-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N6/vL1qpeG37ae6owgZUrWUOjn6X+87SgmNYdKU7CEZAdBB5F97uMogtseOnk3Ge VZ5xA8W46vvx+NGX1cYJ6g== 0000812076-00-000007.txt : 20000202 0000812076-00-000007.hdr.sgml : 20000202 ACCESSION NUMBER: 0000812076-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991127 FILED AS OF DATE: 20000111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOPPS CO INC CENTRAL INDEX KEY: 0000812076 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 112849283 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15817 FILM NUMBER: 505485 BUSINESS ADDRESS: STREET 1: ONE WHITEHALL STREET CITY: NEW YORK STATE: NY ZIP: 10004-2109 BUSINESS PHONE: 2123760300 MAIL ADDRESS: STREET 1: ONE WHITEHALL ST STREET 2: ONE WHITEHALL ST CITY: NEW YORK STATE: NY ZIP: 10004 10-Q 1 QUARTERLY REPORT 11/27/99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 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 11-2849283 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) One Whitehall Street, New York, NY 10004 (Address of principal executive offices, including zip code) (212) 376-0300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . The number of outstanding shares of Common Stock as of January 6, 2000 was 46,403,558. THE TOPPS COMPANY, INC. - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION - -------------------------------------------------------------------------------- ITEM 1. FINANCIAL STATEMENTS Index Page Condensed Consolidated Balance Sheets as of November 27, 1999 and February 27, 1999 3 Condensed Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended November 27, 1999 and November 28, 1998 4 Condensed Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended November 27, 1999 and November 28, 1998 5 Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended November 27, 1999 and November 28, 1998 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - -------------------------------------------------------------------------------- PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K 14 The condensed consolidated financial statements for the thirteen and thirty-nine weeks ended November 27, 1999 included herein have been reviewed by Deloitte & Touche LLP, independent public accountants, in accordance with established professional standards for such a review. The report of Deloitte & Touche LLP is included on page 9. 2 THE TOPPS COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) November February 27, 1999 27, 1999 -------- -------- (amounts in thousands except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents ......................... $ 61,093 $ 41,728 Accounts receivable - net ......................... 54,206 29,118 Inventories ....................................... 16,959 16,221 Income tax receivable ............................. 214 269 Deferred tax assets ............................... 4,270 1,342 Prepaid expenses and other current assets ......... 5,116 4,860 ------- ------ TOTAL CURRENT ASSETS .......................... 141,858 93,538 ------- ------ PROPERTY, PLANT, & EQUIPMENT .......................... 14,850 13,045 Less: accumulated depreciation and amortization .. 6,750 5,616 ------- ------ NET PROPERTY, PLANT & EQUIPMENT ............... 8,100 7,429 ------- ------ INTANGIBLE ASSETS, net of accumulated amortization of $42,657 and $40,693 ............... 58,243 60,207 OTHER ASSETS .......................................... 2,815 2,908 ------- ------- TOTAL ASSETS .................................. $ 211,016 $ 164,082 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .................................. $ 19,218 $ 15,022 Accrued expenses and other liabilities ............ 55,408 38,051 Current portion of long-term debt ................. -- 10,625 Income taxes payable .............................. 6,769 4,921 ------ ------ TOTAL CURRENT LIABILITIES ..................... 81,395 68,619 LONG-TERM DEBT, less current portion .................. -- 5,158 DEFERRED INCOME TAXES ................................. 3,922 5,143 OTHER LIABILITIES ..................................... 8,765 7,938 ------ ------ TOTAL LIABILITIES ............................. 94,082 86,858 ------ ------ 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 47,727,142 shares, less 1,347,500, and 1,102,500 shares in Treasury stock, respectively .................................... 477 475 Additional paid-in capital .......................... 17,662 16,841 Treasury stock, 1,347,500 and 1,102,500 shares, ..... (10,944) (8,881) respectively Retained earnings ................................... 110,850 69,775 Cumulative foreign currency adjustment .............. (1,111) (986) ------- ------ TOTAL STOCKHOLDERS' EQUITY ........................ 116,934 77,224 ------- ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................................... $ 211,016 $ 164,082 ======= =======
