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 August 29, 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 October 2, 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
August 29, 1998 and February 28, 1998 3
Condensed Consolidated Statements of Operations
for the thirteen and twenty-six weeks ended
August 29, 1998 and August 30, 1997 4
Condensed Consolidated Statements of Comprehensive
Income for the thirteen and twenty-six weeks ended
August 29, 1998 and August 30, 1997 5
Condensed Consolidated Statements of Cash Flows
for the thirteen and twenty-six weeks ended
August 29, 1998 and August 30, 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 6. EXHIBITS AND REPORTS ON FORM 8-K 12
The condensed consolidated financial statements for the thirteen and twenty-six
weeks ended August 29, 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
<TABLE>
(Unaudited)
August February
29,1998 28, 1998
(amounts in thousands
except share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,020 $ 22,153
Accounts receivable - net 32,441 49,727
Inventories 14,132 16,613
Income tax receivable 325 6,829
Deferred tax assets 2,748 2,792
Prepaid expenses and other current assets 6,461 3,821
------ -------
TOTAL CURRENT ASSETS 95,127 101,935
PROPERTY, PLANT, & EQUIPMENT 13,245 14,551
Less: accumulated depreciation 5,163 4,403
------ ------
NET PROPERTY, PLANT & EQUIPMENT 8,082 10,148
INTANGIBLE ASSETS, net of accumulated
amortization of $39,385 and $38,075 61,516 62,825
OTHER ASSETS 3,222 3,498
------- -------
TOTAL ASSETS $167,947 $178,406
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,782 $ 27,752
Accrued expenses and other liabilities 45,617 43,714
Current portion of long-term debt 9,375 8,333
Income taxes payable 5,243 1,165
------ ------
TOTAL CURRENT LIABILITIES 73,017 80,964
LONG-TERM DEBT, less current portion 11,408 22,617
DEFERRED INCOME TAXES 7,196 6,864
OTHER LIABILITIES 6,856 6,352
------ -------
TOTAL LIABILITIES 98,477 116,797
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 (8,881) (8,881)
Retained earnings 61,713 54,204
Cumulative foreign currency adjustment (649) (1,001)
------ ------
TOTAL STOCKHOLDERS' EQUITY 69,470 61,609
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $167,947 $178,406
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
</TABLE>
3
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
August August August August
29, 1998 30, 1997 29, 1998 30, 1997
(amounts in thousands, except share data)
<S> <C> <C> <C> <C>
Net sales $ 57,868 $ 55,118 $ 111,195 $ 115,295
Cost of sales 32,563 37,493 64,211 75,207
------ ------ ------- ------
Gross profit on sales 25,305 17,625 46,984 40,088
Royalties and other income(expense) (197) 162 72 610
------ ------ ------ ------
25,108 17,787 47,056 40,698
Selling, general and administrative expenses 19,276 20,721 37,170 41,621
Gain on disposition of assets 2,836 - 3,876 -
------ ------ ------ ------
Income (loss) from operations 8,668 (2,934) 13,762 (923)
Interest expense, net (226) (213) (591) (757)
------ ------ ------ -----
Income (loss) before provision (benefit) for
income taxes 8,442 (3,147) 13,171 (1,680)
Provision (benefit) for income taxes 3,629 (1,384) 5,662 (739)
Net income (loss) $ 4,813 $ (1,763) $ 7,509 $ (941)
Basic & diluted net (loss) per share $ 0.10 $ (0.04) $ 0.16 $ (0.02)
Weighted average shares outstanding - Basic 46,400,010 46,400,010 46,400,010 46,442,592
Weighted average shares outstanding - Diluted 46,723,151 46,400,010 46,727,217 46,442,592
</TABLE>
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
<TABLE>
(Unaudited) (Unaudited)
Thirteen weeks ended Twenty-six weeks ended
August August August August
29, 1998 30, 1997 29, 1998 30, 1997
(amounts in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ 4,813 $ (1,763) $ 7,509 $ (941)
Currency translation adjustment (230) (26) 352 (828)
----- ----- ----- -----
Comprehensive income (loss) $ 4,583 $ (1,789) $ 7,861 $(1,769)
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
5
<PAGE>
TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
(Unaudited)
Twenty-six weeks ended
August August
29, 1998 30, 1997
(amounts in thousands)
<S> <C> <C>
Cash provided by operations:
Net income (loss) $ 7,509 $ (941)
Add(subtract) non-cash items included in net income:
Depreciation and amortization 2,316 2,021
Deferred income taxes 377 2,295
Gain on dispostion of property, plant and equipment (3,876) -
Change in assets and liabilities:
Receivables 17,285 19,282
Inventories 2,481 1,860
Income tax receivable 6,505 (2,344)
Prepaid expenses and other current assets (2,645) 1,210
Payables and other current liabilities (8,987) (19,790)
Other 842 (611)
------ ------
Cash provided by operations 21,807 2,982
Cash provided by (used by) investing activities:
Proceeds from disposition of property, plant and equipment 5,562 -
Additions to property, plant and equipment (335) (944)
----- ----
Cash provided by (used by) investing activities 5,227 (944)
Cash (used by) financing activities:
Reduction of debt (10,167) (7,500)
Purchase of treasury stock - (522)
------ -----
Cash (used by) financing activities (10,167) (8,022)
Net increase (decrease) in cash and cash equivalents 16,867 (5,984)
Cash and cash equivalents at beginning of year 22,153 24,199
------ ------
Cash and cash equivalents at end of quarter $39,020 $18,215
