UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended August 30, 2003
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 _.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act). Yes X No _.
The number of outstanding shares of Common Stock as of October 3, 2003 was
40,529,951.
THE TOPPS COMPANY, INC.
AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Index Page
Condensed Consolidated Balance Sheets
as of August 30, 2003 and March 1, 2003 3
Condensed Consolidated Statements of Operations
for the thirteen and twenty-six week period ended
August 30, 2003 and August 31, 2002 4
Condensed Consolidated Statements of Comprehensive
Income for the thirteen and twenty-six week period
ended August 30, 2003 and August 31, 2002 5
Condensed Consolidated Statements of Cash Flows
for the twenty-six weeks ended August 30, 2003
and August 31, 2002 6
Notes to Condensed Consolidated Financial Statements 7
Report of Independent Public Accountants 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 16
ITEM 3. DISCLOSURES ABOUT MARKET RISK 21
ITEM 4. CONTROLS AND PROCEDURES 22
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
2
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 30, March 1,
2003 2003
---------- --------
(amounts in thousands,
except share data)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 93,172 $114,259
Accounts receivable - net ......................... 21,861 25,205
Inventories ....................................... 34,528 28,681
Income tax receivable ............................. 782 2,029
Deferred tax assets ............................... 3,185 3,267
Prepaid expenses and other current assets ......... 11,076 10,302
------- -------
TOTAL CURRENT ASSETS ............................ 164,604 183,743
------- -------
PROPERTY, PLANT & EQUIPMENT .......................... 30,569 28,941
Less: accumulated depreciation and amortization .. 16,227 14,335
------- -------
NET PROPERTY, PLANT & EQUIPMENT ................. 14,342 14,606
------- -------
GOODWILL ............................................. 67,420 48,839
INTANGIBLE ASSETS, net of accumulated amortization ... 11,756 6,041
OTHER ASSETS ......................................... 10,718 8,399
-------- --------
TOTAL ASSETS ................................. $268,840 $261,628
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable .................................. $ 8,007 $ 9,074
Accrued expenses and other liabilities ............ 30,732 29,243
Income taxes payable .............................. 3,616 3,942
------- -------
TOTAL CURRENT LIABILITIES .................... 42,355 42,259
OTHER LIABILITIES .................................... 23,172 22,601
------- -------
TOTAL LIABILITIES ............................... 65,527 64,860
------- -------
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 49,244,000
shares as of August 30, 2003 and March 1, 2003 ... 492 492
Additional paid-in capital ......................... 27,475 27,344
Treasury stock, 8,730,900 shares and 8,564,000
shares as of August 30, 2003 and March 1, 2003,
respectively ..................................... (82,510) (80,791)
Retained earnings .................................. 270,040 262,877
Accumulated other comprehensive loss,
net of income taxes .............................. (12,184) (13,154)
------- -------
TOTAL STOCKHOLDERS' EQUITY 203,313 196,768
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $268,840 $261,628
======== ========
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
3
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
August 30, August 31, August 30, August 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
(amounts in thousands, except share data)
Net sales ................................... $ 72,871 $ 70,009 $148,983 $157,760
Cost of sales ............................... 43,688 44,703 91,459 99,807
------- ------- ------- -------
Gross profit on sales ................... 29,183 25,306 57,524 57,953
Other income (expense) ...................... (74) 288 324 222
------- ------- ------- -------
29,109 25,594 57,848 58,175
Selling, general and administrative expense . 21,551 19,283 45,907 41,199
------- ------- ------- -------
Income from operations .................. 7,558 6,311 11,941 16,976
Interest income, net ........................ 450 568 1,484 1,200
------- ------- ------- -------
Income before provision for income taxes .... 8,008 6,879 13,425 18,176
Provision for income taxes .................. 2,736 2,187 4,632 6,143
------- ------- ------- -------
Net income .......................... $ 5,272 $ 4,692 $ 8,793 $ 12,033
======= ======= ======= =======
Net income per share - basic ................ $ 0.13 $ 0.11 $ 0.22 $ 0.29
- diluted .............. 0.13 0.11 0.21 0.28
Weighted average shares outstanding - basic . 40,605,000 41,622,000 40,650,000 41,811,000
- diluted 41,386,000 42,466,000 41,433,000 42,717,000
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
4
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
August 30, August 31, August 30, August 31,
2003 2002 2003 2002
--------- --------- --------- ---------
(amounts in thousands)
Net income $ 5,272 $ 4,692 $ 8,793 $12,033
Currency translation adjustment (1,340) 1,466 970 2,325
------- ------- ------- -------
Comprehensive income $ 3,932 $ 6,158 $ 9,763 $14,358
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
5
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-six weeks ended
August 30, August 31,
2003 2002
---------- ---------
(amounts in thousands)
Cash flows from operating activities:
Net income ............................................... $ 8,793 $ 12,033
Add/(subtract) non-cash items included in net income:
Depreciation and amortization ......................... 2,844 2,433
Deferred income taxes ................................. 83 1,254
Change in operating assets and liabilities:
Accounts receivable ................................... 6,239 513
Inventories ........................................... (2,573) (5,442)
Income tax receivable ................................. 921 2,241
Prepaid expenses and other current assets ............. (433) 1,014
Payables and other current liabilities ................ (5,624) (5,542)
Other assets and liabilities .......................... 566 (3,626)
------- -------
Cash provided by operating activities ............... 10,816 4,878
------- -------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (27,923) --
Additions to property, plant and equipment ............... (1,063) (1,894)
-------- -------
Cash used in investing activities ................... (28,986) (1,894)
-------- -------
Cash flows from financing activities:
Dividend paid to shareholders ............................ (1,631) --
Purchase of treasury stock and exercise of stock options . (1,591) (8,098)
-------- -------
Cash used in financing activities ................... (3,222) (8,098)
-------- -------
Effect of exchange rates on cash and cash equivalents ....... 305 2,541
Net decrease in cash and cash equivalents ................... $ (21,087) $ (2,573)
========== ==========
Cash and cash equivalents at beginning of period ............ $ 114,259 $ 121,057
Cash and cash equivalents at end period ..................... $ 93,172 $ 118,484
Supplemental disclosure of cash flow information:
Interest paid ............................................. $ 70 $ 36
Income taxes paid ......................................... $ 3,718 $ 6,875
See Notes to Condensed Consolidated Financial Statements and Accountants' Review
Report.
