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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15817
THE TOPPS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
11-2849283
(I.R.S. Employer Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices) (Zip Code)
(212) 376-0300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.01
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of Common Stock held by non-affiliates as of May
15, 1999 was approximately $269,000,000.
The number of outstanding shares of Common Stock as of May 15, 1999 was
46,441,801.
Documents incorporated by reference Part
Annual Report to Stockholders
for the Year Ended February 27, 1999 I,II,IV
Proxy Statement for the 1999 Annual Meeting of Stockholders III
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
General Development
The Topps Company, Inc. was incorporated in Delaware on February 24, 1987.
The Company is the successor to Topps Chewing Gum, Inc., which was established
as a partnership in 1938 and was incorporated under the laws of New York in
1947. All references in this Annual Report on Form 10-K to "Topps" or the
"Company" are to The Topps Company, Inc. and its subsidiaries.
Topps is a leading marketer of collectible picture products featuring
primarily professional athletes and, from time to time, popular television,
movie and other entertainment characters. These collectible picture products are
in the form of trading cards, sticker and album collections, comic books or
magazines. The Company also markets Bazooka brand bubble gum, branded lollipops
such as Ring Pop, Push Pop and Baby Bottle Pop and certain novelty candy
products.
The sports card category in which the Company competes has contracted over
the last several years. Prior to 1998, the industry decline was the result of
several factors, including: product and brand proliferation which led to
consumer confusion and oversupply; a competitive rise in other sports-related
merchandise choices; a reduction in retailer support; and labor strife in the
sports industry. Although there is currently no industry-wide data available,
the Company believes that the industry continued to contract in 1998, largely as
a result of the liquidation of one of the Company's main competitors (Pinnacle
Brands) and the NBA labor situation. However, despite the overall market
contraction during 1998, the Company experienced significant increases over the
prior year in the sale of its baseball and football card products.
Topps has increased its international presence in the last several years.
In 1995, the Company acquired Merlin Publishing International Limited, a
U.K.-based marketer of licensed collectibles, primarily sticker and album
collections. While continuing to market products under the Merlin brand name,
Merlin Publishing International Limited changed its corporate name to Topps
Europe Ltd. ("Topps Europe") in March 1997. The Company also established new
subsidiaries in Canada and Mexico in fiscal 1996 and Brazil and Argentina in
fiscal 1997. The Company currently distributes its products in over fifty
countries and has employees in seven countries.
================================================================================
Trademarks of The Topps Company, Inc. and Subsidiaries appearing in this report:
Baby Bottle Pop, Bazooka, Bazooka Blasts, Bazooka Joe, Bazooka Pops, Bowman,
Bowman Chrome, Bowman's Best, Flip Pop, Garbage Pail Kids, Merlin, Never
Compromise, Push Pop, Ring Pop, Topps, Topps Action Flats, Topps Chrome, Topps
Finest, Topps Gallery, Topps Gold Label, Topps Stadium Club, Treasure Pop,
Triple Power Push Pop and Wacky Packages.
Unless otherwise indicated, all date references refer to calendar years.
2
Products
Collectible Sports Products
The Company is a leading marketer of collectible picture products featuring
players of Major League Baseball, the National Basketball Association, the
National Football League, the National Hockey League and certain professional
soccer leagues. In the U.S. and Canada, picture products are generally sold in
the form of cards, while in the rest of the world picture products are typically
sold in the form of sticker and album collections.
Card products feature photographs of athletes and contain summary
statistics and biographical material. The Company markets sports picture cards
in various size packages, as well as complete sets, for distribution through a
variety of trade channels.
The Company distributes sports cards under brand names including, but not
limited to, Topps, Topps Stadium Club, Topps Finest, Topps Gallery, Bowman,
Bowman Chrome, Bowman's Best, Topps Gold Label and Topps Chrome. Each brand of
sports cards has its own unique positioning in the marketplace. All the cards
are of a high quality featuring laminated paperboard and state-of-the-art
reproduction techniques. Certain brands feature borderless cards and also
contain foil stamping. Prices generally range from a suggested retail price of
$0.99 per pack to $5.00 per pack. The Company is continuously updating the
features of its cards and seeking new technologies as well.
Sports sticker and album collections, which are sold under the Merlin and
Topps brand names, are marketed throughout Europe and parts of Asia. Stickers
are sold in packages and display photos of popular local athletes and sports
teams. The stickers are designed so that they can be placed in an associated
album, which contains more detailed information and statistics regarding the
players and teams.
The Company has expanded its European sports licenses in the last several
years and currently holds licenses for Premier League Soccer in the U.K. as well
as soccer licenses in Italy, Norway and Denmark.
Entertainment Products
The Entertainment Products segment consists of trading cards, sticker/album
products, comics and magazines featuring licenses from popular films, television
shows and other entertainment properties.
