<PAGE> 1
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, 1998
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
(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 9, 1999, there were outstanding 16,848,146 shares of the
registrant's Common Stock, par value $.01 per share.
<PAGE> 2
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 66,285 $ 60,867
Accounts receivable, net of allowance for doubtful
accounts of $1,142 and $986, respectively ............. 33,008 36,314
Inventories ............................................... 33,617 35,790
Prepaid royalties ......................................... 5,192 5,745
Prepaid expenses and other assets ......................... 4,873 4,961
-------- --------
Total current assets .................................. 142,975 143,677
PROPERTY AND EQUIPMENT, net .................................... 50,136 46,053
GOODWILL AND OTHER INTANGIBLES, net ............................ 104,742 106,146
OTHER ASSETS, net .............................................. 11,136 10,058
-------- --------
$308,989 $305,934
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 7,113 $ 11,430
Accrued royalties ......................................... 10,436 10,589
Accrued expenses and other ................................ 12,503 10,973
Current portion of long-term debt ......................... 24,743 23,746
-------- --------
Total current liabilities ............................. 54,795 56,738
-------- --------
LONG-TERM DEBT:
Convertible subordinated notes ............................ 100,000 100,000
Other long-term debt ...................................... 11,316 11,850
-------- --------
Total long-term debt .................................. 111,316 111,850
MINORITY INTEREST .............................................. 989 914
-------- --------
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;
16,681,598 and 16,423,238 shares issued and
outstanding, respectively ............................. 167 164
Additional paid-in capital ................................ 92,473 91,974
Accumulated other comprehensive income .................... 1,714 1,682
Retained earnings ......................................... 47,535 42,612
-------- --------
Total shareholders' equity ............................ 141,889 136,432
-------- --------
$308,989 $305,934
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
2
<PAGE> 3
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Sales:
Collectibles ................................. $ 45,867 $ 20,939
Apparel and souvenirs ........................ 24,336 21,390
Other ........................................ 1,363 589
-------- --------
Net sales ................................ 71,566 42,918
Cost of sales ..................................... 45,831 27,862
-------- --------
Gross profit ...................................... 25,735 15,056
-------- --------
Operating expenses:
Selling, general and administrative expenses . 14,599 8,200
Amortization of goodwill and other intangibles 1,458 481
-------- --------
Total operating expenses ................. 16,057 8,681
-------- --------
Income from operations ............................ 9,678 6,375
-------- --------
Other income (expense):
Interest income and other, net ............... 695 292
Interest expense ............................. (2,095) (574)
-------- --------
Total other income (expense) ............. (1,400) (282)
-------- --------
Income before provision for income taxes .......... 8,278 6,093
Provision for income taxes ........................ (3,282) (2,437)
Minority interest in earnings ..................... (73) --
-------- --------
NET INCOME ........................................ $ 4,923 $ 3,656
-------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustments ..... 32 --
-------- --------
Total other comprehensive income ......... 32 --
-------- --------
COMPREHENSIVE INCOME .............................. 4,955 3,656
======== ========
NET INCOME PER COMMON SHARE:
Basic ........................................ $ 0.30 $ 0.23
======== ========
Diluted ...................................... $ 0.29 $ 0.22
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ........................................ 16,519 15,994
======== ========
Diluted ...................................... 16,878 16,568
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE> 4
ACTION PERFORMANCE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 4,923 $ 3,656
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................... 5,139 1,722
Undistributed earnings to minority shareholders ............. 73 --
Change in assets and liabilities, net of businesses acquired:
Accounts receivable ..................................... 3,448 (1,414)
Inventories ............................................. 2,173 (4,473)
Prepaid royalties ....................................... 553 (2,519)
Prepaid expenses and other assets ....................... (1,067) 546
Accounts payable ........................................ (4,735) 4,201
Accrued royalties ....................................... (153) 773
Accrued expenses and other .............................. 1,280 1,530
-------- --------
Net cash provided by operating activities .......... 11,634 4,022
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......................... (7,818) (4,417)
Proceeds from sale of equipment ............................. 155 5
Acquisition of businesses and other intangibles, less
cash acquired ........................................... 6 (20,306)
-------- --------
Net cash used in investing activities .............. (7,657) (24,718)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock upon exercise
of stock options .......................................... 1,547 174
Borrowings under notes payable .............................. 1,275 --
Payments on long-term debt .................................. (1,413) (319)
Collections on notes receivable ............................. -- 5
-------- --------
Net cash provided by (used in) financing
activities ...................................... 1,409 (140)
-------- --------
Effect of exchange rate changes on cash and cash
equivalents ............................................... 32 --
-------- --------
Net change in cash and cash equivalents ..................... 5,418 (20,836)
Cash and cash equivalents, beginning of year ................ 60,867 29,318
-------- --------
Cash and cash equivalents, end of year ...................... $ 66,285 $ 8,482
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE> 5
ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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, 1998 are not necessarily indicative of the operating results
that may be expected for the entire year ending September 30, 1999. Certain
prior period amounts have been reclassified to conform to the December 31, 1998
presentation. These financial statements should be read in conjunction with the
Company's Form 10-K/A for the fiscal year ended September 30, 1998.
