U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
Commission File Number 0-21630
Action Performance Companies, Inc.
----------------------------------
(Exact name of registrant as specified in its charter)
Arizona 86-0704792
------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2401 W. 1st St., Tempe, AZ 85281
--------------------------------
(Address of Principal Executive Offices)
(602) 894-0100
--------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes xx No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,693,485 shares of common
stock (as of February 12, 1997).
<PAGE>
PART I, ITEM 1 FINANCIAL STATEMENTS
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
As of December 31, 1996 and September 30, 1996
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
----------- -------------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash.................................................. $ 6,078,591 $ 4,983,382
Accounts receivable, net of allowance for doubtful
accounts of $823,324 and $256,324, respectively..... 9,037,646 7,496,988
Inventories........................................... 8,756,680 5,833,812
Deferred income taxes................................. 1,031,619 1,031,619
Prepaid royalties..................................... 3,772,629 2,295,505
Prepaid expenses and other assets..................... 733,464 739,723
----------- -----------
Total current assets................................ 29,410,629 22,381,029
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation of $4,326,189 and $3,362,939, respectively 9,581,925 8,188,441
GOODWILL, net of accumulated amortization............... 26,196,955 56,370
NOTES RECEIVABLE AND OTHER ASSETS....................... 1,017,294 1,022,794
----------- -----------
$66,206,803 $31,648,634
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable...................................... $ 2,580,609 $ 2,188,343
Accrued royalties..................................... 2,872,108 1,180,038
Income taxes payable.................................. 1,073,467 521,547
Accrued expenses and other............................ 918,919 397,529
----------- -----------
Total current liabilities........................... $ 7,445,103 $ 4,287,457
LONG TERM DEBT:
Notes payable......................................... $24,000,000 $ -
Other long term debt.................................. 898,711 364,725
----------- -----------
Total long term debt................................ $24,898,711 $ 364,725
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding.......... - -
Common stock, $.01 par value, 25,000,000 shares
authorized; 13,107,462 and 12,609,769 shares,
respectively, issued and outstanding................ 131,075 126,098
Additional paid-in capital............................ 24,284,723 18,991,296
Retained earnings..................................... 9,447,191 7,879,058
----------- -----------
Total shareholders' equity.......................... 33,862,989 26,996,452
----------- -----------
$66,206,803 $31,648,634
=========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet
2
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Collectible sales................... $ 9,921,727 $ 7,697,301
Apparel and souvenir sales.......... 5,253,475 308,935
----------- -----------
Net sales....................... 15,175,202 8,006,236
Cost of sales....................... 8,780,439 4,764,816
----------- -----------
Gross profit........................ 6,394,763 3,241,420
Selling, general and
administrative expenses........... 3,551,721 1,871,734
----------- -----------
Income from operations.............. 2,843,042 1,369,686
Other income (expense):
Interest income and other, net.... 71,917 101,709
Interest expense.................. (301,406) (8,437)
----------- -----------
Total other income (expense).... (229,489) 93,272
----------- ----------
Income before provision for
income taxes...................... 2,613,553 1,462,958
Provision for income taxes.......... 1,045,420 585,183
----------- -----------
NET INCOME.......................... $ 1,568,133 $ 877,775
=========== ===========
NET INCOME PER COMMON SHARE:
Primary........................... $ 0.12 $ 0.07
=========== ===========
Fully Diluted .................... $ 0.12 $ 0.07
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................... 13,455,352 12,839,544
=========== ===========
Fully Diluted .................... 13,476,148 12,839,544
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Additional
Shares Paid-In Retained
Issued Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1996 12,609,769 $126,098 $18,991,296 $ 7,879,058 $26,996,452
---------- -------- ----------- ----------- -----------
Common stock issued upon
exercise of employee options... 94,332 943 416,793 - 417,736
Common stock issued upon
purchase of business............ 403,361 4,034 4,876,634 - 4,880,668
Net Income...................... - - - 1,568,133 1,568,133
---------- -------- ----------- ---------- -----------
BALANCE, December 31, 1996 13,107,462 $131,075 $24,284,723 $ 9,447,191 $33,862,989
========== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................... $ 1,568,133 $ 877,775
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 768,637 316,688
Change in assets and liabilities:
Accounts receivable...................... (50,199) (379,462)
Inventories.............................. (335,683) (848,770)
Prepaid royalties........................ (1,477,124) (31,497)
Prepaid expense and other assets......... (91,827) (145,142)
Accounts payable......................... (1,172,068) (919,542)
Income taxes payable..................... 551,920 (732,160)
Accrued royalties ....................... 1,077,744 (176,091)
Accrued expenses and other............... 150,385 88,304
----------- -----------
Net cash provided by (used in)
operating activities................... 989,918 (1,949,897)
Cash Flows from Investing Activities:
Acquisition of property and equipment....... (1,022,411) (1,206,994)
Cash acquired in purchase of business ...... 956,397 -
----------- -----------
Net cash used in investing activities..... (66,014) (1,206,994)
Cash Flows from Financing Activities:
Borrowings on line of credit................ 1,278,583 1,830,962
Payments on line of credit.................. (1,278,583) (919,663)
Proceeds from issuance of common stock...... 417,736 301,613
Payments on notes payable................... (218,167) -
Collections on notes receivable............. - 9,472
Principal payments on capital lease
obligation and other....................... (28,264) (15,110)
----------- -----------
Net cash provided by financing activities 171,305 1,207,274
----------- -----------
Increase (Decrease) in Cash................. 1,095,209 (1,949,617)
Cash, Beginning of Period................... 4,983,382 6,759,984
----------- -----------
Cash, End of Period......................... $ 6,078,591 $ 4,810,367
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
5
<PAGE>
ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) INTERIM FINANCIAL REPORTING
The accompanying unaudited Consolidated Financial Statements for Action
Performance Companies, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows for the periods
presented have been made. The results of operations for the three-month period
ended December 31, 1996 are not necessarily indicative of the operating results
that may be expected for the entire year ending September 30, 1997. Certain
prior period amounts have been reclassified to conform to the December 31, 1996
presentation. These financial statements should be read in conjunction with the
Company's Form 10-KSB for the fiscal year ended September 30, 1996.
(2) INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method) or market,
and consist of the following at December 31, 1996:
Raw materials.............................. $ 585,133
Finished goods............................. 8,171,547
----------
$8,756,680
==========
(3) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which range from three to ten years.
Property and equipment consist of the following at December 31, 1996:
Tooling and molds.......................... $ 9,050,547
Furniture, fixtures and equipment.......... 3,124,626
Autos and trucks........................... 1,130,325
Leasehold improvements..................... 602,616
-----------
13,908,114
Less - accumulated depreciation............ (4,326,189)
-----------
$ 9,581,925
===========
The cost of renewals and betterments that materially extend the useful lives of
assets or increase their productivity are capitalized.
(4) NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average number of
common shares and common share equivalents outstanding using the treasury stock
method, except when common share equivalents have an antidilutive effect. All
share amounts and per share data have been restated to reflect the two-for-one
stock split effected as a stock dividend on May 28, 1996.
(5) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments during the three months ended December 31, 1996 and 1995 included
interest of $49,287 and $8,437, respectively, and income taxes of $531,000 and
$1,370,000, respectively.
6
<PAGE>
In November 1996, the Company purchased substantially all of the assets and
certain liabilities of Sports Image, Inc. ("Sports Image") for approximately
$30,000,000, consisting of a $24,000,000 promissory note due January 2, 1997 and
403,361 shares of the Company's common stock. Non-cash financing, investing, and
operating activities for the three months ended December 31, 1996 include (i) a
$4,880,668 increase to common stock issued for the acquisition; (ii) a
$29,616,620 increase of debt and liabilities incurred or assumed in the
acquisition; and (iii) a $7,246,116 increase of assets, net of cash, assumed in
the acquisition.
During the three months ended December 31, 1995, non-cash financing and
investing activities included assets acquired under capital lease agreements of
approximately $233,000.
(6) INCOME TAXES
Income taxes for the three month period ended December 31, 1996 were calculated
by applying the estimated effective tax rate for the fiscal year to the income
before taxes.
