UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 29, 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 11-2849283
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices, including zip code)
(212) 376-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
The number of outstanding shares of Common Stock as of July 6, 1999 was
46,465,026.
<PAGE>
THE TOPPS COMPANY, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index Page
Condensed Consolidated Balance Sheets as of
May 29, 1999 and February 27, 1999 3
Condensed Consolidated Statements of Operations
for the thirteen weeks ended May 29, 1999 and
May 30, 1998 4
Condensed Consolidated Statements of Comprehensive
Income for the thirteen weeks ended May 29, 1999 and
May 30, 1998 5
Condensed Consolidated Statements of Cash Flows
for the thirteen weeks ended May 29, 1999 and
May 30, 1998 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
The condensed consolidated financial statements for the thirteen weeks ended May
29, 1999 included herein have been reviewed by Deloitte & Touche LLP independent
public accountants, in accordance with established professional standards for
such a review. The report of Deloitte & Touche LLP is included on page 9.
2
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
May February
29, 1999 27, 1999
(amounts in thousands
except share date)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 50,439 $ 41,728
Accounts receivable - net 41,262 29,118
Inventories 14,709 16,221
Income tax receivable 213 269
Deferred tax assets 3,094 1,342
Prepaid expenses and other current assets 4,588 4,860
------- ------
TOTAL CURRENT ASSETS 114,305 93,538
------- ------
PROPERTY, PLANT, & EQUIPMENT 13,508 13,045
Less: accumulated depreciation and amortization 5,957 5,616
------ ------
NET PROPERTY, PLANT & EQUIPMENT 7,551 7,429
------ ------
INTANGIBLE ASSETS, net of accumulated
amortization of $41,348 and $40,693 59,552 60,207
OTHER ASSETS 2,904 2,908
------- -------
TOTAL ASSETS $184,312 $164,082
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,577 $ 15,022
Accrued expenses and other liabilities 48,441 38,051
Current portion of long-term debt 11,250 10,625
Income taxes payable 9,787 4,921
------ ------
TOTAL CURRENT LIABILITIES 82,055 68,619
LONG-TERM DEBT, less current portion 2,033 5,158
DEFERRED INCOME TAXES 5,053 5,143
OTHER LIABILITIES 8,209 7,938
------ ------
TOTAL LIABILITIES 97,350 86,858
------ ------
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 47,545,801 shares,
less 1,102,500 shares in Treasury Stock 475 475
Additional paid-in capital 16,906 16,841
Treasury stock, 1,102,500 shares (8,881) (8,881)
Retained earnings 79,042 69,775
Accumulated other comprehensive income (580) (986)
------ ------
TOTAL STOCKHOLDERS' EQUITY 86,962 77,224
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $184,312 $164,082
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
3
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended
May May
29, 1999 30, 1998
(amounts in thousands,
except share data)
<S> <C> <C>
Net sales $ 84,941 $ 53,327
Cost of sales 47,194 31,648
------- -------
Gross profit on sales 37,747 21,679
Royalties and other income (expense) (92) 269
------- -------
37,655 21,948
Selling, general and administrative expenses 22,077 17,894
Gain on disposition of assets - (1,040)
------ ------
Income from operations 15,578 5,094
Interest income (expense), net 129 (365)
------ -----
Income before provision for income taxes 15,707 4,729
Provision for income taxes 6,440 2,033
------ -----
Net income $ 9,267 $ 2,696
====== ======
Basic and diluted net income per share $ .20 $ .06
Weighted average shares outstanding - basic 46,426,572 46,400,010
Weighted average shares outstanding - diluted 47,175,500 46,703,879
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
</TABLE>
4
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended
May May
29, 1999 30, 1998
(amounts in thousands)
<S> <C> <C>
Net income $ 9,267 $ 2,696
Currency translation adjustment 406 582
----- -----
Comprehensive income $ 9,673 $ 3,278
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
5
<PAGE>
TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended
May May
29, 1999 30, 1999
(amounts in thousands)
<S> <C> <C>
Cash provided by operations:
Net income $ 9,267 $ 2,696
Add(subtract) non-cash items included in net income:
