UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended November 29, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _______________ to _________________
Commission File Number: 0-15817
THE TOPPS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2849283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices, including zip code)
(212) 376-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act). Yes X No _. -
The number of outstanding shares of Common Stock as of January 8, 2003 was
40,557,451.
THE TOPPS COMPANY, INC.
AND SUBSIDIARIES
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PART I - FINANCIAL INFORMATION
--------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Index Page
-----
Condensed Consolidated Balance Sheets as of November 29,
2003 and March 1, 2003 3
Condensed Consolidated Statements of Operations for the
thirteen and thirty-nine week periods ended November
29, 2003 and November 30, 2002 4
Condensed Consolidated Statements of Comprehensive Income
for the thirteen and thirty-nine week periods ended
November 29, 2003 and November 30, 2002 5
Condensed Consolidated Statements of Cash Flows for the
thirty-nine week period ended November 29, 2003
and November 30, 2002 6
Notes to Condensed Consolidated Financial Statements 7
Report of Independent Public Accountants 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 16
ITEM 3. DISCLOSURES ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES 21
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
2
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 29 March 1,
2003 2003
---- ----
(amounts in thousands,
except share data)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 89,552 $114,259
Accounts receivable - net 23,967 25,205
Inventories 33,196 28,681
Income tax receivable 911 2,029
Deferred tax assets 3,474 3,267
Prepaid expenses and other
current assets 12,184 10,302
-------- --------
TOTAL CURRENT ASSETS 163,284 183,743
PROPERTY, PLANT AND EQUIPMENT 31,496 28,941
Less: accumulated depreciation
and amortization 17,392 14,335
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 14,104 14,606
GOODWILL 67,587 48,839
INTANGIBLE ASSETS, net of
accumulated amortization 11,053 6,041
OTHER ASSETS 10,744 8,399
-------- --------
TOTAL ASSETS $266,772 $261,628
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 8,345 $ 9,074
Accrued expenses and other liabilities 27,048 29,243
Income taxes payable 1,806 3,942
-------- --------
TOTAL CURRENT LIABILITIES 37,199 42,259
OTHER LIABILITIES 23,423 22,601
-------- --------
TOTAL LIABILITIES 60,622 64,860
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01
per share; authorized 10,000,000 shares,
none issued - -
Common stock, par value $.01 per share;
authorized 100,000,000 shares; issued
49,244,000 shares as of November 29, 2003
and March 1, 2003 492 492
Additional paid-in capital 27,475 27,344
Treasury stock, 8,769,000 shares and
8,564,000 shares as of November 29, 2003
and March 1, 2003, respectively (82,324) (80,791)
Retained earnings 269,390 262,877
Accumulated other comprehensive loss,
net of income taxes (8,883) (13,154)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 206,150 196,768
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $266,772 $261,628
======== ========
See Notes to Condensed Consolidated Financial Statements.
3
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended
November 29, November 30, November 29, November 30,
2003 2002 2003 2002
---- ---- ---- ----
(amounts in thousands, except share data)
Net sales $ 78,580 $ 66,667 $227,563 $224,427
Cost of sales 54,665 45,007 146,124 144,814
-------- -------- -------- --------
Gross profit on sales 23,915 21,660 81,439 79,613
Selling, general and administrative expense 23,281 20,487 69,188 61,686
Other operating income (expense) 21 (360) 345 (138)
-------- -------- -------- --------
Income from operations 655 813 12,596 17,789
Interest income, net 445 673 1,929 1,873
-------- -------- -------- --------
Income before provision (benefit) for
income taxes 1,100 1,486 14,525 19,662
Provision (benefit) for income taxes 118 (1,424) 4,750 4,719
-------- -------- -------- --------
Net income $ 982 $ 2,910 $ 9,775 $ 14,943
======== ======== ======== ========
Net income per share - basic $ 0.02 $ 0.07 $ 0.24 $ 0.36
- diluted 0.02 0.07 0.23 0.35
Weighted average shares outstanding - basic 40,530,000 41,064,000 40,610,000 41,562,000
- diluted 41,822,000 41,850,000 41,726,000 42,457,000
See Notes to Condensed Consolidated Financial Statements.
4
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended
November 29, November 30, November 29, November 30,
2003 2002 2003 2002
---- ---- ---- ----
(amounts in thousands)
Net income $ 982 $ 2,910 $ 9,775 $14,943
Currency translation adjustment 3,301 131 4,271 2,456
------- ------- ------- -------
Comprehensive income $ 4,283 $ 3,041 $14,046 $17,399
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
5
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine weeks ended
November 29 November 30,
2003 2002
---- ----
(amounts in thousands)
Cash flows from operating activities:
Net income $ 9,775 $14,943
Add/(subtract) non-cash items included in
net income:
Depreciation and amortization 4,798 3,681
Deferred income taxes (207) 139
Change in operating assets and liabilities:
Accounts receivable 4,133 4,151
Inventories (1,120) (5,133)
Income tax receivable (1,019) 2,669
Prepaid expenses and other current assets (1,542) (2,178)
Payables and other current liabilities (7,574) (5,306)
Other assets and liabilities 359 (3,414)
--------- --------
Cash provided by operating activities 7,603 9,552
--------- --------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (28,593) -
Additions to property, plant and equipment (1,989) (2,995)
--------- --------
Cash used in investing activities (30,582) (2,995)
--------- --------
Cash flows from financing activities:
Dividends paid to shareholders (3,262) -
Purchase of treasury stock and
exercise of stock options (1,406) (12,084)
--------- ---------
Cash used in financing activities (4,668) (12,084)
--------- ---------
Effect of exchange rates on cash and cash
equivalents 2,940 2,681
Net decrease in cash and cash equivalents $(24,707) $ (2,846)
========= =========
Cash and cash equivalents at beginning of period $ 114,259 $ 121,057
Cash and cash equivalents at end period $ 89,552 $ 118,211
Supplemental disclosure of cash flow information:
Interest paid $ 133 $ 82
Income taxes paid $ 4,741 $ 8,242
See Notes to Condensed Consolidated Financial Statements.
