________________________________________________________________________________
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 2, 2002
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. [ ]
The aggregate market value of Common Stock held by non-affiliates as of May
15, 2002 was approximately $425,418,000.
The number of outstanding shares of Common Stock as of May 15, 2002 was
41,913,000.
Documents incorporated by reference Part
----------------------------------- ----
Annual Report to Stockholders for the Year Ended March 2, 2002 I,II,IV
Proxy Statement for the 2002 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
("Merlin"), a U.K.-based marketer of licensed collectibles, primarily sticker
album collections. While continuing to market products under the Merlin brand
name, Merlin changed its corporate name to Topps Europe Ltd. ("Topps Europe") in
March 1997. In August 2001, the Company acquired thePit.com, Inc. which operates
an Internet-based sports card exchange.
The Company, which is headquartered in New York, N.Y., also has offices in
Pennsylvania, Canada, the U.K., Ireland, Italy, Brazil and Argentina and
distributes 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. Branded lollipops include
Ring Pop (made of candy molded into the form of an exaggerated precious gem
stone and 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 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, Big Squirt, Bowman, Bowman's Best, Bowman
Chrome, Bowman Reserve, etopps, etopps.com, Flip N`Dip Push Pop, Garbage Pail
Kids, Jumpin' Jumbo Push Pop, Mars Attacks, Merlin, Popzoid, Push Pop, Ring Pop,
Ring Pop Twisted Fruit, Ring Pop Twisted Cream, Topps, Topps 206, Topps Chrome,
Topps Finest, Topps Gallery, Topps Gold Label, Topps Heritage, Topps Pristine,
Topps Stadium Club, Topps Tribute, Treasure Pop, Twisted Fruit Baby Bottle Pop,
Twisted Fruit Ring Pop and Wacky Packages.
Unless otherwise indicated, all date references refer to calendar years.
2
The Company has marketed 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. In addition to individual pieces, the Company sells multiple piece packs
of Bazooka which are designed for distribution across all major trade channels.
In fiscal 2000, 2001 and, to a lesser extent 2002, the Company marketed a
line of Pokemon confectionery products which included three types of lollipops:
Pokemon Sticker Pops (with a Bazooka-flavored gum center and a Pokemon sticker
inside the wrapper), Pokemon Popzoids (anchored on collectible Pokemon character
sticks) and Pokemon Treasure Pops (with surprise Pokemon mini-figures hidden
inside the handle). The Company also marketed a plastic container replica of the
Pokemon ball with candy and a decorated Pokemon figure packed inside.
Fiscal 2002 featured the Company's launch of seasonal confectionery
products focused on Christmas, Valentine's Day and Easter. Additionally, the
Company introduced line extensions including Ring Pop Twisted Fruit (two flavors
of candy swirled together in each pop) and Jumpin' Jumbo Push Pop (a larger Push
Pop where the pop rises automatically) and began roll out of Ring Pop Twisted
Cream in the U.S. The Company also introduced Big Squirt (liquid candy spray in
a tube) and two Marvel lollipops internationally.
In fiscal 2003, the Company plans to introduce Twisted Fruit Push Pop, Flip
N'Dip Push Pop, Twisted Fruit Baby Bottle Pop and certain other new products.
Collectible Sports Products
---------------------------
The Company is a leading marketer of collectible picture products comprised
of trading cards and sticker album collections. These products typically feature
professional sports figures from Major League Baseball, NFL Football, NBA
Basketball, NHL Hockey, English Premiere League Football (soccer) and Italian
Calcio Football. 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. In fiscal 2002, the Company
leveraged its sports knowledge and expertise by lauching etopps, a line of
sports cards sold exclusively online via an IPO format. The Company also
acquired thePit.com, a sports card exchange, representing its foray into the
secondary market for collectible trading cards.
Traditional card products contain photographs of athletes and other
features, including summary statistics, biographical material and occasionally,
pieces of memorabilia and/or players' autographs. 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 Heritage, Topps Finest, Topps Gallery, Topps Stadium
Club, Topps Gold Label, Topps Chrome, Bowman and etopps. The Company attempts to
ensure that each brand of sports cards has its own unique positioning in the
marketplace. For example, Topps Heritage, a retro brand with bubble gum in every
pack, addresses a perceived consumer demand for nostalgia-based products and
capitalizes on Topps' heritage and history in the sports collectible industry.