6
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED AUGUST 30, 2003
1. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed interim
consolidated financial statements have been prepared by The Topps Company,
Inc. and its 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. Operating results for the thirteen and twenty-six
week periods ended August 30, 2003 and August 31, 2002 are not necessarily
indicative of the results that may be expected for the year. For further
information refer to the consolidated financial statements and notes
thereto in the Company's annual report for the year ended March 1, 2003.
Employee Stock Options: The Company accounts for stock-based employee
compensation based on the intrinsic value of stock options granted in
accordance with the provisions of APB 25 "Accounting for Stock Issued to
Employees." Information relating to stock-based employee compensation,
including the pro forma effects, had the Company accounted for stock-based
employee compensation based on the fair value of stock options granted in
accordance with SFAS 123 "Accounting for Stock-Based Compensation," is
shown below:
(In thousands of dollars, except per share data)
For the thirteen weeks ended
August 30, 2003 August 31, 2002
----------------------- -----------------------
As reported Pro forma As reported Pro forma
----------------------- -----------------------
Net income $ 5,272 $ 4,923 $ 4,692 $ 4,355
------------------------------------------ -----------------------
Earnings per share
basic $ 0.13 $ 0.12 $ 0.11 $ 0.10
diluted $ 0.13 $ 0.12 $ 0.11 $ 0.10
------------------------------------------ -----------------------
For the twenty-six weeks ended
August 30, 2003 August 31, 2002
----------------------- -----------------------
As reported Pro forma As reported Pro forma
----------------------- -----------------------
Net income $ 8,793 $ 8,244 $12,033 $11,358
----------------------------------------- -----------------------
Earnings per share
basic $ 0.22 $ 0.20 $ 0.29 $ 0.27
diluted $ 0.21 $ 0.20 $ 0.28 $ 0.27
------------------------------------------ -----------------------
Options typically vest over a three-year period. In determining the
preceding pro forma amounts under SFAS 123, the fair value of each option
grant is estimated as of the date of grant using the Black-Scholes
option-pricing model with the following assumptions: $0.16 per share
dividend on fiscal 2004 options, but no dividend in fiscal 2003 and fiscal
2002; risk free interest rate, estimated volatility and expected life, as
follows: fiscal 2004 options - 4.4%, 38% and 6.5 years, respectively;
fiscal 2003 options - 4.5%, 35% and 6.5 years, respectively; fiscal 2002
options - 5.7%, 59% and 6.7 years, respectively. There was no stock-based
employee compensation in any year, so no adjustment to net income is
required to the proforma effects.
7
2. Quarterly Comparison
Management believes that quarter-to-quarter comparisons of sales and
operating results are affected by a number of factors, including, but not
limited to, the timing of sports and entertainment releases, new product
introductions, seasonal products, the timing of various expenses such as
advertising and variations in shipping and factory scheduling requirements.
Thus, quarterly results may vary.
3. Accounts Receivable
(Unaudited)
August 30, March 1,
2003 2003
(amounts in thousands)
Gross receivables $ 39,634 $ 43,250
Reserve for returns (15,261) (16,443)
Reserve for discounts and bad debt (2,512) (1,602)
-------- ---------
Net $ 21,861 $ 25,205
======== ========
4. Inventories
(Unaudited)
August 30, March 1,
2003 2003
(amounts in thousands)
Raw materials $ 6,509 $ 6,162
Work in process 2,500 2,229
Finished products 25,519 20,290
-------- --------
Total net of reserves $ 34,528 $ 28,681
======== ========
5. Segment Information
Following is the breakdown of industry segments as required by SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information." The
Company has two reportable business segments: Confectionery and
Entertainment.
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 licensed confections including Pokemon and Yu-Gi-Oh! products.
