 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2002
Commission file number 0-21630
ACTION PERFORMANCE COMPANIES, INC.
| ARIZONA (State of Incorporation) |
86-0704792 (I.R.S. Employer Identification No.) |
4707 E. Baseline Road
Phoenix, AZ 85042
(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 No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| CLASS | OUTSTANDING AT JULY 31, 2002 | |
| Common Stock, $0.01 Par Value | 17,800,495 Shares |
PART I- FINANCIAL INFORMATION
ITEM 1. Financial Statements
2
ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Balance Sheets
June 30, 2002 and September 30, 2001
(in thousands, except per share data)
| June 30, | September 30, | ||||||||||
| 2002 | 2001 | ||||||||||
ASSETS |
|||||||||||
Current Assets: |
|||||||||||
Cash and cash equivalents |
$ | 76,565 | $ | 64,514 | |||||||
Accounts receivable, net |
50,711 | 40,725 | |||||||||
Inventories |
24,063 | 25,120 | |||||||||
Prepaid royalties |
12,400 | 10,222 | |||||||||
Deferred taxes |
2,765 | 2,672 | |||||||||
Prepaid expenses and other assets |
2,915 | 1,392 | |||||||||
Total Current Assets |
169,419 | 144,645 | |||||||||
Property and Equipment, net |
44,719 | 40,356 | |||||||||
Goodwill |
80,021 | 76,937 | |||||||||
Licenses and Trademark |
16,979 | 12,785 | |||||||||
Other Assets |
5,473 | 4,230 | |||||||||
| $ | 316,611 | $ | 278,953 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
Current Liabilities: |
|||||||||||
Accounts payable |
$ | 20,176 | $ | 18,371 | |||||||
Accrued royalties |
17,350 | 16,792 | |||||||||
Accrued expenses and other |
10,967 | 18,755 | |||||||||
Current portion of long-term debt |
333 | 424 | |||||||||
Total Current Liabilities |
48,826 | 54,342 | |||||||||
Long-Term Liabilities: |
|||||||||||
4¾% convertible subordinated notes |
38,935 | 54,933 | |||||||||
Other long-term debt |
1,287 | 2,063 | |||||||||
Deferred taxes and other |
6,602 | 4,710 | |||||||||
Total Long-Term Liabilities |
46,824 | 61,706 | |||||||||
Commitments
and Contingencies |
|||||||||||
Minority Interests |
2,941 | 3,079 | |||||||||
Shareholders’ Equity: |
|||||||||||
Common stock, $.01 par value, 62,500 and 25,000 shares authorized,
17,829 and 17,313 shares issued |
178 | 173 | |||||||||
Additional paid-in capital |
143,761 | 121,669 | |||||||||
Treasury stock, at cost, 0 and 143 shares |
— | (1,221 | ) | ||||||||
Accumulated other comprehensive loss |
(2,684 | ) | (5,625 | ) | |||||||
Retained earnings |
76,765 | 44,830 | |||||||||
Total Shareholders’ Equity |
218,020 | 159,826 | |||||||||
| $ | 316,611 | $ | 278,953 | ||||||||
The accompanying notes are an integral part of these consolidated balance sheets.
