SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission file number 0-21630
ACTION PERFORMANCE COMPANIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
ARIZONA 86-0704792
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
4707 E. Baseline Road
Phoenix, AZ 85040
(602) 337-3700
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(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Indicate by check mark 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 X No
--- ---
As of February 10, 1998, there were outstanding 16,034,044 shares of the
registrant's Common Stock, par value $.01 per share.
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ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and September 30, 1997
(in thousands, except share data)
December 31, September 30,
1997 1997
----------- ------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 8,482 $ 29,318
Accounts receivable, net of allowance for
doubtful accounts of $895 and $837,
respectively ................................... 22,524 17,802
Inventories, net ................................ 24,479 17,855
Prepaid royalties ............................... 8,329 4,967
Prepaid expenses and other assets ............... 1,829 2,603
-------- --------
Total current assets .......................... 65,643 72,545
PROPERTY AND EQUIPMENT, net ....................... 25,512 20,017
GOODWILL AND OTHER INTANGIBLES, net ............... 71,341 46,409
NOTES RECEIVABLE AND OTHER ASSETS ................. 2,468 2,354
-------- --------
$164,964 $141,325
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable ................................ 11,780 $ 6,680
Accrued royalties ............................... 5,871 5,098
Accrued expenses and other ...................... 6,312 3,792
-------- --------
Total current liabilities ..................... 23,963 15,570
LONG-TERM DEBT:
Senior notes payable ............................ 20,000 20,000
Other long-term debt ............................ 13,002 2,586
-------- --------
Total long-term debt .......................... 33,002 22,586
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; 16,012,296 and 15,952,083 shares
issued and outstanding, respectively ........... 160 160
Additional paid-in capital ...................... 86,158 84,984
Retained earnings ............................... 21,681 18,025
-------- --------
Total shareholders' equity .................... 107,999 103,169
-------- --------
$164,964 $141,325
======== ========
The accompanying notes are an integral part of
these consolidated balance sheets
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ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended December 31, 1997 and 1996
(in thousands, except per share data)
1997 1996
-------- --------
(Unaudited) (Unaudited)
Sales:
Collectibles ................................. $ 19,925 $ 9,872
Apparel and souvenirs ........................ 21,390 5,212
Promotional .................................. 1,014 50
Other ........................................ 589 41
-------- --------
Net sales .................................. 42,918 15,175
Cost of sales .................................. 27,862 8,780
-------- --------
Gross profit ................................... 15,056 6,395
Operating expenses:
Selling, general and
administrative expenses ..................... 8,200 3,398
Amortization of goodwill and
other intangibles ........................... 481 154
-------- --------
Total operating expenses ................... 8,681 3,552
-------- --------
Income from operations ......................... 6,375 2,843
Other income (expense):
Interest income and other, net ............... 292 72
Interest expense ............................. (574) (302)
-------- --------
Total other income (expense) ............... (282) (230)
-------- --------
Income before provision for
income taxes ................................. 6,093 2,613
Provision for income taxes ..................... 2,437 1,045
-------- --------
NET INCOME ..................................... $ 3,656 $ 1,568
======== ========
NET INCOME PER COMMON SHARE:
Basic ........................................ $ 0.23 $ 0.12
======== ========
Diluted ...................................... $ 0.22 $ 0.12
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ........................................ 15,994 12,903
======== ========
Diluted ...................................... 16,568 13,464
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended December 31, 1997 and 1996
(in thousands)
1997 1996
--------- ---------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net income ......................................... $ 3,656 $ 1,568
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................... 1,722 769
Change in assets and liabilities, net of
businesses acquired:
Accounts receivable ............................ (1,414) (50)
Inventories .................................... (4,473) (336)
Prepaid royalties .............................. (2,519) (1,477)
Prepaid expenses and other assets .............. 546 (92)
Accounts payable ............................... 4,201 (1,172)