The Entertainment segment primarily consists of cards and sticker album
products featuring sports and non-sports licenses. Trading cards feature
players from Major League Baseball, the National Basketball Association,
the National Football League, and the National Hockey League, as well as
characters from popular films, television shows and other entertainment
properties. Sticker album products feature players from English Premier
League, as well as characters from entertainment properties including
Pokemon and Yu-Gi-Oh! This segment also includes results from WizKids, a
marketer and distributor of strategy games acquired in July 2003.
The Company's management regularly 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), net interest and income taxes.
8
The Company does not allocate assets between its business segments and
therefore does not include a breakdown of assets or depreciation and
amortization by segment.
Thirteen weeks ended Twenty-six weeks ended
August 30, August 31, August 30, August 31,
2003 2002 2003 2002
--------- --------- --------- ---------
(amounts in thousands)
Net Sales
---------
Confectionery ............ $ 41,752 $ 42,258 $ 87,341 $ 85,350
Entertainment ............ 31,119 27,751 61,642 72,410
-------- -------- -------- --------
Total ................ $ 72,871 $ 70,009 $148,983 $157,760
======== ======== ======== ========
Contributed Margin
------------------
Confectionery ............ $ 15,471 $ 15,126 $ 29,240 $ 31,158
Entertainment ............ 10,296 7,492 17,419 19,095
-------- -------- -------- --------
Total ................ $ 25,767 $ 22,618 $ 46,659 $ 50,253
======== ======== ======== ========
Reconciliation of Contributed Margin
to Income Before Provision for Income Taxes:
- -------------------------------------------
Total contributed margin $ 25,767 $ 22,618 $ 46,659 $ 50,253
Unallocated general and
administrative expenses
and manufacturing overhead (16,570) (15,322) (32,198) (31,066)
Depreciation and amortization (1,565) (1,273) (2,844) (2,433)
Other income (expense) (74) 288 324 222
------ ------ ------ ------
Income from operations 7,558 6,311 11,941 16,976
Interest income, net 450 568 1,484 1,200
------ ------ ------ ------
Income before provision for
income taxes $ 8,008 $ 6,879 $ 13,425 $ 18,176
======== ======== ======== ========
6. Dividends
On June 26, 2003, the Board of Directors of the Company declared a
quarterly cash dividend of $0.04 per share, payable on August 1, 2003 to
shareholders of record on July 18, 2003. On October 8, 2003, the Board of
Directors of the Company declared a quarterly cash dividend of $0.04 per
share, payable on October 31, 2003 to shareholders of record on October 17,
2003.
9
7. 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 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. On
June 1, 2002, the credit agreement was amended to provide for an increase
in the number of shares of Topps common stock permitted to be repurchased,
and on October 8, 2003 the credit agreement was amended to permit the
payment of dividends.
8. Reclassifications
Effective March 3, 2002, the Company adopted the EITF Issue No. 00-14
"Accounting for Sales Incentives" which requires certain trade promotion
expenses, such as slotting fees, to be presented as a reduction in sales.
As a result, trade promotion expenses for the thirteen weeks ended August
30, 2003 and August 31, 2002 of $1,045,000 and $868,000, respectively, and
for the twenty-six weeks ended August 30, 2003 and August 31, 2002 of
$1,452,000 and $1,666,000, respectively, have been reported as a reduction
of net sales rather than as marketing expense. These changes did not impact
reported earnings in either period.
9. Goodwill and Intangible Assets
On March 3, 2002, the Company adopted SFAS 141 "Business Combinations" and
SFAS 142 "Goodwill and Other Intangible Assets" which require the Company
to prospectively cease amortization of goodwill and instead conduct
periodic tests of goodwill for impairment.
SFAS 142 prescribes an annual two-phase process for impairment testing of
goodwill. The first phase, completed this year on May 31, 2003, screens for
impairment; while the second phase (if necessary), required to be completed
by the end of the fiscal year, measures the impairment. The Company has
completed the first phase and concluded that no impairment of goodwill
exists. Therefore, completion of phase two is not necessary.
Goodwill and other intangibles were acquired in the acquisition of WizKids
in 2003 (see Note 11), in the amounts of $18,580,077 and $6,200,000,
respectively.
10
Intangible assets consisted of the following as of August 30, 2003 and
March 1, 2003:
(amounts in thousands)
August 30, 2003 ' March 1, 2003
(Unaudited) '
Gross ' Gross
Carrying Accumulated ' Carrying Accumulated
Value Amortization Net ' Value Amortization Net
----------------------------------------------------------------------
Licenses & Contracts .... $21,879 $17,032 $ 4,847 ' $21,879 $16,594 $ 5,285
Intellectual Property ... 18,784 12,702 6,082 ' 12,584 12,473 111
Software & Other ........ 2,953 2,665 288 ' 2,953 2,602 351
Min. Pension Liability .. 539 -- 539 ' 294 -- 294
------- ------- ------- ' ------- ------- -------
Total Intangibles .... $44,155 $32,399 $11,756 ' $37,710 $31,669 $ 6,041
======= ======= ======= ' ======= ======= =======
Over the next five years the Company estimates annual amortization of the
intangible assets detailed above to be as follows:
Fiscal Year Amount
----------- ------
(in thousands)
2004 $ 1,727
2005 $ 1,859
2006 $ 1,859
2007 $ 1,781
2008 $ 1,703
In addition to the amortization of intangibles listed above, reported
amortization expense, which was $894,000 for the six months ended August
30, 2003, included amortization of deferred financing fees and deferred
compensation costs.
10. Legal Proceedings
In November 2000, the Commission of the European Communities ("the
Commission") began an investigation into whether Topps Europe's
distribution arrangements for its licensed products comply with European
law ("the EU investigation"). The Commission was seeking information as to
whether Topps Europe has engaged in the prevention of parallel trade
between the member states of the European Union and/or European Economic
Area, in infringement of Article 81 of the EC Treaty and/or Article 54 of
the EEA Treaty. Topps Europe filed a response to the Commission's inquiry
on November 29, 2000, and provided further information to the Commission on
February 2, 2001, pursuant to its request. The Commission continued its
investigation by submitting new requests for documents and information in
early 2003. On June 17, 2003, the Commission took the first formal step in
the investigation and filed a Statement of Objections, therein coming to a
preliminary conclusion that Topps and its European subsidiaries infringed
Article 81 of the EC treaty during 2000. Topps and Topps Europe have each
formally responded to the Statement of Objections and a hearing in front of
the European Commission Tribunal is scheduled for October 23, 2003. If the
Commission were to levy a fine that is ultimately upheld, it could be
substantial. The maximum amount of the fine that could be levied against
Topps and Topps Europe is 10% of annual revenues.
11
On February 17, 2000, Telepresence, Inc. sued Topps and nine other
manufacturers of trading cards (the "Defendants") in the Federal District
Court for the Central District of California for infringement of U.S.
Patent No. 5,803,501 which was issued on September 8, 1998 ("the 501
Patent"). In its suit, Telepresence contended that the patent covers all
types of "relic" cards that contain an authentic piece of equipment, i.e.,
a sporting implement or jersey. Topps received an opinion of counsel that
its relic cards did not infringe the 501 Patent. After initial discovery,
on November 15, 2000 the Defendants jointly moved for summary judgement on
the grounds that the named Plaintiff (Telepresence, Inc.) did not have
standing to sue for infringement of the 501 Patent. The motion was granted
and the Telepresence litigation was dismissed with prejudice on March 28,
2001.
After the dismissal, the 501 Patent was assigned to a company called Media
Technologies, Inc. Media Technologies is under the control of the same
person (the inventor, Adrian Gluck) who orchestrated the Telepresence
action. On November 19, 2001, Media Technologies sued essentially the same
group of defendants in the same court for infringement of the 501 Patent.
On March 13, 2002, the Defendants again moved for summary judgment based on
the fact that the Telepresence action was dismissed with prejudice. That
motion was granted by the District Court on April 22, 2002. Plaintiff
(Media Technologies, Inc.) appealed on May 2, 2002. The Court of Appeals
for the Federal Circuit reversed the judgment on July 11, 2003, and the
case has been returned to Judge Stotler in the Central District of
California for trial.
Discovery in the case commenced September 29, 2003. A scheduling conference
will be held before Judge Stotler on October 20, 2003 at which time the
pretrial schedule will be decided. The parties have agreed to have an early
claim construction hearing to be followed by the filing of dispositive
motions. If the motions are denied, a trial could take place in late 2004,
depending on the court's schedule. An adverse outcome in the litigation
could result in a substantial liability for the Company.
The Company is a defendant in several other civil actions. In management's
opinion, after consultation with legal counsel, these other actions will
not have a material adverse effect on the Company's financial condition or
results of operations.
11. Acquisition of Wizkids, LLC
On July 9, 2003, the Company acquired Wizkids, LLC ("WizKids") for a cash
purchase price of approximately $29.5 million. WizKids, a designer and
marketer of collectible strategy games, is headquartered in Bellevue,
Washington, and generated net revenues in 2002 of approximately $33
million, principally in the U.S. The acquisition was accounted for using
the purchase method of accounting. The financial statements of WizKids have
been consolidated into the financial statements of the Company, subsequent
to its date of acquisition, and an 8-K/A including proforma financial
information has been filed. The allocation of the purchase price has been
reflected in the financial statements contained herein.
The total consideration payable by the Company to the WizKids' shareholders
will be comprised of $29.5 million in cash, offset by a purchase price
adjustment, if any, as defined, based on the level of WizKids working
capital at the Closing. The working capital adjustment will be the amount
by which net working capital at the Closing is greater than or less than
the required $3,700,000 benchmark level. $26,284,469 was paid at Closing to
the shareholders of WizKids based on a preliminary negative working capital
adjustment of $1,215,531. Additionally, the purchase price allocation
includes $6.2 million for trademarks for certain WizKids products which is
being amortized over a useful life of 6 years.
12
The Company entered into an employment agreement with Jordan Weisman, the
majority shareholder and founder of WizKids, for a forty-eight month period
following the Closing. As part of this employment agreement, $2 million of
the consideration paid to Mr. Weisman is being accounted for as deferred
compensation expense and is being amortized over four years. If Mr. Weisman
does not remain as a Topps employee for the full four years of the
agreement, he will be required to pay the Company the remainder of the
unamortized balance of the deferred compensation received at the date of
the acquisition. As an additional part of his employment agreement, Mr.
