##### 



Exhibit 13
 
      Fiscal 2006
 Restructured The Business To Drive Operating Profitability:
 Created New Culture of Accountability:
 Reduced Direct and Indirect Costs:
 Strengthened Leadership to Support New Initiatives:
 
    
    Bazooka brand re-launch
    
    Improved sales through the hobby channel
    
    Sports marketing to kids
    
    New product development for candy
    
    Confectionery marketing and sales in Europe
 
 1




---



##### 



Improved Efficiency:
 Achieved Structural Marketing Changes to Benefit Each of our Business Units:
 Fiscal 2007
 entertainment
        2




---



##### 



CONFECTIONERY
  
    
    The re-launch of new Bazooka in the US
    
    Refreshing existing brands, and
    
    Introducing new products at home and abroad, an activity vital to long term growth.
    CONCLUSION
  3




---



##### 



With profound sorrow, we record the passing of our esteemed board member and friend
Stanley Tulchin. His vision, warmth and dedication will be well remembered by us all.
 4




---



##### 



Table of Contents
   PageStockholders Letter
    
    
    1Financial Highlights
    
    
    6Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    7Consolidated Financial Statements
    
    
    15Notes to Consolidated Financial Statements
    
    
    20Managements Report on Internal Control over Financial Reporting
    
    
    47Reports of Independent Registered Public Accounting Firm
    
    
    48Market and Dividend Information
    
    
    50Selected Consolidated Financial Data
    
    
    51Directors, Officers, Subsidiaries and Corporate Information
    
    
    52
  5




---



##### 



Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    
    26, 2005 (a)
    
    
    28, 2004 (a)(in thousands of dollars, except share data)Net sales
    
    $
    293,838
    
    
    $
    294,231
    
    
    $
    294,917Net income from continuing operations
    
    
    3,946
    
    
    
    11,268
    
    
    
    13,628Loss from discontinued operations  net of tax
    
    
    (2,707
    )
    
    
    (353
    )
    
    
    (744
    )Net income
    
    
    1,239
    
    
    
    10,915
    
    
    
    12,884Cash (used in) provided by operations
    
    
    (6,543
    )
    
    
    22,930
    
    
    
    11,954Working capital
    
    
    127,713
    
    
    
    139,910
    
    
    
    134,099Stockholders equity
    
    
    204,636
    
    
    
    219,168
    
    
    
    211,340Per share items:Diluted net income  from continuing operations
    
    $
    0.10
    
    
    $
    0.27
    
    
    $
    0.33Diluted net
income  after discontinued operations
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.31Cash dividend paid
    
    $
    0.16
    
    
    $
    0.16
    
    
    $
    0.12Weighted average diluted shares outstanding
    
    
    41,163,000
    
    
    
    41,327,000
    
    
    
    41,515,000
 
 (a)
    
    As restated, see Note 2 to Notes to Consolidated Financial Statements 6




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   CONSOLIDATED NET SALES
  Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    

26, 2005
    
    

28, 2004(in thousands of dollars)Confectionery
    
    $
    144,261
    
    
    $
    143,762
    
    
    $
    147,188Entertainment
    
    
    149,577
    
    
    
    150,469
    
    
    
    147,729Total
    
    $
    293,838
    
    
    $
    294,231
    
    
    $
    294,917
 Fiscal 2006 versus 2005*
     
 *
    
    Unless otherwise indicated, all date references to 2006, 2005 and 2004 refer to the
fiscal years ended February 25, 2006, February 26, 2005 and February 28, 2004, respectively. 7




---



##### 



Fiscal 2005 versus 2004
      8




---



##### 



RESULTS OF OPERATIONS
 Fiscal Year EndedFebruary
    
    
    
    
    
    
    February
    
    
    
    
    
    
    February25, 2006
    
    
    
    
    
    
    26, 2005
    
    
    
    
    
    
    28, 2004Net sales
    
    $
    293,838
    
    
    
    100.0
    %
    
    $
    294,231
    
    
    
    100.0
    %
    
    $
    294,917
    
    
    
    100.0
    %Cost of sales
    
    
    198,054
    
    
    
    67.4
    %
    
    
    189,200
    
    
    
    64.3
    %
    
    
    191,213
    
    
    
    64.8
    %Gross profit
    
    
    95,784
    
    
    
    32.6
    %
    
    
    105,031
    
    
    
    35.7
    %
    
    
    103,704
    
    
    
