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 November 25, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ________________.
Commission File Number: 0-15817
THE TOPPS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2849283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization ) Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices, including zip code)
(212) 376-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
The number of outstanding shares of Common Stock as of January 4, 2001 was
44,623,000.
<PAGE>
THE TOPPS COMPANY, INC.
--------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
--------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Index Page
Condensed Consolidated Balance Sheets as of
November 25, 2000 and February 26, 2000 3
Condensed Consolidated Statements of Operations
for the thirteen and thirty-nine weeks ended
November 25, 2000 and November 27, 1999 4
Condensed Consolidated Statements of Comprehensive
Income for the thirteen and thirty-nine weeks
ended November 25, 2000 and November 27, 1999 5
Condensed Consolidated Statements of Cash Flows
for the thirty-nine weeks ended November 25, 2000
and November 27, 1999 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
--------------------------------------------------------------------------------
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
The condensed consolidated financial statements for the thirteen weeks ended
November 25, 2000 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 10.
2
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
November February
25, 2000 26, 2000
-------- --------
(amounts in thousands,
except share data)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 152,858 $ 75,853
Accounts receivable - net ............................ 22,490 25,730
Inventories .......................................... 20,451 20,738
Income tax receivable ................................ 1,007 253
Deferred tax assets .................................. 3,366 5,737
Prepaid expenses and other current assets ............ 7,752 5,357
------- -------
TOTAL CURRENT ASSETS ............................. 207,924 133,668
------- -------
PROPERTY, PLANT, & EQUIPMENT ............................. 18,916 15,759
Less: accumulated depreciation and amortization ..... 7,814 6,578
------- -------
NET PROPERTY, PLANT & EQUIPMENT .................. 11,102 9,181
------- -------
INTANGIBLE ASSETS, net of accumulated
amortization of $45,275 and $43,312 as of November 25,
2000 and February 26, 2000, respectively ............. 55,625 57,588
OTHER ASSETS ............................................. 3,289 2,876
------- -------
TOTAL ASSETS ..................................... $ 277,940 $ 203,313
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable ..................................... $ 12,299 $ 18,958
Accrued expenses and other liabilities ............... 41,742 36,941
Income taxes payable ................................. 24,463 6,641
------ ------
TOTAL CURRENT LIABILITIES ........................ 78,504 62,540
DEFERRED INCOME TAXES .................................... 861 2,630
OTHER LIABILITIES ........................................ 9,727 8,968
------ ------
TOTAL LIABILITIES ................................ 89,092 74,138
------ ------
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 48,338,841 shares and
47,835,758 shares as of November 25, 2000 and
February 26, 2000, respectively .................. 483 478
Additional paid-in capital ........................... 20,319 18,498
Treasury stock, 3,741,500 shares and 2,012,500 shares
as of November 25, 2000 and February 26, 2000, ... (32,530) (16,677)
respectively
Retained earnings .................................... 208,864 128,990
Accumulated other comprehensive loss ................. (8,288) (2,114)
------- -------
TOTAL STOCKHOLDERS' EQUITY ...................... 188,848 129,175
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...... $ 277,940 $ 203,313
======= =======
</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 Thirty-nine weeks ended
November November November November
25, 2000 27, 1999 25, 2000 27, 1999
-------- -------- -------- --------
(amounts in thousands, except share data)
<S> <C> <C> <C> <C>