See Notes to Condensed Consolidated Financial Statements and Accountants' Review Report. 3 THE TOPPS COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Thirteen weeks ended Thirty-nine weeks ended November November November November 27, 1999 28, 1998 27, 1999 28, 1998 -------- -------- -------- -------- (amounts in thousands, except share data) Net sales ................................... $ 110,777 $ 67,647 $ 276,109 $ 178,842 Cost of sales ............................... 52,222 41,102 142,521 105,313 Gross profit on sales ................. 58,555 26,545 133,588 73,529 Other income (expense) ...................... (63) (138) 402 (66) 58,492 26,407 133,990 73,463 Selling, general and administrative expenses 21,941 19,210 65,336 56,380 Gain on disposition of assets ............... -- -- -- (3,876) Income from operations ................. 36,551 7,197 68,654 20,959 Interest income (expense), net .............. 618 60 970 (531) Income before provision for income taxes .... 37,169 7,257 69,624 20,428 Provision for income taxes .................. 15,239 3,123 28,546 8,785 Net income ................ $ 21,930 $ 4,134 $ 41,078 $ 11,643 Net income per share - basic ................ $ 0.47 $ 0.09 $ 0.88 $ 0.25 - diluted .............. 0.46 0.09 0.86 0.25 Weighted average shares outstanding - basic . 46,447,163 46,400,010 46,449,565 46,400,010 - diluted 47,986,346 46,737,267 47,522,522 46,717,110
See Notes to Condensed Consolidated Financial Statements and Accountants' Review Report. 4 THE TOPPS COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) Thirteen weeks ended Thirty-nine weeks ended November November November November 27, 1999 28, 1998 27, 1999 28, 1998 -------- -------- -------- -------- (amounts in thousands) Net income .................... $ 21,930 $ 4,134 $ 41,078 $ 11,643 Currency translation adjustment (361) (106) (125) 246 ------ ----- ------ ------ Comprehensive income .......... $ 21,569 $ 4,028 $ 40,953 $ 11,889 ------ ----- ------ ------
See Notes to Condensed Consolidated Financial Statements and Accountants' Review Report. 5 THE TOPPS COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Thirty-nine weeks ended November November 27, 1999 28, 1998 (amounts in thousands) Cash flows from operating activities: Net income ............................................... $ 41,078 $ 11,643 Add (subtract) non-cash items included in income: Depreciation and amortization ....................... 3,363 3,472 Deferred taxes on income ............................ (4,148) 2,430 Gain on sale of property, plant and equipment ....... -- (3,876) Net effect of changes in: Receivables ......................................... (25,087) 14,925 Inventories ......................................... (737) 947 Income tax receivable ............................... 55 6,293 Prepaid expenses and other current assets ........... (255) 269 Payables and other current liabilities .............. 23,400 (7,618) Other ............................................... 566 892 ------ ------ Cash provided by operating activities ....... 38,235 29,377 ------ ------ Cash flows from investing activities: Proceeds from disposition of property, plant and equipment -- 5,562 Additions to property, plant and equipment ............... (1,847) (287) ------ ------ Cash (used in) provided by investing activities .............................. (1,847) 5,275 ------ ------ Cash flows from financing activities: Reduction of debt ....................................... (15,783) (12,667) Purchase of treasury stock .............................. (2,063) Exercise of employee stock options ...................... 823 -- ------- ------ Cash used in financing activities ........... (17,023) (12,667) Net increase in cash ......................................... 19,365 21,985 Cash at beginning of year .................................... 41,728 22,153 ------ ------ Cash at end of period ........................................ $ 61,093 $ 44,138 ====== ====== Interest paid ................................................ $ 810 $ 1,768 Income taxes paid ............................................ $ 30,811 $ 5,669