Since the 1950's, the Company has marketed trading cards featuring some of
the dominant entertainment properties of the time, including The Beatles, Elvis
Presley, Star Wars, Michael Jackson, E.T., Indiana Jones, Batman, Teenage Mutant
Ninja Turtles, Jurassic Park and The X-Files. Occasionally, the Company has also
created cards featuring its own entertainment properties such as Wacky Packages,
Garbage Pail Kids and Mars Attacks, as well as cards detailing events of
national interest such as Desert Storm.
Over the years, entertainment trading cards have experienced peaks and
valleys in terms of consumer interest. Recently, the relative weakness of the
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entertainment card market has prompted the Company to be extremely selective in
determining which entertainment licenses to pursue. In fiscal 1999, the Company
marketed only three entertainment card properties in the U.S.: The X-Files;
Xena: Warrior Princess; and World Championship Wrestling (WCW).
Since the acquisition of Merlin in 1995, the Company has sold collectible
entertainment products in the form of sticker/album collections in Europe and
parts of Asia. In response to lower consumer interest, the Company pared back
its offerings of these products to five releases in fiscal 1999.
In fiscal 2000, the Company will market both trading cards and sticker and
album products based on the new Star Wars film, "Episode I: The Phantom Menace".
The Company also recently negotiated an agreement in principle (subject to the
execution of a final license agreement) to market trading cards in the U.S. and
Canada (and candy as described below) featuring Pokemon, a popular children's
property.
Over the years, the Company has also published magazines based on subjects
of interest in the entertainment field. In fiscal 2000, the Company will issue a
variety of Star Wars magazines, featuring, among other things, coverage of the
newest motion picture, Star Wars: Episode I. These publications will include the
official souvenir magazine of the movie, the official poster magazine and the
Star Wars Galaxy Collector magazine.
In the past, the Company created and marketed a limited selection of
high-quality color comic books for distribution primarily in specialty shops.
Due to a contraction in the market, the Company suspended its comic book
publishing activities in fiscal 1999.
Confectionery
The Company has been marketing Bazooka brand bubble gum since 1947.
Traditional chunk Bazooka bubble gum is produced in individually wrapped
rectangular pieces in a variety of flavors and sold generally at a suggested
retail price of five cents a piece. Individual pieces of Bazooka brand bubble
gum include a comic featuring Bazooka Joe, a copyrighted cartoon character
created by the Company in 1953.
The Company sells multiple piece packs of Bazooka which, over the years,
have included a six-piece pack of soft sugarless bubble gum, a ten-piece pack,
forty-five and seventy-five count bags of traditional chunk Bazooka, as well as
various box, bucket and canister configurations. These packages are designed for
distribution in supermarkets, convenience stores, drug store chains, mass
merchandisers and club stores.
In early 1999, the Company introduced Bazooka Pops, a premium lollipop with
a Bazooka gum center and packaging featuring a fortune and comic.
The Company also markets premium quality lollipop products throughout the
United States, Canada, Europe and parts of Latin America and Asia. Core products
include Ring Pop (a lollipop made of candy molded into the form of an
exaggerated precious gem stone, anchored to a plastic ring) and Push Pop (a
cylinder-shaped lollipop packaged in a plastic container with a removable cap,
designed to enable consumers to eat a portion of the pop now and save the rest
4
for later.) In fiscal 2000, the Company plans to increase its advertising
support and merchandising efforts behind both Ring Pop and Push Pop and will
enhance Ring Pop by adding real fruit juice to the product.
Last year, the Company introduced two new confectionery items. One of the
products, Baby Bottle Pop, is a baby bottle filled with a tangy candy powder and
a lollipop top. Also introduced in 1998 was Flip Pop, a pop within a fun plastic
container, which can be flipped out, licked and placed back in the case for
consumption later. This year, the Company plans to introduce Treasure Pop ( a
high quality lollipop with a toy surprise hidden in the plastic handle) and
Triple Power Push Pop (a larger Push Pop with three different flavors which can
be pushed up independently or together.) Also the Company has an agreement in
principle (subject to the execution of a final license agreement) to market
Pokemon lollipops.
For a schedule of net sales by key business segment for the past three
fiscal years, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on page 7 of the Company's Annual Report to
Stockholders for the year ended February 27, 1999 (the "Annual Report"), which
is hereby incorporated by reference.
Distribution and Marketing
Sales and Distribution
The Company's products are sold throughout the United States, Canada and
Europe, as well as in certain Latin American and Asian markets.
The Company's own sales force handles all U.S. card sales, as well as sales
of confectionery products to national accounts. All other confectionery sales
are handled by broker organizations. Together, the sales force and brokers
service over 80,000 retail outlets through more than 4,000 separate accounts
which include wholesale tobacco and confectionery jobbers, hobby distributors
and retailers, wholesale clubs, news-dealers, mass merchandisers and
direct-buying grocery, convenience, drug, variety, discount and toy store
chains.
