Action Performance Companies 8-K Action Performance Reports First Quarter 2004 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 First Quarter 2004 Results

Industry Continues To Be Impacted by Cautious Retail Environment

Action Secures Three New NASCAR Driver Contracts

Funline Unit Makes Strong Contribution in its First Quarter as an Action Company

     PHOENIX — February 2, 2004 — 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 fiscal first quarter.

     The company reported revenues of $71.4 million for the quarter ended December 31, 2003, compared to $85.8 million during the same period last year. The company incurred a net loss for the fiscal first quarter of 2004 of $1.7 million, or $0.09 cents per share, compared to net income of $8.0 million, or $0.44 cents per share for the first three months of fiscal 2003.

     Results for this quarter reflect a previously reported aggregate charge of $1.5 million, or $0.05 per share, for settlement of litigation with Dover International Speedway and the write-off of Pontiac NASCAR tooling. In addition, die-cast margins were adversely impacted by product cost issues related to smaller production runs and the ratable amortization of annual tooling depreciation in a low-revenue quarter. However, first quarter results benefited from apparel margins that have returned to historic levels, following a one-time reduction of apparel inventories in fourth quarter of fiscal 2003.

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Action First Quarter Results
Page Two

     “Timing issues surrounding the finalization of sponsor relationships and promotional strategies, compounded by cautious orders by both wholesale distributors and mass retailers, will continue to impact revenues through the fiscal second quarter,” Action Chief Executive Officer Fred Wagenhals said. “These factors led to reduced die-cast order quantities for individual programs and delayed our ability to produce and ship the product and will impact the second quarter of fiscal year 2004 as well.”

     Action also announced that it instituted a price increase for motorsports die-cast products to reflect increases in production and program costs. “We have tried to manage increased product costs arising from product enhancements and program cost increases. However, we now must offset the continued increases in costs,” Action Chief Financial Officer R. David Martin said.

     At the same time, Action is strengthening its position in NASCAR-related product lines by securing two new exclusive driver licensing contracts with Brendan Gaughan and Ricky Craven. Brendan Gaughan will drive the new Kodak car owned by the Penske racing team. Ricky Craven drives the Tide car, which is one of NASCAR’s most popular vehicles. In addition, Action obtained a non-exclusive license for Ward Burton, a seasoned Daytona 500 champion and popular driver.

     The company reported strong first-quarter performance from its Funline Merchandise Co. acquisition and its Action-McFarlane NASCAR figurine joint venture. Funline contributed $13.2 million in revenue in this quarter and was solidly profitable. Action does not consolidate Action-McFarlane revenues, but recorded $564 thousand in joint venture income in this quarter.

     “Funline is performing very well, primarily due to the continued strength of its West Coast Chopper product lines and the successful introduction of the new Muscle Machine and Muscle Tooner models,” Martin said. “We expect that Funline will continue this robust momentum throughout 2004, which will also include the introduction of its Monster Garage product line.”

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Action First Quarter Results
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     Action reported distribution channel revenues at December 31, 2003 and 2002, in thousands:

			First		First
			Quarter		Quarter
			2003		2002
Domestic Die-cast:
	Wholesale distribution and promotion		$	11,885	$	20,980
	Wholesale to mass-merchant retailers			17,836		13,205
	Retail through collector’s catalogue club			3,904		6,223
Foreign Die-Cast — wholesale distribution and promotion				9,437		9,152
		Total die-cast		43,062		49,560
Domestic Apparel and Other Memorabilia:
	Wholesale distribution and promotion			13,253		16,619
	Wholesale to mass-merchant retailers			8,468		12,585
		Total apparel and other memorabilia:		21,721		29,204
Retail at Trackside				6,096		6,436
Royalties and Other				560		599
Net Sales			$	71,439	$	85,799
Net Sales from Business Acquired in Fiscal 2003			$	13,190	$	—

     Action’s December 31, 2003 cash balance fell to $35.8 million from $49.5 million at September 30, 2003, primarily due to a reduction in current liabilities of $15.7 million, a $9.2 million increase in inventories, and capital expenditures of $7.7 million. Working capital was $111.3 million at December 31, 2003, compared to $113.6 million at September 30, 2003.

     Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $5.3 million compared to $19.6 million in the prior year’s quarter. We supplement our consolidated financial statements under generally accepted accounting principles with the presentation of EBITDA, a non-GAAP financial measure. We consider EBITDA to be an important indicator of our 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. A reconciliation of EBITDA to GAAP reporting is attached following the unaudited consolidated financial statements.

     Receivables at December 31, 2003 were $54.0 million compared to $44.0 million at December 31, 2002 and 69.9 million at September 30, 2003. The entire net increase from 2002 was attributable to the addition of $10.1 million in Funline receivables. Receivables from all channels except Funline and Winner’s Circle die-cast decreased from September 30, 2003 amounts. Wholesale die-cast receivables were comparable to amounts at December 31, 2002 in spite of a quarter revenue decrease due to the timing of 2003 shipments at the end of the quarter.

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Action First Quarter Results
Page Four

     Inventories at December 31, 2003 increased $9.2 million over amounts at September 30, 2003. Of this increase, $3.8 million was attributable to Funline, which must build inventories each December in anticipation of annual January production shut downs for Chinese New Year. The remaining increase was primarily due to in-transit inventories, inventory for mass retail shipments delayed until 2004, and an increase in Jeff Hamilton Collection inventories.