(7) BUSINESS COMBINATIONS
In November 1996, the Company purchased substantially all of the assets and
assumed certain liabilities of Sports Image. The purchase price was
approximately $30,000,000, consisting of a $24,000,000 promissory note due
January 2, 1997 and 403,361 shares of the Company's Common Stock. On January 2,
1997, the Company repaid the $24,000,000 promissory note with the proceeds from
the issuance of senior notes and a portion of the borrowings under the Company's
new credit facility. See Note 8. Sports Image sells and distributes a variety of
licensed motorsports products through wholesale distributor networks, corporate
sponsors, and trackside events. Terms of this acquisition were determined by
arms-length negotiations between representatives of Sports Image and
representatives of the Company. In fiscal 1996, the Company derived 16% of its
net sales from Sports Image, a distributor of the Company's die-cast collectible
products. Sports Image had sales of approximately $41,800,000 of apparel,
die-cast replicas, souvenirs, and other motorsports consumer products during the
period from January 1, 1996 to November 7, 1996 (which includes sales of
die-cast collectibles purchased from the Company at an aggregate cost of
approximately $5,800,000). This transaction was accounted for as a purchase.
Unaudited pro forma income statement data
The following unaudited pro forma combined financial information of Action
Performance Companies, Inc. for the fiscal year ended September 30, 1996 and the
three-month period ending December 31, 1996, gives effect to the acquisition of
Sports Image, as if it occurred on October 1, 1995 using the purchase method of
accounting for business combinations. The unaudited pro forma combined financial
information presented herein does not purport to represent what the Company's
actual results of operations would have been had the acquisition of Sports Image
occurred on that date or to project the Company's results of operations for any
future period.
Fiscal Year Ended Three Months Ended
September 30, 1996 December 31, 1996
------------------ ------------------
(Unaudited) (Unaudited)
Net Sales $82,787,000 $20,298,000
Operating Income 14,627,000 3,239,000
Net Income 7,572,000 1,802,000
Net Income Per Common Share $0.56 $0.13
7
<PAGE>
(8) SUBSEQUENT EVENTS
Business Combinations
On January 8, 1997, the Company acquired the business and substantially all of
the assets and assumed specified liabilities of Motorsport Traditions Limited
Partnership ("MTL") and acquired all of the capital stock of Creative Marketing
& Promotions, Inc. ("CMP" and, together with MTL, "Motorsport Traditions") from
1995 Nascar Winston Cup Champion driver Jeff Gordon, Kenneth R. Barbee, certain
entities controlled by Mr. Barbee, and certain other persons. The effective date
of the acquisition of Motorsport Traditions is January 1, 1997. The purchase
price paid by the Company for Motorsport Traditions consisted of (i) cash in the
amount of $5,400,000; (ii) a promissory note in the principal amount of
$1,600,000 issued by a wholly owned subsidiary of the Company; and (iii) an
aggregate of 342,857 shares of the Company's Common Stock. The promissory note
bears interest at 4% per annum, matures on December 31, 1998, and has been
guaranteed by the Company. The terms of the acquisition, including the valuation
of the assets, liabilities, and capital stock acquired by the Company, were
determined by arms-length negotiations between representatives of the sellers
and representatives of the Company. Motorsport Traditions sells and distributes
licensed motorsports products through a network of wholesale distributors and
trackside events. Prior to the acquisitions, MTL and CMP together generated
approximately $25,000,000 in annual revenues from their design, manufacturing,
and sales and distribution activities. This transaction will be accounted for as
a purchase.
Credit Facility
On January 2, 1997, the Company entered into a $16,000,000 credit facility with
First Union National Bank of North Carolina (the "Credit Facility"). The Credit
Facility consists of a revolving line of credit for up to $10,000,000 through
September 30, 1997, and up to $6,000,000 from September 30, 1997 to March 31,
1998 (the "Line of Credit") and a $6,000,000 letter of credit/bankers'
acceptances facility (the "Letter of Credit/BA Facility"). The Line of Credit
bears interest, at the Company's option, at a rate equal to either (i) the
greater of (a) the bank's publicly announced prime rate or (b) a weighted
average Federal Funds rate plus 0.5%, or (ii) LIBOR plus 1.9%. The Line of
Credit is guaranteed by Sports Image and Motorsport Traditions. The Company
utilized $4,000,000 of the Line of Credit to provide part of the cash portion of
the purchase price for Motorsport Traditions and an additional $4,000,000 of the
Line of Credit to repay a portion of the $24,000,000 promissory note issued in
connection with the acquisition of Sports Image. The Letter of Credit/BA
facility is available for issuances of letters of credit and eligible bankers'
acceptances in an aggregate amount up to $6,000,000 to enable the Company to
finance purchases of products from its overseas vendors. The Credit Facility
will mature on March 31, 1998. The Credit Facility contains certain provisions
that, among other things, will require the Company to comply with certain
financial ratios and net worth requirements and will limit the ability of the
Company and its subsidiaries to incur additional indebtedness or to sell assets
or engage in cetain mergers or consolidations.
