29
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended May 29, 2004
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 12b-2 of the Act). Yes _X_ No .
The number of outstanding shares of Common Stock as of July 5, 2004 was
40,569,201.
THE TOPPS COMPANY, INC.
AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Index Page
----- ----
Condensed Consolidated Balance Sheets as of May 29, 2004
(unaudited) and February 28, 2004 2
Condensed Consolidated Statements of Operations for the
thirteen weeks ended May 29, 2004 and May 31, 2003 3
Condensed Consolidated Statements of Comprehensive Income
for the thirteen weeks ended May 29, 2004 and May 31, 2003 4
Condensed Consolidated Statements of Cash Flows for the
thirteen weeks ended May 29, 2004 and May 31, 2003 5
Notes to Condensed Consolidated Financial Statements 6
Report of Independent Registered Public Accounting Firm 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15
ITEM 3. DISCLOSURES ABOUT MARKET RISK 19
ITEM 4. CONTROLS AND PROCEDURES 20
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
1
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May February
29, 2004 28, 2004
-------- --------
(amounts in thousands,
except share data)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 96,373 $ 93,837
Accounts receivable - net .......................... 32,340 30,109
Inventories ........................................ 35,935 33,009
Income tax receivable .............................. 1,070 2,697
Deferred tax assets ................................ 1,195 1,505
Prepaid expenses and other current assets .......... 9,908 11,691
--------- ---------
TOTAL CURRENT ASSETS ......................... 176,821 172,848
PROPERTY, PLANT AND EQUIPMENT ........................ 33,096 32,349
Less: accumulated depreciation and amortization ... 19,469 18,563
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT ............ 13,627 13,786
GOODWILL ............................................. 67,565 67,586
INTANGIBLE ASSETS, net of accumulated amortization ... 10,024 10,474
OTHER ASSETS ......................................... 10,765 10,769
--------- ---------
TOTAL ASSETS ................................. $ 278,802 $ 275,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable ................................... $ 10,027 $ 10,946
Accrued expenses and other liabilities ............. 29,874 26,249
Income taxes payable ............................... 2,454 2,354
--------- ---------
TOTAL CURRENT LIABILITIES .................... 42,355 39,549
DEFERRED INCOME TAXES ................................ 1,873 1,956
OTHER LIABILITIES .................................... 22,964 22,681
--------- ---------
TOTAL LIABILITIES ............................ 67,192 64,186
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 May 29, 2004 and February 28, 2004 .... 492 492
Additional paid-in capital ......................... 27,829 27,829
Treasury stock, 8,774,000 shares and 8,632,000
shares as of May 29, 2004 and February 28, 2004,
respectively ....................................... (83,564) (82,287)
Retained earnings .................................. 273,181 270,704
Accumulated other comprehensive loss,
net of income taxes ................................ (6,328) (5,461)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ................... 211,610 211,277
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ... $ 278,802 $ 275,463
========= =========
See Notes to Condensed Consolidated Financial Statements.
2
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen weeks ended
May May
29, 2004 31, 2003
-------- --------
(amounts in thousands,
except share data)
Net sales ................................... $ 88,089 $ 75,992
Cost of sales ............................... 54,290 47,868
-------- --------
Gross profit on sales ................. 33,799 28,124
Selling, general and administrative expenses 28,593 24,343
Other income, net ........................... 433 602
-------- --------
Income from operations ................. 5,639 4,383
Interest income, net ........................ 484 1,034
-------- --------
Income before provision for income taxes .... 6,123 5,417
Provision for income taxes .................. 2,021 1,896
-------- --------
Net income ................ $ 4,102 $ 3,521
======== ========
Net income per share - basic ................ $ 0.10 $ 0.09
- diluted .............. 0.10 0.08
Weighted average shares outstanding - basic . 40,567,000 40,694,000
- diluted 41,372,000 41,480,000
See Notes to Condensed Consolidated Financial Statements.
