UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 27, 1999
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
(State or other jurisdiction of incorporation or organization)
11-2849283
(I.R.S. Employer Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices) (Zip Code)
(212) 376-0300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.01
(Title of class)
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 _.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of Common Stock held by non-affiliates as of May
15, 1999 was approximately $269,000,000.
The number of outstanding shares of Common Stock as of May 15, 1999 was
46,441,801.
Documents incorporated by reference Part
Annual Report to Stockholders
for the Year Ended February 27, 1999 I,II,IV
Proxy Statement for the 1999 Annual Meeting of Stockholders III
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PART I
ITEM 1. BUSINESS
General Development
The Topps Company, Inc. was incorporated in Delaware on February 24, 1987.
The Company is the successor to Topps Chewing Gum, Inc., which was established
as a partnership in 1938 and was incorporated under the laws of New York in
1947. All references in this Annual Report on Form 10-K to "Topps" or the
"Company" are to The Topps Company, Inc. and its subsidiaries.
Topps is a leading marketer of collectible picture products featuring
primarily professional athletes and, from time to time, popular television,
movie and other entertainment characters. These collectible picture products are
in the form of trading cards, sticker and album collections, comic books or
magazines. The Company also markets Bazooka brand bubble gum, branded lollipops
such as Ring Pop, Push Pop and Baby Bottle Pop and certain novelty candy
products.
The sports card category in which the Company competes has contracted over
the last several years. Prior to 1998, the industry decline was the result of
several factors, including: product and brand proliferation which led to
consumer confusion and oversupply; a competitive rise in other sports-related
merchandise choices; a reduction in retailer support; and labor strife in the
sports industry. Although there is currently no industry-wide data available,
the Company believes that the industry continued to contract in 1998, largely as
a result of the liquidation of one of the Company's main competitors (Pinnacle
Brands) and the NBA labor situation. However, despite the overall market
contraction during 1998, the Company experienced significant increases over the
prior year in the sale of its baseball and football card products.
Topps has increased its international presence in the last several years.
In 1995, the Company acquired Merlin Publishing International Limited, a
U.K.-based marketer of licensed collectibles, primarily sticker and album
collections. While continuing to market products under the Merlin brand name,
Merlin Publishing International Limited changed its corporate name to Topps
Europe Ltd. ("Topps Europe") in March 1997. The Company also established new
subsidiaries in Canada and Mexico in fiscal 1996 and Brazil and Argentina in
fiscal 1997. The Company currently distributes its products in over fifty
countries and has employees in seven countries.
================================================================================
Trademarks of The Topps Company, Inc. and Subsidiaries appearing in this report:
Baby Bottle Pop, Bazooka, Bazooka Blasts, Bazooka Joe, Bazooka Pops, Bowman,
Bowman Chrome, Bowman's Best, Flip Pop, Garbage Pail Kids, Merlin, Never
Compromise, Push Pop, Ring Pop, Topps, Topps Action Flats, Topps Chrome, Topps
Finest, Topps Gallery, Topps Gold Label, Topps Stadium Club, Treasure Pop,
Triple Power Push Pop and Wacky Packages.
Unless otherwise indicated, all date references refer to calendar years.
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Products
Collectible Sports Products
The Company is a leading marketer of collectible picture products featuring
players of Major League Baseball, the National Basketball Association, the
National Football League, the National Hockey League and certain professional
soccer leagues. In the U.S. and Canada, picture products are generally sold in
the form of cards, while in the rest of the world picture products are typically
sold in the form of sticker and album collections.
Card products feature photographs of athletes and contain summary
statistics and biographical material. The Company markets sports picture cards
in various size packages, as well as complete sets, for distribution through a
variety of trade channels.
The Company distributes sports cards under brand names including, but not
limited to, Topps, Topps Stadium Club, Topps Finest, Topps Gallery, Bowman,
Bowman Chrome, Bowman's Best, Topps Gold Label and Topps Chrome. Each brand of
sports cards has its own unique positioning in the marketplace. All the cards
are of a high quality featuring laminated paperboard and state-of-the-art
reproduction techniques. Certain brands feature borderless cards and also
contain foil stamping. Prices generally range from a suggested retail price of
$0.99 per pack to $5.00 per pack. The Company is continuously updating the
features of its cards and seeking new technologies as well.
Sports sticker and album collections, which are sold under the Merlin and
Topps brand names, are marketed throughout Europe and parts of Asia. Stickers
are sold in packages and display photos of popular local athletes and sports
teams. The stickers are designed so that they can be placed in an associated
album, which contains more detailed information and statistics regarding the
players and teams.
The Company has expanded its European sports licenses in the last several
years and currently holds licenses for Premier League Soccer in the U.K. as well
as soccer licenses in Italy, Norway and Denmark.
Entertainment Products
The Entertainment Products segment consists of trading cards, sticker/album
products, comics and magazines featuring licenses from popular films, television
shows and other entertainment properties.
Since the 1950's, the Company has marketed trading cards featuring some of
the dominant entertainment properties of the time, including The Beatles, Elvis
Presley, Star Wars, Michael Jackson, E.T., Indiana Jones, Batman, Teenage Mutant
Ninja Turtles, Jurassic Park and The X-Files. Occasionally, the Company has also
created cards featuring its own entertainment properties such as Wacky Packages,
Garbage Pail Kids and Mars Attacks, as well as cards detailing events of
national interest such as Desert Storm.
Over the years, entertainment trading cards have experienced peaks and
valleys in terms of consumer interest. Recently, the relative weakness of the
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entertainment card market has prompted the Company to be extremely selective in
determining which entertainment licenses to pursue. In fiscal 1999, the Company
marketed only three entertainment card properties in the U.S.: The X-Files;
Xena: Warrior Princess; and World Championship Wrestling (WCW).
Since the acquisition of Merlin in 1995, the Company has sold collectible
entertainment products in the form of sticker/album collections in Europe and
parts of Asia. In response to lower consumer interest, the Company pared back
its offerings of these products to five releases in fiscal 1999.
In fiscal 2000, the Company will market both trading cards and sticker and
album products based on the new Star Wars film, "Episode I: The Phantom Menace".
The Company also recently negotiated an agreement in principle (subject to the
execution of a final license agreement) to market trading cards in the U.S. and
Canada (and candy as described below) featuring Pokemon, a popular children's
property.
Over the years, the Company has also published magazines based on subjects
of interest in the entertainment field. In fiscal 2000, the Company will issue a
variety of Star Wars magazines, featuring, among other things, coverage of the
newest motion picture, Star Wars: Episode I. These publications will include the
official souvenir magazine of the movie, the official poster magazine and the
Star Wars Galaxy Collector magazine.
In the past, the Company created and marketed a limited selection of
high-quality color comic books for distribution primarily in specialty shops.
Due to a contraction in the market, the Company suspended its comic book
publishing activities in fiscal 1999.
Confectionery
The Company has been marketing Bazooka brand bubble gum since 1947.
Traditional chunk Bazooka bubble gum is produced in individually wrapped
rectangular pieces in a variety of flavors and sold generally at a suggested
retail price of five cents a piece. Individual pieces of Bazooka brand bubble
gum include a comic featuring Bazooka Joe, a copyrighted cartoon character
created by the Company in 1953.
The Company sells multiple piece packs of Bazooka which, over the years,
have included a six-piece pack of soft sugarless bubble gum, a ten-piece pack,
forty-five and seventy-five count bags of traditional chunk Bazooka, as well as
various box, bucket and canister configurations. These packages are designed for
distribution in supermarkets, convenience stores, drug store chains, mass
merchandisers and club stores.
In early 1999, the Company introduced Bazooka Pops, a premium lollipop with
a Bazooka gum center and packaging featuring a fortune and comic.
The Company also markets premium quality lollipop products throughout the
United States, Canada, Europe and parts of Latin America and Asia. Core products
include Ring Pop (a lollipop made of candy molded into the form of an
exaggerated precious gem stone, anchored to a plastic ring) and Push Pop (a
cylinder-shaped lollipop packaged in a plastic container with a removable cap,
designed to enable consumers to eat a portion of the pop now and save the rest
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for later.) In fiscal 2000, the Company plans to increase its advertising
support and merchandising efforts behind both Ring Pop and Push Pop and will
enhance Ring Pop by adding real fruit juice to the product.
Last year, the Company introduced two new confectionery items. One of the
products, Baby Bottle Pop, is a baby bottle filled with a tangy candy powder and
a lollipop top. Also introduced in 1998 was Flip Pop, a pop within a fun plastic
container, which can be flipped out, licked and placed back in the case for
consumption later. This year, the Company plans to introduce Treasure Pop ( a
high quality lollipop with a toy surprise hidden in the plastic handle) and
Triple Power Push Pop (a larger Push Pop with three different flavors which can
be pushed up independently or together.) Also the Company has an agreement in
principle (subject to the execution of a final license agreement) to market
Pokemon lollipops.
For a schedule of net sales by key business segment for the past three
fiscal years, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on page 7 of the Company's Annual Report to
Stockholders for the year ended February 27, 1999 (the "Annual Report"), which
is hereby incorporated by reference.
Distribution and Marketing
Sales and Distribution
The Company's products are sold throughout the United States, Canada and
Europe, as well as in certain Latin American and Asian markets.
The Company's own sales force handles all U.S. card sales, as well as sales
of confectionery products to national accounts. All other confectionery sales
are handled by broker organizations. Together, the sales force and brokers
service over 80,000 retail outlets through more than 4,000 separate accounts
which include wholesale tobacco and confectionery jobbers, hobby distributors
and retailers, wholesale clubs, news-dealers, mass merchandisers and
direct-buying grocery, convenience, drug, variety, discount and toy store
chains.
In the past, the Company has operated a direct response membership club
through which it marketed special sets of baseball, football and basketball
cards as well as other products. Although this business was suspended in
February 1998, the Company is currently considering other approaches for
operating a direct response business.
In Canada, sales of trading cards (dominated by hockey), stickers and
confectionery products are handled by a sales force and two regional brokers.
Current distribution in Canada is to over 5,000 retail outlets.
In the U.K., sales of both confectionery products and collectibles are
handled by a dedicated sales force as well as by wholesalers selling to
independent retailers. Together, the sales force and wholesalers reach
approximately 30,000 retail news and confectionery outlets. Elsewhere in Europe,
as well as in Latin America and Asia, sales are primarily through distributors.
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Advertising and Promotion
The Company utilizes a variety of promotional activities, including
television, radio and print advertising campaigns, designed to create consumer
awareness and increase retail sales of its products. Worldwide advertising and
promotional expenditures as a percentage of net sales for the fiscal years ended
1997, 1998 and 1999 were 7.0%, 8.6% and 6.8%, respectively.
Traditionally, the Company has also relied on the popularity of its sports
and other licensed products, and the consumer recognition of its brand names, to
help promote its products. The Company also uses print advertising on its
product wrappers and promotional insert cards to increase consumer awareness of
its brands.
Approximately 70% of the Company's sales are made on a returnable basis.
Industry practices require that the Company provide the right to return on sales
of trading card products (excluding those to hobby dealers), on confectionery
products, on magazines sold to mass merchandisers and on sales of most sticker
and album products in Europe. Returns significantly in excess of the Company's
returns provisions could have a material adverse effect on the Company.
Consolidated return provisions as a percentage of gross sales for the fiscal
years ended 1997, 1998 and 1999 were 14.2%, 12.4% and 8.3%, respectively.
Production
In December 1996, the Company discontinued operations at its Duryea,
Pennsylvania manufacturing facility. As a result of the Duryea plant closure,
Bazooka gum is being manufactured by a single contractor in the U.S. (Hershey
Foods Corporation). The cutting, collating and packaging of card products
previously performed at the Duryea facility have been outsourced to several
manufacturers in the U.S.
In April 1998, the Company ceased manufacturing operations at its factory
in the Republic of Ireland. The Company produced limited quantities of gum at
this facility and is currently seeking alternative sources.
Collectible Picture Products
In the U.S., photographs of athletes are generally taken by photographers
under contract with the Company or by free-lance photographers on special
assignment. In addition, certain photography is provided by the organization
representing the leagues and their member teams. Pictures of entertainment
subjects are generally furnished by the licensor or created by artists retained
by the Company. Computerized graphic artwork and design development for all of
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the Company's products is done by staff artists and through independent design
agencies under the Company's direction. The Company's Graphic Services
Department also utilizes state-of-the-art computerized technology to enhance and
color-correct photography and computer imaging to create interesting and unusual
backgrounds and visual effects.
High-quality paperboard is sent directly to outside printers by the
Company's suppliers. Pictures are printed utilizing a variety of techniques and
processes, including waterless printing, which allows for a tighter line screen
resulting in sharper and more intense photo reproduction. Sheets of printed
cards are then often sent to additional suppliers who foil stamp and UV (ultra
violet) coat the sheets. Cards that require specialized printing and the
combination of various substrates like plastic, polystyrene and holographic
foils are purchased in full sheet form from specialty printers. Full sheets are
then delivered to contract packers where they are cut into individual cards,
collated and wrapped in a variety of package configurations.
Certain key elements of Merlin brand sticker and album products are sourced
from a single supplier in Italy. The Company believes that there are other
suitable sources available to meet its requirements if the current supplier were
unable to meet Merlin's needs.
Confectionery
Since the closure of its manufacturing facility in Duryea, Pennsylvania in
December 1996, the Company has purchased all of its U.S. Bazooka bubble gum
requirements from Hershey Foods Corporation. The current agreement, which
expires in December 2002, requires the Company to source all of its U.S. Bazooka
production needs from Hershey, provided it can fulfill the orders on a timely
basis. Given the shortage of alternative manufacturers for Bazooka gum, failure
by Hershey to supply the Company on a timely basis could have a material adverse
effect on product availability and therefore, on sales of Bazooka. Limited
quantities of Bazooka and other bubble gum products for international sales were
manufactured by the Company's factory in the Republic of Ireland through the end
of fiscal 1998. In April 1998, gum production was discontinued in Ireland. The
Company is presently seeking alternative sources for this production.
Ring Pop lollipops for sale in the U.S. are manufactured at the Company's
Scranton, Pennsylvania factory. Ring Pop lollipops for sale in international
markets as well as all Push Pops, Baby Bottle Pops and Flip Pops are
manufactured by a single supplier in factories located in Taiwan, Thailand and
China. The loss of production at one or more of these facilities due to civil
unrest or for any other reason could have a material adverse impact on sales of
the Company's lollipops.
Sweeteners, flavors, paperboard, packaging materials, foil stamping and UV
coating are required to manufacture the Company's total line of collectible
picture and confectionery products and are generally available to the Company.
The Company does rely on single producers for several of these ingredients or
processes. While alternative suppliers are generally available, some adjustment
in product specification might be required if these single sources were no
longer available to the Company.
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Trademarks and License Agreements
The Company considers its trademarks and license agreements to be of
material importance to its business. The Company's principal trademarks have
been registered in the United States and many foreign countries where its
products are sold. The sports picture products marketed by the Company in the
U.S. are all produced under license agreements with individual athletes or their
players' associations, as well as the licensing bodies of the professional
sports leagues. These agreements cover the following sports: Major League
Baseball, NBA Basketball, NFL Football and NHL Hockey. The Company also has a
contract with Premier League Soccer in the U.K. and with players and teams with
regard to soccer in Italy, Norway and Denmark. The Company's inability to
renegotiate successfully its Major League Baseball, NBA Basketball, NFL Football
or Premier League Soccer agreements upon expiration, or the loss of any of these
license agreements, could have a material adverse effect on the Company.
The Company has an individual license agreement with virtually every major
league baseball player. Each baseball player's license agreement is initially
for four major league baseball seasons and may be extended for additional
seasons as rights are used, if the player and the Company agree. Typically,
these agreements are extended annually. Among the rights the Company receives
are rights to use a player's name, picture, facsimile signature and biographical
description in the form of two or three dimensional pictures, trading cards,
postcards, stickers, stamps, transfers, decals, medallions or coins, each within
certain size limitations, provided such products are marketed alone or with
chewing gum or candy. The licenses granted to the Company by athletes permit the
athlete to grant others rights to the use of his name, picture and facsimile
signature on other products, including collectible picture cards sold alone or
with products other than gum and (with certain exceptions) candy. The Company
has a related agreement with the Major League Baseball Players Association,
which governs certain terms of the individual player contracts. The Company also
has an agreement with Major League Baseball Properties, Inc., which covers the
use of the names and insignias of the baseball teams and leagues in connection
with its baseball picture products and which expires at the end of 2000. The
Company conducts a related active licensing program with minor league baseball
players and continuously seeks to supplement its relationship with the baseball
community by personal visits and corporate identification. The Company considers
such relationships to be good and to be of great importance to it. However,
should an appreciable number of Major League Baseball players refuse to sign the
Company's license agreement, it could have a material adverse effect on the
Company.
The Company also enters into license agreements with entertainment
companies to produce certain products. The terms of these contracts depend on a
variety of factors. Total royalty expense under the Company's sports and
entertainment licensing contracts for the fiscal years ended 1997, 1998 and 1999
was $37,960,000, $33,662,000 and $24,373,000, respectively. See Note 17 of Notes
to Consolidated Financial Statements in the Annual Report, which is incorporated
herein by reference, for a description of minimum guarantee payments required
under the Company's existing sports contracts.
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International Licensing Operations
The Company, which licenses its technology and trademarks, currently has
license agreements with manufacturers in two foreign countries to manufacture
and distribute the Company's products. These licensees have the right to sell
licensed products in countries of their location and, in certain instances,
other countries as well.
Competition
The Company competes for sales as well as counter and shelf space with
large corporations in the food, candy, publishing, toy and other industries.
Many of these corporations have substantially greater resources than the
Company. More narrowly, the Company competes with other companies, large and
small, which market gum and candy, and with a number of collectible picture
product companies for the spending money of children and adult collectors. The
Company believes that the industries in which it operates are highly
competitive.
Seasonality
The Company's U.S. sports card products are sold throughout the year,
spanning the four major sports seasons in which the Company currently
participates, i.e., baseball, football, basketball and hockey. Topps Europe's
sales of sports sticker/album products are driven largely by shipments of
Premier League Soccer, with much of the sales activity occurring in January
through March. Sales of entertainment products tend to be driven by the property
on which they are based, often peaking with the release of a movie or the rise
in popularity of a television program or particular licensed property. Sales of
confectionery products are relatively stable throughout the year, although they
are impacted by the introduction of new products and the use of consumer
advertising that can occur at any point in the year.
Environment
The Company believes that it is in compliance in all material respects with
existing federal, state and local regulations relating to the protection of the
environment. Such environmental regulations have not had a material impact on
the Company's capital expenditures, earnings or competitive position.
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Employees
In December 1996, the Company discontinued manufacturing operations at its
Duryea, Pennsylvania facility. Many of the employees at the Duryea facility were
represented by Teamster's Union Local 229 which filed an unfair labor practice
charge relating to the closure. This claim was settled and the charge was
dismissed in December 1997.
The Company employed approximately 400 people in fiscal 1999.
All of the production employees at the Company's factory in Scranton,
Pennsylvania are represented by a union. Although the union agreement expires in
2000, union membership voted recently to approve an extension of the agreement
to February 2003.
The Company considers relations with its employees to be good.
Cautionary Statements
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. The Company wishes to ensure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to maximize to the
fullest extent possible the protections of the safe harbor established in the
Reform Act. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the following important factors, among
others, that could cause the Company's actual results to differ materially from
those projected in forward-looking statements of the Company:
1. Dependence on Licenses. The Company's trading card and sticker/album
businesses are highly dependent upon licensing arrangements with third parties.
These licenses, which have varying expiration dates, are obtained from the
various professional sports leagues, players associations and, in certain
instances, the players themselves as well as entertainment companies. The
Company's inability to renew or retain these licenses, or the lack of vitality
of these licenses, could materially affect its future plans and results.
2. Contraction in Sports Card Industry. The Company believes that the
sports card industry as a whole continued to contract during calendar 1998.
Further prolonged and material contraction in the sports card industry, whether
caused by labor strife or otherwise, could materially adversely affect the
Company's future plans and results.
3. Declines in Sales of U.K. Sticker/Albums. Sales of Topps Europe's
Premier League sticker/album collections declined last year. Further significant
declines in sales of these products could materially affect the Company's future
plans and results.
4. Returns. Approximately 70% of the Company's sales are made on a
returnable basis. Although the Company maintains provisions for returns, returns
considerably in excess of the Company's provisions could materially affect its
future plans and results.
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5. Suppliers. The Company has a single source of supply for certain of its
lollipop products. The loss of this supplier due to civil unrest or for any
other reason could materially affect the Company's future plans and results.
