Directors
The Ertl Group
We have audited the accompanying combined balance sheets of The Ertl Group as of
September 30, 1998, 1997 and 1996, and the related combined statements of
operations, changes in invested capital, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of The Ertl Group at
September 30, 1998, 1997 and 1996, and the combined results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
October 28, 1998
ERNST & YOUNG LLP
5
<PAGE> 6
The Ertl Group
Combined Balance Sheets
<TABLE>
<CAPTION>
September 30
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 571 $ 2,407 $ 914
Trade receivables, net 43,038 49,944 47,992
Inventories, net 50,168 57,252 46,077
Deferred income taxes 6,283 3,954 4,764
Other current assets 4,081 3,169 2,908
--------- --------- ---------
Total current assets 104,141 116,726 102,655
Property, plant and equipment, net 29,871 36,145 37,889
Other assets 1,958 3,585 1,918
Goodwill, net 45,908 47,744 44,445
--------- --------- ---------
47,866 51,329 46,363
--------- --------- ---------
$ 181,878 $ 204,200 $ 186,907
========= ========= =========
Liabilities and invested capital
Current liabilities:
Trade accounts payable $ 16,977 $ 17,829 $ 14,646
Accrued expenses and other liabilities 13,012 18,448 10,322
Foreign income taxes payable 481 1,751 1,069
--------- --------- ---------
Total current liabilities 30,470 38,028 26,037
Deferred income taxes 3,203 4,197 4,353
Other liabilities 5,615 3,686 2,894
--------- --------- ---------
Total liabilities 39,288 45,911 33,284
Commitments and contingencies
Invested capital:
Invested capital including notes payable of
$132,000 to Existing Stockholder in 1998,
1997 and 1996 145,365 159,523 154,832
Currency translation adjustment (1,172) (935) (842)
Minimum pension liability adjustment (1,603) (299) (367)
--------- --------- ---------
Total invested capital 142,590 158,289 153,623
--------- --------- ---------
$ 181,878 $ 204,200 $ 186,907
========= ========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
The Ertl Group
Combined Statements of Operations
<TABLE>
<CAPTION>
Year ended September 30
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Net sales $ 175,742 $ 194,911 $ 194,792
Cost of sales 110,057 117,896 125,917
--------- --------- ---------
Gross profit 65,685 77,015 68,875
Advertising and merchandising 9,967 9,112 22,287
Royalties and research and development costs 14,145 14,491 15,191
Selling, administration and distribution 32,109 34,856 30,632
Management fees 3,126 -- --
Restructuring and other related costs 8,870 -- --
--------- --------- ---------
Operating income (loss) (2,532) 18,556 765
Interest expense to Existing Stockholder 8,580 8,896 10,380
Interest income (340) (158) (189)
Gain on sale of investment (5,973) -- --
--------- --------- ---------
Income (loss) before income taxes (4,799) 9,818 (9,426)
Provision (benefit) for income taxes (3,042) 3,297 (3,683)
--------- --------- ---------
Net income (loss) $ (1,757) $ 6,521 $ (5,743)
========= ========= =========
</TABLE>
See accompanying notes.
7
<PAGE> 8
The Ertl Group
Combined Statements of Changes in Invested Capital
<TABLE>
<CAPTION>
Minimum
Currency Pension Total
Invested Translation Liability Invested
Capital Adjustment Adjustment Capital
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at October 1, 1995 $ 159,595 $ (635) $ (525) $ 158,435
Net loss (5,743) -- -- (5,743)
Net transactions with parent 980 -- -- 980
Translation adjustments -- (207) -- (207)
Minimum pension liability
adjustments -- -- 158 158
--------- --------- --------- ---------
Balance at September 30, 1996 154,832 (842) (367) 153,623
Net loss 6,521 -- -- 6,521
Net transactions with parent (1,830) -- -- (1,830)
Translation adjustments -- (93) -- (93)
Minimum pension liability
adjustments -- -- 68 68
--------- --------- --------- ---------
Balance at September 30, 1997 159,523 (935) (299) 158,289
Net loss (1,757) -- -- (1,757)
Net transactions with parent (12,401) -- -- (12,401)
Translation adjustments -- (237) -- (237)
Minimum pension liability
adjustment -- -- (1,304) (1,304)
--------- --------- --------- ---------
Balance at September 30, 1998 $ 145,365 $ (1,172) $ (1,603) $ 142,590
========= ========= ========= =========
</TABLE>
See accompanying notes.
8
<PAGE> 9
The Ertl Group
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended September 30
1998 1997 1996
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (1,757) $ 6,521 $ (5,743)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 13,395 12,705 10,936
Provision for deferred income taxes (3,323) 654 3,087
Restructure charge relating to impairment of
fixed assets 2,630 -- --
Loss (gain) on disposals of property, plant and
equipment (67) 38 (31)
Gain on sale of investment (5,973) -- --
Changes in operating assets and liabilities
excluding the effects of acquisition:
Decrease in trade receivables 6,906 659 3,990
(Increase) decrease in inventories 7,084 (11,175) (2,219)
(Increase) decrease in other assets 715 (420) 1,422
Increase (decrease) in trade accounts payable (852) 3,183 (1,335)
Increase (decrease) in accrued expenses and
other liabilities (6,706) 8,808 (2,191)
Increase (decrease) in other liabilities 625 (648) (477)
------------ ------------ ------------
Net cash provided by operating activities 12,677 20,325 7,439
Investing activities
Purchases of property, plant and equipment (9,067) (8,071) (8,730)
Proceeds from sale of property, plant and
equipment 989 146 139
Proceeds from sale of investment 5,973 -- --
Acquisition of company, net of cash received 230 (8,984) --
------------ ------------ ------------
Net cash used in investing activities (1,875) (16,909) (8,591)
Financing activities
Net invested capital transactions with parent (12,401) (1,830) 980
------------ ------------ ------------
Net cash provided by (used in) financing activities (12,401) (1,830) 980
Effect of exchange rate changes on cash (237) (93) (207)
------------ ------------ ------------
Net increase (decrease) in cash (1,836) 1,493 (379)
Cash at beginning of year 2,407 914 1,293
------------ ------------ ------------
Cash at end of year $ 571 $ 2,407 $ 914
Supplemental disclosures
Cash paid during period for:
Interest $ 8,580 $ 8,896 $ 10,380
</TABLE>
See accompanying notes.
