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

Exhibit 99.1

Action Performance Reports Third Quarter 2005 Results

PHOENIX, August 2, 2005—Action Performance Companies, Inc. (NYSE:ATN), the leader in the design, marketing, promotion, and distribution of licensed motorsports merchandise, today announced financial results for the fiscal third quarter ended June 30, 2005. For the quarter, the company reported revenues from continuing operations of $72.7 million compared with $88.3 million in the prior year period. The decrease in revenue for the quarter resulted primarily from lower sales of die-cast products to wholesale customers and mass merchandisers, and to a lesser extent, lower apparel and memorabilia sales to wholesale channels.

The Company reported a net loss from continuing operations of $9.5 million, or $0.51 per share, compared with net income from continuing operations of $4.7 million, or $0.26 in the prior year’s quarter. Included in loss from continuing operations for the current quarter were pre-tax charges relating to the write-down of intangible assets of $12.7 million ($8.0 million after tax) as well as foreign currency exchange losses of $1.1 million ($0.7 million after tax).

The Company also announced its decision to divest a business. The Company is currently in negotiations to sell its McArthur Towel business and based on the current status of such negotiations, anticipates completing the sale in the fourth quarter of fiscal 2005. In connection with this decision and the anticipated sale of the division, the Company recorded in the third fiscal quarter an after-tax net loss of $1.7 million. This charge will be reflected as a component of discontinued operations.

In addition, the Company announced its decision to discontinue its Jeff Hamilton apparel business and the Castaway collectible business. In connection with this action, the Company recorded in the third fiscal quarter an after-tax net loss of $4.3 million, primarily related to the write-down of the businesses’ remaining assets. These charges will be reflected as a component of discontinued operations.

For the nine months ended June 30, 2005, the company reported revenues from continuing operations of $216.1 million, compared with revenues of $232.7 million in the prior year, a decrease of 7.1%. The company reported a net loss from continuing operations of $13.8 million, or $0.75 per share, compared with net income of $5.1 million, or $0.27 per share in the prior year.

Fred Wagenhals, Chief Executive Officer, commented “As we continue to execute our restructuring plan, we are pleased to make incremental strategic progress each quarter. To that end, we plan to sell our McArthur Towel business, which had been operating near breakeven, and recorded write-downs of assets associated with the Jeff Hamilton business. In addition, we continued to realign our distribution model, and we were ultimately pleased that revenues and income from operations were consistent with our expectations. We believe each of these items represent progress consistent with our previously announced plans and improves the company’s position as we look to the remainder of fiscal 2005 and beyond to 2006.”

Business Outlook

While Action Performance refrains from giving specific revenue and earnings guidance, the Company expects fiscal fourth quarter 2005 revenue to be higher than the third quarter of 2005, but lower than revenue in the fourth quarter of 2004, largely as a result of lower anticipated sales of die-cast and apparel to wholesale distributors leading up to the transition to the direct to dealer distribution approach on October 1, 2005.

Dividend Policy

The Board of Directors has decided not to declare a 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 future dividends 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 Company’s anticipated revenues during the fourth quarter, the results of its restructuring and the anticipated sale of the McArthur Towel business. 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 March 31, 2005, each of which is on file with the U.S. Securities and Exchange Commission. In addition, the ability of the company to successfully complete the proposed sale of its McArthur Towel business is subject to various risks, many of which are outside of our control, including the successful negotiation of a mutually satisfactory definitive agreement and customary conditions to the closing of the sale.

Contact:

Action Performance, Inc.
David Riddiford, 602-337-3999
Chief Financial Officer
or
Integrated Corporate Relations, Inc.
Tom Ryan, 203-682-8200

ACTION PERFORMANCE COMPANIES, INC.

Unaudited Condensed Consolidated Balance Sheets
June 30, 2005 and September 30, 2004
(in thousands)

	June 30,		September 30,
	2005		2004
ASSETS
Current Assets:
Cash and cash equivalents	$	6,336	$	12,580
Accounts receivable, net		31,263		47,050
Inventories		46,457		48,514
Prepaid royalties		5,608		2,774
Taxes receivable		1,132		306
Deferred income taxes		9,700		7,006
Prepaid expenses and other		4,140		5,740
Assets to be disposed		13,846		24,068
Total current assets		118,482		148,038
Long-Term Assets:
Property and equipment, net		57,275		64,691
Goodwill		85,472		86,056
Licenses and other intangibles, net		40,931		52,302
Other		2,092		3,196
Total long-term assets		185,770		206,245
	$	304,252	$	354,283
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	15,597	$	28,044
Accrued royalties		10,388		10,002
Accrued expenses		6,270		8,453
Taxes payable		2,312		1,742
Current portion of long-term debt		373		4,009
Liabilities related to assets to be disposed		1,954		1,729
Total current liabilities		36,894		53,979
Long-Term Liabilities:
Long-term debt		3,908		11,882
Deferred income taxes		22,313		24,979
Other		241		298
Total long-term liabilities		26,462		37,159
Commitments and Contingencies
Minority Interests		2,466		2,518
Shareholders’ Equity		238,430		260,627
	$	304,252	$	354,283