In the past, the Company has operated a direct response membership club
through which it marketed special sets of baseball, football and basketball
cards as well as other products. Although this business was suspended in
February 1998, the Company is currently considering other approaches for
operating a direct response business.
In Canada, sales of trading cards (dominated by hockey), stickers and
confectionery products are handled by a sales force and two regional brokers.
Current distribution in Canada is to over 5,000 retail outlets.
In the U.K., sales of both confectionery products and collectibles are
handled by a dedicated sales force as well as by wholesalers selling to
independent retailers. Together, the sales force and wholesalers reach
approximately 30,000 retail news and confectionery outlets. Elsewhere in Europe,
as well as in Latin America and Asia, sales are primarily through distributors.
5
Advertising and Promotion
The Company utilizes a variety of promotional activities, including
television, radio and print advertising campaigns, designed to create consumer
awareness and increase retail sales of its products. Worldwide advertising and
promotional expenditures as a percentage of net sales for the fiscal years ended
1997, 1998 and 1999 were 7.0%, 8.6% and 6.8%, respectively.
Traditionally, the Company has also relied on the popularity of its sports
and other licensed products, and the consumer recognition of its brand names, to
help promote its products. The Company also uses print advertising on its
product wrappers and promotional insert cards to increase consumer awareness of
its brands.
Approximately 70% of the Company's sales are made on a returnable basis.
Industry practices require that the Company provide the right to return on sales
of trading card products (excluding those to hobby dealers), on confectionery
products, on magazines sold to mass merchandisers and on sales of most sticker
and album products in Europe. Returns significantly in excess of the Company's
returns provisions could have a material adverse effect on the Company.
Consolidated return provisions as a percentage of gross sales for the fiscal
years ended 1997, 1998 and 1999 were 14.2%, 12.4% and 8.3%, respectively.
Production
In December 1996, the Company discontinued operations at its Duryea,
Pennsylvania manufacturing facility. As a result of the Duryea plant closure,
Bazooka gum is being manufactured by a single contractor in the U.S. (Hershey
Foods Corporation). The cutting, collating and packaging of card products
previously performed at the Duryea facility have been outsourced to several
manufacturers in the U.S.
In April 1998, the Company ceased manufacturing operations at its factory
in the Republic of Ireland. The Company produced limited quantities of gum at
this facility and is currently seeking alternative sources.
Collectible Picture Products
In the U.S., photographs of athletes are generally taken by photographers
under contract with the Company or by free-lance photographers on special
assignment. In addition, certain photography is provided by the organization
representing the leagues and their member teams. Pictures of entertainment
subjects are generally furnished by the licensor or created by artists retained
by the Company. Computerized graphic artwork and design development for all of
6
the Company's products is done by staff artists and through independent design
agencies under the Company's direction. The Company's Graphic Services
Department also utilizes state-of-the-art computerized technology to enhance and
color-correct photography and computer imaging to create interesting and unusual
backgrounds and visual effects.
High-quality paperboard is sent directly to outside printers by the
Company's suppliers. Pictures are printed utilizing a variety of techniques and
processes, including waterless printing, which allows for a tighter line screen
resulting in sharper and more intense photo reproduction. Sheets of printed
cards are then often sent to additional suppliers who foil stamp and UV (ultra
violet) coat the sheets. Cards that require specialized printing and the
combination of various substrates like plastic, polystyrene and holographic
foils are purchased in full sheet form from specialty printers. Full sheets are
then delivered to contract packers where they are cut into individual cards,
collated and wrapped in a variety of package configurations.
Certain key elements of Merlin brand sticker and album products are sourced
from a single supplier in Italy. The Company believes that there are other
suitable sources available to meet its requirements if the current supplier were
unable to meet Merlin's needs.
Confectionery
Since the closure of its manufacturing facility in Duryea, Pennsylvania in
December 1996, the Company has purchased all of its U.S. Bazooka bubble gum
requirements from Hershey Foods Corporation. The current agreement, which
expires in December 2002, requires the Company to source all of its U.S. Bazooka
production needs from Hershey, provided it can fulfill the orders on a timely
basis. Given the shortage of alternative manufacturers for Bazooka gum, failure
by Hershey to supply the Company on a timely basis could have a material adverse
effect on product availability and therefore, on sales of Bazooka. Limited
quantities of Bazooka and other bubble gum products for international sales were
manufactured by the Company's factory in the Republic of Ireland through the end
of fiscal 1998. In April 1998, gum production was discontinued in Ireland. The
Company is presently seeking alternative sources for this production.
Ring Pop lollipops for sale in the U.S. are manufactured at the Company's
Scranton, Pennsylvania factory. Ring Pop lollipops for sale in international
markets as well as all Push Pops, Baby Bottle Pops and Flip Pops are
manufactured by a single supplier in factories located in Taiwan, Thailand and
China. The loss of production at one or more of these facilities due to civil
unrest or for any other reason could have a material adverse impact on sales of
the Company's lollipops.
