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 May 30, 1998
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
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 9, 1998 was
46,400,010.
<PAGE>
THE TOPPS COMPANY, INC.
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Index Page
Condensed Consolidated Balance Sheets as of
May 30, 1998 and February 28, 1998 3
Condensed Consolidated Statements of Operations
for the thirteen weeks ended May 30, 1998 and
May 31, 1997 4
Condensed Consolidated Statements of Comprehensive
Income for the thirteen weeks ended May 30, 1998 and
May 31, 1997 5
Condensed Consolidated Statements of Cash Flows
for the thirteen weeks ended May 30, 1998 and
May 31, 1997 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
The condensed consolidated financial statements for the thirteen weeks ended May
30, 1998 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 8.
2
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May February
30, 1998 28, 1998
(amounts in thousands
except share data)
ASSETS
CURRENT ASSETS:
Cash $ 26,772 $ 22,153
Accounts receivable - net 38,171 49,727
Inventories 14,217 16,613
Income tax receivable 1,311 6,829
Deferred tax assets 2,921 2,792
Prepaid expenses and other current assets 5,411 3,821
------ -------
TOTAL CURRENT ASSETS 88,803 101,935
PROPERTY, PLANT, & EQUIPMENT 14,656 14,551
Less: accumulated depreciation 4,911 4,403
------ ------
NET PROPERTY, PLANT & EQUIPMENT 9,745 10,148
INTANGIBLE ASSETS, net of accumulated
amortization of $38,730 (1999) and $38,075 (1998) 62,171 62,825
OTHER ASSETS 3,354 3,498
------- -------
TOTAL ASSETS $164,073 $178,406
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,421 $ 27,752
Accrued expenses and other liabilities 37,938 43,714
Current portion of long-term debt 9,167 8,333
Income taxes payable 2,142 1,165
------ ------
TOTAL CURRENT LIABILITIES 70,668 80,964
LONG-TERM DEBT, less current portion 14,117 22,617
DEFERRED INCOME TAXES 7,796 6,864
OTHER LIABILITIES 6,605 6,352
------ -------
TOTAL LIABILITIES 99,186 116,797
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 1,102,500 shares in Treasury Stock 475 475
Additional paid-in capital 16,812 16,812
Treasury stock, 1,102,500 shares in 1999 and 1998 (8,881) (8,881)
Retained earnings 56,900 54,204
Cumulative foreign currency adjustment (419) (1,001)
------- -------
TOTAL STOCKHOLDERS' EQUITY 64,887 61,609
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $164,073 $178,406
-------- --------
-------- --------
See Notes to Condensed Consolidated Financial Statements and Accountants'Review
Report.
3
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen weeks ended
May May
30, 1998 31, 1997
(amounts in thousands,
except share data)
Net sales $ 53,327 $ 60,177
Cost of sales 31,648 37,714
------ ------
Gross profit on sales 21,679 22,463
Royalties and other income 269 448
------ ------
21,948 22,911
Selling, general and administrative expenses 17,894 20,900
Plant closure (income) expense (1,040) -
------ ------
Income from operations 5,094 2,011
Interest income (expense), net (365) (544)
------ ------
Income before provision for income taxes 4,729 1,467
Provision for income taxes 2,033 645
Net income $ 2,696 $ 822
------ ------
------ ------
Basic and diluted net income per share $ .06 $ .02
Weighted average shares outstanding - basic 46,400,010 46,485,175
Weighted average shares outstanding - diluted 46,703,879 46,485,175
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
4
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
Thirteen weeks ended
May May
30, 1998 31, 1997
(amounts in thousands)
Net income $ 2,696 $ 822
Currency translation adjustment 582 (805)
----- -----
Comprehensive income $ 3,227 $ 17
----- -----
----- -----
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
5
<PAGE>
TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen weeks ended
May May
30, 1998 31,1997
(amounts in thousands)
Cash provided by (used for) operations:
Net income $ 2,696 $ 822
Add(subtract) non-cash items included in net income:
Depreciation and amortization 1,162 992
Deferred income taxes 804 409
Change in assets and liabilities:
Receivables 11,556 12,129
Inventories 2,397 4,671
Income tax receivable 5,518 (427)
Prepaid expenses and other current assets (1,590) 1,020
Other assets (58) (375)
Payables and other current liabilities (11,128) (14,734)
Other liabilities (57) (662)
------ ------
Cash provided by operations 11,300 3,845
Cash provided by (used by) investing activities:
Proceeds from disposition of capital equipment 1,040 -
Additions to property, plant and equipment (54) (453)
------ ----
Cash provided by (used by) investing activities 986 (453)
Cash provided by (used by) financing activities:
Reduction of debt (7,667 (2,500)
Purchase of treasury stock - (522)
----- -----
Cash provided by (used by) financing activities (7,667) (3,022)
Net increase in cash 4,619 370
Cash at beginning of quarter 22,153 24,199
------ ------
Cash at end of quarter $26,772 $24,569
------ ------
------ ------
Interest paid $ 1,040 $ 708
Income taxes paid $ 76 $ 649
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
6
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 30, 1998
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 30, 1998 and May 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending
February 27, 1999. For further information refer to the consolidated
financial statements and notes thereto in the Company's annual report
for the year ended February 28, 1998.