Net sales .................................. $ 92,700 $ 110,777 $ 378,740 $276,109
Cost of sales .............................. 45,182 52,222 184,317 142,521
------ ------- ------- -------
Gross profit on sales ................ 47,518 58,555 194,423 133,588
Other income (expense) ..................... 195 (63) 1,166 402
------ ------- ------- -------
47,713 58,492 195,589 133,990
Selling, general and administrative expenses 22,897 21,941 74,316 65,336
------ ------- ------- -------
Income from operations ................ 24,816 36,551 121,273 68,654
Interest income, net ....................... 1,613 618 3,530 970
------ ------- ------- -------
Income before provision for income taxes ... 26,429 37,169 124,803 69,624
Provision for income taxes ................. 7,548 15,239 44,929 28,546
------ ------- ------- -------
Net income ............... $ 18,881 $ 21,930 $ 79,874 $ 41,078
====== ======= ======= =======
Net income per share - basic $ 0.42 $ 0.47 $ 1.77 $ 0.88
- diluted 0.41 0.46 1.72 0.86
Weighted average shares outstanding - basic 44,796,000 46,447,000 45,228,000 46,450,000
-diluted 44,959,000 47,986,000 46,487,000 47,523,000
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
4
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended
November November November November
25, 2000 27, 1999 25, 2000 27, 1999
-------- -------- -------- --------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net income ..................... $ 18,881 $ 21,930 $ 79,874 $ 41,078
Currency translation adjustment. (3,609) (361) (6,174) (125)
-------- -------- -------- --------
Comprehensive income ........... $ 15,272 $ 21,569 $ 73,700 $ 40,953
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
5
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Thirty-nine weeks ended
November November
25, 2000 27, 1999
-------- --------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 79,874 $ 41,078
Add (subtract) non-cash items included in income:
Depreciation and amortization ............... 3,400 3,363
Deferred taxes on income .................... 602 (4,148)
Change in operating assets and liabilities:
Accounts receivables ........................ 3,240 (10,969)
Inventories ................................. 287 (737)
Income tax receivable ....................... (754) 55
Prepaid expenses and other current assets ... (2,395) (255)
Payables and other current liabilities ...... 15,964 9,282
Other ....................................... (6,029) 566
------- ------
Cash provided by operating activities 94,189 38,235
------- ------
Cash flows from investing activities:
Additions to property, plant and equipment ....... (3,157) (1,847)
------- -------
Cash used in investing activities .... (3,157) (1,847)
------- -------
Cash flows from financing activities:
Reduction of debt ............................... -- (15,783)
Exercise of stock options ....................... 1,826 823
Repurchase of common stock ...................... (15,853) (2,063)
-------- --------
Cash used in financing activities ... (14,027) (17,023)
-------- --------
Net increase in cash ................................. 77,005 19,365
Cash at beginning of year ............................ 75,853 41,728
------- ------
Cash at end of period ................................ $ 152,858 $ 61,093
======= ======
Supplemental disclosures of cash flow information:
Interest paid $ 98 $ 810
Income taxes paid $ 24,822 $30,811
</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
THIRTY-NINE WEEKS ENDED NOVEMBER 25, 2000
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 (SEC) 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 November 25, 2000 and November 27, 1999 are
not necessarily indicative of the results that may be expected for the
year ending March 3, 2001. For further information refer to the
consolidated financial statements and notes thereto in the Company's
annual report for the year ended February 26, 2000.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statments." SAB 101
summarizes certain of the SEC'S views in applying generally accepted
accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 no later than the fourth
quarter of fiscal 2001. SAB 101 is not expected to have a material
impact on the Company's financial statements.
