________________________________________________________________________________
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 March 3, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15817
THE TOPPS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2849283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices) (Zip Code)
(212) 376-0300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.01
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of Common Stock held by non-affiliates as of May
25, 2001 was approximately $411,000,000.
The number of outstanding shares of Common Stock as of May 25, 2001 was
43,541,800.
Documents incorporated by reference Part
----------------------------------- ----
Annual Report to Stockholders for the Year Ended March 3, 2001 I,II,IV
Proxy Statement for the 2001 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 marketer of premium-branded confectionery products including
lollipops such as Ring Pop, Push Pop and Baby Bottle Pop, Bazooka brand bubble
gum and certain novelty candy products. The Company also markets collectible
sports and entertainment picture products featuring professional athletes and
popular television, movie and other entertainment characters. These collectible
picture products include, among other things, trading cards and sticker album
collections.
In 1995, the Company acquired Merlin Publishing International Limited, a
U.K.-based marketer of licensed collectibles, primarily sticker album
collections. While continuing to market products under the Merlin brand name,
Merlin Publishing International Limited changed its corporate name to Topps
Europe Ltd. ("Topps Europe") in March 1997. During fiscal 1996 and 1997, the
Company established subsidiaries in Canada, Brazil and Argentina. The Company
has also expanded its distribution of confectionery products in the Far East,
particularly Japan. During fiscal 2001, the Company had employees in seven
countries and distributed its products in sixty countries.
PRODUCTS
Confectionery
The Company markets premium quality lollipops throughout the United States,
Canada, Europe and parts of Latin America and Asia. Core products include Ring
Pop (a lollipop made of candy molded into the form of an exaggerated precious
gem stone, anchored to a plastic ring), Push Pop (a cylinder-shaped lollipop
packaged in a plastic container with a removable cap, designed to enable
consumers to eat a portion of the pop now and save the rest for later) and Baby
Bottle Pop (a miniature baby bottle filled with fruit-flavored powder and topped
with a candy nipple).
________________________________________________________________________________
Trademarks of The Topps Company, Inc. and Subsidiaries appearing in this
report: Baby Bottle Pop, Bazooka, Bazooka Joe, Bowman, Bowman Chrome, Bowman's
Best, Bowman Reserve, Bubble Juice, Flip Pop, Garbage Pail Kids, Jumpin' Jumbo
Push Pop, Klip Pop, Mars Attacks, Merlin, Popzoid, Push Pop, Ring Pop, Topps,
Topps Chrome, Topps Finest, Topps Gallery, Topps Gold Label, Topps Heritage,
Topps Stadium Club, Treasure Pop, Triple Power Push Pop, Twisted Ring Pop and
Wacky Packages.
Unless otherwise indicated, all date references refer to calendar years.
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 ten-piece pack of traditional chunks, five-piece packs of soft
chunks, six-piece packs of soft sugarless bubble gum, as well as various box,
bag, tub and canister configurations. These packages are designed for
distribution across all major trade channels.
In fiscal 2000 and 2001, the Company marketed a line of Pokemon
confectionery products including Pokemon Pops (premium lollipops with a Bazooka
gum center sold with a Pokemon sticker), a Pokeball with a figure and candy
inside, Pokemon Popzoids (lollipops with collectible Pokemon character sticks)
and Pokemon Treasure Pops (lollipops with surprise Pokemon toys hidden inside
the handle). The Company sold Pokemon confectionery products primarily in the
U.S. and Canada in fiscal 2000 and throughout Europe in fiscal 2001.
In late fiscal 2001, the Company also introduced Twisted Ring Pop (two
flavors of candy swirled together in each pop) domestically and Jumpin' Jumbo
Push Pop (a spring-loaded version of Push Pop) domestically and in Europe. These
products will be rolled out across the U.S., Canada and Europe in fiscal 2002.
