<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 1, 1996
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________________to_______________________
Commission File Number: 0-15817
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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, including 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 July 10, 1996 was
47,047,510.
<PAGE>
THE TOPPS COMPANY, INC.
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
Index Page
----- ----
Condensed Consolidated Balance Sheets as of
June 1, 1996 and March 2, 1996 3
Condensed Consolidated Statements of Operations
for the thirteen weeks ended June 1, 1996 and
May 27, 1995 4
Condensed Consolidated Statements of Cash Flows
for the thirteen weeks ended June 1, 1996 and
May 27, 1995 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
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PART II - OTHER INFORMATION
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
The condensed consolidated financial statements for the thirteen weeks ended
June 1, 1996 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)
June March
1, 1996 2, 1996
------- -------
(amounts in thousands)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 30,612 $ 24,154
Accounts receivable - net 55,004 43,357
Inventories 24,727 27,887
Income tax receivable 1,851 3,008
Deferred tax assets 2,305 2,598
Prepaid expenses and other current assets 11,144 11,267
-------- --------
TOTAL CURRENT ASSETS 125,643 112,271
-------- --------
PROPERTY, PLANT, & EQUIPMENT 53,554 53,232
Less: accumulated depreciation 22,697 21,622
-------- --------
NET PROPERTY, PLANT & EQUIPMENT 30,857 31,610
-------- --------
INTANGIBLE ASSETS, net of accumulated
amortization of $33,507 and $32,844 69,786 70,447
OTHER ASSETS 2,998 2,799
-------- --------
TOTAL ASSETS $229,284 $217,127
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 22,652 $ 28,848
Accrued expenses and other liabilities 57,535 39,879
Current portion of long-term debt 5,000 6,800
Income taxes payable 11,509 5,466
-------- --------
TOTAL CURRENT LIABILITIES 96,696 80,993
LONG-TERM DEBT, less current portion 35,000 37,500
DEFERRED INCOME TAXES 6,123 11,192
OTHER LIABILITIES 5,671 5,592
-------- --------
TOTAL LIABILITIES 143,490 135,277
-------- --------
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 16,812
Treasury stock, at cost (6,120) (6,120)
Retained earnings 73,597 69,719
Minimum pension liability adjustment (110) (110)
Cumulative foreign currency adjustment 1,140 1,074
-------- --------
TOTAL STOCKHOLDERS' EQUITY 85,794 81,850
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $229,284 $217,127
======== ========
</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
June May
1, 1996 27, 1995
------- --------
(amounts in thousands,
except share data)
<S> <C> <C>
Net sales $ 79,261 $ 67,432
Cost of sales 53,087 44,331
----------- ------------
Gross profit on sales 26,174 23,101
Royalties and other income 583 567
----------- ------------
26,757 23,668
Selling, general and administrative expenses 18,140 15,057
----------- ------------
8,617 8,611
Depreciation and amortization 1,254 608
----------- ------------
Income from operations 7,363 8,003
Interest income (expense), net (563) 138
----------- -------------
Income before provision for income taxes 6,800 8,141
Provision for income taxes 3,060 3,501
----------- -----------
Net income $ 3,740 $ 4,640
=========== ===========
Net income per share $ .08 $ .10
Dividends paid per share - -
Weighted average shares outstanding 47,047,510 47,046,453
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants'
Review Report.