(2) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In fiscal 1999, the Company has adopted SFAS No. 130, "Reporting Comprehensive
Income," issued by the Financial Accounting Standards Board. The adoption of
SFAS No. 130 did not have a material effect on the Company's financial position
or results of operations. At December 31, 1998, the Company's accumulated other
comprehensive income balance consisted of cumulative foreign currency
adjustments of approximately $1.7 million.
(3) SUPPLEMENTAL CASH FLOW INFORMATION
The supplemental cash flow disclosures and non-cash transactions for the
three-month periods ended December 31, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures:
Interest paid .......................................... $ 176 $ 126
Income taxes paid ...................................... 1,986 853
Non-cash transactions:
Common stock issued in license agreement ............... -- 1,000
Debt and liabilities incurred or assumed in acquisitions 1,419 12,625
Sale of equipment for notes receivable ................. -- 35
</TABLE>
(4) RECENT ACQUISITIONS AND LICENSE AGREEMENTS
On October 27, 1998, the Company acquired all of the outstanding stock of
Intellectual Properties Group, Inc. ("IPG") in exchange for 35,000 shares of the
Company's restricted common stock. IPG creates and develops promotional programs
for corporate sponsors of motorsports. The transaction has been accounted for as
a pooling of interests. Prior period financial statements have not been restated
because IPG's historical operating results and financial position are not
material in relation to the Company's operating results and financial position.
On November 23, 1998, the Company acquired Tech 2000 Worldwide, Inc. ("Tech
2000"), a privately held Massachusetts-based Internet company, through a merger
of Tech 2000 and Action Interactive, Inc., a wholly owned subsidiary of the
Company. Under the terms of the merger agreement, the Company issued 137,925
shares of its restricted common stock in exchange for all of the issued and
outstanding common stock of Tech 2000. The transaction has been accounted for as
a pooling of interests. Prior period financial statements have not been restated
because Tech 2000's historical operating results and financial position are not
material in relation to the Company's operating results and financial position.
5
<PAGE> 6
On November 30, 1998, the Company entered into an exclusive licensing agreement
with CART Licensed Products, L.P., the licensing arm of Championship Auto Racing
Teams, Inc. ("CART"). Under the terms of the licensing agreement, the Company
obtained the exclusive rights to the CART series and FedEx Championship Series
logos, as well as exclusive rights to five teams in the CART series, including
Newman/Haas Racing, PacWest Racing Group, Target/Chip Ganassi Racing, Team
Green, Inc., and Team Rahal, Inc. In addition, the Company also obtained the
non-exclusive rights for a minimum of 75% of the other teams and drivers that
participate in CART sanctioned race events. The rights granted under the
agreement allow the Company to create a line of collectible vehicles consistent
with the detail and quality featured in its existing die-cast collectibles and
allow the Company to market or sublicense a broad range of toy products such as
plastic and remote control vehicles, action figures, miniature helmets, board
games, plush toys, and puzzles. The initial term of the agreement is for five
years with a five-year renewal option.
(5) COMMITMENTS AND CONTINGENCIES
The Company is subject to certain asserted and unasserted claims encountered in
the normal course of business. The Company believes that the resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
(6) SUBSEQUENT EVENTS
On January 11, 1999, the Company acquired all of the outstanding stock of
Goodsports Holdings Pty. Ltd., an Australian-based marketer of Formula
One-related apparel and other merchandise. The consideration paid by the Company
consisted of the assumption of certain liabilities and contingent payments of up
to $3.6 million to be paid over a four-year period based upon the attainment of
certain performance objectives. The acquisition will be accounted for as a
purchase.
On January 4, 1999, the Company repaid $20 million of 8.05% Senior Notes, which
matured on January 2, 1999.
6
<PAGE> 7
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
that 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. Third parties manufacture all of the Company's motorsports
collectibles and most of the Company's apparel and souvenirs, 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. During fiscal 1997, fiscal 1998, and the
first four months of fiscal 1999, the Company completed a number of acquisitions
that expanded the Company's product offerings and distribution channels and
secured a number of exclusive license agreements with race car drivers and team
owners. The following table sets forth the acquisitions completed since October
1, 1996 and the nature of the businesses acquired.