Sweeteners, flavors, paperboard, packaging materials, foil stamping and UV
coating are required to manufacture the Company's total line of collectible
picture and confectionery products and are generally available to the Company.
The Company does rely on single producers for several of these ingredients or
processes. While alternative suppliers are generally available, some adjustment
in product specification might be required if these single sources were no
longer available to the Company.
7
Trademarks and License Agreements
The Company considers its trademarks and license agreements to be of
material importance to its business. The Company's principal trademarks have
been registered in the United States and many foreign countries where its
products are sold. The sports picture products marketed by the Company in the
U.S. are all produced under license agreements with individual athletes or their
players' associations, as well as the licensing bodies of the professional
sports leagues. These agreements cover the following sports: Major League
Baseball, NBA Basketball, NFL Football and NHL Hockey. The Company also has a
contract with Premier League Soccer in the U.K. and with players and teams with
regard to soccer in Italy, Norway and Denmark. The Company's inability to
renegotiate successfully its Major League Baseball, NBA Basketball, NFL Football
or Premier League Soccer agreements upon expiration, or the loss of any of these
license agreements, could have a material adverse effect on the Company.
The Company has an individual license agreement with virtually every major
league baseball player. Each baseball player's license agreement is initially
for four major league baseball seasons and may be extended for additional
seasons as rights are used, if the player and the Company agree. Typically,
these agreements are extended annually. Among the rights the Company receives
are rights to use a player's name, picture, facsimile signature and biographical
description in the form of two or three dimensional pictures, trading cards,
postcards, stickers, stamps, transfers, decals, medallions or coins, each within
certain size limitations, provided such products are marketed alone or with
chewing gum or candy. The licenses granted to the Company by athletes permit the
athlete to grant others rights to the use of his name, picture and facsimile
signature on other products, including collectible picture cards sold alone or
with products other than gum and (with certain exceptions) candy. The Company
has a related agreement with the Major League Baseball Players Association,
which governs certain terms of the individual player contracts. The Company also
has an agreement with Major League Baseball Properties, Inc., which covers the
use of the names and insignias of the baseball teams and leagues in connection
with its baseball picture products and which expires at the end of 2000. The
Company conducts a related active licensing program with minor league baseball
players and continuously seeks to supplement its relationship with the baseball
community by personal visits and corporate identification. The Company considers
such relationships to be good and to be of great importance to it. However,
should an appreciable number of Major League Baseball players refuse to sign the
Company's license agreement, it could have a material adverse effect on the
Company.
The Company also enters into license agreements with entertainment
companies to produce certain products. The terms of these contracts depend on a
variety of factors. Total royalty expense under the Company's sports and
entertainment licensing contracts for the fiscal years ended 1997, 1998 and 1999
was $37,960,000, $33,662,000 and $24,373,000, respectively. See Note 17 of Notes
to Consolidated Financial Statements in the Annual Report, which is incorporated
herein by reference, for a description of minimum guarantee payments required
under the Company's existing sports contracts.
8
International Licensing Operations
The Company, which licenses its technology and trademarks, currently has
license agreements with manufacturers in two foreign countries to manufacture
and distribute the Company's products. These licensees have the right to sell
licensed products in countries of their location and, in certain instances,
other countries as well.
Competition
The Company competes for sales as well as counter and shelf space with
large corporations in the food, candy, publishing, toy and other industries.
Many of these corporations have substantially greater resources than the
Company. More narrowly, the Company competes with other companies, large and
small, which market gum and candy, and with a number of collectible picture
product companies for the spending money of children and adult collectors. The
Company believes that the industries in which it operates are highly
competitive.
Seasonality
The Company's U.S. sports card products are sold throughout the year,
spanning the four major sports seasons in which the Company currently
participates, i.e., baseball, football, basketball and hockey. Topps Europe's
sales of sports sticker/album products are driven largely by shipments of
Premier League Soccer, with much of the sales activity occurring in January
through March. Sales of entertainment products tend to be driven by the property
on which they are based, often peaking with the release of a movie or the rise
in popularity of a television program or particular licensed property. Sales of
confectionery products are relatively stable throughout the year, although they
are impacted by the introduction of new products and the use of consumer
advertising that can occur at any point in the year.
Environment
The Company believes that it is in compliance in all material respects with
existing federal, state and local regulations relating to the protection of the
environment. Such environmental regulations have not had a material impact on
the Company's capital expenditures, earnings or competitive position.
9
Employees
In December 1996, the Company discontinued manufacturing operations at its
Duryea, Pennsylvania facility. Many of the employees at the Duryea facility were
represented by Teamster's Union Local 229 which filed an unfair labor practice
charge relating to the closure. This claim was settled and the charge was
dismissed in December 1997.
The Company employed approximately 400 people in fiscal 1999.