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, Net
(Unaudited)
November February
25, 2000 26, 2000
--------- --------
(amounts in thousands)
Raw materials $ 2,929 $ 3,171
Work in Process 1,426 529
Finished products 16,096 17,038
-------- --------
Total $ 20,451 $ 20,738
======== ========
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 and Baby Bottle Pop, the Bazooka bubble
gum line and other novelty confectionery products, including Pokemon
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,
other income (expense), 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 Thrity-nine weeks ended
November November November November
25, 2000 27, 1999 25, 2000 27, 1999
-------- -------- -------- --------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Net Sales
---------
Collectible Sports Products ............ $ 36,489 $ 36,735 $ 100,070 $ 106,764
Confectionery .......................... 33,472 30,569 143,135 100,944
Entertainment Products ................. 22,739 43,473 135,535 68,401
--------- --------- --------- ---------
Total .................................. $ 92,700 $ 110,777 $ 378,740 $ 276,109
========= ========= ========= =========
Contributed Margin
------------------
Collectible Sports Products ............ $ 11,061 $ 14,940 $ 36,776 $ 42,652
Confectionery .......................... 12,913 9,382 54,616 29,999
Entertainment Products ................. 16,200 27,423 77,441 39,620
--------- --------- --------- ---------
Total .................................. $ 40,174 $ 51,745 $ 168,833 $ 112,271
========= ========= ========= =========
Reconciliation of contributed margin
to income before provision for
income taxes:
Total contributed margin ............... $ 40,174 $ 51,745 $ 168,833 $ 112,271
Unallocated general and administrative
expenses and manufacturing overhead .. (14,115) (13,993) (45,326) (40,656)
Depreciation & amortization ............ (1,438) (1,138) (3,400) (3,363)
Other income (expense) ................. 195 (63) 1,166 402
---------- --------- --------- ---------
Income from operations ................. 24,816 36,551 121,273 68,654
Interest income, net ................... 1,613 618 3,530 970
---------- --------- --------- ---------
Income before provision for income taxes $ 26,429 $ 37,169 $ 124,803 $ 69,624
========= ========= ========= =========
</TABLE>
8
<PAGE>
5. Credit Agreement
On June 26, 2000, the Company entered into a credit agreement with
Chase Manhattan Bank and LaSalle Bank National Association. The
agreement provides for a $35.0 million unsecured facility to cover
revolver and letter of credit needs and expires on June 26, 2004.
Interest rates are variable and a function of the Company's EBITDA.
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. This credit agreement may be terminated by the Company
at any point over the four-year term (provided the Company repays all
outstanding amounts thereunder) without penalty.
6. Accrued Expenses and Other Liabilities
The provision for estimated losses on sales returns, which previously
had been included in the balance of accrued expenses and other
liabilities, has been reclassified as a contra account to accounts
receivable. This presentation has been reflected on the condensed and
consolidated balance sheets as of November 25, 2000 and February 26,
2000.
9
<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 November 25,
2000, and the related condensed consolidated statements of operations and cash
flows for the thirteen and thirty-nine week periods ended November 25, 2000 and
November 27, 1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with 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 auditing standards generally accepted in the United
States of America, 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 auditing standards generally accepted in the United
States of America.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of February 26,
2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented herein); and in
our report dated March 30, 2000 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 26, 2000 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP
SIGNATURE
January 03, 2001
New York, New York
10
<PAGE>
TEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Third Quarter of Fiscal 2001 (thirteen weeks ended November 25, 2000) compared
--------------------------------------------------------------------------------
to Third Quarter of Fiscal 2000 (thirteen weeks ended November 27, 1999)
------------------------------------------------------------------------
The following table sets forth, for the periods indicated, net sales by key
business segment:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
November November November November
25, 2000 27, 1999 25, 2000 27, 1999
-------- -------- -------- --------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Net Sales
Collectible Sports Products $36,489 $ 36,735 $100,070 $106,764
Confectionery ............. 33,472 30,569 143,135 100,944
Entertainment Products .... 22,739 43,473 135,535 68,401
------- ------- -------- --------
Total ..................... $92,700 $110,777 $378,740 $276,109
======= ======== ======== ========
</TABLE>
Net sales for the third quarter of fiscal 2001 decreased 16.3% to $92.7 million
from $110.8 million for the same period last year. This year's third quarter
sales were reduced by $6.8 million as a result of foreign currencies weakening
against the dollar.
Net sales of collectible sports products, which consist of both sports cards and
sports sticker/album products, were $36.5 million versus $36.7 million in last
year's third quarter. Sales of baseball products were above the prior year as
the market responded favorably to the first in a series of products
commemorating the 50th anniversary of Topps' first baseball card. Sales of
football and European soccer products were less this year than last.
Net sales of confectionery products increased 9.5% in the third quarter of this
year to $33.5 million from $30.6 million in fiscal 2000. The sales increase was
driven by $6.8 million in Pokemon confectionery sales this year (versus $1.1
million last year) and continued strong growth of Baby Bottle Pop domestically.