6
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 29, 2003
1. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed interim
consolidated financial statements have been prepared by The Topps Company,
Inc. and its subsidiaries (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments which are, in the opinion of management, considered necessary
for a fair presentation. Operating results for the thirteen and thirty-nine
week periods ended November 29, 2003 and November 30, 2002 are not
necessarily indicative of the results that may be expected for the year.
For further information refer to the consolidated financial statements and
notes thereto in the Company's annual report for the year ended March 1,
2003.
Employee Stock Options: The Company accounts for stock-based employee
compensation based on the intrinsic value of stock options granted in
accordance with the provisions of APB 25, "Accounting for Stock Issued to
Employees." Information relating to stock-based employee compensation,
including the pro forma effects, had the Company accounted for stock-based
employee compensation based on the fair value of stock options granted in
accordance with SFAS 123, "Accounting for Stock-Based Compensation," is
shown below:
(In thousands of dollars, except per share data)
For the thirteen weeks ended
November 29, 2003 November 30, 2002
------------------------ ------------------------
As reported Pro forma As reported Pro forma
------------------------ ------------------------
Net income $ 982 $ 633 $ 2,910 $ 2,573
--------------------------------------------- ------------------------
Earnings per share
Basic $ 0.02 $ 0.02 $ 0.07 $ 0.07
Diluted $ 0.02 $ 0.02 $ 0.07 $ 0.06
--------------------------------------------- ------------------------
For the thirty-nine weeks ended
November 29, 2003 November 30, 2002
------------------------ ------------------------
As reported Pro forma As reported Pro forma
------------------------ ------------------------
Net income $ 9,775 $ 8,877 $14,943 $14,268
--------------------------------------------- ------------------------
Earnings per share
Basic $ 0.24 $ 0.22 $ 0.36 $ 0.34
Diluted $ 0.23 $ 0.21 $ 0.35 $ 0.33
--------------------------------------------- ------------------------
Options typically vest over a three-year period. In determining the
preceding pro forma amounts under SFAS 123, the fair value of each option
grant is estimated as of the date of grant using the Black-Scholes option
pricing model with the following assumptions: $0.16 per share dividend on
fiscal 2004 options, but no dividend on fiscal 2003 and fiscal 2002
options; risk free interest rate, estimated volatility and expected life as
follows: fiscal 2004 options - 4.4%, 38% and 6.5 years, respectively;
fiscal 2003 options - 4.5%, 35% and 6.5 years, respectively; fiscal 2002
options - 5.7%, 59% and 6.7 years, respectively. There was no stock-based
employee compensation in any year, so no adjustment to net income is
required to the proforma figures.
7
2. Quarterly Comparison
Management believes that quarter-to-quarter comparisons of sales and
operating results are affected by a number of factors, including, but not
limited to, the timing of sports and entertainment releases, new product
introductions, seasonal products, the timing of various expenses such as
advertising and variations in shipping and factory scheduling requirements.
Thus, quarterly results may vary.
3. Accounts Receivable
(Unaudited)
November 29, March 1,
2003 2003
---- ----
(amounts in thousands)
Gross receivables ..................... $ 45,849 $ 43,250
Reserve for returns ................... (19,346) (16,443)
Reserve for discounts and bad debt .... (2,536) (1,602)
---------- --------
Net ................................. $ 23,967 $ 25,205
========== =========
4. Inventories
(Unaudited)
November 29, March 1,
2003 2003
---- ----
(amounts in thousands)
Raw materials ......................... $ 6,747 $ 6,162
Work in process ....................... 3,960 2,229
Finished products ..................... 22,489 20,290
-------- --------
Total ............... ............... $ 33,196 $ 28,681
======== ========
5. Segment Information
Following is the breakdown of industry segments as required by SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
The Company has two reportable business segments: Confectionery and
Entertainment.
The Confectionery segment consists of a variety of candy products including
Ring Pop, Push Pop and Baby Bottle Pop, the Bazooka bubble gum line and
licensed confections including Pokemon and Yu-Gi-Oh! products.
8
The Entertainment segment primarily consists of cards and sticker album
products featuring sports and non-sports licenses. Trading cards feature
players from Major League Baseball, the National Basketball Association,
the National Football League, and the National Hockey League, as well as
characters from popular films, television shows and other entertainment
properties. Sticker album products feature players from the English Premier
League, as well as characters from entertainment properties including
Pokemon and Yu-Gi-Oh! This segment also includes results from WizKids, a
designer and marketer of strategy games acquired in July 2003.
The Company's management regularly evaluates the performance of each
segment based upon its contributed margin, which is profit after cost of
goods, product development, advertising and promotional costs and
obsolescence, but before unallocated general and administrative expenses
and manufacturing overhead, depreciation and amortization, other income
(expense), net interest and income taxes.
The Company does not allocate assets between its business segments and
therefore does not include a breakdown of assets or depreciation and
amortization by segment.
Thirteen weeks ended Thirty-nine weeks ended
November 29, November 30, November 29, November 30,
2003 2002 2003 2002
---- ---- ---- ----
(amounts in thousands)
Net Sales
---------
Confectionery ........................ $ 31,886 $ 29,225 $119,227 $114,575
Entertainment ........................ 46,694 37,442 108,336 109,852
-------- -------- -------- --------
Total ................................ $ 78,580 $ 66,667 $227,563 $224,427
======== ======== ======== ========
Contributed Margin
------------------
Confectionery ........................ $ 9,253 $ 9,819 $ 38,493 $ 40,977
Entertainment ........................ 10,964 9,602 28,383 28,697
-------- -------- -------- --------
Total $ 20,217 $ 19,421 $ 66,876 $ 69,674
======== ======== ======== ========
Reconciliation of Contributed Margin
to Income Before Provision for
Income Taxes:
Total contributed margin ............. $ 20,217 $ 19,421 $ 66,876 $ 69,674
Unallocated general and
administrative expense
and manufacturing overhead ......... (17,629) (17,000) (49,827) (48,066)
Depreciation and amortization ........ (1,954) (1,248) (4,798) (3,681)
Other income (expense) ............... 21 (360) 345 (138)
--------- --------- --------- ---------
Income from operations ............... 655 813 12,596 17,789
Interest income, net ................. 445 673 1,929 1,873
--------- --------- --------- ---------
Income before provision for income
taxes .............................. $ 1,100 $ 1,486 $ 14,525 $ 19,662
========= ========= ========= =========
6. Dividends
On June 26, 2003, the Board of Directors of the Company declared a
quarterly cash dividend of $0.04 per share, payable on August 1, 2003 to
shareholders of record on July 18, 2003. On October 8, 2003, the Board of
Directors of the Company declared a quarterly cash dividend of $0.04 per
share, payable on October 31, 2003 to shareholders of record on October 17,
2003.