All of the production employees at the Company's factory in Scranton,
Pennsylvania are represented by a union. Although the union agreement expires in
2000, union membership voted recently to approve an extension of the agreement
to February 2003.
The Company considers relations with its employees to be good.
Cautionary Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby filing
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements of the Company made by or on behalf of the Company, whether oral or
written. The Company wishes to ensure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to maximize to the
fullest extent possible the protections of the safe harbor established in the
Reform Act. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the following important factors, among
others, that could cause the Company's actual results to differ materially from
those projected in forward-looking statements of the Company:
1. Dependence on Licenses. The Company's trading card and sticker/album
businesses are highly dependent upon licensing arrangements with third parties.
These licenses, which have varying expiration dates, are obtained from the
various professional sports leagues, players associations and, in certain
instances, the players themselves as well as entertainment companies. The
Company's inability to renew or retain these licenses, or the lack of vitality
of these licenses, could materially affect its future plans and results.
2. Contraction in Sports Card Industry. The Company believes that the
sports card industry as a whole continued to contract during calendar 1998.
Further prolonged and material contraction in the sports card industry, whether
caused by labor strife or otherwise, could materially adversely affect the
Company's future plans and results.
3. Declines in Sales of U.K. Sticker/Albums. Sales of Topps Europe's
Premier League sticker/album collections declined last year. Further significant
declines in sales of these products could materially affect the Company's future
plans and results.
4. Returns. Approximately 70% of the Company's sales are made on a
returnable basis. Although the Company maintains provisions for returns, returns
considerably in excess of the Company's provisions could materially affect its
future plans and results.
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5. Suppliers. The Company has a single source of supply for certain of its
lollipop products. The loss of this supplier due to civil unrest or for any
other reason could materially affect the Company's future plans and results.
6. Customers. The Company has several large customers, some of which are
serviced by single distributors. The loss of any of these customers or
distributors could materially affect the Company's future plans and results.
7. International Political and Economic Risk. Due to the Company's
increased international presence, there is an increase in risk generally
associated with operating outside of the U.S. Events such as civil unrest,
currency devaluation and political upheaval could materially affect the
Company's future plans and results.
8. See Item 3: Legal Proceedings for a discussion of legal matters that
could materially affect the Company's future plans and results.
Financial Information About Industry Segments, Foreign and Domestic Operations
and Export Sales
The Company operates in three business segments. They are: (i) the
marketing and distribution of collectible sports products; (ii) the marketing
and distribution of entertainment products; and (iii) the marketing and
distribution of confectionery products. Segment and geographic area information
contained in Note 14 of the Notes to Consolidated Financial Statements included
in the Annual Report is hereby incorporated by reference.
Executive Officers of the Company
The information required by this item with respect to the directors of the
Company and as to those executive officers who are also directors appearing in
the Proxy Statement for the annual meeting of stockholders scheduled to be held
on June 29, 1999 ("1998 Proxy Statement") is hereby incorporated by reference
thereto. Set forth below is information required by this item covering the other
executive officers of the Company.
Name Position with the Company and business experience
during the past five years
Ronald L. Boyum Vice President-Marketing and Sales of the Company
since March 1995, Vice President- Marketing of the
Company since April 1994. Mr. Boyum is 47 years of
age.
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Edward P. Camp Vice President of the Company since April 1997 and
President of the Hobby Division since October1995.
Mr. Camp held number of sales-related positions
within the Company prior thereto. Mr. Camp is 52
years of age.
Michael P. Clancy Vice President -International of the Company since
December 1998. Vice President since February 1995
and Managing Director - Topps Ireland since July
1990. Mr.Clancy had been Joint Managing Director -
Topps Europe Ltd. from January 1997 to December
1998. Mr. Clancy is 44 years of age.
Michael J. Drewniak Vice President - Manufacturing of the Company
since March 1991. Mr. Drewniak held the position
of General Manager -Manufacturing Operations prior
thereto. Mr. Drewniak is 62 years of age.
Ira Friedman Vice President - Publishing and New Product
Development of the Company since September 1991.
Mr. Friedman joined the Company in October 1988.
Mr. Friedman is 45 years of age.
Catherine K. Jessup Vice President - Chief Financial Officer of the
Company since July 1995. Prior to joining the
Company, Ms. Jessup held a number of positions
with PepsiCo (a food products company) from 1981
to July 1995 including Director of Planning and
C.F.O. PepsiCo Wines and Spirits. Ms. Jessup is
43 years of age.
William G. O'Connor Vice President-Administration of the Company
since September 1991. Mr.O'Connor was an Assistant
Secretary of the Company from June 1982 until June
1994. Mr. O'Connor is 50 years of age.
12
John Perillo Vice President - Operations of the Company since
April 1995 and Vice President-Controller and Chief
Financial Officer of the Company from April 1990
to July 1995. Mr. Perillo is 42 years of age.
Scott Silverstein Vice President - Business Affairs and General
Counsel of the Company since February 1995. Mr.