Weisman is entitled to additional contingent payments during the
forty-eight months subsequent to the closing equal to 2% of WizKids' annual
net revenue in excess of $35 million, assuming that certain operating
margin targets are met. In addition, Mr. Weisman was granted 165,000
options to acquire the Company's common stock, which were granted at fair
market value on the date of grant and are vested over a four-year period.
The following table sets forth the components of the purchase price:
Total consideration $29,500,000
Less: preliminary working capital adjustment (1,215,531)
deferred compensation agreement (2,000,000)
Add : Purchase of license 1,291,130
Estimated transaction costs 700,000
-----------
Total purchase price $28,275,599
===========
The following table provides the preliminary estimated fair value of the
acquired assets and liabilities assumed based upon WizKids' July 9, 2003
balance sheet:
Current assets $ 8,241,851
Property and equipment 564,743
Other assets 115,000
Liabilities assumed, current (5,426,072)
-----------
Fair value of assets acquired 3,495,522
Intangible assets 6,200,000
Goodwill 18,580,077
----------
Total estimated fair value of net
assets acquired and estimated goodwill $28,275,599
==========
The results of operations for the thirteen and twenty-six weeks ended
August 30, 2003 include revenue, income from operations and income before
income taxes of $4,932,000, $695,000 and $699,000, respectively, related to
the Wizkids acquisition.
13
12. Recently Issued Accounting Pronouncements
In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative
Financial Instruments and Hedging Activities," was issued and is effective
for contracts entered into or modified after June 30, 2003, except as
stated below and for hedging relationships designated after June 30, 2003.
The changes in this Statement improve financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly. In
particular, this Statement (1) clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a
derivative discussed in paragraph 6(b) of Statement 133, (2) clarifies when
a derivative contains a financing component, (3) amends the definition of
an underlying guarantee to conform it to language used in FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
and (4) amends certain other existing pronouncements. This Statement did
not have a material effect on the Company's consolidated results of
operations or financial position.
In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity," was issued and is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable
financial instruments of nonpublic entities. This Statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. This Statement did not
have a material effect on the Company's consolidated results of operations
or financial position.
In January of 2003, FASB Interpretation No. (FIN) 46, "Consolidation of
Variable Interest Entities and Interpretation of ARB No. 51," was issued
and applies immediately to variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains
an interest after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003 to variable interest entities in which
an enterprise holds a variable interest that it acquired before February 1,
2003. This Interpretation clarifies the application of ARB No. 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other
parties. This Statement did not have a material effect on The Company's
consolidated results of operations or financial position.
14
INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
Board of Directors and Stockholders of
The Topps Company, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of The
Topps Company, Inc. and subsidiaries (the "Company") as of August 30, 2003, and
the related condensed consolidated statements of operations and comprehensive
income for the thriteen and twenty-six week periods ended August 30, 2003 and
August 31, 2002 and of cashflows for the twenty-six weeks ended August 30, 2003
and August 31, 2002. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
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 reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of March 1, 2003, 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 4, 2003, we expressed an
unqualified opinion (and included an explanatory paragraph with respect to the
adoption of the non-amortization provisions for goodwill and other indefinite
lived intangible assets, as discussed in Note 6 to the consolidated financial
statements) on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 1, 2003 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
SIGNATURE
October 13, 2003
New York, New York
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Second Quarter Fiscal Year 2004 (thirteen weeks ended August 30, 2003) versus
Second Quarter Fiscal Year 2003 (thirteen weeks ended August 31, 2002)
- -----------------------------------------------------------------------------
The following table sets forth, for the periods indicated, net sales by key
business segment:
Thirteen weeks ended Twenty-six weeks ended
August 30, August 31, August 30, August 31,
2003 2002 2003 2002
(In thousands of dollars)
Net Sales
---------
Confectionery $ 41,752 $ 42,258 $ 87,341 $ 85,350
Entertainment 31,119 27,751 61,642 72,410
-------- -------- -------- --------
Total $ 72,871 $ 70,009 $148,983 $157,760
======== ======== ======== ========
Net sales for the second quarter of fiscal 2004 increased $2.9 million, or 4.1%,
to $72.9 million from $70.0 million for the same period last year. Stronger
foreign currencies versus the dollar increased sales by $1.6 million in this
year's second quarter.
Net sales of confectionery products, which include, among other things, Ring
Pop, Push Pop, Baby Bottle Pop, Bazooka brand bubble gum and licensed candy
products, decreased $506,000 or 1.2% in the second quarter of this year to $41.8
million from $42.3 million in fiscal 2003. Lower sales were primarily the result
of weakness domestically, particularly at warehouse club outlets. However, sales
of recently-introduced Juicy Drop Pop and Bottle Pop with Candy Juice as well as
higher sales of licensed confections helped offset the bulk of these declines.
Net sales of entertainment products, which consist of picture cards, stickers,
albums and the WizKids line of strategy games, increased $3.4 million, or 12.1%
to $31.1 million in the second quarter of fiscal 2004 from $27.8 million in the
same period last year. This increase was the result of the WizKids acquisition
which added $4.9 million in sales. Additionally, sales of non-sport publishing
products were above last year, driven by Yu-Gi-Oh! sticker albums in Europe and
the introduction of Garbage Pail Kids domestically. Sales of traditional sports
cards and Internet products decreased in the quarter versus last year.