In fiscal 2002, the Company plans to introduce several products, including
cream-based Twisted Ring Pops, Jurassic Park Egg containers (plastic eggs with
dinosaurs and candy inside in conjunction with the release of the Jurassic Park
III movie), Marvel Popzoids (lollipops with collectible Marvel character sticks)
and Klip Pops (pops that clip to a child's backpack or belt). The Company will
also re-launch Bubble Juice (candy-coated bubble gum nuggets in miniature juice
containers). Finally, the upcoming fiscal year will feature the Company's launch
of some seasonal confectionery products, with the first products at retail
Christmas 2001, followed by additional products for Valentine's Day and Easter
2002.
Collectible Sports Products
---------------------------
The Company is a leading marketer of collectible picture products featuring
players of Major League Baseball, the National Basketball Association, the
National Football League, the National Hockey League and certain professional
soccer leagues. In the U.S. and Canada, picture products are generally sold in
the form of cards, while in the rest of the world picture products are typically
sold in the form of sticker album collections.
Card products contain photographs of athletes and other features, including
summary statistics, biographical material, and, occasionally, shreds of
memorabilia. 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, Bowman Reserve, Topps Gold Label and Topps Chrome.
The Company attempts to ensure that each brand of sports cards has its own
unique positioning in the marketplace.
2001 marks the 50th anniversary of Topps marketing baseball cards. In
conjunction with this notable anniversary, the Company inserted vintage cards
from each of the last 50 years in its Topps Baseball 2001 products. The Company
also introduced Topps Heritage, a retro brand with bubble gum in every pack,
which addresses a perceived consumer demand for nostalgia-based products and
capitalizes on Topps' heritage and history in the sports collectible industry.
All cards are high quality, showcasing various technologies and
state-of-the-art reproduction techniques. Cards may also include value-added
features such as foil stamping, film lamination, and small pieces of
memorabilia. Prices generally range from a suggested retail price of $0.99 per
pack to $7.00 per pack. The Company also sells products in box configurations
that are offered to the consumer at a suggested retail price of $100 or more.
The Company is continuously updating the features of its cards and seeking new
technologies. In the last year, increased consumer demand for autographs and
memorabilia has placed pressure on sports card margins.
The Company is also in the process of developing etopps, a trading card
brand that will be sold exclusively on the Internet. A test launch in December
among a select audience was met with enthusiasm, and a full launch is planned to
occur within the 2001 baseball season, once all the technology issues are
resolved.
Internationally, the Company has sports licenses for the U.K. Premier
League Soccer and England National Soccer teams as well as soccer licenses in
Italy. Sports sticker album collections, which are sold under the Merlin and
Topps brand names, are marketed throughout Europe and parts of Asia. Stickers
are sold in packages and display photos of popular local athletes and sports
teams. The stickers are designed so that they can be placed in an associated
album, which contains more detailed information and statistics regarding the
players and teams.
Entertainment Products
----------------------
The Entertainment Products segment consists of trading cards and sticker
album products featuring licenses from popular films, television shows and other
entertainment properties. Since the 1950's, the Company has marketed trading
cards featuring some of the dominant entertainment properties of the time,
including The Beatles, Elvis Presley, Star Wars, Michael Jackson, E.T.: The
Extra-Terrestrial, Indiana Jones, Batman, Teenage Mutant Ninja Turtles and
Jurassic Park. 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 products have experienced peaks and valleys
in terms of consumer interest. This volatility, coupled with the returns
exposure endemic to this business, has prompted the Company to be selective in
determining which entertainment licenses to pursue.
In fiscal 2000, through an agreement with Nintendo of America, the Company
obtained the rights to develop and market products including trading cards,
sticker album products and candy products, featuring the highly popular Pokemon
characters. The Company began distributing Pokemon cards in the U.S. and Canada
in August 1999 and expanded upon its domestic product line and introduced
product into Europe, Latin America and parts of Asia in fiscal 2001. The Company
published Pokemon sticker album collections in 21 countries and 17 languages. In
addition to Pokemon card products, the Company marketed three entertainment card
properties (Star Wars 3-D, N'Sync and X-Men) and Digimon sticker album
properties in Fiscal 2001.
