Action Performance Companies 8-K Action Performance Reports Fiscal Year and Fourth Quarter 2003 Results

Exhibit 99

	FOR MORE INFORMATION CONTACT:
	R. David Martin Chief Financial Officer Action Performance Companies 602-337-3636
	or
	Jeff Schoenborn Burson-Marsteller 212-614-4792 jeffrey_schoenborn@nyc.bm.com

Action Performance Reports Fiscal Year and Fourth Quarter 2003 Results

     PHOENIX – November 5, 2003 – Action Performance Companies, Inc. (NYSE: ATN), the leader in the design, marketing, promotion, and distribution of licensed motorsports merchandise, today reported financial results for the fourth quarter and fiscal year ended September 30, 2003.

     The company reported fourth quarter revenues of $106.2 million, compared to $110.5 million during the same period last year. Net income for fourth quarter 2003 was $2.7 million, or $0.15 cents per share, compared to $13.0 million, or $0.70 cents per share for the fourth quarter 2002. Revenues were consistent with expectations set forth by management in July, while earnings were in line with last month’s adjusted guidance.

     “As managers and shareholders, we clearly recognize the need to achieve our financial expectations,” Action Chairman and Chief Executive Officer Fred Wagenhals explained. “At the same time, we’re pleased to report that the fourth quarter saw the company continue to generate profits and cash flows while enhancing an already strong balance sheet. Further, increasing popularity of NASCAR and other motorsports will continue to benefit Action, and we’re looking forward to this trend and a better economy in 2004 and beyond.”

     Action also reported fiscal 2003 revenue of $370.6 million, compared to $406.9 million during the fiscal year ended September 30, 2002. Net income for 2003 was $24.2 million, or $1.33 per share, compared to $44.9 million, or $2.41 per share in the year prior.

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Action Performance
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     In addition, Action Performance reported fiscal 2003 distribution channel revenues at September 30, 2003, in thousands:

				Fourth		Fourth		12		12
				Quarter		Quarter		Months		Months
				2003		2002		2003		2002
Die-Cast:
	Wholesale distribution and promotion -
		Domestic		$	25,541	$	30,895	$	102,279	$	146,286
		Foreign			9,122		7,843		34,631		29,433
	Wholesale to mass-merchant retailers				2,350		13,332		22,140		35,900
	Retail through Collector’s Catalogue Club				5,545		6,965		24,406		27,295
			Total die-cast		42,558		59,035		183,456		238,914
Apparel and Other Memorabilia:
	Wholesale distribution and promotion				23,910		15,818		82,254		65,032
	Retail at trackside				17,473		18,042		52,456		57,264
	Wholesale to mass-merchant retailers				21,363		17,032		49,496		42,523
			Total apparel and other memorabilia:		62,746		50,892		184,206		164,819
Royalties and Other					867		569		2,981		3,169
Net Sales				$	106,171	$	110,496	$	370,643	$	406,902
Net Sales from subsidiaries acquired in 2002				$	20,544	$	11,986	$	35,468	$	12,967

     As with the previous quarter mass retail die-cast orders were substantially lower than in the same period of the year prior. However, apparel and other memorabilia sales from all channels increased. Sales from all 2002 acquisitions including Jeff Hamilton Collections, which was acquired in the fourth quarter of 2002, exceeded management’s revenue expectations for the quarter as expected synergies from use of Action’s licenses created additional revenues.

     The company previously reported that income for the quarter would decline, in part, due to a reduction in gross margins arising principally from a program to reduce apparel and other specialty inventories and increased freight expenses. In addition, gross margins decreased due to a $1.8 million provision for prepaid royalties due to lower than anticipated die-cast revenues for the last six months of calendar 2003. Operating expenses increased principally as a result of higher promotional expenses, increased commissions, a $0.8 million charge-off related to the settlement of a mediation proceeding, and a $1.7 million receivable allowance provision for one customer with overdue invoices.