3
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
Thirteen weeks ended
May May
29, 2004 31, 2003
-------- --------
(amounts in thousands,
except share data)
Net income ........................ $ 4,102 $ 3,521
Currency translation adjustment ... (867) 2,310
--------- --------
Comprehensive income .............. $ 3,235 $ 5,831
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen weeks ended
May May
29, 2004 31, 2003
-------- --------
(amounts in thousands)
Cash flows from operating activities:
Net income ........................................... $ 4,102 $ 3,521
Add/(subtract) non-cash items included in net income:
Depreciation and amortization ...................... 1,592 1,279
Deferred income taxes .............................. 227 (212)
Changes in operating assets and liabilities:
Accounts receivable .................................. (2,231) 137
Inventories .......................................... (2,976) (2,206)
Income tax receivable/payable ........................ 1,727 1,644
Prepaid expenses and other current assets ............ 1,783 (460)
Payables and other current liabilities ............... 2,706 (5,399)
Other assets and liabilities ......................... (176) 326
------- ---------
Cash provided by (used in) operating activities ... 6,754 (1,370)
Cash flows from investing activities:
Additions to property, plant and equipment ........... (747) (861)
------- ---------
Cash used in investing activities ................ (747) (861)
Cash flows from financing activities:
Dividends paid to stockholders ....................... (1,625) --
Purchase of treasury stock and exercise
of stock options ................................... (1,277) 245
------- ---------
Cash (used in) provided by financing activities .. (2,902) 245
Effect of exchange rates on cash and cash equivalents .. (569) 1,637
Net increase (decrease) in cash and cash equivalents ... $ 2,536 $ (349)
======== =========
Cash and cash equivalents at beginning of period ....... $ 93,837 $114,259
Cash and cash equivalents at end period ................ $ 96,373 $113,910
Supplemental disclosure of cash flow information:
Interest paid ........................................ $ 58 $ 4
Income taxes paid .................................... $ 897 $ 1,906
See Notes to Condensed Consolidated Financial Statements.
5
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 29, 2004 AND FEBRUARY 28, 2004
AND FOR THE THIRTEEN WEEKS ENDED MAY 29, 2004 AND MAY 31, 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-week periods
ended May 29, 2004 and May 31, 2003 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 February 28, 2004.
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 Accounting Principles Board ("APB")
Opinion 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:
May 29, 2004 May 31, 2003
----------------------- ------------------------
As reported Pro forma As reported Pro forma
----------------------- ------------------------
Net income, as reported $ 4,102 $ 4,102 $ 3,521 $ 3,521
Less: Stock-based
employee compensation -- --
: APB 25 expense (141) (200)
Pro forma net income ..... $ 3,961 $ 3,321
Earnings per share:
Basic ................. $ 0.10 $ 0.10 $ 0.09 $ 0.08
Diluted ............... $ 0.10 $ 0.10 $ 0.08 $ 0.08
Options have an exercise price equal to the market price on the grant date
and typically vest over a three-year period. No options were issued in the
first quarter of fiscal 2005. In determining the preceding pro forma
amounts under Statement of Financial Accounting Standards ("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 2004 options, but no dividend on fiscal 2003
options; 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.
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.
6
3. Accounts Receivable
(Unaudited)
May February
29, 2004 28, 2004
-------- --------
(amounts in thousands)
Gross receivables ............. $ 58,916 $ 52,843
Reserve for returns ........... (23,148) (19,516)
Other reserves ................ (3,428) (3,218)
-------- --------
Net receivables ............ $ 32,340 $ 30,109
======== ========
Other reserves consist of allowances for discounts, doubtful accounts and
customer deductions for promotional marketing programs.
4. Inventories
(Unaudited)
May February
29, 2004 28, 2004
-------- --------
(amounts in thousands)
Raw materials .................. $ 7,191 $ 5,571
Work in process ................ 4,454 2,824
Finished products .............. 24,290 24,614
-------- --------
Total inventories ......... $ 35,935 $ 33,009
======== ========
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 candy products including
Ring Pop, Push Pop and Baby Bottle Pop, the Bazooka bubble gum line and
confectionery products based on licensed characters, such as Pokemon and
Yu-Gi-Oh!