Silverstein held the position of General Counsel
from July 1993 until February 1995. Prior to
joining the Company, Mr. Silverstein was an
attorney with the law firm of Hutton Ingram Yuzek
Gainen Carroll & Bertolotti from April 1990 until
July 1993. Prior thereto, he was an attorney with
the law firm of Shea & Gould. Mr. Silverstein is
the son-in-law of Mr. Shorin, the Company's Chair-
man of the Board, Chief Executive Officer and
President. Mr. Silverstein is 37 years of age.
ITEM 2. PROPERTIES
The location and general description of the principal properties owned or
leased by the Company are as follows:
Owned or Leased;
Area/Facility If Leased,
Location Type of Facility Square Footage Expiration Year
Duryea, Pennsylvania office and warehouse 60,000 Leased; 2000
Scranton, Pennsylvania manufacturing plant 41,000 Owned
Cork, Ireland office 8,000 Leased; 2005
New York, New York executive offices 60,000 Leased; 2010
Milton Keynes, United Kingdom warehouse/office 10,000 Leased; 2014
The Company also leases offices in Canada, Brazil, Argentina, Mexico and
Italy. The Company believes that its active facilities are in good repair and
are suitable for its needs for the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
In August 1996, the Company was named a defendant in a class action in the
United States District Court for the Eastern District of New York (the "New York
Court") entitled Sullivan, et.al. v. The Topps Company, Inc. No. CV 96 3779
(E.D.N.Y.) (the "Action"). The Action alleged, among other things, that the
Company violated the federal Racketeer Influenced and Corrupt Organizations Act
by its practice of selling sports and entertainment cards with randomly-inserted
"insert" cards, in violation of state and federal anti-gambling statutes. During
the last two and a half years, each of the Company's principal competitors, and
principal licensors, were separately sued in various federal courts for
employing, or participating in, the same or similar practices. The Action sought
treble damages and attorneys' fees on behalf of all purchasers of packs of cards
potentially including "insert" cards over a four-year period. The New York Court
granted the Company's motion to dismiss the Action with prejudice in August
1997. The New York Court later denied motions by plaintiffs to alter, amend or
vacate the judgement, and for leave to file an amended complaint. Plaintiffs'
time to appeal all of these rulings has expired, and the judgement for the
Company dismissing the Action is now final and nonappealable.
In September 1998, the Company filed an action in the New York Court
seeking declaratory and injunctive relief against a class of all original
end-use purchasers of trading cards marketed in packages that may contain
randomly-inserted "insert" cards within the four years prior to the filing of
the complaint, entitled The Topps Company, Inc. v. Sullivan et al., No.l CV 98
6023 (EHN) (E.D.N.Y.) (the "Declaratory Judgment Action"). The Declaratory
Judgment Action seeks a declaratory judgment that the defendant class of card
purchasers did not suffer any injury cognizable under RICO by this practice, and
an injunction enjoining the defendant class from filing or pursuing any further
RICO actions against the Company relating to the purchase of trading cards. Two
similar declaratory judgment actions have been filed by several of the Company's
principal licensors against the same class of defendants in the New York Court.
On December 14, 1998, defendants in all of the declaratory judgment actions
moved to dismiss the complaints, and the New York Court heard oral argument on
the motions on February 26, 1999. A decision in these motions has not yet been
rendered.
In November 1998, the Company was named defendant in a purported class
action commenced in the United States District Court for the Southern District
of California (the "California Court") entitled Rodriquez et al. v. The Topps
Company, Inc., No. CV 2121-B (AJB) (S.D. Cal.) (the "Class Action") The Class
Action alleged that the Company violated RICO, and the California Unfair
Business Practices Act, by its practice of selling sports and entertainment
trading cards with randomly-inserted "insert" cards, allegedly in violation of
state and federal anti-gambling laws. The Class Action seeks treble damages and
attorneys' fees on behalf of all individuals who purchased packs of cards at
least in part to obtain an "insert" card over a four-year period. On January 22,
1999, plaintiffs moved to consolidate the Class Action with similar class
actions pending against several of the Company's principal competitors and
principal licensors in the California Court. The Company has opposed this
motion. On January 25, 1999, the Company moved to dismiss the complaint, or,
alternatively, to transfer the Class Action to the Eastern District of New York
14
or stay the Class Action pending the outcome of the Declaratory Judgment Action
pending in the Eastern District of New York. By orders dated May 14, 1999, the
California Court denied Topps' motions to dismiss the complaint or transfer the
Class Action to the Eastern District of New York but granted Topps' motion to
stay the Class Action pending the outcome of the Declaratory Judgment Action.
The California Court also denied plaintiffs' motion to consolidate the Class
Action with similar purported class actions. An unfavorable outcome in the Class
Action could have a material adverse effect on the Company's future plans and
results.
