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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 26, 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) (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 22,
2000 was approximately $387,000,000.
The number of outstanding shares of Common Stock as of May 22, 2000 was
45,373,233.
Documents incorporated by reference Part
----------------------------------- ----
Annual Report to Stockholders for the Year Ended February 26, 2000 I,II,IV
Proxy Statement for the 2000 Annual Meeting of Stockholders III
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 sports and entertainment picture
products featuring professional athletes and, from time to time, popular
television, movie and other entertainment characters. These collectible picture
products include trading cards, sticker/album collections, tatoos, comic books
and magazines. The Company also markets premium-branded lollipops such as Ring
Pop, Push Pop, and Baby Bottle Pop, Bazooka brand bubble gum and certain novelty
candy products.
The collectible sports card category in which the Company competes has
undergone a contraction over a number of years. In 1998, the industry data on
which the Company relied was discontinued, leaving a void in accurate
information regarding industry size and growth. Despite the lack of industry
data, the Company believes that the sports card industry continued to decline in
1998 due to the impact of the NBA lockout and the liquidation of one of the
Company's main competitors, Pinnacle Brands. In 1999, the Company believes that
the industry stabilized.
Topps has expanded its international presence over the last five years. In
1995, the Company acquired Merlin Publishing International Limited, a U.K.-based
marketer of licensed collectibles, primarily sticker/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. During fiscal 1996 and 1997, the Company established
subsidiaries in Canada, Mexico, Brazil and Argentina. However, in fiscal 2001,
the Company expects to convert back to exporting directly to Mexico from the
U.S. The Company has also expanded its distribution of confectionery products in
the Far East, particularly Japan. As of the end of fiscal 2000, the Company had
employees in seven countries and distributed its products in sixty countries.
================================================================================
Trademarks of The Topps Company, Inc. and Subsidiaries appearing in this report:
Baby Bottle Pop, Bazooka, Bazooka Joe, Bowman, Bowman Chrome, Bowman's Best,
Flip Pop, Garbage Pail Kids, Mars Attacks, Merlin, Popzoids, Push Pop, Ring Pop,
Topps, 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.
2
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/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 cards are
high quality, showcasing various technologies and state-of-the-art reproduction
techniques. Cards may also include value-added features such as foil stamping,
film lamination, autographs and genuine memorabilia. 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.
Sports sticker/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 sports licenses for Premier League Soccer in the U.K. as
well as soccer licenses in Italy and Denmark.
Entertainment Products
- ----------------------
The Entertainment Products segment consists of trading cards, sticker/album
products 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.: The Extra-Terrestrial, 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.
Since the acquisition of Merlin in 1995, the Company has also sold
collectible entertainment products in the form of sticker/album collections in
Europe and parts of Asia.
3
Over the years, entertainment products have experienced peaks and valleys
in terms of consumer interest. This volatility has prompted the Company to be
extremely selective in determining which entertainment licenses to pursue. In
fiscal 2000, the Company marketed only three new entertainment card and three
new sticker/album properties.
During fiscal 2000, through an agreement with Nintendo of America, the
Company obtained the rights to develop and market products including trading
cards, sticker/album products and lollipops, featuring the highly popular
Pokemon characters. The Company began distributing Pokemon cards in the U.S. and
Canada in August 1999 and will expand upon its domestic product line and
introduce product into Europe, Latin America and parts of Asia in fiscal 2001.
The Company also marketed both trading cards and sticker/album products based on
the Star Wars film, Episode I: The Phantom Menace in fiscal 2000.
The Company has contracted with Marvel Entertainment to publish trading
cards and sticker/albums (as well as confectionery products) based on their
comic book characters. The first release, X-Men trading cards, is scheduled for
the summer of 2000 in conjunction with the opening of the X-Men motion picture
in the U.S.
Over the years, the Company has also published magazines based on subjects
of interest in the entertainment field. In fiscal 2000, the Company issued a
variety of Star Wars magazines.
In the past, the Company has also 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.
The Company also markets premium quality lollipops 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), 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
for later) and Baby Bottle Pop (a miniature baby bottle filled with
fruit-flavored powder and topped with a candy nipple). Additionally, the Company
markets Flip Pop (a pop within a fun plastic container which can be flipped out,
licked, and placed back in the case for consumption later). In fiscal 2001, the
Company plans to increase its advertising support and merchandising efforts
behind Ring Pop, Push Pop and Baby Bottle Pop and will enhance Baby Bottle Pop
by adding real fruit juice to the product.