Accrued royalties .............................. 773 1,078
Accrued expenses and other ..................... 1,530 702
-------- --------
Net cash provided by operating activities ..... 4,022 990
Cash Flows from Investing Activities:
Purchase of property and equipment ............... (4,417) (1,022)
Proceeds from sale of equipment .................. 5 --
Acquisition of businesses and other
intangibles, less cash acquired ................. (20,306) 956
-------- --------
Net cash used in investing activities .......... (24,718) (66)
Cash Flows from Financing Activities:
Borrowings on line of credit ..................... -- 1,279
Payments on line of credit ....................... -- (1,279)
Net proceeds from exercise of stock options ...... 174 418
Payments on long-term debt ....................... (319) (246)
Collections on notes receivable .................. 5 --
-------- --------
Net cash provided by (used in)
financing activities .......................... (140) 172
-------- --------
Net change in cash and cash equivalents .......... (20,836) 1,096
Cash and cash equivalents,
beginning of year ............................... 29,318 4,983
-------- --------
Cash and cash equivalents, end of year ........... $ 8,482 $ 6,079
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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, 1997 are not necessarily indicative of the operating results
that may be expected for the entire year ending September 30, 1998. Certain
prior period amounts have been reclassified to conform to the December 31, 1997
presentation. These financial statements should be read in conjunction with the
Company's Form 10-K for the fiscal year ended September 30, 1997.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The supplemental cash flow disclosures and non-cash transactions for the
three-month periods ended December 31, 1997 and 1996 are as follows (in
thousands):
1997 1996
------- -------
Supplemental disclosures:
Interest paid .................................... $ 126 $ 49
Income taxes paid ................................ 853 531
Non-cash transactions:
Common stock issued in acquisitions .............. $ -- $ 4,881
Common stock issued in license agreement ......... 1,000 --
Debt and liabilities incurred or
assumed in acquisitions ........................ 12,625 29,617
Sale of equipment for notes receivable ........... 35 --
(3) RECENT ACQUISITIONS AND LICENSE AGREEMENTS
On October 3, 1997, the Company entered into a ten-year license agreement with
Richard Childress Racing Enterprises, Inc. ("RCR") with respect to various
rights used in connection with race vehicles owned by RCR. In connection with
this agreement, the Company paid RCR a license fee consisting of cash plus
34,940 shares of the Company's Common Stock. The license agreement also requires
the Company to pay to RCR royalties based on sales of licensed products in each
year during the term of the agreement, subject to certain minimum annual
payments.
On December 9, 1997, the Company acquired certain assets and assumed certain
liabilities related to sales of motorsports merchandise licensed by NASCAR
Winston Cup driver Rusty Wallace from an affiliate of Mr. Wallace. The purchase
price paid by the Company for the acquired assets consists of cash of $6.0
million, of which $2.5 million was paid at the closing and the remaining $3.5
million will be paid during fiscal 1998. In connection with the acquisition of
the assets and assumption of the liabilities, the Company entered into a
seven-year license agreement with another affiliate of Mr. Wallace for the name
and likeness of Mr. Wallace and acquired a five-year sublicense with a wholly
owned subsidiary of Penske Motorsports, Inc. The
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license agreement and sublicense agreement both contain options that permit the
Company to renew those agreements for two five-year terms. The license agreement
with the affiliate of Mr. Wallace requires the Company to pay royalties on sales
of licensed products, plus a license fee if sales of licensed products exceed a
specified amount each year during the initial term of the license. This
transaction was accounted for as a purchase.
On December 19, 1997, the Company acquired the assets and assumed certain
liabilities related to the motorsports die-cast collectible product lines of
Revell-Monogram, Inc. ("Revell"). The preliminary purchase price of $24.8
million, which is subject to certain adjustments, consists of an initial cash
payment of $14.8 million and $1.0 million per year for 10 years beginning on
January 1, 1998, provided that certain conditions are met. Revell distributed
die-cast collectibles through a network of wholesale distributors and a
collectible club, which together generated die-cast collectible sales of
approximately $20.0 million during 1997. The Company and Revell also entered
into a 10-year license agreement under which the Company has the right to
utilize certain "Revell" trademarks in connection with sales of its die-cast
products. This transaction was accounted for as a purchase.