9
<PAGE> 10
The Ertl Group
Notes to Combined Financial Statements
(Dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying combined financial statements of The Ertl Group include all of
the operations, assets and liabilities of The Ertl Company, Inc., Ertl (Hong
Kong) Ltd., Ertl Europe, Ltd., Britains Petite Limited (acquired in April 1997,
see Note 6), Ertl de Mexico, S.A. de C.V., Ertl Italia S.r.l. (inactive), and
Ertl Canada, collectively referred to herein as the "Company". At September 30,
1998, these entities are all indirect, wholly-owned subsidiaries of U.S.
Industries, Inc. (USI). All significant intercompany accounts and transactions
of combined companies have been eliminated.
The Company manufactures agricultural toys, miniature die-cast metal toys,
custom imprint collectibles, model kits and, prior to fiscal 1997, promotional
toys. The Company distributes its products worldwide through wholly-owned
distribution facilities and a network of distributors.
2. ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest to September 30. The
fiscal years ended in 1998, 1997 and 1996 are 53, 52 and 52-week periods,
respectively. Fiscal years are presented as of September 30 for convenience of
reference.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
AFFILIATED TRANSACTIONS
The Company utilizes the Existing Stockholder's centralized cash management
system. Cash amounts in the combined balance sheets represent domestic checks
outstanding and deposits in transit at year end, and balances of the Company's
foreign operations. Cash requirements for the Company's domestic operations are
satisfied by transfer of funds between the Existing Stockholder and the Company
and are reported as "Invested Capital" in the combined balance sheets.
Invested capital includes notes payable to Existing Stockholder of $132,000 at
September 30, 1998, 1997 and 1996 comprised of two unsecured promissory notes
that bear interest at 6.5% in 1998, 6.5% in 1997 and 7.5% in 1996. Principal is
due September, 2005 with interest payable each September through September 2005.
Interest expense to the Existing Stockholder for fiscal 1998, 1997 and 1996 was
$8,580, $8,896 and $10,380, respectively.
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<PAGE> 11
2. Accounting Policies (continued)
The 1998 financial statements reflect management fees in the amount of $3,126,
that were paid by the Company to USI. Management fees were not paid by the
Company to USI in 1997 and 1996. Certain administrative services have been
provided by USI to the Company.
TRADE, RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK
The Company operates in the United States and, to a lesser extent, in Europe,
South America, Canada and Asia. While generally concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers and their geographic dispersion, certain major customers (see Note 13)
may at times have outstanding balances that are material. The Company performs
initial and periodic credit evaluations of its customers' financial condition
and generally does not require collateral. Credit losses have consistently been
within management's expectations.
INVENTORIES
Inventories, net of allowances for excess quantities and obsolescence, are
stated at the lower of cost or market using the first-in, first-out ("FIFO")
method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less allowances for
depreciation. For financial reporting purposes, depreciation is computed using
the straight-line method over estimated useful lives of 10 to 40 years for
buildings, 3 to 13 years for machinery and equipment, and 5 to 10 years (not to
exceed the lease term) for leasehold improvements. Tools, dies and molds are
amortized using the straight-line method over three years or the expected
marketable life of the related product, whichever is shorter. The Company uses
accelerated methods in computing depreciation for income tax purposes.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired. The carrying value of goodwill is reviewed periodically to
determine whether any impairment has occurred. The fair value methodology is
used by the Company to ascertain the recoverability of the carrying value when
there are indications of impairment. To the extent that such fair value is below
the carrying value of the related goodwill, the Company first writes off the
goodwill and then other long-lived assets to the extent such differential
exists. Based upon management's analysis of current performance and
circumstances, no impairment of goodwill was determined to exist and,
accordingly, no measurement was required.
The fair value methodology is applied to determine the recoverable value for
each business of the Company on a stand-alone basis using ranges of fair values
obtained from independent appraisers. In developing these ranges, the
independent appraisers consider (a) publicly available information, (b)
financial projections of each business, (c) the future prospects of each
business as discussed with senior operating and financial management, (d)
publicly available information regarding comparable publicly traded companies in
each industry, (e) market prices, capitalizations and trading multiples of
comparable public companies and (f) other information deemed relevant. In
reviewing these valuations and considering the need to record a charge for
11
<PAGE> 12
impairment of enterprise value and goodwill to the extent it is part of the
enterprise value, the Company also evaluates solicited and unsolicited bids for
the businesses of the Company.
Goodwill is amortized using the straight-line method over forty years.
Accumulated amortization aggregated $16,743, $15,137 and $13,596 at September
30, 1998. 1997 and 1996, respectively. Amortization of goodwill amounted to
$1,606, $1,541 and $1,487 for fiscal 1998, 1997 and 1996, respectively.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product to the customer. Terms of sale
are F.O.B. shipping point with title passing when the product is turned over to
the transportation provider. The Company's sales are somewhat seasonal, with
approximately 40% of sales occurring in the months of August, September and
October. The remaining 60% of sales are distributed relatively evenly over the
remaining nine months of the year.
FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the U.S. dollar, however, it conducts
business in foreign countries and, as a result, has assets, liabilities and
transactions in various functional currencies. Assets and liabilities of the
Company's foreign subsidiaries are translated at the exchange rates in effect at
the balance sheet dates, while revenue, expenses and cash flows are translated
at average exchange rates for the reporting period. Translation gains and losses
are reported as a separate component of invested capital in the combined balance
sheets.