Interest paid $ 1,532 $ 1,472
Income taxes paid $ 214 $ 868
</TABLE>
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 AUGUST 29, 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 in the opinion of the Company's management, contain
all adjustments (consisting of only normal recurring adjustments) necessary
to present fairly the results of the Company's financial position as of
August 29, 1998 and the results of its operations and its cash flows for
the thirteen weeks and twenty-six weeks ended August 29, 1998 and August
30, 1997, respectively. 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 interim periods
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
<TABLE>
(Unaudited)
August February
29, 1998 28, 1998
(amounts in thousands)
<S> <C> <C>
Raw materials $ 621 $ 1,794
Work in process 1,511 1,619
Finished products 12,000 13,200
------ ------
Total $14,132 $16,613
</TABLE>
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 August 29,
1998, and the related condensed consolidated statements of operations and cash
flows for the thirteen week and twenty-six week periods ended August 29, 1998
and August 30, 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
September 24, 1998
New York, New York
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended August 29,1998 Compared with the Three Months Ended August
30, 1997
Net sales for the second quarter of fiscal 1999 increased 5.0%, to $57,868,000
from $55,118,000. Sales of confectionery products increased, driven both by the
introduction of Baby Bottle Pop and Flip Pop to domestic and foreign markets as
well as by added distribution and advertising of core lollipop products, Ring
Pop and Push Pop. Sales of sports products also increased as a result of the
timing of certain releases. Sales of entertainment card and sticker products
were down versus the second quarter a year ago as a result of the Company's
decision to significantly reduce participation in these segments.
Gross profit as a percentage of net sales for the second quarter of fiscal 1999
increased to 43.7% as compared with 32.0% for the same period last year. This
margin improvement was driven by a number of factors, including among them,
lower product costs in the U.S. and lower royalty expenses to licensors both as
a result of reduced participation in the entertainment segment and the absence
of a minimum guarantee shortfall experienced last year in conjunction with the
decision to exit the sports sticker/album business in Brazil. Lower product
development and inventory obsolescence costs also contributed favorably to gross
profit margins in this year's second quarter.
The decrease in royalties and other income from $162,000 to $(197,000) in the
second quarter of fiscal 1999 was primarily the result of foreign exchange
translation losses in Mexico and Brazil.
Selling, general and administrative expenses decreased to 33.3% of net sales in
the second quarter of fiscal 1999 from 37.6% a year ago. This decrease was
primarily the result of this year's higher sales, the Company's actions late
last year to reduce headcount and other overhead expenses, as well as the
absence of a one-time charge taken in the second quarter of fiscal 1998 relating
to the closure of certain European offices.
Pre-tax income from operations of $8,668,000 in the second quarter of fiscal
1999 includes a gain of $2,836,000 from the sales of the Company's former
manufacturing plant in Cork, Ireland and equipment from both the Cork, Ireland
and Duryea, Pennsylvania facilities.
The effective tax rate for the second 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 second quarter of fiscal 1999 was $4,813,000, or $0.10 per
share, as compared with a loss of $(1,763,000), or $(0.04) per share, for the
same period last year.
Six Months Ended August 29,1998 Compared with the Six Months Ended August 30,
1997
Net sales for the first half of fiscal 1999 decreased 3.6%, to $111,195,000 from
$115,295,000 for the same period last year. The decrease was primarily the
result of shifts in timing of sports card releases and the Company's reduced
participation in the entertainment card and sticker/album segments. Net sales of
confectionery products were higher than the first half a year ago due to the
roll out of Push Pop lollipops to additional markets in Brazil, the successful
introduction of Baby Bottle Pop and Flip Pop to a number of domestic and
international markets, as well as increased sales of core lollipop brands in the
U.S. and Canada.
9
<PAGE>
Gross profit as a percentage of net sales for the first half of fiscal 1999
increased to 42.3% as compared with 34.8% for the same period last year. The
margin improvement was the result of lower product costs in the U.S. and lower
royalty expenses to licensors, both as a result of reduced participation in the
entertainment segment and the absence of a Brazilian minimum guarantee shortfall
recorded last year. Lower product development and obsolescence costs also
contributed favorably to gross profit margins in the first half of this year as
compared with the comparable period last year.
Royalties and other income decreased from $610,000 in last year's first half to
$72,000 in the first half of fiscal 1999 largely as a result of the impact of
foreign exchange translation losses in Mexico and Brazil.