     Other income (expense) included $698 thousand of interest expense related to settlement of an IRS audit through 2000 and an exchange gain of $334 thousand.

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     Action Chief Financial Officer, David Martin, stated, “The combination of reduced margins and increased expenses produced disappointing results. We believe that the margin reductions and similarly the expense increases are due to quarter specific events or non-routine adjustments necessary because of the fiscal 2003 economy. While we did make provisions for certain prepaid royalties, those driver’s programs were profitable during fiscal 2003, but at a reduced rate of profitability.”

     EBITDA for the quarter and fiscal year were $10.2 million and $66.0 million, respectively, compared with $27.4 million and $99.3 million, respectively, in the previous year. A reconciliation of this non-GAAP financial measure to the financials prepared in accordance with GAAP is set forth in an attached schedule.

     Free cash flow, defined as cash flow from operations less capital expenditures, for the quarter and fiscal year was $5.2 million and $6.4 million, respectively, compared with $6.7 million and $27.2 million, respectively, in the prior year periods.

     Action Performance made planned capital expenditures totaling $6.3 million and $33.1 million during the fourth quarter and fiscal 2003, respectively. Capital expenditures were abnormally high during fiscal 2003 due to the Monte Carlo retooling, building additions in Germany and Charlotte, and computer system enhancements in Charlotte and at trackside. Fourth quarter expenditures are more typical of those expected on a quarterly basis next year.

     “Action’s business model and strong balance sheet, with a book value of $14.32 per share (based on 18.3 million shares outstanding), enables us to seek and capitalize on appropriate expansion opportunities, as demonstrated by the recent Funline Merchandise Co., Inc. acquisition,” Martin said. “Such acquisitions have allowed us to diversify the company’s product mix and develop marketing and distribution synergies.”

     Action’s September 30, 2003 cash balance remained strong at $49.5 million, despite the $15 million in cash used for the acquisition of Funline. Working capital, as measured by the current ratio, was 2.8 times at September 30, 2003, compared to 3.0 times at September 30, 2002.

     Days sales outstanding were 55 days at September 30, 2003 excluding the $6.4 million of Funline receivables acquired September 25, 2003, compared to 52 days at June 30, 2003, and 51 days at September 30, 2002.

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     Inventories at September 30, were as follows, in thousands:

				2003		2002
Die-Cast:
	Motorsports Related:
		United States		$	5,031	$	5,535
		Germany			3,797		3,996
	Funline				8,496		—
			Total Die-Cast		17,324		9,531
Apparel and Other:
	Motorsports Related				19,240		20,384
	Other				6,668		3,552
			Total Apparel and Other		25,908		23,936
			Total Inventories	$	43,232	$	33,467

     Other apparel inventories increased to support subsidiaries acquired in late fiscal 2002.

Fiscal 2004 Guidance

     As previously indicated, die-cast sales to mass retailers declined in fiscal 2003. While orders for shipments in the December quarter have increased from the previous two quarters and mass retailers have indicated that orders are expected to increase year over year, mass retail die-cast revenues in the December quarter are expected to be less than 50% of the amounts in the prior year. The company is also seeing cautious ordering patterns from die-cast distributors, as hobby and specialty store retailers manage their inventory risk. In addition, the production of certain teams’ NASCAR die-cast replicas is being delayed until the second fiscal quarter because team paint schemes are not finalized. While orders from distributors have increased in recent weeks, wholesale distribution and promotion die-cast revenues for the December quarter will be less than a year ago. Under Action Performance’s own conservative inventory management policies, die-cast products sold to mass retailers and distributors are manufactured only upon receipt of confirmed orders.

     For the fiscal year ending September 30, 2004, management expects to report revenues of $400 million to $425 million and fully diluted EPS of $1.70 to $1.95. While Action has not issued guidance for the fiscal first quarter ended December 31, 2003, the company indicated that it expects to be profitable and anticipates continuing to generate free cash flow. However, the company believes that, due to the previously noted matters effecting die-cast orders, analysts’ consensus estimates for the December quarter are overstated.