In fiscal 2002, the Company plans to release a limited number of card and
sticker album products featuring licenses such as Marvel Legends (inspired by
the Marvel Super-Hero Universe), Planet of the Apes, Lord of the Rings, Star
Wars and Monsters, Inc. from Disney-Pixar.
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 March 3, 2001 (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.
In the U.S., the Company's internal staff handles sales of confectionery
products to national accounts. Confectionery sales to other channels are handled
by a nation-wide network of broker organizations. Topps confectionery products
reach thousands of retail outlets including supermarkets, drug, convenience
stores, mass merchandisers, warehouse clubs, dollar stores and video and other
specialty accounts. The Company's internal staff also handles U.S. sales of
sports and entertainment collectibles to approximately 4,000 hobby stores, hobby
distributors and category managers.
In Canada, sales of trading cards and confectionery products are handled by
a direct sales force and four regional brokers. Current distribution in Canada
is to over 10,000 retail outlets.
In the U.K., sales of both confectionery products and collectibles are
handled by a dedicated sales force as well as by wholesalers selling to
independent retailers. Together, the sales force and wholesalers reach
approximately 30,000 retail news and confectionery outlets. Elsewhere in Europe,
as well as in Latin America, Japan and the rest of Asia, sales are primarily
through distributors.
Advertising and Promotion
-------------------------
The Company utilizes a variety of marketing activities, including
television, radio and print advertising campaigns, sweepstakes and promotions
designed to create consumer awareness and increase retail sales of its products.
Advertising and marketing expenses (which encompass media spending, slotting
allowances, consumer promotions as well as player autograph and relic costs)
included in selling, general, and administrative expenses amounted to
$18,974,000 in fiscal 1999, $25,219,000 in fiscal 2000 and $29,565,000 in fiscal
2001.
Traditionally, the Company has also relied on the popularity of its sports
and other licensed products and the consumer recognition of its brand names to
help promote its products.
Approximately 80% of the Company's sales in fiscal 2001 were made on a
returnable basis. Industry practices require that the Company provide the right
to return on sales of trading card products (excluding those to hobby accounts),
on confectionery products and on sales of most sticker album products overseas.
Returns significantly in excess of the Company's returns provisions could have a
material adverse effect on the Company. Consolidated return provisions as a
percentage of gross sales for the fiscal years ended 1999, 2000 and 2001 were
8.3%, 8.5%, and 7.9%, respectively.
PRODUCTION
In December 1996, the Company discontinued operations at its Duryea,
Pennsylvania manufacturing facility. Concurrent with the Duryea plant closure,
Bazooka gum manufacturing was transferred to Hershey Foods Corporation and the
cutting, collating and packaging of card products previously performed at the
Duryea facility were outsourced to several manufacturers in the U.S.
Confectionery
-------------
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, Flip Pops, Popzoids,
Treasure Pops and Triple Power Push Pops are manufactured by a single supplier
in factories located in Taiwan, Thailand and China. The loss of production at
one or more of these facilities due to civil unrest or for any other reason
could have a material adverse impact on sales of the Company's lollipops.
The current agreement with Hershey Foods Corporation, which is renewed
annually for a five-year term, 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.
Sweeteners, flavors, paperboard, packaging materials, foil stamping, and UV
coating, among other things, are required to manufacture the Company's total
line of collectible picture and confectionery products and are generally
available to the Company. The Company relies 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.
Collectible Picture Products
----------------------------
In the U.S., photographs of athletes are generally taken by photographers
under contract with the Company or by free-lance photographers on special
assignment. In addition, certain photography is provided by the organizations
representing the leagues and their member teams. Pictures of entertainment
subjects are generally furnished by the licensor or created by artists retained
by the Company. Computerized graphic artwork and design development for all of
the Company's products is done by staff artists and through independent design
agencies under the Company's direction. The Company's Graphic Services
Department also utilizes state-of-the-art computerized technology to enhance and
color-correct photography and computer imaging to create interesting and unusual
backgrounds and visual effects.
