<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MAY 27, 1995 COMMISSION FILE NUMBER 0-15817
THE TOPPS COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2849283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE WHITEHALL STREET, NEW YORK, NY 10004
(Address of principal executive offices) (Zip Code)
(212) 376-0300
(Registrant's telephone number, including area code)
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 .
--- ---
The number of outstanding shares of Common Stock as of June 26, 1995 was
47,047,510.
<PAGE>
THE TOPPS COMPANY, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index Page
----- ----
Condensed Consolidated Balance Sheets as of
May 27, 1995 and February 25, 1995 3
Condensed Consolidated Statements of Operations
for the thirteen weeks ended May 27, 1995 and
May 28, 1994 4
Condensed Consolidated Statements of Cash Flows
for the thirteen weeks ended May 27, 1995 and
May 28, 1994 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
The condensed consolidated financial statements for the thirteen weeks ended
May 27, 1995 included herein have been reviewed by Deloitte & Touche LLP
independent public accountants, in accordance with established professional
standards for such a review. The report of Deloitte & Touche LLP is included
on page 7.
2
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
May February
27, 1995 25, 1995
--------- --------
(amounts in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 17,272 $ 17,785
Accounts receivable - net 30,128 24,228
Inventories 25,956 27,222
Income tax receivable 77 552
Prepaid expenses and other current assets 10,755 10,158
-------- --------
TOTAL CURRENT ASSETS 84,188 79,945
-------- --------
PROPERTY, PLANT, & EQUIPMENT 51,236 50,095
Less: accumulated depreciation 19,111 18,131
-------- --------
NET PROPERTY, PLANT & EQUIPMENT 32,125 31,964
-------- --------
INTANGIBLE ASSETS, net of accumulated
amortization of $30,873 and $30,532 22,921 22,901
OTHER ASSETS 1,898 1,514
-------- --------
TOTAL ASSETS $141,132 $136,324
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 18,778 $ 22,396
Accrued expenses and other liabilities 26,715 25,599
Income taxes payable 3,013 1,033
-------- --------
TOTAL CURRENT LIABILITIES 48,506 49,028
DEFERRED INCOME TAXES 9,839 9,630
OTHER LIABILITIES 4,014 3,797
-------- --------
TOTAL LIABILITIES 62,359 62,455
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share
authorized 10,000,000 shares, none issued
Common stock, par value $.01 per share,
authorized 100,000,000 shares; issued
47,502,510 shares, less 455,000 shares
in Treasury Stock 475 475
Additional paid-in capital 16,812 16,792
Treasury stock, at cost (6,120) (6,120)
Retained earnings 65,965 61,325
Cumulative foreign currency adjustment 1,641 1,397
-------- --------
TOTAL STOCKHOLDERS' EQUITY 78,773 73,869
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $141,132 $136,324
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants'
Review Report.
3
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended
May 27, 1995 May 28, 1994
------------ ------------
(amounts in thousands, except share data)
<S> <C> <C>
Net sales $ 67,432 $ 94,498
Cost of sales 44,331 57,808
-------- --------
Gross profit on sales 23,101 36,690
Royalties and other income 567 577
-------- --------
23,668 37,267
Selling, general and
administrative expenses 15,665 18,463
-------- --------
Income from operations 8,003 18,804
Interest income, net 138 48
-------- --------
Income before provision
for income taxes 8,141 18,852
Provision for income taxes 3,501 8,106
-------- --------
Net Income $ 4,640 $ 10,746
-------- --------
-------- --------
Income per share $ .10 $ .23
Dividends paid per share - $ .07
Weighted average shares
outstanding 47,046,453 47,035,798
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants'
Review Report.
4
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended
May May
27, 1995 28, 1994
-------- --------
(amounts in thousands)
<S> <C> <C>
Cash provided by (used for) operations:
Net income $ 4,640 $ 10,746
Add (subtract) non-cash items included
in net income:
Depreciation and amortization 1,118 1,308
Deferred income taxes 670 556
Net effect of changes in:
Receivables (5,901) (16,504)
Inventories 1,266 1,950
Income tax receivable 475
Prepaid expenses and other current assets (1,058) (3,064)
Other assets (385)
Payables and other current liabilities (522) 7,972
Other liabilities 266 224
-------- ---------
Cash provided by operations 569 3,188
-------- ---------
Cash used for investing activities:
Additions to property, plant and equipment (746) (545)
-------- ---------
Cash provided by (used for) financing
activities:
Dividends paid (3,293)
Exercise of employee stock options 19
Deferred financing fees (355)
-------- ---------
Cash used for financing activities (336) (3,293)
-------- ---------
Net increase (decrease) in cash (513) (650)
Cash at beginning of year 17,785 27,737
-------- ---------
Cash at end of quarter $17,272 $ 27,087
-------- ---------
-------- ---------
Supplemental information:
Interest paid $ 13 $ 9
Income taxes paid $ 869 $ 1,324
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants'
Review Report.
5
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 27, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited condensed interim consolidated financial
statements have been prepared by The Topps Company, Inc. and subsidiaries
(the "Company") pursuant to the rules and regulations of the Securities
and Exchange Commission and reflect all adjustments, which are, in the
opinion of management, considered necessary for a fair presentation.