4
In fiscal 2000 the Company introduced Pokemon pops (premium lollipops with
a Bazooka gum center sold with a Pokemon sticker) and Triple Power Push Pop (a
larger Push Pop with three different flavors which can be pushed up
independently or together). In fiscal 2001, the Company plans to introduce
Pokemon Popzoids (a lollipop with a collectible Pokemon character stick) and
Pokemon Treasure Pops (a lollipop with a surprise Pokemon toy hidden inside the
handle).
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 26, 2000 (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 internal sales staff handles U.S. sports collectibles sales
and sales of confectionery products to national accounts. Confectionery sales
through other channels are handled by broker organizations. Together, the sales
force and brokers service over 80,000 retail outlets through more than 6,000
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 and specialty accounts (e.g. Blockbuster Video).
In Canada, sales of trading cards (primarily hockey and entertainment
cards) and confectionery products are handled by a direct sales force and four
regional brokers. Current distribution in Canada is to over 10,000 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, Japan and the rest of Asia, sales are primarily
through distributors.
Advertising and Promotion
- -------------------------
The Company utilizes a variety of marketing activities, including
television, radio and print advertising campaigns, sweepstakes and promotions
designed to create consumer awareness and increase retail sales of its products.
Worldwide advertising and marketing expenses (which encompass media spending,
trade spending and consumer promotions including player autograph costs)
included in selling, general, and administrative expenses amounted to
$20,813,000 in fiscal 1998, $18,974,000 in fiscal 1999, and $25,219,000 in
fiscal 2000.
5
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.
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 accounts), on confectionery
products, on magazines sold to mass merchandisers and on sales of most sticker
and album products overseas. 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 1998, 1999 and 2000 were 12.4%, 8.3% and 8.5% respectively.
PRODUCTION
In December 1996, the Company discontinued operations at its Duryea,
Pennsylvania manufacturing facility. Concurrent with the Duryea plant closure,
Bazooka gum manufacture was transferred to a single contractor in the U.S.,
Hershey Foods Corporation. At the same time, the cutting, collating and
packaging of card products previously performed at the Duryea facility were
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.
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 organizations
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
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 substrates (paperboard, plastic, foil) are 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.
Sticker/album production is subcontracted and coordinated by a single
supplier in Italy. Adhesive material and packaging is sourced and printed by
various subcontractors in Italy. The Company believes that there are other
suitable sources available to meet its requirements if the current supplier were
unable to meet the Company's needs.
6
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.
Ring Pop lollipops for sale in the U.S. are manufactured at the Company's
Scranton, Pennsylvania factory. Gum-filled pops are manufactured by a supplier
in Brazil. Ring Pop lollipops for sale in international markets as well as all
Push Pops, Baby Bottle Pops, Flip Pops, Popzoid Pops, Treasure Pops and Triple
Power Push 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.
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 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.
7
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 1998, 1999, and
2000 was $33,662,000, $24,373,000, and $43,403,000 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 and entertainment
contracts.
International Licensing Operations
- ----------------------------------
The Company 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 within their countries.
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.
8
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 December
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 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.
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 420 people in fiscal 2000.
All of the production employees at the Company's factory in Scranton,
Pennsylvania are represented by a union. Although the union agreement was due to
expire 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:
9
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. Although the Company believes
that it stabilized in 1999, the sports card industry as a whole
contracted over the past several years. 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 European Sticker/Album products. Sales of Topps
Europe's soccer 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.
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. Internet. The Company is making a significant investment in an
Internet strategy. There is no guarantee that the strategy will be
implemented or, if implemented, that it will be successful. Failure to
implement or failure to achieve expected levels of success could
materially affect the Company's future plans and results.
8. 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.
9. Legal Proceedings. See Item 3: Legal Proceedings for a discussion of
legal matters that could materially affect the Company's future plans
and results.
10
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 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, 2000 ("2000 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.
Position with the Company and business
Name experience during the past five years
---- -------------------------------------
Ronald L. Boyum Vice President Marketing and Sales and General Manager,
Confectionery of the Company since February 2000; Vice
President - Marketing and Sales of the Company since March
1995; Vice President- Marketing of the Company since April
1994. Mr. Boyum is 48 years of age.
Edward P. Camp Vice President of the Company since April 1997 and President
of the Hobby Division since October 1995. Mr. Camp held a
number of sales-related positions within the Company prior
thereto. Mr. Camp is 53 years of age.
Michael P. Clancy Vice President - International of the Company since December
1998 and Vice President since February 1995. Mr. Clancy has
been Managing Director - Topps Ireland since July 1990 and
was Joint Managing Director - Topps Europe Ltd. from January
1997 to December 1998. Mr. Clancy is 45 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 63 years of age.