Gross profit as a percentage of net sales of 40.0% in the second quarter of
fiscal 2004 was better than last year's 36.1% due to strong foreign exchange
rates and the introduction of higher-margin products in Europe. In addition,
second quarter gross margins benefited from a reduction in overhead costs at the
Scranton, PA manufacturing facility.
Other income (expense) was a $74,000 expense this year versus $288,000 in income
last year due to the unfavorable impact of foreign exchange rates on non-local
currency cash balances held outside the U.S.
SG&A as a percentage of net sales was 29.6% in the second quarter of fiscal 2004
versus 27.5% a year ago, and SG&A dollar spending increased to $21.6 million
from $19.3 million. The dollar increase was largely the result of the WizKids
acquisition, which added $1.4 million in overhead and $0.3 million in
amortization costs, as well as increased costs in Europe caused by stronger
currencies and higher legal costs.
Interest income, net, of $450,000 in the quarter this year was below year ago
levels due to lower interest rates and reduced cash balances following the
WizKids acquisition.
The effective tax rate reflects provisions for federal, state and local income
taxes in accordance with statutory income tax rates. The Company's tax rate was
34.2% in the second quarter this year and 31.8% last year.
Net income for the second quarter of fiscal 2004 was $5.3 million, or $0.13 per
diluted share, compared with $4.7 million, or $0.11 per diluted share last year.
16
First Half Fiscal 2004 (twenty-six weeks ended August 30, 2003) compared to
First Half Fiscal 2003 (twenty-six weeks ended August 31, 2002)
- ---------------------------------------------------------------------------
Net sales in the first half of fiscal 2004 decreased $ 8.8 million, or 5.6%, to
$149.0 million from $157.8 million for the same period last year. Stronger
foreign currencies versus the dollar served to increase sales by $4.6 million
this year.
Net sales of confectionery products increased $ 2.0 million, or 2.3%, in the
first half this year to $87.3 million from $85.4 million in fiscal 2003,
primarily as the result of the introduction of Juicy Drop Pop and Baby Bottle
Pop with Candy Juice as well as higher sales of Pokemon and Yu-Gi-Oh!
confectionery products in Europe.
Net sales of entertainment products decreased $10.8 million, or 14.9%, in the
first half of this year to $61.6 million from $72.4 million, despite the impact
of the WizKids acquisition which added $4.9 million to sales in the second
quarter. The decrease was primarily the result of lower sales of traditional
sports cards in the U.S. and the absence of products associated with World Cup
soccer in Europe.
Gross profit as a percentage of net sales for the first half of fiscal 2004
increased to 38.8% as compared with 36.7% for the same period last year. This
improvement was the result of lower royalty expense due to the reduced
percentage of entertainment versus confectionery products this year, as well as
to favorable foreign exchange rates and the introduction of higher-margin
products in Europe this year.
Other income was $324,000 this year versus $222,000 last year primarily as a
result of a shift of mark-to-market adjustments on foreign currency contracts to
revenue and cost of goods sold this year, where there is a better match with the
items being hedged, from the other income (expense) line last year.
SG&A expenses were $45.9 million for the first half of fiscal 2004 compared to
$41.2 million in 2003. The acquisition of WizKids added $1.4 million in overhead
and $0.3 million in amortization costs. In addition, stronger European
currencies, higher legal expenses, increased marketing associated with new
product introductions and media activity in the U.S. and Europe contributed to
greater costs this year.
Interest income, net, for the twenty-six week period increased to $1.5 million
in fiscal 2004 from $1.2 million in fiscal 2003 due to interest from the IRS on
a tax refund received in the first quarter of this year.
The tax rate through the twenty-six week period of fiscal 2004 was 34.5% versus
33.8% for the same period last year.
Net income in the first half of fiscal 2004 was $8.8 million, or $0.21 per
diluted share, compared with $12.0 million, or $0.28 per diluted share last
year.
17
Liquidity and Capital Resources
- -------------------------------
Management believes that the Company has adequate means to meet its liquidity
and capital resource needs over the foreseeable future as a result of the
combination of cash on hand, anticipated cash from operations and credit line
availability.
At August 30, 2003, the Company had $93.2 million in cash and cash equivalents.
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. On June 1, 2002, the credit agreement was amended
to provide for an increase in the number of shares of Topps common stock
permitted to be repurchased, and on October 8, 2003 the credit agreement was
amended to permit the payment of dividends. There was no debt outstanding as of
August 30, 2003.
In October 1999, the Board of Directors authorized the Company to purchase up to
5 million shares of its stock. In October 2001, purchases against this
authorization were completed, and the Board of Directors authorized the purchase
of up to an additional 5 million shares of stock. During the second quarter of
fiscal 2004, the Company purchased 255,600 shares at an average price per share
of $8.60. The Company has repurchased a total of 1.9 million shares under the
second authorization.