4
<PAGE>
TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended
June May
1, 1996 27, 1995
------- --------
(amounts in thousands)
<S> <C> <C>
Cash provided by (used for) operations:
Net income $ 3,740 $ 4,640
Add(subtract) non-cash items included in net income:
Depreciation and amortization 1,757 1,118
Deferred income taxes (4,776) 670
Change in assets and liabilities:
Receivables (11,647) (5,901)
Inventories 3,423 475
Income tax receivable 1,158 1,266
Prepaid expenses and other current assets 4 (1,058)
Other assets (244) (740)
Payables and other current liabilities 17,621 (522)
Other liabilities 1 266
-------- --------
Cash provided by operations 11,037 214
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Cash used for investing activities:
Additions to property, plant and equipment (279) (746)
-------- --------
Cash provided by (used for) financing activities:
Reduction of debt (4,300) -
Exercise of employee stock options - 19
-------- --------
Cash provided by (used for) financing activities (4,300) 19
-------- --------
Net increase (decrease) in cash 6,458 (513)
Cash at beginning of year 24,154 17,785
-------- --------
Cash at end of quarter $30,612 $17,272
======== =======
Interest paid $ 307 $ 13
Income taxes paid $ 1,732 $ 869
</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 JUNE 1, 1996
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 June 1, 1996 and May 27, 1995 are not necessarily
indicative of the results that may be expected for the year ending
March 1, 1997. For further information refer to the consolidated
financial statements and notes thereto in the Company's annual report
for the year ended March 2, 1996.
Certain items in the prior year's financial statements have been
reclassified to conform with the current year's presentation.
2. Acquisition
On July 6, 1995, the Company acquired 100% of the shares of Merlin
Publishing International Limited ("Merlin"), a privately-held U.K.
publisher and marketer of sticker and album collections (the
"Acquisition"). The purchase price for the Acquisition was $46,244,700.
The Company financed the Acquisition using a $50 million term loan with
a five-year amortization schedule provided by a syndicate of banks.
The Acquisition has been accounted for using the purchase method of
accounting. The cost of the Acquisition has been allocated to tangible
and intangible assets acquired and liabilities assumed based upon
management's estimate of their respective fair values at the
acquisition date as adjusted to reflect additional reserves for product
returns. Management is presently finalizing its estimate of these
respective fair values and may make further refinement if required. The
excess of purchase price over the fair value of the net assets acquired
(goodwill) is being amortized on a straight-line basis over a
forty-year period.
3. Quarterly Comparison
Management believes that quarter-to-quarter comparisons of sales and
operating results are affected by a number of 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.
4. Inventories
<TABLE>
<CAPTION>
(Unaudited)
June March
1, 1996 2, 1996
------- -------
(amounts in thousands)
<S> <C> <C>
Raw materials $ 7,051 $ 8,581
Work in process 2,557 3,221
Finished products 15,119 16,085
------- -------
Total $24,727 $27,887
</TABLE>
6
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
Board of Directors and Stockholders
The Topps Company, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of The
Topps Company, Inc. and subsidiaries as of June 1, 1996, and the related
condensed consolidated statements of operations and cash flows for the thirteen
week periods ended June 1, 1996 and May 27, 1995. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with the standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of 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 such 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 Topps Company, Inc. and
subsidiaries as of March 2, 1996, 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 27, 1996, 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 March 2, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
June 20, 1996
New York, New York
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
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Operations
- ----------
Net sales for the first quarter of fiscal 1997 increased 17.5% to $79,261,000
from $67,432,000 for the same period last year. This increase resulted from the
addition of Merlin Publishing International Limited, acquired in July 1995, and
from stronger sales of baseball products, partially offset by lower sales of
other sports cards and, to a lesser extent, confectionery products.
Gross profit as a percentage of net sales for the first quarter of fiscal 1997
decreased to 33.0% as compared with 34.3% for the same period last year. Margins
were negatively impacted by minimum guarantee shortfalls under certain of the
Company's sports licensing agreements and higher obsolescence costs versus a
year ago.
Selling, general and administrative expenses for the first quarter of fiscal
1997 increased to $18,140,000 or 22.9% of net sales, from $15,057,000 or 22.3%
for the same period a year ago. The dollar increase was driven primarily by the
addition of Merlin, acquired in the second quarter of fiscal 1996. The increase
in S,G&A as a percentage of net sales was the result of higher advertising and
freight costs overseas and the startup of operations in Mexico.