Sale of Senior Notes
On January 2, 1997, the Company issued an aggregate of $20,000,000 principal
amount of senior notes (the "Senior Notes") to three insurance companies. The
Senior Notes bear interest at the rate of 8.05% per annum, provide for
semi-annual payments of accrued interest, and will mature on January 2, 1999.
The Company may not prepay the Senior Notes prior to maturity, but will be
required to offer to redeem the Senior Notes in the event of a "Change of
Control" of the Company, as defined in the Senior Notes. The Senior Notes
contain certain provisions that, among other things, will require the Company to
comply with certain financial ratios and net worth requirements and will limit
the ability of the Company and its subsidiaries to incur additional indebtedness
or to sell assets or engage in certain mergers or consolidations. The Senior
Notes are guaranteed by Sports Image and Motorsport Traditions. The Company
utilized the proceeds from the Senior Notes to repay the remainder of the
promissory note issued in connection with the acquisition of Sports Image.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Introduction
The Company designs and markets collectible die-cast and pewter
miniature replicas of motorsports vehicles and designs and markets licensed
apparel, souvenirs, and other motorsports consumer items, including t-shirts,
hats, jackets, mugs, key chains, and drink bottles. The Company also represents
popular race car drivers in a broad range of licensing and other
revenue-producing opportunities, including product licenses, corporate
sponsorships, endorsement contracts, and speaking engagements, and develops
marketing and product promotional programs for corporate sponsors of motorsports
that feature the Company's die-cast replicas or other products as premium awards
intended to increase brand awareness of the products or services of the
corporate sponsors. The Company's motorsports collectibles and apparel and
souvenir products are manufactured by third parties, generally utilizing the
Company's designs, tools, and dies.
The Company was incorporated in Arizona in May 1992 and began marketing
die-cast collectibles in July 1992. In August 1994, the Company acquired certain
assets and liabilities of Fan Fueler, Inc. and began marketing product lines of
licensed motorsports consumer products. In November 1996, the Company acquired
the business of Sports Image, which markets and distributes licensed motorsports
apparel and other souvenir items.
Results of Operations of the Company for the Three Months Ended December 31,
1995 and 1996
The Company had net income of $1,568,000, or $0.12 per share, for the
three months ended December 31, 1996, compared with net income of $878,000, or
$0.07 per share, for the three months ended December 31, 1995. The Company
attributes the improvement in net income during the first quarter of fiscal 1997
primarily to (i) additional revenue provided by Sports Image, which the Company
acquired in November 1996; (ii) growth in the motorsports collectible market and
the capture of additional market share, which enabled the Company to produce and
sell increased quantities of collectibles, and (iii) increased sales as a result
of growth in the Company's retail collector club, which provides higher gross
margins.
During the three months ended December 31, 1996 and 1995, sales were
$15,175,000 and $8,006,000, respectively. The $7,169,000, or 90%, increase in
sales resulted from an increase of $4,945,000 in apparel and souvenir sales and
a $2,224,000 increase in collectible sales. The increase in apparel and souvenir
sales is a result of the business activities of Sports Image, which the Company
acquired in November 1996. The increase in collectible sales is primarily
attributable to the continued growth in the motorsports collectible market and
the Company's ability to satisfy consumer demand for high-quality collectibles.
Cost of sales increased to $8,780,000 for the three months ended
December 31, 1996, compared with $4,765,000 for the three months ended December
31, 1995, representing 58% and 60% of net sales, respectively. The decrease in
cost of sales as a percentage of sales resulted primarily from (i) higher gross
margins associated with increased sales through the Company's retail collectors'
club and (ii) the effect of higher sales volume on fixed cost components of cost
of sales, primarily depreciation charges related to the Company's tooling
equipment. The decrease in cost of sales as a percentage of sales for the three
months ended December 31, 1996, is partially offset by the increase of apparel
and souvenir sales, which provide lower margins than sales of the Company's
collectible products.