RESEARCH AND DEVELOPMENT COSTS
Research mid development costs are expensed as incurred and aggregated
approximately $6,600, $6,300 and $6,300 for fiscal 1998, 1997 and 1996,
respectively.
INCOME TAXES
The Company files a consolidated income tax return with USI. All income taxes
allocated to the Company have been computed on a separate return basis.
The Company follows the liability method of accounting for income taxes, under
which deferred income tax assets and liabilities are determined based on the
difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expense or
benefit is based on the changes in the asset or liability from period to period.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $10,000, $9,100 and $22,300 in fiscal 1998, 1997 and 1996,
respectively. In fiscal 1997, the Company entered into a barter agreement for
certain promotional toy inventory whereby it received $1,500 of future
advertising credits. The credits were recorded as an asset to be charged to
expense as the advertising is used. Advertising credits in the amount of $1,168
remained unused at September 30, 1998.
12
<PAGE> 13
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash, receivables, and trade accounts payable.
Management believes the fair value of each of the financial instruments
approximate their carrying value as of each balance sheet date.
3. TRADE RECEIVABLES, NET
<TABLE>
<CAPTION>
September 30
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Trade receivables $ 50,078 $ 60,853 $ 59,403
Less allowances for:
Doubtful accounts (1,727) (2,737) (1,695)
Returns, discounts and other reserves (5,313) (8,172) (9,716)
------------ ------------ ------------
$ 43,038 $ 49,944 $ 47,992
============ ============ ============
</TABLE>
4. INVENTORIES, NET
<TABLE>
<CAPTION>
September 30
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Raw material $ 3,017 $ 5,387 $ 5,469
Work-in-process 2,486 3,098 2,647
Finished goods 55,008 56,234 44,909
Less obsolescence and other reserves (10,343) (7,467) (6,948)
------------ ------------ ------------
$ 50,168 $ 57,252 $ 46,077
============ ============ ============
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
September 30
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Land $ 726 $ 726 $ 726
Buildings and improvements 12,489 12,230 12,176
Machinery and equipment 28,950 37,204 31,674
------------ ------------ ------------
42,165 50,160 44,576
Less allowances for depreciation (24,950) (27,410) (20,120)
------------ ------------ ------------
17,215 22,750 24,456
Tools, dies and molds, less accumulated
amortization of $77,582 in 1998, $83,588 in
1997 and $61,511 in 1996 12,656 13,395 13,433
------------ ------------ ------------
$ 29,871 $ 36,145 $ 37,889
============ ============ ============
</TABLE>
13
<PAGE> 14
Depreciation and amortization expense for fiscal 1998, 1997 and 1996 was
$11,789, $11,164 and $9,449, respectively. Amortization expense for tools, dies
and molds included in depreciation and amortization expense noted above for the
same periods was $7,544, $7,597 and $6,655, respectively.
6. ACQUISITION
In April 1997, Britains Petite Limited ("Britains") was acquired for cash in the
amount of $8,984. Britains, located in Nottingham, England, is a manufacturer of
military soldier collectibles, metal and plastic models of agricultural
vehicles, figures, animals, buildings and accessories and preschool plastic
toys. The transaction has been accounted for as a purchase and the operating
results of Britains from the date of purchase have been included in the
statement of operations. Goodwill arising from the acquisition totaled
approximately $5,000.
7. BENEFIT PLANS
DOMESTIC CONTRIBUTION PLAN
A majority of domestic nonunion employees are eligible to make contributions to
the Company's 401(k) retirement savings plan. The Company matches 50% of the
first 6% of wages which an employee contributes to a maximum of $5. Expense
related to the 401(k) plans was $270 in 1998, $159 in 1997 and $235 in 1996.
DOMESTIC BENEFIT PLANS
The Company has two primary noncontributory defined benefit pension plans
sponsored by USI covering substantially all of its United States employees.
Pension benefits under the plan covering nonunion employees are based primarily
on salary and years of service. Benefits under the plan covering union employees
are based on a stated amount for specified years of service as negotiated in the
respective collective bargaining agreements. The Company's funding policy is to
make contributions in amounts actuarially determined by an independent
consulting actuary to fund the benefits to be provided. For fiscal 1998, the
salaried plan is now part of the USI Group Plan and information regarding the
components of net periodic cost and the funded status of the plan with respect
solely to the Company's employees is not available. Net periodic pension costs
recorded for the salaried plan in 1998 totaled $21.