High-quality substrates (paperboard, plastic, foil) are sent directly to
outside printers by the Company's suppliers. Pictures are printed utilizing a
variety of techniques, and sheets of printed cards are then often sent to
additional suppliers who foil stamp and UV (ultra violet) coat the sheets. Cards
that require specialized printing and the combination of various substrates like
plastic, polystyrene and holographic foils are purchased in full sheet form from
specialty printers. Full sheets are then delivered to contract packers where
they are cut into individual cards, collated and wrapped in a variety of package
configurations.
Sticker album production is subcontracted and coordinated by a single
supplier in Italy. Adhesive material and packaging are sourced and printed by
various subcontractors in Italy. The Company believes that there are other
suitable sources available to meet its requirements if the current supplier were
unable to meet the Company's needs.
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. The Company's inability to renegotiate successfully
its Major League Baseball, 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. 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. Although the agreement was due to
expire at the end of 2000, the parties have agreed to continue to operate under
its terms while a new agreement is negotiated. However, the inability of the
parties to reach a mutually satisfactory new agreement in the near term could
have a material adverse effect on the Company. 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 1999, 2000 and 2001
was $24,373,000, $43,403,000 and $46,727,000, respectively. See Note 18 of Notes
to Consolidated Financial Statements in the Annual Report, which is incorporated
herein by reference, for a description of minimum guarantee payments required
under the Company's existing sports and entertainment contracts.
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 December
through February. Sales of entertainment products tend to be driven by the
property on which they are based, often peaking with the release of a movie or
the rise in popularity of a television program or particular licensed property.
Sales of confectionery products are impacted by the introduction of competitive
new products and line extensions as well as competitive consumer and trade
support programs.
ENVIRONMENT
The Company believes that it is in compliance in all material respects with
existing federal, state and local regulations relating to the protection of the
environment. Such environmental regulations have not had a material impact on
the Company's capital expenditures, earnings or competitive position.
EMPLOYEES
The Company employed approximately 420 people in fiscal 2001.
All of the production employees at the Company's factory in Scranton,
Pennsylvania are represented by a union. Although the union agreement was due to
expire in 2000, union membership voted recently to approve an extension of the
agreement to February 2003.
The Company considers relations with its employees to be good.
CAUTIONARY STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby filing
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements of the Company made by or on behalf of the Company, whether oral or
written. The Company wishes to ensure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to maximize to the
fullest extent possible the protections of the safe harbor established in the
Reform Act. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the following important factors, among
others, that could cause the Company's actual results to differ materially from
those projected in forward-looking statements of the Company:
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 adversely affect its future plans and
results.
2. Contraction in Sports Card Industry. Although the Company believes that
it stabilized in 1999 and 2000, the sports card industry as a whole contracted
significantly over the last ten years. Further prolonged and material
contraction in the sports card industry, whether caused by labor strife or
otherwise, could materially adversely affect the Company's future plans and
results.
3. Declines in Sales of European Sticker Album Products. Sales of Topps
Europe's soccer sticker album collections have declined over the past several
years. Further significant declines in sales of these products could materially
adversely affect the Company's future plans and results.
4. Possible Labor Action in Baseball. The labor contract between the Major
League Baseball Players Association and Major League Baseball Properties is due
to expire at the end of the 2001 baseball season. Any work stoppage resulting
from the parties failure to reach a new agreement could materially adversely
affect the Company's future plans and results.
5. Returns. Approximately 80% of the Company's sales are made on a
returnable basis. Although the Company maintains returns provisions, returns
considerably in excess of the Company's provisions could materially adversely
affect its future plans and results.
6. 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 adversely affect the Company's future plans and
results.
7. 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 adversely affect the Company's future plans and
results.