(4) UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The following unaudited pro forma combined statements of operations data for the
three-month periods ended December 31, 1997 and 1996 present the results of
operations of the Company as if the acquisitions of the businesses acquired
during fiscal 1997 and the first quarter of fiscal 1998 had occurred as of
October 1, 1996. These acquisitions include Sports Image, Inc., Motorsport
Traditions, Ltd., Creative Marketing & Promotions, Inc., Robert Yates
Promotions, Inc., Image Works, Inc., the collectibles business of Simpson
Products, Inc., the Rusty Wallace acquisition, and the Revell acquisition. Pro
forma results are as follows (in thousands, except per share data):
Three Months Ended Three Months Ended
December 31, 1997 December 31, 1996
------------------- -------------------
Revenues........................ $ 48,505 $ 35,341
Net income...................... 3,974 1,189
Net income per common share..... $ 0.24 $ 0.08
(5) CREDIT FACILITY
On January 2, 1997 the Company entered into a $16.0 million credit facility (the
"Credit Facility") with First Union National Bank of North Carolina. The Credit
Facility, as amended in April 1997, consists of a revolving line of credit (the
"Line of Credit") for up to $10.0 million through September 30, 1997 and up to
$6.0 million from September 30, 1997 to March 31, 1998 and a $10.0 million
letter of credit/bankers' acceptances facility (the "Letter of Credit/BA
Facility"). Effective February 5, 1998, the Line of Credit was reinstated to
$10.0 million from $6.0 million. 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 the Company's
subsidiaries. The Company had no outstanding borrowings under the Line of Credit
as of December 31, 1997. The Letter of Credit/BA Facility is available for
issuances of letters of credit and eligible bankers' acceptances in an aggregate
amount up to $10.0 million to enable the Company to finance purchases of
products from its overseas vendors. The Company had outstanding purchase
commitments of approximately $7.7 million under the Letter of Credit/BA Facility
as of December 31, 1997. The Credit Facility will mature on March 31, 1998. The
Credit Facility contains certain provisions that, among other things, require
the Company to comply with certain financial ratios and net worth requirements
and limit the ability of the Company and its subsidiaries to incur additional
indebtedness, to sell assets, or to engage in certain mergers or consolidations.
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(6) COMMITMENTS AND CONTINGENCIES
The Company is subject to certain asserted and unasserted claims encountered in
the normal course of business. The imposition of damages in certain of those
matters could have a material adverse effect on the Company's financial position
and results of operations.
(7) SUBSEQUENT EVENTS
On January 8, 1998, the Company acquired certain assets and assumed certain
liabilities of Brookfield Collectors Guild, Inc. ("Brookfield"). The purchase
price consisted of (i) approximately $800,000 in cash and (ii) up to 27,397
shares of Common Stock, subject to certain adjustments, to be issued on or
before December 31, 1998. In addition, the Company repaid approximately $1.8
million of the assumed liabilities at the time of closing. Brookfield
distributes various motorsport die-cast collectibles and ensembles as well as
various other die-cast replicas.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS,
AND RESULTS OF OPERATIONS
Overview
The Company designs and markets licensed motorsports products,
including die-cast scaled replicas of motorsports vehicles, apparel, and
souvenirs. The Company also develops promotional programs for sponsors of
motorsports that feature the Company's die-cast replicas or other products and
are intended to increase brand awareness of the products or services of the
corporate sponsors. In addition, the Company 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. The Company's motorsports collectibles and most of the
Company's apparel and souvenirs are manufactured by third parties, generally
utilizing the Company's designs, tools, and dies. The Company screen prints and
embroiders a portion of the licensed motorsports apparel that it sells.