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<PAGE> 15
7. Benefit Plans (continued)
Net periodic cost of the defined benefit pension plans included the following
components:
<TABLE>
<CAPTION>
Hourly Plan Salaried Plan
----------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Defined benefit plans:
Benefits earned during
the year (service cost) $ 244 $ 260 $ 223 N/A $ 492 $ 442
Interest cost on
projected benefit
obligation 443 436 406 N/A 408 426
Actual return on plan
assets 193 (1,174) (495) N/A (1,091) (441)
Net amortization and
deferral (572) 937 292 N/A 783 216
Cost due to curtailment 770 -- -- -- -- --
------- ------- ------- ------ ------- -------
Net periodic pension
costs $ 1,078 $ 459 $ 426 $ 21 $ 592 $ 643
======= ======= ======= ====== ======= =======
</TABLE>
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<PAGE> 16
The funded status and amounts recognized in the combined balance sheets for the
Company's defined benefit pension plans are as follows:
<TABLE>
<CAPTION>
Hourly Plan Salaried Plan
------------------------------------------- -------------------------------------
September 30
1998 1997 1996 1998 1997 1996
------------ ------------ ----------- ---- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit
obligation $ (7,586) $ (5,806) $ (5,136) N/A $ (4,445) $ (3,916)
Nonvested benefit
obligation (563) (655) (195) N/A (385) (229)
------------ ------------ ------------ ----- ------------ ------------
Accumulated benefit
obligation $ (8,149) $ (6,461) $ (5,331) N/A $ (4,830) $ (4,145)
============ ============ ============ ===== ============ ============
Projected benefit
obligation $ (8,149) $ (6,461) $ (5,331) N/A $ (6,338) $ (5,664)
Plan assets at fair value 6,202 5,943 3,978 N/A 5,298 3,832
------------ ------------ ------------ ----- ------------ ------------
Projected benefit
obligation in excess of
plan assets (1,947) (518) (1,353) N/A (1,040) (1,832)
Add (deduct):
Unrecognized prior
service costs 282 1,240 1,353 N/A 511 553
Unrecognized net loss 2,467 461 565 N/A (4) 737
Adjustment required to
recognize minimum
liability (2,749) (1,701) (1,918) N/A -- --
------------ ------------ ------------ ----- ------------ ------------
Accrued pension cost
included in other long-
term liabilities $ (1,947) $ (518) $ (1,353) $(495) $ (533) $ (542)
============ ============ ============ ===== ============ ============
</TABLE>
Assumptions used in the accounting for the defined benefit plans were as
follows:
<TABLE>
<CAPTION>
Hourly Plan Salaried Plan
------------------------------------ -----------------------------------
September 30
1998 1997 1996 1998 1997 1996
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
discount rates 6.75% 7.50% 7.75% 6.75% 7.50% 7.75%
Rates of increase in
compensation levels 4.50 4.50 4.50 4.50 4.50 4.50
Expected long-term rate
of return on assets 9.00 9.00 9.00 9.00 9.00 9.00
</TABLE>
The assets of the defined benefit plans are primarily invested in listed stocks
and bonds, including equity securities of USI which, at market value, comprised
2.0% at September 30, 1998, 2.7% at September 30, 1997 and less than 1% at
September 30, 1996 of the plans' assets.
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<PAGE> 17
FOREIGN BENEFIT ARRANGEMENTS
The Company's foreign entities sponsor defined contribution pension plans which
allows for individual contributions and a company match dependent on the level
of the employee's compensation or contribution level. The plans do contain
vesting schedules. Charges to income for these plans were $250, $152 and $121
for fiscal 1998, 1997 and 1996, respectively.
8. INCOME TAXES
Components of provisions (benefits) for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current expense (benefits):
United States $ 206 $ 1,456 $ (8,029)
Foreign 62 1,133 1,457
State 13 54 (198)
Deferred expense (3,323) 654 3,087
------------ ------------ ------------
$ (3,042) $ 3,297 $ (3,683)
============ ============ ============
</TABLE>
The Company's provisions (benefits) for income taxes differ from the amount
computed by applying the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Federal income taxes (benefits) at the statutory
tax rate $ (1,632) $ 3,338 $ (3,204)
State income taxes (benefits), net of federal taxes 9 35 (131)
Provisions for nondeductible expense, primarily
goodwill amortization 586 577 514
Foreign income tax rate differential 15 (653) (754)
Gain on sale of stock, exempt from foreign taxes (2,031) -- --
Other 11 -- (108)
============ ============ ============
$ (3,042) $ 3,297 $ (3,683)
============ ============ ============
</TABLE>
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<PAGE> 18
Components of the net deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
September 30
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Deferred income tax assets:
Inventory reserves $ 2,748 $ 2,802 $ 3,824
Accruals and allowances 1,705 1,034 921
Restructuring accruals 2,805 -- --
Other, primarily pension 926 244 146
Deferred income tax liabilities:
Excess of book over tax basis in property,
plant and equipment (4,956) (4,197) (4,353)
Other (148) (126) (127)
------- ------- -------
Net deferred income tax assets (liabilities) $ 3,080 $ (243) $ 411
======= ======= =======
Current portion $ 6,283 $ 3,954 $ 4,764
Long-term portion (3,203) (4,197) (4,353)
------- ------- -------
$ 3,080 $ (243) $ 411
======= ======= =======
</TABLE>
9. LEASE COMMITMENTS
The Company, as a normal course of business, leases facilities and equipment
under noncancelable operating leases with terms up to 10 years. Most leases
contain escalation and renewal clauses and require the Company to pay real
estate taxes and utility charges. Future minimum lease commitments to be paid
under noncancelable leases in effect at September 30, 1998, are as follows:
<TABLE>
<CAPTION>
1998
---------------
<S> <C>
Year ending September 30:
1999 $4,507
2000 2,942
2001 1,328
2002 701
2003 666
Thereafter 558
-------
$10,702
=======
</TABLE>
Aggregate rental expenses for operating leases were $6,290, $6,242 and $6,788
for fiscal 1998, 1997 and 1996, respectively.
10. SALE OF INVESTMENT
The Company held a 10% interest in Zindart Holdings Limited (Zindart), a
foreign supplier to the Company, the carrying value ($334) of which was fully
reserved prior to fiscal 1996 as a result of uncertainty regarding its ultimate
realization. The Company recognized earnings of this affiliate only when
received in the form of cash dividends. Cash dividends received were not
material in any of the years presented.
18
<PAGE> 19
During March 1998, the Company's investment in Zindart was sold resulting in a
gain of approximately $5,973.
11. RESTRUCTURING CHARGES
During June 1998, the Company announced a restructuring plan to improve its
efficiency and enhance its competitiveness. The restructuring plan would close
certain facilities and out-source to third parties all manufacturing operations
currently being conducted in the United States, Mexico and the United Kingdom
with the exception of plastic toys and model kits manufactured in Mexico.
Management anticipates a reduction in the work force of approximately 500
employees.