8. Internet. The Company is making a significant investment in an Internet
strategy. There is no guarantee that the strategy will be implemented or, if
implemented, that it will be successful. Failure to implement or failure to
achieve expected levels of success could materially adversely affect the
Company's future plans and results.
9. 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 adversely affect
the Company's future plans and results.
10. Legal Proceedings. See Item 3: Legal Proceedings for a discussion of
legal matters that could materially adversely 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 confectionery products; (ii) the marketing and
distribution of collectible sports products; and (iii) the marketing and
distribution of entertainment products. Segment and geographic area information
contained in Note 15 of the Notes to Consolidated Financial Statements included
in the Annual Report is hereby incorporated by reference.
EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item with respect to the directors of the
Company and those executive officers who are also directors appearing in the
Proxy Statement for the annual meeting of stockholders scheduled to be held on
June 28, 2001 ("2001 Proxy Statement") is hereby incorporated by reference
thereto. Set forth below is information required by this item covering the other
executive officers of the Company.
Position with the Company and business
Name experience during the past five years
---- --------------------------------------
Ronald L. Boyum Vice President Marketing and Sales and General
Manager, Confectionery of the Company since
February 2000; Vice President - Marketing and
Sales of the Company since March 1995. Mr. Boyum
is 49 years of age.
Edward P. Camp Vice President of the Company since April 1997
and President of the Hobby Division since
October 1995. Mr. Camp held a number of sales-
related positions within the Company prior
thereto. Mr. Camp is 54 years of age.
Michael P. Clancy Vice President - International of the Company
since December 1998 and Vice President since
February 1995. Mr. Clancy has been Managing
Director - Topps International Ltd (formerly
Topps Ireland) since July 1990 and was Joint
Managing Director - Topps Europe Ltd. from
January 1997 to December 1998. Mr. Clancy is 46
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 64 years of age.
Position with the Company and business
Name experience during the past five years
---- --------------------------------------
Ira Friedman Vice President - Publishing and New Product
Development of the Company since September 1991.
Mr. Friedman joined the Company in October 1988.
Mr. Friedman is 47 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
45 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 52 years
of age.
John Perillo Vice President - Operations of the Company since
April 1995 and Vice President-Controller and
Chief Financial Officer of the Company from
April 1990 to July 1995. Mr. Perillo is 44 years
of age.
Scott Silverstein Executive Vice President of the Company since
February 2000. Prior thereto, Mr. Silverstein
ran the Pokemon business for Topps since 1999
and was the 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. Silver-
stein was an attorney with the law firm of
Ingram Yuzek Gainen Carroll & Bertolotti from
April 1990 until July 1993. Prior thereto, he
was an attorney with the law firm of Shea &
Gould. Mr. Silverstein is the son-in-law of
Mr. Shorin, the Company's Chairman of the Board,
Chief Executive Officer and President. Mr.
Silverstein is 39 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; 2003
Scranton, Pennsylvania Manufacturing plant 41,000 Owned
Cork, Ireland Office 8,000 Leased; 2005
New York, New York Executive offices 60,000 Leased; 2010
Milton Keynes, United Kingdom Office and warehouse 10,000 Leased; 2014
The Company also leases offices in Canada, Brazil, Argentina and Italy. The
Company believes that its active facilities are in good repair and are suitable
for its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In November 1998, the Company was named as a defendant in a purported class
action commenced in the United States District Court for the Southern District
of California (the "California Court") entitled Rodriquez, et. al. v. The Topps
Company, Inc., No. CV 2121-B (AJB) (S.D. Cal.) (the "Class Action"). The Class
Action alleges that the Company violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the California Unfair Business Practices Act, by
its practice of selling sports and entertainment trading cards with
randomly-inserted "insert" cards, allegedly in violation of state and federal
anti-gambling laws. The Class Action seeks treble damages and attorneys' fees on
behalf of all individuals who purchased packs of cards at least in part to
obtain an "insert" card over a four-year period. On January 22, 1999, plaintiffs