See Notes to Condensed Consolidated Financial Statements and Accountants' Review Report. 6 THE TOPPS COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THIRTY-NINE WEEKS ENDED NOVEMBER 27, 1999 1. Basis of Presentation The accompanying unaudited condensed interim consolidated financial statements have been prepared by The Topps Company, Inc. and subsidiaries (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, which are, in the opinion of management, considered necessary for a fair presentation. These statements do not include all information required by generally accepted accounting principles to be included in a full set of financial statements. Operating results for the thirteen weeks and thirty-nine weeks ended November 27, 1999 and November 28, 1998 are not necessarily indicative of the results that may be expected for the year ending February 26, 2000. For further information, refer to the consolidated financial statements and notes thereto in the Company's annual report for the year ended February 27, 1999. 2. Quarterly Comparison Management believes that quarter-to-quarter comparisons of sales and operating results are affected by a number of factors, including the timing of product introductions and variations in shipping and production scheduling requirements. Thus, annual sales and earnings amounts are unlikely to consist of equal quarterly portions. 3. Inventories (Unaudited) November February 27, 1999 27, 1999 -------- -------- (amounts in thousands) Raw materials.................. $ 2,746 $ 2,097 Work in process ............... 619 1,020 Finished products.............. 13,594 13,104 ------- ------ Total .................... $16,959 $16,221 ====== ====== 4. Segment Information Following is the breakdown of industry segments as required by SFAS No. 131. The Company has three reportable business segments: Collectible Sports Products, Confectionery and Entertainment Products. The Collectible Sports Products segment primarily consists of trading cards featuring players from Major League Baseball, the National Basketball Association, the National Football League and the National Hockey League as well as sticker/album products featuring players from certain European soccer leagues. The Confectionery segment consists of a variety of lollipop products including Ring Pop, Push Pop, Baby Bottle Pop and Flip Pop, the Bazooka bubble gum line and other children's confectionery products. 7 The Entertainment Products segment consists of trading cards, sticker/album products and magazines utilizing licenses that feature elements from popular films, television shows and other entertainment properties. The Company's management evaluates the performance of each segment based upon its contributed margin, which is net sales (defined as gross sales net of provisions for returns and discounts & allowances) less cost of goods, product development costs, advertising and promotional costs and obsolescence, but before unallocated general and administrative expenses and manufacturing overhead, depreciation and amortization, other income (expense), gains on disposition of assets and interest income (expense). The Company does not allocate assets among its business segments and therefore does not include a breakdown of assets or depreciation and amortization by segment.
Thirteen weeks ended Thirty-nine weeks ended November November November November 27, 1999 28, 1998 27, 1999 28, 1998 -------- -------- -------- -------- (In thousands of dollars) Net Sales Collectible Sports Products ............ $ 36,735 $ 39,050 $ 106,764 $ 90,515 Confectionery .......................... 30,569 23,922 100,944 79,413 Entertainment Products ................. 43,473 4,675 68,401 8,914 --------- --------- --------- --------- Total .................................. $ 110,777 $ 67,647 $ 276,109 $ 178,842 ========= ========= ========= ========= Contributed Margin Collectible Sports Products ............ $ 14,940 $ 13,809 $ 42,652 $ 33,602 Confectionery .......................... 9,382 5,729 29,999 21,457 Entertainment Products ................. 27,423 970 39,620 1,859 --------- --------- --------- --------- Total .................................. $ 51,745 $ 20,508 $ 112,271 $ 56,918 ========= ========= ========= ========= Reconciliation of contributed margin to income before provision for income taxes: Total contributed margin ............... $ 51,745 $ 20,508 $112,271 $ 56,918 Unallocated general and administrative expenses and manufacturing overhead .......... (13,993) (12,017) (40,656) (36,297) Depreciation & amortization ............ (1,138) (1,156) (3,363) (3,472) Other income (expense) ................. (63) (138) 402 (66) Gain on disposition of assets .......... -- -- -- 3,876 --------- --------- --------- --------- Income from operations ................. 36,551 7,197 68,654 20,959 Interest income (expense), net ......... 618 60 970 (531) --------- --------- --------- --------- Income before provision for income taxes $ 37,169 $ 7,257 $ 69,624 $ 20,428 ========= ========= ========= =========
