Action Performance Reports Fiscal Year and Fourth Quarter 2003 Results
PHOENIX--Nov. 5, 2003--Action Performance Companies, Inc. , the leader in the design, marketing, promotion, and distribution of licensed motorsports merchandise, today reported financial results for the fourth quarter and fiscal year ended September 30, 2003.The company reported fourth quarter revenues of $106.2 million, compared to $110.5 million during the same period last year. Net income for fourth quarter 2003 was $2.7 million, or $0.15 cents per share, compared to $13.0 million, or $0.70 cents per share for the fourth quarter 2002. Revenues were consistent with expectations set forth by management in July, while earnings were in line with last month's adjusted guidance.
"As managers and shareholders, we clearly recognize the need to achieve our financial expectations," Action Chairman and Chief Executive Officer Fred Wagenhals explained. "At the same time, we're pleased to report that the fourth quarter saw the company continue to generate profits and cash flows while enhancing an already strong balance sheet. Further, increasing popularity of NASCAR and other motorsports will continue to benefit Action, and we're looking forward to this trend and a better economy in 2004 and beyond."
Action also reported fiscal 2003 revenue of $370.6 million, compared to $406.9 million during the fiscal year ended September 30, 2002. Net income for 2003 was $24.2 million, or $1.33 per share, compared to $44.9 million, or $2.41 per share in the year prior.
In addition, Action Performance reported fiscal 2003 distribution channel revenues at September 30, 2003, in thousands:
Fourth Fourth 12 12
Quarter Quarter Months Months
2003 2002 2003 2002
Die-Cast:
Wholesale distribution and
promotion -
Domestic $ 25,541 $ 30,895 $ 102,279 $ 146,286
Foreign 9,122 7,843 34,631 29,433
Wholesale to mass-merchant
retailers 2,350 13,332 22,140 35,900
Retail through Collector's
Catalogue Club 5,545 6,965 24,406 27,295
--------- --------- --------- ---------
Total die-cast 42,558 59,035 183,456 238,914
-------- --------- --------- ---------
Apparel and Other Memorabilia:
Wholesale distribution and
promotion 23,910 15,818 82,254 65,032
Retail at trackside 17,473 18,042 52,456 57,264
Wholesale to mass-merchant
retailers 21,363 17,032 49,496 42,523
--------- --------- --------- ---------
Total apparel and other
memorabilia: 62,746 50,892 184,206 164,819
Royalties and Other 867 569 2,981 3,169
--------- --------- --------- ---------
Net Sales $ 106,171 $ 110,496 $ 370,643 $ 406,902
========= ========= ========= =========
Net Sales from subsidiaries
acquired in 2002 $ 20,544 $ 11,986 $ 35,468 $ 12,967
========= ========= ========= =========
As with the previous quarter, mass retail die-cast orders were substantially lower than in the same period of the year prior. However, apparel and other memorabilia sales from all channels increased. Sales from all 2002 acquisitions including Jeff Hamilton Collections, which was acquired in the fourth quarter of 2002, exceeded management's revenue expectations for the quarter as expected synergies from use of Action's licenses created additional revenues.
The company previously reported that income for the quarter would decline, in part, due to a reduction in gross margins arising principally from a program to reduce apparel and other specialty inventories and increased freight expenses. In addition, gross margins decreased due to a $1.8 million provision for prepaid royalties due to lower than anticipated die-cast revenues for the last six months of calendar 2003. Operating expenses increased principally as a result of higher promotional expenses, increased commissions, a $0.8 million charge-off related to the settlement of a mediation proceeding, and a $1.7 million receivable allowance provision for one customer with overdue invoices.
Other income (expense) included $698 thousand of interest expense related to settlement of an IRS audit through 2000 and an exchange gain of $334 thousand.
Action Chief Financial Officer, David Martin, stated, "The combination of reduced margins and increased expenses produced disappointing results. We believe that the margin reductions and similarly the expense increases are due to quarter specific events or non-routine adjustments necessary because of the fiscal 2003 economy. While we did make provisions for certain prepaid royalties, those driver's programs were profitable during fiscal 2003, but at a reduced rate of profitability."
EBITDA for the quarter and fiscal year were $10.2 million and $66.0 million, respectively, compared with $27.4 million and $99.3 million, respectively, in the previous year. A reconciliation of this non-GAAP financial measure to the financials prepared in accordance with GAAP is set forth in an attached schedule.
Free cash flow, defined as cash flow from operations less capital expenditures, for the quarter and fiscal year was $5.2 million and $6.4 million, respectively, compared with $6.7 million and $27.2 million, respectively, in the prior year periods.
Action Performance made planned capital expenditures totaling $6.3 million and $33.1 million during the fourth quarter and fiscal 2003, respectively. Capital expenditures were abnormally high during fiscal 2003 due to the Monte Carlo retooling, building additions in Germany and Charlotte, and computer system enhancements in Charlotte and at trackside. Fourth quarter expenditures are more typical of those expected on a quarterly basis next year.