Selling, general and administrative expenses for the first half of fiscal 1999
decreased to $37,170,000 or 33.4% of sales, from $41,621,000 or 36.1% for the
same period a year ago. This decrease was the result of a variety of factors,
importantly among them the Company's actions late last year to reduce headcount
and other overhead expenses, a negotiated reduction in domestic marketing
expenses previously required by one of the Company's sports licenses and the
absence of a one-time charge taken in the second quarter of fiscal 1998 relating
to the closure of certain European offices.
The effective tax rate for the first half of fiscal 1999 was 43.0% compared to
an effective rate of 44.0% for the same period last year.
Net income for the first half of fiscal 1999 was $7,509,000, or $0.16 per share,
as compared with a loss of $(941,000), or $(0.02) for the same period last year.
Liquidity and Capital Resources
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) and a $9,450,000 facility to cover letter of credit and revolver needs.
The facility expires on July 6, 2000. The credit agreement is secured by a
pledge of the Company's domestic trademarks and 65% of the stock of Topps
Europe. Beginning June 1998, interest rates on $10 million of the outstanding
principal of the loan were 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 repurchase of
stock.
As of August 29, 1998, the Company had $39,020,000 in cash, and $20,783,000 in
debt as a result of the Merlin acquisition.
For the first half of fiscal 1999, the Company's net increase (decrease) in cash
was $16,867,000 versus ($5,984,000) for the comparable period last year. Cash
provided by operations for the first half of this year was $21,807,000 versus
$2,982,000 last year, primarily as a result of higher net income and an income
tax refund received in the first quarter of this year.
10
<PAGE>
Cash provided by investing activities this year reflects $5,562,000 in proceeds
from sales of the plant in Cork, Ireland and equipment from both the Cork,
Ireland and Duryea, Pennsylvania plants. Cash used by financing activities
reflects debt payments of $10,167,000 in the first half of this year versus debt
payments of $7,500,000 and share repurchases of $522,000 in the comparable
period last year.
Management believes in light of the Company's borrowing capacity, cash on hand
as of August 29, 1998 and expected cash flow from operations, that the Company
has adequate means to meet its working capital, capital expenditure, interest
and principal repayment requirements for the foreseeable future.
Year 2000
The Year 2000 issue is the result of computer programs using only two digits to
identify a year in the date field. If not corrected, many systems could fail or
create erroneous results on January 1, 2000 by reading the date as January 1,
1900. Failure to fix this problem could result in systems failures or
miscalculations leading to disruptions in the Company's operations.
The Company began work on Year 2000 issues in 1996. As of August 29, 1998, all
of the Company's mainframe programs have been reviewed for compliance. Where
necessary, programs are being fixed, tested and put into production. The Company
is also in the process of addressing the needs of all other systems such as
personal computers, customer and vendor systems, telephone systems and other
electronic hardware.
Year 2000 compliance costs have not and are not expected to significantly affect
the financial condition or results of operations of the Company.
The Company expects that its essential systems and business functions will be
Year 2000 compliant in all material respects in a timely manner. It has begun
the process of determining whether there are any risks with regards to the Year
2000 status of key vendors and customers, and will develop contingency plans for
dealing with these risks, if necessary.
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, lollipops and sticker and album collections, to achieve expected sales
levels; (ii) prolonged labor strife between the players and owners in the NBA;
(iii) the Company's inability to continue to maintain sales generated from new
product introductions; (iv) quarterly fluctuations in results; (v) the Company's
loss of important licensing arrangements; (vi) the Company's loss of important
supply arrangements with third parties; (vii) the effect of changes in trade
terms with certain of the Company's key customers; (viii) the Company's
inability to comply with the financial covenants contained in its new credit
facility; (ix) further prolonged and material contraction in the trading card
industry; (x) 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.
11
<PAGE>
THE TOPPS COMPANY, INC.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K
10.33 Memorandum of Agreement with Major League Baseball Players Association
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
October 13, 1998
13
MEMORANDUM OF AGREEMENT
1. Form of Player Contracts. Attached as Exhibit A is Topps's present form
of agreement with Baseball Personnel ("Player Contract"). Topps agrees in the
future, until January 31, 2002, to use only Exhibit B (attached) as the form of
its licensing contracts with Baseball Personnel, and Exhibit C (attached) as its
form of Extension Agreement, except to the extent it is signing Non-Major
Leaguers pursuant to that certain Agreement between Topps and MLBPA dated
November 19, 1992.
2. Amendment of Present Player Contracts. Topps agrees to amend its present
contracts with Baseball Personnel for the rights involved in Exhibits A or B,
beginning with the baseball season of 1998, in accordance with the form attached
hereto as Exhibit B. Each of Topps's present contracts with Baseball Personnel
in the form of Exhibit A shall be deemed to be amended to conform to the
provisions of Exhibit B without the necessity of either party executing a new
contract. The rights of any Baseball Personnel who have signed a contract with
the form of Exhibit A who thereafter refuse to sign a contract with the form of
Exhibit B or an extension in the form of Exhibit C will continue to be governed
by the contract in the form of Exhibit A until that contract expires.