<TABLE>
<CAPTION>
Acquisitions Date Business
------------ ---- --------
<S> <C> <C>
Sports Image, Inc. Nov-96 Markets and distributes licensed motorsports
apparel and souvenirs; trackside sales
Motorsport Traditions Limited Partnership Jan-97 Markets and distributes licensed motorsports
and Creative Marketing and Promotions, Inc. apparel and souvenirs; trackside sales
Robert Yates Promotions, Inc. Jul-97 Markets and distributes licensed motorsports
apparel and souvenirs; trackside sales
Image Works, Inc. Jul-97 Manufactures and markets licensed motorsports
apparel through mass-merchandise markets
Motorsports collectibles product lines of Aug-97 Manufactures and markets licensed "mini-
Simpson Products, Inc. helmets" and other motorsports collectibles and
souvenirs
Assets related to sales of merchandise Dec-97 Markets and distributes licensed motorsports
licensed by NASCAR driver Rusty Wallace apparel and souvenirs; trackside sales
(the "Rusty Wallace Acquisition")
Assets related to motorsports die-cast Dec-97 Manufactures and markets "Revell" licensed
collectibles product lines of Revell- die-cast collectibles; strategic alliance with
Monogram, Inc. (the "Revell Acquisition") Revell-Monogram, Inc. involving extensive
product licensing and distribution arrangements
Brookfield Collectors Guild, Inc. Jan-98 Markets and distributes licensed motorsports
("Brookfield") collectibles and ensembles
Chase Racewear, L.L.C. ("Chase") May-98 Licensed motorsports apparel and accessories
Paul's Model Art/MiniChamps Aug-98 Markets and distributes die-cast replicas of Formula
("MiniChamps") One and GT race cars, as well as factory production
cars, driver figurines, and other motorsport
collectibles
Performance Plus Nutritional, L.L.C. Sep-98 Develops and markets driver-endorsed nutritional
products, including vitamins, energy bars, and
energy drinks
Intellectual Properties Group, Inc. ("IPG") Oct-98 Creates and develops promotional programs for
corporate sponsors of motorsports
Tech 2000 Worldwide, Inc. ("Tech 2000") Nov-98 Operates the "goracing.com" internet website;
designs, develops, implements, and maintains
motorsports-related and other internet websites,
including electronic commerce capabilities
Goodsports Holdings Pty Ltd. Jan-99 Markets and distributes licensed Formula
One apparel related products
</TABLE>
7
<PAGE> 8
The Company markets its products to approximately 11,500 specialty
retailers throughout the world either directly or through its wholesale
distributor network; to motorsports enthusiasts directly through its Racing
Collectables Club of America (the "Collectors' Club"), which currently has
approximately 156,000 members; and through mobile trackside souvenir stores,
promotional programs for corporate sponsors, and fan clubs. The Company also
distributes certain of its products to mass retailers through its in-house sales
force and wholesale distributors. In addition, the Company has a license
agreement with Hasbro, Inc. ("Hasbro"), a multi-billion dollar toy and game
manufacturer, covering the exclusive sale by Hasbro of a line of
motorsports-related products in the mass-merchandise market. The Company also
generates sales of its products via electronic commerce through its
"goracing.com" web site, and plans to utilize the "nascar.com" web site in
calendar 1999.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of total revenue represented by certain expense and revenue items.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1998 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Sales:
Collectibles ................................ 64.1% 48.8%
Apparel and souvenir ........................ 34.0 49.8
Other ....................................... 1.9 1.4
----- -----
Net sales ............................... 100.0 100.0
Cost of sales .................................... 64.0 64.9
----- -----
Gross profit ..................................... 36.0 35.1
Selling, general and administrative expenses ..... 20.4 19.1
Amortization of goodwill and other intangibles ... 2.1 1.1
----- -----
Income from operations ........................... 13.5 14.9
Interest income (expense) and other, net ......... (1.9) (0.7)
----- -----
Income before provision for income taxes ......... 11.6 14.2
Provision for income taxes ....................... (4.6) (5.7)
Minority interest in earnings .................... (0.1) --
----- -----
Net income ....................................... 6.9% 8.5%
===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1997
Net sales increased 67% to $71.6 million for the three months ended
December 31, 1998 from $42.9 million for the three months ended December 31,
1997. The Company attributes the improvement in sales during the first quarter
of fiscal 1999 primarily to (i) revenue from the Company's fiscal 1998
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; (iii)
successful efforts in new cross-promotional programs during the first quarter of
fiscal 1999, while none were conducted during the first quarter of fiscal 1998;
and (iv) an increase in membership in the Collectors' Club to approximately
156,000 members at December 31, 1998 from approximately 108,000 members at
December 31, 1997.
Gross profit increased to $25.7 million in the first quarter of fiscal
1999 from $15.1 million in the first quarter of fiscal 1998, representing 36.0%
and 35.1% of net sales, respectively. The increase in gross profit as a
percentage of net sales resulted from increased sales of die-cast collectible
products, which typically provide higher margins than sales of the Company's
apparel and souvenir products. This was partially offset by lower margins
associated with certain special cross-promotional programs. Sales of die-cast
collectibles grew to 64.1% of net sales in the three months ended December 31,
1998 from 48.8% for the three-month period ended December 31, 1997, primarily as
a result of the acquisitions completed in fiscal 1998.
Selling, general and administrative expenses increased to $14.6 million
in the three-month period ended December 31, 1998 from $8.2 million in the
three-month period ended December 31, 1997, representing 20.4% and 19.1% of net
sales, respectively. The increase in such expenses as a percentage of sales
resulted primarily from costs associated with completing special
cross-promotional programs during the quarter.
8
<PAGE> 9
Amortization of goodwill and other intangibles increased to $1.5
million for the three-month period ended December 31, 1998 from $481,000 for the
three-month period ended December 31, 1997. The increase in amortization of
goodwill and other intangibles is related to the acquisitions completed during
the period from December 1997 through August 1998. The Company recorded goodwill
and other intangibles of $61.9 million in connection with the fiscal 1998
acquisitions. The Company is amortizing the goodwill and other intangibles over
a period of 3 to 25 years.
The change in interest income (expense) and other, net, was primarily
attributable to an increase in interest expense of approximately $1.3 million
related to the Company's convertible subordinated notes issued in March 1998 and
increased interest expense of approximately $240,000 from the Revell Acquisition
and the acquisition of MiniChamps. These increases were partially offset by
interest income associated with the proceeds from the issuance of the notes.