The Entertainment segment primarily consists of cards and sticker album
products featuring sports and non-sports subjects. 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 also feature players from the English
Premier League and characters from entertainment properties, such as
Pokemon and Yu-Gi-Oh! This segment also includes results from WizKids, a
designer and marketer of strategy games acquired in July 2003.
The Company's chief decision-maker 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.
The majority of the Company's assets are shared across both segments and,
accordingly, the Company's chief decision-maker does not evaluate the
performance of each segment utilizing asset-based measures. Therefore, the
Company does not include a breakdown of assets or depreciation and
amortization by segment.
7
Thirteen weeks ended
May May
29, 2004 31, 2003
(amounts in thousands)
Net Sales
Confectionery $ 44,207 $ 45,530
Entertainment 43,882 30,462
-------- --------
Total $ 88,089 $ 75,992
======== ========
Contributed Margin
Confectionery $ 13,002 $ 13,749
Entertainment 13,428 7,143
-------- --------
Total $ 26,430 $ 20,892
======== ========
Reconciliation of Contributed Margin
to Income Before Provision
for Income Taxes:
Total contributed margin $ 26,430 $ 20,892
Unallocated general and
administrative expense
and manufacturing overhead (19,632) (15,832)
Depreciation and amortization (1,592) (1,279)
Other income, net 433 602
--------- ---------
Income from operations 5,639 4,383
Interest income, net 484 1,034
--------- ---------
Income before provision
for income taxes $ 6,123 $ 5,417
========= =========
6. Dividend and Share Repurchase Programs
In June 2003, the Board of Directors of the Company initiated a quarterly
cash dividend of $0.04 per share
On July 1, 2004, the Board of Directors declared its Second Quarter cash
dividend of $0.04 per share, payable on August 2, 2004 to shareholders of
record on July 19, 2004.
In October 1999, the Company's Board of Directors authorized the repurchase
of up to 5 million shares of the Company's common stock. In October 2001,
the Company completed the authorization and the Board approved the purchase
of another 5 million shares. To-date under these two programs, the Company
has purchased 8,090,100 shares.
8
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 was due to expire on June 26, 2004. The credit
agreement was amended to extend the expiration date for 90 days in order to
provide the Company sufficient time to complete refinancing arrangements.
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. There was no debt outstanding as of February 28,
2004 or May 29, 2004.
8. Reclassifications
Certain items in the prior years' financial statements have been
reclassified to conform with the current year's presentation.
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.
As a result of the acquisition of WizKids in July 2003, goodwill and other
intangibles increased by $18.7 million and $6.2 million (which is included
in intellectual property), respectively (see Note 11). Intangible assets as
of May 29, 2004 and February 28, 2004 were as follows:
(amounts in thousands)
May 29, 2004 ' February 28, 2004
(Unaudited) '
Gross ' Gross
Carrying Accumulated ' Carrying Accumulated
Value Amortization Net ' Value Amortization Net
-------- ------------ -------- ' -------- ------------ --------
Licenses and Contracts ........ $ 21,569 $(17,439) $ 4,130 ' $ 21,569 $(17,272) $ 4,297
Intellectual Property ......... 18,784 (13,509) 5,275 ' 18,784 (13,251) 5,533
Software and Other ............ 2,953 (2,742) 211 ' 2,953 (2,717) 236
Min. Pension Liab ............ 408 -- 408 ' 408 -- 408
-------- --------- -------- ' -------- --------- --------
Total Intangibles ............. $ 43,714 $(33,690) $ 10,024 ' $ 43,714 $(33,240) $ 10,474
======== ========= ======== ' ======== ========= ========
Useful lives of the Company's intangible assets have been established based
on the Company's intended use of such assets and their estimated period of
future benefit, which are reviewed periodically. Useful lives are as
follows:
Weighted Average
Category Useful Life Remaining Useful Life
-------- ----------- ---------------------
Licenses and Contracts 15 years 6.2 years
Intellectual Property 6 years 5.1 years
Software and Other 5 years 2.3 years
9
The weighted average remaining useful life for the Company's intangible
assets in aggregate is 5.6 years. 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)
2005 $ 1,869
2006 $ 1,844
2007 $ 1,797
2008 $ 1,750
2009 $ 1,750
In addition to the amortization of intangibles listed above, reported
amortization expense, which was $655,000 and $321,000 for the thirteen
weeks ended May 29, 2004 and May 31, 2003, respectively, 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 past