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 licensed
motorsports consumer products.
In November 1996, the Company acquired Sports Image, Inc. ("Sports
Image") and in January 1997 the Company acquired Motorsport Traditions Limited
Partnership and Creative Marketing and Promotions, Inc. (together "Motorsport
Traditions"), each of which marketed and distributed licensed motorsports
apparel, die-cast collectibles and other souvenir items. In July 1997, the
Company acquired Robert Yates Promotions, Inc. ("RYP"), which had operations
similar to those of Sports Image and Motorsport Traditions, and Image Works,
Inc. ("Image Works"), which manufactures and markets licensed motorsports
apparel through the mass-merchandising markets. The Company acquired certain
assets and assumed certain liabilities related to the mini-helmet collectible
business of Simpson Products, Inc. ("Simpson") in August 1997.
In December 1997, the Company acquired certain assets and assumed
certain liabilities related to sales of motorsports merchandise for Winston Cup
driver Rusty Wallace (the "Rusty Wallace Acquisition"). These operations were
similar to those of Sports Image and included both wholesale and trackside
distribution of apparel and souvenirs. In December 1997, the Company also
acquired certain assets and assumed certain liabilities associated with the
motorsports die-cast collectible business of Revell-Monogram, Inc. (the "Revell
Acquisition"). This transaction also creates a strategic alliance between the
Company and Revell-Monogram, Inc. ("Revell") for the use of certain "Revell"
trademarks and the marketing of Revell's plastic model kits. The operations of
the Rusty Wallace-related merchandise will be consolidated into the existing
Sports Image facility in Charlotte, North Carolina while the Revell-related
operations will be consolidated into the Company's headquarters in Phoenix,
Arizona.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of total revenue represented by certain expense and revenue items.
Three Months Ended
December 31,
-------------------------
1997 1996
---- ----
(Unaudited) (Unaudited)
Sales:
Collectibles sales,net ......................... 46.4% 65.1%
Apparel and souvenir sales, net ................ 49.8% 34.3%
Promotional sales, net ......................... 2.4% .3%
Other sales, net ............................... 1.4% .3%
------ ------
Net sales .................................. 100.0% 100.0%
Cost of sales ...................................... 64.9% 57.9%
------ ------
Gross Profit ....................................... 35.1% 42.1%
Selling, general and administrative expenses ....... 19.1% 22.4%
Amortization of goodwill and other intangibles ..... 1.1% 1.0%
------ ------
Income from operations ............................. 14.9% 18.7%
Interest income (expense) and other, net ........... (.7)% (1.5)%
------ ------
Income before provision for income taxes ........... 14.2% 17.2%
Provision for income taxes ......................... (5.7)% (6.9)%
------ ------
Net income ......................................... 8.5% 10.3%
====== ======
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Three Months Ended December 31, 1997 Compared with Three Months Ended December
31, 1996
Net sales increased 183% to $42.9 million for the three months ended
December 31, 1997 from $15.2 million for the three months ended December 31,
1996. The Company attributes the improvement in sales during the first quarter
of fiscal 1998 primarily to (i) revenue from the Company's fiscal 1997
acquisitions, (ii) the Company's ability to capitalize on the continued strong
growth in the base of motorsports enthusiasts and to produce and sell increased
quantities of souvenirs, apparel, and die-cast collectible goods; and (iii) an
increase in membership in the Company's Racing Collectables Club of America to
approximately 108,000 members at December 31, 1997 from approximately 79,000
members at December 31, 1996.
Gross profit increased to $15.1 million in the first quarter of fiscal
1998 from $6.4 million in the first quarter of fiscal 1997, representing 35.1%
and 42.1% of net sales, respectively. The decrease in gross profit as a
percentage of net sales resulted from increased sales of apparel and souvenirs,
which typically provide lower margins than sales of the Company's die-cast
collectible products. Sales of apparel and souvenirs grew to 49.8% of net sales
in the three months ended December 31, 1997 from 34.3% for the three-month
period ended December 31, 1996, primarily as a result of the acquisitions
completed in fiscal 1997.