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     Action further announced that due to continuing uncertainty regarding general economic conditions, the inherent quarterly variability in the motorsports merchandise industry due, in part, to timing of finalization of regular and special paint scheme programs and in keeping with the practice being adopted by a growing number of companies, management will refrain from providing specific quarterly revenue and earnings guidance. Action remains very focused on delivering sustainable, profitable results over the long-term and will continue to provide annual earnings and revenue guidance.

About Action Performance

     Action Performance Companies Inc. (NYSE: ATN) is the leader in the design, promotion, marketing and distribution of licensed motorsports merchandise. The Company’s products include a broad range of motorsports-related die-cast replica collectibles, apparel, souvenirs and other memorabilia. Action Performance markets and distributes products through a variety of channels including the Action Racing Collectables network of wholesale distributors, the Racing Collectables Club of America, QVC, goracing.com, trackside at racing events, direct corporate promotions, mass retail, department stores, and specialty dealers. Additional information about Action Performance can be found at www.action-performance.com.

Forward-looking Statements

     This press release contains forward-looking statements regarding expectations for revenues, EBITDA, net income, cash flow and capital and other funding needs, growth strategy, operational plans, and guidance for future periods. The Company’s actual results could differ materially from those set forth in these forward-looking statements. Factors that might cause such differences include, among others, the ability of the Company to successfully execute its business plan, competitive pressures, acceptance of the Company’s products and services in the marketplace, the success of new marketing programs, the Company’s ability to successfully execute its agreements with other parties, and other risks discussed in the Company’s Form 10-K, dated September 30, 2002, on file with the U.S. Securities and Exchange Commission.

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
September 30, 2003 and 2002
(in thousands)

			2003		2002
ASSETS
Current Assets:
	Cash and cash equivalents		$	49,462	$	69,585
	Accounts receivable, net			69,890		61,313
	Inventories			43,232		33,467
	Prepaid royalties			6,540		6,938
	Deferred taxes			5,291		3,155
	Prepaid expenses and other			3,161		2,397
		Total Current Assets		177,576		176,855
Property and Equipment, net				62,951		46,378
Goodwill, Licenses and Other Intangibles, net				131,874		108,514
Other Assets				2,357		6,169
			$	374,758	$	337,916
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable		$	36,734	$	28,958
	Accrued royalties			11,762		15,146
	Accrued expenses			11,764		10,545
	Income taxes payable			3,156		4,265
	Current portion of long-term debt			567		423
		Total Current Liabilities		63,983		59,337
Long-Term Liabilities:
	Long-term debt			34,425		40,360
	Deferred taxes and other			11,816		5,696
		Total Long-Term Liabilities		46,241		46,056
Commitments and Contingencies Minority Interests				2,941		3,135
Shareholders’ Equity				261,593		229,388
			$	374,758	$	337,916

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ACTION PERFORMANCE COMPANIES, INC.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
Three and Twelve Months Ended September 30, 2003 and 2002
(in thousands, except per share data)

				Three Months Ended						Twelve Months Ended
				2003			2002			2003			2002
Net sales				$	106,171		$	110,496		$	370,643		$	406,902
Cost of sales					75,039			68,850			245,879			250,810
Gross profit					31,132			41,646			124,764			156,092
Operating expenses:
	Selling, general and administrative				26,220			20,888			83,783			77,214
	Amortization of licenses and other intangibles				841			1,031			3,416			2,797
			Total operating expenses		27,061			21,919			87,199			80,011
Income from operations					4,071			19,727			37,565			76,081
Interest expense					(357	)		(657	)		(2,085	)		(3,029	)
Other income (expense), net					(383	)		1,268			2,246			(499	)
Income before income taxes					3,331			20,338			37,726			72,553
Income taxes					635			7,326			13,499			27,606
Net income					2,696			13,012			24,227			44,947
	Other comprehensive income (loss)				97			(1,922	)		2,118			1,019
	Comprehensive income			$	2,793		$	11,090		$	26,345		$	45,966
Earnings Per Common Share:
		Basic		$	0.15		$	0.73		$	1.36		$	2.56
		Diluted		$	0.15		$	0.70		$	1.33		$	2.41
Weighted Average Shares Outstanding:
		Basic			17,916			17,779			17,856			17,565
		Diluted			18,368			19,148			18,259			19,231