distribution arrangements for the sale of Pokemon products complied with
European law (the "EU investigation"). On June 17, 2003, the Commission
took the first formal step in the investigation and filed a Statement of
Objections against The Topps Company, Inc. and its European subsidiaries,
therein coming to a preliminary conclusion that these entities infringed
Article 81 of the EC treaty during 2000 by preventing parallel trade
between member states of the European Union. A hearing in front of the
European Commission Tribunal took place on October 23, 2003, and on May 27,
2004, the Commission found The Topps Company, Inc. and its European
subsidiaries jointly and severally liable for infringement of Article 81(1)
of the EC treaty. The Commission imposed a total fine of 1.59 million euros
which has been included in accrued expenses in the accompanying condensed
consolidated balance sheet as of May 29, 2004 and in SG&A expenses for the
thirteen weeks ended May 29, 2004.
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 judgment 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.
10
Discovery in the case commenced September 29, 2003. On March 17, 2004,
Topps filed a motion for summary judgment based on non-infringement while
other defendants filed a motion for summary judgment based on patent
invalidity because of prior art. It is not known when a decision on either
motion will be entered. The parties have agreed to stipulate to a stay of
all discovery proceedings until August 15, 2004. It is anticipated that the
court will agree to this stipulation.
The trial is now scheduled for February 2005. An adverse outcome in the
litigation could result in a substantial liability for the Company. It is
still too early in the matter to determine the likelihood or to estimate
the range of loss, if any, and, accordingly, no provision has been recorded
for this matter in the accompanying condensed consolidated financial
statements.
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 other actions are not likely to have a material
adverse effect on the Company's consolidated financial statements.
11. Acquisition of Wizkids, LLC
On July 9, 2003, the Company acquired Wizkids, LLC ("WizKids"), a designer
and marketer of collectible strategy games, for a cash purchase price of
approximately $28.4 million. It is believed that the acquisition will serve
to enhance and accelerate the expansion of the Company's entertainment
business. The acquisition is being 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 the acquisition.
The allocation of the purchase price is reflected in the financial
statements contained herein.
The total consideration paid by the Company to WizKids' shareholders was
comprised of $29,500,000 in cash, net of a working capital adjustment of
$1,123,500. The purchase price also reflected a $1,326,130 payment to a
third party for associated licenses and legal, accounting, and investment
banking fees of $679,075. The purchase price was determined based on
discounted cash flow projections, which reflected expected synergies with
the Company.
The purchase price includes a $6.2 million allocation for intellectual
property rights associated with the WizKids product line, which is being
amortized over an estimated useful life of 6 years. There were no
contingent payments with the purchase price.
Contemporaneous with the acquisition, 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 as a shareholder is being accounted for as deferred
compensation and is being amortized over four years. If Mr. Weisman does
not remain a Topps employee for the full four years of the agreement, he
will be required to pay the Company the unamortized balance of his deferred
compensation. As an additional part of his employment agreement, Mr.
Weisman is entitled to 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 vest over a four-year period.
11
The following table sets forth the components of the purchase price:
Total consideration $ 29,500,000
Less: Working capital adjustment (1,123,500)
Deferred compensation agreement (2,000,000)
Add: Purchase of license 1,326,130
Transaction costs 679,075
-------------
Total purchase price $ 28,381,705
=============
The following table provides the fair value of the acquired assets
and liabilities assumed based upon WizKids' July 9, 2003 balance sheet:
Current assets $ 8,201,851
Property and equipment 564,743
Other assets 115,000
Liabilities assumed, current (5,426,072)
-------------
Fair value of net assets acquired 3,455,522
Intangible assets 6,200,000
Goodwill 18,726,183
------------
Total estimated fair value of net $ 28,381,705
assets acquired and estimated goodwill ============
The goodwill of $18.7 million is included in the Entertainment business
segment and is deductible for tax purposes over a fifteen-year period.