9
7. Credit Agreement
On June 26, 2000, the Company entered into a credit agreement with Chase
Manhattan Bank and LaSalle Bank National Association. The agreement
provides for a $35.0 million unsecured facility to cover revolver and
letter of credit needs and expires on June 26, 2004. Interest rates are
variable and are a function of the Company's EBITDA. The credit agreement
contains restrictions and prohibitions of a nature generally found in loan
agreements of this type and requires the Company, among other things, to
comply with certain financial covenants, limits the Company's ability to
repurchase its shares, sell or acquire assets or borrow additional money
and prohibits the payment of dividends. The credit agreement may be
terminated by the Company at any point over the four-year term (provided
the Company repays all outstanding amounts thereunder) without penalty. On
June 1, 2002, the credit agreement was amended to provide for an increase
in the number of shares of Topps common stock permitted to be repurchased,
and the credit agreement was subsequently amendeded to permit the payment
of dividends subject to the same limitations for share repurchases. There
was no debt outstanding as of November 29, 2003.
8. Reclassifications
Effective March 3, 2002, the Company adopted the EITF Issue No. 00-14
"Accounting for Sales Incentives" which requires certain trade promotion
expenses, such as slotting fees, to be presented as a reduction in sales.
As a result, trade promotion expenses for the thirteen weeks ended November
29, 2003 and November 30, 2002 of $1,392,000 and $584,000, respectively,
and for the thirty-nine weeks ended November 29, 2003 and November 30, 2002
of $2,845,000 and $2,250,000, respectively, have been reported as a
reduction of net sales rather than as marketing expense. These changes did
not impact reported earnings in either period.
9. Goodwill and Intangible Assets
On March 3, 2002, the Company adopted SFAS 141 "Business Combinations" and
SFAS 142 "Goodwill and Other Intangible Assets" which require the Company
to prospectively cease amortization of goodwill and instead conduct
periodic tests of goodwill for impairment.
As a result of the July 2003 acquisition of WizKids goodwill and other
intangibles increased by $18.7 million and $6.2 million, respectively (see
Note 11).
10
Intangible assets consisted of the following as of November 29, 2003 and
March 1, 2003:
(amounts in thousands)
November 29, 2003 March 1, 2003
(Unaudited)
Gross ' Gross
Carrying Accumulated ' Carrying Accumulated
Value Amortization Net ' Value Amortization Net
--------------------------------------'--------------------------------------
Licenses & Contracts $21,569 $17,104 $ 4,465 ' $21,879 $16,594 $ 5,285
Intellectual Property 18,784 12,993 5,791 ' 12,584 12,473 111
Software & Other 2,953 2,695 258 ' 2,953 2,602 351
Min. Pension Liab. 539 - 539 ' 294 - 294
------- ------- ------- ' ------- ------- -------
Total Intangibles $43,845 $32,792 $11,053 ' $37,710 $31,669 $ 6,041
======= ======= ======= ' ======= ======= =======
Over the next five years the Company estimates annual amortization of the
intangible assets detailed above to be as follows:
Fiscal Year Amount
----------- ------
(in thousands)
2004 $ 2,251
2005 $ 1,797
2006 $ 1,797
2007 $ 1,750
2008 $ 1,703
In addition to the amortization of intangibles listed above, reported
amortization expense, which was $1,802,000 for the thirty-nine weeks ended
November 29, 2003, included amortization of deferred financing fees and
deferred compensation costs.
10. Legal Proceedings
In November 2000, the Commission of the European Communities (the
"Commission") began an investigation into whether Topps Europe's
distribution arrangements for its licensed products comply with European
law (the "EU investigation"). The Commission was 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 inquiry
on November 29, 2000, and provided further information to the Commission on
February 2, 2001, pursuant to its request. The Commission continued its
investigation by submitting new requests for documents and information in
early 2003. On June 17, 2003, the Commission took the first formal step in
the investigation and filed a Statement of Objections, therein coming to a
preliminary conclusion that Topps and its European subsidiaries infringed
Article 81 of the EC treaty during 2000. Topps and Topps Europe have each
formally responded to the Statement of Objections and a hearing in front of
the European Commission Tribunal took place on October 23, 2003. If the
Commission were to levy a fine that is ultimately upheld, it could be
substantial. The maximum amount of the fine that could be levied against
Topps and Topps Europe is 10% of annual revenues.
11
On February 17, 2000, Telepresence, Inc. sued Topps and nine other
manufacturers of trading cards (the "Defendants") in the Federal District
Court for the Central District of California for infringement of U.S.
Patent No. 5,803,501 which was issued on September 8, 1998 ("the 501
Patent"). In its suit, Telepresence contended that the patent covers all
types of "relic" cards that contain an authentic piece of equipment, i.e.,
a sporting implement or jersey. Topps received an opinion of counsel that
its relic cards did not infringe the 501 Patent. After initial discovery,
on November 15, 2000 the Defendants jointly moved for summary judgement on
the grounds that the named Plaintiff (Telepresence, Inc.) did not have
standing to sue for infringement of the 501 Patent. The motion was granted
and the Telepresence litigation was dismissed with prejudice on March 28,
2001.