The principal components of the restructuring and other related costs charged to
expense during fiscal 1998 are as follows:
<TABLE>
<S> <C>
Severance, out placement services and related costs $3,318
Lease obligations related to closing facilities in Mexico and the
United Kingdom 1,884
Pension curtailment 770
------
Total cash charges 5,972
Noncash charges - impairment of manufacturing equipment,
tooling and inventory 2,898
------
Total restructuring charges $8,870
======
</TABLE>
Cash charges paid during fiscal 1998 approximated $582 and are primarily related
to the severance of employees. The remaining severance costs are expected to be
paid in fiscal 1999, while the lease obligations and pension curtailment
accruals are expected to be principally paid in years subsequent to 1999.
12. COMMITMENTS AND CONTINGENCIES
GUARANTEED ROYALTIES
The Company markets its products under a variety of trademarks, some of which
are not owned and for which the Company pays a royalty. For fiscal 1998, 1997
and 1996, the Company incurred approximately $7,500, $8,200 and $8,900, in
royalty expense, respectively.
License agreements for certain trademarks require minimum royalty payments over
the term of the license. At September 30, 1998, the Company was committed to pay
future minimum royalties of $9,699.
LITIGATION
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, future results of operations or liquidity.
19
<PAGE> 20
13. SEGMENT REPORTING AND INDUSTRY CONCENTRATION
The Company operates primarily in one business segment which includes the
manufacture and marketing of toys, hobby and collectible products, Credit is
granted to customers generally on an unsecured basis and in many cases for
extended payment terms which result in a substantial portion of trade
receivables being collected during the months of December and January. In the
United States, product is distributed directly to large retailers, including
discount and free-standing toy stores, chain stores, department stores, other
retail stores and hobby distributors. In addition, sales are made through
distributors or agents in Japan, Australia, Mexico, Central and South America.
Internationally, the Company sells its products directly to customers in Canada
and the United Kingdom, and also through distributors on the European continent.
Export sales from the United States are not significant.
An agricultural equipment manufacturer and a discount department store chain,
are major customers of the Company who each have accounted for approximately 10%
or more of its sales during the various periods reported herein. For fiscal
1998, 1997 and 1996, the agricultural equipment manufacturer accounted for 14%,
13% and 12%, respectively; and the discount department store chain accounted for
10%, 10% and 11%, respectively, of the Company's sales. At September 30, 1998,
1997 and 1996, the agricultural equipment manufacturer's accounts receivable was
approximately 12%, 13% and 12%, respectively; and the discount department store
chain's accounts receivable was approximately 10%, 9% and 6%, respectively, of
total trade receivables.
Information by geographic area is set forth in the tables below. Operating
profit (loss) represents income (loss) before income taxes and interest expense.
Sales between geographic areas are based upon transfer prices which include
manufacturing cost and profit.
<TABLE>
<CAPTION>
September 30
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales:
United States $ 149,575 $ 167,284 $ 175,349
Foreign 51,587 54,501 41,940
--------- --------- ---------
201,162 221,785 217,289
Sales and transfers between geographic areas (25,420) (26,874) (22,497)
--------- --------- ---------
Combined total $ 175,742 $ 194,911 $ 194,792
========= ========= =========
Operating income (loss):
United States $ (2,476) $ 13,388 $ (6,121)
Foreign (56) 5,168 6,886
--------- --------- ---------
Combined total $ (2,532) $ 18,556 765
========= ========= =========
Identifiable assets:
United States $ 140,729 $ 142,664 $ 151,018
Foreign 41,149 61,536 35,889
--------- --------- ---------
Combined total $ 181,878 $ 204,200 $ 186,907
========= ========= =========
</TABLE>
20
<PAGE> 21
14. MOVING COSTS
In October 1995, the Company announced that its model kit and certain of its
collectible manufacturing line would be moved from Dyersville, Iowa to Mexico.
During fiscal 1996, this move was completed. Beginning in September 1997, the
agricultural toy products line was also moved to Mexico. The costs incurred for
these moves totaled approximately $126, $327 and $1,200 during fiscal 1998, 1997
and 1996, respectively, and have been accounted for as moving costs and
expensed.
15. YEAR 2000 ISSUE (UNAUDITED)
The Company has developed a plan to modify its information technology to be
ready for the Year 2000 and has begun converting its critical data processing
systems. The Company currently expects the project to be substantially completed
by early 1999 and does not expect the cost to modify systems used in the normal
course of business to be significant. While additional testing will be conducted
on its systems through the Year 1999, the Company does not expect this project
to have a significant affect on operating activities.
To mitigate the affect of outside influences and other dependencies relative to
the Year 2000, the Company's plan includes procedures to contact significant
customers, suppliers and other third parties whose success in addressing their
own Year 2000 issue will impact the Company's initiative. To the extent these
third parties would be unable to transact business in the Year 2000 and
thereafter, it could adversely affect the Company's operations.
21
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements of RACING
CHAMPIONS CORPORATION ("Racing Champions") gives effect to the acquisition of
THE ERTL COMPANY, INC. and certain of its affiliates ("Ertl"). The unaudited pro
forma combined financial statements are filed by way of an amendment to Racing
Champions' Current Report on Form 8-K filed on April 28, 1999, which describes
the acquisition of Ertl.
The unaudited pro forma combined balance sheet as of March 31, 1999, and the pro
forma combined statements of operations for the year ended December 31, 1998 and
the three months ended March 31, 1999 have been prepared to illustrate the
effect of the acquisition. The acquisition is being accounted for as a purchase
and the transaction is treated as if it had occurred on March 31, 1999, in the
pro forma balance sheet and as of January 1, 1998, for the pro forma statement
of operations for the year ended December 31, 1998 and as of January 1, 1999 for
the three months ended March 31, 1999. The unaudited pro forma combined
statement of operations for the year ended December 31, 1998, reflects the
audited historical statement of operations of Racing Champions and the unaudited
historical statement of operations of Ertl for the year then ended. The
unaudited pro forma combined balance sheet as of March 31, 1999, and the
statement of operations for the three months ended March 31, 1999, reflect the
unaudited historical balance sheets and statements of operations of Racing
Champions and Ertl, respectively. Ertl's historical financial statements are
based on a September 30 year-end and have been restated herein for pro forma
purposes to conform with Racing Champions' December 31 year-end financial
statements.
