Action Performance Companies 8-K Announces New Distribution Model

Action Performance Reports First Quarter 2005 Results;

Announces New Distribution Model

PHOENIX—(BUSINESS WIRE) February 8 , 2005— Action Performance Companies, Inc. (NYSE:ATN - News), the leader in the design, marketing, promotion, and distribution of licensed motorsports merchandise, today announced financial results for the fiscal first quarter ended December 31, 2004. For the quarter, the company reported revenues of $76.1 million compared with $71.2 million in the prior year, an increase of 6.8%. Revenue growth in the quarter reflected improvements in trackside retail sales resulting from an additional race, as well as improved consumer demand at the racetracks. Apparel sales to wholesale and mass merchants also contributed to the growth in revenues.

The Company reported a net loss of $3.5 million, or $0.19 per share, compared with a net loss of $1.7 million, or $0.09 in first quarter of 2004. Included in the net loss for the first quarter of 2005 is an after-tax charge of $1.5 million for an allowance for uncollectible distributor receivables, an after-tax loss of $1.3 million from the Jeff Hamilton subsidiary and an after-tax charge of $0.3 million in severance expense. The net loss in the comparable period included after-tax charges of $1.0 million.

After a thorough review of Action’s business that was initiated in the fiscal fourth quarter of 2004, the Company concluded that it is necessary to restructure its channels of distribution for its domestic wholesale die-cast business. To that end, the Company intends to change from a network of distributors that it currently uses and distribute directly to retail dealers utilizing one or two fulfillment partners. While the process will take 8-12 months to fully complete, we believe it will afford the Company greater margin opportunities and visibility into its business.

Fred Wagenhals, Chief Executive Officer stated, “We are committed to restoring improved profitability at Action Performance. Streamlining our distribution is critical to executing successfully on the Company’s turnaround plans. The sale of our products direct to retail should enable Action to produce a more focused product line, increase our distribution and better control inventory and costs resulting in improved profitability and return on investment. ”

About Action Performance

Action Performance Companies Inc. (NYSE:ATN — News) 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 http://www.action-performance.com/.

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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, 2004, on file with the U.S. Securities and Exchange Commission.

CONTACT:	Action Performance, Inc. David Riddiford Chief Financial Officer 602/337-3999
	or
	Integrated Corporate Relations, Inc. Hayley Kissel 203/682-8223

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
December 31, 2004 and September 30, 2004
(in thousands)

	December 31,		September 30,
	2004		2004
ASSETS
Current Assets:
Cash and cash equivalents	$	12,795	$	12,580
Accounts receivable, net		43,738		51,769
Inventories		53,407		56,947
Prepaid royalties		3,678		2,834
Taxes receivable		3,174		2,126
Deferred income taxes		8,784		8,766
Prepaid expenses and other		4,443		5,920
Total Current Assets		130,019		140,942
Long-Term Assets:
Property and equipment, net		67,571		64,878
Goodwill		90,536		88,653
Licenses and other intangibles, net		59,213		56,614
Other		3,229		3,196
Total Long-Term Assets		220,549		213,341
	$	350,568	$	354,283
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	27,091	$	28,778
Accrued royalties		9,081		10,702
Accrued expenses		7,485		8,757
Taxes payable		2,612		1,742
Current portion of long-term debt		4,041		4,009
Total Current Liabilities		50,310		53,988
Long-Term Liabilities:
Long-term debt		10,934		11,882
Deferred income taxes and other		27,015		25,277
Total Long-Term Liabilities		37,949		37,159
Commitments and Contingencies
Minority Interests		2,349		2,509
Shareholders’ Equity		259,960		260,627
	$	350,568	$	354,283

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

	Three Months Ended
	2004			2003
Net sales	$	76,054		$	71,207
Cost of sales		59,602			54,251
Gross profit		16,452			16,956
Operating expenses:
Selling, general, and administrative		22,901			19,906
Amortization of licenses and other intangibles		878			941
Total operating expenses		23,779			20,847
Loss from operations		(7,327	)		(3,891	)
Interest expense		(301	)		(431	)
Foreign exchange gains		1,652			829
Earnings from joint venture		293			564
Other income		143			621
Other expense		(260	)		(433	)
Loss before income taxes		(5,800	)		(2,741	)
Income taxes		(2,262	)		(1,036	)
Net loss		(3,538	)		(1,705	)
Other comprehensive income		2,418			1,405
Comprehensive loss	$	(1,120	)	$	(300	)
Loss Per Common Share:
Basic	$	(0.19	)	$	(0.09	)
Diluted	$	(0.19	)	$	(0.09	)
Weighted Average Shares Outstanding:
Basic		18,408			18,281
Diluted		18,408			18,281

Certain prior period amounts have been reclassified to conform to the current year presentation.

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

	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,538	)	$	(1,705	)
Adjustments to reconcile net loss to cash provided by operations-
Depreciation and amortization		7,690			7,566
Provision for doubtful accounts		2,821			204
Other		195			(57	)
Changes in assets and liabilities, net of businesses acquired and disposed-
Accounts receivable		5,427			16,007
Accounts payable and accrued expenses		(4,534	)		(3,835	)
Taxes payable and receivable, net		(405	)		(4,264	)
Inventories		3,910			(8,081	)
Prepaid royalties and accrued royalties		(2,528	)		(6,841	)
Other		254			(2,723	)
Net cash provided by (used in) operating activities		9,292			(3,729	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net		(7,114	)		(7,703	)
Acquisition of businesses and intangibles, net of costs		(430	)		(251	)
Other		-			(47	)
Net cash used in investing activities		(7,544	)		(8,001	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments		(1,340	)		(320	)
Dividends paid - common shareholders		(919	)		(915	)
Dividends paid - minority interest shareholders		(420	)		(1,003	)
Stock option and other exercise proceeds		712			100
Net cash used in financing activities		(1,967	)		(2,138	)
Effect of exchange rates on cash and cash equivalents		434			157
Net change in cash and cash equivalents		215			(13,711	)
Cash and cash equivalents, beginning of period		12,580			49,462
Cash and cash equivalents, end of period	$	12,795		$	35,751

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Schedule of Net Sales by Channel
Three Months Ended December 31, 2004 and 2003
(in thousands)

	Three Months Ended
	2004		2003
Domestic Die-cast:
Wholesale distribution and promotion	$	12,308	$	11,831
Wholesale to mass-merchant retailers		17,538		17,836
Retail through collector’s catalog club		3,771		3,904
Foreign die-cast - wholesale distribution and promotion		10,333		9,437
Total die-cast		43,950		43,008
Domestic Apparel and Memorabilia:
Wholesale distribution and promotion		13,669		13,253
Wholesale to mass-merchant retailers		9,022		8,290
Total apparel and memorabilia		22,691		21,543
Retail at Trackside		8,619		6,096
Royalties and Other		794		560
Net Sales	$	76,054	$	71,207

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