moved to consolidate the Class Action with similar class actions pending against
several of the Company's principal competitors and licensors in the California
Court. On January 25, 1999, the Company moved to dismiss the complaint, or,
alternatively, to transfer the Class Action to the Eastern District of New York
or stay the Class Action pending the outcome of the Declaratory Judgment Action
pending in the Eastern District of New York. By orders dated May 14, 1999, the
California Court denied the Company's motions to dismiss or transfer the Class
Action but granted the Company's motion to stay the Class Action pending the
outcome of the Declaratory Judgment Action. The California Court also denied
plaintiffs' motion to consolidate the Class Action with similar purported class
actions. On April 18, 2000, the California Court entered an order requiring
plaintiffs in the Class Action as well as in the other purported Class Actions
to show cause why all such actions should not be dismissed. By order dated June
21, 2000, the California Court vacated its May 14, 2000 order denying the
Company's motion to dismiss the Class, dismissed the RICO claim in the Class
Action with prejudice and without leave to replead, and dismissed the pendent
state law claims without prejudice. Plaintiffs filed a notice of appeal of the
California Court's decision to the United States Court of Appeals for the Ninth
Circuit on July 21, 2000. Briefing has been completed but the Court has not yet
set a date to hear oral argument. If the Class Action were reinstated on appeal,
an adverse outcome in the Class Action could materially adversely affect the
Company's future plans and results.
On August 21, 2000, the Company was named as a defendant in a purported
class action commenced in the Superior Court of the State of California for the
County of Alameda (the "California State Court") entitled Chase et. al. v. The
Upper Deck Company, et. al. No. 830257-9 (the "California Class Action"). The
California Class Action alleges that the Company and other manufacturers and
licensors of sports and entertainment trading cards committed unlawful, unfair
and fraudulent business acts under the California Unfair Business Practices Act
(CUBPA) and the California Consumer Legal Remedies Act by the practice of
selling trading cards with randomly-inserted "insert" cards allegedly in
violation of state and federal anti-gambling laws and state consumer laws. The
California Class Action asserts three claims for relief and seeks declaratory,
equitable and injunctive relief and attorneys' fees on behalf of a purported
nationwide class of trading card purchasers. Plaintiff filed an amended
complaint on October 13, 2000, including an amendment to demand compensatory and
punitive damages and restitution. On December 14, 2000, plaintiff moved for
summary judgment on one of his CUBPA claims. On December 15, 2000, all
defendants filed a motion to dismiss two of the claims for failure to state a
claim upon which relief can be granted; a motion for summary judgment dismissing
the remaining claim; and a motion to strike all allegations of fraudulent or
deceptive representations and all references to plaintiff's prayer for monetary
relief. On March 29, 2001, the Court issued a tentative ruling granting
defendants' motion for summary judgment on the grounds that the defendant's
practices do not constitute illegal gambling as a matter of law, but denying the
demurrer to the extent that the remaining two claims allege false or misleading
advertising practices unrelated to the gambling issue. On March 30, 2001, in
accordance with the California State practice, the Court heard oral argument on
whether or not its tentative ruling should stand as a final ruling. Thereafter,
the court issued a tentative ruling denying the motion for summary adjudication
and demurrer and set a hearing for June 1, 2001 to hear additional argument on
the motion. An adverse outcome in the California Class Action could materially
adversely affect the Company's future plans and results.
On March 16, 2001, the MLBPA served upon the Company a notice of intention
to arbitrate, contending that the Company has no valid license from the Major
League baseball players authorizing it to manufacture and sell trading cards
containing game-used items, such as jerseys and bats. The MLBPA alleges that
absent a specific license from the Major League baseball players, the Company
should not be permitted to manufacture and sell such trading cards. The MLBPA
seeks injunctive and declaratory relief and an unspecified monetary award. The
Company believes that the Major League baseball players have authorized it to
manufacture and sell trading cards containing memorabilia pursuant to the grant
of a license contained in the standard Baseball Players Picture License
Agreement ("BPPLA") between Topps and the ballplayers. On March 28, 2001,
pursuant to the arbitration clause of the BPPLA, the Company designated David G.
