Action Performance Reports Q3 Net Loss of $23.6 Million
2 August 2000
Q3 Sales Down: $76.1 million vs. $101.5 million in year-ago
quarter. Company announces executive management changes.
PHOENIX - Action Performance Companies, Inc. reported on Tuesday financial
results for its third fiscal quarter ended June 30, 2000 and changes in its
executive management team. Operating results for the quarter reflect both cash
and non-cash restructuring and other special charges of approximately $29.2
million related to the previously announced decision to exit goracing.com,
as well as certain inventory and other asset write-downs based on changes in
market conditions and management's refocus on core business activities.
Quarterly Results
Action Performance Companies sales for the third quarter ended June 30, 2000
were $76.1 million, down 25% from $101.5 million recorded in the same quarter
of the prior fiscal year. The company's adjusted pre-tax income, which excludes
approximately $29.2 million in restructuring and other special charges and
approximately $2.0 million in remaining operating losses for goracing.com, was
$0.8 million for the most recent quarter. In the third fiscal quarter of the
prior year, the company recorded pre-tax income of $19.3 million. The company's
net loss for this year's third fiscal quarter was $23.6 million, or $1.44 per
diluted share, compared to net income of $11.6 million, or $0.64 per diluted
share for the third quarter of the prior year. Adjusted net income, excluding
these charges and remaining goracing.com operating losses, was $0.6 million, or
$0.04 per diluted share for the fiscal 2000 quarter. Fiscal 1999 third quarter
results did not include any significant restructuring or other special charges.
Commenting on the quarter, Fred Wagenhals, chairman, president and chief
executive officer, said, ``We are disappointed by the quarter's results. In that
regard, we are instituting measures to bring overhead more in line with current
sales levels and are accelerating a number of marketing programs designed to
drive sales growth. We anticipate that these measures will strengthen us during
this temporary trough in the overall growth in the motorsport industry, which we
believe will pick up next year when two new networks begin covering racing
events and promotional activity increases.''
Mr. Wagenhals further noted, ``We anticipate a return to profitability in
2001 based in part on the savings in overhead we expect to achieve, our new
contract with Evernham Motorsports for apparel, die-cast and souvenirs as Dodge
enters NASCAR after many years of absence, and incremental sales related to the
two new events in Kansas City and Chicago.''
Restructuring and Other Special Charges
In its press release of May 24, 2000, the company announced plans to exit
its Internet business, goracing.com. In the fiscal third quarter of 2000, the
company recorded restructuring charges of approximately $15.9 million related to
the write-off of goodwill, endorsements, sponsorships and employee severance and
termination costs. Fiscal third quarter results also include approximately $2.0
million of goracing.com's operating losses. The company does not expect to
record any significant goracing.com operating losses in the future.
In addition to the goracing.com restructuring charge, Action Performance
has recorded a special charge totaling approximately $13.3 million. This special
charge is compOsed of a $2.6 million inventory write-down associated with a
strategic decision to destroy certain die-cast products in an effort to preserve
the after-market value of die-cast collectibles; a $2.6 million write-down for
excess apparel inventories primarily based on anticipated sponsorship and livery
changes that will render the merchandise obsolete; a $3.0 million provision
for vendor discounts that the company will not receive due to lower than
anticipated volumes; approximately $1.3 million related to the write-off of
certain long-term contracts; a $1.0 million write-off of an equity investment
in a motorsport company that filed for bankruptcy during the quarter; and $2.8
million in other asset impairments.
In determining the amounts of these restructuring and other special
charges, the company has made estimates based on currently available information.
Future events or circumstances could impact these estimates and result in
additional write-offs.
Executive Management Changes
Action Performance's Board and management outlined measures to address the
company's operating performance and future growth. These actions include
management changes, planned consolidation of operations and cost reductions, and
the development of several marketing initiatives designed to increase revenues
and enhance the company's operating performance.
David Husband, currently the company's chief financial officer, will play
an increasing role in the company's day-to-day operations. The company plans to
appoint Mr. Husband as Action Performance's chief operating officer. The company
will recruit a new chief financial officer. In addition, John Bickford Sr., a
vice president and current board member, will serve as the interim general
manager of the company's U.S. apparel operations. As part of this move, Tod J.
Wagenhals, currently executive vice president and a member of the board of
directors, is withdrawing from the company to pursue other interests.