8 INDEPENDENT ACCOUNTANTS' REPORT - ------------------------------- Board of Directors and Stockholders The Topps Company, Inc. We have made a review of the accompanying condensed consolidated balance sheet of The Topps Company, Inc. and subsidiaries (the 'Company') as of November 27, 1999, and the related condensed consolidated statements of operations and cash flows for the thirteen and thirty-nine week periods ended November 27, 1999 and November 28, 1998, in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical procedures to financial data, and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of February 27, 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated April 2, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 27, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP December 29, 1999 New York, New York 9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results ------------------------------------------------------------------------ of Operations ------------- Third Quarter of Fiscal 2000 (thirteen weeks ended November 27, 1999) compared - -------------------------------------------------------------------------------- to Third Quarter of Fiscal 1999 (thirteen weeks ended November 28, 1998) - ------------------------------------------------------------------------ Net sales for the third quarter of fiscal 2000 increased 63.8% to $110.8 million from $67.6 million for the same period last year. Net sales of collectible sports products, which consist of both sports cards and sports sticker/album products, decreased 5.9% to $36.7 million in the third quarter of fiscal 2000 from $39.0 million in the comparable quarter last year. This decrease was the result of two factors: the unfavorable timing of shipments of recurring products versus last year and a 3% real sales decrease. (The terms "real sales increase" and "real sales decrease" are used to denote increases or decreases that were not the result of the timing of shipments.) In the quarter, real sales of football and basketball products were slightly higher than last year, while real sales of baseball, international soccer and hockey were lower. Net sales of confectionery products increased 27.8% in the third quarter of this year to $30.6 million from $23.9 million in fiscal 1999. This growth was the result of the continued strength of Baby Bottle Pop, further domestic growth of core lollipop products and the successful introductions of Push Pop lollipops in Japan and gum-filled Pokemon lollipops in the U.S. and Canada. Confectionery sales in Brazil were less this year than last as a result of the currency devaluation. Net sales of entertainment products, which consist of entertainment cards, magazines and sticker/album products, increased to $43.5 million in the third quarter of fiscal 2000 from $4.7 million in fiscal 1999. Growth was the result of the continued success of Pokemon trading cards in the U.S. and Canada which accounted for approximately $38 million in net sales in the quarter. Gross profit as a percentage of net sales for the third quarter of fiscal 2000 increased to 52.9% as compared with 39.2% for the same period last year. This margin improvement was the result of an increase in the percentage of entertainment product sales, as well as the overall increase in revenues, which resulted in the leverage of fixed costs. Other income (expense) (previously referred to as Royalties and other income and expense), decreased to an expense of $63,000 in the third quarter of this year from an expense of $138,000 last year. This was primarily the result of the absence of a software write-off taken last year. Selling, general and administrative ('SG&A') expenses decreased as a percentage of net sales to 19.8% in the third quarter of fiscal 2000 from 28.4% a year ago as a result of the increase in sales. SG&A dollar spending increased to $21.9 million from $19.2 million due to higher freight costs and broker commissions as a result of the increase in sales, as well as costs related to the Company's Internet venture. Interest income (expense), net increased to $618,000 in fiscal 2000 from $60,000 in fiscal 1999 due to an increase in cash on hand and the repayment of the Company's outstanding term loan balance. The effective tax rate for the third quarter of fiscal 2000 was 41.0% versus an effective rate of 43.0% for the same period a year ago. Net income for the third quarter of fiscal 2000 was $21.9 million, or $0.46 per diluted share, as compared with $4.1 million, or $0.09 per diluted share, for the same period last year. 10 First Nine Months of Fiscal 2000 (thirty-nine weeks ended November 27,1999) - -------------------------------------------------------------------------------- compared to First Nine Months of Fiscal 1999 (thirty-nine weeks ended November - -------------------------------------------------------------------------------- 