The pro forma combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the combined financial
position or combined results of operations of Racing Champions that would have
been reported had the acquisition occurred on the dates indicated, nor do they
represent a forecast of the combined financial position of Racing Champions at
any future date or the combined results of operations of Racing Champions for
any future period. Furthermore, no effect has been given in the pro forma
combined statements of operations for synergies or cost savings, if any, that
may be realized through the combination of Racing Champions and Ertl. The
unaudited pro forma combined financial statements reflect the acquisition using
the purchase method of accounting. The acquired assets and liabilities are
stated at values representing a preliminary allocation of the purchase price
based upon the estimated fair market values at the date of acquisition. The
final purchase accounting allocations will be determined based on the final
appraised values and other determinations, which could differ from the estimates
used herein.
The following unaudited pro forma combined financial statements and accompanying
notes are qualified in their entirety by reference to, and should be read in
conjunction with Racing Champions' Management's Discussion and Analysis of
Financial Condition and Results of Operations included in its Annual Report on
Form 10-K for the year ended December 31, 1998, as amended, and in its Quarterly
Report on Form 10-Q for the period ended March 31, 1999, and the audited
financial statements of Ertl, which are also included within this amendment.
22
<PAGE> 23
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL TOTAL
RACING HISTORICAL PRO FORMA PRO FORMA
CHAMPIONS ERTL (1) ADJUSTMENTS (2) COMBINED
--------- -------- --------------- --------
<S> <C> <C> <C> <C>
Net sales $ 156,464 $ 172,711 $ - $ 329,175
Cost of sales 70,850 108,704 2,461 (3) 182,015
------------------------------------------------------------------
Gross Profit 85,614 64,007 (2,461) 147,160
Selling, general and administrative
expenses 54,302 57,713 (2,881) (4) 109,134
Merger-related costs 5,526 - - 5,526
Amortization of intangible assets 2,663 1,613 (522) (5) 3,754
Restructuring and other related costs - 8,870 - 8,870
------------------------------------------------------------------
Operating income (loss) 23,123 (4,189) 942 19,876
Interest expense/(income) 2,751 (297) 7,027 (6) 9,481
Intercompany interest expense - 8,582 (8,582) (6) -
Other expense/(income) 400 (167) - 233
Gain on sale of investment - (5,973) - (5,973)
------------------------------------------------------------------
Income (loss) before income taxes 19,972 (6,334) 2,497 16,135
Income tax expense/(benefit) 8,231 (2,421) 1,453 (7) 7,263
------------------------------------------------------------------
Net income (loss) from continuing
operations before extraordinary item 11,741 (3,913) 1,044 8,872
Extraordinary charge for early
extinguishment of debt, net of tax
benefit of $1,188 1,782 - - 1,782
------------------------------------------------------------------
Net income (loss) $ 9,959 $ (3,913) $ 1,044 $ 7,090
==================================================================
Net income per share from continuing operations before extraordinary item:
Basic 0.73 0.55
Diluted 0.71 0.54
Net income per share from extraordinary item:
Basic 0.11 0.11
Diluted 0.11 0.11
Net income per share:
Basic 0.62 0.44
Diluted 0.61 0.43
Weighted average shares outstanding
Basic 15,982 15,982
Diluted 16,426 16,426
</TABLE>
1. Ertl's historical fiscal year-end was based on a 52/53 week year, ending
effectively September 30. As such, for purposes of filing Ertl's historical
results on a basis consistent with Racing Champions' fiscal year-end and
due to the seasonality of the fiscal year, Ertl's unaudited 1998 statement
of operations was derived by adding Ertl's unaudited operating results for
the period from October 1, 1998 through December 31, 1998 to the audited
amounts for the fiscal year ended September 30, 1998, and then by deducting
the unaudited operating results for the period from October 1, 1997 through
December 31, 1997.
2. The Company has accounted for the Ertl acquisition as a purchase, applying
the provisions of Accounting Principles Board Opinion No. 16. The purchase
price has been allocated to the acquired assets and assumed liabilities
based upon their estimated relative fair values as of the closing of the
Ertl acquisition. The payment of the purchase price and related fees was
financed by Racing Champions' Credit Facility (as defined). The purchase
price was allocated to the net assets of Ertl based on their relative fair
value, as follows (in thousands):
<TABLE>
<S> <C>
Total purchase price, including expenses $ 96,538
Current assets 59,225
Property, plant and equipment 25,518
Other long-term assets 1,719
Liabilities assumed (33,573)
---------
Excess purchase price over net assets acquired $ 43,649
</TABLE>
Such allocations of purchase price are subject to final determination based
on valuations and other determinations that will be completed after the
closing. Management believes that there may be material changes to the
allocation of the purchase price.
23
<PAGE> 24
3. Provides for the pro forma increase in cost of sales expense based upon the
inventory step-up allocated to acquired inventory with an assumed inventory
turn of two times per year. Also, provides for the pro forma increase in
depreciation expense based upon depreciating the purchase price allocated
to tooling of $ 3.5 million over 8 years and the write-down of machinery
and equipment of $2.7 million depreciated over 7 years.
4. Represents the pro forma elimination of certain management fees allocated
to Ertl by previous parent in excess of the actual expenses incurred for
pension administration, tax compliance, bank fees, risk management, and
treasury functions.