Increases in depreciation and amortization expense as well as net interest
expense experienced in the first quarter of fiscal 1997 were attributable
primarily to the Merlin acquisition.
The effective tax rate for the first quarter of fiscal 1997 was 45.0% versus an
effective rate of 43.0% for the same period a year ago. The higher tax rate was
driven by the Merlin acquisition.
Net income for the third quarter of fiscal 1997 was $3,740,000, or $0.08
per share, as compared with $4,640,000, or $0.10 per share, for the same period
last year.
On June 30, 1995, the Company entered into a $65 million credit agreement (the
"Credit Agreement") with a syndicate of banks which consisted of a $50 million
term loan to finance the Merlin acquisition, a $2 million letter of credit
facility and a $13 million revolving credit facility to be used for working
capital and general corporate purposes. Interest rates, before adding the bank's
applicable margin, are variable at prevailing LIBOR rates on half of the
outstanding principal, and fixed for two years commencing April 1996 as a result
of swap transactions for the remaining balance. The Credit Agreement contains
restrictions and prohibitions of a nature generally found in loan agreements of
this type and requires the Company, among other things, to comply with certain
financial covenants, limits the Company's ability to sell or acquire assets or
borrow additional money (other than through the revolving facility,) and
prohibits the payment of dividends. The Credit Agreement is secured by a pledge
of 65% of the stock of Merlin.
On June 27, 1996 the Company announced that its Board of Directors authorized
the repurchase of up to 2,000,000 shares of its common stock. The total number
of shares to be repurchased and the price the Company will pay will depend on a
variety of factors, including prevailing markets conditions.
As of June 1, 1996, the Company had $30,612,000 in cash, and $40,000,000 in debt
as a result of the Merlin acquisition. Management believes, in light of the
Company's borrowing capacity and cash on hand as of June 1, 1996, that the
Company has adequate means to meet its working capital, capital expenditure,
interest and principal repayment requirements for the foreseeable future.
8
<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 26, 1996
for the following purposes:
1. To elect three directors;
2. To ratify and approve The Topps Company, Inc. 1996 Stock Option Plan;
3. To ratify the appointment of auditors;
4. To consider a stockholder proposal regarding the classification of the
Board of Directors; and
5. To consider a stockholder proposal regarding the form of compensation
to be paid to non-employee Directors.
The results of the matters voted on are as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-Votes
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1. Election of Directors
Seymour P. Berger 41,457,165 499,106
Stephen D. Greenberg 41,523,141 433,130
Stanley Tulchin 41,486,323 469,948
2. Ratification of 1996
Stock Option Plan 38,440,311 2,362,527 748,261 404,172
3. Ratification of auditors 41,673,459 180,373 102,438
4. Stockholder proposal
regarding classification
of the Board of Directors 12,607,908 18,480,739 288,583 10,545,901
5. Stockholder proposal
regarding the form of
compensation to be paid
to non-employee Directors 3,828,687 26,825,011 723,531 10,545,901
</TABLE>
9
<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/ Catherine Jessup
--------------------------------
Vice President-Chief Financial
Officer
July 12, 1996
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-01-1997
<PERIOD-END> JUN-01-1996
<CASH> 30,612
<SECURITIES> 0
<RECEIVABLES> 55,004
<ALLOWANCES> 667
<INVENTORY> 24,727
<CURRENT-ASSETS> 125,643
<PP&E> 53,554
<DEPRECIATION> 22,697
<TOTAL-ASSETS> 229,284
<CURRENT-LIABILITIES> 96,696
<BONDS> 40,000
0
0
<COMMON> 475
<OTHER-SE> 85,319
<TOTAL-LIABILITY-AND-EQUITY> 229,284
<SALES> 79,261
<TOTAL-REVENUES> 80,073
<CGS> 53,087
<TOTAL-COSTS> 71,227
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 792
<INCOME-PRETAX> 6,800
<INCOME-TAX> 3,060
<INCOME-CONTINUING> 3,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,740
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