6. Customers. The Company has several large customers, some of which are
serviced by single distributors. The loss of any of these customers or
distributors could materially affect the Company's future plans and results.
7. International Political and Economic Risk. Due to the Company's
increased international presence, there is an increase in risk generally
associated with operating outside of the U.S. Events such as civil unrest,
currency devaluation and political upheaval could materially affect the
Company's future plans and results.
8. See Item 3: Legal Proceedings for a discussion of legal matters that
could materially affect the Company's future plans and results.
Financial Information About Industry Segments, Foreign and Domestic Operations
and Export Sales
The Company operates in three business segments. They are: (i) the
marketing and distribution of collectible sports products; (ii) the marketing
and distribution of entertainment products; and (iii) the marketing and
distribution of confectionery products. Segment and geographic area information
contained in Note 14 of the Notes to Consolidated Financial Statements included
in the Annual Report is hereby incorporated by reference.
Executive Officers of the Company
The information required by this item with respect to the directors of the
Company and as to those executive officers who are also directors appearing in
the Proxy Statement for the annual meeting of stockholders scheduled to be held
on June 29, 1999 ("1998 Proxy Statement") is hereby incorporated by reference
thereto. Set forth below is information required by this item covering the other
executive officers of the Company.
Name Position with the Company and business experience
during the past five years
Ronald L. Boyum Vice President-Marketing and Sales of the Company
since March 1995, Vice President- Marketing of the
Company since April 1994. Mr. Boyum is 47 years of
age.
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Edward P. Camp Vice President of the Company since April 1997 and
President of the Hobby Division since October1995.
Mr. Camp held number of sales-related positions
within the Company prior thereto. Mr. Camp is 52
years of age.
Michael P. Clancy Vice President -International of the Company since
December 1998. Vice President since February 1995
and Managing Director - Topps Ireland since July
1990. Mr.Clancy had been Joint Managing Director -
Topps Europe Ltd. from January 1997 to December
1998. Mr. Clancy is 44 years of age.
Michael J. Drewniak Vice President - Manufacturing of the Company
since March 1991. Mr. Drewniak held the position
of General Manager -Manufacturing Operations prior
thereto. Mr. Drewniak is 62 years of age.
Ira Friedman Vice President - Publishing and New Product
Development of the Company since September 1991.
Mr. Friedman joined the Company in October 1988.
Mr. Friedman is 45 years of age.
Catherine K. Jessup Vice President - Chief Financial Officer of the
Company since July 1995. Prior to joining the
Company, Ms. Jessup held a number of positions
with PepsiCo (a food products company) from 1981
to July 1995 including Director of Planning and
C.F.O. PepsiCo Wines and Spirits. Ms. Jessup is
43 years of age.
William G. O'Connor Vice President-Administration of the Company
since September 1991. Mr.O'Connor was an Assistant
Secretary of the Company from June 1982 until June
1994. Mr. O'Connor is 50 years of age.
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John Perillo Vice President - Operations of the Company since
April 1995 and Vice President-Controller and Chief
Financial Officer of the Company from April 1990
to July 1995. Mr. Perillo is 42 years of age.
Scott Silverstein Vice President - Business Affairs and General
Counsel of the Company since February 1995. Mr.
Silverstein held the position of General Counsel
from July 1993 until February 1995. Prior to
joining the Company, Mr. Silverstein was an
attorney with the law firm of Hutton Ingram Yuzek
Gainen Carroll & Bertolotti from April 1990 until
July 1993. Prior thereto, he was an attorney with
the law firm of Shea & Gould. Mr. Silverstein is
the son-in-law of Mr. Shorin, the Company's Chair-
man of the Board, Chief Executive Officer and
President. Mr. Silverstein is 37 years of age.
ITEM 2. PROPERTIES
The location and general description of the principal properties owned or
leased by the Company are as follows:
<TABLE>
<CAPTION>
Owned or Leased;
Area/Facility If Leased,
Location Type of Facility Square Footage Expiration Year
<S> <C> <C> <C>
Duryea, Pennsylvania office and warehouse 60,000 Leased; 2000
Scranton, Pennsylvania manufacturing plant 41,000 Owned
Cork, Ireland office 8,000 Leased; 2005
New York, New York executive offices 60,000 Leased; 2010
Milton Keynes, United Kingdom warehouse/office 10,000 Leased; 2014
</TABLE>
The Company also leases offices in Canada, Brazil, Argentina, Mexico and
Italy. The Company believes that its active facilities are in good repair and
are suitable for its needs for the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
In August 1996, the Company was named a defendant in a class action in the
United States District Court for the Eastern District of New York (the "New York
Court") entitled Sullivan, et.al. v. The Topps Company, Inc. No. CV 96 3779
(E.D.N.Y.) (the "Action"). The Action alleged, among other things, that the
Company violated the federal Racketeer Influenced and Corrupt Organizations Act
by its practice of selling sports and entertainment cards with randomly-inserted
"insert" cards, in violation of state and federal anti-gambling statutes. During
the last two and a half years, each of the Company's principal competitors, and
principal licensors, were separately sued in various federal courts for
employing, or participating in, the same or similar practices. The Action sought
treble damages and attorneys' fees on behalf of all purchasers of packs of cards
potentially including "insert" cards over a four-year period. The New York Court
granted the Company's motion to dismiss the Action with prejudice in August
1997. The New York Court later denied motions by plaintiffs to alter, amend or
vacate the judgement, and for leave to file an amended complaint. Plaintiffs'
time to appeal all of these rulings has expired, and the judgement for the
Company dismissing the Action is now final and nonappealable.
In September 1998, the Company filed an action in the New York Court
seeking declaratory and injunctive relief against a class of all original
end-use purchasers of trading cards marketed in packages that may contain
randomly-inserted "insert" cards within the four years prior to the filing of
the complaint, entitled The Topps Company, Inc. v. Sullivan et al., No.l CV 98
6023 (EHN) (E.D.N.Y.) (the "Declaratory Judgment Action"). The Declaratory
Judgment Action seeks a declaratory judgment that the defendant class of card
purchasers did not suffer any injury cognizable under RICO by this practice, and
an injunction enjoining the defendant class from filing or pursuing any further
RICO actions against the Company relating to the purchase of trading cards. Two
similar declaratory judgment actions have been filed by several of the Company's
principal licensors against the same class of defendants in the New York Court.
On December 14, 1998, defendants in all of the declaratory judgment actions
moved to dismiss the complaints, and the New York Court heard oral argument on
the motions on February 26, 1999. A decision in these motions has not yet been
rendered.
In November 1998, the Company was named defendant in a purported class
action commenced in the United States District Court for the Southern District
of California (the "California Court") entitled Rodriquez et al. v. The Topps
Company, Inc., No. CV 2121-B (AJB) (S.D. Cal.) (the "Class Action") The Class
Action alleged that the Company violated RICO, and the California Unfair
Business Practices Act, by its practice of selling sports and entertainment
trading cards with randomly-inserted "insert" cards, allegedly in violation of
state and federal anti-gambling laws. The Class Action seeks treble damages and
attorneys' fees on behalf of all individuals who purchased packs of cards at
least in part to obtain an "insert" card over a four-year period. On January 22,
1999, plaintiffs moved to consolidate the Class Action with similar class
actions pending against several of the Company's principal competitors and
principal licensors in the California Court. The Company has opposed this
motion. On January 25, 1999, the Company moved to dismiss the complaint, or,
alternatively, to transfer the Class Action to the Eastern District of New York
14
<PAGE>
or stay the Class Action pending the outcome of the Declaratory Judgment Action
pending in the Eastern District of New York. By orders dated May 14, 1999, the
California Court denied Topps' motions to dismiss the complaint or transfer the
Class Action to the Eastern District of New York but granted Topps' motion to
stay the Class Action pending the outcome of the Declaratory Judgment Action.
The California Court also denied plaintiffs' motion to consolidate the Class
Action with similar purported class actions. An unfavorable outcome in the Class
Action could have a material adverse effect on the Company's future plans and
results.
The Company is a defendant in several other civil actions which are routine
and incidental to its business. In management's opinion, after consultation with
legal counsel, these actions will not have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Reference is made to the data appearing on page 31 of the Annual Report
under the heading "Market and Dividend Information" which is hereby incorporated
by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Reference is made to the data appearing on page 32 of the Annual Report
under the heading "Selected Consolidated Financial Data" which is hereby
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to the data appearing on pages 7 through 10 of the Annual
Report under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the data appearing on pages 11 through 29 and to the
Report of Independent Public Accountants appearing on page 30 of the Annual
Report which are hereby incorporated by reference.
ITEM 9. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information required by this item appears in Part I of this Report on Form
10-K under the heading "Executive Officers of the Company" and in the 1999 Proxy
Statement and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item appears in the 1999 Proxy Statement and
is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item appears in the 1999 Proxy Statement and
is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item appears in the 1999 Proxy Statement and
is hereby incorporated by reference.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1&2) Financial Statements and Financial Statement Schedules
See index on page 20.
(3) Listing of Exhibits
See index on pages 21-23.
(b) Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 21, 1999 THE TOPPS COMPANY, INC.
Registrant
___________________________
Arthur T. Shorin
Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed on the 21st day of May, 1999 by the following persons on
behalf of the Registrant and in the capacities indicated.
Arthur T. Shorin Catherine K. Jessup
Chairman, Chief Executive Vice President-Chief Financial Officer
Officer and President (Principal Financial and
(Principal Executive Officer) Accounting Officer)
Seymour P. Berger David M. Mauer
Director Director
Allan A. Feder Jack H. Nusbaum
Director Director
Stephen D. Greenberg Stanley Tulchin
Director Director
Wm. Brian Little
Director
19
<PAGE>
THE TOPPS COMPANY, INC.
FORM 10-K ITEM 14(a)(1), (2) AND (3)
LIST OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(a)(1) Index to Financial Statements:
The following Consolidated Financial Statements included in the Annual
Report are hereby incorporated by reference to Item 8:
Consolidated Statements of Operations -- Years Ended March 1,
1997, February 28, 1998 and February 27, 1999.
Consolidated Balance Sheets -- February 28, 1998 and February 27,
1999.
Consolidated Statements of Cash Flows -- Years Ended March 1,
1997, February 28, 1998 and February 27, 1999.
Consolidated Statements of Stockholders' Equity -- Years Ended
March 1, 1997, February 28, 1998 and February 27, 1999.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
(a)(2) Index to Independent Public Accountants'
Report and Financial Statement Schedules Page No.
Report of Independent Public Accountants......................... S-1
Schedule VIII -- Valuation and Qualifying Accounts - Years
Ended March 1, 1997, February 28, 1998 and February 27, 1999..... S-2
Schedules other than those listed above are omitted because they are
either not required or not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto.
20
<PAGE>
a)(3) Index to Exhibits
3.1 - Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Company's Report
on Form 8-K dated December 3, 1991).
3.2 - Restated By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to the Company's Report on Form 8-K dated December 3,
1991).
4.1 - Rights Agreement, dated as of December 3, 1991, with
Manufacturers Hanover Trust Company, as rights agent
(Incorporated by reference to Exhibit 4.1 to the Company's Report
on Form 8-K dated December 3, 1991).
10.1 - The Topps Company, Inc. Executive Officers' Annual Bonus Plan.*
10.2 - Retirement Plan and Trust as amended and restated effective
February 28, 1993 (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended February 26,
1994).
10.3 - Supplemental Pension Agreement with Arthur T. Shorin
(Incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1(No. 33-130821)).
10.4 - Amendment to Supplemental Pension Agreement with Arthur T.
Shorin dated May 18, 1994 (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 25, 1995).
10.5 - License Agreement and Letter Amendment thereto with Major
League Baseball Promotion Corporation (Incorporated by reference
to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 2, 1991).
10.6 - Settlement Agreement with Major League Baseball Players
Association (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended February 26, 1994).
10.7 - Stock Option Agreement with Arthur T. Shorin dated March 29,
1995 (Incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 25,
1995).
10.8 - Agreement of Lease with One Whitehall Company dated February
24, 1994 (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended February 26, 1994).
10.9 - Amendment and Restatement of the 1994 Non-Employee Director
Stock Option Plan. (Incorporated by reference to the Company's
1998 Proxy Statement filed on May 28, 1998).
21
<PAGE>
Index to Exhibits (continued)
10.10 - Agreement for the acquisition of the issued share capital of
Merlin Publishing International plc dated May 17, 1995
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended February 25, 1995).
10.11 - Corporate Guaranty in favor of the Bank of Scotland
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 25, 1995).
10.12 - 1996 Stock Option Plan and form of agreement pursuant to 1996
Stock Option Plan. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 2,
1996).
10.13 - License Agreement and Letter Amendment thereto between the
Football Association Premier League Limited and Merlin Publishing
International PLC dated August 3, 1994 and July 2, 1996,
respectively. (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 1, 1997).
10.14 - Retail Product License Agreement with the Major League
Baseball Properties, Inc. dated September 28, 1995 (Incorporated
by reference to Exhibit 10.31 to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 30, 1997).
10.15 - Credit Agreement, Dated May 11, 1998, among The Topps Company,
Inc. and The Chase Manhattan Bank. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1998).
10.16 - Amendment Number One to Credit Agreement dated May 11, 1998.
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal year ended May 30, 1998).
10.17 - Second Amendment to Credit Agreement, dated as of November 6,
1998. (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 28, 1998).
10.18 - Third Amendment to the Credit Agreement dated February 25,
1999.*
10.19 - Consulting Agreement with Seymour Berger dated December 31,
1997. (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 29, 1998).
10.20 - Amended and Restated Manufacturing Agreement with Hershey
Foods Corporation, dated March 13, 1998. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 29, 1998).
22
<PAGE>
Index to Exhibits (continued)
10.21 - Memorandum of Agreement with Major League Baseball Players
Association. (Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 29,
1998).
10.22 - Retail Product License Agreement between the Company and NBA
Properties, Inc. dated November 19, 1998. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 28, 1998).
10.23 - License Agreement between the Company and National Football
League Players Incorporated, dated September 27, 1998.
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 28, 1998).
10.24 - Amended and Restated Employment Agreement with Arthur T.
Shorin dated March 1, 1999.*
13 - Annual Report (Except for those portions specifically
incorporated by reference, the 1999 Annual Report to Stockholders
is furnished for the information of the Commission and is not to
be deemed "filed" as part of this filing).
21 - Significant Subsidiaries of the Company.*
23 - Consent of Independent Public Accountants.*
27 - Financial Data Schedule.*
*filed herewith
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The Topps Company, Inc.:
We have audited the consolidated balance sheets of The Topps Company, Inc. and
Subsidiaries as of February 27, 1999 and February 28, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended February 27, 1999, and have issued
our report thereon dated April 2, 1999; such consolidated financial statements
and report are included in your 1999 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of The Topps Company, Inc. and Subsidiaries listed
in Item 14. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
April 2, 1999
S-1
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- ------------------------------------ -------------- ------------------------------- --------------- ---------------
Balance Charged to Charged Balance
at Beginning Costs and Against Additions At End
Description of Period Expenses Sales (Deductions) of Period
-------------- -------------- -------------- --------------- ---------------
Year Ended March 1, 1997:
Amortization of Sports,
Entertainment and
Proprietary Products $ 24,943 $ 1,932 $ 26,875
Amortization of Other
Intangible Assets 7,901 717 $(36) $ 8,582
-------------- -------------- --------------- ---------------
$ 32,844 $ 2,649 $(36) $ 35,457
============== ============== =============== ===============
Allowance for Estimated Losses
on Sales Returns $ 22,123 $ 46,096 $ (44,980) (a) $ 23,239
============== ============== =============== ===============
Allowance for Doubtful Accounts $ 888 $ 379 $ (141) $ 1,126
============== ============== =============== ===============
Inventory Valuation Adjustment $ 23,415 $ 6,418 $ (11,381) (b) $ 18,452
============== ============== =============== ===============
=========================================================================================================================
Year Ended February 28, 1998:
Amortization of Sports,
Entertainment and
Proprietary Products $ 26,875 $ 1,898 $ 28,773
Amortization of Other
Intangible Assets 8,582 720 $ 9,302
-------------- -------------- ---------------
$ 35,457 $ 2,618 $ 38,075
============== ============== ===============
Allowance for Estimated Losses
on Sales Returns $ 23,239 $ 35,468 $ (39,449) (a) $ 19,258
============== ============== =============== ===============
Allowance for Doubtful Accounts $ 1,126 $ 703 $ (668) $ 1,161
============== ============== ===============
Inventory Valuation Adjustment $ 18,452 $ 5,340 $ (15,842) (b) $ 7,950
============== ============== =============== ===============
=========================================================================================================================
Year Ended February 28, 1999:
Amortization of Sports,
Entertainment and
Proprietary Products $ 28,773 $ 1,898 $ 30,671
Amortization of Other
Intangible Assets $ 9,302 $ 721 $ 10,023
-------------- -------------- ---------------
$ 38,075 # $ 2,618 $ 40,693
=============================== ===============
Allowance for Estimated Losses
on Sales Returns $ 19,258 $ 21,518 $ (28,147) (a) $ 12,629
============== ============== =============== ===============
Allowance for Doubtful Accounts $ 1,161 $ 424 $ (448) $ 1,137
============== ============== =============== ===============
Inventory Valuation Adjustment $ 7,950 $ 2,656 $ (5,309) (b) $ 5,297
============== ============== =============== ===============
=========================================================================================================================
</TABLE>
S-2
EXECUTIVE OFFICERS' BONUS PLAN
A fiscal 2000 Executive Officers' Incentive Bonus plan is established for
distribution after the end of fiscal 2000. Each Vice President and the President
(the "Executive Officers") will receive a maximum bonus of 60% of base salary
for fiscal 2000 if Consolidated Operating Profit (income before interest, taxes,
depreciation, amortization, and payment of any bonuses) is at least $9,232,000
greater than the level achieved in fiscal 1999, as follows:
Each Executive Officer will receive a bonus of 20% of base salary for fiscal
2000 if Consolidated Operating Profit is at least equal to $31,889,000.
Thereafter, .72% of base salary will be paid as bonus for each 1% improvement in
Consolidated Operating Profit up to a level of $40,804,000. For each additional
1% improvement in Consolidated Operating Profit beyond $40,804,000, an
additional 1.56% of base salary will be paid, up to a maximum incentive bonus of
60% of base salary.
Notwithstanding the foregoing, Executive Officers shall not receive any bonus if
their division does not attain Operating Profit equal to more than 80% of plan
for that division. If Divisional Operating Profit is more than 80% of the
division plan but not more than 90%, Executive Officers shall receive 50% of the
bonus otherwise payable to them. In between 80% and 90%, the bonus shall be
prorated.
THIRD AMENDMENT TO
CREDIT AGREEMENT
Dated as of February 25, 1999
THIRD AMENDMENT, dated as of February 25, 1999 (the "Third Amendment"), to
Credit Agreement, dated as of May 11, 1998 (as heretofore amended and as may be
from time to time supplemented and amended, the "Credit Agreement"), between THE
TOPPS COMPANY, INC., a Delaware corporation (the "Borrower"), and THE CHASE
MANHATTAN BANK, in its capacity as lender (in such capacity, the "Lender") and
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 Lender and the Agent entered
into the Credit Agreement;
WHEREAS, the Borrower has requested that the Lender agree to modify certain
terms of the Credit Agreement, and the Lender has 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 Third Amendment, for valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
hereto agree as follows:
I. . AMENDMENT TO INITIAL "WHEREAS" CLAUSE. The Initial "WHEREAS" clause of
the Credit Agreement is hereby amended by deleting the dollar amount
"$9,450,000" where it appears therein and replacing in lieu thereof the amount
"$12,450,000".
I. . AMENDMENTS TO SECTION 1.01. Section 1.01 of the Credit Agreement is
hereby amended (a) by amending the definition of "Revolving Commitment" by
deleting the dollar amount "$9,450,000" where it appears therein and replacing
in lieu thereof the amount"12,450,000;" (b) by amending the definition of "Loan
Documents" by inserting the words "the Topps Enterprises Guaranty," prior to the
words "the Security Documents" where such words appear therein; and (c) by
inserting the following definitions in the appropriate alphabetical order:
"Guarantor" means Topps Enterprises.
<PAGE>
"Third Amendment" means that certain Third Amendment to Credit
Agreement, dated as of the Third Amendment Effective Date, between the
Borrower and the Agent.
"Third Amendment Effective Date" means the date on which all of the
conditions to the effectiveness of the Third Amendment are either satisfied
or waived.
"Topps Enterprises" means Topps Enterprises, Inc., a Delaware
corporation.
"Topps Enterprises Guaranty" means that certain guaranty, dated as of
the Third Amendment Effective Date made by Topps Enterprises in favor of
the Agent and the Lenders, as the same may be amended, supplemented or
otherwise modified from time to time.