There was a $21,000 reduction in the goodwill versus what was reported
previously due to the finalization of transaction costs.
The impact of including Wizkids in the condensed consolidated statements of
operations on a pro forma basis as if the acquisition had occurred on March
3, 2002 is as follows:
(Unaudited)
Thirteen weeks ended
May 31, 2003
------------
(amounts in thousands,
except share data)
Net sales $ 84,547
Income from operations 4,173
Net income 3,402
========
Net income per share - basic $ 0.08
- diluted 0.08
12
12. Employee Benefit Plans
The components of net periodic benefit costs for the thirteen weeks ended
May 29, 2004 and May 31, 2003 are as follows:
Postretirement
Pension Healthcare
- --------------------------------------------------------------------------------
May May May May
29, 2004 31, 2003 29, 2004 31, 2003
- --------------------------------------------------------------------------------
(amounts in thousands)
Service Cos $ 345 $ 346 $ 82 $ 71
Interest cost 594 598 161 150
Expected return on plan assets (534) (363) - -
Amortization of:
Initial transition obligation ( 15) ( 13) 50 50
Prior service cost 33 33 - -
Actuarial (gains) losses 179 279 27 12
----- ----- ----- -----
Net periodic benefit cost $ 602 $ 880 $ 320 $ 283
- --------------------------------------------------------------------------------
These costs are estimates based on using actuarial assumptions for fiscal
2005, and actual costs will be adjusted accordingly during the year.
13. Recently Issued Accounting Pronouncements
In January 2004, the Financial Accounting Standards Board ("FASB") issued
FSP 106-1, which allows companies to elect a one-time deferral of the
recognition of effects of the Medicare Prescription Drug Act and
disclosures related to the postretirement healthcare plan. The FASB allows
the one-time deferral due to a lack of clarification regarding its
accounting and uncertainties regarding the effects of the Medicare
Prescription Drug Act on plan participants. For companies electing the
one-time deferral, the deferral remains in effect until guidance on the
accounting for the federal subsidy is issued, or until certain other
events, such as a plan amendment, settlement or curtailment, occur. The
Company is currently evaluating the effects of the Medicare Prescription
Drug Act on the postretirement benefit plan and its participants, and has
elected the one-time deferral. The Company's accumulated post-retirement
benefit obligation and net post-retirement benefit cost for fiscal 2004 do
not reflect the effects of the Medicare Prescription Drug Act. Once
specific guidance on the accounting for the federal subsidy is issued,
anticipated by the Company's third quarter of fiscal 2005, it could result
in a change to previously reported information.
14. Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements and,
therefore, there is no effect on its financial condition, changes in
financial condition, revenue or expenses, results of operations, liquidity,
capital expenditures or capital resources from these types of arrangements.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 May 29, 2004, and the
related condensed consolidated statements of operations, comprehensive income,
and cash flows for the thirteen week periods ended May 29, 2004 and May 31,
2003. These interim financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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 broad in scope than an audit conducted in accordance with
standards of the Public Company Accounting Oversight Board (United States), 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 interim 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 standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of February 28, 2004, and the related consolidated statements of
operations, stockholders' equity, comprehensive income, and cash flows for the
year then ended (not presented herein); and in our report dated May 4, 2004, we
expressed an unqualified opinion on those consolidated financial statements and
included an explanatory paragraph relating to the Company's change in method of
accounting for goodwill and other intangible assets to conform to Statement of
Financial Accounting Standard 142. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of February 28, 2004 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
July 8, 2004
New York, New York
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
First Quarter Fiscal Year 2005 (thirteen weeks ended May 29, 2004) versus First
Quarter Fiscal Year 2004 (thirteen weeks ended May 31, 2003)
The following table sets forth, for the periods indicated, net sales by key
business segment:
Thirteen weeks ended
May May
29, 2004 31, 2003
-------- --------
(amounts in thousands)
Net Sales
Confectionery $ 44,207 $ 45,530
Entertainment 43,882 30,462
-------- --------
Total $ 88,089 $ 75,992
======== ========
Net sales for the first quarter of fiscal 2005 were $88.1 million, an increase
of $12.1 million, or 15.9%, from $76.0 million in the same period last year.