3. Standstill Agreement. The Major League Baseball Players Association
agrees that it will not interfere with Topps's contracts with Baseball
Personnel, its procurement of such contracts, or its extensions or renewals of
such contracts at any time prior to January 31, 2002, provided that Topps does
not enter into, extend or renew contracts other than in the form of Exhibit B
and Exhibit C, and does not seek to extend or renew contracts so as to place
players under contract for more than four (4) future baseball seasons.
4. Duration of Player Contracts. The Player Contracts, as well as the
Extension Agreements and this Agreement, refer at various places to a
prohibition on Topps placing players under contract for more than four (4)
future baseball seasons. The parties anticipate that, in accordance with past
practice, Topps will be signing contracts and extension agreements with players
at various times during
<PAGE>
the year. It is the parties' mutual understanding that, if such a document is
signed during a baseball season, the baseball season then in progress will not
be counted as one of the four "future" years for purpose of interpreting this
language. The effect of this interpretations will be to permit Topps to sign
contracts and extension agreements with players during the season for one year
longer than if, in accordance with Topps's normal practice, they had signed
during the immediately preceding spring training. For players signed in season,
four "future" baseball seasons will be interpreted to mean the season currently
in progress plus four seasons into the future. As an example, a player's
original Topps contract expires at the end of 2001 season. During the 1999
season, he signs an extension agreement with Topps. The extension agreement can
permissibly extend the player's contract for two additional future seasons (2002
and 2003), whereas if he had signed the extension in spring training it would be
for only one season (2002).
5. Posters and Similar Items. Paragraph 1 of the Player Contract grants to
Topps the right to use multiple players' pictures in sheets which contain groups
of images. What is contemplated here is that Topps shall have the right to
publish proof sheets of its picture card items, and products similar in format,
but not posters, team photographs or other products which have been designed
specifically to take advantage of this grant of rights. In other words, the
language is designed as a convenient adjunct to the grant of rights for picture
cards, not as an entirely separate grant of rights.
6. Paragraph 2(d) of the Player Contract. This paragraph contains various
restrictions upon Topps' ability to use the rights granted in paragraph 1. It is
understood between the parties that paragraph 2(d) is not in itself a vehicle
for the grant of any rights whatsoever to Topps and Does not expand Topps's
rights granted in paragraph 1 by virtue of any negative implication.
7. Unsigned Players. There are at present in the Major Leagues a handful of
players who have never signed agreements with Topps, and there may in the future
be similar players. This letter will confirm that the MLBPA does not and will
not contend, while its agreement with Topps is in force, that its Commercial
Authorization Agreements prevent Topps from attempting to enter into contractual
arrangements with such players. By the same token, of course, the MLBPA does not
in any regard warrant that those players will sign contracts with Topps (but, as
provided in Section 3 above, it will not interfere with Topps's efforts to sign
them).
8. Coaches and Managers. It is the intention of both parties to continue
past practice with regard to coaches and managers. There are some such
individuals who are not members of the MLBPA and do not participate in the
MLBPA's group licensing program. As in the past, upon request, the MLBPA will
identify those individuals to Topps, and Topps will make separate arrangements
with them, if it desires, concerning the use of their pictures and any payments
to be made to them therefor.
9. Power of Arbitrators. It is expressly understood that the choice of New
York law to govern the Player Contracts means that the parties intend to be
governed by the arbitration provisions of the New York Civil Practice Law and
Rules, Article 75, as they may be in force at the time of arbitration. This law,
among other things, confers subpoena power on an arbitrator.
10. Royalty Reports. Topps shall furnish the MLBPA with interim royalty
reports three (3) times a year (June 15, September 15, December 15) plus a final
report on February 1. Interim report dates coincide with interim payments except
that the June 15 report may be made 15 days after the June 1 payment. Royalty
reports will be in form mutually acceptable to MLBPA and Topps, which shall
generally confirm to Exhibit D attached hereto. The June 15 and February 1
reports will include:
(a) Names of players entitled to payment for the period in question under
paragraphs 4(b)(i) and (ii) of Player Contracts, as extended;
(b) Termination dates of Player Contracts;
(c) Direct payments due to or earned by players under paragraphs 4(b)(i)
and (ii) of Players Contracts;
(d) Gross sales of licensed product broken down by product and country of
sale;
(e) Returns;
<PAGE>
(f) Discounts and allowances made to customers;
(g) Net sales;
(h) Net royalties accrued; and
(i) Royalty or guaranty payments made to the MLBPA. The September 15 and
December 15 reports may be limited to items 4 through 8.
11. Audit Reports. Topps shall make available to the MLBPA's certified
public accountant whatever books and records are reasonably necessary to perform
the audit. The certified public accountant, in turn, will hold confidential all
information he receives except to the extent of reporting to the MLBPA on
whether or not, in his professional judgment, Topps has made the payments it is
required to make and verifying (or not) compliance with the terms of the Player
Contracts and the Agreement.