I. . AMENDMENT TO SECTION 2.05. Section 2.05 of the Credit Agreement is
hereby amended by (a) deleting the dollar amount "$4,500,000" in subparagraph
(b)(i) thereof and replacing in lieu thereof the amount "$7,500,000" and (b) by
deleting the dollar amount "$2,000,000" in subparagraph (b)(iii) thereof and
replacing in lieu thereof the amount "$3,500,000."
I. . AMENDMENT TO SECTION 6.04. Section 6.04 of the Credit Agreement is
hereby amended by deleting the dollar amount "$15,000,000" in paragraph (e)
thereof and replacing in lieu thereof the amount "$17,000,000."
I. . AMENDMENT TO SECTION 9.01. Section 9.01 of the Credit Agreement is
hereby amended by deleting the name and address of Zalkin, Rodin & Goodman LLP
in paragraph (b) thereof and replacing in lieu thereof the following:
Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, New York 10178-0060
Attention: Mark F. Liscio, Esq. (Telecopy No. 212-309-6273)
I. . AMENDMENT TO SCHEDULES. Schedule 2.01 of the Credit Agreement is
hereby amended and replaced in its entirety by Exhibit A hereto and Schedule
3.06 of the Credit Agreement is hereby amended and replaced in its entirety by
Exhibit B hereto.
I. . REPRESENTATIONS AND WARRANTIES. The Borrower and the Guarantor hereby
represent and warrant that:
<PAGE>
1. 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);
1. after giving effect to this Third Amendment, there does not exist a
Default or an Event of Default as of the date hereof;
1. the execution, delivery and performance by the Borrower of this
Third 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.
1. This Third Amendment has been duly executed and delivered by the
Borrower.
1. This Third Amendment is the legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its
terms.
I. . CONDITIONS PRECEDENT. This Third Amendment shall become effective on
the date (the "Third Amendment Effective Date") on which each of the following
conditions is satisfied or waived:
1. The Agent (or its counsel) shall have received from each party
hereto either (i) a counterpart of this Third Amendment signed on behalf of
such party or (ii) written evidence satisfactory to the Agent (which may
include telecopy transmission of a signed signature page of this Third
Amendment) that such party has signed a counterpart of this Third
Amendment;
1. The Agent (or its counsel) shall have received an original executed
Amended and Restated Revolving Credit Note, dated the Third Amendment
Effective Date, made by the Borrower in favor of the Agent, in the amount
of $12,450,000;
<PAGE>
1. The Agent (or its counsel) shall have received signed counterparts
of the Topps Enterprises Guaranty substantially in the form of Exhibit C
hereto and a Trademark Security Agreement Supplement, substantially in the
form of Exhibit A to the Trademark Security Agreement, with respect to any
additional Trademark Collateral acquired since the date of the Trademark
Security Agreement;
1. The Agent (or its counsel) shall have received such documents and
certificates as the Agent or its counsel may reasonably request relating to
the organization, existence or good standing of the Borrower and the
Guarantor, the authorization of the transactions contemplated hereby and
any other legal matters relating to the Borrower, the Guarantor, the Loan
Documents or the transactions contemplated hereby, all in form and
substance satisfactory to the Agent and its counsel.
1. The Agent (or its counsel) shall have received a certificate, dated
the Effective Date and signed by the President, Vice President or Financial
Officer of the Borrower, concerning compliance with the conditions set
forth in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement.
1. The Agent (or its counsel) shall have received a favorable written
opinion (addressed to the Agent and the Lenders and dated the Effective
Date) of Willkie Farr & Gallagher, counsel for the Borrower and the
Guarantor, covering such matters relating to the Borrower, Guarantor, the
Loan Documents or the transactions contemplated hereby as the Agent shall
reasonably request.
1. The Agent (or its counsel) shall have received signed counterparts
of a Fee Reduction Consent Letter, dated the Effective Date, which sets
forth the consent of the Agent to the reduction of a certain fee as
provided for in that certain Fee Letter, dated April 2, 1998.
1. All consents and approvals required to be obtained by any
Governmental Authority or any other Person as shall be required to
consummate the transactions contemplated hereby, shall have been obtained
and all approvals shall have expired in each case, without the imposition
of any burdensome conditions.
1. The Agent shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including reimbursement or
payment of all out-of-pocket expenses required to be reimbursed or repaid
by the Borrower and the Guarantor hereunder or under any other Loan
Documents.
<PAGE>
1. The Agent shall have received such other documents, instruments,
certificates and opinions as are customary for transactions of this type or
as the Agent may reasonably request, and shall be satisfied with such other
conditions as it may reasonably require.
I. . CONTINUOUS EFFECT. The terms of this Third 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 Third Amendment; and (y)
the terms and provisions of the Loan Documents shall continue in full force and
effect.
I. . SEVERABILITY. The provisions of this Third Amendment are intended to
be severable. If for any reason any provision of this Third 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.
I. . COUNTERPARTS. This Third 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 Third Amendment by signing any
such counterpart.
I. . INTEGRATION. This Third Amendment sets forth the entire agreement
among the parties hereto relating to the transactions contemplated hereby and
supersedes any prior oral or written statements or agreements with respect to
such transactions.
I. . GOVERNING LAW. THIS THIRD 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 Third Amendment to
be duly executed as of the day and the year first written.
THE TOPPS COMPANY, INC.
By:_________________________ Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as Agent,
By:_________________________ Name:
Title:
<PAGE>
EXHIBIT A
TO
THIRD AMENDMENT
SCHEDULE 2.01
COMMITMENTS
Term Loan Commitment
The Chase Manhattan Bank $24,950,000
Revolving Commitment
The Chase Manhattan Bank $12,450,000
<PAGE>
EXHIBIT B
SCHEDULE 3.06 - DISCLOSED MATTERS
In August 1996, the Company was named a defendant in a class action in the
United States District Court for the Eastern District of New York (the "New York
Court") entitled Sullivan et al. v. The Topps Company, Inc., No. CV 96 3779
(E.D.N.Y.) (the "Action"). The Action alleged, among other things, that the
Company violated the federal Racketeer Influenced and Corrupt Organizations Act
("RICO") by its practice of selling sports and entertainment trading cards with
randomly-inserted "insert" cards, allegedly in violation of state and federal
anti-gambling laws. During the last two and a half years, the Company's
principal competitors and principal licensors were separately sued in various
federal courts for employing, or participating in, the same or similar
practices. The Action sought treble damages and attorneys' fees on behalf of all
purchasers of packs of cards potentially including "insert" cards over a
four-year period. The New York Court granted the Company's motion to dismiss the
Action with prejudice in August 1997. The New York Court later denied motions by
plaintiffs to alter, amend or vacate the judgment, and for leave to file an
amended complaint. Plaintiffs' time to appeal all of these rulings has expired,
and the judgment for the Company dismissing the Action is now final and
nonappealable.
In September 1998, the Company filed an action in the New York Court
seeking declaratory and injunctive relief against a class of all original
end-use purchasers of trading cards marketed within the four years prior to the
filing of the complaint in packages that may contain randomly-inserted "insert"
cards, entitled The Topps Company, Inc. v. Sullivan et al., No. CV 98 6023 (EHN)
(E.D.N.Y.) (the "Declaratory Judgment Action") The Declaratory Judgment Action
seeks a declaratory judgment that the defendant class of card purchasers did not
suffer any injury cognizable under RICO by this practice, and an injunction
enjoining the defendant class from filing or pursuing any further RICO actions
against the Company relating to the purchase of trading cards. Two similar
declaratory judgment actions have been filed by several of the Company's
principal licensors in the New York Court. On December 14, 1998 defendants in
all of the declaratory judgment actions moved to dismiss the complaints, and the
New York Court will hear oral argument on the motion on February 26, 1999.
In November 1998, the Company was named a defendant in a purported class
action commenced in the United States District Court for the Southern District
of California (the "California Court") entitled Rodriquez et al. v. The Topps
Company, Inc., No. CV 2121-B (AJB) (S.D. Cal.) (the "Class Action"). The Class
Action alleged that the Company violated RICO, and the California Unfair
Business Practices Act, by its practice of selling sports and entertainment
trading cards with randomly-inserted "insert" cards, allegedly in violation of
state and federal anti-gambling laws. The Class Action seeks treble damages and
attorneys' fees on behalf of all individuals who purchased packs of cards at
least in part to obtain an "insert" card over a four-year period. On January 25,
1999, the Company moved to dismiss the complaint, and the California Court will
hear oral argument on the motion on March 1, 1999. On January 22, 1999,
plaintiffs moved to consolidate the Class Action with similar class actions
pending against several of the Company's principal competitors and principal
licensors in the California Court. The Company opposed this motion.
<PAGE>
EXHIBIT C
TO
THIRD AMENDMENT
TOPPS ENTERPRISES GUARANTY
TOPPS ENTERPRISES GUARANTY, dated as of February 25, 1999 (together
with any amendments, restatements, modifications and supplements, the
"Guaranty") made by TOPPS ENTERPRISES, INC., a Delaware corporation (the
"Guarantor"), in favor of THE CHASE MANHATTAN BANK, as agent (the "Agent") for
the lenders (the "Lenders") party to the Credit Agreement (as hereinafter
defined). Capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
WHEREAS, the Agent, the Lenders and The Topps Company, Inc. (the
"Obligor") entered into a Credit Agreement dated as of May 11, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement").
WHEREAS, contemporaneously with the execution and delivery of this
Guaranty, the Agent, the Lenders and the Obligor are entering into a Third
Amendment to the Credit Agreement (the "Third Amendment").
WHEREAS, in consideration for the Agent's and the Lenders' agreement
to enter into the Third Amendment and the transactions contemplated thereby, the
Guarantor has agreed to guaranty the payment of the obligations owing under the
Credit Agreement.
WHEREAS, it is a condition precedent to the effectiveness of the Third
Amendment that the Guarantor shall have executed and delivered to the Agent and
the Lenders this Guaranty;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the Guarantor, the Guarantor agrees with Agent and the Lenders
as follows:
SECTION 1. Guaranty. (a) The Guarantor hereby unconditionally
guarantees the punctual payment when due, of all obligations of every kind or
character now or hereafter existing, whether matured or unmatured, contingent or
liquidated, of the Obligor to each of the Agent and the Lenders under the Credit
Agreement, whether for principal, interest, fees, expenses or otherwise and
whether in United States dollars or other currencies, and any and all reasonable
expenses (including reasonable counsel fees and expenses) incurred by the Agent
and the Lenders in enforcing any of their respective rights under this Guaranty
(all such obligations being collectively referred to as the "Obligations").
<PAGE>
SECTION 2. Guaranty of Payment. The Guarantor further agrees that its
guarantee hereunder constitutes a guarantee of payment and performance when due
and not of collection, and waives any right to require that any resort be had by
any of the Lenders to (i) the Obligor, (ii) any other guarantor, (iii) any
Collateral held for payment of the Obligations or to any balance of any deposit
account or credit on the books of the Lenders in favor of the Obligor or any
other person or (iv) recourse against any other party.
SECTION 3. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be performed and paid strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of any
of the Lenders with respect thereto and is not subject to any setoff,
counterclaim or defense. The Obligations of the Guarantor hereunder are
independent of the obligations of other persons under any other related
document, and a separate action or actions may be brought and prosecuted
hereunder whether the action is brought against any such person or whether any
such person is joined in any such action or actions. The liability of the
Guarantor under this Guaranty shall be absolute and unconditional, and shall not
be affected or released in any way, irrespective of:
(i) any lack of validity or enforceability of the Loan Documents, or
to the Obligations;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to departure from any document evidencing
or relating to any of the Obligations or the Loan Documents,
including, but not limited to, an increase or decrease in the
Obligations;
(iii) any taking and holding of Collateral or any other collateral or
additional guaranties for all or any of the Obligations, or any
amendment, alteration, exchange, substitution, transfer, enforcement,
waiver, subordination, termination, or release of any collateral
securing the Obligations, if any (the "Collateral") or any other
collateral or such guaranties, or any non-perfection of any collateral
or any consent to departure from any such guaranty;
(iv) any manner of application of Collateral or any other collateral,
or proceeds thereof, to all or any of the Obligations, or the manner
of sale of any Collateral or any other collateral;
<PAGE>
(v) any consent by one or more of the Lenders to the change,
restructuring or termination of the corporate structure or
existence of the Obligor or any affiliate thereof and any
corresponding restructuring of the Obligations, or any other
restructuring or refinancing of the Obligations or any portion
thereof;
(vi) any modification, compromise, settlement or release by one
or more of the Lenders, by operation of law or otherwise,
collection or other liquidation of the Obligations or the
liability of the Obligor and any other guarantor, or of the
Collateral or any other collateral, in whole or in part, and any
refusal of payment by one or more of the Lenders, in whole or in
part, from the Obligor or any guarantor in connection with any of
the Obligations, whether or not with notice to, or further assent
by, or any reservation of rights against, the Guarantor;
(vii) the waiver of the performance or observance by the Obligor
of any agreement, covenant, term or condition to be performed by
it;
(viii) the voluntary or involuntary liquidation, dissolution,
sale of all or substantially all of the property, marshaling of
assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar
application or proceeding affecting the Obligor or any of its
assets;
(ix) the release of the Obligor from the performance or
observance of any agreements, covenants, terms or conditions
contained in any agreement or document evidencing or relating to
the Obligations or the Loan Documents by operation of law; or
(x) any other circumstance (including, but not limited to, any
statute of limitations) which might otherwise constitute a
defense available to, or a discharge of, the Guarantor.
Without limiting the generality of the foregoing, the Guarantor
hereby consents, and hereby agrees, that the rights of the Lenders
hereunder, and the liability of the Guarantor hereunder, shall not be
affected by any and all releases of any Collateral or any other
collateral. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of
the Obligations is rescinded or must otherwise be returned by the
Lender upon the insolvency, bankruptcy or reorganization of the
Obligor or otherwise, all as though such payment had not been made.
<PAGE>
SECTION 4. Waivers. The Guarantor waives presentment to, demand of
payment from and protest to the Obligor, or any other guarantor of any of the
Obligations, and also waives notice of acceptance of its guarantee and notice of
protest for non-payment. The Guarantor hereby further waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Lenders protect,
secure, perfect or insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against the Obligor, or any
other person or any Collateral or any other collateral.
SECTION 5. Covenants. The Guarantor hereby waives any right to require
the Lenders to proceed against the Obligor, any other guarantor or any person or
proceed against any Collateral or any other collateral, or pursue any other
remedy in the power of the Agent or the Lenders.
SECTION 6. Subrogation. Upon payment by the Guarantor of any sums to
the Lenders hereunder, all rights of the Guarantor against the Obligor arising
as a result thereof by way of right of subrogation or otherwise, shall in all
respects be subordinate and junior in right of payment to the prior final and
defeasible payment in full of all the Obligations. If any amount shall be paid
to the Guarantor for the account of the Obligor, such amount shall be held in
trust for the benefit of the Lenders and shall forthwith be paid to the Lenders
to be credited and applied to the Obligations, whether matured or unmatured.
SECTION 7. Amendments, Etc. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor herefrom shall in
any event be effective unless the same shall be in writing and signed by the
Lenders and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 8. Notices, Etc. All notices and other communications to any
party provided for hereunder shall be in writing (including telegraphic,
telecopy, telex or cable communication) and mailed, telegraphed, telecopied,
telexed, cabled or delivered, addressed to such party, in the case of the
Grantor, at 919 North Market Street, Wilmington, Delaware 19801, Attention of
Ms. Barbara M. Morris (Telecopy No. 302-427-2323) with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, New York 10019-6099 (Telecopy No.
212-728-8111), Attention of William Hiller, Esq., in the case of the Agent, at
the address of the Agent referred to in Section 9.01(b) of the Credit Agreement,
or as to any party at such other address as shall be designated by such party in
a written notice to each other party complying as to delivery with the terms of
this Section. All such notices and other communications shall be effective (a)
when received, if mailed or delivered, or (b) when delivered to the telegraph
company, transmitted by telecopier, confirmed by telex answerback or delivered
to the cable company, respectively, addressed as aforesaid.
SECTION 9. No Waiver, Remedies. No failure on the part of any of the
Lenders to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
<PAGE>
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law, the Credit Agreement or any other
agreement relating to the Obligations.
SECTION 10. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lenders are hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by the Agent
or the Lenders to or for the credit or the account of the Guarantor against any
and all of the Obligations of the Guarantor now or hereafter existing under this
Guaranty, irrespective of whether the Lenders shall have made any demand under
this Guaranty and although such Obligations may be contingent and unmatured. The
rights of the Lenders under this Section 10 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the
Lenders may have.
SECTION 11. Continuing Guaranty; Transfer of Note; Release of
Guaranty. This Guaranty is a continuing guaranty and shall (i) remain in full
force and effect until the payment in full of all of the Obligations and all
other amounts payable under this Guaranty, (ii) be binding upon the Guarantor,
its successors and assigns, and (iii) inure to the benefit of and be enforceable
by the Lenders and their respective successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), each Lender may assign or
otherwise transfer any instrument of indebtedness of the Obligor held by it, or
any interest therein, or grant any participation in its rights or Obligations
under any agreement relating to the Obligations and the Loan Documents subject
to the provisions of such agreement to any other person, and such other person
shall thereupon become vested with all the rights in respect thereof granted to
the Lender.
SECTION 12. Jurisdiction; Waiver of Jury Trial. (a) THE GUARANTOR
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF BOTH THE
SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY AND THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPEAL THEREFROM,
FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR
RELATING TO THIS GUARANTY, AND HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY
OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUIT, ACTION OR PROCEEDING, ANY
CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED
COURTS FOR ANY REASON WHATSOEVER, THAT SUCH SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THIS GUARANTY MAY NOT BE ENFORCED IN OR
BY SUCH COURTS. NEITHER THE GUARANTOR NOR THE LENDER WILL SEEK TO CONSOLIDATE
SUCH PROCEEDING INTO ANY ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED.
<PAGE>
SECTION 13. Applicable Law. THIS GUARANTY SHALL IN ALL RESPECTS BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 14. Expenses of the Agent and the Lenders. The Guarantor
agrees to pay all reasonable and necessary out-of-pocket expenses incurred by
the Agent and the Lenders in connection with the enforcement or protection of
its rights or the rights of the Agent and the Lenders generally in connection
with the Guaranty including, but not limited to, the reasonable fees and
disbursements of counsel for the Agent and the Lenders.
[Signature on Following Page]
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
TOPPS ENTERPRISES, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT E
TRADEMARK SECURITY AGREEMENT SUPPLEMENT
TRADEMARK SECURITY AGREEMENT SUPPLEMENT, dated as of February 25, 1999
(this "Supplement"), made by THE TOPPS COMPANY, INC., a Delaware corporation
(the "Grantor") to The Chase Manhattan Bank, with an office at Four Metrotech
Center, Brooklyn, New York 11245, as agent (the "Agent") for the benefit of each
of the lenders (the "Lenders") signatory to the Credit Agreement dated as of May
11, 1998 (as may have been or may be amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") among the Grantor, the Agent and the
Lenders.
WHEREAS, all terms used herein and not otherwise defined herein shall,
unless the context specifically requires otherwise, have the respective meanings
ascribed to them in, or pursuant to the provisions of, the Trademark Security
Agreement (as hereinafter defined);
WHEREAS, pursuant to the terms of the Credit Agreement and the other
Loan Documents, the Lenders agreed to make Loans to the Borrower upon the terms
and subject to the conditions set forth therein to be evidenced by the Notes
issued by the Borrower and to be guarantied by the Guarantors thereunder;
WHEREAS, the Trademark Security Agreement dated as of May 11, 1998
(the "Trademark Security Agreement") and recorded on May 15, 1998 in Reel 1727,
Frame 0397 in the United States Patent and Trademark Office was delivered by the
Grantor in favor of the Agent to secure its obligations under the Credit
Agreement and the other Loan Documents; and
WHEREAS, the Grantor and the Agent mutually desire to supplement the
Trademark Security Agreement to add certain additional Trademarks as collateral
for the respective obligations of Grantor under the Credit Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that
Schedule I to the Trademark Security Agreement is hereby supplemented to add the
Trademark(s) set forth on Schedule A hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
THE TOPPS COMPANY, INC.