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three and Nine Months Ended June 30, 2005 and 2004
(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	2005			2004			2005			2004
Net sales	$	72,693		$	88,334		$	216,050		$	232,662
Cost of sales		50,583			58,827			155,999			164,135
Gross profit		22,110			29,507			60,051			68,527
Operating expenses:
Selling, general, and administrative		21,037			20,307			62,489			57,346
Amortization of licenses and other intangibles		892			937			2,640			2,715
Impairment losses on trademark and licenses		12,674			—			12,674			—
Total operating expenses		34,603			21,244			77,803			60,061
Operating income (loss)		(12,493	)		8,263			(17,752	)		8,466
Interest expense		(303	)		(468	)		(1,000	)		(1,370	)
Foreign exchange gains (losses)		(1,122	)		(196	)		(214	)		957
Earnings (losses) from joint venture		(59	)		204			343			966
Other income		25			47			106			159
Other expense		(540	)		(280	)		(1,309	)		(1,060	)
Total other expense		(1,999	)		(693	)		(2,074	)		(348	)
Income (loss) from continuing operations before income taxes		(14,492	)		7,570			(19,826	)		8,118
Income taxes		(5,014	)		2,869			(6,012	)		3,042
Income (loss) from continuing operations		(9,478	)		4,701			(13,814	)		5,076
Loss from discontinued operations, net of income taxes		(5,972	)		(868	)		(8,089	)		(1,660	)
Net income (loss)	$	(15,450	)	$	3,833		$	(21,903	)	$	3,416
Earnings (Loss) Per Common Share:
Basic
Income (loss) from continuing operations	$	(0.51	)	$	0.26		$	(0.75	)	$	0.28
Loss from discontinued operations		(0.32	)		(0.05	)		(0.43	)		(0.09	)
Net income (loss)	$	(0.83	)	$	0.21		$	(1.18	)	$	0.19
Diluted
Income (loss) from continuing operations	$	(0.51	)	$	0.26		$	(0.75	)	$	0.27
Loss from discontinued operations		(0.32	)		(0.05	)		(0.43	)		(0.09	)
Net income (loss)	$	(0.83	)	$	0.21		$	(1.18	)	$	0.18
Weighted Average Shares Outstanding:
Basic		18,574			18,336			18,516			18,315
Diluted		18,574			18,606			18,516			18,619

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2005 and 2004
(in thousands)

	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(21,903	)	$	3,416
Adjustments to reconcile net income (loss) to cash provided by operations—
Discontinued operations and related impairment charges		11,002			(3,810	)
Depreciation and amortization		24,612			21,473
Impairment losses on trademark and licenses		12,674			—
Provision for doubtful accounts		2,741			991
Deferred taxes		(6,400	)		690
Other		921			170
Changes in assets and liabilities, net of businesses acquired and disposed—
Accounts receivable		12,967			15,172
Accounts payable and accrued expenses		(10,624	)		(3,264	)
Taxes payable and receivable, net		(199	)		(394	)
Inventories		1,927			(12,173	)
Prepaid royalties and accrued royalties		(2,421	)		1,524
Other		2,487			(4,433	)
Net cash provided by operating activities		27,784			19,362
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net		(18,787	)		(20,208	)
Acquisition of businesses and intangibles, net of costs		(2,103	)		(2,890	)
Other		675			265
Net cash used in investing activities		(20,215	)		(22,833	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit		—			11,700
Long-term debt repayments		(11,636	)		(478	)
Dividends paid — common shareholders		(1,842	)		(2,746	)
Dividends paid — minority interest shareholders		(1,115	)		(1,414	)
Stock option and other exercise proceeds		918			270
Net cash provided by (used in) financing activities		(13,675	)		7,332
Effect of exchange rates on cash and cash equivalents		(138	)		178
Net change in cash and cash equivalents		(6,244	)		4,039
Cash and cash equivalents, beginning of period		12,580			49,462
Cash and cash equivalents, end of period	$	6,336		$	53,501

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ACTION PERFORMANCE COMPANIES, INC.
Unaudited Schedule of Net Sales by Channel
Three and Nine Months Ended June 30, 2005 and 2004
(in thousands)

	Three Months Ended				Nine Months Ended
	2005		2004		2005		2004
Domestic Die-cast:
Wholesale distribution and promotion	$	19,234	$	25,651	$	43,264	$	48,973
Wholesale to mass-merchant retailers		4,492		9,389		29,859		40,884
Retail through collector’s catalog club		4,009		5,701		11,878		13,750
Total domestic die-cast		27,735		40,741		85,001		103,607
Foreign Die-cast — wholesale distribution and promotion		9,430		8,698		29,530		27,135
Total die-cast		37,165		49,439		114,531		130,742
Domestic Apparel and Memorabilia:
Wholesale distribution and promotion		9,278		14,705		32,769		39,520
Wholesale to mass-merchant retailers		6,887		6,745		28,646		26,462
Total apparel and memorabilia		16,165		21,450		61,415		65,982
Retail at Trackside		18,715		16,695		37,698		33,617
Royalties and Other		648		750		2,406		2,321
Net Sales	$	72,693	$	88,334	$	216,050	$	232,662

Note: Amounts have been restated in prior periods to reflect only continuing operations

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