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, 1998 and 1997,
giving effect to the Rusty Wallace Acquisition and the Revell Acquisition, as
well as the acquisitions of Brookfield, Chase, MiniChamps, IPG, and Tech 2000,
as if they had occurred on October 1, 1997, using the purchase method of
accounting for business combinations, except for IPG and Tech 2000, which were
accounted for as poolings of interest. 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.
<TABLE>
<CAPTION>
(in thousands, except per share data)
For the Three Months Ended
--------------------------------------
December 31, 1998 December 31, 1997
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
Net sales......................................................... $ 71,884 $ 55,935
Net income........................................................ 4,917 3,865
Net income per common share, diluted.............................. $ 0.29 $ 0.23
</TABLE>
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 periods ended December
31, 1998 and 1997 reflect the amortization of goodwill and other intangibles
arising from the acquisitions described above and include additional interest
expense associated with any financing related to the acquisitions.
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.
YEAR 2000 COMPLIANCE
During 1997, the Company commenced a program to install new computer
software programs that are intended to integrate the Company's management
information systems throughout its organizational structure, as well as to
comply with Year 2000 requirements. The Company has experienced delays in
completing this program. As of the filing date of this Report, the installation
program is approximately 85% complete and the Company currently anticipates that
the new software systems will be operational in the second quarter of calendar
1999. The Company believes that its new software system will comply with the
Year 2000 requirements, and the Company currently does not anticipate that it
will experience any material disruption to its operations as a result of the
failure of any of its systems to function properly beyond December 31, 1999.
9
<PAGE> 10
Computer systems operated by third parties, including customers,
vendors, credit card transaction processors, and financial institutions, with
which the Company's systems interface may not continue to properly interface
with the Company's systems and may not otherwise be compliant on a timely basis
with Year 2000 requirements. The Company's third-party manufacturers of
die-cast, apparel, and other products do not rely heavily on computer-operated
systems in their manufacturing processes. Accordingly, the Company does not
believe that Year 2000 issues pose a significant risk with respect to the
manufacture of its products. Because the Company's business typically does not
generate a large volume of purchase orders for its products, the Company
believes it could rely on non-automated ordering systems if its vendors'
computer systems fail as a result of Year 2000 issues. Any failure of the
Company's computer system or the systems of third parties to timely achieve Year
2000 compliance, however, could have a material adverse effect on the Company's
business, financial condition, and operating results.
If by April 1999, the Company has not completed the installation and
start-up of its new computer software systems, the Company intends to initiate
its contingency program, which consists of upgrading its existing software
programs to bring them into Year 2000 compliance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased to $88.2 million at
December 31, 1998 from $86.9 million at September 30, 1998. The increase of $1.3
million is primarily attributable to cash flow from operations.
Capital expenditures for the three-month period ended December 31, 1998
totaled approximately $7.8 million, of which approximately $5.7 million was
utilized for the Company's continued investment in tooling.
During the three-month period ended December 31, 1998, the Company
issued 85,437 shares of Common Stock upon the exercise of stock options,
resulting in total proceeds to the Company of approximately $1.5 million.
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 bore interest at the rate of 8.05% per annum and
matured on January 2, 1999. On January 4, 1999, the Company repaid the Senior
Notes.
On March 24, 1998, the Company sold $100.0 million of 4-3/4%
Convertible Subordinated Notes due 2005 ("the Notes"). The Notes are
convertible, at the option of the holders, into shares of Common Stock at the
initial conversion price of $48.20 per share, subject to adjustments in certain
events. Interest on the Notes is payable semi-annually on April 1 and October 1
of each year, beginning October 1, 1998. The Notes mature on April 1, 2005. The
Notes are general unsecured obligations of the Company, subordinated in right of
payment to all existing and future senior indebtedness of the Company, as
defined in the Notes. The Indenture governing the Notes does not limit or
prohibit the incurrence of additional indebtedness, including senior
indebtedness, by the Company or its subsidiaries. The Company, at its option,
may redeem the Notes in whole or in part at any time on or after April 1, 2001,
at redemption prices set forth in the Indenture governing the Notes. Upon the
occurrence of a "change in control" or a "termination of trading," as defined in
the Indenture, the holders of the Notes will have the right to require the
Company to repurchase all or any part of such holders' Notes at 100% of their
principal amount, plus accrued and unpaid interest. The net proceeds to the
Company from the offering were approximately $96.5 million, after deducting
offering expenses of approximately $500,000 and the Initial Purchasers' discount
of 3.0%.