By:_____________________________________________
Name:
Title:
AGENT:
THE CHASE MANHATTAN BANK
By:_____________________________________________
Name:
Title:
By:_____________________________________________
Name:
Title:
<PAGE>
SCHEDULE A
TO TRADEMARK SECURITY
AGREEMENT SUPPLEMENT
ADDITIONAL TRADEMARKS
Trademark Class Serial Number Filing Date
Bowman Rookie Card 16 75/578771 10/28/98
Precious Piggies & Pals 28 75/578377 10/23/98
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), effective as
of the 1st day of March, 1999, by and between THE TOPPS COMPANY, INC., a
Delaware corporation (the "Company"), and ARTHUR T. SHORIN, a resident of New
York (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive and the Company are parties to an employment
agreement originally effective as of October 28, 1991 (the "Employment
Agreement");
WHEREAS, pursuant to Section 16 of the Employment Agreement, the parties
may amend the Employment Agreement by written instrument;
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement to set forth the terms on which the Executive will serve as Chief
Executive Officer of the Company from March 1, 1999 through February 28, 2002;
WHEREAS, the Executive is willing to continue to serve the Company on the
terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive and the Executive agrees to
serve the Company on the terms and conditions set forth herein.
2. TERM
This Agreement shall have a three-year term, which shall commence as of the
date first above written and end on March2, 2002, unless terminated earlier as
provided in Section 6 hereof. Notwithstanding the foregoing, the term of this
<PAGE>
Agreement may be extended by mutual agreement of the parties in accordance with
subsection 7(d) hereof.
3. POSITION AND DUTIES
(a) The Executive shall serve as sole President and Chief Executive Officer
of the Company and shall perform such duties and exercise such supervision and
powers over and with regard to the business of the Company as are similar in
nature to those duties and services customarily associated with the position of
Chief Executive Officer, as well as such other similar duties and services as
may be reasonably prescribed from time to time by the Board of Directors of the
Company (the "Board"). The Executive shall perform such duties to the best of
his ability and in a diligent and proper manner.
(b) Subject to the next succeeding sentence, except during customary
vacation periods and periods of illness, the Executive shall, during his
employment hereunder, devote substantially his full business time and attention
to the performance of services for the Company. The Company hereby acknowledges
that the Executive shall be permitted to devote a reasonable amount of his
business time, consistent with his duties to the Company, to the management of
personal and family interests.
4. PLACE OF PERFORMANCE
In connection with the Executive's employment by the Company, the Executive
shall be based at the principal executive offices of the Company located in New
York, New York, except for reasonably necessary travel on the Company's business
and in connection with the performance of his duties hereunder.
5. COMPENSATION AND RELATED MATTERS
(a) Base Salary. During the term of this Agreement, the Company shall pay
to the Executive a base salary at a rate of $822,269 per annum, which may be
increased from time to time in the sole discretion of the Compensation Committee
of the Board ("Base Salary"). Base Salary shall be paid in equal installments in
accordance with normal payroll practices of the Company but not less frequently
than monthly. Base Salary payments (including any increased Base Salary
payments) hereunder shall not in any way limit or reduce any other obligation of
the Company hereunder, and no other compensation, benefit or payment hereunder
shall in any way limit or reduce the obligation of the Company to pay the
Executive's Base Salary hereunder.
2
<PAGE>
(b) Expenses. During the term of this Agreement, the Executive shall be
entitled to receive prompt reimbursement from the Company of all reasonable
expenses incurred by the Executive in promoting the business of the Company and
in performing services hereunder, including all expenses of travel and
entertainment and living expenses while away from home on business or at the
request of and in the service of the Company, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company from time to time.
(c) Other Benefits. (i) Nothing contained herein shall affect adversely the
Executive's right to participate in any of the Company's employee pension,
profit sharing, tax-deferred savings and welfare benefit plans provided for
employees generally (other than severance plans), or in any executive
compensation arrangements (including, without limitation, Company-paid medical
insurance and medical expense reimbursement plans, and cash or equity-based
incentive compensation plans) in which any of the executive officers of the
Company are entitled to participate (collectively, the "Company Compensation
Plans"), but the benefits provided under this Agreement shall be in lieu of all
other benefits provided under any Company severance plan. During the term of
this Agreement, the Executive shall be entitled to participate in all Company
Compensation Plans on a basis which is no less favorable than for other senior
executive officers of the Company and thereafter, to the extent post-termination
benefits are required under the terms of the respective Company Compensation
Plans.
(ii) During the term of this Agreement, the Executive shall not be eligible
to participate in the Company's group term life insurance program. The Executive
shall be eligible to participate in the Company's Long-Term Disability Insurance
Plan as in effect on the date of this Agreement (the "LTD Plan") until
attainment of age 65. For purposes of the LTD Plan, during the period prior to
attaining 65, the definition or other standard for determining disability, the
Executive's eligibility for long-term disability benefits, and the level of
coverage, time of commencement, duration of benefits, and offsets to benefits on
account of other disability benefits or other sources of income, shall all be
made by reference to the provisions and procedures of the LTD Plan.
(iii) The Company and the Executive agree that nothing in this Agreement
shall preclude the Company from amending or terminating any Company Compensation
3
<PAGE>
Plan whether now or hereinafter in effect, it being the intent of the parties
that the Executive shall continue to be entitled during the Executive's term of
employment to benefits under such Company Compensation Plans at least equal to
those under which he is covered as of the date of execution of this Agreement.
Nothing in this Agreement shall operate as, or be construed to authorize, a
reduction without the Executive's written consent of the level of such benefits;
in the event of any such reduction, by amendment or termination of any such
Company Compensation Plan, the Executive shall continue to be entitled to
receive from the Company during the term of this Agreement benefits at least
equal in value to the benefits to which the Executive would have been entitled
under such Company Compensation Plans if such reduction had not taken place.
(d) Bonus Compensation. For each fiscal year of the Company during the term
of this Agreement, the Executive shall be eligible for a target bonus
opportunity which is no less favorable than that provided for other senior
executive officers of the Company. Determination of the Executive's bonus shall
be based on the same objectives used for determining bonus payouts for other
senior executives of the Company.
(e) Option Awards. On March 1, 1999, the Compensation Committee of the
Board approved the grant to the Executive of an option (the "Option") to
purchase 250,000 shares of the Company's common stock. Except as otherwise
provided by this Agreement, such grant shall be governed by the terms and
conditions of The Topps Company, Inc. 1996 Stock Option Plan (the "Option Plan")
and of the related Option Agreement entered into by the Executive and the
Company as of March 1, 1999. Future grants of options to the Executive shall be
made under the Company's Option Plan at the discretion of the Compensation
Committee of the Board.
(f) Other Incentive Compensation Arrangements. During the term of this
Agreement, without limitation upon the rights otherwise conferred under this
Section, the Executive shall be entitled to participate in all newly-implemented
equity or cash-based incentive compensation arrangements on the same basis as
other senior executive officers of the Company.
(g) Funding of Existing Supplemental Pension Agreement. (i) To provide
funding for the Executive's existing supplemental pension agreement dated
May 19, 1986 (the "Supplemental Pension Agreement"), an irrevocable "rabbi"
trust was established on May 20, 1993 with Sanford B. Ehrenkranz, Esq. serving
as trustee (the "Rabbi Trust"). Such trust includes provisions that limit access
4
<PAGE>
of the Company and the Company's creditors to assets held thereunder, to the
maximum extent consistent with the Executive's not being in constructive receipt
of income with respect to assets contributed, under current ruling standards of
the Internal Revenue Service. The Company shall arrange for an updated actuarial
valuation to be performed and shall contribute cash or cash equivalents to such
trust with a value equal to the present value of the supplemental pension
benefits currently accrued for the Executive in respect of Company service
through December 31, 1998 under the Supplemental Pension Agreement, not later
than September 30, 1999. The Company shall thereafter make an annual cash
contribution prior to the end of the current and each succeeding fiscal year of
the Company in an amount sufficient to fully fund the present value of the
Executive's accrued supplemental pension benefit as of the end of the calendar
year which ends within such fiscal year, based on the lump sum amount that would
have been distributable to the Executive, assuming termination of employment had
occurred on such date. The Company shall provide annual written notice to the
Executive identifying the assets held under the Rabbi Trust and stating the fair
market value thereof within 45 days after the making of each such annual
contribution. The amount to be contributed from time to time shall be based on
an actuarial valuation of the Executive's accrued supplemental pension benefit
prepared by an independent actuary of a major actuarial consulting firm selected
by the Executive and agreeable to the Company and the fair market value of the
assets held under such trust as of the end of the calendar year for which such
contribution is being made. The trustees shall be instructed to invest trust
assets in a reasonable, prudent and conservative manner consistent with the
preservation of trust corpus.
(ii) Actuarial assumptions used for funding and determining actuarial
equivalence of benefits shall be consistent with those used under the Company's
qualified pension plan.
(iii) The parties hereto agree that the Supplemental Pension Agreement
shall not be amended or terminated without the Executive's prior written consent
and that all of the Executive's benefits thereunder, whether now or hereafter
accrued, are fully vested and may not be reduced or eliminated for any reason,
notwithstanding any contrary provision of the Supplemental Pension Agreement.
(h) Vacations. During the term of this Agreement, the Executive shall be
entitled to the number of paid vacation days in each calendar year, and to
compensation in respect of earned but unused vacation days, determined in
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<PAGE>
accordance with the Company's vacation policy as in effect immediately prior to
the execution of this Agreement.
(i) Services Furnished; Prequisites. During the term of this Agreement, the
Company shall furnish the Executive with office space, secretarial assistance
and such other facilities, services and perquisites as are being furnished to
the Executive immediately prior to the date of this Agreement or as shall be
suitable to the Executive's position and adequate for the performance of his
duties as set forth in Section 3 hereof.
6. TERMINATION
The Executive's employment hereunder may be terminated without any breach
of this Agreement only under the following circumstances:
(a) Death or Disability. (i) The Executive's employment hereunder shall
terminate upon his death.
(ii) If the Executive shall have been unable to perform his duties due to
physical or mental illness for a period of six consecutive months, or for a
period of six months within any twelve month period then, notwithstanding the
provisions of Section 2, the Company may at any time after the end of the
applicable period of nonperformance give to the Executive a Notice of
Termination (as defined in subsection 6(e) hereof) and his employment hereunder
shall terminate on the date provided in subsection (f) hereof.
(b) Cause. The Company may terminate the Executive's employment hereunder
at any time for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon (A) the engaging
by the Executive in willful misconduct which is demonstrably and materially
injurious to the Company, or (B) the conviction of the Executive of a felony
involving moral turpitude with all appeals related to such conviction having
been exhausted. For purposes of this paragraph, no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. The Executive shall not be
deemed to have been terminated for Cause unless the Company shall have given or
delivered to the Executive (i) reasonable notice (the "Preliminary Notice")
setting forth, in reasonable detail the facts and circumstances claimed to
provide a basis for termination for Cause, (ii) an opportunity for the Executive
to cure any action alleged as the basis for termination under clause (A) above,
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(iii)a reasonable opportunity for the Executive, together with his counsel, to
be heard before the Board, and (iv) a Notice of Termination stating that, in the
good faith opinion of not less than a majority of the entire membership of the
Board, the Executive was guilty of conduct set forth in clauses (A) or (B)
above, and specifying the particulars thereof in detail. Upon receipt of the
Preliminary Notice, the Executive shall have thirty (30) days in which to appear
before the Board with counsel, or take such other action as he may deem
appropriate, and such thirty (30) day period is hereby agreed to as a reasonable
opportunity for the Executive to be heard.
(c) Termination by the Executive for Good Reason. The Executive may
terminate his employment hereunder at any time for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean (A) a failure by the Company to comply
with any material provision of this Agreement including, without limitation,
sub-section 13(c) hereof, which has not been cured within ten (10) days after
notice of such noncompliance has been given by the Executive to the Company,
(B) the assignment to the Executive by the Company of duties inconsistent with
the Executive's position, authority, duties, responsibilities or status with the
Company as in effect immediately after the date of execution of this Agreement
including, but not limited to, any reduction whatsoever in such position,
authority, duties, responsibilities or status, or a change in the Executive's
titles or offices, as then in effect, or any removal of the Executive from, or
any failure to reelect the Executive to, any of such positions, except in
connection with the termination of his employment on account of his death,
disability, or for Cause, (C) any reduction in compensation or benefits without
the Executive's prior written consent, (D) the requirement of excessive travel
on the part of the Executive, (E) a relocation by the Company of the Company's
principal executive offices or of the Executive's principal place of employment
to any location outside the Borough of Manhattan, (F) any other material change
in the conditions of employment if the Executive determines in good faith that
his customary duties can no longer be performed because of the change, (G) any
purported termination of the Executive's employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of
subsection 6(e) hereof or, in the case of a termination allegedly for "Cause",
which fails to satisfy the requirements of clauses (i) through (iv) of
subsection 6(b) hereof (and for purposes of this Agreement no such purported
termination shall be effective), or (H) the occurrence of a "Change in Control"
of the Company, as defined in Section 8 of the Option Plan, except that, (i) in
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determining whether a Change in Control has occurred, the fact that the Board
may have previously approved the acquisition of voting securities, or tender or
exchange offer for the purchase of the Company's common stock, shall be
disregarded and (ii) such event shall only be an event of Good Reason if a
Notice of Termination as a result of such event is given by the Executive to the
Company within 24 months after the occurrence thereof.
(d) Termination by the Executive on account of Retirement. The Executive
may terminate his employment without Good Reason at any time. Provided the
Executive complies with his obligations under Sections 11 and 12 of the
Agreement, such termination shall be treated as on account of Retirement with
the consent of the Board.
(e) Notice of Termination. Any termination of the Executive's employment by
the Company or by the Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances, if any, claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
(f) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated for Cause, the date specified in the
Notice of Termination, and (iii) if the Executive's employment is terminated by
reason of the expiration of the term of this Agreement under Section 2 hereof,
the date of such expiration, and (iv) if the Executive's employment is
terminated for any other reason, thirty (30) days after Notice of Termination is
given.
7. COMPENSATION UPON TERMINATION
The compensation and benefit arrangements set forth in this Section 7 shall
be paid or provided for by the Company upon termination of the Executive's
employment under the circumstances indicated.
(a) Compensation and Benefits Provided in All Events. The following
payments or benefits shall be provided by the Company to the Executive or his
Beneficiaries (as defined in subsection 7(b) below) upon termination of
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employment from the Company for any reason:
(i) his Base Salary through the Date of Termination;
(ii) any unpaid bonus compensation in respect of the Company's fiscal
year ended on or immediately prior to the Date of Termination;
(iii) all supplemental pension benefits which have accrued through the
Date of Termination under the Supplemental Pension Agreement in the manner
elected by the Executive in accordance with the terms of the Supplemental
Pension Agreement. Payments to the Executive or his Beneficiaries shall be
made first from the Rabbi Trust, to the extent assets are then available to
be paid from the Rabbi Trust in accordance with the provisions thereof, and
thereafter by the Company, to the extent of any insufficiency;
(iv) all benefits to which the Executive is then entitled under the
provisions of each Company Compensation Plan in which the Executive is a
participant on the Date of Termination; and
(v) all rights afforded under the provisions of, the Company's by-laws
and Certificate of Incorporation relating to indemnification as in effect
on the date hereof, under the provisions of the Company's insurance
arrangements in effect on the date hereof for the benefit of its directors
and officers, each on the same basis provided as for all other former
senior executives of the Company, and under Section 15 of this Agreement.
Except as specifically provided below, the Company's sole obligation to the
Executive or his Beneficiaries upon any termination of employment shall be to
provide the foregoing benefits.
(b) Benefits Payable on Death. If the Executive's employment is terminated
on account of his death, the Company shall pay to the beneficiary or
beneficiaries who have been identified in a written notice delivered to the
Company by the Executive prior to his date of death (his "Beneficiaries") in a
lump sum payment, within 30 days thereafter, an amount equal to $500,000. If no
written notice designating the Executive's beneficiaries has been received by
the Company prior to his date of death, the Executive's estate shall be treated
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as his "Beneficiary" for all purposes of this Agreement.
(c) Benefits Payable Upon Disability. If the Company terminates the
employment of the Executive under subsection 6(a)(ii) by reason of disability,
the Company shall pay to the Executive, the amount of long-term disability
benefits required to be maintained under subsection 5(c)(ii) hereof, if any, for
so long as the Executive is disabled and remains entitled to benefits under the
LTD Plan. Upon the Date of Termination because of disability, there shall be
pro-rata vesting of the Executive's bonus compensation for the year of
termination and the Executive shall be paid a pro-rata bonus in a cash lump sum
within five days from the Date of Termination, determined by multiplying the
bonus paid or payable to the Executive for the prior fiscal year by a fraction,
the numerator of which is the number of days from the beginning of the fiscal
year in which the Date of Termination occurs until the Date of Termination, and
the denominator of which is 365 (a pro-rata bonus determined in this manner is
referred to in Section 7(e)(A)(III) below as a "Pro-Rata Bonus"). Prior to
termination for disability, full compensation and benefits shall continue to be
provided to the Executive. After the Date of Termination, the Executive's
medical coverage under the Company Compensation Plans shall continue to be
provided at Company expense for the duration of disability, or until earlier
attainment of age 65.
(d) Benefits Payable upon Failure to Extend Beyond Initial Term. If the
Executive's employment as President and Chief Executive Officer has continued
through the end of the initial term of this Agreement (the "Expiration Date")
and the Company has not, at least 90 days prior to the Expiration Date, offered
the Executive a two-year extension of the term of this Agreement with (i) the
same position and responsibilities as previously in effect, (ii) a minimum
increase in Base Salary equal to the percentage increase in the Consumer Price
Indexes for All Urban Consumers (CPI-U) for New York-Northern, N.J., All Items
from March 1, 1999 to February 28, 2002, (iii) other employment terms, benefits
and conditions (including severance pay and the benefits provided under this
subsection 7(d) hereof) which are not less favorable than those in effect
immediately prior to the Expiration Date, or the economic equivalent thereof,
and (iv) a signing bonus of $500,000 in lieu of an option grant equivalent to
that made to the Executive on March 1, 1999 (a "Minimum Renewal Offer"), then
the Company shall continue to provide the Executive with the following benefits
for a period of two years following the Expiration Date:
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(I) payment of Base Salary, on the date such salary would normally
have been payable, at the rate in effect immediately prior to the
Expiration Date;
(II) payment of annual bonus compensation at a rate at least equal to
the highest annual bonus compensation paid to the Executive with
respect to the three fiscal year period ended on the Expiration
Date, not later than ninety (90) days after the end of each such
fiscal year; and
(III) provision for the Executive and his dependents, if any, at the
Company's expense, of health insurance benefits at the same level
and on the same basis as such benefits were provided to the
Executive and any dependents prior to the Expiration Date.
If the Company provides the Executive with the Minimum Renewal Offer
and the Executive does not accept such offer, then the Company shall provide the
Executive with the benefits described in subsection 7(d)(I), (II), and (III)
hereof, but only for a period of one year following the Expiration Date.
(e) If (x) Executive's employment shall be terminated, other than (i)
by reason of the expiration of the term of this Agreement under Section 2
hereof, (with or without the making of a Minimum Renewal Offer) or (ii) pursuant
to subsections 6(a)(i), 6(a)(ii), 6(b) or 6(d) hereof, or (y) the Executive
shall terminate his employment for Good Reason, then the Executive shall be
entitled to the following additional benefits described under paragraphs (A),
(B), (C) and (D) below:
(A) The Company shall pay to the Executive as severance pay, in a cash
lump sum, on the fifth day following the Date of Termination the following
amounts, which shall not be discounted to take into account present value:
(I) the Executive's full Base Salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given;
(II) a payment made as liquidated damages equal to three times the sum
of (a)the annual Base Salary, at the rate in effect at the time
Notice of Termination is given, and (b) the highest annual bonus
compensation paid to the Executive with respect to any of the
three fiscal years ended coincident with or immediately prior to
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the Date of Termination; and
(III) if the Executive's Date of Termination coincides with the end of
the Company's fiscal year, a full bonus for the year of
termination (in lieu of the bonus called for by
subsection 7(a)(ii) above), based on the targets set for the
Company's fiscal year in which the termination occurs and the
degree of attainment of performance objectives for such fiscal
year, as determined by the Compensation Committee of the Board in
good faith, or if the Executive's Date of Termination occurs
prior to the end of any Company fiscal year, a Pro-Rata Bonus.
(B) Except as provided in subparagraph (C) below, the Company shall,
for a period of three years from the Date of Termination, at the Company's
expense, allow the Executive to continue to participate in all Company
Compensation Plans in which the Executive was entitled to participate
immediately prior to the Date of Termination (or pay to the Executive the
after-tax economic equivalent thereof), and shall continue to maintain for the
Executive all life and long-term disability insurance benefits required to be
provided under subsection 5(c)(ii) hereof, and all related executive
perquisites, including a suitable office and secretary located in midtown
Manhattan.