Selling, general and administrative expenses increased to $8.2 million
in the three-month period ended December 31, 1997 from $3.4 million in the
three-month period ended December 31, 1996, representing 19.1% and 22.4% of net
sales, respectively. The decrease in such expenses as a percentage of sales
resulted primarily from cost savings achieved with the integration and
consolidation of operations of the businesses acquired in fiscal 1997. The
integration and consolidation included the relocation of Motorsport Traditions
into Sport Image's facility, the integration of management information systems,
and a reduction in excess labor.
Amortization of goodwill and other intangibles increased to $481,000
for the three-month period ended December 31, 1997 from $154,000 for the
three-month period ended December 31, 1996. The increase in amortization of
goodwill and other intangibles is related to the acquisitions of Sports Image,
Motorsport Traditions, and other entities. The Company recorded goodwill and
other intangibles of $47.7 million in connection with the fiscal 1997
acquisitions, and recorded an additional $25.4 million of goodwill and other
intangibles from the acquisitions completed in the three-month period ended
December 31, 1997. The Company is amortizing the goodwill and other intangibles
over a period of 10 to 25 years.
The change in interest income (expense) and other, net, was primarily
attributable to an increase in interest expense of approximately $272,000
related to debt incurred in connection with the acquisitions of Sports Image and
Motorsport Traditions, offset by an increase in interest income of approximately
$220,000 related to proceeds from the Company's Common Stock offering in June
1997.
Pro Forma Results of Operations
The following table sets forth the unaudited pro forma income statement
data of the Company for the three-month period ended December 31, 1997 and 1996,
giving effect to the acquisitions of Sports Image, Motorsport Traditions, RYP,
Image Works, Simpson, the Rusty Wallace Acquisition, and the Revell Acquisition,
as if they had occurred on October 1, 1996, using the purchase method of
accounting for business combinations. The unaudited pro forma income statement
data presented herein does not purport to represent what the Company's actual
results of operations would have been had those acquisitions occurred on that
date or to project the Company's results of operations for any future period.
(in thousands, except per share data)
For the Three Months Ended
-------------------------------------
December 31, 1997 December 31, 1996
----------------- -----------------
(Unaudited) (Unaudited)
Net sales ................................ $48,505 $35,341
Net income ............................... 3,974 1,189
Net income per common share .............. $ 0.24 $ 0.08
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The pro forma results shown above do not account for efficiencies
gained upon the consolidation of operations, including the elimination of
duplicative functions and reduction of salaries expense and other related costs.
The pro forma results of operations for the three-month period ended December
31, 1997 and 1996 reflect the amortization of goodwill and other intangibles
arising from the acquisitions described above and include additional interest
expense associated with the financing of the acquisitions of Sports Image and
Motorsport Traditions.
Seasonality
Because the auto racing season is concentrated between the months of
February and November, the second and third calendar quarters of each year (the
Company's third and fourth fiscal quarters) generally are characterized by
higher sales of motorsports products. The Company believes, however, that the
acquisitions described above have provided additional distribution channels that
increase holiday sales, with the effect of reducing seasonal fluctuations.
Liquidity and Capital Resources
The Company's working capital position decreased to $41.7 million at
December 31, 1997 from $57.0 million at September 30, 1997. The decrease of
$15.3 million is primarily attributable to the purchase prices paid and
liabilities assumed in the Rusty Wallace Acquisition and the Revell Acquisition.
Capital expenditures for the three-month period ended December 31, 1997
totaled approximately $4.4 million, of which approximately $3.5 million was
utilized for the Company's continued investment in tooling.
During the three-month period ended December 31, 1997, the Company
issued 25,273 shares of Common Stock upon the exercise of stock options,
resulting in total proceeds to the Company of approximately $200,000.