Net sales of entertainment products totaled $22.7 million in the quarter,
virtually all of which came from the sale of Pokemon products in Europe.
Included in this year's sales figure was a $7.8 million reversal of the returns
provision, a function of the strong sell-through of these products. Last year,
net sales of entertainment products totaled $43.5 million, $38.1 million from
Pokemon and $5.4 million from sales of products under other licenses, primarily
Star Wars.
Gross profit as a percentage of net sales for the third quarter of fiscal 2001
decreased to 51.3% as compared with 52.9% for the same period last year. This
margin reduction was principally the result of the lower sales of high-margin
entertainment products. Margins this year were also impacted by higher product
development costs on the U.S. sports business.
Other income (expense) improved to $195,000 this year from an expense of $63,000
last year, largely due to the absense of both foreign exchange translation
losses and a VAT receivable write-off recorded last year.
Selling, general and administrative ("SG&A") expenses increased as a percentage
of net sales to 24.7% in the third quarter of fiscal 2001 from 19.8% a year ago.
This percentage increase was a function of lower sales as well as higher SG&A
than a year ago. SG&A expenses increased to $22.9 million this year from $21.9
million primarily due to greater expenditures for advertising and marketing and
the Company's investment in its Internet initiative. SG&A benefited in the
quarter this year from reduced freight costs which were a function of the lower
sales.
Net interest income increased to $1.6 million in fiscal 2001 from $618,000 in
fiscal 2000 due to the increase in cash on hand.
11
<PAGE>
The effective tax rate for the third quarter of fiscal 2001 was 28.6% versus
41.0% in the third quarter of last year. The very favorable third quarter
effective rate was the result of the catch-up effect of reducing the full year
forecast rate to 36% from a forecast rate of 38% at the time earnings were
reported last quarter. The improvement in the full year forecast rate to 36%
this year from 41% at this time last year was a function of the higher mix of
international earnings this year and the lower effective rate on those earnings
and a one-time tax benefit as a result of a refund claim filed in the third
quarter.
Net income for the third quarter of fiscal 2001 was $18.9 million, or $0.41 per
fully diluted share, as compared with $21.9 million, or $0.46 per fully diluted
share last year.
First Nine Months of Fiscal 2001 (thirty-nine weeks ended November 25, 2000)
--------------------------------------------------------------------------------
compared to First Nine Months of Fiscal 2000 (thirty-nine weeks ended November
--------------------------------------------------------------------------------
27, 1999)
---------
Net sales for the first nine months of fiscal 2001 increased 37.2% to $378.7
million from $276.1 million for the same period last year. This was the result
of increased sales of confectionery and entertainment products which more than
offset a decline in collectible sports products. Sales through the first nine
months of this year were reduced by $19.0 million as a result of foreign
currencies weakening against the dollar.
Net sales of collectible sports products decreased 6.3% in the first nine months
of fiscal 2001 to $100.1 million from $106.8 in the comparable period last year.
Sales comparisons this year versus last were affected by the NBA lockout which
resulted in an unusual quantity of basketball product being shipped in the first
quarter of fiscal 2000. Sales of European soccer sticker/album products and
hockey products were also less this year than last. Sales of football products
increased year-over-year as a result of favorable timing of releases, the
introduction of the Gallery brand and growth in other football products.
Net sales of confectionery products increased 41.8% in the first nine months of
this year to $143.1 million from $100.9 million in fiscal 2000. Included in
fiscal 2001 sales were $36.0 million of Pokemon confectionery products versus
$1.1 million in the comparable period last year. The continued growth of Baby
Bottle Pop domestically and Push Pop in Japan and the U.S. also contributed to
sales increases versus last year.
Net sales of entertainment products increased to $135.5 million in the first
nine months of fiscal 2001 from $68.4 million in fiscal 2000 due to the success
of Pokemon cards and sticker/album products in Europe. In the first nine months
of this year, sales of entertainment products excluding Pokemon were down $22.0
million, primarily due to the absence of Star Wars products sold last year.