During the three months ended December 31, 1996 and 1995, selling,
general, and administrative expenses were $3,552,000 and $1,872,000,
respectively, representing 23% of net sales during each of the periods. The
increase in such expenses resulted from the operating expenses of Sports Image,
which the Company acquired in November 1996, and increased expenditures in sales
and marketing, particularly increased advertising consistent with the Company's
strategy to increase collectors' club memberships and distributor sales.
9
<PAGE>
Interest expense increased to $301,000 for the three months ended
December 31, 1996, compared with $8,000 for the three months ended December 31,
1995. The increase in interest expense resulted from accrued interest on notes
payable issued for the acquisition of Sports Image in November 1996.
Seasonality
Sales of collectibles and motorsports consumer products historically
have been lowest in the fourth calendar quarter, corresponding with the end of
the racing season. The Company believes, however, that holiday sales of its
products are increasing, which has the effect of reducing seasonal fluctuations
in its sales.
Liquidity and Capital Resources
The Company's working capital position increased to $21,966,000 at
December 31, 1996 from $18,094,000 at September 30, 1996. The increase of
$3,872,000 is primarily attributable to the Company's results of operations and
working capital acquired from the purchase of Sports Image by the Company in
November 1996.
The Company's operations provided net cash of approximately $990,000
during the three months ended December 31, 1996. The major elements contributing
to net operating cash flow include earnings from operations and uses of cash
from (i) decreases in accounts payable related to the payments for inventories
received during the latter part of the fourth quarter of fiscal 1996, and (ii)
royalty advances paid on new and existing multi-year license agreements.
Capital expenditures for the three months ended December 31, 1996
totalled approximately $1,022,000, of which approximately $861,000 was utilized
for the Company's continued investment in tooling.
During the three months ended December 31, 1996, the Company issued
94,332 shares of Common Stock upon the exercise of employee stock options,
resulting in total proceeds to the Company of approximately $418,000.
In May 1996, the Company entered into a new credit agreement with a
foreign bank. The credit agreement provided the Company's supplier of die-cast
collectible products with security for the Company's purchase orders, up to a
limit of $5.0 million, an increase of $1.5 million from the Company's previous
agreement. The agreement also provided for an import cash line of credit of $1.0
million, which enabled the Company to finance its imports for up to 90 days from
the date of shipment. As of December 31, 1996, there were no amounts outstanding
on the import cash line of credit. Total purchase commitments of approximately
$1,801,000 at December 31, 1996 were secured by the assets of the Company. In
January 1997, the Company entered into the new Credit Facility and issued Senior
Notes, as described below, to replace the previous credit agreement as well as
to provide financing for recent acquisitions.
In November 1996, the Company purchased substantially all of the assets
and assumed certain liabilities of Sports Image, Inc. The purchase was
approximately $30,000,000, consisting of a $24,000,000 promissory note due
January 2, 1997 and 403,361 shares of the Company's Common Stock. On January 2,
1997, the Company repaid the promissory note with the proceeds from the issuance
of Senior Notes and a portion of the borrowings under the Credit Facility
described below. Sports Image sells and distributes a variety of licensed
motorsports products through wholesale distributor networks, corporate sponsors,
and trackside events. The terms of this acquisition were determined by
arms-length negotiations between representatives of Sports Image and
representatives of the Company. In fiscal 1996, the Company derived 16% of its
net sales from Sports Image, a distributor of the Company's die-cast collectible
products.
10
<PAGE>
In January 1997, the Company acquired substantially all of the assets
and certain liabilities of Motorsport Traditions Limited Partnership and all of
the capital stock of Creative Marketing & Promotions, Inc. for approximately
$13,000,000 consisting of cash in the amount of $5,400,000, a promissory note in
the principal amount of $1,600,000, and an aggregate of 342,857 shares of the
Company's Common Stock. The terms of the acquisitions were determined by
arms-length negotiations between representatives of the sellers and
representatives of the Company. Motorsports Traditions sells and distributes
licensed motorsports products through a network of wholesale distributors and
trackside events. Prior to the acquisition, Motorsports Traditions generated
approximately $25,000,000 in annual revenues from its design, manufacturing, and
sales and distribution activities.