On August 5, 1998, the Company entered into an amended and restated
credit agreement (the "Credit Facility") with First Union National Bank of North
Carolina ("First Union"). The Credit Facility consists of a revolving line of
credit for up to $20.0 million, which includes up to $5.0 million for standby
letters of credit (the "Line of Credit") and a $30.0 million letter of
credit/bankers' acceptance facility (the "Letter of Credit/BA Facility"). The
Company did not have any outstanding borrowings under the Line of Credit as of
December 31, 1998. The Company had outstanding purchase commitments of
approximately $7.9 million under the Letter of Credit/BA Facility as of December
31, 1998. The Line of Credit bears interest, at the Company's option, at a rate
equal to (i) the Alternate Base Rate (as described below) plus an applicable
margin as defined in the credit agreement or (ii) LIBOR plus an applicable
margin as defined in the credit agreement. The "Alternate Base Rate" under the
Line of Credit is the greater of (a) the bank's publicly announced prime rate or
(b) the Federal Funds Effective Rate (as defined) plus 0.5%. The Line of Credit
matures on April 1, 2001 with respect to the revolving line of credit portion of
the Line of Credit, and on April 1, 1999 with respect to the standby letter of
credit portion of the Line of Credit and the Letter of Credit/BA Facility,
subject to extensions by First Union. The Credit Facility is guaranteed by
certain of the Company's subsidiaries.
10
<PAGE> 11
On October 27, 1998, the Company acquired all of the outstanding stock
of IPG in exchange for 35,000 shares of the Company's restricted common stock.
IPG creates and develops promotional programs for corporate sponsors of
motorsports.
On November 23, 1998, the Company acquired Tech 2000, a privately held
Massachusetts-based Internet company, through a merger of Tech 2000 and Action
Interactive, Inc., a wholly owned subsidiary of the Company. Under the terms of
the merger agreement, the Company issued 137,925 shares of its restricted common
stock in exchange for all of the issued and outstanding common stock of Tech
2000.
On November 30, 1998, the Company entered into an exclusive licensing
agreement with CART Licensed Products, L.P., the licensing arm of CART. Under
the terms of the licensing agreement, the Company obtained the exclusive rights
to the CART series and FedEx Championship Series logos, as well as exclusive
rights to five teams in the CART series, including Newman/Haas Racing, PacWest
Racing Group, Target/Chip Ganassi Racing, Team Green, Inc., and Team Rahal, Inc.
In addition, the Company also obtained the non-exclusive rights for a minimum of
75% of the other teams and drivers that participate in CART sanctioned race
events. The rights granted under the agreement allow the Company to create a
line of collectible vehicles consistent with the detail and quality featured in
its existing die-cast collectibles and allow the Company to market or sublicense
a broad range of toy products such as plastic and remote control vehicles,
action figures, miniature helmets, board games, plush toys, and puzzles. The
initial term of the agreement is for five years with a five-year renewal option.
The Company is subject to certain asserted and unasserted claims
encountered in the normal course of business. The Company believes that the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations; however, imposition of
damages to that extent could still occur.
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 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/A for the year ended September 30,
1998, as filed with the Securities and Exchange Commission.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
On October 7, 1998, the Company issued warrants to acquire
25,000 shares of common stock at an exercise price of $28.875
per share to the National Association of Stock Car Auto
Racing, Inc. ("NASCAR") in connection with certain licensing
arrangements between the Company and NASCAR. The warrants vest
and become exercisable for 5,000 shares of stock each year,
beginning on October 7, 1999, and expire on October 7, 2008.
The Company issued the warrants without registration in
reliance on the exemption provided by Section 4(2) under the
Securities Act of 1933, as amended.
On October 27, 1998 the Company issued 35,000 shares of Common
Stock to David M. Hynes as consideration paid by the Company
for the acquisition of Intellectual Properties Group, Inc. The
closing price of the Company's Common Stock on October 27,
1998 was $29.13 per share. 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.
On November 21, 1998 the Company issued an aggregate of
137,925 shares of Common Stock to Roger J. Falcione and the
Estate of Vincent D. Barletta as consideration paid by the
Company for the acquisition of Tech 2000 Worldwide, Inc. The
closing price of the Company's Common Stock on November 20,
1998 was $26.38 per share. 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
10.55 Common Stock Purchase Warrant dated
October 7, 1998, issued to the
National Association for Stock Car
Auto Racing, Inc.
11.1 Computation of Basic Earnings Per Share
11.2 Computation of Diluted Earnings Per
Share
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
12
<PAGE> 13
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, 1999
- --------------------------- Chief Executive Officer
Fred W. Wagenhals (Principal Executive Officer)
/s/ Christopher S. Besing Vice President, Chief Financial Officer, February 13, 1999
- --------------------------- Treasurer, and Director
Christopher S. Besing (Principal Financial Officer)
/s/ David A. Husband Vice President and Chief Accounting Officer February 13, 1999
- --------------------------- (Principal Accounting Officer)
David A. Husband
</TABLE>
13
<PAGE> 14
Exhibit Index
Exhibits
10.55 Common Stock Purchase Warrant dated
October 7, 1998, issued to the
National Association for Stock Car
Auto Racing, Inc.
11.1 Computation of Basic Earnings Per Share
11.2 Computation of Diluted Earnings Per
Share
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.55
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW. SUCH SECURITIES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO OR (II) IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE
SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH A PROPOSED SALE OR TRANSFER.
COMMON STOCK
PURCHASE WARRANT
For the Purchase of Shares of
Common Stock of
ACTION PERFORMANCE COMPANIES, INC.
