Action Performance Companies 8-K Action Performance Reports Second Quarter 2004 Earnings

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 Second Quarter 2004 Earnings

Company Returns to Profitability and Forecasts Strong Recovery in Die-Cast Business

     PHOENIX — May 3, 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 second quarter and first six months of 2004.

     The company reported revenues of $83.9 million for the quarter ended March 31, 2004, compared to $91.1 million during the same period last year. The company returned to profitability and reported net income for the fiscal second quarter of 2004 of $1.3 million, or $0.07 per share, after deducting special charges of $1.6 million. This compared to net income of $7.3 million, or $0.40 per share for the second quarter of fiscal 2003. EBITDA for the quarter was $9.7 million compared to $18.8 million in the prior year.

     For the six-month period, the company reported revenues of $155.4 million compared with $176.9 million for the first six months of 2003. The company incurred a net loss of $417 thousand or $0.02 per share for the first six months of 2004 after deducting special charges aggregating $2.3 million in the six-month period net of currency translation gains of $573 thousand. This compared to net income of $15.2 million or $0.83 per share in the previous year. EBITDA for the six months was $14.9 million compared with $38.4 million in the prior year.

     The company previously indicated that the first six months would be weak, but would be positively offset by revenues and income in the second half of the year.

— more —

     “I am pleased with our return to profitability and the improvement in our margins,” Action Chief Executive Officer Fred Wagenhals said. “We expect this positive momentum will continue through our third and fourth quarters, which will include the full impact of our die-cast price increases and the revenue impact of a strong backlog of die-cast programs. We’re on the cusp of achieving our expectations and we expect we will only get stronger as we enter the height of the racing season.”

     Mirroring the anticipated increase in revenues in the third and fourth quarters, backlog at March 31, 2004 increased 59.5% to $88.6 million from $55.6 million in the previous quarter. Backlog of die-cast products increased 63.8% to $71.0 million from $43.3 million in the previous quarter.

     Revenues for the quarter and the six months included $10.6 million and $23.8 million, respectively, from the company’s Funline subsidiary, which was acquired in late September 2003. Funline revenues continued to be strong reflecting continued strength in the “West Coast Choppers” and “SS Tuner” products.

     Action’s trackside revenues met expectations in the second quarter of 2004, with revenues from four of the NASCAR season’s first six races exceeding same-track sales during the same period last year. Quarter over quarter trackside comparables were affected by the timing of NASCAR’S Samsung/Radio Shack 500 race, which occurred during Action’s fiscal third quarter in 2004, rather than during the second quarter as in the prior year. Approximately $3 million in trackside revenue from the Texas race held April 2, 2004, will be included in the June quarter. Trackside revenues for the June quarter through the Auto Club 500 race on May 2, 2004 are up slightly over revenues from the same races during 2003.

     The previously disclosed delays in die-cast program approvals caused wholesale distribution die-cast revenues to decline from the 2003 second quarter by $12.2 million. Winner’s Circle die-cast revenues declined by $2.8 million to $3.2 million, reflecting the previously disclosed slow ramp-up of mass retail die-cast orders.

     Cost of sales for the quarter ended March 31, 2004 included a charge of approximately $1 million to increase royalty reserves applicable to the calendar year ended December 31, 2003. Second quarter results also included a $256 thousand loss arising from foreign currency translation adjustments and $350 thousand of other special charges. The combined effects of these three charges totaled approximately $0.06 per share.

— more —

     The company’s second quarter results reflected a sequential improvement over the first quarter ended December 31, 2003. Quarterly revenues improved 17.5% and gross margins excluding, special items in each period, improved to 30.4% from 24.9% in the December quarter, reflecting trackside revenues and the initial impact of the die-cast selling price increases instituted during the fiscal first quarter. Low die-cast revenue and fixed tooling amortization charges reduced gross margins by approximately 0.8% in the first half. Funline margins continue to be impacted by a current product mix that includes high unit value but lower percentage margin products.

     “During the quarter we had $6.7 million operating cash flow and $922 thousand free cash flow.” Action Chief Financial Officer R. David Martin said. “Action’s return to profitability, its operating cash flow and free cash flow for the March quarter, combined with a balance sheet that has remained solid throughout the recent challenging quarters, reflecting the strength of Action’s business model. As we enter the last six months of the fiscal year, we anticipate both sequential and year over year revenue increases and improved margins due to price increases and the impact from growth in higher-margin die-cast revenues.