WizKids, acquired in July 2003, contributed $5.4 million of this increase, and
stronger foreign currencies versus the dollar increased sales by another $2.8
million.
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, were $44.2 million in the first quarter of this year, a decrease of
$1.3 million, or 2.9%, from $45.5 million in fiscal 2004. Stronger foreign
currencies contributed $1.1 million. This decrease was largely the result of a
reduction in Baby Bottle Pop sales in the U.S., a function of both the
introduction of Baby Bottle Pop with Candy Juice in the first quarter of last
year, as well as somewhat diminished product vitality. In addition,
confectionery sales continued to be impacted by issues the Company believes to
be industry-wide, specifically consumer concern related to childhood obesity and
nutrition, retail consolidation and continued discounting by large chocolate
manufacturers. Partially offsetting these factors was a favorable contribution
from the further roll-out of two new Topps chewy candy brands--Juicy Bugs and
Juicy Drop Chews--and growing sales of Juicy Drop Pop.
Net sales of entertainment products, which include cards, sticker albums and the
WizKids line of strategy games, were $43.9 million in the first quarter of
fiscal 2005, an increase of $13.4 million, or 44.1%, from $30.5 million in the
same period last year. Stronger foreign currencies provided a $1.7 million
benefit. In addition to WizKids, the increase was attributable to strong sales
of sticker album collections featuring teams and players participating in the
European Championship, a soccer tournament held every four years, as well as to
higher sales of English Premier League products. Entertainment sales for the
period were also impacted by strong demand for NBA trading cards and sales of
non-sports publishing products including Barbie mini albums in Italy, Wacky
Packages in the US and a new Garbage Pail Kids sticker series.
Gross profit at 38.4% of net sales in the first quarter of fiscal 2005 was
higher than last year's 37.0%. This improvement was primarily due to an increase
in the percent of sales represented by entertainment products, which have higher
gross profit margins than confectionery products. In addition, lower autograph
and relic costs, smaller losses in the Company's Internet activities, and the
absence of one-time costs associated with the discontinuance of Cool Junk
products last year had a positive impact.
15
Other income/expense in the quarter of $433,000 was below last year's figure of
$602,000. This reduction was largely due to the recent stabilization of the U.S.
dollar, which resulted in the absence of mark-to-market gains on foreign
exchange contracts, as well as the absence of foreign exchange gains on
non-functional currency cash balances held abroad, both of which contributed
positively to last year's quarter.
SG&A expense was $28.6 million in the quarter this year, up from $24.3 million
in 2004. As a percentage of net sales, SG&A was 32.5% this year versus 32.0% a
year ago. SG&A expense increased primarily due to a $1.9 million fine levied by
the European Commission (see Note 10 - Legal Proceedings) and to the acquisition
of WizKids, which added $1.7 million in overhead costs and $0.4 million in
acquisition-related amortization expense. Cost-savings initiatives instituted
last year to virtually offset higher legal costs, salary inflation and the
impact of stronger European currencies. Excluding the European Commission fine,
total SG&A was 30.3% of sales, a decrease of 1.7% points from the quarter last
year.
Net interest income of $484,000 in the quarter this year, was below year-ago
levels due to interest on a delayed income tax refund received in the first
quarter of last year.
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
33.0% in the first quarter this year versus 35.0% last year.
Net income for the first quarter of fiscal 2005 was $4.1 million, or $0.10 per
diluted share, compared with $3.5 million, or $0.08 per diluted share last year.