These statements do not include all information required by generally
accepted accounting principles to be included in a full set of financial
statements. Operating results for the thirteen weeks ended May 27, 1995
and May 28, 1994 are not necessarily indicative of the results that may
be expected for the year ending March 2, 1996. For further information
refer to the consolidated financial statements and notes thereto in the
Company's annual report for the year ended February 25, 1995.
2. QUARTERLY COMPARISON
Management believes that quarter-to-quarter comparisons of sales and
operating results are affected by a number of fluctuating factors,
including the timing of product introductions and variations in shipping
and factory scheduling requirements. Thus, annual sales and earnings
amounts are unlikely to consist of equal quarterly portions.
3. INVENTORIES
<TABLE>
<CAPTION>
(Unaudited)
May February
27, 1995 25, 1995
-------- --------
(amounts in thousands)
<S> <C> <C>
Raw materials $ 7,384 $ 9,683
Work in process 2,650 3,738
Finished products 15,922 13,801
------- -------
Total $25,956 $27,222
------- -------
------- -------
</TABLE>
6
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
The Topps Company, Inc.
We have made a review of the accompanying condensed consolidated balance sheet
of The Topps Company, Inc. and subsidiaries, (the "Company") as of May 27,
1995 and the related condensed consolidated statements of operations and cash
flows for the thirteen week periods ended May 27, 1995 and May 28, 1994, in
accordance with the standards established by the American Institute of
Certified Public Accounts.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope that an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of February 25,
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented herein); and in
our report dated March 25, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of February 25,
1995 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
June 15, 1995
New York, New York
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1996 decreased 28.6%, to $67,432,000
from $94,498,000 for the same period last year. This decrease resulted from
lower shipments of sports card products, principally baseball cards, partially
offset by growth in the Company's confectionery business. The lingering effects
of the baseball strike, evidenced by low attendance at games and other signs of
diminished fan interest, translated into lower trade and consumer demand for
baseball card products during the period.
Gross profit as a percentage of net sales for the first quarter of fiscal 1996
decreased to 34.9%, as compared with 38.8% for the same period last year.
Although material, labor, overhead and product development expenses decreased
compared to the same period last year, they increased as a percentage of net
sales due to lower sales volume.
Selling, general and administrative expenses as a percentage of net sales
for the first quarter of fiscal 1996 increased to 23.2%, from 19.5% for the
same period a year ago, but declined $2,798,000 in absolute dollars to
$15,665,000, from $18,463,000 last year. This decrease was primarily a result
of lower advertising expenditures on sports card and confectionery products.
The effective tax rate of 43% for both the first quarter of fiscal 1995 and
fiscal 1996 reflected a provision for federal, state and local income taxes in
accordance with statutory income tax rates.
Net income for the first quarter of fiscal 1996 was $4,640,000, or $.10 per
share, as compared with $10,764,000, or $.23 per share, for the same period
last year.
On May 17, 1995, the Company announced that it had signed a definitive
agreement to acquire Merlin Publishing International plc, a privately held
U.K. company that publishes and markets sticker and album collections. The
transaction was consummated on July 6, 1995. The final purchase price was
approximately $46.2 million.
8
<PAGE>
The Company also entered into a $65 million credit agreement with a syndicate
of banks, dated as of June 30, 1995, to finance the Merlin acquisition and
provide a working capital facility for general corporate purposes.
Management believes that in light of the Company's $17,272,000 of cash on hand
as of May 27, 1995, improved working capital position and expected cash flow
from operations, the Company has adequate cash to meet its working capital and
capital expenditure requirements for the foreseeable future.
9
<PAGE>
THE TOPPS COMPANY, INC.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company took place on June 21, 1995
for the following purposes:
To elect three directors.
To ratify the appointment of auditors.
To consider a proposal regarding declassification of the Board of
Directors.
The results of the matters voted on are as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Election of Directors:
Allan A. Feder 41,444,737 65,672 267,417
John J. Langdon 41,435,714 74,695 267,417
Jack H. Nusbaum 41,038,443 471,966 267,417
Ratification of Auditors: 41,525,474 177,286 75,066
Consider declassification
of the Board of Directors 13,763,653 16,373,184 451,077 11,189,912
</TABLE>
10
<PAGE>
SIGNATURE
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.
THE TOPPS COMPANY, INC.
----------------------------------------
Registrant
/s/ John Perillo
----------------------------------------
Vice President-Operations
July 10, 1995 Acting Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-02-1996
<PERIOD-END> MAY-27-1995
<CASH> 17,272
<SECURITIES> 0
<RECEIVABLES> 30,128
<ALLOWANCES> 0
<INVENTORY> 25,956
<CURRENT-ASSETS> 84,188
<PP&E> 51,236
<DEPRECIATION> 19,111
<TOTAL-ASSETS> 141,132
<CURRENT-LIABILITIES> 48,506
<BONDS> 0
<COMMON> 475
0
0
<OTHER-SE> 78,298
<TOTAL-LIABILITY-AND-EQUITY> 141,132
<SALES> 67,432
<TOTAL-REVENUES> 68,137
<CGS> 44,331
<TOTAL-COSTS> 59,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,141
<INCOME-TAX> 3,501
<INCOME-CONTINUING> 4,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,640
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