(Par Value $0.01 Per Share)
(Incorporated under the Laws of the State of Arizona)
VOID AFTER 5:00 P.M. PST ON OCTOBER 7, 2008
Date of Original Issuance: October 7, 1998
This is to certify that, for value received, the National Association
for Stock Car Auto Racing, Inc., a Florida corporation, or assigns (the
"Warrantholder"), is entitled, subject to the terms and conditions hereinafter
set forth, to purchase 25,000 shares of common stock, par value $0.01 per share
(the "Common Stock"), of ACTION PERFORMANCE COMPANIES, INC., an Arizona
corporation (the "Company"), for the Warrant Price (as defined below), and to
receive a certificate or certificates for the shares of Common Stock so
purchased. This Warrant is being issued in connection with and pursuant to the
terms of that certain Electronic Commerce Agreement dated October 7, 1998, by
and between the Warrantholder and the Company.
1. TERMS AND EXERCISE OF WARRANT.
(a) VESTING OF WARRANT SHARES. Warrant Shares (as defined
below) that have vested may be acquired in accordance with the terms of this
Warrant until the Termination Date (as defined below). The time at which the
Warrant Shares vest and the Warrantholder may thereafter exercise this Warrant
with respect to such Warrant Shares (each, a "Vesting Date") shall be as
follows:
<PAGE> 2
NUMBER OF OPTIONS
VESTING DATE VESTED AND EXERCISABLE
------------ ----------------------
October 7, 1999 5,000
October 7, 2000 5,000
October 7, 2001 5,000
October 7, 2002 5,000
October 7, 2003 5,000
--------
Total 25,000
(b) EXERCISE PERIOD. Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time and from time to time during the
Exercise Period (as defined below), to exercise this Warrant for any or all
Warrant Shares that have vested and to purchase from the Company up to the
number of fully paid and nonassessable shares of Common Stock which the
Warrantholder may at the time be entitled to purchase pursuant to this Warrant.
The 25,000 shares of Common Stock subject to this Warrant and any other
securities that the Company may be required by the operation of Section 3 to
issue upon the exercise hereof are referred to herein as the "Warrant Shares."
The "Exercise Period" shall mean the period commencing on the Vesting Date for
such Warrant Shares and ending at 5:00 P.M., Pacific Standard Time, on October
7, 2008 (the "Termination Date"), or if such date is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day. If this Warrant is not exercised on or prior to
the Termination Date, this Warrant shall become void and all rights of the
Warrantholder hereunder shall cease.
(c) METHOD OF EXERCISE. The Warrantholder may exercise this
Warrant by surrender of this Warrant to the Company at its principal office in
Phoenix, Arizona (or at such other address as the Company may designate by
notice in writing to the Warrantholder at the address of the Warrantholder
appearing on the books of the Company or such other address as the Warrantholder
may designate in writing), together with the form of Election to Purchase
included as Exhibit A hereto, duly completed and signed, and upon payment to the
Company of the Warrant Price (as defined in Section 2) multiplied by the number
of Warrant Shares being purchased upon such exercise (the "Aggregate Warrant
Price"), together with all taxes applicable upon such exercise. Payment of the
Aggregate Warrant Price shall be made in cash or by certified check or cashier's
check, payable to the order of the Company.
(d) PARTIAL EXERCISE. At the election of the Warrantholder,
this Warrant shall be exercisable in whole or in part at any time, and from time
to time, during the Exercise Period for Warrant Shares that have vested pursuant
to Section 1(a) hereof.
(e) SHARE ISSUANCE UPON EXERCISE. Upon the exercise and
surrender of this Warrant certificate and payment of the Aggregate Warrant
Price, the Company shall issue and cause to be delivered with all reasonable
dispatch to the Warrantholder, in such name or names as the Warrantholder may
designate in writing, a certificate or certificates for the number of full
Warrant Shares so purchased upon the exercise of the Warrant, together with
cash, as provided in Section 4 hereof, with respect to any fractional Warrant
Shares otherwise issuable upon such surrender and, if applicable, the Company
shall issue and deliver a new Warrant to the Warrantholder for the number of
Warrant Shares not so exercised. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of such Warrant Shares as of the close
of business on the date of the surrender of the Warrant and payment of the
2
<PAGE> 3
Aggregate Warrant Price, notwithstanding that the certificates representing such
Warrant Shares shall not actually have been delivered or that the stock transfer
books of the Company shall then be closed.
2. WARRANT PRICE. The price per share at which Warrant Shares shall be
purchasable upon the exercise of this Warrant shall be $28.875 per share,
subject to adjustment pursuant to Section 3 hereof (originally and as adjusted,
the "Warrant Price").
3. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND WARRANT PRICE. The
Company agrees to reserve and shall keep reserved for issuance the number of
shares of Common Stock issuable upon exercise of this Warrant. The number of
Warrant Shares purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) In case the Company shall (1) pay a dividend or make a
distribution in shares of its Common Stock, (2) subdivide its outstanding Common
Stock into a greater number of shares, (3) combine its outstanding Common Stock
into a smaller number of shares, or (4) issue by reclassification of its Common
Stock any shares of capital stock of the Company (other than a change in par
value, or from par value to no par value, or from no par value to par value),
the number of Warrant Shares issuable upon exercise of this Warrant and the
Warrant Price in effect immediately prior thereto shall be adjusted as follows:
(i) The number of Warrant Shares issuable upon
exercise of this Warrant shall be adjusted by multiplying the number of Warrant
Shares issuable upon exercise of this Warrant immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately after such adjustment, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such adjustment; and
(ii) The Warrant Price shall be adjusted by
multiplying the Warrant Price in effect immediately prior to such adjustment by
a fraction, the numerator of which shall be the number of Warrant Shares
issuable upon exercise of this Warrant immediately prior to such adjustment, and
the denominator of which shall be the number of Warrant Shares as so adjusted.