3
ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Operations
Three and Nine Months Ended June 30, 2002 and 2001
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Net sales |
$ | 112,085 | $ | 92,975 | $ | 296,406 | $ | 214,937 | ||||||||||||
Cost of sales |
68,347 | 59,329 | 181,960 | 139,222 | ||||||||||||||||
Gross profit |
43,738 | 33,646 | 114,446 | 75,715 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative |
20,225 | 17,951 | 56,326 | 49,450 | ||||||||||||||||
Amortization of goodwill and trademark |
— | 1,011 | — | 2,956 | ||||||||||||||||
Amortization of intangibles |
679 | 498 | 1,766 | 1,791 | ||||||||||||||||
Total operating expenses |
20,904 | 19,460 | 58,092 | 54,197 | ||||||||||||||||
Income from operations |
22,834 | 14,186 | 56,354 | 21,518 | ||||||||||||||||
Interest expense |
(666 | ) | (1,169 | ) | (2,372 | ) | (4,155 | ) | ||||||||||||
Minority interests and other, net |
(35 | ) | (556 | ) | (406 | ) | (695 | ) | ||||||||||||
Income before income taxes and
extraordinary items |
22,133 | 12,461 | 53,576 | 16,668 | ||||||||||||||||
Income taxes |
8,587 | 4,233 | 20,787 | 5,917 | ||||||||||||||||
Income before extraordinary items |
13,546 | 8,228 | 32,789 | 10,751 | ||||||||||||||||
Extraordinary gain (loss) on
extinguishment of debt, net of tax |
(1,002 | ) | 1,981 | (854 | ) | 8,068 | ||||||||||||||
Net income |
12,544 | 10,209 | 31,935 | 18,819 | ||||||||||||||||
Other comprehensive income (loss) |
3,814 | (703 | ) | 2,941 | (1,518 | ) | ||||||||||||||
Comprehensive income |
$ | 16,358 | $ | 9,506 | $ | 34,876 | $ | 17,301 | ||||||||||||
EARNINGS PER COMMON SHARE: |
||||||||||||||||||||
Basic- |
||||||||||||||||||||
Income before extraordinary items |
$ | 0.76 | $ | 0.51 | $ | 1.87 | $ | 0.67 | ||||||||||||
Extraordinary items, net of tax |
(0.06 | ) | 0.12 | (0.04 | ) | 0.50 | ||||||||||||||
Net income |
$ | 0.70 | $ | 0.63 | $ | 1.83 | $ | 1.17 | ||||||||||||
Diluted- |
||||||||||||||||||||
Income before extraordinary items |
$ | 0.72 | $ | 0.48 | $ | 1.76 | $ | 0.66 | ||||||||||||
Extraordinary items, net of tax |
(0.06 | ) | 0.10 | (0.04 | ) | 0.49 | ||||||||||||||
Net income |
$ | 0.66 | $ | 0.58 | $ | 1.72 | $ | 1.15 | ||||||||||||
The accompanying notes are an integral part of these consolidated statements.
4
ACTION PERFORMANCE COMPANIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2002 and 2001
(in thousands)
| Nine Months Ended June 30, | ||||||||||
| 2002 | 2001 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||
Net income |
$ | 31,935 | $ | 18,819 | ||||||
Adjustments
to reconcile net income to cash from operations- |
||||||||||
Deferred income taxes |
2,366 | 5,907 | ||||||||
Depreciation and amortization |
17,346 | 21,050 | ||||||||
Stock option tax benefits |
3,610 | 809 | ||||||||
Extraordinary (gain) loss on extinguishment of debt |
1,361 | (12,807 | ) | |||||||
Other |
(144 | ) | 1,651 | |||||||
Changes
in assets and liabilities, net- |
(144 | ) | 1,651 | |||||||
Accounts receivable, net |
(9,068 | ) | (21,688 | ) | ||||||
Accounts payable and accrued expenses |
(3,168 | ) | (3,659 | ) | ||||||
Income tax payable and receivable |
(5,226 | ) | 19,638 | |||||||
Inventories |
1,328 | 4,742 | ||||||||
Prepaid royalties and accrued royalties |
(1,629 | ) | 1,442 | |||||||
Other |
(1,399 | ) | 58 | |||||||
Net cash from operating activities |
37,312 | 35,962 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||
Capital expenditures, net |
(18,011 | ) | (10,872 | ) | ||||||
(Acquisitions) and dispositions, net of costs |
(6,122 | ) | 2,512 | |||||||
Other |
(237 | ) | — | |||||||
Net cash used in investing activities |
(24,370 | ) | (8,360 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||
Long-term debt repayments |
(7,384 | ) | (10,538 | ) | ||||||
Common stock purchases for treasury |
— | (1,385 | ) | |||||||
Stock option exercise proceeds |
6,124 | 2,051 | ||||||||
Other |
26 | — | ||||||||
Net cash used in financing activities |
(1,234 | ) | (9,872 | ) | ||||||
Effect of exchange rates on cash and cash equivalents |
343 | (114 | ) | |||||||
Net change in cash and cash equivalents |
12,051 | 17,616 | ||||||||
Cash and cash equivalents, beginning of period |
64,514 | 22,758 | ||||||||
Cash and cash equivalents, end of period |
$ | 76,565 | $ | 40,374 | ||||||
Supplemental Disclosures: |
||||||||||
Interest paid |
$ | 2,650 | $ | 4,981 | ||||||
Income taxes paid (refunded), net |
19,349 | (17,131 | ) | |||||||
The accompanying notes are an integral part of these consolidated statements.