     “EBITDA for the second quarter of $9.7 million was also a strong recovery increasing $4.4 million or 84.3% over EBITDA of $5.3 million in the previous quarter.” Martin noted that, “Depreciation and amortization in the first six months increased $1.8 million over the prior year reflecting the Funline acquisition and the unusually high capital expenditures of fiscal 2003.”

     Action supplements its consolidated financial statements under generally accepted accounting principles with the presentation of earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash flow, both non-GAAP financial measures. Action considers 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. The Company considers free cash flow to be an important indicator of the Company’s liquidity and defines it as operational cash flow less capital expenditures.

— more —

     Capital expenditures, which are typically greatest in the first half of Action’s fiscal year, totaled $13.4 million in the first six months of 2004 compared to $20.3 million in the same period last year. Capital expenditures remain on track to come within management’s $20 million to $24 million full-year estimate. Of the $13.4 million for the six months, $4.1 million represents Funline capital expenditures, including the previously disclosed $1.6 million of tooling existing at the acquisition date that was acquired from one of Funline’s contract manufacturers. Future capital expenditures will reflect the company’s improved supply chain management processes and controls.

     Action’s March 31, 2003 cash balance remained stable at $34.0 million and is expected to return to historical levels as the fiscal year progresses.

     Action reported distribution channel revenues as follows, in thousands:

	Second		Second
	Quarter		Quarter		YTD		YTD
	2004		2003		2004		2003
Domestic Die-Cast:
Wholesale distribution and promotion	$	12,120	$	24,353	$	24,005	$	45,333
Wholesale to mass-merchant retailers		13,771		5,942		31,607		19,147
Retail through collector’s catalogue club		4,145		4,361		8,049		10,584
Foreign Die-Cast — wholesale distribution and promotion		9,000		8,149		18,437		17,301
Total die-cast		39,036		42,805		82,098		92,365
Domestic Apparel and Memorabilia:
Wholesale distribution and promotion		21,430		21,833		34,683		38,452
Wholesale to mass-merchant retailers		11,616		11,455		20,084		24,040
Total apparel and memorabilia		33,046		33,288		54,767		62,492
Retail at Trackside		10,826		13,991		16,922		20,427
Royalties and Other		1,011		972		1,571		1,571
Net Sales	$	83,919	$	91,056	$	155,358	$	176,855
Net Sales from Business Acquired in Fiscal 2003	$	10,594	$	—	$	23,784	$	—

— more —

     Action also reported inventories as follows, in thousands:

	March 31, 2004		December 31, 2003		March 31, 2003
Die-Cast:
Motorsports Related:
United States	$	7,648	$	7,045	$	5,325
Germany		3,683		4,469		3,046
Funline		13,034		12,324		—
Total Die-Cast		24,365		23,838		8,371
Apparel and Other:
Motorsports Related		21,507		19,912		22,923
Other		10,529		8,715		4,943
Total Apparel and Other		32,036		28,627		27,866
Total Inventories	$	56,401	$	52,465	$	36,237

Fiscal 2004 Guidance

     Action left its fiscal 2004 revenue expectations unchanged at $400 million to $425 million although it is guiding toward the lower end of the range, while lowering its 12-month guidance for fully diluted earnings per share to a range of $1.35 to $1.60. This reduction reflects the special charges in the second quarter and lower than anticipated margins from the Funline and leather jacket business. Management will reassess its 2004 forecasts next quarter, based on the expected success of die-cast program flow, 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.

— more —

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.

     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 COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
March 31, 2004 and September 30, 2003
(in thousands)

	March 31,		September 30,
	2004		2003
ASSETS
Current Assets:
Cash and cash equivalents	$	33,960	$	49,462
Accounts receivable, net		52,753		69,890
Inventories		56,401		43,232
Prepaid royalties		7,942		6,540
Taxes receivable		2,462		—
Deferred income taxes		5,294		5,291
Prepaid expenses and other		3,676		3,161
Total Long-Term Assets		162,488		177,576
Long-Term Assets
Property and equipment, net		63,456		62,951
Goodwill		88,445		87,448
Licenses and other intangibles, net		41,075		44,426
Other		2,445		2,357
Total Long-Term Assets		195,421		197,182
	$	357,909	$	374,758
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	29,525	$	36,734
Accrued royalties		9,915		11,762
Accrued expenses		7,852		11,764
Taxes payable		762		3,156
Current portion of long-term debt		313		567
Total Current Liabilities		48,367		63,983
Long-Term Liabilities:
Long-term debt		34,531		34,425
Deferred income taxes and other		11,520		11,816
Total Long-Term Liabilities		46,051		46,241
Commitments and Contingencies
Minority Interests		2,529		2,941
Shareholders’ Equity		260,962		261,593
	$	357,909	$	374,758