(C) The Company shall provide the Executive with three years of
additional service credit for pension purposes under the Executive's
Supplemental Pension Agreement. In addition, compensation paid or payable
pursuant to subsections 7(e)(A)(I) and (III) above shall be treated as paid in
the month immediately preceding the Date of Termination, compensation paid or
payable pursuant to subsection 7(e)(A)(II) above shall be treated as paid
ratably over the thirty-six months following the Date of Termination and all
such compensation shall be counted in determining final average compensation
under such Agreement. The present value of the Executive's aggregate accrued
benefit under the Supplemental Pension Agreement taking into account such
additional service credit and compensation shall be determined within thirty
days of the Date of Termination by the actuary engaged pursuant to subsection
5(g) and hereof and by using the actuarial assumptions prescribed by subsection
5(g) hereof. Such value shall be paid to the Executive in a cash lump sum within
fifteen days thereafter, notwithstanding any contrary provision of the
Supplemental Pension Agreement. Such payments shall be made first from the Rabbi
Trust, to the extent assets are then available to be paid from the Rabbi Trust
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in accordance with the provisions thereof, and thereafter by the Company, to the
extent of any insufficiency. Upon the making of such payments in full, the
Company shall have no further obligation to the Executive relating to the
Supplemental Pension Agreement, either under the terms of such Agreement or
under this Agreement.
(D) All stock options held by the Executive which have not previously
become exercisable shall immediately vest and become exercisable upon such
termination, and shall thereafter remain exercisable in accordance with their
terms.
(f) The Company's obligation to make the payments provided for in this
Agreement, or otherwise to perform its obligations hereunder, shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. The
Executive shall not be required to mitigate damages or the amount of any payment
provided for under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the termination of his employment hereunder or otherwise.
(g) (i) In all events, if any payments to the Executive from the
Company, or any vesting of options, whether occurring pursuant to Section 7
hereof or otherwise made to the Executive by the Company (the "Payments"), are
or will be subject to the tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "IRC") (the "Excise Tax") (or any similar tax that
may hereafter be imposed), the Company shall pay to the appropriate taxing
authorities on behalf of the Executive at the time specified in
subsection 7(g)(iii) below an additional amount (the "Gross-Up Payment") such
that the net amount retained by him, after reduction by all Excise Taxes, and
all federal, state and local income taxes on the Payments and the Gross-Up
Payment, shall be equal to the net amount which would have been retained by him
had no part of the Payments been subject to the Excise Tax. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax, (A) all payments or benefits received or to be
received by the Executive in connection with his termination of employment
(whether pursuant to the terms of this Agreement or any Company Compensation
Plan), shall be treated as "parachute payments" within the meaning of IRC
Section 280G(b)(2), and all "excess parachute payments" within the meaning of
IRC Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless
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(i) the Executive otherwise agrees in writing that IRC Section 4999 is not
applicable, or (ii) in the opinion of tax counsel selected by the Company's
independent auditors, and acceptable to the Executive ("Counsel"), such payments
or benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of IRC
Section 280G(b)(4) in excess of the base amount within the meaning of IRC
Section 280G(b)(3), or are otherwise not subject to the Excise Tax, (B) the
amount of the Payments which shall be treated as subject to the Excise Tax shall
be equal to the lesser of (1) the total amount of the Payments or (2) the amount
of excess parachute payments within the meaning of Section 280G(b)(1) (after
applying clause (A), above), and (C) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of IRC Sections 280G(d)(3) and (4).
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal, state and local taxes at the highest marginal
rate of federal, state and local income taxation, respectively, in the calendar
year in which the Gross-Up Payment is to be made. In the event that the Excise
Tax is at any time determined by Counsel or by the Internal Revenue Service
("IRS") to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment or thereafter (including, without
limitation, by reason of (A) a preliminary determination by the parties that no
Gross-Up Payment was due under this subsection 7(g) or (B) a determination which
otherwise underestimates the amount of the Gross-Up Payment due under this
subsection 7(g)), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus all interest and penalties payable with respect to
such excess) at the time the amount of such excess is finally determined. In the
event that the Excise Tax is subsequently determined by Counsel or pursuant to
any proceeding or negotiations with the Internal Revenue Service to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment
made, the Executive shall repay to the Company, at the time that the amount of
such reduction in the Excise Tax is finally determined, the portion of such
prior Gross-Up Payment that would not have been paid if such Excise Tax had been
correctly applied in initially calculating such Gross-Up Payment, plus interest
on the amount of such repayment at the rate provided in IRC
Section 1274(b)(2)(B). Notwithstanding the foregoing, in the event any portion
of the Gross-Up Payment to be refunded to the Company has been paid to any
Federal, state or local tax authority, repayment thereof shall not be required
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until actual refund or credit of such portion has been made to the Executive,
and interest payable to the Company shall not exceed interest received or
credited to the Executive by such tax authority for the period it held such
portion. The Executive and the Company shall mutually agree upon the course of
action to be pursued (and the method of allocating the expenses thereof) if the
Executive's good faith claim for refund or credit is denied.
(ii) A Gross-Up Payment shall be made not later than the thirtieth
day, or as soon thereafter as is reasonably practicable, following the date the
Executive becomes subject to payment of the Excise Tax; provided, however, that
if the amounts of such payment cannot be finally determined on or before such
day, the Company shall pay to the appropriate taxing authorities on such day an
estimate, as determined in good faith by the Company, of the minimum amount of
such payments and shall pay the remainder of such payment (together with
interest at the rate provided under IRC Section 1274(b)(2)(B)) as soon as the
amount can be determined but no later than the sixtieth day after the date the
Executive becomes subject to the payment of the Excise Tax, without the
Executive's written consent.
(iii) The Gross-Up Payment (or portion thereof) provided for in
subsection 7(g)(i) above shall be paid to the appropriate taxing authorities on
behalf of the Executive not later than the required deposit date for taxes
withheld in respect of the Payments; provided, however, that if the amount of
such Gross-Up Payment (or portion thereof) cannot be finally determined on or
before the date on which payment is due, the Company shall pay to the
appropriate taxing authorities on behalf of the Executive by such date an amount
estimated in good faith by Counsel to be the minimum amount of such Gross-Up
Payment and shall pay the remainder of such Gross-Up Payment (together with
interest at the rate provided in IRC Section 1274(b)(2)(b)) as soon as the
amount thereof can be determined, but in no event later than 45 calendar days
after payment of the related Payments. In the event that the amount of the
estimated Gross-Up Payment exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company to the Executive,
payable on the fifth business day after written demand by the Company for
payment (together with interest at the rate provided in IRC
Section 1274(b)(2)(B)).
8. LEGAL FEES; REIMBURSEMENT OF CERTAIN EXPENSES
The Company shall, within 10 days of the presentation of a statement
therefor, reimburse the Executive for the amount of any and all reasonable legal
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fees payable to attorneys retained by the Executive in his sole discretion and
reasonable expenses incurred by the Executive in connection with (i) preparation
of this Agreement, (ii) ascertaining his rights in the event of any termination
of employment other than a voluntary termination of employment which is not for
Good Reason, or (iii) obtaining or enforcing in good faith any right or benefit
provided to the Executive by the Company pursuant to or in accordance with this
Agreement. In addition, the Company hereby agrees that the amount of any such
legal fees and expenses reimbursed to the Executive by the Company pursuant to
or in accordance with this Agreement will not be taken into account by the
Company in determining the aggregate compensation paid or payable to the
Executive under this Agreement, except to the extent the amount reimbursed is
required to be taken into account in determining the amount of any Excise Tax or
for purposes of complying with any other requirement of federal, state or local
law.
9. INDEMNIFICATION
The Company shall indemnify the Executive (and his legal representatives or
other successors) to the fullest extent permitted (including payment of expenses
in advance of final disposition of the proceeding) by the laws of the State of
Delaware, as in effect at the time of the subject act or omission, or the
Certificate of Incorporation and By-Laws of the Company as in effect at such
time or on the date of this Agreement, whichever affords or afforded greater
protection to the Executive; and the Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers, against all costs, charges and
expenses whatsoever incurred or sustained by him or his legal representatives in
connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of his being
or having been a director, officer or employee of the Company or any of its
subsidiaries. If any action, suit or proceeding is brought or threatened against
the Executive in respect of which indemnity may be sought against the Company
pursuant to the foregoing, the Executive shall notify the Company promptly in
writing of the institution of such action, suit or proceeding and the Company
shall assume the defense hereof and the employment of counsel and payment of all
fees and expenses.
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10. TAXES
The Company shall deduct from all amounts payable under this Agreement all
federal, state, local and other taxes required by law to be withheld with
respect to such payments.
11. CONFIDENTIALITY
Unless otherwise required by law or judicial process, the Executive shall
retain in confidence after termination of the Executive's employment with the
Company pursuant to this Agreement all confidential information known to the
Executive concerning the Company and its business for the shorter of one (1)
year following such termination or until such information is publicly disclosed
by the Company or otherwise becomes publicly disclosed other than through the
Executive's actions.
12. COVENANTS NOT TO COMPETE OR INTERFERE
During the term of this Agreement and for a period ending one (1) year from
and after the termination of the Executive's employment hereunder, the Executive
will not, other than on behalf of the Company, directly or indirectly, as a sole
proprietor, member of a partnership, or stockholder, investor, officer or
director of a corporation, or as an employee, agent, associate or consultant of
any person, firm or corporation:
(a) Solicit or accept business (i) from any clients of the Company or
its affiliates, (ii) from any prospective clients whose business the Company or
any of its affiliates is in the process of soliciting at the time of the
Executive's termination, or (iii) from any former client which had been doing
business with the Company within one (1) year prior to the Executive's
termination;
(b) Solicit any employee of the Company or its affiliates to terminate
such employee's employment with the Company; or
(c) Engage in any business of the type performed by the Company in the
geographic areas where the Company is actively doing business or soliciting
business at the time of the Executive's termination. Nothing contained in this
Section shall prohibit the Executive from making investments in or from serving
as an officer or employee of a firm or corporation which is not directly or
indirectly engaged in the same type of business as the Company. Notwithstanding
the first sentence of this Section 12, the prohibition described in this
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clause (c) shall not apply if the Executive's employment is terminated by the
Company without Cause or is terminated by the Executive for Good Reason.
It is the desire and intent of the parties that the provisions of this
Section 12 shall be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this Section 12 shall be adjudicated
to be invalid or unenforceable, this Section 12 shall be deemed amended to
delete therefrom the portion thus adjudicated to be invalid or unenforceable,
such deletion to apply only with respect to the operation of this Section 12 in
the particular jurisdiction in which such adjudication is made.
13. SUCCESSORS; BINDING AGREEMENT
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) Unless otherwise occurring by operation of law, the Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company (a "Successor Company") to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place;
provided, however, that no such succession shall relieve the Company of its
obligations hereunder unless the assumption of this Agreement by a Successor
Company is approved in writing by the Executive.
14. NOTICE
For the purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered or (unless otherwise
specified) when mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
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If to the Executive:
Mr. Arthur T. Shorin
c/o The Topps Company, Inc.
One Whitehall Street
New York, New York 10004-2109
If to the Company:
The Topps Company, Inc.
Attn.: Chief Financial Officer
One Whitehall Street
New York, New York 10004-2109
or to such other address as any party may have furnished to the others
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
15. SURVIVORSHIP
The respective rights and obligations of the parties hereunder,
including, without limitation, the rights and obligations set forth in
Sections 5 through 9 and 11 through 18 of this Agreement, shall survive any
termination of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.
16. MISCELLANEOUS
The parties hereto agree that this Agreement contains the entire
understanding and agreement between them, and supersedes all prior
understandings and agreements between the parties respecting the employment by
the Company of the Executive, other than the Supplemental Pension Agreement
(except as specifically provided herein) and the Company Compensation Plans. The
parties further agree that the provisions of this Agreement may not be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the parties hereto. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Except as set forth in the
Supplemental Pension Agreement or the Company Compensation Plans, no agreements
or representations, oral or otherwise, express or implied, with respect to the
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subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
17. VALIDITY
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other
provision or provisions of this Agreement, which shall remain in full force and
effect.
18. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused its name to be ascribed to
this Agreement by its duly authorized representative and the Executive has
executed this Agreement as of the date and the year first above written.
THE TOPPS COMPANY, INC.
By: _____________________________
Name:
Title:
_________________________________
Arthur T. Shorin, Executive
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Corporate Profile
The Topps Company, Inc. is an international marketer of entertainment products,
principally collectible trading cards, confections and sticker and album
collections. The Company, founded in 1938, created Bazooka brand bubble gum in
1947 and marketed its first Topps baseball cards in 1951.
Dedication
With thanks and admiration, we dedicate this Annual Report to our esteemed
colleague Seymour P. Berger, former Vice President and now retiring Board
member. For over half a century Sy, known as "the father of modern-day baseball
cards," has served the Company with distinction and still devotes time to
consult for us on special assignments. A major leaguer in every sense of the
word, congratulations and best wishes to this remarkable man from a grateful
Topps.
<PAGE>
Stockholders' Letter
Dear Stockholders,
Fiscal 1999 results reflect significant progress as we work to build the value
of your investment in Topps.
For the year ended February 27, 1999, Topps earned $15.6 million, or 34 cents
per share, compared to a loss the previous year of $4.6 million, or minus 10
cents per share. We also reduced our debt from $31.0 million to $15.8 million
and built cash to $41.7 million. The Company's net worth increased by 25% to
$77.2 million, return on equity was 22.4%, and our stock price rose from $2.75 a
share to $4.375 at fiscal year end, a 59% improvement. Other highlights
included:
o Growth and strengthening of core brand franchises in both sports and
confectionery
o Highly successful new product introductions
o Distribution gains for a variety of products
o Improved margins through cost cutting and new
efficiencies
o Significantly better customer service performance
o Effective use of TV advertising
Fair to say, we made good progress for the year, and fully intend to
produce more of it. As a matter of fact, the theme "more" is featured in this
report because looking ahead our continuing aim is to provide more: more fun,
value and innovation for consumers; more profits for our trade partners (doing
so endears us to them as a more highly prized supplier); more challenges for the
Topps organization to tackle successfully; and, underlying all of the above,
more stockholder value.
For your information, what follows is a discussion of the Company's
businesses in some detail -- its actions and achievements, plus a description of
opportunities that we are able to talk about in this writing.
Collectible Sports Products
More brands, more sports, more innovation...
Generally speaking, fiscal 1999 was a constructive period for sports cards,
albeit one in which some of the positives were masked by the effects of a labor
problem in basketball. Indeed, baseball had a splendid year, punctuated by the
exploits of two players in particular, Mark McGwire and Sammy Sosa, whose
incredible home run chase was both historic and awakening. Not only did they
represent a perfect combination of athletic skills and fine personal character,
but the spirit they created on and off the field was contagious.
Football cards had a good year as well. Collectors were excited about the
strong entry class of rookies and sales got a boost from the temporary absence
of NBA product. Rounding out the picture, this was our first year back marketing
hockey cards after being out of the "rink" for awhile and, as of this writing, I
can report that the return of basketball to arenas and our sales of NBA product
at the start of fiscal 2000 are encouraging. Let's go on to some specifics.
The Company's strategy of focusing on brands continues proving correct as
Topps, Bowman and Topps Finest brands remain among the most desired in the
industry. Our brands also provided a natural platform for extensions such as
1
<PAGE>
Topps Chrome and Bowman's Best. Further, this strategy allows brands to
transfer smoothly to additional sports, increasing their strength and equity,
and providing new sales opportunities.
We had two successful new sports brand introductions this year. Our
stunning Topps Gold Label cards were a big hit in baseball and football. Next
year they will be seen in basketball and hockey versions as well. Topps Tek,
with its new innovative mode of set construction, encouraged different types of
collecting. As mentioned, the Company also re-entered the hockey card market
this year on a limited basis, after sitting out the past couple of seasons due
to poor economics in the category. With improved conditions this year, we were
moderately successful, collectors were happy to have Topps back and we will
expand our hockey offerings next year.
This past year saw other evidence of progress as well. The Company
introduced Action Flats -- three dimensional detailed miniature figurines of
professional athletes. Such "new sports initiatives" present a natural growth
opportunity for the Company. Accordingly, we hope to expand our "Flats"
offerings and test at least one other non-card sports concept during the new
year.
Our international sports business remains a significant building block as
well. The Merlin Premier League Football (soccer) collection in the U.K. remains
one of our most important products overseas. Our second year of involvement in
Italian Football proved beneficial, as we added a second collection and further
established our presence in the market. We will continue to seek opportunities
to license and market other sports collections featuring athletes overseas.
Entertainment Products
More focus, more profits...
The market for entertainment cards and collections remained relatively weak
this year, with only the strongest properties performing acceptably. This being
the case, our strategy of exercising extreme selectivity about our offerings
proved to be all the more important. In America we marketed just three
properties this year -- Xena, X-Files, and WCW wrestling. All were well
received, which led to higher margins and more profits from entertainment
products. Overseas we cut down significantly on our entertainment offerings and
improved profitability, although in certain instances we strayed a bit from our
strategy and paid the price. We also suspended operations of our comic book
business, as we found no sustainable opportunities there. On the other hand, we
stand ready (and able) to jump back in when market conditions improve.
The general weakness in the entertainment market notwithstanding, our new
year could be an exciting one as we begin marketing merchandise featuring the
new Star Wars movie, "Episode I: The Phantom Menace," under domestic trading
card and international sticker/album licenses. This is probably the most
anticipated movie of all time, and should translate well to our picture
products.
As announced recently, we are also planning to market trading cards and
lollipops featuring "Pokemon," a hot children's property. Even with our
enthusiasm for these properties, we continue to believe a selective approach is
appropriate, and intend to keep a tight rein on our roster of entertainment
products both here and abroad.
2
<PAGE>
Confectionery
More distribution, more new products, more value, more fun...
The Company's confectionery business had a fine year. In the U.S., our core
lollipop brands, Ring Pop and Push Pop, achieved double digit growth rates and
are among the nation's best selling premium lollipops. Our brands grew in
vitality among consumers as we introduced new flavors and new packaging and
invested in advertising support. Both Ring Pop and Push Pop achieved substantial
distribution gains as well. We completed our transition this year to a broker
sales force and did a better job managing it which, combined with product
improvements, enticed more outlets to carry our products. Internationally, Push
Pop in particular is a powerful brand that we sold in thirty countries last
year, seven of which were new to the product.
We made more progress on the new product front also. Topps Baby Bottle Pop
gave an excellent account for itself at home and abroad. According to
independent retail audit data, Baby Bottle Pop was the year's most successful
new lollipop brand in convenience stores in America. We are excited about the
long term prospects for this brand, and plan to support its future with a
multi-national advertising program. We also introduced Flip Pop, another new
lollipop brand, which was received especially well overseas.
Our Bazooka business had some interesting developments as well, most
notably the introduction of Bazooka Pops, a major brand extension targeting the
large bubble gum filled lollipop segment. Who better to shake up this market
than Bazooka Joe? Bazooka Pops enjoyed outstanding pre-market consumer test
results, and initial trade acceptance on sell-in is promising. This product is a
good example of the Company's "more" theme -- giving consumers more value and
variety (two pops per pack), more fun (comics on every wrapper), and more
quality (Bazooka gum inside).
Next year, the Company expects to continue building momentum in its
confectionery business. Product enhancements will include the addition of real
fruit juice to some of our lollipop formulas, changes in flavors and new
packaging. We will increase and improve our advertising support, with exciting
new creative executions for Push Pop, Ring Pop and Bazooka Pop. Innovative new
products will be introduced, such as Triple Power Push Pop and Treasure Pop, and
our all-out drive to expand distribution will continue unabated. In sum, this
should be an eventful year in confections.
Operations
More efficiency, more savings, more service to customers...
The operations group had a banner year, with success in many areas. The
Company realized savings in purchased materials through improved supplier
management, bundling of products and longer-term commitments. Obsolescence was
reduced to record low levels through better sku management and further
refinement of our make-to-order system. A revamped, more streamlined process
lowered product development costs as well. Our inventory management system was
made more efficient, leaving us with lower stock levels on hand, hence more cash
in the bank and fresher products in stores. We also made progress in reducing
warehousing and shipping costs.
3
<PAGE>
An important part of customer service is on-time accurate shipments. We set
ambitious goals for ourselves in this area and achieved them by more carefully
managing every step of the logistics process. Our trading card performance was
close to 100% on-time ship. Confectionery performance was excellent as well, as
we improved our average shipping time by a full 10 days. Pardon the boast, but
these and a variety of other actions exemplify the strength and determination of
our entire organization as it exists today.
The Future
More growth, more stockholder value...