An adjustment made pursuant to this Section 3(a) shall become effective
immediately after the record date in the case of a dividend or distribution
(provided, however, that such adjustments shall be reversed if such dividends or
distributions are not actually paid) and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this Section
3(a), the Warrantholder shall become entitled to receive shares of two or more
classes of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be evidenced by a resolution) shall
determine the allocation of the adjusted Warrant Price between or among the
shares of such classes of capital stock.
(b) In case of any reclassification of the outstanding Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision, combination or
stock dividend), or in case of any consolidation of the Company with, or merger
of the Company into, another corporation wherein the Company is not the
surviving entity, or in case of any sale of all, or substantially all, of the
property, assets, business and goodwill of the Company, the Company, or such
successor or purchasing corporation, as the case may be, shall provide, by a
written instrument delivered to the Warrantholder, that the Warrantholder shall
thereafter be entitled, upon exercise of this Warrant, to the kind and amount of
shares of stock or other equity securities, or
3
<PAGE> 4
other property or assets which would have been receivable by such Warrantholder
upon such reclassification, consolidation, merger or sale, if this Warrant had
been exercised immediately prior thereto. Such corporation, which thereafter
shall be deemed to be the "Company" for purposes of this Warrant, shall provide
in such written instrument for adjustments to the Warrant Price which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 3.
(c) No adjustment in the number of securities purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least five percent (5%) in the number of securities (calculated
to the nearest full share or unit thereof) then purchasable upon the exercise of
this Warrant; provided, however, that any adjustment which by reason of this
Section 3(c) is not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(d) For the purpose of this Section 3, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock of the Company at
October 7, 1998, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an adjustment made pursuant
to this Section 3, the Warrantholder shall become entitled to purchase any
shares of the Company's capital stock other than Common Stock, thereafter the
number of such other shares so purchasable upon the exercise of this Warrant and
the Warrant Price of such shares shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this Section 3.
(e) Whenever the number of shares of Common Stock and/or other
securities purchasable upon the exercise of this Warrant or the Warrant Price is
adjusted as herein provided, the Company shall cause to be promptly mailed to
the Warrantholder by first class mail, postage prepaid, notice of such
adjustment and a certificate of the Company's chief financial officer setting
forth the number of shares of Common Stock and/or other securities purchasable
upon the exercise of this Warrant, the Warrant Price after such adjustment, a
brief statement of the facts requiring such adjustment, and the computation by
which such adjustment was made.
(f) Irrespective of any adjustments in the Warrant Price or
the number or kind of securities purchasable upon the exercise of this Warrant,
the Warrant certificate or certificates theretofore or thereafter issued may
continue to express the same price or number or kind of securities stated in
this Warrant initially issuable hereunder.
4. FRACTIONAL INTEREST. The Company shall not be required to issue
fractional shares upon exercise of this Warrant, but shall pay an amount in cash
equal to the closing price of the Company's Common Stock on a national
securities exchange, the Nasdaq National Market or other trading market on the
day preceding the date of the surrender of this Warrant pursuant to Section 1(c)
hereof, or if there is no public market, cash equal to the then fair market
value of the shares as reasonably determined by the Board of Directors of the
Company, in its sole discretion, multiplied by such fraction.
5. TRANSFER PROHIBITION. Neither this Warrant nor any rights hereunder
may be sold, exchanged, conveyed, assigned, given, pledged, hypothecated or
otherwise transferred by the Warrantholder to any person or entity other than a
person or entity directly or indirectly controlled by, in control of, or under
common control with the Warrantholder.
4
<PAGE> 5
6. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER. Prior to the
exercise of this Warrant pursuant to the terms hereof, nothing contained in this
Warrant shall be construed as conferring upon the Warrantholder any rights as a
shareholder of the Company, either at law or in equity, including the right to
vote, receive dividends, consent or receive notices as a shareholder with
respect to any meeting of shareholders for the election of directors of the
Company or for any other matter.
7. NOTICES. Any notice given pursuant to this Warrant by the Company or
by the Warrantholder shall be in writing and shall be deemed to have been duly
given upon (a) personal delivery, (b) transmitter's confirmation of the receipt
of a facsimile transmission, (c) confirmed delivery by a standard overnight
carrier, or (d) the expiration of three business days after the day when mailed
by United States Postal Service by certified or registered mail, return receipt
requested, postage prepaid at the following addresses:
If to the Company:
Action Performance Companies, Inc.
4707 E. Baseline Road
Phoenix, Arizona 85040
Attention: Fred W. Wagenhals
with a copy to:
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A.
One E. Camelback Road, Suite 1100
Phoenix, Arizona 85012
Attention: Robert S. Kant, Esq.
If to the Warrantholder:
The National Association for Stock Car Auto Racing, Inc.