2. 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.
3. Inventories
(Unaudited)
May February
30, 1998 28, 1998
(amounts in thousands)
Raw materials $ 1,429 $ 1,794
Work in process 1,354 1,619
Finished products 11,434 13,200
------ ------
Total $ 14,217 $ 16,613
7
<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 30, 1998,
and the related condensed consolidated statements of operations and cash flows
for the thirteen week periods ended May 30, 1998 and May 31, 1997, in accordance
with the standards established by the American Institute of Certified Public
Accountants.
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 of making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than 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 Topps Company, Inc. and
subsidiaries as of February 28, 1998, 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 April 3, 1998 (May 11, 1998 as to
Note 9), 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 28, 1998 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
June 25, 1998
New York, New York
8
<PAGE>
ITEM 2. Management's Discussion And Analysis Of Financial Condition and Results
Of Operations
Net sales for the first quarter of fiscal 1999 decreased to $53,327,000 from
$60,177,000 for the same period last year. This decrease was primarily the
result of shifts in timing of sports card releases--particularly certain
basketball products which were shipped in the fourth quarter of fiscal 1998
versus the first quarter of fiscal 1999--and a reduced emphasis on entertainment
card and sticker products. Net sales of confectionery products were up versus
the first quarter a year ago due to increased sales of core products such as
Ring Pop and Push Pop, plus the roll out of two new products, Baby Bottle Pop
and Flip Pop, to various domestic and international markets.
Gross profit as a percentage of net sales for the first quarter of fiscal 1999
increased to 40.7% as compared with 37.3% for the same period last year. This
margin improvement was the result of several factors, including stronger sales
of non-royalty bearing confectionery products, lower product development costs
and reduced inventory obsolescence.
Selling, general and administrative expense as a percentage of net sales
decreased to 33.6% in the first quarter of fiscal 1999 from 34.7% a year ago.
This decrease was primarily the result of a negotiated reduction in marketing
expenses previously required by one of the Company's sports licenses, reduced
headcount and tighter cost control.
Income from operations in the first quarter of fiscal 1999 included a $1,040,000
gain on the sale of equipment from the Company's former manufacturing plants in
Pennsylvania and Ireland.
The effective tax rate for the first quarter of fiscal 1999 was 43.0% versus an
effective rate of 44.0% for the same period a year ago.
Net income for the first quarter of fiscal 1999 increased to $2,696,000, or
$0.06 per share, as compared with $822,000, or $0.02 per share, for the same
period last year.
