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  
 
            
— more —

 

 

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  
— more —

 

 

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  
 
            
— more —

 

 

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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