To build on this year's progress, the Company will focus on some key
strategies. Leading the charge is continued core brand development. Our brands
are the heart and soul of this business, and building and supporting them is
paramount. At the same time, we want to introduce brand extensions and new
products that excite consumers. We will remain in our areas of expertise but
stretch the boundaries through innovation and application of considerable skills
available to us inside and outside the Company. It is also imperative that we
continue to expand the number of outlets which carry our products, convincing
them to do so through creative marketing and merchandising programs which don't
just look good, but that work.
The Company will also continue to explore and invest in new business
opportunities, either through internal development or acquisition. To the
latter, we are constantly on the lookout for things that fit with our knitting,
but to date have not found an appropriate match.
Finally, rest assured, the existence of the internet has not escaped our
attention. We are working to identify the best means of productively combining
its explosive potential with our unique corporate profile. It is our hope and
intention to begin some purposeful form of implementation of an internet
initiative this coming fiscal year.
In closing, we thank the Topps family of employees everywhere for their
dedication and commitment to making good things happen. On behalf of the entire
organization, we also thank our customers, licensors, stockholders and suppliers
for their valued support.
Arthur T. Shorin
Chairman, Chief Executive Officer and President
Edward P. Camp Michael J. Drewniak Ira Friedman
Catherine K. Jessup William G. O'Connor Ronald L. Boyum
Michael P. Clancy Leon J. Gutmann John Perillo
Scott Silverstein
OFFICERS OF THE TOPPS COMPANY, INC.
4
<PAGE>
Table of Contents
Page
Stockholders' Letter...........................................................1
Financial Highlights...........................................................6
Management's Discussion and Analysis of Financial Condition and Results of
Operations.....................................................................7
Consolidated Financial Statements.............................................11
Notes to Consolidated Financial Statements....................................15
Report of Independent Public Accountants......................................30
Market & Dividend Information.................................................31
Selected Consolidated Financial Data..........................................32
Directors, Officers, Subsidiaries and Stockholder Information..Inside Back Cover
5
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended
- ------------------------------------------------------------------------------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except share data)
<S> <C> <C> <C>
Net sales $ 229,414 $ 241,250 $ 268,975
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 26,658 (2,020) (14,475)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 15,571 (4,572) (10,943)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by operations 29,522 (62) 12,707
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital 24,919 20,971 18,716
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt 15,783 30,950 34,950
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 77,224 61,609 68,052
- ------------------------------------------------------------------------------------------------------------------------------------
Per share data - basic:
Net income (loss) 0.34 (0.10) (0.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Book value $ 1.66 $ 1.33 $ 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - basic 46,414,960 46,421,301 46,928,369
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations includes certain non-recurring items in each year
presented above. See Note 2.
</TABLE>
6
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table sets forth, for the periods indicated, net sales by key
business segment:
<TABLE>
Year Ended
- ---------------------------------------------------------------------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Collectible sports products $ 124,855 $ 140,588 $ 144,015
- ---------------------------------------------------------------------------------------------------------------------------
Entertainment products 9,321 16,137 34,917
- ---------------------------------------------------------------------------------------------------------------------------
Confectionery 95,238 84,525 90,043
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 229,414 $ 241,250 $ 268,975
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fiscal 1999 Versus 1998*
In 1999, the Company's net sales decreased 4.9% to $229.4 million from $241.3
million. This was the result of lower sales of both collectible sports and
entertainment products which were only partially offset by increased sales of
confectionery products.
Net sales of collectible sports products, which consist of both sports cards and
sports sticker/album products, decreased 11.2% from $140.6 million in 1998 to
$124.9 million in 1999. This decrease was the result of the prolonged NBA
lockout and, to a lesser extent, a decline in sales of U.K. sticker/album
products. Partially offsetting these declines were increases in sales of U.S.
baseball and football cards and the Company's re-introduction of NHL hockey
cards this year. Collectible sports products accounted for 54% of consolidated
net sales of the Company in 1999, versus 58% in 1998.
Net sales of entertainment products, which consist of entertainment cards, comic
books, magazines and the Merlin line of entertainment sticker/album products,
decreased 42.2% from $16.1 million in 1998 to $9.3 million in 1999. This was
primarily the result of the Company's decision to reduce its emphasis on
entertainment sticker/album products and comics. U.S. sales of entertainment
cards increased however, as a result of the introduction of WCW wrestling cards.
Sales of entertainment products accounted for 4% of consolidated net sales of
the Company in 1999, compared with 7% in 1998.
Net sales of confectionery products, which include among other things, Bazooka
brand bubble gum and Ring Pop, Push Pop and Baby Bottle Pop lollipops, increased
12.7% in 1999 to $95.2 million from $84.5 million in 1998. This growth was the
result of the roll out of Baby Bottle Pop and Flip Pop, the expansion of Push
Pop in Brazil and stronger sales of our core lollipop brands--Ring Pop and Push
Pop in the U.S. The Company's confectionery business accounted for 42% of total
1999 net sales, compared with 35% in 1998.
Consolidated gross profit as a percentage of net sales increased to 41.3% in
1999 from 33.0% in 1998. This margin improvement resulted, in part, from lower
royalty payments due to an increase in the percentage of non-royalty bearing
confectionery sales as well as the absence of minimum guarantee shortfalls
experienced in 1998 on U.S. basketball and Brazilian sticker products. Gross
profit margins also benefited from reduced material, product development and
obsolescence costs in the U.S.
Royalties and other income increased to $676,000 in 1999 from $390,000 in 1998
largely as the result of income received from an insurance settlement and a U.K.
tax refund.
Selling, general and administrative expenses ("SG&A") decreased to $72.3 million
or 31.5% of sales in 1999 from $78.4 million or 32.5% in 1998. This decrease was
largely the result of the headcount and cost reductions put into place at the
end of 1998. A reduction in U.S. marketing expenses previously required by one
of the Company's sport licenses as well as lower advertising agency fees,
combined with reduced marketing costs in Europe (due to the de-emphasis of the
entertainment business), also resulted in lower SG&A.
- ----------------------------------
*Unless otherwise indicated, all date references to 1999, 1998 and 1997 refer to
the fiscal years ended February 27, 1999, February 28, 1998 and March 1, 1997,
respectively.
7
<PAGE>
Results for 1999 include non-recurring income of $3.5 million from gains on the
sale of the Irish plant as well as on the sales of manufacturing-related
equipment in Ireland and the U.S. 1998 results reflect a non-recurring net
expense of $3.7 million. This consists of severance and other costs related to
both the 1998 headcount reductions and the closure of the Irish plant, offset by
income from the reversal of a plant closure reserve set up in 1997.
Net interest expense decreased to $454,000 in 1999 from $1.6 million in 1998 due
to a reduction in the Company's outstanding loan balance and an increase in cash
balances.
The effective tax rate of 40.6% in 1999 reflects provisions for federal, state
and local income taxes in accordance with statutory income tax rates. The 1998
effective tax rate of (26.8)% was a function of the Company's inability to
recognize tax benefits on certain foreign losses.
Net income was $15.6 million, or $0.34 per share in 1999 versus a net loss of
$(4.6) million, or $(0.10) per share in 1998. Excluding non-recurring items in
both years, net income from operations in 1999 would have been $13.3 million, or
$0.29 per share, versus a net loss of $(2.3) million, or $(0.05) per share in
the prior year.
Fiscal 1998 Versus 1997
In 1998, net sales decreased 10.3% to $241.3 million from $269.0 million. The
decrease was the result of lower sales in all three of the Company's key
business segments.
Net sales of collectible sports products decreased 2.4% to $140.6 million in
1998 from $144.0 million in 1997. This decrease was principally the result of
lower sales of baseball card products, and to a lesser extent, the Company's
decision not to renew its NHL licenses on terms it deemed unfavorable.
Collectible sports products accounted for 58% of the Company's consolidated net
sales in 1998 versus 54% in 1997.
Net sales of entertainment products decreased 53.8% to $16.1 million in 1998
from $34.9 million in 1997. Revenues versus the prior year were negatively
impacted by weakness in the entertainment card and sticker/album markets in the
U.S. and Europe. Entertainment products accounted for 7% of consolidated net
sales of the Company in 1998 versus 13% in 1997.
Net sales of confectionery products decreased 6.1% in 1998 to $84.5 million from
$90.0 million in 1997. This decrease was the result of lower sales of Bazooka
bubble gum in the U.S. and lollipops in Europe. Baby Bottle Pop and Flip Pop,
which were introduced in the fourth quarter of fiscal 1998, contributed
positively to year over year sales. The Company's confectionery business
accounted for 35% of total 1998 net sales, compared with 33% in 1997.
Gross profit as a percentage of net sales decreased to 33.0% in 1998 from 33.5%
in 1997. This decrease in gross profit resulted from higher product costs in the
U.S. and Ireland. The Company benefited during the year from savings related to
the December 1996 closure of the Duryea, Pennsylvania manufacturing facility.
The decrease in royalties and other income and expense from $2.7 million in 1997
to $390,000 in 1998, was in part the result of the termination of the Company's
Canadian licensee in March 1997 (due to the Company's decision to conduct
business directly in Canada), the recognition of foreign exchange losses in
Europe and Latin America and the absence of a one-time benefit from royalties
received in 1997 relating to the sale of Mars Attacks products.
Selling, general and administrative expenses increased as a percentage of net
sales to 32.5% in 1998 from 28.2% in 1997. The increase in 1998 was primarily
the result of costs associated with the startup of operations in Latin America,
the impact of inflation on overhead costs and higher promotional spending in the
U.S., particularly with respect to sports card autograph programs.
Fiscal 1998 results include a net non-recurring charge of $3.7 million. This
charge consists of $3.4 million related to headcount reductions in the United
States and Europe, $1.5 million related to the closure of the Cork, Ireland
manufacturing facility and $1 million of other costs. The 1998 net charge also
includes a $2.2 million benefit from the reversal of the plant closure reserve
set up in fiscal 1997. 1997 results include a charge of $30.0 million relating
to the closure of the Duryea, Pennsylvania manufacturing facility and $1.4
million for the impairment of long-lived assets at the Cork, Ireland factory in
compliance with Statement No. 121 of the Financial Accounting Standards Board.
The effective tax rate of (26.8%) in 1998 reflects provisions for federal, state
and local income taxes in accordance with statutory income tax rates and was a
function of the Company's inability to recognize tax benefits on certain foreign
losses.
8
<PAGE>
Net loss decreased to $(4.6) million, or $(0.10) per share in 1998 from $(10.9)
million, or $(0.23) per share in 1997. Excluding severance and other
non-recurring items and the plant-related charges/benefit in both years, net
income (loss) would have been $(2.3) million, or $(0.05) per share in 1998
versus $9.5 million, or $0.20 per share in 1997.
Quarterly Comparisons
Management believes that quarter-to-quarter comparisons of sales and operating
results are affected by a number of fluctuating factors, including the timing of
product introductions and variations in shipping and factory scheduling
requirements. Thus, annual sales and earnings amounts are unlikely to consist of
equal quarterly portions. See Note 16 of Notes to Consolidated Financial
Statements.
Inflation
The Company has been subject to price increases for certain materials, labor,
utilities and services, which have been partially offset by effective buying of
materials and by adjustment in the contents of finished products and their
prices, as competition has permitted.
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. ("Topps Europe") 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
included a term loan in the aggregate amount of $25.0 million (which was used to
repay the prior loan) and a $9.5 million facility to cover letter of credit and
revolver needs. The letter of credit and revolver facility was increased to
$12.5 million in February 1999. Both the term loan and the letter of credit and
revolver facility expire 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 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
acquisition of treasury stock.
As of February 27, 1999, the Company had $41.7 million in cash, and $15.8
million in debt under the term loan.
During 1999, the Company's net increase (decrease) in cash and cash equivalents
was $19.6 million versus $(2.0) million in 1998. Cash flow from operating
activities in 1999 was $29.5 million versus $(62,000) last year, primarily as a
result of the higher net income, income tax refunds in the U.S. and Europe and
lower fourth quarter receivables in 1999 resulting from the impact on sales of
the NBA lockout and a smaller European sticker/album business. Cash flow from
investing activities this year reflects $5.8 million in proceeds from sales of
the plant in Cork, Ireland and equipment from both the Cork, Ireland and Duryea,
Pennsylvania plants. In 1998, the Company received proceeds totaling $4.3
million primarily from the sale of the manufacturing facility in Duryea,
Pennsylvania. Cash flow from financing activities reflects debt payments of
$15.2 million this year versus debt payments net of borrowings of $4.0 million
and share repurchases of $523,000 in 1998.
Management believes 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 disruption in the Company's operations.
The Company began work on Year 2000 issues in 1996. As of February 27, 1999, all
of the Company's mainframe programs have been reviewed for compliance. Where
9
<PAGE>
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. Given that the
Company's fiscal Year 2000 began on February 28, 1999, many essential operating
systems have already proven to be Year 2000 compliant. The remaining systems are
in the process of being reviewed and tested. In a worst case scenario, the
Company believes that its essential processes could be handled manually.
The company has contacted key vendors, customers and other third parties
regarding their Year 2000 readiness. Although no issues have been identified to
date, the Company will continue to monitor these relationships and will develop
contingency plans for dealing with risks, if necessary.
Accounting Changes
During 1998, the FASB approved Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP No. 98-5") which requires that costs
previously capitalized as start-up costs be expensed as incurred. SOP No. 98-5
becomes effective for fiscal years beginning after December 15, 1998, with
earlier application encouraged. During 1998, the FASB also issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS No. 134, "Accounting for
Mortgage-Backed Securities." Management does not expect the adoption of SOP 98-5
or SFAS No. 134 to have a material effect, if any, on the financial condition or
results of operations of the Company and has not yet determined the effect, if
any, of SFAS No. 133 on the financial condition, results of operations or
additional disclosures of the Company.
10
<PAGE>
Consolidated Statements of Operations
The Topps Company, Inc. and Subsidiaries
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
Year Ended
- -----------------------------------------------------------------------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 229,414 $ 241,250 $ 268,975
- -----------------------------------------------------------------------------------------------------------------------------
Cost of sales 134,623 161,541 178,854
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit on sales 94,791 79,709 90,121
- -----------------------------------------------------------------------------------------------------------------------------
Royalties and other income 676 390 2,728
- -----------------------------------------------------------------------------------------------------------------------------
95,467 80,099 92,849
- -----------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 72,288 78,437 75,974
- -----------------------------------------------------------------------------------------------------------------------------
Non-recurring expenses (income) (3,479) 3,682 31,350
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 26,658 (2,020) (14,475)
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense, net 454 1,585 1,942
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit)
for income taxes 26,204 (3,605) (16,417)
- -----------------------------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes 10,633 967 (5,474)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 15,571 $ (4,572) $ (10,943)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - basic $ 0.34 $ (0.10) $ (0.23)
- diluted $ 0.33 $ (0.10) $ (0.23)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE>
Consolidated Balance Sheets
The Topps Company, Inc. and Subsidiaries
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
February February
27, 1999 28, 1998
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------
Current assets:
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 41,728 $ 22,153
- ------------------------------------------------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful accounts
of $1,137 (1999) and $1,161 (1998) 29,118 49,727
- ------------------------------------------------------------------------------------------------------------------
Inventories 16,221 16,613
- ------------------------------------------------------------------------------------------------------------------
Income tax receivable 269 6,829
- ------------------------------------------------------------------------------------------------------------------
Deferred tax assets 1,342 2,792
- ------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 4,860 3,821
- ------------------------------------------------------------------------------------------------------------------
Total current assets 93,538 101,935
- ------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 7,429 10,148
- ------------------------------------------------------------------------------------------------------------------
Inangible assets 60,207 62,825
- ------------------------------------------------------------------------------------------------------------------
Other assets 2,908 3,498
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 164,082 $ 178,406
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Current liabilities:
- ------------------------------------------------------------------------------------------------------------------
Accounts payable $ 15,022 $ 23,144
- ------------------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 38,051 48,322
- ------------------------------------------------------------------------------------------------------------------
Income taxes payable 4,921 1,165
- ------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt 10,625 8,333
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 68,619 80,964
- ------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 5,158 22,617
- ------------------------------------------------------------------------------------------------------------------
Deferred income taxes 5,143 6,864
- ------------------------------------------------------------------------------------------------------------------
Other liabilities 7,938 6,352
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 86,858 116,797
- ------------------------------------------------------------------------------------------------------------------
Commitments (See note 17)
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 47,515,760 in 1999 and 47,502,510 in 1998 475 475
- ------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 16,841 16,812
- ------------------------------------------------------------------------------------------------------------------
Treasury stock, 1,102,500 shares in 1999 and 1998 (8,881) (8,881)
- ------------------------------------------------------------------------------------------------------------------
Retained earnings 69,775 54,204
- ------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (986) (1,001)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 77,224 61,609
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 164,082 $ 178,406
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
Consolidated Statements of Cash Flows
The Topps Company, Inc. and Subsidiaries
(In thousands of dollars)
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 15,571 $ (4,572) (10,943)
- -------------------------------------------------------------------------------------------------------------------------
Add (subtract) non-cash items included in income:
- -------------------------------------------------------------------------------------------------------------------------
Plant closure reserve - - 30,000
- -------------------------------------------------------------------------------------------------------------------------
Impairment loss - - 1,350
- -------------------------------------------------------------------------------------------------------------------------
Gain on sale of property, plant and equipment (3,209) (1,317) -
- -------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 4,871 4,374 5,245
- -------------------------------------------------------------------------------------------------------------------------
Deferred taxes on income (271) 7,182 (11,705)
- -------------------------------------------------------------------------------------------------------------------------
Net effect of changes in:
- -------------------------------------------------------------------------------------------------------------------------
Receivables 20,609 10,049 (16,419)
- -------------------------------------------------------------------------------------------------------------------------
Inventories 392 2,568 8,707
- -------------------------------------------------------------------------------------------------------------------------
Income tax receivable 6,560 (3,928) 107
- -------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets (1,039) 5,188 2,256
- -------------------------------------------------------------------------------------------------------------------------
Payables and other current liabilities (14,637) (19,710) 3,319
- -------------------------------------------------------------------------------------------------------------------------
Other 675 104 790
- -------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by operating activities 29,522 (62) 12,707
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from disposition of property, plant and equipment 5,770 4,315 -
- -------------------------------------------------------------------------------------------------------------------------
Additions to property, plant and equipment (579) (1,776) (1,074)
- -------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by investing activities 5,191 2,539 (1,074)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowing - 6,000 -
- ------------------------------------------------------------------------------------------------------------------------
Reduction of debt (15,167) (10,000) (9,350)
- -------------------------------------------------------------------------------------------------------------------------
Exercise of employee stock options 29 - -
- -------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock - (523) (2,238)
- -------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by financing activities (15,138) (4,523) (11,588)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 19,575 (2,046) 45
- -------------------------------------------------------------------------------------------------------------------------
Cash at beginning of year 22,153 24,199 24,154
- -------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 41,728 $ 22,153 $ 24,199
- -------------------------------------------------------------------------------------------------------------------------
Interest paid $ 2,237 $ 3,260 $ 2,605
- -------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 7,423 $ 3,354 $ 7,811
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
Consolidated Statements of Stockholders'
Equity and Comprehensive Income
The Topps Company, Inc. and Subsidiaries
(In thousands of dollars)
<TABLE>
<CAPTION>
Additional Other
Common Paid-in Treasury Retained Comprehensive
Total Stock Capital Stock Earnings Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 2, 1996 $ 81,8850 $ 475 $ 16,812 $ (6,120) $ 69,719 $ 964
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
Net income (loss) (10,943) (10,943)
- ------------------------------------------------------------------------------------------------------------------------------------
Translation adjustment (727) - - - - (727)
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum pension liability
adjustment 110 - - - - 110
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) (11,560) - - - (10,943) (617)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (2,238) - - (2,238) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 1, 1997 68,052 475 16,812 (8,358) 58,776 347
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
Net income (loss) (4,572) - - - (4,572) -
- ------------------------------------------------------------------------------------------------------------------------------------
Translation adjustment (1,348) - - - - (1,348)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (lo (5,920) - - - (4,572) (1,348)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (523) - - (523) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1998 61,609 475 16,812 (8,881) 54,204 (1,001)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 15,571 - - - 15,571 -
- ------------------------------------------------------------------------------------------------------------------------------------
Translation adjustment 15 - - - - 15
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 15,586 - - - 15,571 15
- ------------------------------------------------------------------------------------------------------------------------------------
Exercise of employee stock
options 29 - 29 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at February 27, 1999 $ 77,224 $ 475 $ 16,841 $ (8,881) $ 69,775 $ (986)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiaries. All intercompany items and
transactions have been eliminated in consolidation.