After the dismissal, the 501 Patent was assigned to a company called Media
Technologies, Inc. Media Technologies is under the control of the same
person (the inventor, Adrian Gluck) who orchestrated the Telepresence
action. On November 19, 2001, Media Technologies sued essentially the same
group of defendants in the same court for infringement of the 501 Patent.
On March 13, 2002, the Defendants again moved for summary judgment based on
the fact that the Telepresence action was dismissed with prejudice. That
motion was granted by the District Court on April 22, 2002. Plaintiff
(Media Technologies, Inc.) appealed on May 2, 2002. The Court of Appeals
for the Federal Circuit reversed the judgment on July 11, 2003, and the
case has been returned to Judge Stotler in the Central District of
California for trial.
Discovery in the case commenced September 29, 2003. A scheduling conference
was held before Judge Stotler on October 20, 2003 at which time the
pretrial schedule was decided and a stay was entered on all willfulness and
damages discovery until January 20, 2004. Under the current schedule, trial
is set to commence on November 9, 2004. Judge Stotler advised that she will
not conduct a separate claim construction hearing, but will instead decide
such issues in the context of summary judgment motions that are filed. An
adverse outcome in the litigation could result in a substantial liability
for the Company.
11. Acquisition of Wizkids, LLC
On July 9, 2003, the Company acquired Wizkids, LLC ("WizKids") for a cash
purchase price of approximately $28.4 million. WizKids, a designer and
marketer of collectible strategy games, is headquartered in Bellevue,
Washington, and generated net revenues in calendar year 2002 of
approximately $33 million, principally in the U.S. The acquisition was
accounted for using the purchase method of accounting. The financial
statements of WizKids have been consolidated into the financial statements
of the Company subsequent to its date of acquisition, and an 8K/A including
proforma financial information has been filed. The allocation of the
purchase price has been reflected in the financial statements contained
herein.
The total consideration payable by the Company to the WizKids' shareholders
is comprised of $29.5 million in cash, offset by a purchase price
adjustment based on the level of WizKids working capital at the closing.
The working capital adjustment is the amount by which net working capital
at the closing was less than the required $3.7 million benchmark level.
$28,284,469 was paid at closing to the shareholders of WizKids based on a
preliminary negative working capital adjustment of $1,215,531, which was
followed by a final payment of $92,031 in the third quarter. Additionally,
the allocation of the purchase price includes $6.2 million for the
intellectual property rights associated with the WizKids product line which
is being amortized over a estimated useful life of 6 years.
12
The Company entered into an employment agreement with Jordan Weisman, the
majority shareholder and founder of WizKids, for a forty-eight month period
following the closing. As part of this employment agreement, $2 million of
the consideration paid to Mr. Weisman is being accounted for as deferred
compensation expense and is being amortized over four years. If Mr. Weisman
does not remain as a Topps employee for the full four years of the
agreement, he will be required to pay the Company the remainder of the
unamortized balance of his deferred compensation. As an additional part of
his employment agreement, Mr. Weisman is also entitled to contingent
payments during the forty-eight months subsequent to the closing equal to
2% of WizKids' annual net revenue in excess of $35 million, assuming that
certain operating margin targets are met. In addition, Mr. Weisman was
granted 165,000 options to acquire the Company's common stock, which were
granted at fair market value on the date of grant and are vested over a
four-year period.
The following table sets forth the components of the purchase price:
Total consideration $ 29,500,000
Less: working capital adjustment (1,123,500)
deferred compensation agreement (2,000,000)
Add: purchase of license 1,326,130
estimated transaction costs 700,000
------------
Total purchase price $ 28,402,630
============
The following table provides the preliminary estimated fair value of the
acquired assets and liabilities assumed based upon WizKids' July 9, 2003
balance sheet:
Current assets $ 8,201,851
Property and equipment 564,743
Other assets 115,000
Liabilities assumed, current (5,426,072)
------------
Fair value of net assets acquired 3,455,522
Intangible assets 6,200,000
Goodwill 18,747,108
------------
Total estimated fair value of net
assets acquired and estimated goodwill $ 28,402,630
============
The impact of including Wizkids in the condensed consolidated statements of
operations on a pro forma basis as if the acquisition had occurred on March
3, 2002 is as follows:
Thirteen weeks ended Thirty-nine weeks ended
November 29, November 30, November 29, November 30,
2003 2002 2003 2002
---- ---- ---- ----
Net sales $ 78,580 $ 79,137 $240,951 $252,769
Income from operations 655 3,520 10,793 23,593
Net income $ 982 $ 4,640 $ 8,664 $ 18,666
======== ======== ======== ========
Net income per share - basic $ 0.02 $ 0.11 $ 0.21 $ 0.45
- diluted 0.02 0.11 0.21 0.44
13
12. Recently Issued Accounting Pronouncements
In January of 2003, FASB Interpretation No. (FIN) 46, "Consolidation of
Variable Interest Entities and Interpretation of ARB No. 51," was issued
and applies immediately to variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains
an interest after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003 to variable interest entities in which
an enterprise holds a variable interest that it acquired before February 1,
2003. This Interpretation clarifies the application of ARB No. 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other
parties. This Statement did not have a material effect on the Company's
consolidated results of operations or financial position.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative
Financial Instruments and Hedging Activities," was issued and is effective
for contracts entered into or modified after June 30, 2003, except as
stated below and for hedging relationships designated after June 30, 2003.
The changes in this Statement improve financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly. In
particular, this Statement (1) clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a
derivative discussed in paragraph 6(b) of Statement 133, (2) clarifies when
a derivative contains a financing component, (3) amends the definition of
an underlying guarantee to conform it to language used in FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others"
and (4) amends certain other existing pronouncements. This Statement did
not have a material effect on the Company's consolidated results of
operations or financial position.
In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity," was issued and is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable
financial instruments of nonpublic entities. This Statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. This Statement did not
have a material effect on the Company's consolidated results of operations
or financial position.