28, 1998) - -------- Net sales for the first nine months of fiscal 2000 increased 54.4% to $276.1 million from $178.8 million for the same period last year. Net sales of collectible sports products increased 18.0% to $106.8 million in the first nine months of fiscal 2000 from $90.5 million in the comparable period last year. This increase was the result of several factors including the shipment of basketball card products which normally would have occurred in the fourth quarter of fiscal 1999, but were delayed into fiscal 2000 due to the NBA lockout. Higher sales of baseball and football card products and the Company's return to the NHL hockey market also contributed to the increase. Sales of international soccer sticker/album products were less this year than last. Net sales of confectionery products increased 27.1% in the first nine months of this year to $100.9 million from $79.4 million in fiscal 1999. This growth was the result of the continuing success of Baby Bottle Pop and increased domestic sales of Ring Pop and Push Pop. Confectionery sales in Brazil were less this year than last as a result of the currency devaluation. Net sales of entertainment products increased to $68.4 million in the first nine months of fiscal 2000 from $8.9 million last year. This increase was primarily the result of sales of Pokemon cards in the U.S. and Canada which totaled $45 million, as well as sales of Star Wars products around the world. Gross profit as a percentage of net sales for the first nine months of fiscal 2000 increased to 48.4% as compared with 41.1% for the same period last year. This margin improvement was largely the result of the favorable product mix as well as the increase in sales overall which resulted in the leverage of fixed costs. Other income (expense) (previously referred to as Royalties and other income and expense), increased to $402,000 in the first nine months of this year from a $66,000 expense last year. This increase was primarily the result of the recovery of VAT (value added tax) taxes in Mexico and France. Selling, general & administrative ("SG&A") expenses decreased as a percentage of net sales to 23.7% in the first nine months of fiscal 2000 from 31.5% a year ago as a result of higher sales. SG&A dollar spending increased to $65.3 million from $56.4 million due to greater expenditures for advertising and marketing, higher broker commissions and freight costs as a result of the increase in sales and the Company's investment in its Internet venture. Income from operations in the first nine months of fiscal 1999 included a $3.9 million gain on the sales of the Company's manufacturing plant in Cork, Ireland and equipment from both the Cork, Ireland and Duryea, Pennsylvania facilities. Interest income (expense), net was $970,000 in the first nine months of fiscal 2000 versus an expense of $531,000 last year due to an increase in cash on hand and the reduction in the Company's outstanding term loan balance. The effective tax rate for the first nine months of fiscal 2000 was 41.0% versus 43.0% for the comparable period last year. Net income for the first nine months of fiscal 2000 was $41.1 million, or $0.86 per diluted share, compared with $11.6 million, or $0.25 per diluted share, for the same period last year. 11 Liquidity and Capital Resources - ------------------------------- In July 1995, the Company entered into a $65 million credit agreement with a syndicate of eight banks in order to finance the acquisition of Topps Europe, Ltd., formerly known as Merlin Publishing, Ltd., and to provide for working capital and letter of credit needs. In May 1998, the Company refinanced this facility with Chase Manhattan Bank. The new credit agreement included a term loan in the aggregate amount of $25.0 million (which was used to repay the prior loan) and a $9.5 million facility to cover letter of credit and revolver needs. The letter of credit and revolver facility was increased to $12.5 million in February 1999. The term loan was paid in full in October 1999. The letter of credit and revolver facility expire on July 6, 2000. This credit agreement is secured by a pledge of the Company's domestic trademarks and 65% of the stock of Topps Europe. Interest rates are variable and a function of short-term indices. 