Ebert, Esq. and the MLBPA designated Steven Fehr as their respective partisan
arbitrators. Messrs. Ebert and Fehr have selected Frank H. Wohl, Esq. as the
neutral arbitrator. The parties have exchanged requests for documents. Discovery
is proceeding. No hearing date has been set.
In November 2000, the Commission of the European Communities began an
investigation into whether Topps Europe Limited's distribution arrangements for
its licensed products comply with European law. The Commission is seeking
information as to whether Topps Europe Limited has engaged in the prevention of
parallel trade between the member states of the European Union and/or European
Economic Area, in infringement of Article 81 of the EC Treaty and/or Article 54
of the EEA Treaty. Topps Europe Limited filed a response to the Commission's
enquiry on November 29, 2000, and provided further information to the Commission
on February 2, 2001, pursuant to its request. The Commission is continuing its
investigation, and an adverse outcome in its findings could result in a
substantial fine.
In all the above matters, the Company's management believes that it has
meritorious defenses and intends to vigorously defend against these claims.
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
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Reference is made to the data appearing on page 30 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 31 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 28 and to
the Report of Independent Public Accountants appearing on page 29 of the Annual
Report which are hereby incorporated by reference.
ITEM 9. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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 2001 Proxy
Statement and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item appears in the 2001 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 2001 Proxy Statement and
is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item appears in the 2001 Proxy Statement
and is hereby incorporated by reference.
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 20-22.
(b) Reports on Form 8-K
None
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 22, 2001 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 22nd day of May 2001 by the following persons on
behalf of the Registrant and in the capacities indicated.
/Arthur T. Shorin/ /Catherine K. Jessup/
------------------------- ---------------------------
Arthur T. Shorin Catherine K. Jessup
Chairman, Chief Executive Vice President-Chief Financial Officer
Officer and President (Principal Financial and
(Principal Executive Officer) Accounting Officer)
/Allan A. Feder/ /David M. Mauer/
------------------------- ---------------------------
Allan A. Feder David M. Mauer
Director Director
/Stephen D. Greenberg/ /Jack H. Nusbaum/
------------------------- ---------------------------
Stephen D. Greenberg Jack H. Nusbaum
Director Director
/Ann Kirschner/ /Richard Tarlow/
------------------------- ---------------------------
Ann Kirschner Richard Tarlow
Director Director
/Stanley Tulchin/
---------------------------
Stanley Tulchin
Director
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 -- February 27, 1999, February
26, 2000 and March 3, 2001.
Consolidated Balance Sheets -- February 26, 2000 and March 3, 2001.
Consolidated Statements of Cash Flows -- February 27, 1999, February
26, 2000 and March 3, 2001.
Consolidated Statements of Stockholders' Equity -- February 27, 1999,
February 26, 2000 and March 3, 2001.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
(a)(2) Index to Independent Public Accountants'
Report and Financial Statement Schedules Page No.
---------------------------------------- -------
Report of Independent Public Accountants.......................... S-1
Schedule VIII -- Valuation and Qualifying Accounts - Years
Ended February 27, 1999, February 26, 2000 and March 3, 2001..... 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.
(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).
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 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
Index to Exhibits (continued)
10.19 Amended and Restated Employment Agreement with Arthur T. Shorin dated
March 1, 1999. (Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended February 27, 1999).
10.20 Pokemon Merchandise License Agreement - U.S. between the Company and
Nintendo of America, Inc., dated April 16, 1999. (Incorporated by
reference to the Company's Quarterly Report on Form 10Q for the
quarter ended August 28, 1999).
10.21 Pokemon Merchandise License Agreement - U.K. between the Company and
Nintendo of America, Inc., dated June 4, 1999. (Incorporated by
reference to the Company's Quarterly Report on Form 10Q for the
quarter ended August 28, 1999).