The European Commission fine, which was not tax-deductible, diluted earnings per
share by $0.05 in the first quarter of fiscal 2005.
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 May 29, 2004, the Company had $96.4 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 was due to expire on June 26, 2004. The credit agreement was amended to
extend the expiration date for 90 days in order to provide the Company
sufficient time to complete the refinancing arrangements.
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.
There was no debt outstanding as of February 28, 2004 or May 29, 2004.
In October 2001, the Board of Directors authorized the purchase of up to 5
million shares of stock. During the first quarter of fiscal 2005, the Company
purchased 143,800 shares at an average price of $8.95 per share. The Company has
repurchased a total of 3.1 million shares under this authorization.
In the three months ended May 29, 2004, the Company's net increase in cash and
cash equivalents was $2.5 million versus a decrease of $0.3 million in the
comparable period of fiscal 2004.
16
Cash provided by operating activities this year was $6.8 million versus a use of
$1.4 million last year. This improvement was primarily due to a $2.7 million
increase in payables and other current liabilities stemming from the $1.9
million European Commission fine and advertising and marketing expenses, as well
as to a $1.8 million decrease in prepaid expenses and other current assets, a
function of the timing of payments associated with royalties and marketing
expenditures. Partially offsetting this improvement, receivables increased $2.2
million on higher sales in the quarter, and inventories increased $3.0 million
due to slower U.S. confectionery sales.
Cash used in investing activities of $0.7 million this year, versus $0.9 million
last year, reflects a decrease in the Company's capital spending. Capital
spending for the year is projected to be in the $3 million to $4 million range,
with spending focused on Ring Pop production equipment and computer software and
hardware. Capital spending will be funded out of cash flow provided by operating
activities.
Cash used in financing activities reflects $1.6 million in cash dividends and
$1.3 million in net treasury stock purchases during the quarter, net of options
exercised, versus a $0.2 million source of funds from options exercised in
fiscal 2004.
There are no material changes outside the ordinary course of business with
respect to Company's purchase obligations as presented in the Commitments table
included in its Annual Report on Form 10-K for the year ended February 28, 2004.
The Company does not have any off-balance sheet arrangements and therefore there
is no effect on our financial condition, changes in financial condition, revenue
or expenses, results of operations, liquidity, capital expenditures or capital
resources from these types of arrangements.
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
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; and (xi) 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.
17
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 judgments that affect the reported amounts of revenue,
expenses, assets, liabilities and the disclosure of contingent assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
Note 1 to the Company's consolidated financial statements, included in its
Annual Report on Form 10-K for the year ended February 28, 2004, "Summary of
Significant Accounting Policies," summarizes its significant accounting
policies. Following is a summary of the critical policies and methods used.
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.
Returns Provisions:
- -------------------
In determining the provision for returns, the Company performs an in-depth
review of wholesale and retail inventory levels for each product sold, trends in
product sell-through by sales channel, and other factors. The provision for
returns was $7.2 million in the first quarter of fiscal 2005 and $3.8 million in
2004, which equates to 8.2% and 5.0% of net sales, respectively. The increase in
provision this year was the result of sales of sticker album products for the
European Championship, which occurs once every four years. An increase or
decrease in the quarter's provision for returns by 1% of net sales would
increase or decrease operating income by approximately $0.9 million.
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 which range between three and fifteen years. Management
evaluates the recoverability of finite-lived intangible assets under the
provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-lived Assets" based on the projected undiscounted cash flows attributable
to the individual assets, among other methods.
Accrual for Obsolete Inventory:
- -------------------------------
The Company's accrual for obsolete inventory reflects the cost of items in
inventory not anticipated to be sold. This accrual is deemed necessary as a
result of discontinued items and packaging or a reduction in forecasted sales
and is adjusted periodically based on a review of inventory levels and sales
projections. The provision for obsolete inventory was $1.1 million in the first
quarter of fiscal 2005 and $0.8 million in fiscal 2004, which equates to 1.2%
and 1.1% of net sales, respectively. An increase or decrease in the quarter's
provision for obsolescence by 1% of net sales would increase or decrease
operating income by approximately $0.9 million.