If the MLBPA's certified public accountant determines that Topps has failed
to make any required payments, and Topps disputes that determination, the
MLBPA's officers and Executive Board will be entitled to have access to complete
audit information, subject to the duty of confidentiality contained in Paragraph
6 (a) of the Player Contract.
The MLBPA may and shall inform its player-members about the royalties paid
by Topps as that information is provided to the MLBPA by Topps or in the report
of its certified public accountant.
12. Promotional Commitment. [Information subject to request for
confidential treatment.]
MAJOR LEAGUE BASEBALL PLAYERS ASSOCIATION
By:_______________________________________
Date:_____________________________________
<PAGE>
THE TOPPS COMPANY, INC.
By:_______________________________________
Date:_____________________________________
<PAGE>
EXHIBIT B
#_________________________
PLAYER'S NAME __________________________________________________________________
BASEBALL PLAYER'S PICTURE LICENSE AGREEMENT
Definitions: "Topps," when used herein, shall refer to The Topps Company,
Inc., its wholly-owned subsidiaries, licensees to which it may assign
territorial licenses outside the continental United States (including Alaska and
Hawaii), and its successors and assigns.
"MLBPA," when used herein, shall refer to the Major League Baseball Players
Association, its successors, or any agent chosen to hold the rights granted
herein by a majority of major league baseball players who are parties to
agreements similar to this Agreement.
1. Grant of right: In consideration of the payments provided for below, and
subject to the exclusions and provisos in paragraph 2 below, I hereby grant to
Topps the right to print, reproduce, publish, distribute and sell (collectively
"use") my name, picture, facsimile signature and a description and/or
biographical sketch of me, or any of them (collectively, my "baseball picture")
in the form of two or three dimensional pictures, trading cards, postcards,
stickers, stamps, pressure-sensitive transfers, or decals, each in a size no
larger than fifty square inches, and in larger sheets consisting of groups of
images, no one of which is larger than thirty-five square inches, or in the form
of medallions or coins, in molded metal or plastic, each capable of fitting into
a container with a capacity of four cubic inches or less and no dimension
greater than four inches, together with the baseball pictures of other baseball
players.
<PAGE>
(a) exclusively, in combination with chewing gum and candy or either of
them, in the Western Hemisphere, the territories and possessions of the United
States, and the Philippines, except as provided in paragraph 2(b).
(b)
nonexclusively, without accompanying items. Except as provided herein, this
grant of rights shall preclude Topps from using and shall permit me to license
others to use my baseball picture together with any item other than gum or
candy. Topps may use my baseball picture together with incidental items, such as
game cards, whose cost is less than 20% of the cost of the baseball pictures
with which it is combined and whose function is to differentiate the package
from other packages. Should Topps seek to offer an incidental item which does
not consist of gum or candy and which varies substantially from the game cards
which Topps has traditionally employed, Topps shall furnish a sample thereof to
the MLBPA at least 30 days prior to the first such sale. I direct the MLBPA,
within 30 days, to notify Topps whether the proposed item is confusingly similar
to an item which is being used, or is under active current consideration for
use, in combination with my baseball picture, by any other person duly
authorized by me, or is detrimental to my image as a baseball player. I direct
the MLBPA not unreasonably to withhold its consent to such use. Failing such
notification, Topps shall be free to sell my baseball picture in combination
with the proposed item. Topps agrees that the inclusion of such incidental items
by others in combination with my baseball picture in a package they otherwise
have rights to sell will not violate Topps' rights under this Agreement, except
to the degree that such incidental item is confusingly similar to an item used
by Topps.
(c) Nothing herein shall preclude Topps from distributing collector aids,
such as albums for stamps, display cases for trading cards, and similar items,
either alone or in combination with products to which I have granted rights
under paragraphs 1(a) or 1(b).
These rights are granted for the term of this Agreement and any extensions
or renewals thereof. These rights are granted throughout the world. The rights
granted herein shall not constitute a testimonial or endorsement of Topps'
products. I shall not endorse any bubble gum product other than Topps.
<PAGE>
2. Exclusions and provisions:(a) Nothing herein shall interfere with my
ability to grant rights with regard to the use of my baseball picture for club
publicity purposes as provided in the Basic Agreement between the Major League
Baseball Players Association and Major League Baseball, as that Basic Agreement
may be amended hereafter, provided, however, that this paragraph shall not be
interpreted as a grant of rights to any major league baseball club.
(b) Nothing herein shall interfere with my ability to grant to others the
non-exclusive right to publish or distribute my baseball picture with candy in a
package which contains at least 1 1/2 ounces of candy for each baseball picture
and a total of no more than six baseball pictures.
(c) Nothing herein shall interfere with my ability to grant to others
exclusive rights (or, in connection with medallions or coins, non-exclusive
rights) with regard to my baseball picture to be sold in any form at an actual
retail sales price in excess of $4.00 per image.