In July 1995, the Company entered into a $65 million credit agreement with a
syndicate of eight banks in order to finance the acquisition of Topps Europe,
Ltd., formerly known as Merlin Publishing, Ltd., and to provide for working
capital and letter of credit needs. In May 1998, the Company refinanced this
facility with Chase Manhattan Bank. The new credit agreement includes a term
loan in the aggregate amount of $24,950,000 (which was used to repay the prior
loan in its entirety) and a $9,450,000 facility to cover general corporate
needs. The new facility expires on July 6, 2000, as did the prior credit
agreement. Obligations under the new agreement are secured by a pledge of the
Company's domestic trademarks and 65% of the stock of Topps Europe. Beginning in
June 1998, interest rates on $10 million of the outstanding principal of the
loan are fixed for one year as a result of an interest rate swap and are,
therefore, a function of interest rates at the commencement of the swap
transaction. Interest rates on the balance of the outstanding loan are variable
and a function of short-term indices. 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 and prohibits the payment of dividends and the repurchase of
stock.
As of May 30, 1998, the Company had $26,722,000 in cash and $23,284,000 in debt.
Management believes that, in light of the Company's borrowing capacity, cash on
hand as of May 30, 1998 and expected cash flow from operations, the Company has
adequate means to meet its working capital, capital expenditure, interest and
principal repayment requirements for the foreseeable future.
9
<PAGE>
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby filing
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements of the Company made by or on behalf of the Company, whether oral or
written. Among the factors that could cause the Company's actual results to
differ materially from those indicated in any such forward statements are: (i)
the failure of certain of the Company's principal products, particularly sports
cards and sticker and album collections, to achieve expected sales levels; (ii)
prolonged labor strife between the players and the owners in the NBA; (iii)
quarterly fluctuations in results; (iv) the Company's loss of important
licensing and supply arrangements with third parties; (v) the effect of changes
in trade terms with certain of the Company's key customers; (vi) the Company's
inability to comply with the financial covenants contained in its new credit
facility; (vii) further prolonged and material contraction in the trading card
industry; (viii) excessive returns of the Company's products as well as other
risks detailed from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission.
10
<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 30, 1998
for the following purposes:
1. To elect three directors;
2. To ratify and approve the Amendment and Restatement of the 1994
Non-Employee Director Stock Option Plan;
3. To ratify the appointment of auditors;
4. To consider a stockholder proposal regarding the declassification of the
Board of Directors;
5. To consider a stockholder proposal regarding the sale of the Company.
The results of the matters voted on are as follows:
<TABLE>
Broker
For Against Abstentions Non-Votes
<S> <C> <C> <C> <C>
1. Election of Directors
Allan A. Feder 38,310,309 2,517,287
David M. Mauer 38,370,048 2,457,548
Jack H. Nusbaum 38,988,323 2,839,273
2. Ratification of Stock Option Plan 38,805,053 1,736,994 285,549
3. Ratification of appointment
of auditors 40,584,647 164,581 78,368
4. Stockholder proposal
regarding declassification
of the Board of Directors 13,112,848 12,360,754 3,300,110 12,053,884
5. Stockholder proposal
regarding the sale of
the Company 6,821,994 20,602,683 1,349,035 12,053,884
</TABLE>
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K
10.32 - Amendment number 1 to Credit Agreement Dated May 11, 1998
12
<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 9, 1998
13
FIRST AMENDMENT TO
CREDIT AGREEMENT
Dated as of June 4, 1998
FIRST AMENDMENT dated as of June 4, 1998 (the "Amendment"), to Credit
Agreement, dated as of May 11, 1998 (as amended, the "Credit Agreement"), among
THE TOPPS COMPANY, INC., a Delaware corporation (the "Borrower"), the LENDERS
party hereto (the "Lenders"), and THE CHASE MANHATTAN BANK, as Agent (in such
capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, on May 11, 1998, the Borrower, the Lenders and the Agent entered
into the Credit Agreement pursuant to which the Lenders provided to the Borrower
a term loan facility in the principal amount of $24,950,000 and a revolving
credit facility of up to $9,450,000,
WHEREAS, the Borrower has requested that the Lenders amend the Credit
Agreement to increase the allowed amount for investments by the Borrower in its
Subsidiaries, and the Lenders have agreed to do so on the terms and conditions
set forth herein;
WHEREAS, unless otherwise defined herein, capitalized terms defined in the
Credit Agreement and used herein are used herein as therein defined.