18
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 May 29, 2004, 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 stabilization of the U.S. dollar, resulted in a
small mark-to-market adjustment in the quarter.
19
ITEM 4. CONTROLS AND PROCEDURES
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) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this annual 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.
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 most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. There were no significant deficiencies or material weaknesses, and
therefore there were no corrective actions taken.
20
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 past
distribution arrangements for the sale of Pokemon products complied with
European law (the "EU investigation"). On June 17, 2003, the Commission
took the first formal step in the investigation and filed a Statement of
Objections against The Topps Company, Inc. and its European subsidiaries,
therein coming to a preliminary conclusion that these entities infringed
Article 81 of the EC treaty during 2000 by preventing parallel trade
between member states of the European Union. A hearing in front of the
European Commission Tribunal took place on October 23, 2003, and on May 27,
2004, the Commission found The Topps Company, Inc. and its European
subsidiaries jointly and severally liable for infringement of Article 81(1)
of the EC treaty. The Commission imposed a total fine of 1.59 million euros
which has been included in accrued expenses in the accompanying condensed
consolidated balance sheet as of May 29, 2004 and in SG&A expenses for the
thirteen weeks ended May 29, 2004.
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 judgment 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. On March 17, 2004,
Topps filed a motion for summary judgment based on non-infringement while
other defendants filed a motion for summary judgment based on patent
invalidity because of prior art. It is not known when a decision on either
motion will be entered. The parties have agreed to stipulate to a stay of
all discovery proceedings until August 15, 2004. It is anticipated that the
court will agree to this stipulation.
The trial is now scheduled for February 2005. An adverse outcome in the
litigation could result in a substantial liability for the Company. It is
still too early in the matter to determine the likelihood or to estimate
the range of loss, if any, and, accordingly, no provision has been recorded
for this matter in the accompanying condensed consolidated financial
statements.
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 other actions will not have a material adverse
effect on the Company's consolidated financial statements.
21
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company took place on July 1, 2004 for
the following purposes:
1. To elect three directors;
2. To ratify the appointment of auditors.
The results of the matters voted on are as follows:
For Withheld
--- --------
1. Election of Directors
Allan A. Feder 38,057,108 299,241
David M. Mauer 32,524,810 5,831,539
Jack H. Nusbaum 31,657,237 6,669,112
For Withheld Against
--- -------- -------
2. Ratification of Appointment
of Auditors 37,796,383 554,467 15,499
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K filed herewith:
31.1 Certification of Principal Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934.
31.2 Certification of Principal Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a) 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-Chief Financial
Officer and Treasurer 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 July 6, 2004, with press release, dated July 1, 2004,
reporting the Company's first quarter dividend declaration.
2. Form 8-K, dated June 25, 2004, with press release, dated June 24,
2004, reporting the Company's first quarter earnings.
3. Form 8-K, dated May 26, 2004, with press release, dated May 26, 2004,
reporting the European Commission fine.
23
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 K. Jessup
---------------------------
Catherine K. Jessup
Duly Authorizing Officer
July 8, 2004
24
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 13a-15(e) and 15d-15(e) 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
control over financial reporting.
THE TOPPS COMPANY, INC.
REGISTRANT
s/ Arthur T. Shorin
---------------------------
Arthur T. Shorin
Chairman, Chief Executive
Officer and President
Date: July 8, 2004
25
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 13a-15(e) and 15d-15(e) 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
control over financial reporting.
THE TOPPS COMPANY, INC.
REGISTRANT
s/ Catherine K. Jessup
---------------------------
Catherine K. Jessup
Vice President-Chief Financial
Officer and Treasurer
July 8, 2004
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 May 29, 2004 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
---------------------------
Arthur T. Shorin
Chairman, Chief Executive
Officer and President
July 8, 2004
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 May 29, 2004 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
---------------------------
Catherine K. Jessup
Vice President-Chief Financial
Officer and Treasurer
July 8, 2004
28