The Company is a defendant in several other civil actions which are routine
and incidental to its business. In management's opinion, after consultation with
legal counsel, these actions will not have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Reference is made to the data appearing on page 31 of the Annual Report
under the heading "Market and Dividend Information" which is hereby incorporated
by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Reference is made to the data appearing on page 32 of the Annual Report
under the heading "Selected Consolidated Financial Data" which is hereby
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to the data appearing on pages 7 through 10 of the Annual
Report under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the data appearing on pages 11 through 29 and to the
Report of Independent Public Accountants appearing on page 30 of the Annual
Report which are hereby incorporated by reference.
ITEM 9. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information required by this item appears in Part I of this Report on Form
10-K under the heading "Executive Officers of the Company" and in the 1999 Proxy
Statement and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item appears in the 1999 Proxy Statement and
is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item appears in the 1999 Proxy Statement and
is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item appears in the 1999 Proxy Statement and
is hereby incorporated by reference.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1&2) Financial Statements and Financial Statement Schedules
See index on page 20.
(3) Listing of Exhibits
See index on pages 21-23.
(b) Reports on Form 8-K
None
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 21, 1999 THE TOPPS COMPANY, INC.
Registrant
___________________________
Arthur T. Shorin
Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed on the 21st day of May, 1999 by the following persons on
behalf of the Registrant and in the capacities indicated.
Arthur T. Shorin Catherine K. Jessup
Chairman, Chief Executive Vice President-Chief Financial Officer
Officer and President (Principal Financial and
(Principal Executive Officer) Accounting Officer)
Seymour P. Berger David M. Mauer
Director Director
Allan A. Feder Jack H. Nusbaum
Director Director
Stephen D. Greenberg Stanley Tulchin
Director Director
Wm. Brian Little
Director
19
THE TOPPS COMPANY, INC.
FORM 10-K ITEM 14(a)(1), (2) AND (3)
LIST OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(a)(1) Index to Financial Statements:
The following Consolidated Financial Statements included in the Annual
Report are hereby incorporated by reference to Item 8:
Consolidated Statements of Operations -- Years Ended March 1,
1997, February 28, 1998 and February 27, 1999.
Consolidated Balance Sheets -- February 28, 1998 and February 27,
1999.
Consolidated Statements of Cash Flows -- Years Ended March 1,
1997, February 28, 1998 and February 27, 1999.
Consolidated Statements of Stockholders' Equity -- Years Ended
March 1, 1997, February 28, 1998 and February 27, 1999.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
(a)(2) Index to Independent Public Accountants'
Report and Financial Statement Schedules Page No.
Report of Independent Public Accountants......................... S-1
Schedule VIII -- Valuation and Qualifying Accounts - Years
Ended March 1, 1997, February 28, 1998 and February 27, 1999..... S-2
Schedules other than those listed above are omitted because they are
either not required or not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto.
20
a)(3) Index to Exhibits
3.1 - Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Company's Report
on Form 8-K dated December 3, 1991).
3.2 - Restated By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to the Company's Report on Form 8-K dated December 3,
1991).
4.1 - Rights Agreement, dated as of December 3, 1991, with
Manufacturers Hanover Trust Company, as rights agent
(Incorporated by reference to Exhibit 4.1 to the Company's Report
on Form 8-K dated December 3, 1991).
10.1 - The Topps Company, Inc. Executive Officers' Annual Bonus Plan.*
10.2 - Retirement Plan and Trust as amended and restated effective
February 28, 1993 (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended February 26,
1994).
10.3 - Supplemental Pension Agreement with Arthur T. Shorin
(Incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1(No. 33-130821)).
10.4 - Amendment to Supplemental Pension Agreement with Arthur T.
Shorin dated May 18, 1994 (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 25, 1995).
10.5 - License Agreement and Letter Amendment thereto with Major
League Baseball Promotion Corporation (Incorporated by reference
to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 2, 1991).
10.6 - Settlement Agreement with Major League Baseball Players
Association (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended February 26, 1994).
10.7 - Stock Option Agreement with Arthur T. Shorin dated March 29,
1995 (Incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 25,
1995).
10.8 - Agreement of Lease with One Whitehall Company dated February
24, 1994 (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended February 26, 1994).
10.9 - Amendment and Restatement of the 1994 Non-Employee Director
Stock Option Plan. (Incorporated by reference to the Company's
1998 Proxy Statement filed on May 28, 1998).
21
Index to Exhibits (continued)
10.10 - Agreement for the acquisition of the issued share capital of
Merlin Publishing International plc dated May 17, 1995
(Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended February 25, 1995).
10.11 - Corporate Guaranty in favor of the Bank of Scotland
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 25, 1995).
10.12 - 1996 Stock Option Plan and form of agreement pursuant to 1996
Stock Option Plan. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 2,
1996).
10.13 - License Agreement and Letter Amendment thereto between the
Football Association Premier League Limited and Merlin Publishing
International PLC dated August 3, 1994 and July 2, 1996,
respectively. (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 1, 1997).