    35.2
    %Sales, general and
administrative expenses
    
    
    98,096
    
    
    
    33.4
    %
    
    
    92,350
    
    
    
    31.4
    %
    
    
    87,527
    
    
    
    29.7
    %(Loss) income from operations
    
    
    (2,312
    )
    
    
    (0.8
    %)
    
    
    12,681
    
    
    
    4.3
    %
    
    
    16,177
    
    
    
    5.5
    %
 Fiscal 2006 versus 2005
   9




---



##### 



Fiscal 2005 versus 2004
        10




---



##### 



Quarterly Comparisons
    Inflation
  Liquidity and Capital Resources
       11




---



##### 



Contractual Obligations
 Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterFuture payments under
non-cancelable leases
    
    $
    10,600
    
    
    $
    2,579
    
    
    $
    2,247
    
    
    $
    2,128
    
    
    $
    1,826
    
    
    $
    1,284
    
    
    $
    536Purchase obligations
    
    
    16,797
    
    
    
    11,011
    
    
    
    2,151
    
    
    
    952
    
    
    
    700
    
    
    
    700
    
    
    
    1,283Future payments under
royalty contracts
    
    
    81,642
    
    
    
    23,362
    
    
    
    20,167
    
    
    
    19,793
    
    
    
    18,320
    
    
    
    
    
    
    
    Total
    
    $
    109,039
    
    
    $
    36,952
    
    
    $
    24,565
    
    
    $
    22,873
    
    
    $
    20,846
    
    
    $
    1,984
    
    
    $
    1,819
  Critical Accounting Policies
  12




---



##### 



Revenue Recognition :
 Returns Provisions :
 Goodwill and Intangible Assets: Accounting for
the Impairment or Disposal of Long-lived Assets Goodwill and
Other Intangible Assets
 Intangible Assets : Accounting for the Impairment
or Disposal of Long-lived Assets
 Accruals for Obsolete Inventory :
 Income Taxes:
 Disclosures About Market Risk
  13




---



##### 



New Accounting Pronouncements
 Inventory Costs,
 Share-Based Payments
 Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision with the American Job Creation Act of 2004.
 Exchanges of Non-monetary Assets
 Accounting for Conditional Asset Retirement Obligations Accounting for Asset Retirement Obligations
 14




---



##### 



Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    
    26, 2005
    
    
    28, 2004(As restated,
    
    
    (As restated,see Note 2)
    
    
    see Note 2)Net sales
    
    $
    293,838
    
    
    $
    294,231
    
    
    $
    294,917Cost of sales
    
    
    198,054
    
    
    
    189,200
    
    
    
    191,213Gross profit on sales
    
    
    95,784
    
    
    
    105,031
    
    
    
    103,704Selling, general and administrative expenses
    
    
    98,096
    
    
    
    92,350
    
    
    
    87,527(Loss) income from operations
    
    
    (2,312
    )
    
    
    12,681
    
    
    
    16,177Interest income, net
    
    
    2,912
    
    
    
    2,706
    
    
    
    2,426Income before benefit (provision) for income taxes
    
    
    600
    
    
    
    15,387
    
    
    
    18,603Benefit (provision) for income taxes
    
    
    3,346
    
    
    
    (4,119
    )
    
    
    (4,975
    )Net income from continuing operations
    
    
    3,946
    
    
    
    11,268
    
    
    
    13,628Loss from discontinued operations  net of tax
    
    
    2,707
    
    
    
    353
    
    
    
    744Net income
    
    $
    1,239
    
    
    $
    10,915
    
    
    $
    12,884Basic net income per share:- From continuing operations
    
    $
    0.10
    
    
    $
    0.28
    
    
    $
    0.34- From discontinued operations
    
    $
    (0.07
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )Basic net income per share
    
    $
    0.03
    
    
    $
    0.27
    
    
    $
    0.32Diluted net income per share:- From continuing operations
    
    $
    0.10
    
    
    $
    0.27
    
    
    $
    0.33- From discontinued operations
    
    
    (0.07
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )Diluted net income per share
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.31Weighted average shares outstanding- basic
    
    
    40,349,000
    
    
    
    40,471,000
    
    
    
    40,604,000- diluted
    
    
    41,163,000
    
    
    
    41,327,000
    
    
    
    41,515,000
  15




---



##### 



February
    
    
    February25, 2006
    
    
    26, 2005(As restated,see Note 2)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,174
    