On October 3, 1997 the Company issued 34,940 shares of common stock to
RCR as a portion of the license fee pursuant to a license agreement entered into
between the Company and RCR on that date.
On January 2, 1997 the Company entered into a $16.0 million credit
facility (the "Credit Facility"), with First Union National Bank of North
Carolina. The Credit Facility, as amended in April 1997, consists of a revolving
line of credit (the "Line of Credit") for up to $10.0 million through September
30, 1997 and up to $6.0 million from September 30, 1997 to March 31, 1998 and a
$10.0 million letter of credit/bankers' acceptances facility (the "Letter of
Credit/BA Facility"). Effective February 5, 1998, the Line of Credit was
reinstated to $10.0 million from $6.0 million. 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 the Company's subsidiaries. The Company had no outstanding borrowings under
the Line of Credit as of December 31,1997. The Letter of Credit/BA Facility is
available for issuances of letters of credit and eligible bankers' acceptances
in an aggregate amount up to $10.0 million to enable the Company to finance
purchases of products from its overseas vendors. The Company had outstanding
purchase commitments of approximately $7.7 million under the Letter of Credit/BA
Facility as of December 31, 1997. The Credit Facility will mature on March 31,
1998. The Credit Facility contains certain provisions that, among other things,
require the Company to comply with certain financial ratios and net worth
requirements and limit the ability of the Company and its subsidiaries to incur
additional indebtedness, to sell assets, or to engage in certain mergers or
consolidations.
On January 2, 1997, the Company issued an aggregate of $20.0 million
principal amount of senior notes to three insurance companies (the "Senior
Notes"). The Senior Notes bear interest at the rate of 8.05% per annum, provide
for semi-annual payments of accrued interest, and mature on January 2, 1999. The
Company may not prepay the Senior Notes prior to maturity, but must 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, require the Company to comply with certain financial ratios
and net worth requirements and limit the ability of the Company and its
subsidiaries to incur additional indebtedness, to sell assets or engage in
certain mergers or consolidations. The Senior Notes are guaranteed by the
Company's subsidiaries.
On December 9, 1997, the Company acquired certain assets and assumed
certain liabilities related to sales of motorsports merchandise licensed by
NASCAR Winston Cup driver Rusty Wallace for approximately $6.0 million in cash.
The Company paid $2.5 million at closing, with the remainder due in four
installments ending September 30, 1998. In connection with the acquisition, the
Company entered into a seven-year license agreement for the name and likeness of
Mr. Wallace. The terms of this acquisition were determined by arms-length
negotiations between representatives of Mr. Wallace and representatives of the
Company.
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On December 19, 1997, the Company completed the Revell Acquisition,
pursuant to which the Company acquired the assets and assumed certain
liabilities related to Revell's motorsports die-cast collectible product lines.
The preliminary purchase price of $24.8 million, which is subject to certain
adjustments, consists of an initial cash payment of $14.8 million and $1.0
million per year for 10 years beginning on January 1, 1998, provided that
certain conditions are met. Revell had sales of die-cast collectibles of
approximately $20.0 million during 1997. The Company currently intends to market
the Revell-trademarked products through its existing distribution channels, but
with different features and at different price points from its current lines of
die-cast collectibles. The Company and Revell also entered into a 10-year
license agreement under which the Company has the right to utilize certain
Revell trademarks in connection with sales of its die-cast products. In
addition, the Company and Revell have formed a long-term strategic alliance
under which (i) the Company will assist Revell to obtain licenses with top race
car drivers for Revell's line of plastic model kits; (ii) Revell has appointed
the Company as the exclusive distributor for trackside sales of Revell plastic
model kits and as a non-exclusive distributor for retail sales of Revell plastic
model kits through the Company's wholesale distribution network; and (iii) the
Company will manufacture certain Revell-trademarked die-cast collectibles to
enable Revell to fulfill commitments for 1998 mass market sales, and the Company
will manufacture other licensed motorsports die-cast products for Revell's sales
as promotional and premium products. The terms of this acquisition were
determined by arms-length negotiations between representatives of Revell and
representatives of the Company.