(d) Nothing herein gives Topps the right to sell my baseball picture in any
form to any person for use as a premium in combination with any product or
service unless the user has obtained from me the right to publish my baseball
picture in combination with that product or service. Nothing herein gives Topps
the right to sell my baseball picture in combination with any branded product or
service unless the brand is Topps' or its licensee's own, or to use the rights
granted herein in combination with any trademark or trade name other than one
owned by Topps or an establishment which sells Topps products. Nothing herein
gives Topps the right under any circumstances to use my baseball picture for the
promotion or advertisement of alcohol, tobacco or any otherproduct or service
which would be detrimental to my image as a baseball player.
(e) Subject to the MLBPA's approval of the identity of the licensee and its
financial responsibility, which shall not unreasonably be withheld and which
shall be deemed granted if the MLBPA does not refuse approval after thirty days
written notice, Topps shall have the power to license to others the territorial
rights outside the continental United States with regard to use of rights
granted to it under this Agreement, provided, however, that Topps may only have
a single licensee in any territory and shall be responsible as a guarantor for
<PAGE>
all payments to be made to me or for my account as a result of sales made by its
licensees.
(f) Topps may assign to another all, but not less than all, of the rights
granted to it under this Agreement upon 60 days prior notice to the MLBPA,
provided, however, that if (i) Topps purports to assign these rights to any
person or entity which has the power to act for the owners of a majority
interest in a Major League Baseball Club ("Baseball Club"), or (ii) any person
or entity which has the power to act for the owners of a majority interest in a
Baseball Club shall obtain control of these rights or any portion thereof by the
acquisition of a majority interest in Topps, its successors or assigns, the
rights will automatically terminate and revert to me ninety days after written
notice to Topps by the MLBPA, unless within that time the rights are assigned to
another not in control of a Baseball Club or the holder of these rights assigns
control of the Baseball Club to another. In the event of a termination of rights
under this paragraph, Topps shall have no further obligation to make payments
under paragraphs 4(b), 4(c) or 4(d) except for payments already earned at the
time the rights terminate.
3. Player's representations: I have reached majority. I have the full right
to enter into this Agreement. I have not heretofore granted to others the rights
or any part of the rights granted to Topps hereunder. I shall not during the
term of this Agreement, or any extension or renewal thereof, enter into any
agreements with others conflicting with the rights granted herein, whether such
grant of rights to others be for the term of this Agreement or any part thereof,
or whether they be for a time commencing after the expiration of this Agreement,
except that during the final year of this Agreement as extended or renewed I may
grant such rights for a time commencing after the expiration of this Agreement.
4. Payment: (a) initially, Five ($5.00) Dollars by check to me in hand,
receipt of which I hereby acknowledge.
(b) Periodic guaranteed lump sum payments: (i) For each Baseball Season
during the term of this Agreement and any extensions or renewals thereof during
which I am retained as an active, eligible member of a Major League Baseball
Club for the first 31 consecutive days of the Championship Baseball Season
<PAGE>
("Baseball Season") without interruption, or my picture is used, Topps shall, no
later than June 1 in every such year, pay me Five Hundred Dollars ($500) and pay
the MLBPA Two Hundred Fifty Dollars ($250) and (ii) if I am a baseball player,
Topps shall also pay me an extension bonus of Seventy-Five Dollars ($75) per
year of extension each time I extend this Agreement for an additional term of
years pursuant to Topps' policy of attempting to extend its contracts with
baseball players in order to keep baseball players under contract for up to four
Baseball Seasons in advance. This extension bonus will be in addition to any
royalties payable under paragraph 4(c) or minimum royalties payable under
paragraph 4(d).
(c) Annual royalties:During any Baseball Season in which I have at least
one day of Major League service or any year in which my picture is used by
Topps, Topps shall pay on my account to the MLBPA, for inclusion in and
distribution in accordance with its group licensing program, a sum for each
Baseball Season during the term of this Agreement and any extensions or renewals
thereof, consisting of my pro rata portion of the total amount of a royalty of
[Information subject to request for confidential treatment.] of Topps' net sales
(hereinafter defined) made in the calendar year of any such Baseball Season. To
the extent this payment exceeds the minimum guaranteed royalty provided for in
paragraph 4(d), payment is due during banking hours on a regular business day no
later than February 1 of each year for the previous Baseball Season. "Topps' net
sales" shall mean all sales of Topps' products employing the rights provided for
in Topps' contracts with major league baseball players, managers, coaches and
trainers, less discounts, returns and allowances made to customers.
(d) Guaranteed minimum royalties: If I am eligible for payment under
paragraph 4(b) (i), Topps shall pay the greater of Fifteen Hundred Dollars
($1,500) or two-thirds of the average of total royalties earned for each player
under paragraph 4(c) during the preceding three Baseball Seasons, which shall
include any amount paid to me or the MLBPA under paragraph 4(b) (i). Payments
under this paragraph 4(d) will be made whether or not they are earned as
royalties. To the extent they exceed the amount payable to me and to the MLBPA
under paragraph 4(b) (i), these minimum guaranteed royalty amounts shall be
<PAGE>
payable to the MLBPA on my account in two equal installments on the fifteenth
day following the close of Topps' quarterly accounting periods ending closest to
September 1 and December 1 in each year.