Gross profit as a percentage of net sales for the first nine months of fiscal
2001 increased to 51.3% as compared with 48.4% for the same period last year.
This margin improvement was the result of several factors including the
increased mix of high-margin entertainment products, higher revenues, in
general, which provided for the further leverage of fixed costs and cost
improvements in the area of obsolescence.
Other income (expense) increased to $1.2 million this year from $402,000 last
year primarily as a result of the absence of foreign exchange translation losses
as well as higher levels of prompt payment discounts on European inventory
purchases.
Selling, general and administrative ("SG&A") expenses decreased as a percentage
of net sales to 19.6% in the first nine months of fiscal 2001 from 23.7% a year
ago as a result of higher sales. SG&A expenses increased to $74.3 million from
$65.3 million due to greater expenditures for advertising and marketing, the
Company's investment in its Internet initiative and earlier recognition of the
annual incentive bonus plan.
Net interest income increased to $3.5 million in fiscal 2001 from $970,000 in
fiscal 2000 due to an increase in cash on hand and the elimination of the
Company's loan balance.
The effective tax rate for the first nine months of fiscal 2001 was 36.0% versus
41.0% last year. The improvement was a function of the higher mix of
international earnings this year and the lower effective rate on those earnings
and a one-time tax benefit as a result of a refund claim filed in the third
quarter.
Net income for the first nine months of fiscal 2001 was $79.9 million, or $1.72
per fully diluted share, as compared with $41.1 million, or $0.86 per fully
diluted share last year.
12
<PAGE>
Liquidity and Capital Resources
-------------------------------
On June 26, 2000, the Company entered into a credit agreement with Chase
Manhattan Bank and LaSalle Bank National Association. The agreement provides for
a $35.0 million unsecured facility to cover revolver and letter of credit needs
and expires on June 26, 2004. Interest rates are variable and are a function of
the Company's EBITDA. 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. The credit agreement may be terminated by the Company at any point
over the four-year term (provided the Company repays all outstanding amounts
thereunder) without penalty.
In October 1999, the Board of Directors authorized the Company to repurchase up
to 5 million shares of its stock. As of November 25, 2000, the Company had
repurchased a total of 2,639,000 shares at an average price of $8.91. During the
third quarter of fiscal 2001, the Company repurchased 605,500 shares at an
average price of $8.98.
As of November 25, 2000, the Company had $152.9 million in cash and cash
equivalents.
During the first nine months of fiscal 2001, the Company's net increase in cash
and cash equivalents was $77.0 million versus $19.4 million in fiscal 2000. Cash
provided by operating activities in the first nine months of this year was $94.2
million versus $38.2 million last year due to higher net income, an increase in
payables and other current liabilities and a reduction in receivables. Cash used
in investing activities in the first nine months reflects $3.2 million in
capital expenditures this year versus $1.8 million in fiscal 2000. Cash used in
financing activities reflects the use of $15.9 million to repurchase Company
stock this year versus $2.1 million to repurchase stock and $15.8 million in
debt payments in the first nine months of last year.
Management believes that the Company has adequate means to meet its liquidity
and capital resource needs over the foreseeable future.
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/album collections, to achieve
expected sales levels; (ii) quarterly fluctuations in results; (iii) the
Company's loss of important licensing arrangements; (iv) technological,
production, legal, licensing or other problems which result in the Company's
inability to launch its Internet initiative; (v) the failure of the Company's
Internet initiative to achieve expected levels of success; (vi) the Company's
loss of important supply arrangements with third parties; (vii) the loss of any
of the Company's key customers or distributors; (viii) further prolonged and
material contraction in the trading card industry as a whole; (ix) further
declines in the sale of U.K. Premier League sticker/album collections; (x)
excessive returns of the Company's products; (xi) civil unrest, currency
devaluation or political upheaval in certain foreign countries in which the
Company conducts business; 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.