The Company is subject to certain asserted and unasserted claims
encountered in the normal course of business. The imposition of damages in
certain of those matters could have a material adverse effect on the Company's
financial position and results of operations.
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 additional acquisitions.
However, the Company may be required to obtain additional capital to fund its
planned growth during the next 12 months and beyond. 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 effect on the Company's business.
This report contains forward-looking statements, including statements
regarding the Company's business strategies, the Company's business, and the
industry in which the Company operates. These forward-looking statements are
based primarily on the Company's expectations and are subject to a number of
risks and uncertainties, some of which are beyond the Company's control. Actual
results could differ materially from the forward-looking statements as a result
of numerous factors, including those set forth in the Company's Form 10-K for
the year ended September 30, 1997, as filed with the Securities and Exchange
Commission.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
On October 3, 1997 the Company issued 34,940 shares of common
stock valued at $28.62 per share to Richard Childress Racing
Enterprises, Inc. as a portion of the license fee pursuant to
a license agreement entered into between the Company and RCR
on that date.
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
10.51 Asset Purchase Agreement dated as of December
19, 1997 between Action Performance
Companies, Inc. and Revell-Monogram, Inc. (1)
11.1 Computation of Basic Earnings Per Share
11.2 Computation of Diluted Earnings Per Share
27 Financial Data Schedule
(1) Incorporated by reference to the Company's
Registration Statement on Form S-3 (Registration No.
333-45991), as filed with the Securities and
Exchange Commission on February 10, 1998.
(b) Reports on Form 8-K
Not applicable
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 13, 1998
- ------------------------- Chief Executive Officer
Fred W. Wagenhals (Principal Executive Officer)
/s/ Christopher S. Besing Vice President, Chief Financial Officer, February 13, 1998
- ------------------------- Treasurer, and Director
Christopher S. Besing (Principal Financial and Accounting Officer)
</TABLE>
13
EXHIBIT 11.1
COMPUTATION OF BASIC EARNINGS PER SHARE
(in thousands, except per share data)
Three Months Ended
December 31,
------------------
1997 1996
---- ----
Shares
Weighted average shares outstanding 15,994 12,903
====== ======
Net Income $3,656 $1,568
====== ======
Basic Earnings Per Share $ 0.23 $ 0.12
====== ======
EXHIBIT 11.2
COMPUTATION OF DILUTED EARNINGS PER SHARE
(in thousands, except per share data)
Three Months Ended
December 31,
------------------
1997 1996
---- ----
Shares
Weighted average number of common
shares outstanding 15,994 12,903
Additional shares assuming exercise
of stock options 574 561
------ ------
Weighted average shares outstanding 16,568 13,464
====== ======
Net Income $3,656 $1,568
====== ======
Diluted Earnings Per Share $ 0.22 $ 0.12
====== ======
14
<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, 1997, 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 1933 and Section 18 of the Securities Exchange 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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 8,482
<SECURITIES> 0
<RECEIVABLES> 23,419
<ALLOWANCES> 895
<INVENTORY> 24,479
<CURRENT-ASSETS> 65,643
<PP&E> 32,800
<DEPRECIATION> 7,288
<TOTAL-ASSETS> 164,964
<CURRENT-LIABILITIES> 23,963
<BONDS> 33,002
0
0
<COMMON> 160
<OTHER-SE> 86,158
<TOTAL-LIABILITY-AND-EQUITY> 164,964
<SALES> 42,918
<TOTAL-REVENUES> 42,918
<CGS> 27,862
<TOTAL-COSTS> 27,862
<OTHER-EXPENSES> 8,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 574
<INCOME-PRETAX> 6,093
<INCOME-TAX> 2,437
<INCOME-CONTINUING> 3,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,656
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