13. Subsequent Events
On January 8, 2004, the Board of Directors of the Company declared a
regular quarterly cash dividend of $0.04 per share, payable on January 30,
2004 to shareholders of record on January 16, 2004.
14
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders of
The Topps Company, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of The
Topps Company, Inc. and subsidiaries (the "Company") as of November 29, 2003,
and the related condensed consolidated statements of operations and
comprehensive income for the thirteen and thirty-nine week periods ended
November 29, 2003 and November 30, 2002 and of cash flows for thirty-nine weeks
ended November 29, 2003 and November 30, 2002. These financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of March 1, 2003, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated April 4, 2003, we expressed an
unqualified opinion (and included an explanatory paragraph with respect to the
adoption of the non-amortization provisions for goodwill and other indefinite
lived intangible assets, as discussed in Note 6 to the consolidated financial
statements) on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 1, 2003 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
s/ DELOITTE & TOUCHE LLP /s
January 9, 2004
New York, New York
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Third Quarter Fiscal Year 2004 (thirteen weeks ended November 29, 2003) versus
------------------------------------------------------------------------------
Third Quarter Fiscal Year 2003 (thirteen weeks ended November 30, 2002)
-----------------------------------------------------------------------
The following table sets forth, for the periods indicated, net sales by key
business segment:
Thirteen weeks ended Thirty-nine weeks ended
November 29, November 30, November 29, November 30,
2003 2002 2003 2002
---- ---- ---- ----
(In thousands of dollars)
Net Sales
---------
Confectionery $ 31,886 $ 29,225 $ 119,227 $ 114,575
Entertainment 46,694 37,442 108,336 109,852
--------- --------- --------- ---------
Total $ 78,580 $ 66,667 $ 227,563 $ 224,427
========= ========= ========= =========
Net sales for the third quarter of fiscal 2004 increased $11.9 million, or
17.9%, to $78.6 million from $66.7 million for the same period last year.
WizKids, acquired in July of this year, contributed $6.8 million of this
increase, and stronger foreign currencies versus the dollar increased sales by
another $2.0 million.
Net sales of confectionery products, which include, among other things, Ring
Pop, Push Pop, Baby Bottle Pop, Bazooka brand bubble gum and licensed candy
products, increased $2.7 million, or 9.1%, in the third quarter of this year to
$31.9 million from $29.2 million in fiscal 2003. The increase, the majority of
which occurred in international markets, was largely due to the roll out of
Juicy Drop Pop, sales of licensed candy containers in Europe and stronger sales
of seasonal products domestically.
Net sales of entertainment products, which consist of cards, stickers, albums
and the WizKids line of strategy games, increased $9.2 million, or 24.7%, to
$46.7 million in the third quarter of fiscal 2004 from $37.4 million in the same
period last year. This increase was primarily the result of the WizKids
acquisition. Additionally, sales of non-sports publishing products were above
last year, driven by sales of Yu-Gi-Oh! products in Europe and Garbage Pail Kids
stickers domestically. Sales of traditional sports cards were flat in the
quarter versus last year, with the timing of football products and higher sales
of basketball products offseting a 20% reduction in the number of releases.
Internet sales continued to run below year-ago levels.
Gross profit as a percentage of net sales of 30.4% in the third quarter of
fiscal 2004 was lower than last year's 32.5% primarily due to costs associated
with slow-moving products at WizKids.
SG&A as a percentage of net sales was 29.6% in the third quarter of fiscal 2004
versus 30.7% a year ago, and SG&A dollar spending increased to $23.3 million
from $20.5 million. The dollar increase was largely the result of the WizKids
acquisition, increased marketing costs due to new product introductions and
increased media activity worldwide as well as legal expense associated with the
European Commission legal case. The increase in SG&A expense versus last year
was partially offset by an accrual last year for a legal settlement.
16
Interest income, net of $445,000 in the quarter this year was below year-ago
levels due to lower interest rates and reduced cash balances following the
WizKids acquisition.
The effective tax rate reflects provisions for federal, state and local income
taxes in accordance with statutory income tax rates. The Company`s tax rate was
10.7% in the third quarter of this year versus a credit last year. In both
years, the unusually low tax rate was a function of a reduction in the full year
tax rate outlook.
Net income for the third quarter of fiscal 2004 was $982,000, or $0.02 per
diluted share, compared with $2.9 million, or $0.07 per diluted share last year.
Contained within the fiscal 2004 figures is a WizKids pre-tax loss of $3.0
million, or $0.05 per diluted share.
Nine Months Fiscal 2004 (thirty-nine weeks ended November 29, 2003) versus
--------------------------------------------------------------------------
Nine Months Fiscal 2003 (thirty-nine weeks ended November 30, 2002)
-------------------------------------------------------------------
Net sales in the first nine months of fiscal 2004 increased $3.2 million, or
1.4%, to $227.6 million from $224.4 million for the same period last year.
WizKids added $11.8 million in sales, and stronger foreign currencies versus the
dollar increased sales by another $6.6 million this year.
Net sales of confectionery products increased $4.6 million, or 4.1%, in the
first nine months of this year to $119.2 million from $114.6 million in fiscal
2003, primarily as the result of the introduction of Juicy Drop Pop and Baby
Bottle Pop with Candy Juice as well as higher sales of Pokemon and Yu-Gi-Oh!
confectionery products in Europe.
Net sales of entertainment products decreased $1.6 million, or 1.4%, in first
nine months of this year to $108.3 million from $109.9 million despite the
WizKids acquisition which added $11.8 million to sales during the period. The
decrease was primarily the result of lower sales of traditional sports cards in
the U.S., a larger reversal last year of the returns provision for European
sports products, and lower sales of products sold via the Internet.
Gross profit as a percentage of net sales for the first nine months of fiscal
2004 increased slightly to 35.8% as compared with 35.5% for the same period last
year. This improvement was the result of lower royalty expense due to a reduced
percentage of licensed products this year as well as to a reduction in overhead
costs at our Scranton, Pennsylvania manufacturing facility. Partially offsetting
these improvements were costs associated with slow-moving products at WizKids.