5. Provides for the pro forma increase in amortization expense based upon
amortizing the excess purchase price over net assets acquired of $43.6
million over 40 years less the elimination of goodwill amortization
previously recorded by Ertl.
6. Represents the incremental interest expense for the year, under borrowings
incurred as part of the purchase transaction. Total proceeds under
borrowings from the new credit facility were $139.3 with an average
interest of 6.5%. Approximately $33.0 million of the borrowing proceeds
were used by Racing Champions to repay certain previously outstanding
borrowings at an average interest rate of 6.5%. Also includes the
elimination of interest expense incurred by Ertl from intercompany debt.
7. To record provision for income taxes on the changes as a result of the pro
forma adjustments, not including the amortization expense of the excess
purchase price over net assets acquired resulting from the Ertl transaction
which is considered non-deductible for tax reporting purposes.
24
<PAGE> 25
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL TOTAL
RACING HISTORICAL PRO FORMA PRO FORMA
CHAMPIONS ERTL (1) ADJUSTMENTS (2) COMBINED
--------- -------- --------------- --------
<S> <C> <C> <C> <C>
Net sales $ 35,272 $ 30,946 $ - $ 66,218
Cost of sales 16,618 20,278 1,215 (3) 38,111
----------------------------------------------------------------
Gross Profit 18,654 10,668 (1,215) 28,107
Selling, general and administrative
expenses 12,690 13,376 - 26,066
Merger-related costs - - - -
Amortization of intangible assets 713 402 (130) (4) 985
----------------------------------------------------------------
Operating income (loss) 5,251 (3,110) (1,085) 1,056
Interest expense/(income) 564 (40) 1,699 (5) 2,223
Intercompany interest expense - 2,145 (2,145) (5) -
Other expense 60 22 - 82
----------------------------------------------------------------
Income (loss) before income taxes 4,627 (5,237) (639) (1,249)
Income tax expense/(benefit) 1,874 15 (2,270)(6) (381)
----------------------------------------------------------------
Net income (loss) $ 2,753 $ (5,252) $ 1,631 $ (868)
================================================================
Net income (loss) per share:
Basic 0.17 (0.05)
Diluted(7) 0.17
Weighted average shares outstanding
Basic 16,081 16,081
Diluted 16,557
</TABLE>
1. Represents Ertl's unaudited operating results for the period from January
1, 1999 through March 31, 1999.
2. The Company has accounted for the Ertl acquisition as a purchase, applying
the provisions of Accounting Principles Board Opinion No. 16. The purchase
price has been allocated to the acquired assets and assumed liabilities
based upon their estimated relative fair values as of the closing of the
Ertl acquisition. The payment of the purchase price and related fees was
financed by Racing Champions' Credit Facility (as defined). The purchase
price was allocated to the net assets of Ertl based on their relative fair
value, as follows (in thousands):
<TABLE>
<S> <C>
Total purchase price, including expenses $ 96,538
Current assets 59,225
Property, plant and equipment 25,518
Other long-term assets 1,719
Liabilities assumed (33,573)
---------
Excess purchase price over net assets acquired $ 43,649
</TABLE>
Such allocations of purchase price are subject to final determination based
on valuations and other determinations that will be completed after the
closing. Management believes that there may be material changes to the
allocation of the purchase price.
3. Provides for the pro forma increase in cost of sales expense based upon the
inventory step-up allocated to acquired inventory with an assumed inventory
turn of two times per year. Also, provides for the pro forma increase in
depreciation expense based upon depreciating the purchase price allocated
to tooling of $ 3.5 million over 8 years and the write-down of machinery
and equipment of $2.7 million depreciated over 7 years.
4. Provides for the pro forma increase in amortization expense based upon
amortizing the excess purchase price over net assets acquired of $43.6
million over 40 years less the elimination of goodwill amortization
previously recorded by Ertl.
5. Represents the incremental interest expense from January 1, 1999 through
March 31, 1999, under borrowings incurred as part of the purchase
transaction. Total proceeds under borrowings from the new credit facility
were $139.3 with an average interest of 6.5%. Approximately $33.0 million
of the borrowing proceeds were used by Racing Champions to repay certain
previously outstanding borrowings at an average interest rate of 6.5%. Also
includes the elimination of interest expense incurred by Ertl from
intercompany debt.
6. To record benefit for income taxes on the changes as a result of the pro
forma adjustments, not including the amortization expense of the excess
purchase price over net assets acquired resulting from the Ertl transaction
which is considered non-deductible for tax reporting purposes. The income
tax benefit recorded on Ertl's loss from operations has been recognized as
a pro forma adjustment to reflect Racing Champions' ability to utilize such
loss within a consolidated group for Federal income tax purposes.
7. Diluted net loss per share on a pro forma basis has not been presented as
it would be antidilutive.