(e) It is understood that I shall have the option to accept merchandise or
other things of value offered by Topps in lieu of cash payments to me under
paragraph 4(b). The value of said merchandise shall be deemed to be the value
set forth in Topps' catalog which shall be submitted to me for selection. Topps
shall provide copies of the catalog to the MLBPA in advance of their use.
5. Term of contract: This Agreement shall be effective as of the date
hereof, and shall bind both me and Topps (subject to paragraph 2(e) and
paragraph 7) for four full Baseball Seasons in which payment becomes due to me
under paragraph 4(b). In no event shall this Agreement, as it may be renewed or
extended hereafter, ever bind me, at any point in time, for more than four such
Baseball Seasons into the future. Unless renewed or extended, this Agreement
shall automatically terminate on October 31 in the year of the last Baseball
Season for which it binds me, or one year following my retirement from active
uniformed service in professional baseball, whichever is earlier. If this
Agreement terminates at a time when Topps has on hand stocks of my baseball
picture which it has been licensed to print and reproduce under this Agreement,
but which have not yet been sold, Topps may continue to sell off such stocks for
a period of four months.
6. Rights and Duties of the MLBPA: (a) Generally: Effective at such time as
I first become eligible for payment under this Agreement, I hereby designate and
authorize the MLBPA to act as my agent in connection with the interpretation and
enforcement of this Agreement; to renegotiate this Agreement as provided in
paragraph 6(b); to receive annual royalty statements and statements of my
account from Topps in the form mutually agreed between Topps and the MLBPA; to
inspect and audit Topps' books and records, including this Agreement and any
documents concerning its duration, terms or extensions; and to collect on my
behalf all royalties referred to herein. I may withdraw this authorization at
any time. Topps agrees to maintain detailed records of its net sales, and to
provide the MLBPA with periodic statements thereof in the agreed form, and to
<PAGE>
permit the MLBPA through an independent certified public accountant to conduct
annual audits and inspections of Topps' books and records, in order to verify
the amount of total sales subject to royalty, and the amounts of other payments
due under this Agreement as extended. Topps further agrees to remit royalties
and other payments hereunder to the MLBPA on my behalf. It is a material
condition of Topps' agreements hereunder that the MLBPA and its certified public
accountant keep strictly confidential any information obtained by either of them
from Topps' royalty reports or from the exercise of the rights of audit, and not
disclose such information directly or indirectly to any person in any way except
as may be mutually agreed or required by law, or in arbitration proceedings
under paragraph 12(b) hereof.
(b) Periodic renegotiation of royalty rates: To the extent that this
Agreement, as renewed or extended, may be in force, I hereby authorize the MLBPA
to enter into negotiations with Topps on August 1, 2001 and every three years
thereafter to readjust, for the succeeding three years, the royalty rates and
guaranties under this Agreement and other agreements of baseball players with
Topps to reflect changes, if any, in the value of the rights granted to Topps
under those agreements. If Topps and the MLBPA cannot agree upon such rates and
guaranties within 120 days, the issues presented for negotiation will be
submitted to binding arbitration in accordance with paragraphs 12 and 13 below.
I understand that this paragraph may lead to either an increase or a decrease in
the payments to which I may be entitled under this Agreement. The increase or
decrease in any royalty rate will be limited to no more than a twelve percent
(12%) change in such rate; the increase or decrease in any guaranty will be
limited to no more than a 25% change in the dollar amount of such guaranty.
7. Failure to achieve guaranteed levels of sales: In the event the total
dollar amount of Topps' net sales shall fall below the levels sufficient to earn
each individual play One Thousand Dollars ($1,000) for a full Baseball Season in
annual royalties under paragraph 4(c) hereof, for each of two consecutive years
(unless excused by the operation of paragraph 8), the exclusive rights granted
to Topps hereunder shall automatically become non-exclusive as of December 1 of
the second year. In the event Topps' rights become non-exclusive by operation of
this paragraph, Topps shall have no obligation to make further payments under
<PAGE>
paragraph 4(d) except for payments already earned at the time of the rights
become non-exclusive.
8. Unforseen contingencies: Acts of war, public disorder or nature,
accidents to plant or machinery, orders of courts or governments or their
bureaus or departments, the interruption of the Major League Baseball Season,
strikes, or failure of usual sources of supply material, or any contingency
beyond the control of Topps, whether related or unrelated, or similar or
dissimilar to any of the forgoing, shall be sufficient reason for nonpayment by
Topps of amounts otherwise payable under paragraph 4(d), but only to the extent
caused by said condition; notwithstanding such condition or nonpayment, this
Agreement in all other respects shall continue in full force and effect.
9. Topps' right of enforcement: Topps shall have the right independently of
the MLBPA, to enforce this Agreement upon my behalf as against any third party
which Topps believes is infringing the rights granted to it hereunder, provided,
however, that Topps will give the MLBPA reasonable notice of its intention to
enforce this Agreement and that if there is a bona fide dispute between Topps
and the MLBPA as to whether Topps has the rights in question, such dispute shall
first be resolved by arbitration in accordance with paragraph 12(a).