NOW THEREFORE, the parties to this Amendment, for valuable consideration
the receipt and sufficiency of which are hereby acknowledged, hereto agree as
follows:
SECTION 1. AMENDMENT TO SECTION 6.04 Section 6.04 of the Credit Agreement
is hereby amended by replacing the number "$3,000,000" at the end of subsection
(c) thereof with "$10,000,000".
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower and each of the
Guarantors hereby represents and warrants that:
(a) each of the representations and warranties contained in Article III of
the Credit Agreement and in each of the other Loan Documents is true and
correct (provided that any representations and warranties which speak to a
specific date shall remain true and correct as of such specific date);
(b) after giving effect to this Amendment, there does not exist a Default
or an Event of Default as of the date hereof;
<PAGE>
(c) the execution, delivery and performance by the Borrower of this
Amendment (i) are within the corporate powers of the Borrower, (ii) have
been duly authorized by all necessary corporate and, if required,
stockholder action, and (iii) (A) do not require any consent or approval
of, registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force
and effect and except filings necessary to perfect Liens created under the
Loan Documents, (B) will not violate any applicable law or regulation or
the charter, by-laws or other organizational documents of the Borrower or
any of its Subsidiaries or any order of any Governmental Authority, (C)
will not violate or result in a default under any indenture, agreement or
other instrument binding upon the Borrower or any of its Subsidiaries or
its assets, or give rise to a right thereunder to require any payment to be
made by the Borrower or any of its Subsidiaries, and (D) will not result in
the creation or imposition of any Lien on any asset of the Borrower or any
of its Subsidiaries, except Liens created under the Loan Documents.
(d) This Amendment has been duly executed and delivered by the Borrower.
(e) This Amendment is the legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms.
SECTION 3. CONDITIONS PRECEDENT. This Amendment shall become effective (the
"Effective Date") upon the satisfaction of all of the following conditions
precedent:
(a) the Agent shall have received counterparts of this Amendment executed
by each of the Borrower, the Lenders and the Agent; and
(b) the Agent shall have received such other documents or information as
the Agent or its counsel shall require.
SECTION 4. CONTINUOUS EFFECT. The terms of this Amendment shall not operate
as a waiver by the Agent or the Lenders, or otherwise prejudice the rights,
remedies or powers of the Agent or the Lenders under the Loan Documents or under
applicable law. Except as expressly provided herein: (x) no terms and provisions
of the Loan Documents are modified or changed by this Amendment; and (y) the
terms and provisions of the Loan Documents shall continue in full force and
effect.
SECTION 5. SEVERABILITY. The provisions of this Amendment are intended to
be severable. If for any reason any provision of this Amendment shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
2
<PAGE>
SECTION 6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Amendment by signing any such
counterpart.
SECTION 7. INTEGRATION. This Amendment sets forth the entire agreement
among the parties hereto relating to the transactions contemplated thereby and
supersedes any prior oral or written statements or agreements with respect to
such transactions.
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL IN ALL RESPECTS BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and the year first written.
THE TOPPS COMPANY, INC.
By:__________________________
Name: Catherine K. Jessup
Title: VP-Chief Financial Officer
THE CHASE MANHATTAN BANK,
individually and as Agent,
By:__________________________
Name: Alicia Schreibstein
Title: Vice President
3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812076
<NAME> TOPPS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> MAY-30-1998
<CASH> 26,772
<SECURITIES> 0
<RECEIVABLES> 38,171
<ALLOWANCES> 1,211
<INVENTORY> 14,217
<CURRENT-ASSETS> 88,803
<PP&E> 14,656
<DEPRECIATION> 4,911
<TOTAL-ASSETS> 164,073
<CURRENT-LIABILITIES> 70,668
<BONDS> 9,167
475
0
<COMMON> 0
<OTHER-SE> 64,412
<TOTAL-LIABILITY-AND-EQUITY> 164,073
<SALES> 53,327
<TOTAL-REVENUES> 55,009
<CGS> 31,648
<TOTAL-COSTS> 49,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 738
<INCOME-PRETAX> 4,729
<INCOME-TAX> 2,033
<INCOME-CONTINUING> 2,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,696
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