3
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, autographs and/or small pieces
of memorabilia. Prices generally range from a suggested retail price of $0.99
per pack to $7.00 per pack, although the Company has recently marketed packs
that are priced as high as $40.00. 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 couple of years, increased consumer demand
for autographs and memorabilia has placed pressure on sports card margins.
In October 2001, the Company launched etopps, a trading card brand sold
exclusively on the Internet at www.etopps.com. Each week on the etopps website,
a limited number of cards featuring distinguished veteran and rookie players are
offered for sale via "Initial Player Offerings", ("IPOs"). Upon assuming
ownership, a customer may take delivery of purchased cards, each of which come
in a special sealed protective case, or elect to have Topps hold the cards in
secured storage. Cards held by the Company can be tracked via personal on-line
portfolios and traded on an exclusive etopps trading floor on eBay. All etopps
cards adhere to ultra high-quality printing and manufacturing standards and have
pre-numbered counterfeit-proof stickers in order to assure authenticity.
In August 2001 the Company acquired all the outstanding common stock in
thePit.com, Inc. for $5.7 million in cash. ThePit.com makes a market in graded
rookie cards and provides a means by which collectors can buy and sell cards in
real time over the Internet.
Internationally, the Company has sports licenses for the England Premier
League Soccer and England National Soccer teams as well as for Italian soccer
leagues. 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 highly
selective in determining which entertainment licenses to pursue.
4
In fiscal 2000, through an agreement with Nintendo of America, the Company
obtained the rights to market products including trading cards, sticker albums
and candy, featuring the highly popular Pokemon characters. The Company began
distributing Pokemon cards in the U.S. and Canada in 1999 and introduced the
product in Europe, Latin America and parts of Asia in fiscal 2001. During the
fiscal 1999 to 2002 period, the Company distributed Pokemon products in 44
countries and 25 languages.
In addition to Pokemon cards and sticker album collections, in fiscal 2002
the Company marketed six entertainment card properties: Marvel Legends (inspired
by the Marvel Super-Hero Universe), Planet of the Apes, Lord of the Rings, Star
Wars, Monsters, Inc. and Enduring Freedom (which chronicled our nation's fight
against terrorism). Additionally, overseas the Company marketed Jurassic Park
and Rossanna sticker album products, Rossanna magazines, and World Wrestling
Federation stickers, magazines and merchandise.
In fiscal 2003, the Company plans to develop products based on a limited
number of entertainment licenses including Yu-Gi-Oh (non-card), Spider-Man and
Star Wars Episode II: Attack of the Clones.
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 2, 2002 (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., internal and field sales employees handle sales of
confectionery products to national accounts. Confectionery sales to other
channels are handled by a nationwide network of broker organizations managed by
Topps employees. Topps confectionery products reach thousands upon thousands of
retail outlets including supermarkets, drugstores, convenience stores, mass
merchandisers, warehouse clubs, dollar stores, video and other specialty
accounts. The Company's own employees also handle U.S. sales of sports and
entertainment collectibles to approximately 2,100 hobby stores, hobby
distributors and category managers.
In Canada, the Company's own internal sales organization handles sales of
confectionery and trading card products to national accounts. Confectionery and
trading card sales to all other channels are handled by one national broker.
Current distribution in Canada is to over 15,000 retail outlets.
5
In the U.K., sales of both confectionery products and collectibles are
handled by a dedicated field sales force augmented 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 Asian markets served, sales are generated
primarily through distributors.
Advertising and Promotion
-------------------------
The Company utilizes a variety of marketing techniques, including
television, radio and print advertising campaigns, sweepstakes and promotions
designed to create consumer awareness and stimulate retail sales of its
products. New U.S. advertising campaigns were launched in fiscal 2002 for Ring
Pop and Push Pop brands. Advertising and marketing expenses (which encompass
media spending, slotting allowances and consumer promotions) included in
selling, general, and administrative expenses amounted to $22,885,000 in fiscal
2000, $24,529,000 in fiscal 2001 and $22,064,000 in fiscal 2002.
Approximately 80% of the Company's fiscal 2002 sales were made on a
returnable basis. Industry practice requires that the Company provide the right
to return on sales of trading card products (excluding those to certain channels
of distribution), on confectionery products and on sales of most sticker album
products overseas. Consolidated return provisions net of reversals as a
percentage of gross sales for the fiscal years ended 2000, 2001 and 2002 were
8.5%, 7.5% and 4.4% respectively. Returns significantly in excess of the
Company's returns provisions could have a material adverse effect on the
Company.