1801 W. International Speedway Blvd.
Daytona Beach, Florida 32114-1243
Attention: Mr. Edward Bennett
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: Martin J. Elgison
Each party hereto may, from time to time, change the address to which
notices to it are to be transmitted, delivered or mailed hereunder by notice in
accordance herewith to the other party.
8. INVESTMENT REPRESENTATION. The Warrantholder hereby represents to
the Company that it is acquiring this Warrant for its own account, as principal,
for investment and not with a view to or the intent to participate in, directly
or indirectly, the resale, assignment, distribution or fractionalization of all
or any part hereof. Further, the Warrantholder shall furnish the Company an
investment letter, in
5
<PAGE> 6
form and substance satisfactory to the Company, prior to the issuance of any
Warrant Shares or other securities issuable upon the exercise hereof, to the
effect that such securities, and any additional securities of the Company for
which such securities may be exercised or exchanged or into which they may
ultimately be converted, if not registered pursuant to applicable state and
federal securities laws, will be acquired for investment and not with a view to
the sale or distribution thereof. The Warrantholder hereby further represents
that it has been provided with, or given reasonable access to, full and fair
disclosure of all material information regarding the Company, this Warrant, and
the Common Stock.
9. GENERAL PROVISIONS.
(a) SUCCESSORS. All covenants and provisions of this Warrant
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto.
(b) CHOICE OF LAW. This Warrant and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona, including all matters of construction, validity, performance,
and enforcement, and without giving effect to the principles of any Arizona or
other conflict-of-law provisions to the contrary.
(c) ENTIRE AGREEMENT. Except as provided herein, this Warrant,
including exhibits, contains the entire agreement of the parties, and supersedes
all existing negotiations, representations or agreements and all other oral,
written, or other communications between them concerning the subject matter of
this Warrant.
(d) SEVERABILITY. If any provision of this Warrant is
unenforceable, invalid, or violates applicable law, such provision shall be
deemed stricken and shall not affect the enforceability of any other provisions
of this Warrant.
(e) CAPTIONS. The captions in this Warrant are inserted only
as a matter of convenience and for reference and shall not be deemed to define,
limit, enlarge, or describe the scope of this Warrant or the relationship of the
parties, and shall not affect this Warrant or the construction of any provisions
herein.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company caused this Warrant to be duly executed
as of the date first above written.
ACTION PERFORMANCE COMPANIES, INC., an Arizona
corporation
By: /s/ Christopher S. Besing
-------------------------
Its: Chief Financial Officer
The Warrantholder hereby agrees to and accepts the terms and conditions
of this Warrant this 7th day of October, 1998.
NATIONAL ASSOCIATION FOR STOCK CAR AUTO RACING, INC.
By: /s/ Brian France
-------------------
Its: Sr. Vice President
7
<PAGE> 8
EXHIBIT A
ELECTION TO PURCHASE
Action Performance Companies, Inc.
4707 E. Baseline Road
Phoenix, Arizona 85040
The undersigned hereby irrevocably elects to exercise the
right of purchase set forth in the attached Warrant to purchase thereunder
____________________ shares of the Common Stock (the "Warrant Shares") provided
for therein and requests that the Warrant Shares be issued in the name of
_______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
(Please Print Name, Address and SSN or EIN of Shareholder above)
Dated:______________
Name of Warrantholder or Assignee:______________________________________________
(Please Print)
Signature:___________________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant.)
Address:_____________________________________________________________
_____________________________________________________________
Aggregate Warrant Price Paid: $__________________
Method of payment:______________________________________________________________
(Please Print)
________________________________________________________________________________
Medallion Signature Guarantee (required if an assignment of Warrant Shares
acquired on exercise is made upon exercise.)
8
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF BASIC EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Shares:
Weighted average number of common shares
outstanding 16,519 15,994
======== ========
Net income $ 4,923 $ 3,656
======== ========
Basic earnings per share $ 0.29 $ 0.23
======== ========
</TABLE>
<PAGE> 1
EXHIBIT 11.2
COMPUTATION OF DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Shares:
Weighted average number of common shares outstanding 16,519 15,994
Additional shares assuming conversion of
stock options and warrants 359 574
-------- --------
Weighted average shares outstanding 16,878 16,568
======== ========
Net income $ 4,923 $ 3,656
======== ========
Diluted earnings per share $ 0.29 $ 0.22
======== ========
</TABLE>
<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, 1998, 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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 66,285
<SECURITIES> 0
<RECEIVABLES> 34,150
<ALLOWANCES> 1,142
<INVENTORY> 33,617
<CURRENT-ASSETS> 142,975
<PP&E> 64,249
<DEPRECIATION> 14,113
<TOTAL-ASSETS> 308,989
<CURRENT-LIABILITIES> 54,795
<BONDS> 111,316
0
0
<COMMON> 167
<OTHER-SE> 92,473
<TOTAL-LIABILITY-AND-EQUITY> 308,989
<SALES> 71,566
<TOTAL-REVENUES> 71,566
<CGS> 45,831
<TOTAL-COSTS> 45,831
<OTHER-EXPENSES> 16,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,095
<INCOME-PRETAX> 8,278
<INCOME-TAX> 3,282
<INCOME-CONTINUING> 4,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,923
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