"Action's business model and strong balance sheet, with a book value of $14.32 per share (based on 18.3 million shares outstanding), enables us to seek and capitalize on appropriate expansion opportunities, as demonstrated by the recent Funline Merchandise Co., Inc. acquisition," Martin said. "Such acquisitions have allowed us to diversify the company's product mix and develop marketing and distribution synergies."
Action's September 30, 2003 cash balance remained strong at $49.5 million, despite the $15 million in cash used for the acquisition of Funline. Working capital, as measured by the current ratio, was 2.8 times at September 30, 2003, compared to 3.0 times at September 30, 2002.
Days sales outstanding were 55 days at September 30, 2003 excluding the $6.4 million of Funline receivables acquired September 25, 2003, compared to 52 days at June 30, 2003, and 51 days at September 30, 2002.
Inventories at September 30, were as follows, in thousands:
2003 2002
Die-Cast:
Motorsports Related:
United States $ 5,031 $ 5,535
Germany 3,797 3,996
Funline 8,496 ---
--------- ---------
Total Die-Cast 17,324 9,531
--------- ---------
Apparel and Other:
Motorsports Related 19,240 20,384
Other 6,668 3,552
--------- ---------
Total Apparel and Other 25,908 23,936
--------- ---------
Total Inventories $ 43,232 $ 33,467
========= =========
"Other" apparel inventories increased to support subsidiaries
acquired in late fiscal 2002.
Fiscal 2004 Guidance
As previously indicated, die-cast sales to mass retailers declined in fiscal 2003. While orders for shipments in the December quarter have increased from the previous two quarters and mass retailers have indicated that orders are expected to increase year over year, mass retail die-cast revenues in the December quarter are expected to be less than 50% of the amounts in the prior year. The company is also seeing cautious ordering patterns from die-cast distributors, as hobby and specialty store retailers manage their inventory risk. In addition, the production of certain teams' NASCAR die-cast replicas is being delayed until the second fiscal quarter because team paint schemes are not finalized. While orders from distributors have increased in recent weeks, wholesale distribution and promotion die-cast revenues for the December quarter will be less than a year ago. Under Action Performance's own conservative inventory management policies, die-cast products sold to mass retailers and distributors are manufactured only upon receipt of confirmed orders.
For the fiscal year ending September 30, 2004, management expects to report revenues of $400 million to $425 million and fully diluted EPS of $1.70 to $1.95. While Action has not issued guidance for the fiscal first quarter ended December 31, 2003, the company indicated that it expects to be profitable and anticipates continuing to generate free cash flow. However, the company believes that, due to the previously noted matters affecting die-cast orders, analysts' consensus estimates for the December quarter are overstated.
Action further announced that due to continuing uncertainty regarding general economic conditions, the inherent quarterly variability in the motorsports merchandise industry due, in part, to timing of finalization of regular and special paint scheme programs and in keeping with the practice being adopted by a growing number of companies, management will refrain from providing specific quarterly revenue and earnings guidance. Action remains very focused on delivering sustainable, profitable results over the long-term and will continue to provide annual earnings and revenue guidance.
About Action Performance
Action Performance Companies Inc. 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.
Forward-looking Statements
This press release contains forward-looking statements regarding expectations for revenues, EBITDA, net income, cash flow and capital and other funding needs, growth strategy, 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, and other risks discussed in the Company's Form 10-K, dated September 30, 2002, on file with the U.S. Securities and Exchange Commission.
ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
September 30, 2003 and 2002
(in thousands)
2003 2002
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 49,462 $ 69,585
Accounts receivable, net 69,890 61,313
Inventories 43,232 33,467
Prepaid royalties 6,540 6,938
Deferred taxes 5,291 3,155
Prepaid expenses and other 3,161 2,397
--------- ---------
Total Current Assets 177,576 176,855
Property and Equipment, net 62,951 46,378
Goodwill, Licenses and Other Intangibles, net 131,874 108,514
Other Assets 2,357 6,169
--------- ---------
$ 374,758 $ 337,916
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 36,734 $ 28,958
Accrued royalties 11,762 15,146
Accrued expenses 11,764 10,545
Income taxes payable 3,156 4,265
Current portion of long-term debt 567 423
--------- ---------
Total Current Liabilities 63,983 59,337
--------- ---------
Long-Term Liabilities:
Long-term debt 34,425 40,360
Deferred taxes and other 11,816 5,696
--------- ---------
Total Long-Term Liabilities 46,241 46,056
--------- ---------
Commitments and Contingencies
Minority Interests 2,941 3,135
Shareholders' Equity 261,593 229,388
--------- ---------
$ 374,758 $ 337,916
========= =========
ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income
Three and Twelve Months Ended September 30, 2003 and 2002
(in thousands, except per share data)
Three Months Ended Twelve Months Ended
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $ 106,171 $ 110,496 $ 370,643 $ 406,902
Cost of sales 75,039 68,850 245,879 250,810
--------- --------- --------- ---------
Gross profit 31,132 41,646 124,764 156,092
--------- --------- --------- ---------
Operating expenses:
Selling, general and
administrative 26,220 20,888 83,783 77,214
Amortization of licenses
and other intangibles 841 1,031 3,416 2,797
--------- --------- --------- ---------
Total operating expenses 27,061 21,919 87,199 80,011
--------- --------- --------- ---------
Income from operations 4,071 19,727 37,565 76,081
Interest expense (357) (657) (2,085) (3,029)
Other income (expense), net (383) 1,268 2,246 (499)
--------- --------- --------- ---------
Income before income taxes 3,331 20,338 37,726 72,553
Income taxes 635 7,326 13,499 27,606
--------- --------- --------- ---------
Net income 2,696 13,012 24,227 44,947
Other comprehensive income
(loss) 97 (1,922) 2,118 1,019
--------- --------- --------- ---------
Comprehensive income $ 2,793 $ 11,090 $ 26,345 $ 45,966
========= ========= ========= =========
Earnings Per Common Share:
Basic $ 0.15 $ 0.73 $ 1.36 $ 2.56
Diluted $ 0.15 $ 0.70 $ 1.33 $ 2.41
Weighted Average Shares
Outstanding:
Basic 17,916 17,779 17,856 17,565
Diluted 18,368 19,148 18,259 19,231
Amounts for 2002 have been adjusted to reflect adoption of SFAS No.145
effective October 1, 2002. Prior to adoption, gains and losses on
extinguishment of debt were reflected as extraordinary items. Gain and
losses on extinguishment of debt are now included in other income
(expense).
ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Twelve Months Ended September 30, 2003 and 2002
(in thousands)
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,227 $ 44,947
Adjustments to reconcile net income to cash
provided by operations-
Deferred income taxes 3,354 (133)
Depreciation and amortization 26,153 23,722
Stock option tax benefits 623 2,864
Gain on extinguishment of debt (34) 1,361
Other 982 1,977
Changes in assets and liabilities, net-
Accounts receivable, net (1,865) (18,518)
Accounts payable and accrued expenses (6,117) 5,869
Income taxes payable (1,851) (3,366)
Inventories (363) (4,522)
Prepaid royalties and accrued royalties (4,226) 1,630
Other (1,395) (3,106)
--------- ---------
Net cash provided by operating activities 39,488 52,725
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (33,121) (25,539)
Acquisitions of businesses and intangibles,
net of costs (15,795) (19,006)
Other - (238)
--------- ---------
Net cash used in investing activities (48,916) (44,783)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings - German mortgage 3,001 -
Long-term debt repayments (9,429) (6,397)
Common stock purchases for treasury (2,024) (1,975)
Dividends paid - common shareholders (2,497) -
Dividends paid - minority interest
shareholders (1,256) (1,353)
Stock option and other exercise proceeds 871 6,618
--------- ---------
Net cash used in financing activities (11,334) (3,107)
--------- ---------
Effect of exchange rates on cash and cash
equivalents 639 236
--------- ---------
Net change in cash and cash equivalents (20,123) 5,071
Cash and cash equivalents, beginning of period 69,585 64,514
--------- ---------
Cash and cash equivalents, end of period $ 49,462 $ 69,585
========= =========
ACTION PERFORMANCE COMPANIES, INC.
Unaudited Reconciliation of EBITDA to GAAP Reporting
Three and Twelve Months Ended September 30, 2003 and 2002
(in thousands)
Three Months Ended Twelve Months Ended
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Income Before Income Taxes $ 3,331 $ 20,338 $ 37,726 $ 72,553
Interest Expense 357 657 2,085 3,029
Depreciation and Amortization:
Depreciation - cost of
sales 4,474 3,782 17,199 14,757
Depreciation - operating
expenses 1,245 1,563 5,538 6,168
Amortization of licenses
and other intangibles 841 1,031 3,416 2,797
--------- --------- --------- ---------
Total depreciation and
amortization 6,560 6,376 26,153 23,722
--------- --------- --------- ---------
Earnings Before Interest,
Taxes, Depreciation and
Amortization (EBITDA) $ 10,248 $ 27,371 $ 65,964 $ 99,304
========= ========= ========= =========
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.
Amounts for 2002 have been adjusted to reflect adoption of SFAS No.145 effective October 1, 2002. Prior to adoption, gains and losses on extinguishment of debt were reflected as extraordinary items. Gains and losses on extinguishment of debt are now included in other income (expense).