PRODUCTION
Confectionery
-------------
Ring Pop lollipops for sale in North America 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 most of the
Company's other lollipop products 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.
Bazooka bubble gum is produced by the Hershey Foods Corporation under a
contract which is renewed annually for a five-year term. This contract 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. Failure by Hershey to
supply the Company on a timely basis could have a material adverse effect on
sales of Bazooka until the Company could make other arrangements.
6
Ingredients, 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, although alternative suppliers are generally
available. Were any of these single sources no longer available to the Company,
some adjustment in product specification might be required.
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 respective 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 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 production is subcontracted and coordinated by a single supplier in
Italy, and album production is subcontracted to three suppliers 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 suppliers 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 England and with players and teams with
regard to soccer in Italy. The Company's inability to renegotiate successfully
its Major League Baseball or NFL Football agreements upon expiration, or the
loss of either license agreement, could have a material adverse effect on the
Company.
7
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
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 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 expired 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 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 2000, 2001 and 2002
was $43,403,000, $46,727,000, and $25,669,000,respectively. See Note 19 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.
8
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 new products
and line extensions as well as by 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 455 people in fiscal 2002.
All of the production employees at the Company's factory in Scranton,
Pennsylvania are represented by a union. The current union agreement expires in
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:
9
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. The Company believes that the
sports card industry as a whole has 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. 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 2002 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.
4. 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.
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 adversely 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 adversely affect the Company's future plans and
results.
7. Internet. The Company is making a significant investment in an Internet
strategy. There is no guarantee that the strategy will be successful. The
failure of the Company's Internet business to achieve expected levels of success
could materially adversely affect the Company's future plans and results.
8. 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.
9. 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.
10
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.
11
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 27, 2002 ("2002 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 50 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 55 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 47
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 65 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 48 years of age.
12
Position with the Company and business
Name experience during the past five years
---- --------------------------------------
Warren Friss Vice President - Internet Business and General
Counsel since June 2001. Mr. Friss has been
General Counsel of the Company since February
2000. Mr. Friss joined the Company as Deputy
General Counsel in May 1995. Mr. Friss is 38
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
46 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 53 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 45 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.
Silverstein 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 40 years of age.
13
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 71,000 Leased; 2006
Scranton, Pennsylvania** Manufacturing plant 41,000 Owned
Cork, Ireland** Office 8,000 Leased; 2005
New York, NY* Executive offices 60,000 Leased; 2009
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.
------------------------------
*Serves all business segment
**Serves confectionery segment
14
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. Oral argument was held on December 5, 2001 but the
Court has not yet issued a decision. If the Class Action were reinstated on
appeal, an adverse outcome in the Class Action could materially 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 Chaset, 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 (CLRA) 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.
15
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. On June 12, 2001, the Court denied both motions. On September 21,
2001, plaintiff moved for class certification. Briefing and discovery concerning
the class certification issue was completed in January 2002, and oral argument
was heard on February 27, 2002. On March 7, 2002, Judge Sabraw of the California
State Court issued a ruling denying class certification under the CUBPA and
granting class certification under the CLRA. On April 2, 2002, the defendants
filed a joint motion to dismiss the CLRA cause of action. Plaintiff has
indicated that he intends to appeal the ruling denying class certification under
the CUBPA. On April 18, 2002, the Court issued a tentative ruling dismissing the
CLRA action. A hearing was scheduled on the matter on April 26, 2002. The Court
has not yet issued a final ruling in the matter.
In November 2000, the Commission of the European Communities began an
investigation into whether Topps Europe's distribution arrangements for its
licensed products comply with European law. The Commission is seeking
information as to whether Topps Europe has engaged in the prevention of parallel
trade between the member states of the European Union and/or European Economic
Area, in infringement of Article 81 of the EC Treaty and/or Article 54 of the
EEA Treaty. Topps Europe filed a response to the Commission's 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.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
17
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, and reference is also made to the Equity Compensation
Plan Incentive on page 8 of the 2002 Proxy.
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 30 and to
the Report of Independent Public Accountants appearing on page 31 of the Annual
Report which are hereby incorporated by reference.