SG&A expense was $69.2 million for the first nine months of fiscal 2004 compared
to $61.7 million in 2003. The acquisition of WizKids added $4.1 million in
overhead and $0.7 million in amortization costs. In addition, increased
marketing associated with new product introductions and media activity in the
U.S. and Europe, stronger European currencies and higher legal expenses
contributed to greater costs this year. The absence of costs associated with a
legal settlement last year served to reduce expenses.
Interest income, net for the thirty-nine week period was unchanged at $1.9
million in fiscal 2004 versus $1.9 million in fiscal 2003, as interest from a
tax refund received in the first quarter of this year offset the impact of lower
interest rates and reduced cash balances following the WizKids acquisition.
The tax rate for the first nine months of fiscal 2004 was 32.7% versus 24.0% for
the same period last year which was favorably impacted by income tax credits.
Net income in first nine months of fiscal 2004 was $9.8 million, or $0.23 per
diluted share, compared with $14.9 million, or $0.35 per diluted share last
year.
17
Liquidity and Capital Resources
-------------------------------
Management believes that the Company has adequate means to meet its liquidity
and capital resource needs over the foreseeable future as a result of the
combination of cash on hand, anticipated cash from operations and credit line
availability.
At November 29, 2003, the Company had $89.6 million in cash and cash
equivalents.
On June 26, 2000, the Company entered into a credit agreement with Chase
Manhattan Bank and LaSalle Bank National Association. The agreement provides for
a $35.0 million unsecured facility to cover revolver and letter of credit needs
and expires on June 26, 2004. Interest rates are variable and are a function of
the Company's EBITDA. The credit agreement contains restrictions and
prohibitions of a nature generally found in loan agreements of this type and
requires the Company, among other things, to comply with certain financial
covenants, limits the Company's ability to repurchase its shares, sell or
acquire assets or borrow additional money and prohibits the payment of
dividends. The credit agreement may be terminated by the Company at any point
over the four year term (provided the Company repays all outstanding amounts
thereunder) without penalty. On June 1, 2002, the credit agreement was amended
to provide for an increase in the number of shares of Topps common stock
permitted to be repurchased, and the credit agreement was subsequently amended
to permit the payment of dividends subject to the same limitation for share
repurchases. There was no debt outstanding as of November 29, 2003.
In October 1999, the Board of Directors authorized the Company to purchase up to
5 million shares of its stock. In October 2001, purchases against this
authorization were completed, and the Board of Directors authorized the purchase
of up to an additional 5 million shares of stock. During the third quarter of
fiscal 2004, the Company did not purchase any shares. The Company has
repurchased a total of 2.9 million shares under the second authorization.
In the nine months ended November 29, 2003, the Company's net decrease in cash
and cash equivalents was $24.7 million versus a decrease of $2.8 million in the
comparable period of fiscal 2003. Cash provided by operating activities this
year was $7.6 million versus $9.6 million last year largely due to a reduction
in net income and a greater cash pension contribution, partially offset by a
lesser increase in inventory this year than last.
Cash used in investing activities of $30.6 million this year versus $3.0 million
last year, reflects the $28.6 million purchase of WizKids this year. Outside of
the WizKids acquisition, the cash use in both periods reflects the Company's
capital spending.
Cash used in financing activities reflects $3.3 million in cash dividends and
$1.4 million of net treasury stock purchases this year, versus net treasury
stock purchases of $12.1 million in fiscal 2003. There were no purchases of
treasury stock in the third quarter of this year.
18
Cautionary Statements
---------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby filing
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements of the Company made by or on behalf of the Company, whether oral or
written. Among the factors that could cause the Company's actual results to
differ materially from those indicated in any such forward statements are: (i)
the failure of certain of the Company's principal products, particularly sports
cards, entertainment cards, lollipops and sticker album collections, to achieve
expected sales levels; (ii) the Company's inability to produce timely, or at
all, certain new planned confectionery products; (iii) quarterly fluctuations in
results; (iv) the Company's loss of important licensing arrangements; (v) the
failure of etopps, the Company's on-line trading card initiative, to achieve
expected levels of success; (vi) the Company's loss of important supply
arrangements with third parties; (vii) the loss of any of the Company's key
customers or distributors; (viii) further prolonged and material contraction in
the trading card industry as a whole; (ix) excessive returns of the Company's
products; (x) civil unrest, currency devaluation, health-related issues, or
political upheaval in certain foreign countries in which the Company conducts
business; (xi) an adverse outcome in the EU investigation; and (xii) the failure
of certain new products being introduced by WizKids to achieve expected levels
of success; as well as other risks detailed from time to time in the Company's
reports and registration statements filed with the Securities and Exchange
Commission.
Critical Accounting Policies
----------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires Topps management to
make estimates and assumptions that affect the reported amounts of revenue,
expenses, assets, liabilities and the disclosure of contingent assets and
liabilities.
On an on-going basis, Topps management evaluates its estimates and judgments,
including those related to revenue recognition, goodwill and intangible assets,
and reserves, based on historical experience and on various other factors that
are believed to be reasonable under the circumstances. Actual results may differ
from these estimates. Note 1 to the Company's Annual Report "Summary of
Significant Accounting Policies" summarizes each of its significant accounting
policies. Additionally, Topps management believes the following critical
accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements:
Revenue Recognition: Revenue related to sales of the Company's products is
generally recognized when products are shipped, the title and risk of loss has
passed to the customer, the sales price is fixed or determinable and
collectibility is reasonably assured. Sales made on a returnable basis are
recorded net of a provision for estimated returns. These estimates are revised,
as necessary, to reflect actual experience and market conditions.