In the quarter ended August 30, 2003, the Company's net decrease in cash and
cash equivalents was $21.1 million versus a decrease of $2.6 million in the
comparable period of fiscal 2003. Cash provided by operating activities this
year was $10.8 million versus $4.9 million last year, largely due to a reduction
in receivables this year from the collection of sales of seasonal products made
on extended terms. Additionally, the first half of fiscal 2003 included pension
plan funding which was not a factor in fiscal 2004.
Cash used in investing activities of $29.0 million this year versus $1.9 million
last year, reflects the $27.9 million purchase of WizKids in the period this
year. Outside of the WizKids acquisition, the cash use in both periods reflects
the Company's capital spending.
Cash used in financing activities reflects the $1.6 million cash dividend and
$1.6 million of net treasury stock purchases this year, versus net treasury
stock purchases of $8.1 million in fiscal 2003.
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) the Company's inability to produce timely, or at
all, certain new planned confectionery products; (iii) quarterly fluctuations in
results; (iv) the Company's loss of important licensing arrangements; (v) the
failure of etopps, the Company's on-line trading card 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
18
customers or distributors; (viii) further prolonged and material contraction in
the trading card industry as a whole; (ix) excessive returns of the Company's
products; (x) civil unrest, currency devaluation, health-related issues, or
political upheaval in certain foreign countries in which the Company conducts
business; (xi) an adverse outcome in the EU investigation, and (xii) the failure
of certain new products being introduced by WizKids to achieve expected levels
of success 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.
Critical Accounting Policies
- ----------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires Topps management to
make estimates and assumptions that affect the reported amounts of revenue,
expenses, assets, liabilities and the disclosure of contingent assets and
liabilities.
On an on-going basis, Topps management evaluates its estimates and judgments,
including those related to revenue recognition, goodwill and intangible assets,
and reserves, based on historical experience and on various other factors that
are believed to be reasonable under the circumstances. Actual results may differ
from these estimates. Note 1 to the Company's Annual Report "Summary of
Significant Accounting Policies" summarizes each of its significant accounting
policies. Additionally, Topps management believes the following critical
accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements:
Revenue Recognition:
- --------------------
Revenue related to sales of the Company's products is generally recognized when
products are shipped, the title and risk of loss has passed to the customer, the
sales price is fixed or determinable and collectibility is reasonably assured.
Sales made on a returnable basis are recorded net of a provision for estimated
returns. These estimates are revised, as necessary, to reflect actual experience
and market conditions.
Intangible Assets:
- -----------------
Intangible assets include trademarks and the value of sports, entertainment and
proprietary product rights. Amortization is by the straight-line method over
estimated lives of up to twenty years. Management evaluates the recoverability
of intangible assets under the provisions of SFAS 144, using several approaches
including market multiples and undiscounted projections of future cash flows
attributable to the individual assets.
Estimates:
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires Topps management to make estimates and
assumptions which affect the reporting of assets and liabilities as of the dates
of the financial statements and revenues and expenses during the reporting
period. These estimates primarily relate to the provision for sales returns,
allowance for doubtful accounts, inventory obsolescence and asset valuations.
Actual results could differ from these estimates.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TOPPS COMPANY, INC.
-----------------------
REGISTRANT
s /Catherine Jessup/
------------------------------
Vice President-Chief Financial
Officer
October 14, 2003
20
ITEM 3. DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk associated with activities in derivative
financial instruments (e.g., hedging or currency swap agreements), other
financial instruments and derivative commodity instruments is confined to the
impact of mark-to-market changes in foreign currency rates on the Company's
forward contracts and options. The Company has no debt outstanding and does not
engage in any commodity-related derivative transactions. As of August 30, 2003,
the Company had contracts and options which were entered into for the purpose of
hedging forecasted receipts and disbursements in various foreign currencies and
which, primarily due to the weakening of the U.S. dollar, resulted in an
unfavorable mark-to-market adjustment in the quarter.
21
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this quarterly report. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act.
(b) Changes in internal controls.
There have not been any changes in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
22
PART II
ITEM 1. LEGAL PROCEEDINGS
In November 2000, the Commission of the European Communities ("the Commission")
began an investigation into whether Topps Europe's distribution arrangements for
its licensed products comply with European law ("the EU investigation"). The
Commission was seeking information as to whether Topps Europe has engaged in the
prevention of parallel trade between the member states of the European Union
and/or European Economic Area, in infringement of Article 81 of the EC Treaty
and/or Article 54 of the EEA Treaty. Topps Europe filed a response to the
Commission's inquiry on November 29, 2000, and provided further information to
the Commission on February 2, 2001, pursuant to its request. The Commission
continued its investigation by submitting new requests for documents and
information in early 2003. On June 17, 2003, the Commission took the first
formal step in the investigation and filed a Statement of Objections, therein
coming to a preliminary conclusion that Topps and its European subsidiaries
infringed Article 81 of the EC treaty during 2000. Topps and Topps Europe have
each formally responded to the Statement of Objections and a hearing in front of
the European Commission Tribunal is scheduled for October 23, 2003. If the
Commission were to levy a fine that is ultimately upheld, it could be
substantial. The maximum amount of the fine that could be levied against Topps
and Topps Europe is 10% of annual revenues.