    
    $
    36,442Short-term investments
    
    
    53,269
    
    
    
    69,955Accounts receivable, net
    
    
    31,180
    
    
    
    27,851Inventories
    
    
    36,781
    
    
    
    32,936Income tax receivable
    
    
    1,407
    
    
    
    338Deferred tax assets
    
    
    5,687
    
    
    
    5,380Prepaid expenses and other current assets
    
    
    11,134
    
    
    
    14,541Total current assets
    
    
    167,632
    
    
    
    187,443Property, plant and equipment, net
    
    
    11,028
    
    
    
    11,968Goodwill
    
    
    63,405
    
    
    
    67,566Intangible assets, net
    
    
    6,424
    
    
    
    8,544Deferred tax assets
    
    
    6,334
    
    
    
    3,022Other assets
    
    
    13,815
    
    
    
    11,847Total assets
    
    $
    268,638
    
    
    $
    290,390LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,263
    
    
    $
    12,658Accrued expenses and other liabilities
    
    
    25,345
    
    
    
    27,485Income taxes payable
    
    
    3,311
    
    
    
    7,390Total current liabilities
    
    
    39,919
    
    
    
    47,533Accrued pension obligation
    
    
    24,083
    
    
    
    23,689Total liabilities
    
    
    64,002
    
    
    
    71,222Stockholders 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 February 25, 2006 and February 26, 2005
    
    
    492
    
    
    
    492Additional paid-in capital
    
    
    28,644
    
    
    
    28,293Treasury stock, 9,539,000 shares and 8,790,000
shares as of February 25, 2006 and February 26, 2005, respectively
    
    
    (91,376
    )
    
    
    (85,060
    )Retained earnings
    
    
    269,954
    
    
    
    275,205Minimum pension liability adjustment
    
    
    (5,551
    )
    
    
    (5,824
    )Cumulative foreign currency adjustment
    
    
    2,473
    
    
    
    6,062Total stockholders equity
    
    
    204,636
    
    
    
    219,168Total liabilities and stockholders equity
    
    $
    268,638
    
    
    $
    290,390
  16




---



##### 



Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    
    26, 2005
    
    
    28, 2004(As restated,
    
    
    (As restated,see Note 2)
    
    
    see Note 2)Cash flows (used in) provided by operating activities:Net income from continuing operations
    
    $
    3,946
    
    
    $
    11,268
    
    
    $
    13,628Adjustments to reconcile net income to cash flows:Depreciation and amortization
    
    
    5,829
    
    
    
    5,833
    
    
    
    5,768Deferred taxes
    
    
    (3,749
    )
    
    
    2,261
    
    
    
    1,523Net effect of changes in:Accounts receivable
    
    
    (3,335
    )
    
    
    2,258
    
    
    
    (2,538
    )Inventories
    
    
    (4,086
    )
    
    
    84
    
    
    
    501Income tax receivable/payable
    
    
    (5,153
    )
    
    
    585
    
    
    
    (2,256
    )Prepaid expense and other current assets
    
    
    3,376
    
    
    
    (2,847
    )
    
    
    (1,048
    )Payables and other current liabilities
    
    
    (3,068
    )
    
    
    2,329
    
    
    
    (7,083
    )All other
    
    
    445
    
    
    
    781
    
    
    
    3,737Cash (used in) provided by operating activities  continuing
operations
    
    
    (5,795
    )
    
    
    22,552
    
    
    
    12,232Cash (used in) provided by operating activities  discontinued
operations
    
    
    (748
    )
    
    
    378
    
    
    
    (278
    )Cash (used in) provided by operating activities  total
    
    
    (6,543
    )
    
    
    22,930
    
    
    
    11,954Cash flows from investing activities:Purchase of business
    
    
    
    
    
    
    
    
    
    
    (28,650
    )Purchase of short-term investments
    
    
    (291,567
    )
    
    
    (155,487
    )
    
    
    (49,953
    )Sale of short-term investments
    
    
    308,253
    
    
    
    122,410
    
    
    
    41,650Purchases of property, plant and equipment
    
    
    (2,885
    )
    
    
    (2,625
    )
    
    
    (2,720
    )Cash provided by (used in) investing activities  continuing
operations
    
    
    13,801
    
    
    
    (35,702
    )
    
    
    (39,673
    )Cash provided by (used in) investing activities  discontinued
operations
    
    
    
    
    
    
    (9
    )
    