10. Noninterference with rights of third parties: If this Agreement is in
conflict with any prior agreement that I may have signed, validly granting to
another some or all of the rights to my baseball picture as defined herein, (a)
to the extent the prior grant of rights is exclusive, this Agreement shall be
inoperative to grant Topps such rights for any period of time in which they have
been validly granted to another, but shall otherwise be in full force and
effect; (b) to the extent the prior grant of rights is nonexclusive, the rights
granted in paragraph 1 hereof shall be subject only to the rights already
granted; and (c) if Topps chooses to publish or sell my baseball picture in any
form, Topps shall have the obligation to make payments to me or on my behalf to
the full extent provided in paragraph 4 hereof, notwithstanding that some person
other than Topps may also possess rights to my baseball picture by virtue of my
prior grant or rights.
<PAGE>
11. Governing law: The Agreement shall be governed by the laws of the State
of New York.
12. Arbitration: All disputes concerning the following matters shall be
submitted to arbitration in accordance with the procedures outlined in paragraph
13. No other disputes arising out of the Agreement shall be considered
arbitrable.
(a) Whether a particular product or product combination is, or is not,
within the scope of the rights granted to Topps under paragraphs 1 and 2.
(b) What payments are properly owing for any year under the terms of
paragraphs 4(b), (c) and (d) and (if applicable) paragraph 8.
(c) What royalty rates and guaranties properly reflect changes in the value
of the rights granted hereunder, if agreement cannot be reached pursuant to
paragraph 6(b).
13. Arbitration procedure: (a) Within ten days after a notice of intention
to arbitrate is served, the MLBPA and Topps shall each select one arbitrator
with a residence or office within 25 miles of New York City.
(b) Within twenty days thereafter, the two arbitrators so selected shall
agree upon the appointment of a third arbitrator with a residence or office
within 25 miles of New York City. Failing such agreement either Topps or the
MLBPA shall promptly make an appropriate application for the judicial
appointment of a third arbitrator.
(c) The three arbitrators so selected shall meet in New York City and hold
such hearings as they deem appropriate and at which the parties shall submit
such evidence as the arbitrators deem appropriate.
(d) The cost of the arbitration shall be shared equally by Topps and the
MLBPA with each side to bear its own attorneys' fees.
(e) Any award rendered by the arbitrators may be confirmed and reduced to
judgment in any court of competent jurisdiction in the State of New York.
I have received a copy of this Agreement.
<PAGE>
x x
- ---------------------------------------------- ------------------------------
Player's signature Date
x
- ----------------------------------------------
Player's Social Security #
THE TOPPS COMPANY, INC.
x x
- ---------------------------------------------- ------------------------------
(Authorized Agent) Date
================================================================================
Home address: Consent of Parent or Guardian
(if necessary:
- --------------------------------------------------------------------------------
No. Street Signature
- ------------------------------------------------------- ------------------
City State Zip Date
<PAGE>
EXHIBIT C
EXTENSION AGREEMENT
1. I have previously earned payments under paragraph 4(b) of the Baseball
Player's Picture License Agreement ("License Agreement") between me and The
Topps Company, Inc. ("Topps") (as extended, if previously extended).
2. Topps now has the right to publish my baseball picture under the License
Agreement (as extended, if previously extended) for ________ baseball season(s)
into the future, including the ________ baseball season.
3. By this Extension Agreement, I hereby agree to extend my License
Agreement for ________ additional baseball season(s).
4. As a result of this Extension Agreement, my License Agreement shall
expire on January 31, ________, except that for any year in which I am not
entitled to payment under paragraph 4(b) of the License Agreement, that
expiration date shall be extended for one year.
5. This Extension Agreement is without effect to the degree it extends my
License Agreement for more than four future baseball seasons.
6. In return for this Extension Agreement, Topps has paid me $__________
($75 per year of extension), [receipt of which I hereby acknowledge].
I have received a copy of this Extension Agreement.
x x
- -------------------------------------------------- --------------------------
Player's signature Date
THE TOPPS COMPANY, INC.
x x
- -------------------------------------------------- --------------------------
(AUTHORIZED) Date
<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> AUG-29-1998
<CASH> 39,020
<SECURITIES> 0
<RECEIVABLES> 32,441
<ALLOWANCES> 1,305
<INVENTORY> 14,132
<CURRENT-ASSETS> 95,127
<PP&E> 13,245
<DEPRECIATION> 5,163
<TOTAL-ASSETS> 167,947
<CURRENT-LIABILITIES> 73,017
<BONDS> 9,375
475
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 167,947
<SALES> 57,868
<TOTAL-REVENUES> 60,988
<CGS> 32,563
<TOTAL-COSTS> 51,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 110
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,442
<INCOME-TAX> 3,629
<INCOME-CONTINUING> 4,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,813
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