On February 17, 2000, Telepresence, Inc. sued Topps and nine other manufacturers
of trading cards (the "Defendants") in the Federal District Court for the
Central District of California for infringement of U.S. Patent No. 5,803,501
which was issued on September 8, 1998 ("the 501 Patent"). In its suit,
Telepresence contended that the patent covers all types of "relic" cards that
contain an authentic piece of equipment, i.e., a sporting implement or jersey.
Topps received an opinion of counsel that its relic cards did not infringe the
501 Patent. After initial discovery, on November 15, 2000 the Defendants jointly
moved for summary judgement on the grounds that the named Plaintiff
(Telepresence, Inc.) did not have standing to sue for infringement of the 501
Patent. The motion was granted and the Telepresence litigation was dismissed
with prejudice on March 28, 2001.
After the dismissal, the 501 Patent was assigned to a company called Media
Technologies, Inc. Media Technologies is under the control of the same person
(the inventor, Adrian Gluck) who orchestrated the Telepresence action. On
November 19, 2001, Media Technologies sued essentially the same group of
defendants in the same court for infringement of the 501 Patent. On March 13,
2002, the Defendants again moved for summary judgment based on the fact that the
Telepresence action was dismissed with prejudice. That motion was granted by the
District Court on April 22, 2002. Plaintiff (Media Technologies, Inc.) appealed
on May 2, 2002. The Court of Appeals for the Federal Circuit reversed the
judgment on July 11, 2003, and the case has been returned to Judge Stotler in
the Central District of California for trial.
Discovery in the case commenced September 29, 2003. A scheduling conference will
be held before Judge Stotler on October 20, 2003 at which time the pretrial
schedule will be decided. The parties have agreed to have an early claim
construction hearing to be followed by the filing of dispositive motions. If the
motions are denied, a trial could take place in late 2004, depending on the
court's schedule. An adverse outcome in the litigation could result in a
substantial liability for the Company.
The Company is a defendant in several other civil actions. In management's
opinion, after consultation with legal counsel, these other actions will not
have a material adverse effect on the Company's financial condition or results
of operations.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K filed herewith:
10.1 Letter Amendment effective January 1, 2001 to the License Agreement dated
January 1, 1969 and Letter Amendments thereto between the Company and Major
League Baseball Properties, Inc. Portions have been redacted subject to an
application to the Securities Exchange Commission for confidential
treatment.
31.1 Certification of Principal Executive Officer, pursuant to Rules 13(a)-14
and 15(d)-14 under the Securities Exchange Act of 1934
31.2 Certification of Principal Financial Officer, pursuant to Rules 13(a)-14
and 15(d)-14 under the Securities Exchange Act of 1934
32.1 Certification of Arthur T. Shorin, Chief Executive Officer and President,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Catherine K. Jessup, Vice-President and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1. Form 8-K dated June 26, 2003 with press release dated June 26, 2003
reporting the Company's second quarter dividend declaration.
2. Form 8-K dated June 26, 2003 reporting the Wizkids acquisition.
3. Form 8-K dated September 10, 2003 reporting the signing of a letter of
intent to acquire certain assets of the Foreign Candy Company, Inc.
4. Form 8-K/A dated September 22, 2003 reporting the proforma information
on the Wizkids acquisition.
5. Form 8-K/A dated September 29, 2003 reporting the proforma information
on the Wizkids acquisition.
6. Form 8-K dated September 30, 2003 with press release dated September
29, 2003 reporting the Company's fiscal 2004 second quarter.
7. Form 8-K dated October 8, 2003 with press release dated October 8,
2003 reporting the Company's third quarter dividend declaration.
24
Exhibit 31.1
FORM OF CERTIFICATION REQUIRED BY RULES 13(a)-14 AND 15(d)-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Arthur T. Shorin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Topps Company,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13(a)-14 and 15(d)-14) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
Date: October 14, 2003
THE TOPPS COMPANY, INC.
-----------------------
REGISTRANT
s/Arthur T. Shorin/s
-----------------------
Chairman, Chief Executive
Officer and President
25
Exhibit 31.2
FORM OF CERTIFICATION REQUIRED BY RULES 13(a)-14 AND 15(d)-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Catherine K. Jessup, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Topps Company,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13(a)-14 and 15(d)-14) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
Date: October 14, 2003
THE TOPPS COMPANY, INC.
-----------------------
REGISTRANT
s/Catherine K. Jessup/s
------------------------------
Vice President-Chief Financial
Officer
26
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*
In connection with the Quarterly Report of The Topps Company, Inc. (the
"Company") on Form 10-Q for the period ended August 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Arthur
T. Shorin, Chairman, Chief Executive Officer and President of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
s/Arthur T. Shorin/s
-------------------------
Chairman, Chief Executive
Officer and President
October 14, 2003
* A signed original of this written statement required by Section 906, or other
documents authenticating, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
27
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*
In connection with the Quarterly Report of The Topps Company, Inc. (the
"Company") on Form 10-Q for the period ended August 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Catherine K. Jessup, Vice President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
s/Catherine K. Jessup/s
-----------------------
Vice President -
Chief Financial Officer
October 14, 2003
*A signed original of this written statement required by Section 906, or other
documents authenticating, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
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