Intangible Assets: Intangible assets include trademarks and the value of sports,
entertainment and proprietary product rights. Amortization is by the
straight-line method over estimated lives of up to twenty years. Management
evaluates the recoverability of intangible assets under the provisions of SFAS
144, using several approaches including market multiples and undiscounted
projections of future cash flows attributable to the individual assets.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires Topps management to make estimates and
assumptions which affect the reporting of assets and liabilities as of the dates
of the financial statements and revenues and expenses during the reporting
period. These estimates primarily relate to the provision for sales returns,
allowance for doubtful accounts, inventory obsolescence and asset valuations.
Actual results could differ from these estimates.
19
ITEM 3. DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk associated with activities in derivative
financial instruments (e.g., hedging or currency swap agreements), other
financial instruments and derivative commodity instruments is confined to the
impact of mark-to-market changes in foreign currency rates on the Company's
forward contracts and options. The Company has no debt outstanding and does not
engage in any commodity-related derivative transactions. As of November 29,
2003, the Company had contracts and options which were entered into for the
purpose of hedging forecasted receipts and disbursements in various foreign
currencies and which, primarily due to the weakening of the U.S. dollar,
resulted in an unfavorable mark-to-market adjustment in the quarter.
20
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of the end of the period covered by this quarterly report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by us in the reports that
we file or submit under the Exchange Act.
(b) Changes in internal controls.
There have not been any changes in our internal control over financial reporting
(as such term is defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
21
PART II
ITEM 1. LEGAL PROCEEDINGS
In November 2000, the Commission of the European Communities (the "Commission")
began an investigation into whether Topps Europe's distribution arrangements for
its licensed products comply with European law (the "EU investigation"). The
Commission was 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 inquiry on November 29, 2000, and provided further information to
the Commission on February 2, 2001, pursuant to its request. The Commission
continued its investigation by submitting new requests for documents and
information in early 2003. On June 17, 2003, the Commission took the first
formal step in the investigation and filed a Statement of Objections, therein
coming to a preliminary conclusion that Topps and its European subsidiaries
infringed Article 81 of the EC treaty during 2000. Topps and Topps Europe have
each formally responded to the Statement of Objections and a hearing in front of
the European Commission Tribunal took place on October 23, 2003. If the
Commission were to levy a fine that is ultimately upheld, it could be
substantial. The maximum amount of the fine that could be levied against Topps
and Topps Europe is 10% of annual revenues.
On February 17, 2000, Telepresence, Inc. sued Topps and nine other manufacturers
of trading cards (the "Defendants") in the Federal District Court for the
Central District of California for infringement of U.S. Patent No. 5,803,501
which was issued on September 8, 1998 (the "501 Patent"). In its suit,
Telepresence contended that the patent covers all types of "relic" cards that
contain an authentic piece of equipment, i.e., a sporting implement or jersey.
Topps received an opinion of counsel that its relic cards did not infringe the
501 Patent. After initial discovery, on November 15, 2000 the Defendants jointly
moved for summary judgement on the grounds that the named Plaintiff
(Telepresence, Inc.) did not have standing to sue for infringement of the 501
Patent. The motion was granted and the Telepresence litigation was dismissed
with prejudice on March 28, 2001.
After the dismissal, the 501 Patent was assigned to a company called Media
Technologies, Inc. Media Technologies is under the control of the same person
(the inventor, Adrian Gluck) who orchestrated the Telepresence action. On
November 19, 2001, Media Technologies sued essentially the same group of
defendants in the same court for infringement of the 501 Patent. On March 13,
2002, the Defendants again moved for summary judgment based on the fact that the
Telepresence action was dismissed with prejudice. That motion was granted by the
District Court on April 22, 2002. Plaintiff (Media Technologies, Inc.) appealed
on May 2, 2002. The Court of Appeals for the Federal Circuit reversed the
judgment on July 11, 2003, and the case has been returned to Judge Stotler in
the Central District of California for trial.
Discovery in the case commenced September 29, 2003. A scheduling conference was
held before Judge Stotler on October 20, 2003 at which time the pretrial
schedule was decided and a stay was entered on all willfulness and damages
discovery until January 20, 2004. Under the current schedule, trial is set to
commence on November 9, 2004. Judge Stotler advised that she will not conduct a
separate claim construction hearing, but will instead decide such issues in the
context of summary judgment motions that are filed. An adverse outcome in the
litigation could result in a substantial liability for the Company.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K filed herewith:
10.1 First Amendment, effective August 1, 2003, to the Employment
Agreement, dated as of July 9, 2003 between WizKids, LLC and Jordan K.
Weisman*
10.2 Second Amendment, effective October 1, 2003, to the Employment
Agreement dated as of July 9, 2003, between WizKids, LLC and Jordan K.
Weisman*
31.1 Certification of Principal Executive Officer pursuant to Rules
13(a)-14(a) and 15(d)-14(a) under the Securities Exchange Act of 1934
31.2 Certification of Principal Financial Officer pursuant to Rules
13(a)-14(a) and 15(d)-14(a) under the Securities Exchange Act of 1934
32.1 Certification of Arthur T. Shorin, Chief Executive Officer and
President, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Catherine K. Jessup, Vice-President and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1. Form 8-K, dated November 19, 2003, reporting the termination of
discussions to acquire certain assets of the Foreign Candy Company,
Inc.
2. Form 8-K, dated January 8, 2004, with press release, dated January 7,
2004, reporting the Company's fiscal 2004 third quarter financial
results.
3. Form 8-K, dated January 8, 2004, with press release, dated January 8,
2004, reporting the Company's fourth quarter dividend declaration.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TOPPS COMPANY, INC.
-----------------------
REGISTRANT
s/ Catherine Jessup /s
----------------------------
Vice President-Chief Financial
Officer
January 13, 2004
*Filed herewith
23
Exhibit 10.1
FIRST AMENDMENT
TO EMPLOYMENT AGREEMENT
FIRST AMENDMENT, dated August 1, 2003 (this "First Amendment") to the
Employment Agreement, dated as of July 9, 2003 between WizKids, LLC, a Delaware
limited liability company (the "Company"), Jordan Weisman (the "Executive) and
for purposes of Sections 3(d) and 6(f) only, The Topps Company, Inc. ("Topps"),
a Delaware corporation.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the parties desire to amend the Agreement as more fully set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
agreements herein, the parties hereto agree as follows:
Defined Terms.