     Inventories were as follows, in thousands:

				Dec. 31, 2003		Sept. 30, 2003
Die-Cast:
	Motorsports Related:
		United States		$	7,045	$	5,031
		Germany			4,469		3,797
	Funline				12,324		8,496
			Total Die-Cast		23,838		17,324
Apparel and Other:
	Motorsports Related				19,912		19,240
	Other				8,715		6,668
			Total Apparel and Other		28,627		25,908
			Total Inventories	$	52,465	$	43,232

Fiscal 2004 Guidance

     Action left its fiscal 2004 revenue expectations unchanged at $400 million to $425 million, while lowering its 12-month guidance for fully diluted earnings per share to a range of $1.50 to $1.75. Management will reassess its 2004 forecasts each quarter, based on the success of the wholesale die-cast price increase, the realization of less-cautious ordering patterns for licensed NASCAR merchandise from distributors, and the continuation of a return to more normalized mass retail revenue levels.

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 and department stores, specialty dealers. Additional information about Action Performance can be found at www.action-performance.com.

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Action First Quarter Results
Page Five

     This press release contains forward-looking statements regarding expectations for revenues, net income, 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, general economic conditions, and other risks discussed in the Company’s Form 10-K, dated September 30, 2003, on file with the U.S. Securities and Exchange Commission.

Action Performance
Page Six

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
December 31, 2003 and September 30, 2003
(in thousands)

			December 31,		September 30,
			2003		2003
ASSETS
Current Assets:
	Cash and cash equivalents		$	35,751	$	49,462
	Accounts receivable, net			54,015		69,890
	Inventories			52,465		43,232
	Prepaid royalties			6,805		6,540
	Taxes receivable			1,014		—
	Deferred income taxes			5,295		5,291
	Prepaid expenses and other			4,259		3,161
		Total Current Assets		159,604		177,576
Long-Term Assets
	Property and equipment, net			65,583		62,951
	Goodwill			88,877		87,448
	Licenses and other intangibles, net			41,675		44,426
	Other			2,804		2,357
		Total Long-Term Assets		198,939		197,182
			$	358,543	$	374,758
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable		$	34,687	$	36,734
	Accrued royalties			5,186		11,762
	Accrued expenses			8,062		11,764
	Taxes payable			—		3,156
	Current portion of long-term debt			328		567
		Total Current Liabilities		48,263		63,983
Long-Term Liabilities:
	Long-term debt			34,715		34,425
	Deferred income taxes and other			12,094		11,816
		Total Long-Term Liabilities		46,809		46,241
Commitments and Contingencies
Minority Interests				2,371		2,941
Shareholders’ Equity				261,100		261,593
			$	358,543	$	374,758

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Action Performance
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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Three Months Ended December 31, 2003 and 2002
(in thousands, except per share data)

				2003			2002
Net sales				$	71,439		$	85,799
Cost of sales					54,251			55,277
Gross profit					17,188			30,522
Operating expenses:
	Selling, general and administrative				20,138			17,362
	Amortization of licenses and other intangibles				941			900
			Total operating expenses		21,079			18,262
Income (loss) from operations					(3,891	)		12,260
Interest expense					(431	)		(579	)
Foreign currency gains and losses, net					829			1,361
Earnings from joint venture					564			—
Other income (expense), net					188			(235	)
Income (loss) before income taxes					(2,741	)		12,807
Income taxes					(1,036	)		4,841
Net income (loss)					(1,705	)		7,966
	Other comprehensive income				1,405			783
	Comprehensive income (loss)			$	(300	)	$	8,749
Earnings (Loss) Per Common Share:
		Basic		$	(0.09	)	$	0.45
		Diluted		$	(0.09	)	$	0.44
Weighted Average Shares Outstanding:
		Basic			18,281			17,791
		Diluted			18,281			19,003

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Action Performance
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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 2003 and 2002
(in thousands)

				2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)			$	(1,705	)	$	7,966
	Adjustments to reconcile net income to cash provided by (used in) operations-
		Depreciation and amortization			7,566			6,249
		Stock option tax benefits			74			407
		Earnings from joint venture			(564	)		—
		Other			433			226
	Changes in assets and liabilities, net-
		Accounts receivable, net			16,211			17,465
		Accounts payable and accrued expenses			(3,835	)		(8,473	)
		Income taxes payable			(4,264	)		3,833
		Inventories			(8,081	)		170
		Prepaid royalties and accrued royalties			(6,841	)		(4,358	)
		Other			(2,723	)		(2,267	)
			Net cash provided by (used in) operating activities		(3,729	)		21,218
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures, net				(7,703	)		(11,135	)
	Other				(298	)		(407	)
			Net cash used in investing activities		(8,001	)		(11,542	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Long-term debt borrowings — German mortgage				—			3,001
	Long-term debt repayments				(320	)		(365	)
	Common stock purchases for treasury				—			(2,024	)
	Dividends paid — common shareholders				(915	)		(532	)
	Dividends paid — minority interest shareholders				(1,003	)		(349	)
	Stock option and other exercise proceeds				100			251
			Net cash used in financing activities		(2,138	)		(18	)
Effect of exchange rates on cash and cash equivalents					157			380
Net change in cash and cash equivalents					(13,711	)		10,038
Cash and cash equivalents, beginning of period					49,462			69,585
Cash and cash equivalents, end of period				$	35,751		$	79,623

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Action Performance
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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Reconciliation of EBITDA to GAAP Reporting
Three Months Ended December 31, 2003 and 2002
(in thousands)

			2003			2002
Income (Loss) Before Income Taxes			$	(2,741	)	$	12,807
Interest Expense				431			579
Depreciation and Amortization:
	Depreciation — cost of sales			5,325			3,840
	Depreciation — operating expenses			1,300			1,509
	Amortization of licenses and other intangibles			941			900
		Total depreciation and amortization		7,566			6,249
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)			$	5,256		$	19,635

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.

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