``Management and the Board are developing a plan to significantly
restructure the company's operations with the objective of restoring Action
Performance to profitable growth,'' Mr. Husband said. ``As part of this plan,
we are taking a hard look at measures required to improve logistics and
other process improvements in all of our operations. Overall, I believe there
are a multitude of top line and cost-saving synergies that we can create through
the further integration of the various acquisitions we have completed over the
past several years.''
Nine Month Results
Action Performance Companies revenues for the nine months ended June 30, 2000
were $198.9 million, down 21% from $252.0 million recorded in the same period
of the prior fiscal year. Including the $31.5 million in restructuring and
other special charges taken in the first and third quarters of fiscal 2000, the
company's net loss was $29.8 million in this nine-month period, or $1.80 per
diluted share. In the same period of the prior year, the company recorded net
income of $23.0 million, or $1.33 per diluted share. Fiscal 1999 nine month
results did not include any significant restructuring or other special charges.
About Action Performance
Action Performance Companies, Inc. is a leader in the design, marketing,
promotion and distribution of licensed motorsports merchandise. Its products
include a broad range of motorsports-related die-cast replica collectibles;
apparel; souvenirs and other memorabilia. The company markets and distributes
products through a variety of channels, including the Racing Collectibles Club
of America (RCCA); trackside at racing events; mass retail department stores
and a worldwide network of wholesale distributors and specialty dealers.
ACTION PERFORMANCE COMPANIES, INC.
Summary Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
Sales:
Collectibles $ 42,445 $ 63,807 $ 109,781 $ 156,113
Apparel and souvenirs 31,970 35,434 83,744 89,863
Other 1,640 2,283 5,380 6,042
Net sales 76,055 101,524 198,905 252,018
Cost of sales
(includes $10,676 of
special charges)(a) 61,993 60,687 146,783 155,452
Gross profit 14,062 40,837 52,122 96,566
Gross profit percentage 18.5% 40.2% 26.2% 38.3%
Operating expenses:
(includes $17,458
of special charges)(a)
Selling, general and
administrative 26,711 18,277 67,159 48,977
Other non-recurring
charges 5,806 -- 8,056 --
Amortization of
goodwill and other
intangibles 9,216 1,603 13,443 4,561
Total operating
expenses 41,733 19,880 88,658 53,538
Income (loss)
from operations (27,671) 20,957 (36,536) 43,028
Other income (expense):
(includes $1,034 of
special charges)(a)
Minority interest
in earnings (62) (613) (613) (1,257)
Interest and
other, net (2,647) (1,060) (4,453) (3,441)
Total other
expense, net (2,709) (1,673) (5,066) (4,698)
Income (loss) before
provision (benefit)
for income taxes (30,380) 19,284 (41,602) 38,330
Provision for
(benefit from)
income taxes (6,809) 7,714 (11,765) 15,332
Net income (loss) $ (23,571) $ 11,570 $ (29,837) $ 22,998
Net income (loss)
per common share:
Basic ($1.44) $0.68 ($1.80) $1.37
Diluted ($1.44) $0.64 ($1.80) $1.33
Weighted average
shares outstanding:
Basic 16,358 16,895 16,563 16,743
Diluted 16,358 19,297 16,563 19,165
(a) Special charges refer to the 3 months ended 6/30/00, in thousands
ACTION PERFORMANCE COMPANIES, INC.
Summary Consolidated Balance Sheets
(In thousands)
June 30, September 30,
2000 1999
Current Assets:
Cash $ 21,910 $ 58,523
Accounts receivable, net 43,066 44,988
Inventories 37,222 45,310
Prepaid royalties 12,770 7,271
Other assets 12,348 2,953
Total Current Assets 127,316 159,045
Property and equipment, net 56,257 56,162
Goodwill and other intangibles, net 100,561 111,634
Other assets 6,364 8,906
$290,498 $335,747
Current Liabilities:
Accounts payable $ 20,667 $ 20,127
Accrued royalties 10,171 13,519
Accrued expenses and other 13,095 14,889
Current portion of long term-debt 1,442 2,713
Total Current Liabilities 45,375 51,248
Long-term debt 108,557 109,208
Minority interest in subsidiaries 2,017 2,300
Shareholders' Equity 134,549 172,991
$290,498 $335,747