On January 2, 1997, the Company entered into the $16,000,000 Credit
Facility with First Union National Bank of North Carolina. The Credit Facility
consists of a revolving line of credit for up to $10,000,000 through September
30, 1997, and up to $6,000,000 from September 30, 1997 to March 31, 1998 and a
$6,000,000 letter of credit/bankers' acceptances facility. The Line of Credit
bears interest, at the Company's option, at a rate equal to either (i) the
greater of (a) the bank's publicly announced prime rate or (b) a weighted
average Federal Funds rate plus 0.5%, or (ii) LIBOR plus 1.9%. The Line of
Credit is guaranteed by Sports Image and Motorsport Traditions. The Company
utilized $4,000,000 of the Line of Credit to provide part of the cash portion of
the purchase price for Motorsport Traditions and an additional $4,000,000 of the
Line of Credit to repay a portion of the $24,000,000 promissory note issued in
connection with the acquisition of Sports Image. The Letter of Credit/BA
Facility is available for issuances of letters of credit and eligible bankers'
acceptances in an aggregate amount up to $6,000,000 to enable the Company to
finance purchases of products from its overseas vendors. The Credit Facility
will mature on March 31, 1998. The Credit Facility contains certain provisions
that, among other things, will require the Company to comply with certain
financial ratios and net worth requirements and will limit the ability of the
Company and its subsidiaries to incur additional indebtedness or to sell assets
or engage in certain mergers or consolidations.
On January 2, 1997, the Company issued an aggregate of $20,000,000
principal amount of Senior Notes to three insurance companies. The Senior Notes
bear interest at the rate of 8.05% per annum, provide for semi-annual payments
of accrued interest, and will mature on January 2, 1999. The Company may not
prepay the Senior Notes prior to maturity, but will be required to offer to
redeem the Senior Notes in the event of a "Change of Control" of the Company, as
defined in the Senior Notes. The Senior Notes contain certain provisions that,
among other things, will require the Company to comply with certain financial
ratios and net worth requirements and will limit the ability of the Company and
its subsidiaries to incur additional indebtedness or to sell assets or engage in
certain mergers or consolidations. The Senior Notes are guaranteed by Sports
Image and Motorsport Traditions. The Company utilized the proceeds from the
Senior Notes to repay the remainder of the promissory note issued in connection
with the acquisition of Sports Image.
The Company believes that its current cash resources, the Credit
Facility, and expected cash flow from operations will be sufficient to fund the
Company's capital needs during the next 12 months at its current level of
operations, apart from capital needs resulting from any additional acquisitions.
However, the Company may be required to obtain additional capital to fund its
planned growth during the next 12 months and beyond, particularly to provide
guarantees under licensing arrangements or to obtain international letters of
credit in connection with purchase orders from its off-shore manufacturer of
die-cast collectibles. Potential sources of any such capital may include the
proceeds from the exercise of outstanding options, bank financing, strategic
alliances, and additional offerings of the Company's equity or debt securities.
There can be no assurance that such capital will be available from these or
other potential sources, and the lack of such capital could have a material
adverse affect on the Company's business.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
On November 7, 1996, the Company issued an aggregate of
403,361 shares of Common Stock valued at an aggregate of
$6,000,000 to Earnhardt Investments, Inc., Joseph M. Mattes,
David M. Furr, Donald G. Hawk, Jr., and Christopher L.
Williams as a portion of the consideration paid by the Company
for the business, assets, and certain liabilities of Sports
Image, Inc. The shares of Common Stock were issued without
registration in reliance on the exemption provided by Section
4(2) under the Securities Act of 1933, as amended.
ITEM 3. Defaults Upon Securities
Not applicable
ITEM 4. Submissions of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.33 Asset Purchase Agreement dated as of November 7,
1996, among Action Performance Companies, Inc.,
SII Acquisition, Inc., Sports Image, Inc., and
R. Dale Earnhardt and Teresa H. Earnhardt (1)
10.34 Promissory Note dated November 7, 1996, in the
principal amount of $24,000,000 issued by SII
Acquisition, Inc., as Maker, to Sports Image,
Inc., as Payee, together with Guarantee of
Action Performance Companies, Inc. (1)
10.35 Security Agreement dated November 7, 1996,
between Sports Image, Inc. and SII Acquisition,
Inc. (1)
10.36 Registration Agreement dated November 7, 1996,
among Action Performance Companies, Inc., Sports
Image, Inc., and R. Dale Earnhardt and Teresa H.