Amounts for 2002 have been adjusted to reflect adoption of SFAS No.145 effective October 1, 2002. Prior to adoption, gains and losses on extinguishment of debt were reflected as extraordinary items. Gain and losses on extinguishment of debt are now included in other income (expense).

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Twelve Months Ended September 30, 2003 and 2002
(in thousands)

				2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	24,227		$	44,947
	Adjustments to reconcile net income to cash provided by operations-
		Deferred income taxes			3,354			(133	)
		Depreciation and amortization			26,153			23,722
		Stock option tax benefits			623			2,864
		Gain on extinguishment of debt			(34	)		1,361
		Other			982			1,977
	Changes in assets and liabilities, net-
		Accounts receivable, net			(1,865	)		(18,518	)
		Accounts payable and accrued expenses			(6,117	)		5,869
		Income taxes payable			(1,851	)		(3,366	)
		Inventories			(363	)		(4,522	)
		Prepaid royalties and accrued royalties			(4,226	)		1,630
		Other			(1,395	)		(3,106	)
			Net cash provided by operating activities		39,488			52,725
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures, net				(33,121	)		(25,539	)
	Acquisitions of businesses and intangibles, net of costs				(15,795	)		(19,006	)
	Other				—			(238	)
			Net cash used in investing activities		(48,916	)		(44,783	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Long-term debt borrowings – German mortgage				3,001			—
	Long-term debt repayments				(9,429	)		(6,397	)
	Common stock purchases for treasury				(2,024	)		(1,975	)
	Dividends paid — common shareholders				(2,497	)		—
	Dividends paid — minority interest shareholders				(1,256	)		(1,353	)
	Stock option and other exercise proceeds				871			6,618
			Net cash used in financing activities		(11,334	)		(3,107	)
Effect of exchange rates on cash and cash equivalents					639			236
Net change in cash and cash equivalents					(20,123	)		5,071
Cash and cash equivalents, beginning of period					69,585			64,514
Cash and cash equivalents, end of period				$	49,462		$	69,585

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Reconciliation of EBITDA to GAAP Reporting
Three and Twelve Months Ended September 30, 2003 and 2002
(in thousands)

			Three Months Ended				Twelve Months Ended
			2003		2002		2003		2002
Income Before Income Taxes			$	3,331	$	20,338	$	37,726	$	72,553
Interest Expense				357		657		2,085		3,029
Depreciation and Amortization:
	Depreciation — cost of sales			4,474		3,782		17,199		14,757
	Depreciation — operating expenses			1,245		1,563		5,538		6,168
	Amortization of licenses and other intangibles			841		1,031		3,416		2,797
		Total depreciation and amortization		6,560		6,376		26,153		23,722
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)			$	10,248	$	27,371	$	65,964	$	99,304

The company supplements its consolidated financial statements under generally accepted accounting principles (GAAP) with a presentation of EBITDA, a non-GAAP financial measure. Action Performance considers EBITDA to be an important indicator of its operating margin. EBITDA should be considered an addition to, not a substitute for, the company’s other measures of financial performance reported in the consolidated financial statements in accordance with GAAP.

Amounts for 2002 have been adjusted to reflect adoption of SFAS No.145 effective October 1, 2002. Prior to adoption, gains and losses on extinguishment of debt were reflected as extraordinary items. Gains and losses on extinguishment of debt are now included in other income (expense).

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