10.14 - Retail Product License Agreement with the Major League
Baseball Properties, Inc. dated September 28, 1995 (Incorporated
by reference to Exhibit 10.31 to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 30, 1997).
10.15 - Credit Agreement, Dated May 11, 1998, among The Topps Company,
Inc. and The Chase Manhattan Bank. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1998).
10.16 - Amendment Number One to Credit Agreement dated May 11, 1998.
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal year ended May 30, 1998).
10.17 - Second Amendment to Credit Agreement, dated as of November 6,
1998. (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 28, 1998).
10.18 - Third Amendment to the Credit Agreement dated February 25,
1999.*
10.19 - Consulting Agreement with Seymour Berger dated December 31,
1997. (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 29, 1998).
10.20 - Amended and Restated Manufacturing Agreement with Hershey
Foods Corporation, dated March 13, 1998. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 29, 1998).
22
Index to Exhibits (continued)
10.21 - Memorandum of Agreement with Major League Baseball Players
Association. (Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 29,
1998).
10.22 - Retail Product License Agreement between the Company and NBA
Properties, Inc. dated November 19, 1998. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 28, 1998).
10.23 - License Agreement between the Company and National Football
League Players Incorporated, dated September 27, 1998.
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 28, 1998).
10.24 - Amended and Restated Employment Agreement with Arthur T.
Shorin dated March 1, 1999.*
13 - Annual Report (Except for those portions specifically
incorporated by reference, the 1999 Annual Report to Stockholders
is furnished for the information of the Commission and is not to
be deemed "filed" as part of this filing).
21 - Significant Subsidiaries of the Company.*
23 - Consent of Independent Public Accountants.*
27 - Financial Data Schedule.*
*filed herewith
23
INDEPENDENT AUDITORS' REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The Topps Company, Inc.:
We have audited the consolidated balance sheets of The Topps Company, Inc. and
Subsidiaries as of February 27, 1999 and February 28, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended February 27, 1999, and have issued
our report thereon dated April 2, 1999; such consolidated financial statements
and report are included in your 1999 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of The Topps Company, Inc. and Subsidiaries listed
in Item 14. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
April 2, 1999
S-1
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
Column A Column B Column C Column D Column E
- ------------------------------------ -------------- ------------------------------- --------------- ---------------
Balance Charged to Charged Balance
at Beginning Costs and Against Additions At End
Description of Period Expenses Sales (Deductions) of Period
-------------- -------------- -------------- --------------- ---------------
Year Ended March 1, 1997:
Amortization of Sports,
Entertainment and
Proprietary Products $ 24,943 $ 1,932 $ 26,875
Amortization of Other
Intangible Assets 7,901 717 $(36) $ 8,582
-------------- -------------- --------------- ---------------
$ 32,844 $ 2,649 $(36) $ 35,457
============== ============== =============== ===============
Allowance for Estimated Losses
on Sales Returns $ 22,123 $ 46,096 $ (44,980) (a) $ 23,239
============== ============== =============== ===============
Allowance for Doubtful Accounts $ 888 $ 379 $ (141) $ 1,126
============== ============== =============== ===============
Inventory Valuation Adjustment $ 23,415 $ 6,418 $ (11,381) (b) $ 18,452
============== ============== =============== ===============
=========================================================================================================================
Year Ended February 28, 1998:
Amortization of Sports,
Entertainment and
Proprietary Products $ 26,875 $ 1,898 $ 28,773
Amortization of Other
Intangible Assets 8,582 720 $ 9,302
-------------- -------------- ---------------
$ 35,457 $ 2,618 $ 38,075
============== ============== ===============
Allowance for Estimated Losses
on Sales Returns $ 23,239 $ 35,468 $ (39,449) (a) $ 19,258
============== ============== =============== ===============
Allowance for Doubtful Accounts $ 1,126 $ 703 $ (668) $ 1,161
============== ============== ===============
Inventory Valuation Adjustment $ 18,452 $ 5,340 $ (15,842) (b) $ 7,950
============== ============== =============== ===============
=========================================================================================================================
Year Ended February 28, 1999:
Amortization of Sports,
Entertainment and
Proprietary Products $ 28,773 $ 1,898 $ 30,671
Amortization of Other
Intangible Assets $ 9,302 $ 721 $ 10,023
-------------- -------------- ---------------
$ 38,075 # $ 2,618 $ 40,693
=============================== ===============
Allowance for Estimated Losses
on Sales Returns $ 19,258 $ 21,518 $ (28,147) (a) $ 12,629
============== ============== =============== ===============
Allowance for Doubtful Accounts $ 1,161 $ 424 $ (448) $ 1,137
============== ============== =============== ===============
Inventory Valuation Adjustment $ 7,950 $ 2,656 $ (5,309) (b) $ 5,297
============== ============== =============== ===============
=========================================================================================================================
S-2