— more —

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Three and Six Months Ended March 31, 2004 and 2003
(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	2004			2003			2004			2003
Net sales	$	83,919		$	91,056		$	155,358		$	176,855
Cost of sales		59,434			59,005			113,685			114,282
Gross profit		24,485			32,051			41,673			62,573
Operating expenses:
Selling, general and administrative		20,700			19,799			40,838			37,161
Amortization of licenses and other intangibles		943			835			1,884			1,735
Total operating expenses		21,643			20,634			42,722			38,896
Income (loss) from operations		2,842			11,417			(1,049	)		23,677
Interest expense		(471	)		(610	)		(902	)		(1,189	)
Foreign currency gains and losses		(256	)		926			573			2,287
Earnings from joint venture		198			—			762			—
Other income and expenses		(242	)		(227	)		(54	)		(462	)
Income (loss) before income taxes		2,071			11,506			(670	)		24,313
Income taxes		783			4,252			(253	)		9,093
Net income (loss)		1,288			7,254			(417	)		15,220
Other comprehensive income (loss)		(591	)		191			814			974
Comprehensive income	$	697		$	7,445		$	397		$	16,194
Earnings (Loss) Per Common Share:
Basic	$	0.07		$	0.41		$	(0.02	)	$	0.85
Diluted	$	0.07		$	0.40		$	(0.02	)	$	0.83
Weighted Average Shares Outstanding:
Basic		18,327			17,847			18,304			17,819
Diluted		18,602			18,998			18,304			19,009

— more —

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 2004 and 2003
(in thousands)

	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(417	)	$	15,220
Adjustments to reconcile net income (loss) to cash provided by operations-
Depreciation and amortization		14,713			12,942
Stock option tax benefits		86			446
Undistributed earnings from joint venture		(762	)		—
Other		716			248
Changes in assets and liabilities, net of businesses acquired and disposed-
Accounts receivable, net		17,351			10,561
Accounts payable and accrued expenses		(6,276	)		(9,932	)
Income taxes receivable and payable		(4,934	)		949
Inventories		(12,144	)		(2,496	)
Prepaid royalties and accrued royalties		(3,320	)		(6,396	)
Other		(2,080	)		(5,046	)
Net cash provided by operating activities		2,933			16,496
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net		(13,443	)		(20,307	)
Acquisition of businesses		(2,439	)		(603	)
Other		503			—
Net cash used in investing activities		(15,379	)		(20,910	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings — German mortgage		—			3,001
Long-term debt repayments		(403	)		(422	)
Common stock purchases for treasury		—			(2,024	)
Dividends paid — common shareholders		(1,829	)		(1,070	)
Dividends paid — minority interest shareholders		(1,149	)		(730	)
Stock option and other exercise proceeds		145			394
Net cash used in financing activities		(3,236	)		(851	)
Effect of exchange rates on cash and cash equivalents		180			477
Net change in cash and cash equivalents		(15,502	)		(4,788	)
Cash and cash equivalents, beginning of period		49,462			69,585
Cash and cash equivalents, end of period	$	33,960		$	64,797

— more —

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Reconciliation of EBITDA to GAAP Reporting
Three and Six Months Ended March 31, 2004 and 2003
(in thousands)

	Three Months Ended				Six Months Ended
	2004		2003		2004			2003
Income (Loss) Before Income Taxes	$	2,071	$	11,506	$	(670	)	$	24,313
Interest Expense		471		610		902			1,189
Depreciation and Amortization:
Depreciation — cost of sales		4,849		4,407		10,174			8,247
Depreciation — operating expenses		1,355		1,451		2,655			2,960
Amortization of licenses and other intangibles		943		835		1,884			1,735
Total depreciation and amortization		7,147		6,693		14,713			12,942
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)	$	9,689	$	18,809	$	14,945		$	38,444

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.

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Calculation of Free Cash Flow
(in thousands)

	Three Months Ended						Six Months Ended
	12/31/2003			3/31/2004			3/31/2004
Cash Flow From Operating Activities	$	(3,729	)	$	6,662		$	2,933
Capital Expenditures, Net		(7,703	)		(5,740	)		(13,443	)
Free Cash Flow	$	(11,432	)	$	922		$	(10,510	)

###