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 sell or acquire assets or borrow additional money and prohibits the payment of dividends. As of November 27, 1999, the Company had $61.1 million in cash. During the first nine months of fiscal 2000, the Company's net increase in cash and cash equivalents was $19.4 million versus $22.0 million in fiscal 1999. Cash provided by operating activities in the first nine months of this year was $38.2 million versus $29.4 million last year, as higher net income and an increase in payables and other current liabilities were partially offset by an increase in receivables. Cash (used in) provided by investing activities this year reflects $1.8 million in capital expenditures compared with $5.6 million in proceeds from the disposition of a manufacturing facility and related equipment and $ 0.3 million in capital expenditures last year. Cash used in financing activities reflects term loan payments of $15.8 million, stock repurchases of $2.1 million and cash from the exercise of employee stock options of $0.8 million this year, versus term loan payments of $12.7 million in the first nine months of last year. Management believes that, in light of the Company's borrowing capacity, cash on hand as of November 27, 1999 and expected cash flow from operations, the Company has adequate means to meet its working capital, capital expenditure, and other cash requirements for the foreseeable future. Year 2000 - --------- The Year 2000 issue is the result of computer programs using only two digits to identify a year in the date field. If not corrected, many systems could fail or create erroneous results on January 1, 2000 by reading the date as January 1, 1900. Failure to fix this problem could result in systems failures or miscalculations leading to disruption in the Company's operations. The Company began work on Year 2000 issues in 1996. As of November 27, 1999, all of the Company's mainframe programs have been reviewed for compliance, and where necessary, programs have been fixed, tested and put into production. The Company has also addressed the needs of its other systems such as personal computers, customer and vendor systems, telephone systems and other electronic hardware. Year 2000 compliance costs have not significantly affected the financial condition or results of operations of the Company. The Company expects that its essential systems and business functions will be Year 2000 compliant in all material respects. Given that the Company's fiscal Year 2000 began on February 28, 1999, many essential operating systems have already proven to be Year 2000 compliant. In a worst case scenario, the Company believes that its essential processes could be handled manually. The Company has contacted key vendors, customers and other third parties regarding their Year 2000 readiness. No issues have been identified to date, however, the Company will continue to monitor these relationships and will develop contingency plans for dealing with risks, if necessary. The company has not experienced any Year 2000 disruptions as of the date of the filing of this report. 12 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) weakness in sales of basketball products due to last year's NBA lockout; (iii) quarterly fluctuations in results; (iv) the Company's loss of important licensing arrangements; (v) a decrease in the popularity of Pokemon licensed products without a corresponding increase in the popularity of a replacement product; (vi) technological, production, legal costs or other problems which result in the Company's inability to launch its Internet initiative; (vii) the failure of the Company's Internet initiative to achieve expected levels of success; (viii) the Company's loss of important supply arrangements with third parties; (ix) the loss of any of the Company's key customers or distributors; (x) further prolonged and material contraction in the trading card industry as a whole; (xi) further declines in the sale of U.K. Premier League sticker/album collections; (xii) excessive returns of the Company's products; (xiii) an adverse outcome in the Rodriguez Action; (xiv) civil unrest, currency devaluation or political upheaval in certain foreign countries in which the Company conducts business; (xv) significant disruption to the Company's operations due to Year 2000 failures; as well as other risks detailed from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission. 13 THE TOPPS COMPANY, INC. PART II OTHER INFORMATION ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits as required by Item 601 of Regulation S-K None 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE TOPPS COMPANY, INC. ----------------------- REGISTRANT /s/ Catherine Jessup ------------------------ Vice President - Chief Financial Officer January 11, 2000 15 EX-27 2 FDS --
5 (Replace this text with the legend) 0000812076 TOPPS 1,000 3-MOS Feb-26-2000 Aug-29-1999 Nov-27-1999 61,093 0 54,206 1,489 16,959 141,858 14,850 6,750 211,016 81,395 0 0 0 477 0 211,016 110,777 111,558 52,222 74,163 63 67 163 37,169 15,239 21,930 0 0 0 21,930 .47 .46
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