11
Position with the Company and business
Name experience during the past five years
---- -------------------------------------
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 46 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
44 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 51 years of
age.
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 43
years of age.
Scott Silverstein Executive Vice President of the Company since February 2000.
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 Chairman of the Board, Chief Executive Officer and
President. Mr. Silverstein is 38 years of age.
12
ITEM 2. PROPERTIES
The location and general description of the principal properties owned or
leased by the Company are as follows:
Owned or Leased;
Area/Facility If Leased,
Location Type of Facility Square Footage Expiration Year
Duryea, Pennsylvania ................. Office and warehouse 60,000 Leased; 2003
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 ........ Office and warehouse 10,000 Leased; 2014
The Company also leases offices in Canada, Brazil, Argentina and Italy. The
Company believes that its active facilities are in good repair and are suitable
for its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In August 1996, the Company was named as 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
("RICO") Act by its practice of selling sports and entertainment cards with
randomly-inserted "insert" cards, in violation of state and federal
anti-gambling statutes. Each of the Company's principal competitors and
principal licensors was 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 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
13
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. The New York Court denied all of these motions
in an order entered on March 17, 2000.
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 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. A hearing on the issue is scheduled for early June 2000 in the
California Court. An adverse outcome in the Class Action could materially effect
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
14
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.
15
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 2000 Proxy
Statement and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item appears in the 2000 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 2000 Proxy Statement and
is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item appears in the 2000 Proxy Statement and
is hereby incorporated by reference.
16
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 19.
(3) Listing of Exhibits
See index on pages 20-22.
(b) Reports on Form 8-K
None
17
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 15, 2000
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 15th day of May 2000 by the following persons on
behalf of the Registrant and in the capacities indicated.
/Arthur T. Shorin/ /Catherine K. Jessup/
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)
/Allan A. Feder/ /David M. Mauer/
Allan A. Feder David M. Mauer
Director Director
/Stephen D. Greenberg/ /Jack H. Nusbaum/
Stephen D. Greenberg Jack H. Nusbaum
Director Director
/Ann Kirschner/ /Richard Tarlow/
Ann Kirschner Richard Tarlow
Director Director
/Wm. Brian Little/ /Stanley Tulchin/
Wm. Brian Little Stanley Tulchin
Director Director
18
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 February 28,
1998, February 27, 1999 and February 26, 2000.
Consolidated Balance Sheets-- February 27, 1999 and February 26, 2000.
Consolidated Statements of Cash Flows -- Years Ended February 28,
1998, February 27, 1999 and February 26, 2000.
Consolidated Statements of Stockholders' Equity -- Years Ended
February 28, 1998, February 27, 1999 and February 26, 2000.
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
February 28, 1998, February 27, 1999 and February 26, 2000............. 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.
19
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).
20
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).
21
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.(Incorporated by reference to the Company's Annual
Report on Form 10-K for the Fiscal Year ended February 27, 1999).
10.25 Pokemon Merchandise License Agreement - U.S. between the Company and
Nintendo of America, Inc., dated April 16, 1999. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 28, 1999).
10.26 Pokemon Merchanside License Agreement - U.K. between the Company and
Nintendo of America, Inc., dated June 4, 1999. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 28, 1999).
13 Annual Report (Except for those portions specifically incorporated by
reference, the 2000 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
22
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 26, 2000 and February 27, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended February 26, 2000, and have issued
our report thereon dated March 30, 2000; such consolidated financial statements
and report are included in your 2000 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
March 30, 2000
S-1
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
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 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
======== ======== ========= ========
============================================================================================================
Year Ended February 26, 2000:
Amortization of Sports,
Entertainment and
Proprietary Products ...... $ 30,671 $ 1,898 $ 32,568
Amortization of Other
Intangible Assets ......... $ 10,023 $ 721 $ 10,744
-------- -------- --------
$ 40,693 $ 2,618 $ 43,312
======== ======== ========
Allowance for Estimated Losses
on Sales Returns ........... $ 12,629 $ 35,550 $(24,558)(a) $ 23,621
======== ======== ========= ========
Allowance for Doubtful Accounts $ 1,137 $ 470 $ (192) $ 1,415
======== ======== ========= ========
Inventory Valuation Adjustment $ 5,297 $ 8,411 $ (5,840)(b) $ 7,868
======== ======== ========= ========
============================================================================================================
a) Returns charged against provision, net of recoveries
b) Disposals, net of recoveries
S2