10.22 Credit Agreement, dated June 26, 2000, among The Topps Company, Inc.,
The Chase Manhattan Bank, and LaSalle Bank National Association.
(Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 3, 2001).*
10.23 Amendment Number One to Credit Agreement dated dated June 26, 2000.
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the fiscal year ended March 3, 2001).*
13 Annual Report (Except for those portions specifically incorporated by
reference, the 2001 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.*
27 Financial Data Schedule.*
*filed herewith
EXHIBIT 10.1: EXECUTIVE OFFICERS' ANNUAL BONUS PLAN
A fiscal 2002 Executive Officers Incentive Bonus Plan has been established,
with the payments to be made after the close of fiscal 2002. Executive Officers
become eligible for bonus payments only upon the Company achieving
pre-established figures for Consolidated Operating Profit (income before
interest, taxes, depreciation and amortization). Assuming that target figures of
Consolidated Operating Profit are achieved in fiscal 2002, each Executive
Officer will be eligible to receive between 40% and 60% of their base salary.
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 March 3, 2001 and February 26, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 3, 2001 and have issued our
report thereon dated April 4, 2001; such consolidated financial statements and
report are included in your 2001 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 4, 2001
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 at Charged to Charged Balance
Beginning Costs and Against Additions At End
Description Of Period Expenses Sales (Deductions) of Period
----------- --------- ---------- ------- ---------- ---------
Year Ended February 28, 1999:
Amortization of Sports,
Entertainment and Proprietary
Products ...................... $28,773 $ 1,898 -- -- $30,671
Amortization of Other Intangible
Assets ........................ $ 9,302 $ 721 -- -- $10,023
------- ------- ------- --------- -------
$38,075 $ 2,618 -- -- $40,693
======= ======= ======= ========= =======
Allowance for Estimated Losses
on Sales Returns .............. $19,258 -- $21,518 $ (28,147)(a) $12,629
======= ======= ======= ========= =======
Allowance for Doubtful Accounts . $ 1,161 $ 424 -- $ (448) $ 1,137
======= ======= ========= =======
Inventory Valuation Adjustment .. $ 7,950 $ 2,656 -- $ (5,309)(b) $ 5,297
======= ======= ======= ========= =======
==================================================================================================
Year Ended Febrary 26, 2000:
Amortization of Sports,
Entertainment and Propriety
Products ...................... $30,671 $ 1,898 -- -- $32,568
Amortization of Other Intangible
Assets ........................ $10,023 $ 721 -- -- $10,744
------- ------- ------- --------- -------
$40,693 $ 2,618 -- -- $43,312
======= ======= ======= ========= =======
Allowance for Estimated Loses
on Sales Returns .............. $12,629 -- $35,550 $ (24,558)(a) $23,621
======= ======= ======= ========= =======
Allowance for Doubtful Accounts . $ 1,137 $ 470 -- $ (192) $ 1,415
======= ======= ======= ========= =======
Inventory Valuation Adjustment .. $ 5,297 $ 8,411 -- $ (5,840)(b) $ 7,868
======= ======= ======= ========= =======
==================================================================================================
Year Ended March 03, 2001:
Amortization of Sports,
Entertainment and Proprietary
Products ...................... $32,568 $ 1,898 -- -- $34,466
Amortization of Other
Intangible Assets ............. $10,744 $ 720 -- -- $11,464
------- ------- ------- --------- -------
$43,312 $ 2,618 -- -- $45,930
======= ======= ======= ========= =======
Allowance for Estimated Losses
On Sales Returns .............. $23,621 -- $36,716 $ (37,343)(a) $22,994
======= ======= ======= ========= =======
Allowance for Doubtful Accounts . $ 1,415 $ 494 -- $ (291) $ 1,618
======= ======= ======= ========= =======
Inventory Valuation Adjustment .. $ 7,868 $ 3,989 -- $ (6,788)(b) $ 5,069
======= ======= ======= ========= =======
==================================================================================================
a) Returns charged against provision, net of recoveries
b) Disposals, net of recoveries
S-2