Action Performance Companies 8-K Action Performance Reports Second Quarter 2005 Results

Exhibit 99.1

Action Performance Reports Second Quarter 2005 Results

PHOENIX—(BUSINESS WIRE)—May 9, 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 second quarter ended March 31, 2005. For the quarter, the company reported revenues of $75.3 million compared with $83.6 million in the prior year, a decrease of 9.9%. The decrease in revenue in the quarter resulted primarily from lower sales of die-cast products to mass merchandisers and, to a lesser extent, lower apparel sales to wholesale channels.

The Company reported a net loss of $2.9 million, or $0.16 per share, compared with net income of $1.3 million, or $0.07 in second quarter of 2004.

For the six months ended March 31, 2005, the company reported revenues of $151.4 million, compared with revenues of $154.8 million in the prior year, a decrease of 2.2%. The company reported a net loss of $6.5 million, or $0.35 per share, compared with a net loss of $0.4 million, or $0.02 per share in the prior year.

Fred Wagenhals, Chief Executive Officer, commented “We continue to refine the restructuring plan that was announced last quarter. Improving our distribution model is the cornerstone of that plan. After an exhaustive review of our options, management concluded that Action’s existing Concord, North Carolina facility provided the best combination of cost, access to the customer, control of product to the retail market and ease of implementation. We believe that having Action employees talk directly to our retail customers to understand their needs will help us restore growth to the collector die-cast market.”

Mr. Wagenhals stated further “Although there is much work ahead, we have implemented a number of initiatives that we believe will improve long term profitability at Action Performance. During the quarter, we consolidated the Jeff Hamilton apparel business, reduced headcount and improved our accounts receivable. Overall, I am pleased with the progress that the Company is making and with the commitment that the employees of Action Performance have made to the turnaround plan.”

Business Outlook

While Action Performance refrains from giving specific revenue and earnings guidance, the Company expects fiscal third quarter 2005 sales to be sequentially higher compared to the second quarter, but below year ago levels. Further, it expects wholesale sales of die cast to be down year-on-year reflecting uncertainties associated with the termination of its distributor relationships as the Company transitions to a direct distribution model.

Dividend Policy

The Board of Directors has decided not to declare the quarterly dividend of $0.05 per share. The Board believes that it is prudent to take this action coincident with the restructuring initiatives in place. The evaluation of paying a dividend will be made on a quarter-by-quarter basis.

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/.

This press release contains forward-looking statements, including statements regarding the benefits of our restructuring plan and sales guidance for the remainder of fiscal 2005. 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, under the caption “Business-Risk Factors” and in Exhibit 99.1 to the Company’s Form 10-Q dated December 31, 2004, each of which is 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

ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
March 31, 2005 and September 30, 2004
(in thousands)

	March 31,		September 30,
	2005		2004
ASSETS
Current Assets:
Cash and cash equivalents	$	6,414	$	12,580
Accounts receivable, net		39,444		51,769
Inventories		56,095		56,947
Prepaid royalties		6,126		2,834
Taxes receivable		3,908		2,126
Deferred income taxes		8,772		8,766
Prepaid expenses and other		4,159		5,920
Total current assets		124,918		140,942
Long-Term Assets:
Property and equipment, net		63,072		64,878
Goodwill		89,399		88,653
Licenses and other intangibles, net		58,549		56,614
Other		2,885		3,196
Total long-term assets		213,905		213,341
	$	338,823	$	354,283
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	17,455	$	28,778
Accrued royalties		9,981		10,702
Accrued expenses		6,476		8,757
Taxes payable		2,277		1,742
Line-of-credit and term loans		13,343		—
Current portion of long-term debt		395		4,009
Total current liabilities		49,927		53,988
Long-Term Liabilities:
Long-term debt		4,279		11,882
Deferred income taxes		26,402		24,979
Other		260		298
Total long-term liabilities		30,941		37,159
Commitments and Contingencies
Minority Interests		2,301		2,509
Shareholders’ Equity		255,654		260,627
	$	338,823	$	354,283