Depreciation and amortization 1,116 1,162
Deferred income taxes (1,841) 804
Change in assets and liabilities:
Receivables (12,143) 11,556
Inventories 1,513 2,397
Income tax receivable 56 5,518
Prepaid expenses and other current assets 268 (1,590)
Payables and other current liabilities 12,809 (11,128)
Other 648 (115)
------- ------
Cash provided by operations 11,693 11,300
Cash provided by (used by) investing activities:
Proceeds from disposition of capital equipment - 1,040
Additions to property, plant and equipment (546) (54)
------ ------
Cash provided by (used by) investing activities (546) 986
Cash used by financing activities:
Reduction of debt (2,500) (7,667)
Stock option exercises 64 -
----- ------
Cash used by financing activities (2,436) (7,667)
----- ------
Net increase in cash and cash equivalents 8,711 4,619
Cash and cash equivalents at beginning of quarter 41,728 22,153
------ ------
Cash and cash equivalents at end of quarter $50,439 $26,772
====== ======
Interest paid $ 315 $ 1,040
Income taxes paid $ 3,124 $ 76
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
6
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 29, 1999
1. Basis of Presentation
The accompanying unaudited condensed interim consolidated financial
statements have been prepared by The Topps Company, Inc. and subsidiaries
(the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments, which are, in the opinion
of management, considered necessary for a fair presentation. These
statements do not include all information required by generally accepted
accounting principles to be included in a full set of financial statements.
Operating results for the thirteen weeks ended May 29, 1999 and May 30,
1998 are not necessarily indicative of the results that may be expected for
the year ending February 26, 2000. For further information refer to the
consolidated financial statements and notes thereto in the Company's annual
report for the year ended February 27, 1999.
2. Quarterly Comparison
Management believes that quarter-to-quarter comparisons of sales and
operating results are affected by a number of factors, including the timing
of product introductions and variations in shipping and factory scheduling
requirements. Thus, annual sales and earnings amounts are unlikely to
consist of equal quarterly portions.
3. Inventories
<TABLE>
<CAPTION>
(Unaudited)
May February
29, 1999 27, 1999
(amounts in thousands)
<S> <C> <C>
Raw materials $ 1,793 $ 2,097
Work in process 677 1,020
Finished products 12,239 13,104
------ ------
Total $14,709 $16,221
====== ======
</TABLE>
4. Segment Information
Following is the breakdown of industry segments as required by SFAS No.
131. The Company has three reportable business segments: Collectible Sports
Products, Confectionery and Entertainment Products.
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 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.
7
<PAGE>
The Entertainment Products segment consists of trading cards, sticker/album
products and magazines featuring licenses from popular films, television
shows and other entertainment properties.
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
unallocated general and administrative expenses and manufacturing overhead,
depreciation and amortization, royalties and 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>
Thirteen weeks ended
May May
29, 1999 30, 1998
(In thousands of dollars)
<S> <C> <C>
Net Sales
Collectible Sports Products $ 38,815 $ 23,200
Confectionery 34,751 27,731
Entertainment Products 11,375 2,396
------- -------
Total $ 84,941 $ 53,327
======= =======
Contributed Margin
Collectible Sports Products $ 16,172 $ 9,061
Confectionery 8,680 7,818
Entertainment Products 4,964 371
------ ------
Total $ 29,816 $ 17,250
====== ======
Reconciliation of contributed margin
to income before provision for income taxes:
Total contributed margin $ 29,816 $ 17,250
Unallocated general and administrative
expenses and manufacturing overhead (13,030) (12,303)
Depreciation & amortization (1,116) (1,162)
Royalties and other income (expenses) (92) 269
Plant closure income - 1,040
------ ------
Income from operations 15,578 5,094
Interest income (expense), net 129 (365)
------ -----
Income before provision for income taxes $ 15,707 $ 4,729
====== ======
</TABLE>
8
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
The Topps Company, Inc.