    
    (122
    )Cash provided by (used in) investing activities  total
    
    
    13,801
    
    
    
    (35,711
    )
    
    
    (39,795
    )Cash flows from financing activities:Dividends paid
    
    
    (6,490
    )
    
    
    (6,477
    )
    
    
    (4,868
    )Exercise of stock options
    
    
    1,831
    
    
    
    1,814
    
    
    
    1,770Purchase of treasury stock
    
    
    (7,796
    )
    
    
    (4,123
    )
    
    
    (2,781
    )Cash used in financing activities  continuing operations
    
    
    (12,455
    )
    
    
    (8,786
    )
    
    
    (5,879
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (3,071
    )
    
    
    1,050
    
    
    
    4,995Net decrease in cash and cash equivalents
    
    
    (8,268
    )
    
    
    (20,517
    )
    
    
    (28,725
    )Cash and cash equivalents at beginning of year
    
    
    36,442
    
    
    
    56,959
    
    
    
    85,684Cash and cash equivalents at end of year
    
    $
    28,174
    
    
    $
    36,442
    
    
    $
    56,959
 17




---



##### 



Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    
    26, 2005
    
    
    28, 2004(As restated,
    
    
    (As restated,see Note 2)
    
    
    see Note 2)Supplemental disclosures of cash flow information:Interest paid
    
    $
    107
    
    
    $
    258
    
    
    $
    322Income taxes paid
    
    $
    2,082
    
    
    $
    3,883
    
    
    $
    6,398
  18




---



##### 



AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    ComprehensiveTotal
    
    
    Stock
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    (Loss) IncomeBalance at March 1, 2003 as
originally reported
    
    $
    196,768
    
    
    $
    492
    
    
    $
    27,344
    
    
    $
    (80,791
    )
    
    $
    262,877
    
    
    $
    (13,154
    )Effect of restatement (see Note 2)
    
    
    (126
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126
    )Stockholders equity as of March 1,
2003 (As restated, see Note 2)
    
    
    196,642
    
    
    
    492
    
    
    
    27,344
    
    
    
    (80,791
    )
    
    
    262,751
    
    
    
    (13,154
    )Net income (As restated, see Note 2)
    
    
    12,884
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,884
    
    
    
    Translation adjustment
    
    
    6,823
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,823Minimum pension liability, net of tax
    
    
    870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    870Total comprehensive income
(As restated, see Note 2)
    
    
    20,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,884
    
    
    
    7,693Cash dividends
    
    
    (4,868
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,868
    )
    
    
    Purchase of treasury stock
    
    
    (2,781
    )
    
    
    
    
    
    
    
    
    
    
    (2,781
    )
    
    
    
    
    
    
    Exercise of employee stock options
    
    
    1,770
    
    
    
    
    
    
    
    485
    
    
    
    1,285
    
    
    
    
    
    
    
    Stockholders equity as of February
28, 2004 (As restated, see Note 2)
    
    
    211,340
    
    
    
    492
    
    
    
    27,829
    
    
    
    (82,287
    )
    
    
    270,767
    
    
    
    (5,461
    )Net income (As restated, see Note 2)
    
    
    10,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,915
    
    
    
    Translation adjustment
    
    
    1,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,864Minimum pension liability, net of tax
    
    
    3,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,835Total comprehensive income(As restated, see Note 2)
    
    
    16,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,915
    
    
    
    5,699Cash dividends
    
    
    (6,477
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,477
    )
    
    
    Purchase of treasury stock
    
    
    (4,123
    )
    
    
    
    
    
    
    
    
    
    
    (4,123
    )
    
    
    
    
    
    
    Exercise of employee stock options
    
    
    1,814
    
    
    
    
    
    
    
    464
    
    
    
    1,350
    
    
    
    
    
    
    
    Stockholders equity as of February
26, 2005 (As restated, see Note 2)
    
    
    219,168
    
    
    
    492
    
    
    
    28,293
    
    
    
    (85,060
    )
    
    
    275,205
    
    
    
    238Net income
    
    
    1,239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,239
    
    
    
    Translation adjustment
    
    
    (3,589
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,589
    )Minimum pension liability, net
of tax
    
    
    273
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273Total comprehensive income
    
    
    (2,077
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,239
    
    
    
    (3,316
    )Cash dividends
    
    
    (6,490
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,490
    )
    
    
    Purchase of treasury stock
    
    
    (7,796
    )
    
    
    
    
    
    
    