5
ACTION PERFORMANCE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
INTERIM FINANCIAL REPORTING
The accompanying condensed consolidated financial statements for Action Performance Companies, Inc. and subsidiaries have been prepared without audit by independent public accountants pursuant to the rules and regulations of the Securities and Exchange Commission. In our opinion, all normal recurring adjustments necessary for a fair statement of financial position and results of operations for the interim periods included herein have been made. Certain information and note disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from these statements pursuant to such rules and regulations. Accordingly, these financial statements should be read in conjunction with our Form 10-K for the fiscal year ended September 30, 2001. The results of operations for the interim periods are not necessarily indicative of the operating results that may be expected for the fiscal year ending September 30, 2002.
Certain prior period amounts have been reclassified to conform to the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
We adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), effective October 1, 2001. This standard establishes new guidelines for determining the accounting value of goodwill and other intangibles and eliminates the amortization requirement for goodwill and intangibles with an indefinite life. Goodwill and intangibles with indefinite lives will be subject to an impairment test, based on fair value, at least annually.
We have completed evaluations of goodwill and of other intangibles, which include licenses and the Winner’s Circle trademark, in accordance with SFAS 142. The reporting units for SFAS 142 are domestic die-cast, domestic apparel, foreign die-cast and corporate and other, which are also our reporting segments. Goodwill and the trademark, which has an indefinite life, have been allocated to those reporting units as indicated below in “Segment Information.” We have made no adjustments to income (loss) to date in connection with the evaluations, and we do not anticipate making any adjustments.
As of October 1, 2001, goodwill and trademark amortization ceased, in accordance with SFAS 142. The trademark was acquired in May 2001. For the three and nine months ended June 30, 2001, goodwill amortization was $1.0 million and $3.0 million or $0.6 million and $2.1 million, net of tax. Excluding the impact of goodwill amortization, net of tax, income before extraordinary items and net income for the three and nine months ended June 30, 2001,would have been the following (in thousands, except per share data):
| Three | Nine | |||||||||
| Months | Months | |||||||||
| Ended | Ended | |||||||||
Income before extraordinary items |
$ | 8,810 | $ | 12,853 | ||||||
Net income |
$ | 10,791 | $ | 20,921 | ||||||
Earnings Per Common Share: |
||||||||||
Basic- |
||||||||||
Income before extraordinary items |
$ | 0.55 | $ | 0.80 | ||||||
Net income |
$ | 0.67 | $ | 1.30 | ||||||
Diluted- |
||||||||||
Income before extraordinary items |
$ | 0.52 | $ | 0.78 | ||||||
Net income |
$ | 0.62 | $ | 1.27 | ||||||
6
SFAS No. 145, Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002 (SFAS 145), changes the classification of all gains and losses from extinguishment of debt, which under FASB Statement No. 4 were required to be classified as an extraordinary item, net of related income tax effect. Under SFAS No. 145, gains and losses from extinguishment of debt will now be classified as a component of operations. We intend to adopt SFAS No. 145 effective October 1, 2002. We will reclassify debt extinguishments in all periods presented as a component of income before tax and adjust income taxes accordingly. There will be no net impact on net income previously reported.
SEGMENT INFORMATION
Reportable segments are based on divisions operating geographically, domestic and abroad, and specializing in either die-cast or apparel and other souvenirs. The domestic die-cast operation is based in Phoenix. The domestic apparel and souvenir operation is based in Charlotte, with a screen-printing facility in Atlanta, and includes trackside operations. The foreign die-cast operation is based in Germany. The foreign apparel and souvenir operation (Goodsports) was based in England. Goodsports was closed effective September 30, 2001.
We evaluate performance and allocate resources based on segment operating income (loss). The accounting policies of the reportable segments are the same as those used in the consolidated financial statements. Domestic apparel and other consists of t-shirts, hats, jackets and memorabilia. Domestic licensing costs and certain management and information systems costs are not allocated to the domestic operating segments and are included in corporate and other. Intangible licenses are included in corporate and other assets. Each domestic segment is allocated royalty expense based on the incremental royalty due on that segment’s sales. Domestic royalty guarantees advanced and unearned are an expense of corporate and other. Financial information for the reportable segments follows (in thousands):
| Three Months Ended June 30, | ||||||||||||||||||
| Inter- | Depreciation | Operating | ||||||||||||||||
| External | segment | and | Income | |||||||||||||||
| Revenues | Revenues | Amortization | (Loss) | |||||||||||||||
| (a) | (a) | |||||||||||||||||
2002: |
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