We have made a review of the accompanying condensed consolidated balance sheet
of The Topps Company, Inc. and subsidiaries (the "Company") as of May 29, 1999,
and the related condensed consolidated statements of operations and cash flows
for the thirteen week periods ended May 29, 1999 and May 30, 1998, in accordance
with the standards established by the American Institute of Certified Public
Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Company as of February 27,
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented herein); and in
our report dated April 2, 1999 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of February 27, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP
June 22, 1999
New York, New York
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
First Quarter Fiscal Year 2000 versus Fiscal Year 1999
The following table sets forth, for the periods indicated, net sales by key
business segment:
<TABLE>
<CAPTION>
May 29, 1999 May 30, 1998
(In thousands of dollars)
<S> <C> <C>
Collectible sports products $ 38,815 $ 23,200
Confectionery 34,751 27,731
Entertainment products 11,375 2,396
------- -------
Total $ 84,941 $ 53,327
======= =======
</TABLE>
Net sales for the first quarter of fiscal 2000 increased 59.3% to $84.9 million
from $53.3 million for the same period last year. This was the result of
increases in each of the Company's three key business segments.
Net sales of collectible sports products, which consist of both sports cards and
sports sticker/album products, increased 67.3% to $38.8 million in the first
quarter of fiscal 2000 from $23.2 million in the comparable quarter last year.
Approximately half of this increase was the result of shipments of basketball
card products which normally would have occurred in last year's fourth quarter,
but were delayed due to the NBA lockout. Higher baseball card sales and the
Company's return to the NHL hockey market after a two-year absence also
contributed to the increase. Sales of Merlin's Premier League sticker/album
products were less this year than last.
Net sales of confectionery products increased 25.3% in the first quarter of this
year to $34.8 million from $27.7 million in fiscal 1999. This growth was the
result of the further success of products introduced last year, Baby Bottle Pop
and Flip Pop, the rollout of Bazooka Pop (the Company's new gum-filled lollipop)
and continued strength in the U.S. of Ring Pop and Push Pop. Confectionery sales
in Brazil were less for this year than last year's as a result of the currency
devaluation.
Net sales of entertainment products, which consist of entertainment cards,
magazines and sticker/album products, increased to $11.4 million in the first
quarter of fiscal 2000 from $2.4 million in fiscal 1999. This was primarily the
result of Topps release in the U.S. and Canada of trading cards and magazines
featuring the new Star Wars film "Episode I: The Phantom Menace." WCW wrestling
cards also contributed to higher sales this quarter.
Gross profit as a percentage of net sales for the first quarter of fiscal 2000
increased to 44.4% as compared with 40.7% for the same period last year. This
margin improvement was the result of several factors, including lower material
costs, a change in product mix and increased sales.
Selling, general and administrative ("SG&A") expenses decreased as a percentage
of net sales to 26.0% in the first quarter of fiscal 2000 from 33.6% a year ago
as a result of higher sales. SG&A dollar spending increased to $22.1 million
from $17.9 million due to higher advertising and marketing expenditures and the
effect of an earlier accrual in connection with the Company's annual incentive
bonus plan.
Income from operations in last year's first quarter (fiscal 1999) included a
$1.0 million gain on the sale of equipment from the Company's former
manufacturing plants in Pennsylvania and Ireland.
10
<PAGE>
Net interest income (expense) increased to $129,000 in fiscal 2000 from
$(365,000) in fiscal 1999 due to a reduction in the Company's outstanding loan
balance and an increase in cash on hand.
The effective tax rate for the first quarter of fiscal 2000 was 41.0% versus an
effective rate of 43.0% for the same period a year ago.
Net income for the first quarter of fiscal 2000 was $9.3 million, or $0.20 per
share, as compared with $2.7 million, or $0.06 per share, for the same period
last year.
Liquidity and Capital Resources
In July 1995, the Company entered into a $65 million credit agreement with a
syndicate of eight banks in order to finance the acquisition of Topps Europe,
Ltd., formerly known as Merlin Publishing, Ltd. ("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. This credit agreement is secured by a
pledge of the Company's domestic trademarks and 65% of the stock of Topps
Europe. Interest rates 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 repurchase its shares, sell or acquire assets or borrow additional money and
prohibits the payment of dividends.