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Three and Six Months Ended March 31, 2005 and 2004
(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	2005			2004			2005			2004
Net sales	$	75,326		$	83,596		$	151,380		$	154,803
Cost of sales		55,098			59,434			114,700			113,685
Gross profit		20,228			24,162			36,680			41,118
Operating expenses:
Selling, general, and administrative		20,652			20,377			43,553			40,283
Amortization of licenses and other intangibles		879			943			1,757			1,884
Total operating expenses		21,531			21,320			45,310			42,167
Income (loss) from operations		(1,303	)		2,842			(8,630	)		(1,049	)
Interest expense		(396	)		(471	)		(697	)		(902	)
Foreign exchange gains (losses)		(871	)		(256	)		908			1,153
Earnings from joint venture		109			198			402			762
Other income		56			46			81			112
Other expense		(456	)		(288	)		(725	)		(746	)
Total other income (expense)		(1,558	)		(771	)		(31	)		379
Income (loss) before income taxes		(2,861	)		2,071			(8,661	)		(670	)
Income taxes		54			783			(2,208	)		(253	)
Net income (loss)		(2,915	)		1,288			(6,453	)		(417	)
Other comprehensive income (loss)		(1,587	)		(591	)		831			814
Comprehensive income (loss)	$	(4,502	)	$	697		$	(5,622	)	$	397
Earnings (Loss) Per Common Share:
Basic	$	(0.16	)	$	0.07		$	(0.35	)	$	(0.02	)
Diluted	$	(0.16	)	$	0.07		$	(0.35	)	$	(0.02	)
Weighted Average Shares Outstanding:
Basic		18,568			18,327			18,487			18,304
Diluted		18,568			18,602			18,487			18,304

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
Six Months Ended March 31, 2005 and 2004
(in thousands)

	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,453	)	$	(417	)
Adjustments to reconcile net loss to cash provided by operations-
Depreciation and amortization		16,258			14,713
Provision for doubtful accounts		2,897			572
Other		457			40
Changes in assets and liabilities, net of businesses acquired and disposed-
Accounts receivable		9,518			16,779
Accounts payable and accrued expenses		(9,525	)		(6,276	)
Taxes payable and receivable, net		(1,306	)		(4,934	)
Inventories		1,003			(12,144	)
Prepaid royalties and accrued royalties		(4,029	)		(3,320	)
Other		1,140			(2,080	)
Net cash provided by operating activities		9,960			2,933
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net		(14,698	)		(13,443	)
Acquisition of businesses and intangibles, net of costs		(2,051	)		(2,439	)
Other		450			503
Net cash used in investing activities		(16,299	)		(15,379	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line-of-credit		4,091			—
Long-term debt repayments		(2,287	)		(403	)
Dividends paid — common shareholders		(1,842	)		(1,829	)
Dividends paid — minority interest shareholders		(847	)		(1,149	)
Stock option and other exercise proceeds		918			145
Net cash provided by (used in) financing activities		33			(3,236	)
Effect of exchange rates on cash and cash equivalents		140			180
Net change in cash and cash equivalents		(6,166	)		(15,502	)
Cash and cash equivalents, beginning of period		12,580			49,462
Cash and cash equivalents, end of period	$	6,414		$	33,960

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Schedule of Net Sales by Channel
Three and Six Months Ended March 31, 2005 and 2004
(in thousands)

	Three Months Ended				Six Months Ended
	2005		2004		2005		2004
Domestic Die-cast:
Wholesale distribution and promotion	$	11,846	$	12,098	$	24,154	$	23,929
Wholesale to mass-merchant retailers		7,829		13,659		25,367		31,495
Retail through collector’s catalog club		4,098		4,145		7,869		8,049
Total domestic die-cast		23,773		29,902		57,390		63,473
Foreign Die-cast — wholesale distribution and promotion		9,767		9,000		20,100		18,437
Total Die-cast		33,540		38,902		77,490		81,910
Domestic Apparel and Memorabilia:
Wholesale distribution and promotion		17,721		21,430		31,390		34,683
Wholesale to mass-merchant retailers		12,737		11,427		21,759		19,717
Total apparel and memorabilia		30,458		32,857		53,149		54,400
Retail at Trackside		10,364		10,826		18,983		16,922
Royalties and Other		964		1,011		1,758		1,571
Net Sales	$	75,326	$	83,596	$	151,380	$	154,803

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