ITEM 9. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
18
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 2002
Proxy Statement and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item appears in the 2002 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 2002 Proxy Statement
and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item appears in the 2002 Proxy Statement
and is hereby incorporated by reference.
19
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 22.
(3) Listing of Exhibits
See index on pages 23-25.
(b) Reports on Form 8-K
None
20
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 31, 2002 THE TOPPS COMPANY, INC.
------------------------
Registrant
/Arthur T. Shorin/
------------------------
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 31st day of May 2002 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 Mauer/
---------------------- -----------------
Allan A. Feder David 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
/Edward D. Miller/ /Stanley Tulchin/
-------------------- --------------------
Edward D. Miller Stanley Tulchin
Director Director
21
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 26, 2000, March 3,
2001 and March 2, 2002.
Consolidated Balance Sheets -- March 3, 2001 and March 2, 2002.
Consolidated Statements of Cash Flows -- February 26, 2000, March 3,
2001 and March 2, 2002.
Consolidated Statements of Stockholders' Equity -- February 26, 2000,
March 3, 2001 and March 2, 2002.
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 26, 2000, March 3, 2001 and
March 2, 2002 .......................................... 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.
22
(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).
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).
23
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).
10.14 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 10Q 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).
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).
24
Index to Exhibits (continued)
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).
10.24 Amended and Restated Employment Agreement (the "Agreement"),
effective as of the 1st day of June, 2001, by and between The
Topps Company, Inc., a Delaware corporation (the "Company"), and
Arthur T. Shorin, a resident of New York (the "Executive").
10.25 2001 Stock Incentive Plan (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 2, 2002).*
13 Annual Report (Except for those portions specifically
incorporated by reference, the 2002 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
25
EXHIBIT 10.1: EXECUTIVE OFFICERS' ANNUAL BONUS PLAN
A fiscal 2003 Executive Officers Incentive Bonus Plan has been established,
with payments to be made after the close of fiscal 2003. 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). Bonus payments can increase
upon the additional achievement of certain pre-determined strategic objectives.
Assuming achievement of minimum target figures for Consolidated Operating Profit
in fiscal 2003, each Executive Officer will be eligible to receive 20% of their
base salary as bonus, increasing to a maximum of 60% of base salary should
Consolidated Operating Profit exceed minimum target figures and/or strategic
objectives be met.
26
INDEPENDENT AUDITORS' REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Topps Company, Inc.:
We have audited the accompanying consolidated balance sheets of The Topps
Company, Inc. and Subsidiaries as of March 2, 2002 and March 3, 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 2, 2002 and have
issued our report thereon dated April 3, 2002; such consolidated financial
statements and report are included in your 2002 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 on these financial statements 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 /
---------------------------
Deloitte & Touche LLP
New York, New York
April 3, 2002
S-1
27
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 Charge to Charged Balance
at Beginning Costs and Against Additions At End
Description of Period Expenses Sales (Deductions) of Period
-------------------------------------------------------------------------------------------
Year Ended February 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 Losses
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 Propriety
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 $ -- $ 38,018 $(37,343)(a) $ 24,296
======== ======= ======== ========= ========
Allowance for Doubtful Accounts $ 1,415 $ 494 $ -- $ (291) $ 1,618
======== ======= ======== ========= ========
Inventory Valuation Adjustment $ 7,868 $ 3,989 $ -- $ (6,788)(b) $ 5,069
======== ======= ======== ========= ========
===========================================================================================
Year Ended March 02, 2002:
Amortization of Sports,
Entertainment and Propriety
Products ..................... $ 34,466 $ 1,898 $ -- $ -- $ 36,363
Amortization of Other
Intangible Assets ........... $ 11,464 $ 955 $ -- $ -- $ 12,419
-------- ------- -------- --------- --------
$ 45,930 $ 2,852 $ -- $ -- $ 48,782
======== ======= ======== ========= ========
Allowance for Estimated Losses
on Sales Returns ........... $ 24,296 $ -- $ 11,681 $(20,102)(a) $ 15,875
======== ======= ======== ========= ========
Allowance for Doubtful Accounts $ 1,618 $ (224) $ -- $ (160) $ 1,234
======== ======= ======== ========= ========
Inventory Valuation Adjustment $ 5,069 $ 2,461 $ -- $ (3,005)(b) $ 4,525
======== ======= ======== ========= ========
===========================================================================================
a) Returns charged against provision, net of recoveries
b) Disposals, net of recoveries
S-2
28