As of May 29,1999, the Company had $50.4 million in cash, and $13.3 million in
debt under the term loan.
During the first quarter of fiscal 2000, the Company's net increase in cash and
cash equivalents was $8.7 million versus $4.6 million in fiscal 1999. Cash
provided by operations in the first quarter of this year was $11.7 million
versus $11.3 million last year, as higher net income and an increase in payables
and other current liabilities this year were virtually offset by the absence of
an income tax refund and an increase in receivables. Cash provided by (used by)
investing activities this quarter reflects $546,000 in capital expenditures
compared with $54,000 in capital expenditures and $1.0 million in proceeds from
equipment sales in last year's first quarter. Cash used by financing activities
reflects term loan payments of $2.5 million this quarter versus term loan and
revolver payments of $7.7 million in last year's first quarter.
Management believes that, in light of the Company's borrowing capacity, cash on
hand as of May 29, 1999 and expected cash flow from operations, the Company has
adequate means to meet its working capital, capital expenditure, interest and
principal repayment requirements for the foreseeable future.
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 the end of fiscal
1999, all of the Company's mainframe programs had been reviewed for compliance.
Where necessary, programs are being fixed, tested and put into production. The
Company is also in the process of addressing the needs of all other systems such
as personal computers, customer and vendor systems, telephone systems and other
electronic hardware.
11
<PAGE>
Year 2000 compliance costs have not significantly affected 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.
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. Among the factors that could cause the Company's actual results to
differ materially from those indicated in any such forward statements are: (i)
the failure of certain of the Company's principal products, particularly sports
cards, entertainment cards, lollipops and sticker and album collections, to
achieve expected sales levels; (ii) weakness in sales of basketball products due
to the NBA lockout; (iii) quarterly fluctuations in results; (iv) the Company's
loss of important licensing arrangements; (v) the Company's loss of important
supply arrangements with third parties; (vi) the loss of any of the Company's
key customers or distributors; (vii) further prolonged and material contractions
in the trading card industry as a whole; (viii) further declines in the sale of
U.K. Premier League sticker/album collections; (ix) excessive returns of the
Company's products; (x) an adverse outcome in the Rodriquez Action; (xi) civil
unrest, currency devaluaiton or political upheaval in certain foreign countries
in which the Company conducts business; xii) significant disruption of the
Company's operations due to Year 2000 failures; as well as other risks detailed
from time to time in the Company's reports and registration statements filed
with the Securities and Exchange Commission.
12
<PAGE>
THE TOPPS COMPANY, INC.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company took place on June 29, 1999
for the following purposes:
1. To elect two directors;
2. To ratify the appointment of auditors.
The results of the matters voted on are as follows:
<TABLE>
<CAPTION>
For Against Abstentions
<S> <C> <C> <C>
1. Election of Directors
Stephen D. Greenberg 40,496,880 108,300 0
Stanley Tulchin 40,477,544 127,636 0
2. Ratification of appointment
of auditors 40,524,553 40,784 39,843
</TABLE>
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K
None
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TOPPS COMPANY, INC.
______________________
REGISTRANT
/s/ Catherine Jessup
______________________________
Vice President-Chief Financial
Officer
July 13, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812076
<NAME> TOPPS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-26-2000
<PERIOD-END> MAY-29-1999
<CASH> 50,439
<SECURITIES> 0
<RECEIVABLES> 41,262
<ALLOWANCES> 1,250
<INVENTORY> 14,709
<CURRENT-ASSETS> 114,305
<PP&E> 13,548
<DEPRECIATION> 5,957
<TOTAL-ASSETS> 184,312
<CURRENT-LIABILITIES> 82,055
<BONDS> 10,000
0
0
<COMMON> 475
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 184,312
<SALES> 84,941
<TOTAL-REVENUES> 85,591
<CGS> 47,194
<TOTAL-COSTS> 22,271
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 87
<INTEREST-EXPENSE> 332
<INCOME-PRETAX> 15,707
<INCOME-TAX> 6,440
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,267
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