13
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
In November 1998, the Company was named as 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 alleges that the Company violated the Racketeer
Influenced and Corrupt Organizations Act ("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 licensors in the California Court. 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 Declaratory Judgment Action pending
in the Eastern District of New York. By orders dated May 14, 1999, the
California Court denied the Company's motions to dismiss or transfer the
Class Action but granted the Company's 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. On April 18, 2000, the California Court
entered an order requiring plaintiffs in the Class Action as well as in the
other purported Class Actions to show cause why all such actions should not
be dismissed. By order dated June 21, 2000, the California Court vacated
its May 14, 2000 order denying the Company's motion to dismiss the Class,
dismissed the RICO claim in the Class Action with prejudice and without
leave to replead, and dismissed the pendent state law claims without
prejudice. Plaintiffs filed a notice of appeal of the California Court's
decision to the United States Court of Appeals for the Ninth Circuit on
July 21, 2000. Briefing is under way and is expected to be completed by
February 2001, after which point the Court of Appeals will hear oral
argument on the appeal. If the Class Action were reinstated on appeal, an
adverse outcome in the Class Action could materially effect the Company's
future plans and results.
On August 21, 2000, the Company was named as a defendant in a purported
class action commenced in the Superior Court of the State of California for
the County of Alameda (the "California State Court") entitled Chaset, et
al. v. The Upper Deck Company, et al., No. 830257-9 (the "California Class
Action"). The California Class Action alleges that the Company and other
manufacturers and licensors of sports and entertainment trading cards
committed unlawful, unfair and fraudulent business acts under the
California Unfair Business Practices Act ("CUBPA") and the California
Consumer Legal Remedies Act by the practice of selling trading cards with
randomly-inserted "insert" cards allegedly in violation of state and
federal anti-gambling laws and state consumer laws. The California Class
Action asserts three claims for relief and seeks declaratory, equitable and
injunctive relief and attorneys' fees on behalf of a purported nationwide
class of trading card purchasers. Plantiff filed an amended complaint on
October 13, 2000, including an amendment to demand compensatory and
punitive damages and restitution. On December 14, 2000, plaintiff moved for
summary judgment on one of his CUBPA claims. On December 15, 2000, all
defendants filed a motion to dismiss two of the claims for failure to state
a claim upon which relief can be granted; a motion for summary judgment
dismissing the remaining claim; and a motion to strike all allegations of
fraudulent or deceptive representations and all references to plaintiff's
prayer for monetary relief.
The California State Court has stayed discovery until defendants' motions
are decided, and it has determined that plaintiff's motion for summary
judgment will be decided, if necessary, after defendants' motions are
decided. The deadline for plaintiff to file opposition papers to
defendants' motions is January 30, 2001, and briefing will be completed by
March 15, 2001. Oral argument on defendants' motions is scheduled for March
30, 2001. Plaintiffs' motion will be rescheduled after the California State
Court reaches a decision on defendants' motions. An adverse outcome in the
California Class Action could materially effect the Company's future plans
and results.
14
<PAGE>
On February 18, 2000, the Company was named as a defendant in an action
commenced in the Central District Court of California, entitled
Telepresence Technologies, LLC vs. The Topps Company Inc. The Company is
one of ten trading card manufacturers who have been sued by Telepresence
Technologies, LLC, under 35 U.S.C. Section 271, 281, et seq, for alleged
patent infringement. The action alleges that through the practice of
selling relic cards which include pieces of game-worn jerseys, the Company
has infringed U.S. Patent No. 5,803,501. The action seeks injunctive
relief, treble damages and attorneys fees. The Company has entered into a
joint defense agreement with eight of the other defendants and on April 21,
2000 filed an Answer, which was amended on September 22, 2000 to add an
affirmative defense that Telepresence Technologies, LLC lacks standing to
sue. The defendants have filed a motion for summary judgment for lack of
standing which is currently pending. An adverse outcome in this case could
materially affect the Company's future plans and results.
In all the above matters, the Company's management believes that it has
meritorious defenses and intends to vigorously defend against these claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K
None
15
<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
January 9, 2001
16