25
<PAGE> 26
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL TOTAL
RACING HISTORICAL PRO FORMA PRO FORMA
CHAMPIONS ERTL ADJUSTMENTS (1) COMBINED
--------- -------- --------------- --------
<S> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 3,833 $ 874 $ 9,871 (2) $ 14,578
Accounts receivable, net 24,732 27,736 - 52,468
Inventory 15,022 39,905 (5,910) (4) 49,017
Other current assets 7,010 3,948 (1,994) (6) 8,964
-------------------------------------------------------------
Total Current Assets 50,597 72,463 1,967 125,027
Property and Equipment, Net 13,726 25,789 (271) (5) 39,244
Excess purchase price over net assets
acquired, net 99,067 45,107 (1,457) (3) 142,717
Other assets 343 1,719 790 (2)(b) 2,852
-------------------------------------------------------------
Total Assets $ 163,733 $ 145,078 $ 1,029 $ 309,840
=============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses 22,194 19,332 11,497 (8)(2) 53,023
Line of credit 12,000 - (12,000) (2) -
Current maturities of long term debt 4,500 - (4,500) (2) -
-------------------------------------------------------------
Total current liabilities 38,694 19,332 (5,003) 53,023
Long-term debt, less current maturities 16,500 - 122,800 (2) 139,300
Due to parent/affiliates - 102,226 (102,226) (6) -
Other liabilities 3,019 6,018 2,960 (7) 11,997
-------------------------------------------------------------
Total liabilities 58,213 127,576 18,531 204,320
Shareholders' Equity: -
Common stock 161 1,032 (1,032) (6) 161
Warrants outstanding 2,376 - - 2,376
Additional paid-in capital 85,533 94,200 (94,200) (6) 85,533
Other comprehensive loss - (2,967) 2,967 (6) -
Retained earnings (accumulated deficit) 17,450 (74,763) 74,763 (6) 17,450
-------------------------------------------------------------
Total Equity $ 105,520 $ 17,502 $ (17,502) $ 105,520
=============================================================
Total Liabilities and Stockholders' Equity $ 163,733 $ 145,078 $ 1,029 $ 309,840
=============================================================
</TABLE>
1. The Company has accounted for the Ertl acquisition as a purchase, applying
the provisions of Accounting Principles Board Opinion No. 16. The purchase
price has been allocated to the acquired assets and assumed liabilities
based upon their estimated relative fair values as of the closing of the
Ertl acquisition. The payment of the purchase price and related fees was
financed by Racing Champions' Credit Facility (as defined). The purchase
price was allocated to the net assets of Ertl based on their relative fair
value, as follows (in thousands):
<TABLE>
<S> <C>
Total purchase price, including expenses $ 96,538
Current assets 59,225
Property, plant and equipment 25,518
Other long-term assets 1,719
Liabilities assumed (33,573)
--------
Excess purchase price over net assets acquired $ 43,649
</TABLE>
Such allocations of purchase price are subject to final determination based
on valuations and other determinations that will be completed after the
closing. Management believes that there may be material changes to the
allocation of the purchase price.
2. To record proceeds under borrowings from the new Credit Facility of $139.3
million. Proceeds from borrowings were used for purchase price of $94.6
million, $33.3 million to repay certain previously outstanding borrowings
and accrued interest, $1.5 in deferred financing costs and approximately
$9.9 million was remaining in cash.
3. To record the preliminary allocation of excess purchase price over net
assets acquired of $43.6 million and the elimination of Ertl goodwill of
$45.1 million previously recorded.
4. To record the inventory step-up allocated to acquired inventory of $2.4
million less inventory write-down of $8.3 representing the revaluation of
certain excess inventory to net realizable value.
26
<PAGE> 27
5. To pro forma adjustment to net property and equipment includes the increase
in tooling of $ 3.5 million, the net write-down of machinery and equipment
of $2.7 million and the net write-down of buildings and improvements of
$1.1 million to reflect fair market values based upon preliminary
valuations.
6. Represents the pro forma adjustments of certain assets and liabilities not
assumed in the acquisition.
7. Represents the elimination of $0.5 million related to the salaried pension
plan not assumed and the recording of $3.5 million representing the net
liability of the assumed hourly pension plan based upon preliminary
actuarial valuations.
8. Represents pro forma adjustments to reflect certain purchase accounting
entries representing preliminary estimates of direct costs resulting from
the transaction including: $2.8 million for severance, $3.7 million related
to exit and shutdown costs, $3.8 related to accrue certain liabilities for
legal, royalties and commission payments to conform with Racing Champions
accounting policies and $2.2 for transaction and miscellaneous other
expenses.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Racing Champions Corporation has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
RACING CHAMPIONS CORPORATION
Date: June 28, 1999
BY /s/ Robert E. Dods
-------------------------------------------
Robert E. Dods, Chief Executive Officer
28
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-58035) of Racing Champions Corporation pertaining to
Wheels Sports Group, Inc. 1996 Omnibus Stock Plan, of our report dated
October 28, 1998, with respect to the combined financial statements of
The Ertl Group included in this Current Report on Form 8K/A of Racing
Champions Corporation dated June 28, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Des Moines, Iowa
June 28, 1999
<PAGE> 2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-58037) of Racing Champions Corporation pertaining to
Racing Champions Corporation Stock Incentive Plan, of our report dated
October 28, 1998, with respect to the combined financial statements of
The Ertl Group included in this Current Report on Form 8K/A of Racing
Champions Corporation dated June 28, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Des Moines, Iowa
June 28, 1999
<PAGE> 3
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-50957) of Racing Champions Corporation pertaining to
Racing Champions Corporation 1996 Key Employees Stock Option Plan, of our
report dated October 28, 1998, with respect to the combined financial
statements of The Ertl Group included in this Current Report on Form 8K/A
of Racing Champions Corporation dated June 28, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Des Moines, Iowa
June 28, 1999
<PAGE> 4
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-50959) of Racing Champions Corporation pertaining to the
Racing Champions Corporation Stock Incentive Plan, of our report dated
October 28, 1998, with respect to the combined financial statements of The
Ertl Group included in this Current Report on Form 8K/A of Racing Champions
Corporation dated June 28, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Des Moines, Iowa
June 28, 1999
<PAGE> 5
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 to be filed June 28, 1999) of Racing Champions Corporation
pertaining to Racing Champions Corporation Stock Incentive Plan, of our
report dated October 28, 1998, with respect to the combined financial
statements of The Ertl Group included in this Current Report on Form 8K/A
of Racing Champions Corporation dated June 28, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Des Moines, Iowa
June 28, 1999
<PAGE> 6
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-71629) of Racing Champions Corporation for the
registration of 529,205 shares of its Common Stock, of our report dated
October 28, 1998, with respect to the combined financial statements of The
Ertl Group included in this Current Report on Form 8K/A of Racing Champions
Corporation dated June 28, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Des Moines, Iowa
June 28, 1999