Earnhardt (1)
10.37 License Agreement dated as of November 7, 1996,
among SII Acquisition, Inc., Dale Earnhardt, and
Action Performance Companies, Inc. (1)
10.38 Employment Agreement dated as of November 7,
1996, between Action Performance Companies, Inc.
and Joe Mattes (1)
11.1 Computation of Primary Earnings Per Share
11.2 Computation of Fully Diluted Earnings Per Share
27 Financial Data Schedule
----------
(1) Incorporated by reference to the Registrant's Form
8-K filed with the Securities and Exchange Commission on
November 22, 1996, as amended by Form 8-K/A filed on
January 13, 1997.
(b)Reports on Form 8-K
On November 22, 1996, the Company filed a Current Report
on Form 8-K dated November 7, 1996, as amended by Form
8-K/A filed on January 13, 1997, reporting the
acquisition of Sports Image, Inc.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACTION PERFORMANCE COMPANIES, INC.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Fred W. Wagenhals Chairman of the Board, President, and February 14, 1997
- --------------------- Chief Executive Officer
Fred W. Wagenhals (Principal Executive Officer)
/s/ Christopher S. Besing Vice President, Chief Financial Officer, February 14, 1997
- ------------------------- Treasurer, and Director (Principal
Christopher S. Besing Financial and Accounting Officer)
</TABLE>
13
EXHIBIT 11.1
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months Ended
December 31,
---------------------------
1996 1995
---------- ----------
Shares
Weighted average number of common
shares outstanding 12,903,047 11,290,318
Additional shares assuming conversion of:
Stock Options 531,181 504,206
Warrants 21,124 45,020
Preferred Stock -- 1,000,000
----------- -----------
Weighted average shares outstanding 13,455,352 12,839,544
=========== ===========
Net Income $ 1,568,133 $ 877,775
=========== ===========
Primary Earnings Per Share $ 0.12 $ 0.07
=========== ===========
All share amounts and per share data have been restated to reflect the
two-for-one stock split effected as a stock dividend on May 28, 1996.
EXHIBIT 11.2
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Three Months Ended
December 31,
1996 1995
----------- -----------
Shares
Weighted average number of common
shares outstanding 12,903,047 11,290,318
Additional shares assuming conversion of:
Stock Options 551,231 504,206
Warrants 21,870 45,020
Preferred Stock -- 1,000,000
----------- -----------
Weighted average shares outstanding 13,476,148 12,839,544
=========== ===========
Net Income $ 1,568,133 $ 877,775
=========== ===========
Fully Diluted Earnings Per Share $ 0.12 $ 0.07
=========== ===========
All share amounts and per share data have been restated to reflect the
two-for-one stock split effected as a stock dividend on May 28, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit contains summary financial
information extracted from the Registrant's
financial statements for the period ended December
31, 1996, and is qualified in its entirety by
reference to such financial statements. This
exhibit shall not be deemed filed for purposes of
Section 11 of the Securities Act of 1934, or
otherwise subject to the liability of such
Sections, nor shall it be deemed a part of any
other filing which incorporates this report by
reference, unless such other filing expressly
incorporates this Exhibit by reference.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,079
<SECURITIES> 0
<RECEIVABLES> 9,861
<ALLOWANCES> 823
<INVENTORY> 8,757
<CURRENT-ASSETS> 29,411
<PP&E> 13,908
<DEPRECIATION> 4,326
<TOTAL-ASSETS> 66,207
<CURRENT-LIABILITIES> 7,445
<BONDS> 24,899
0
0
<COMMON> 131
<OTHER-SE> 24,285
<TOTAL-LIABILITY-AND-EQUITY> 33,863
<SALES> 15,175
<TOTAL-REVENUES> 15,175
<CGS> 8,780
<TOTAL-COSTS> 8,780
<OTHER-EXPENSES> 3,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> 2,614
<INCOME-TAX> 1,045
<INCOME-CONTINUING> 1,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,568
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