The Company and its subsidiaries have fiscal years which end on the Saturday
closest to the end of February. Financial results for the fiscal year ended
February 28, 1998, reflect a change in Topps Europe's fiscal year end to
coincide with the parent company's and include thirteen months of Topps Europe's
operations.
Foreign Currency Translation: The financial statements of subsidiaries outside
the United States, except those subsidiaries located in highly inflationary
economies, are generally measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
rates of exchange as of the balance sheet date. The resultant translation
adjustments are included in accumulated other comprehensive income. Income and
expense items are translated at the average exchange rate for the month. Gains
and losses from foreign currency transactions of these subsidiaries are included
in net income (loss). For subsidiaries operating in highly inflationary
economies, the financial statements are measured using the U.S. dollar as the
functional currency. Gains and losses from balance sheet translation adjustments
are also included in net income (loss).
Derivative Financial Instruments: Derivative financial instruments are used for
hedging purposes by the Company in the management of its interest rate and
foreign currency exposures. The Company does not hold or issue derivative
financial instruments for trading purposes.
Accounting Changes: During 1998, the FASB approved Statement of Position No.
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5") which
requires that costs previously capitalized as start-up costs be expensed as
incurred. SOP No. 98-5 became effective for fiscal years beginning after
December 15, 1998, with earlier application encouraged. During 1998, the FASB
also issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" and SFAS No. 134, "Accounting for Mortgage-Backed Securities."
Management does not expect the adoption of SOP 98-5 or SFAS No. 134 to have a
material effect, if any, on the financial condition or results of operations of
the Company and has not yet determined the effect, if any, of SFAS No. 133 on
the financial condition, results of operations or additional disclosures of the
Company.
Cash Equivalents: The Company considers investments in highly liquid debt
instruments with a maturity of three months or less to be cash equivalents.
Inventories: Inventories are stated at lower of cost or market. Cost is
determined on the first-in, first-out basis.
Property, Plant and Equipment ("PP&E"): PP&E is stated at cost. Depreciation is
computed using the straight-line method. Estimated useful lives used in
computing depreciation are twenty-five years for buildings, five to twelve years
for machinery and equipment and the remaining lease period for leasehold
improvements. In accordance with SFAS No. 121, the Company periodically
evaluates the carrying value of its PP&E for circumstances which may indicate
impairment.
Intangible Assets: Intangible assets include trademarks, the value of sports,
entertainment and proprietary product rights and goodwill (the excess of the
purchase price over the estimated fair value of identifiable net assets
acquired). Amortization is by the straight-line method over estimated lives of
up to forty years. Management evaluates the recoverability of intangible assets
under the provisions of SFAS No. 121, based on undiscounted projections of
future cash flows attributable to the individual assets.
Net Sales: Sales are recorded upon shipment of products. Sales made on a
returnable basis are recorded net of a provision for estimated returns. These
estimates are revised, as necessary, to reflect actual experience and market
conditions.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reporting of assets and liabilities as of the dates
of the financial statements and revenues and expenses during the reporting
period. These estimates primarily relate to the provision for sales returns,
allowance for doubtful accounts, inventory obsolescence, restructuring costs and
asset valuations. Actual results could differ from these estimates.
Reclassifications: Certain items in the prior years' financial statements have
been reclassified to conform with the current year's presentation.
15
<PAGE>
NOTE 2 - NON-RECURRING ITEMS
Fiscal 1999's income from operations includes $3,479,000 of non-recurring income
from the sale of the Company's manufacturing facility in Cork, Ireland and the
sale of equipment related to plants in Cork, Ireland and Duryea, Pennsylvania.
Fiscal 1998 results include a net non-recurring charge of $3,682,000. This
charge consists of $3,407,000 related to headcount reductions in the United
States and Europe, $1,518,000 related to the closure of the Cork, Ireland
manufacturing facility and $1,004,000 of other costs. The 1998 net charge also
includes a $2,247,000 benefit from the reversal of the plant closure reserve set
up in fiscal 1997.
During the third quarter of fiscal 1997, the Company announced that it would
discontinue operations at its Duryea, Pennsylvania factory following the
expiration of a labor agreement in December 1996. This resulted in the severance
of both union and non-union employees and the outsourcing of all production
activities previously performed at that location.
As a result of the closing, the Company recorded a charge of $30,000,000 before
applicable income tax effects. The charge consisted of approximately $16,100,000
in non-cash write-offs relating to the disposition of factory and related
equipment and approximately $13,900,000 relating to severance and other
employee-related costs, costs to hold and sell the factory and other costs of
the closure.
During the third quarter of fiscal 1997, the Company recorded an impairment
reserve of $1,350,000 in accordance with SFAS No. 121 with respect to its
factory in Cork, Ireland.
Excluding these items in all years, net income (loss) from operations would have
been $13,326,000 or $0.29 per share in fiscal 1999, $(2,288,000) or $(0.05) per
share in fiscal 1998 and $9,493,000 or $.20 per share in fiscal 1997.
NOTE 3 - EARNINGS PER SHARE
In the fourth quarter of fiscal 1998, the Company adopted the provisions of SFAS
No. 128, "Earnings Per Share." In accordance with SFAS No. 128, basic EPS is
computed using weighted average shares outstanding, while diluted EPS is
computed using weighted average shares outstanding plus shares representing
stock distributable under stock-based plans computed using the treasury stock
method. Because fiscal years ended 1998 and 1997 reflect losses, both basic and
diluted EPS for these years were calculated using the weighted average shares
outstanding.
The following table represents the computation of weighted average shares
outstanding - diluted:
<TABLE>
<CAPTION>
Year ended
- -----------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- -----------------------------------------------------------------
Weighted average
shares outstanding:
<S> <C> <C> <C>
Basic 46,414,960 46,421,301 46,928,369
- -----------------------------------------------------------------
Effect of dilutive
stock options 263,142 12,363 -
- -----------------------------------------------------------------
Diluted 46,678,102 46,433,664 46,928,369
- -----------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NOTE 4 - INVENTORIES
February February
27, 1999 28, 1998
- -----------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Raw materials $ 2,097 $ 1,794
- -----------------------------------------------------------
Work in process 1,020 1,619
- -----------------------------------------------------------
Finished products 13,104 13,200
- -----------------------------------------------------------
Total $ 16,221 $ 16,613
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOTE 5 - PROPERTY, PLANT
AND EQUIPMENT, NET
February February
27, 1999 28, 1998
- -----------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Land $ 42 $ 200
- -----------------------------------------------------------
Buildings and improvements 2,030 3,718
- -----------------------------------------------------------
Machinery and equipment 10,973 10,633
- -----------------------------------------------------------
Total PP&E 13,045 14,551
- -----------------------------------------------------------
Accumulated depreciation (5,616) (4,403)
- -----------------------------------------------------------
Net $ 7,429 $ 10,148
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOTE 6 - INTANGIBLE ASSETS
February February
27, 1999 28, 1998
- ------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Value of sports,
entertainment and
proprietary products $ 36,635 $ 36,635
- ------------------------------------------------------------
Goodwill 64,265 64,265
- ------------------------------------------------------------
Less: accumulated
amortization (40,693) (38,075)
- ------------------------------------------------------------
Net $ 60,207 $ 62,825
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOTE 7 - ACCRUED EXPENSES
AND OTHER LIABILITIES
February February
27, 1999 28, 1998
- ------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Royalties $ 3,852 $ 12,351
- ------------------------------------------------------------
Employee compensation 4,613 346
- ------------------------------------------------------------
Provision for estimated
losses on sales returns 12,629 19,258
- ------------------------------------------------------------
Plant closure, severance and
other non-recurring items 762 3,260
- ------------------------------------------------------------
Payments received
in advance 5,741 4,608
- ------------------------------------------------------------
Other 10,454 8,499
- ------------------------------------------------------------
Total $ 38,051 $ 48,322
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOTE 8 - DEPRECIATION AND AMORTIZATION
Year Ended
- --------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- --------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Depreciation expense $ 1,464 $ 1,099 $ 2,402
- --------------------------------------------------------------
Amortization of
intangible assets 2,618 2,618 2,649
- --------------------------------------------------------------
Amortization - other 789 657 194
- --------------------------------------------------------------
Total $ 4,871 $ 4,374 $ 5,245
- --------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NOTE 9 - LONG-TERM DEBT
February February
27, 1999 28, 1998
- ------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Term loan $ 15,783 $ 24,950
- ------------------------------------------------------------
Less: current portion (10,625) (8,333)
- ------------------------------------------------------------
Revolver outstanding - 6,000
- ------------------------------------------------------------
Total $ 5,158 $ 22,617
- ------------------------------------------------------------
</TABLE>
The scheduled repayment of the term loan is as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal year: (In thousands of dollars)
- ------------------------------------------------------------
2000 $ 10,625
- ------------------------------------------------------------
2001 5,158
- ------------------------------------------------------------
Total $ 15,783
- ------------------------------------------------------------
</TABLE>
In May 1998, the Company entered into a credit agreement with Chase Manhattan
Bank. The credit agreement provided for a $24,950,000 term loan payable in
monthly installments and a $9,450,000 facility to cover letter of credit and
working capital needs. The letter of credit and working capital facility has
since been increased to $12,450,000. The facility expires on July 6, 2000.
Amounts outstanding under the credit agreement are secured by a pledge of the
Company's domestic trademarks and 65% of the stock of Topps Europe. Interest
rates on the term loan and outstanding revolving credit balance are based on
LIBOR plus an applicable margin of 2.25%, or prime. Beginning 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. The credit
agreement contains certain 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 acquisition of treasury stock. As of February 27, 1999, the
Company had outstanding $15,783,000 on the term loan and $4,475,000 in letters
of credit.
NOTE 10 - INCOME TAXES
U.S. and foreign operations contributed to income before provision (benefit) for
income taxes as follows:
<TABLE>
<CAPTION>
Year Ended
- -------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- -------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
United States $21,984 $ 4,083 $(21,622)
- -------------------------------------------------------------
Europe 2,424 (5,368) 5,492
- -------------------------------------------------------------
Canada 1,868 737 241
- -------------------------------------------------------------
Latin America (72) (3,057) (528)
- -------------------------------------------------------------
Total income (loss)
before provision
(benefit) for
income taxes $26,204 $ (3,605) $(16,417)
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Provision (benefit) for income taxes consists of:
Year Ended
- ------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- ------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Current income taxes:
Federal $ 6,655 $ (4,657) $ 1,484
- ------------------------------------------------------------
Foreign 2,250 (679) 3,501
- ------------------------------------------------------------
State and local 2,032 (293) 299
- ------------------------------------------------------------
Total current 10,937 (5,629) 5,284
- ------------------------------------------------------------
Deferred income taxes:
Federal (79) 5,890 (9,289)
- ------------------------------------------------------------
State and local (225) 706 (1,469)
- ------------------------------------------------------------
Total deferred (304) 6,596 (10,758)
- ------------------------------------------------------------
Total provision
(benefit) for
income taxes $ 10,633 $ 967 $ (5,474)
- ------------------------------------------------------------
</TABLE>
18
<PAGE>
The reasons for the difference between the provision (benefit) for income taxes
and the amount computed by applying the statutory federal income tax rate to
income (loss) before provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended
- -----------------------------------------------------------
February February March
7, 1999 28, 1998 1, 1997
- -----------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Computed expected tax
provision (benefit) $ 9,171 $ (1,262) $ (5,746)
- -----------------------------------------------------------
Increase (decrease) in
taxes resulting from:
State and local taxes,
net of federal tax
benefit 1,175 586 (668)
- -----------------------------------------------------------
Foreign and U.S. tax
effects attributable to
foreign operations (578) 1,113 212
- -----------------------------------------------------------
Goodwill 549 549 549
- -----------------------------------------------------------
Other permanent
differences 316 (19) 179
- -----------------------------------------------------------
Provision (benefit)
for income taxes $ 10,633 $ 967 $ (5,474)
- -----------------------------------------------------------
</TABLE>
Deferred U.S. income taxes have not been provided on undistributed earnings of
foreign subsidiaries as the Company considers such earnings to be permanently
reinvested in the businesses as of February 27, 1999. Deferred taxes previously
provided on such earnings have been reversed in the current year. These
undistributed foreign earnings could become subject to U.S. income tax if
remitted, or deemed remitted, as a dividend. Determination of the deferred U.S.
income tax liability on these unremitted earnings is not practical, since such
liability, if any, is dependent on circumstances existing at the time of the
remittance. The cumulative amount of unremitted earnings from the foreign
subsidiaries that is expected to be permanently reinvested was approximately
$4.6 million on February 27, 1999.
The components of deferred income tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
Year Ended
- ----------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- ----------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Deferred income
tax assets:
Provision for
inventory
obsolescence $ 1,232 $ - $ -
- ----------------------------------------------------------
Provision for
estimated losses
on sales returns 110 2,792 3,489
- ----------------------------------------------------------
Total deferred
income tax
assets $ 1,342 $ 2,792 $ 3,489
- ----------------------------------------------------------
Deferred income
tax liabilities:
Depreciation $ 224 $ 627 $ 814
- ----------------------------------------------------------
Undistributed
earnings - foreign
subsidiaries - 1,422 1,184
- ----------------------------------------------------------
Other 657 (256) (2,123)
- ----------------------------------------------------------
Amortization 4,233 4,756 4,465
- ----------------------------------------------------------
Non-recurring
items 29 315 (3,961)
- ----------------------------------------------------------
Total deferred
income tax
liabilities $ 5,143 $ 6,864 $ 379
- ----------------------------------------------------------
</TABLE>
19
<PAGE>
NOTE 11 - EMPLOYEE BENEFIT PLANS
The FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," in February 1998. This new standard does not change
the measurement or recognition of costs for pensions or other postretirement
plans. It standardizes disclosures and eliminates those that are no longer
useful. The information provided below for fiscal 1999, 1998 and 1997 has been
presented under the requirements of the new standard.
The Company maintains noncontributory qualified and non-qualified defined
benefit pensions as well as a postretirement healthcare plan for all eligible
non-bargaining unit personnel.
The Company is also a participant in a multi-employer defined contribution
pension plan covering domestic bargaining unit employees.
In addition, the Company sponsors a defined contribution plan, which qualifies
under Sections 401(a) and 401(k) of the Internal Revenue Code (the "401(k)
Plan").While all non-bargaining unit employees are eligible to participate in
the 401(k) Plan, participation is optional. The Company does not contribute to
the 401(k) Plan.
Pension expense for all plans was $883,000 (1999), $914,000 (1998) and
$1,922,000 (1997).
The following tables summarize benefit costs, as well as the benefit
obligations, plan assets and funded status associated with the Company's pension
and postretirement healthcare benefit plans.
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Healthcare Benefits
- ---------------------------------------------------------------------------------------------------------------------------
February February February February
27, 1999 28, 1998 27, 1999 28, 1998
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Reconciliation of change in benefit obligation
Benefit obligation at beginning of year $ 20,839 $ 19,624 $ 6,239 $ 7,351
- ---------------------------------------------------------------------------------------------------------------------------
Service cost 692 654 216 362
- ---------------------------------------------------------------------------------------------------------------------------
Interest cost 1,513 1,480 443 579
- ---------------------------------------------------------------------------------------------------------------------------
Benefits paid (1,847) (2,115) (317) (232)
- ---------------------------------------------------------------------------------------------------------------------------
Actuarial (gains) losses 515 1,196 - (1,821)
- ---------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 21,712 $ 20,839 $ 6,581 $ 6,239
- ---------------------------------------------------------------------------------------------------------------------------
Reconciliation of change in the fair value
of plan assets
Fair value of plan assets at beginning of year $ 14,738 $ 15,442 $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------
Actual return on plan assets 2,053 1,295 - -
- ---------------------------------------------------------------------------------------------------------------------------
Employer contributions 67 115 317 232
- ---------------------------------------------------------------------------------------------------------------------------
Benefits paid (1,847) (2,114) (317) (232)
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 15,011 $ 14,738 $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Healthcare Benefits
- ---------------------------------------------------------------------------------------------------------------------------
February February February February
27, 1999 28, 1998 27, 1999 28, 1998
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Funded status
Funded status $ (6,701) $ (6,101) $ (6,581) $ (6,239)
- ---------------------------------------------------------------------------------------------------------------------------
Unrecognized actuarial (gains) losses 3,600 3,840 (771) (782)
- ---------------------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost (143) (158) - -
- ---------------------------------------------------------------------------------------------------------------------------
Unrecognized initial transition obligation 612 809 3,437 3,658
- ---------------------------------------------------------------------------------------------------------------------------
Net amount recognized in the
consolidated balance sheets $ (2,632) $ (1,610) $ (3,915) $ (3,363)
- ---------------------------------------------------------------------------------------------------------------------------
Components of amounts recognized
in the consolidated balance sheets
Prepaid benefit cost $ 908 $ 1,380 $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------
Accrued benefit liability (3,557) (3,063) (3,915) (3,363)
- ---------------------------------------------------------------------------------------------------------------------------
Intangible asset 17 73 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net amount recognized in the
consolidated balance sheets $ (2,632) $ (1,610) $ (3,915) $ (3,363)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Postretirement
Pension Benefits Healthcare Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
February February March February February March
27, 1999 28, 1998 1, 1997 27, 1999 28, 1998 1, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 692 $ 654 $ 720 $ 216 $ 362 $ 122
- ------------------------------------------------------------------------------------------------------------------------------------
Expected return on
plan assets (1,430) (1,355) (1,165) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of
initial transition obligation 196 56 56 221 221 221
- ------------------------------------------------------------------------------------------------------------------------------------
Prior service cost (15) (15) (16) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Actuarial (gains) losses 132 (10) 117 (11) 18 38
- ------------------------------------------------------------------------------------------------------------------------------------
Curtailment (gains) losses - - (14) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 1,088 $ 810 $ 1,150 $ 869 $ 1,180 $ 920
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
The non-qualified pension plan has accumulated benefit obligations in excess of
plan assets. Information is as follows:
Pension Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
February February
27, 1999 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Projected benefit obligation $ 4,462 $ 3,639
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 3,557 3,063
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
The weighted-average actuarial assumptions used for both pension plans are as
follows:
- ---------------------------------------------------------------------------------------------------------------------------
February February
27, 1999 28, 1998
- ---------------------------------------------------------------------------------------------------------------------------
Discount rate 7.0% 7.0%
- ---------------------------------------------------------------------------------------------------------------------------
Expected return on plan assets 9.0% 9.0%
- ---------------------------------------------------------------------------------------------------------------------------
Rate of compensation increase 5.0% 5.0%
- ---------------------------------------------------------------------------------------------------------------------------
Assumptions for healthcare cost increases are as follows: 9.0% in fiscal 1998;
8.5% in fiscal 1999; trending down to a 5.5% increase in fiscal 2005. Increases
in healthcare costs could significantly affect the reported postretirement
benefits cost and benefit obligations. A one percentage point change in assumed
healthcare benefit cost trends would have the following effect:
- ---------------------------------------------------------------------------------------------------------------------------
1-Percentage Point
Increase Decrease
- ---------------------------------------------------------------------------------------------------------------------------
On total service and interest cost component $ 110 $ (93)
- ---------------------------------------------------------------------------------------------------------------------------
On postretirement benefit obligation (APBO) $ 831 $ (738)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
NOTE 12 - STOCK OPTION PLANS
The Company has Stock Options Plans that provide for the granting of
non-qualified stock options, incentive stock options and stock appreciation
rights (SARs) to employees, non-employee directors and consultants within the
meaning of Section 422A of the Internal Revenue Code. Options granted generally
vest over two or three years and expire ten years after the grant date.