-------------
Unless otherwise defined herein, capitalized terms in this First Amendment shall
have the meanings ascribed to them in the Agreement.
Amendments.
-----------
Section 3(d) of the Agreement is hereby amended and restated in its entirety to
read as follows:
"(d) Options. On July 29, 2003, Topps shall grant the Executive an option
to purchase 165,000 shares of common stock of Topps, at an exercise price equal
to the Fair Market Value (as such term is defined in the Topps' 2001 Stock
Incentive Plan) as of such date. The option shall vest as to 41,250 shares as of
the date hereof, and shall vest as to an additional 41,250 shares on each of the
first, second, and third anniversaries of such date and shall otherwise be
subject to the terms and conditions of the Company's Topps 2001 Stock Incentive
Plan and a stock option agreement entered into between the parties hereto,
containing customary terms for similarly situated employees of Topps."
Miscellaneous.
--------------
The terms of this First Amendment and all rights and obligations of the parties
hereto shall be interpreted and governed by the laws of Delaware, without giving
effect to the choice of law principles thereof. No amendment or modification of
this First Amendment or the Agreement shall be valid or binding upon the parties
unless in writing and signed by both parties.
Enforceability of Agreement.
----------------------------
Except as otherwise specifically provided herein, the Agreement shall remain in
full force and effect in accordance with its terms, without any waiver,
amendment or modification of any provision thereof. All references in the
Agreement to "this Agreement" shall be deemed to refer to the Agreement as
amended by this First Amendment.
Counterparts.
-------------
This First Amendment may be executed in counterparts (including by facsimile),
each of which shall be deemed an original, but all of which shall constitute the
same instrument.
[signature page follows]
24
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date and year first above written.
WizKids, LLC
By: s/ Donald J. Gorski /s
-------------------------
Name: Donald J. Gorski
Title: President
By: s/ Jordan Weisman /s
---------------------
Jordan Weisman
TOPPS COMPANY, INC., solely with
respect to Sections 3(d) and 6(f)
of the Agreement.
By: s/ Warren Friss /s
-------------------
Name: Warren Friss
Title: Vice President
25
Exhibit 10.2
SECOND AMENDMENT
TO EMPLOYMENT AGREEMENT
SECOND AMENDMENT, dated October 1, 2003 (this "Second Amendment") to the
Employment Agreement, dated as of July 9, 2003 between WizKids, LLC, a Delaware
limited liability company (the "Company"), Jordan Weisman (the "Executive") and
for purposes of Section 3(a) only, The Topps Company, Inc. ("Topps"), a Delaware
corporation.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the parties desire to amend the Agreement as more fully set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
agreements herein, the parties hereto agree as follows:
Defined Terms.
--------------
Unless otherwise defined herein, capitalized terms in this Second Amendment
shall have the meanings ascribed to them in the Agreement.
Amendments.
-----------
Section 3(a) of the Agreement is hereby amended and restated in its entirety to
read as follows:
"(a) Salary. The Company shall pay to the Executive a salary (the "Salary")
of $200,000 per annum, payable in accordance with the payroll practices of the
Company as the same shall exist from time to time. The Salary shall be reviewed
for increase (but not decrease) on an annual basis coinciding with the fiscal
year end of the Company."
Miscellaneous.
--------------
The terms of this Second Amendment and all rights and obligations of the parties
hereto shall be interpreted and governed by the laws of Delaware, without giving
effect to the choice of law principles thereof. No amendment or modification of
this Second Amendment or the Agreement shall be valid or binding upon the
parties unless in writing and signed by both parties.
Enforceability of Agreement.
----------------------------
Except as otherwise specifically provided herein, the Agreement shall remain in
full force and effect in accordance with its terms, without any waiver,
amendment or modification of any provision thereof. All references in the
Agreement to "this Agreement" shall be deemed to refer to the Agreement as
amended by this Second Amendment.
Counterparts.
-------------
This Second Amendment may be executed in counterparts (including by facsimile),
each of which shall be deemed an original, but all of which shall constitute the
same instrument.
[signature page follows]
26
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date and year first above written.
WizKids, LLC
By: s/ Donald J. Gorski /s
----------------------
Name: Donald J. Gorski
Title: President
By: s/ Jordan Weisman /s
----------------------
Jordan Weisman
TOPPS COMPANY, INC., solely with
respect to Sections 3(a) of the
Agreement.
By: s/ Warren Friss /s
-------------------
Name: Warren Friss
Title: Vice President
27
Exhibit 31.1
FORM OF CERTIFICATION REQUIRED BY RULES 13(a)-14(a) AND 15(d)-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Arthur T. Shorin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Topps Company,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: January 13, 2004
THE TOPPS COMPANY, INC. s/ Arthur T. Shorin /s
----------------------- -------------------------
REGISTRANT Chairman, Chief Executive
Officer and President
28
Exhibit 31.2
FORM OF CERTIFICATION REQUIRED BY RULES 13(a)-14(a) AND 15(d)-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Catherine K. Jessup, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Topps Company,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e) for the registrant and we
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: January 13, 2004
THE TOPPS COMPANY, INC. s/ Catherine K. Jessup /s
----------------------- ------------------------------
REGISTRANT Vice President-Chief Financial
Officer
29
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Topps Company, Inc. (the
"Company") on Form 10-Q for the period ended November 29, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Arthur
T. Shorin, Chairman, Chief Executive Officer and President of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
s/ Arthur T. Shorin /s
-------------------------
Chairman, Chief Executive
Officer and President
January 13, 2004
30
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Topps Company, Inc. (the
"Company") on Form 10-Q for the period ended November 29, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Catherine K. Jessup, Vice President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
s/ Catherine K. Jessup /s
------------------------------
Vice President-Chief Financial
Officer
January 13, 2004
31