The following table summarizes information about the Plans.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
February 27, 1999 February 28, 1998 March 1, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,604,000 $6.22 3,352,250 $7.90 3,241,750 $8.16
- ------------------------------------------------------------------------------------------------------------------------------------
Granted 527,500 $3.21 1,427,250 $2.47 188,000 $4.16
- ------------------------------------------------------------------------------------------------------------------------------------
Exercised (13,250) $2.22 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Forfeited (255,750) $7.39 (1,175,500) $6.48 (77,500) $9.47
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,862,500 $5.72 3,604,000 $6.22 3,352,250 $7.90
- ------------------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 2,490,365 $7.03 1,811,241 $8.90 2,441,266 $8.40
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year $1.62 $1.43 $2.28
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Summarized information about stock options outstanding and exercisable at
February 27, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Outstanding Weighted-Average Average Exercisable Average
as of Remaining Exercise as of Exercise
Exercise Price Ranges 2/27/99 Contractual Life Price 2/27/99 Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.50 - $3.00 1,227,750 8.4 $2.28 539,625 $2.22
- ------------------------------------------------------------------------------------------------------------------------------------
$3.01 - $6.00 1,240,000 7.4 $4.07 655,990 $4.80
- ------------------------------------------------------------------------------------------------------------------------------------
$6.01 - $12.00 1,063,250 3.7 $8.62 963,250 $8.40
- ------------------------------------------------------------------------------------------------------------------------------------
$12.01 - $18.00 331,500 1.5 $15.28 331,500 $15.28
- ------------------------------------------------------------------------------------------------------------------------------------
3,862,500 6.2 $5.72 2,490,365 $7.03
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Effective March 3, 1996, the Company adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by this statement, the
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method. Accordingly, no compensation expense has been recognized
in the Company's Consolidated Statements of Operations for its stock-based
compensation plans. Had compensation costs been determined based on the fair
value of the 1999, 1998 and 1997 stock option grants consistent with the method
of SFAS No. 123,"Accounting for Stock-Based Compensation," the Company's net
income and net income per common share assuming dilution would have been reduced
to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except share data)
As reported Pro forma As reported Pro forma As reported Pro forma
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 15,571 $ 15,537 $ (4,572) $ (4,881) $ (10,943) $ (11,637)
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share $ 0.34 $ 0.33 $ (0.10) $ (0.11) $ (0.23) $ (0.25)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
In determining the preceding pro forma amounts under SFAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk free interest rate of
6.7%; expected life of six years; estimated volatility of 52%; no dividend
yield.
NOTE 13 - CAPITAL STOCK
The Company has a Shareholder Rights Plan which entitles stockholders, in
certain circumstances, to purchase one one-hundredth of a share of the Company's
Series A Junior Participating Preferred Stock at an exercise price of $62 for
each share of Common Stock owned. The Shareholder Rights Plan is intended to
protect the interests of the Company's stockholders in the event the Company is
confronted with coercive or unfair takeover tactics.
NOTE 14 - SEGMENT AND GEOGRAPHIC INFORMATION
Following is the breakdown of industry segments as required by SFAS No. 131. The
Company has three reportable business segments: Collectible Sports Products,
Entertainment Products and Confectionery.
The Collectible Sports Products segment primarily consists of trading cards
featuring players from Major League Baseball, the National Basketball
Association, the National Football League and the National Hockey League as well
as sticker/album products featuring players from certain European soccer
leagues.
The Entertainment Products segment consists of trading cards, sticker/album
products, comics and magazines featuring licenses from popular films, television
shows and other entertainment properties.
The Confectionery segment consists of a variety of lollipop products including
Ring Pop, Push Pop, Baby Bottle Pop and Flip Pop, the Bazooka bubble gum line
and other novelty confectionery products.
24
<PAGE>
The Company's management evaluates the performance of each segment based upon
its contributed margin, which is profit after cost of goods, product
development, advertising and promotional costs and obsolescence, but before
allocation of general and administrative expenses, depreciation and
amortization, other income/expense, non-recurring items, interest and income
taxes.
The Company does not allocate assets among its business segments and therefore
does not include a breakdown of assets or depreciation and amortization by
segment.
<TABLE>
<CAPTION>
Year Ended
- ----------------------------------------------------------------------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Net Sales
Collectible Sports Products $ 124,855 $ 140,588 $ 144,015
- ----------------------------------------------------------------------------------------------------------------------------
Entertainment Products 9,321 16,137 34,917
- ----------------------------------------------------------------------------------------------------------------------------
Confectionery 95,238 84,525 90,043
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 229,414 $ 241,250 $ 268,975
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Contributed Margin
Collectible Sports Products $ 48,306 $ 41,842 $ 49,600
- ----------------------------------------------------------------------------------------------------------------------------
Entertainment Products 1,563 (1,806) 2,200
- ----------------------------------------------------------------------------------------------------------------------------
Confectionery 25,729 15,902 28,907
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 75,598 $ 55,938 $ 80,707
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Reconciliation of contributed margin to income (loss)
before provision (benefit) for income taxes
Total contributed margin $ 75,598 $ 55,938 $ 80,707
- ----------------------------------------------------------------------------------------------------------------------------
General & administrative expenses (48,224) (50,292) (61,315)
- ----------------------------------------------------------------------------------------------------------------------------
Depreciation & amortization (4,871) (4,374) (5,245)
- ----------------------------------------------------------------------------------------------------------------------------
Other income/expense 676 390 2,728
- ----------------------------------------------------------------------------------------------------------------------------
Non-recurring items 3,479 (3,682) (31,350)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 26,658 (2,020) (14,475)
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense, net 454 1,585 1,942
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit) for income taxes $ 26,204 $ (3,605) $ (16,417)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Net sales to unaffiliated customers and income from operations, as presented
below, are based on the location of the ultimate customer. Income from
operations is defined as contributed margin less general and administrative
expenses, depreciation and amortization, other income/expense and non-recurring
items. Identifiable assets, as presented below, are those assets located in each
geographic area.
<TABLE>
<CAPTION>
Year Ended
- -----------------------------------------------------------------------------------------------------------------------------
February February March
27, 1999 28, 1998 1, 1997
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Net Sales
United States $ 156,913 $ 157,208 $ 178,883
- -----------------------------------------------------------------------------------------------------------------------------
Europe 45,537 64,599 77,955
- -----------------------------------------------------------------------------------------------------------------------------
Other 26,964 19,443 12,137
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 229,414 $ 241,250 $ 268,975
- -----------------------------------------------------------------------------------------------------------------------------
Income from Operations
United States $ 22,536 $ 5,566 $ (19,204)
- -----------------------------------------------------------------------------------------------------------------------------
Europe 1,623 (6,215) 5,187
- -----------------------------------------------------------------------------------------------------------------------------
Other 2,499 (1,371) (458)
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 26,658 $ (2,020) $ (14,475)
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable Assets
United States $ 127,186 $ 126,498 $ 140,643
- -----------------------------------------------------------------------------------------------------------------------------
Europe 29,732 43,972 55,630
- -----------------------------------------------------------------------------------------------------------------------------
Other 7,164 7,936 4,905
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 164,082 $ 178,406 $ 201,178
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." These estimates have been determined by
the Company using available market information and appropriate valuation
techniques based on information as of February 27, 1999. As considerable
judgment is inherent in the development of these estimates, they are not
necessarily indicative of the amounts that the Company would realize in the
current market exchange.
The recorded amounts and fair values are as follows:
<TABLE>
<CAPTION>
February 27, 1999 February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------
Recorded Fair Recorded Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Assets:
Cash and equivalents $ 41,728 $ 41,728 $ 22,153 $ 22,153
- ------------------------------------------------------------------------------------------------------------------------
Prepaid expenses 4,860 4,860 3,821 3,821
- ------------------------------------------------------------------------------------------------------------------------
Liabilities:
Current portion of long-term debt 10,625 10,625 8,333 8,333
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt 5,158 5,158 22,617 22,617
- ------------------------------------------------------------------------------------------------------------------------
Foreign currency forward contracts - (313) - 1,959
- ------------------------------------------------------------------------------------------------------------------------
Interest rate swap contracts $ - $ (29) $ - $ (16)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 16 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 53,327 $ 57,868 $ 67,647 $ 50,572 $ 60,177 $ 55,118 $ 54,173 $ 71,782
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit on sales 21,679 25,305 26,545 21,262 22,463 17,625 11,649 27,972
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 5,094 8,668 7,197 5,699 2,011 (2,934) (10,005) 8,908
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 2,696 4,813 4,134 3,928 822 (1,763) (8,538) 4,907
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share -
basic $ 0.06 $ 0.10 $ 0.09 $ 0.08 $ 0.02 $ (0.04) $ (0.18) $ 0.11
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share -
basic without non-recurring $ 0.05 $ 0.06 $ 0.09 $ 0.09 $ 0.02 $ (0.04) $ (0.16) $ 0.13
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
NOTE 17 - COMMITMENTS AND OTHER MATTERS
Future minimum payments under non-cancelable leases which extend into the year
2010 are $1,570,000 (2000), $1,605,000 (2001), $1,555,000 (2002), $1,464,000
(2003), $1,419,000 (2004) and $7,035,000 thereafter.
Future minimum payments required under the Company's existing sports contracts,
with various expiration dates extending into the year 2002 are estimated to be
$15,595,000 (2000), $14,340,000 (2001) and $3,000,000 (2002).
Total royalty expense under the Company's sports and entertainment licensing
contracts was $24,373,000 (1999), $33,662,000 (1998) and $37,960,000 (1997).
Advertising expenses included in selling, general and administrative expenses
amounted to $11,584,000 (1999), $13,240,000 (1998) and $13,573,000 (1997).
The Company transacts business in many countries, utilizing many different
currencies. It is thus exposed to the effect of exchange rate fluctuations on
sales and purchase transactions. The Company enters into both foreign currency
forward contracts and options on currency forward contracts to manage these
exposures and to minimize the effects of foreign currency transactions on cash
flow. Such contracts are entered into primarily to hedge against future
commitments. The Company does not engage in foreign currency speculation. Gains
and losses on these hedging instruments that are designated and effective as
hedges of firm commitments are deferred and recognized in income in the same
period as the hedge transaction. The Company may be exposed to credit losses in
the event of non-performance by counterparties to these instruments. Management
believes, however, the risk of incurring such losses is remote as the contracts
are entered into with major financial institutions.
At February 27, 1999, the Company had outstanding foreign currency forward sales
and purchase contracts with banks in the amounts of $4,809,000 and $16,146,000,
respectively, as compared to $8,238,000 and $13,161,000, as of February 28,
1998.
These contracts have various maturity dates ranging up to twelve months from
February 27, 1999, with over 64% of the contracts maturing within six months.
The recognition of net losses, which amounted to $474,000 using spot rates as of
year end, is deferred until the hedged transaction is recorded into operations.
In addition, the Company also had options to purchase foreign currencies
outstanding in the amount of $1,658,000 as of February 27, 1999.
Legal proceedings:
In August 1996, the Company was named a defendant in a class action in the
United States District Court for the Eastern District of New York (the "New York
Court") entitled Sullivan, et. al. v. The Topps Company, Inc. No. CV 96 3779
(E.D.N.Y.) (the "Action"). The Action alleged, among other things, that the
Company violated the federal Racketeer Influenced and Corrupt Organizations Act
by its practice of selling sports and entertainment cards with randomly-inserted
"insert" cards, in violation of state and federal anti-gambling statutes. During
the last two and a half years, each of the Company's principal competitors, and
principal licensors, were separately sued in various federal courts for
employing, or participating in, the same or similar practices. The Action sought
treble damages and attorneys' fees on behalf of all purchasers of packs of cards
potentially including "insert" cards over a four-year period. The New York Court
granted the Company's motion to dismiss the Action with prejudice in August
1997. The New York Court later denied motions by plaintiffs to alter, amend or
vacate the judgment, and for leave to file an amended complaint. Plaintiffs'
time to appeal all of these rulings has expired, and the judgment for the
Company dismissing the Action is now final and nonappealable.
In September 1998, the Company filed an action in the New York Court seeking
declaratory and injunctive relief against a class of all original end-use
purchasers of trading cards marketed within the four years prior to the filing
of the complaint in packages that may contain randomly-inserted "insert" cards,
entitled The Topps Company, Inc. v. Sullivan et al., No.l CV 98 6023 (EHN)
(E.D.N.Y.) (the"Declaratory Judgment Action"). The Declaratory Judgment Action
28
<PAGE>
seeks a declaratory judgment that the defendant class of card purchasers did not
suffer any injury cognizable under RICO by this practice, and an injunction
enjoining the defendant class from filing or pursuing any further RICO actions
against the Company relating to the purchase of trading cards. Two similar
declaratory judgment actions have been filed by several of the Company's
principal licensors in the New York Court against the same class of defendants.
On December 14, 1998, defendants in all of the declaratory judgment actions
moved to dismiss the complaints, and the New York Court heard oral argument on
the motion on February 26, 1999. A decision in these motions has not yet been
rendered.
In November 1998, the Company was named defendant in a purported class action
commenced in the United States District Court for the Southern District of
California (the "California Court") entitled Rodriquez et al. v. The Topps
Company, Inc., No. CV 2121-B (AJB) (S.D. Cal.) (the "Class Action"). The Class
Action alleged that the Company violated RICO, and the California Unfair
Business Practices Act, by its practice of selling sports and entertainment
trading cards with randomly-inserted "insert" cards, allegedly in violation of
state and federal anti-gambling laws. The Class Action seeks treble damages and
attorneys' fees on behalf of all individuals who purchased packs of cards at
least in part to obtain an "insert" card over a four-year period. On January 22,
1999, plaintiffs moved to consolidate the Class Action with similar class
actions pending against several of the Company's principal competitors and
principal licensors in the California Court. The Company has opposed this
motion. On January 25, 1999, the Company moved to dismiss the complaint, or,
alternatively, to transfer the Class Action to the Eastern District of New York
or, stay the Class Action pending the outcome of the Declatory Judgment Action
pending in the Eastern District of New York. By orders dated May 14, 1999, the
California Court denied Topps' motions to dismiss the complaint or transfer the
Class Action to the Eastern District of New York but granted Topps' motion to
stay the Class Action pending the outcome of the Declatory Judgment Action. The
California Court also denied plaintiffs' motion to consolidate the Class Action
with similar purported class actions. An unfavorable outcome in the Class Action
could have a material adverse effect on the Company's future plans and results.
The Company is a defendant in several other civil actions which are routine and
incidental to its business. In management's opinion, after consultation with
legal counsel, these actions will not have a material adverse effect on the
Company's financial condition or results of operations.
29
<PAGE>
Report of Independent Public Accountants
Board of Directors and Stockholders
The Topps Company, Inc.:
We have audited the accompanying consolidated balance sheets of The Topps
Company, Inc. and Subsidiaries as of February 27, 1999 and February 28, 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended February 27, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Topps Company, Inc. and Subsidiaries as
of February 27, 1999 and February 28, 1998 and the results of their operations
and cash flows for each of the three years in the period ended February 27, 1999
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
April 2, 1999
30
<PAGE>
Market and Dividend Information
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol TOPP. The following table sets forth, for the periods indicated, the high
and low sales price for the Common Stock during the last two fiscal years as
reported on the Nasdaq National Market. As of April 21, 1999, there were
approximately 4,959 holders of record.
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended
February 27, 1999 February 28, 1998
- ----------------------------------------------------------------------------------------------------------------------
High Price Low Price High Price Low Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $ 3.500 $ 2.375 $ 4.313 $ 3.438
- ----------------------------------------------------------------------------------------------------------------------
Second quarter 3.500 2.125 4.188 3.250
- ----------------------------------------------------------------------------------------------------------------------
Third quarter 5.500 2.125 3.563 2.375
- ----------------------------------------------------------------------------------------------------------------------
Fourth quarter $ 5.563 $ 4.125 $ 3.000 $ 1.500
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's credit agreement prohibits the payment of dividends. See
"Managementt's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Notes to Consolidated
Financial Statements - Note 9."
31
<PAGE>
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $ 229,414 $ 241,250 $ 268,975 $ 265,495 $ 265,386
- ------------------------------------------------------------------------------------------------------------------------
Gross profit on sales 94,791 79,709 90,121 82,005 83,217
- ------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative
expenses 72,288 78,437 75,974 68,563 59,250
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 26,658 (2,020) (14,475) 16,571 26,924
- ------------------------------------------------------------------------------------------------------------------------
Interest income (expense), net (454) (1,585) (1,942) (1,447) 461
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) 15,571 (4,572) (10,943) 8,394 15,747
- ------------------------------------------------------------------------------------------------------------------------
Per share - basic:
Income (loss) from operations 0.57 (0.04) (0.31) 0.35 0.57
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) 0.34 (0.10) (0.23) 0.18 0.33
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends $ - $ - $ - $ - $ 0.21
- ------------------------------------------------------------------------------------------------------------------------
Wtd. avg. shares outstanding - basic 46,414,960 46,421,301 46,928,369 47,047,251 47,039,287
- ------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and equivalents $ 41,728 $ 22,153 $ 24,199 $ 24,154 $ 17,785
- ------------------------------------------------------------------------------------------------------------------------
Working capital 24,919 20,971 18,716 31,278 30,917
- ------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 7,429 10,148 12,900 31,610 31,964
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 5,158 22,617 27,450 37,500 -
- ------------------------------------------------------------------------------------------------------------------------
Total assets 164,082 178,406 201,178 217,127 136,324
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 77,224 $ 61,609 $ 68,052 $ 81,850 $ 73,869
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts in 1996 include the impact of Topps Europe from the date of acquisition
on July 6, 1995.
Certain items in the prior years' financial statements have been reclassified to
conform with the current year's presentation.
Income (loss) from operations includes various non-recurring items in fiscal
1999, 1998 and 1997. See Note 2.
32
<PAGE>
<TABLE>
<S> <C> <C> <C>
BOARD OF DIRECTORS
Arthur T. Shorin Wm. Brian Little Seymour P. Berger David Mauer
Chairman, Chief Executive Private Investor Business Consultant Chief Executive Officer
Officer and President Riddell Sports, Inc.
Allan A. Feder Jack H. Nusbaum Stephen D. Greenberg* Stanley Tulchin*
Independent Business Senior Partner and Chairman Private Investor Chairman
Consultant, President and Willkie Farr & Gallagher Stanley Tulchin Associates, Inc.
Chief Executive Officer,
Vitarroz Corporation
*Nominated to stand for re-election to the Company's Board of Directors at the
1999 Annual Meeting of Stockholders.
OFFICERS
Arthur T. Shorin Michael P. Clancy Leon J. Gutmann John Perillo
Chairman, Chief Executive Vice President - Assistant Treasurer and Vice President - Operations
Officer and President International, Managing Assistant Secretary
Director - Topps Ireland
Ronald L. Boyum Michael J. Drewniak Catherine K. Jessup Scott Silverstein
Vice President - Marketing Vice President - Vice President - Chief Vice President - Business
and Sales Manufacturing Financial Officer Affairs, General Counsel
Edward P. Camp Ira Friedman William G. O'Connor
Vice President, President - Vice President - Publishing Vice President -
Hobby Division and New Product Development Administration
SUBSIDIARIES
Topps Argentina S.A. Topps Canada, Inc. Topps Ireland Limited Topps Mexico LLC
Managing Director - Managing Director - Managing Director -
Juan P. Georgalos Kevin J. Crux Michael P. Clancy
Topps Brasil, Ltda. Topps Europe Limited Topps Italia SRL Topps UK Limited
Managing Director - Jeroen Managing Director - Managing Director - Managing Director -
Servaes Christopher Rodman Furio Cicogna Jeremy Charter
</TABLE>
<TABLE>
STOCKHOLDER AND OTHER INFORMATION
<S> <C> <C>
Annual Meeting Corporate Counsel Registrar and Transfer Agent
Tuesday, June 29, 1999, 10:30 A.M. Willkie Farr & Gallagher ChaseMellon Shareholder Service, LLC
Chase Manhattan Bank 787 Seventh Avenue 85 Challenger Road
270 Park Avenue New York, New York 10019 Ridgefield Park, NJ 07660
New York, New York 10017 (800) 851-9677
</TABLE>
Form 10-K -- A copy of the Company's Annual Report on Form 10-K as filed with
the Securities and Exchange Commission will be available to stockholders of
record upon written request to the Assistant Treasurer.
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF THE COMPANY
(100% WHOLLY-OWNED)
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
Topps Ireland Limited Ireland
Topps Europe Limited United Kingdom
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-17094, 33-59625, 33-26873, 33-43597 and 33-73219 of the Topps Company, Inc.
on Form S-8 of our report dated April 2, 1999 appearing in this Annual Report on
Form 10-K of The Topps Company Inc. for the year ended February 27, 1999.
DELOITTE & TOUCHE LLP
New York, New York
April 2, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000812076
<NAME> EX-27
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> other
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-27-1999
<CASH> 41,728
<SECURITIES> 0
<RECEIVABLES> 29,118
<ALLOWANCES> 1,137
<INVENTORY> 16,221
<CURRENT-ASSETS> 93,538
<PP&E> 13,045
<DEPRECIATION> 5,616
<TOTAL-ASSETS> 164,082
<CURRENT-LIABILITIES> 68,619
<BONDS> 15,783
0
0
<COMMON> 475
<OTHER-SE> 76,749
<TOTAL-LIABILITY-AND-EQUITY> 164,082
<SALES> 229,414
<TOTAL-REVENUES> 235,212
<CGS> 134,623
<TOTAL-COSTS> 206,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,161
<INTEREST-EXPENSE> 2,097
<INCOME-PRETAX> 26,204
<INCOME-TAX> 10,633
<INCOME-CONTINUING> 15,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,571
<EPS-BASIC> .34
<EPS-DILUTED> .33
</TABLE>