    
    
    
    (7,796
    )
    
    
    
    
    
    
    Exercise of employee stock options
    
    
    1,831
    
    
    
    
    
    
    
    351
    
    
    
    1,480
    
    
    
    
    
    
    
    Stockholders equity as of February
25, 2006
    
    $
    204,636
    
    
    $
    492
    
    
    $
    28,644
    
    
    $
    (91,376
    )
    
    $
    269,954
    
    
    $
    (3,078
    )
  19




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation :
  Foreign Currency Translation :
 Derivative Financial Instruments :
 Cash Equivalents :
 Short-term investments :
 Inventories :
 Property, Plant and Equipment (PP&E): Accounting for the Impairment or Disposal of Long-Lived Assets
 Goodwill and Intangible Assets: Goodwill and Other
Intangible Assets
 Revenue Recognition:
 20




---



##### 



Estimates:
 Income Taxes:
 Employee Stock Options: Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation,
 Stock-basedAs
    
    
    Employee
    
    
    ProReported
    
    
    Compensation
    
    
    forma(In thousands of dollars, except share data)2006Net income
    
    $
    1,239
    
    
    $
    (312
    )
    
    $
    927Earnings per
shareBasic
    
    $
    0.03
    
    
    
    
    
    
    $
    0.02Diluted
    
    $
    0.03
    
    
    
    
    
    
    $
    0.022005Net income
    
    $
    10,915
    
    
    $
    (1,054
    )
    
    $
    9,861Earnings per
shareBasic
    
    $
    0.27
    
    
    
    
    
    
    $
    0.24Diluted
    
    $
    0.26
    
    
    
    
    
    
    $
    0.242004Net income
    
    $
    12,884
    
    
    $
    (1,247
    )
    
    $
    11,637Earnings per
shareBasic
    
    $
    0.32
    
    
    
    
    
    
    $
    0.29Diluted
    
    $
    0.31
    
    
    
    
    
    
    $
    0.28
 21




---



##### 



Advertising and Marketing Expenses :
 Reclassifications:
 Research and Development Expenses:
 New Accounting Pronouncements
 Inventory Costs,
 Share-Based Payments
 Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision with the American Job Creation Act of 2004.
 Exchanges of Non-monetary Assets
 22




---



##### 



Accounting for Conditional Asset Retirement Obligations Accounting for Asset Retirement Obligations
 NOTE 2  RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
   23




---



##### 



As ofFebruary 26, 2005As PreviouslyReported
    
    
    As Restated(In thousands)Consolidated Balance Sheet:Deferred tax assets
    
    $
    3,616
    
    
    $
    5,380Total current assets
    
    
    185,679
    
    
    
    187,443Property, plant and equipment, net
    
    
    12,553
    
    
    
    11,968Deferred tax assets
    
    
    4,222
    
    
    
    3,022Total assets
    
    
    290,411
    
    
    
    290,390Retained earnings
    
    
    275,226
    
    
    
    275,205Total stockholders equity
    
    $
    219,189
    
    
    $
    219,168
 Fiscal Year Ended February 26, 2005Effect ofAs Previously
    
    
    DiscontinuedReported
    
    
    Operations (1)
    
    
    Restatement
    
    
    As Restated(In thousands, except per share amounts)Consolidated Statement of Operations:Selling, general and administrative expenses
    
    $
    93,237
    
    
    
    (735
    )
    
    
    (152
    )
    
    $
    92,350Income from operations
    
    
    11,967
    
    
    
    562
    
    
    
    152
    
    
    
    12,681Income before provision for income taxes
    
    
    14,673
    
    
    
    562
    
    
    
    152
    
    
    
    15,387Provision for income taxes
    
    
    3,674
    
    
    
    209
    
    
    
    236
    
    
    
    4,119Net income
    
    
    10,999
    
    
    
    
    
    
    
    (84
    )
    
    
    10,915Net income per share  basic
    
    
    0.27
    
    
    
    
    
    
    
    
    
    
    
    0.27Net income per share  diluted
    
    $
    0.27
    
    
    
    
    
    
    
    (0.01
    )
    
    $
    0.26
 Fiscal Year Ended February 28, 2004Effect ofAs Previously
    
    
    DiscontinuedReported
    
    
    Operations (1)
    
    
    Restatement
    
    
    As Restated(In thousands, except per share amounts)Selling, general and administrative expenses
    
    $
    89,302
    
    
    
    (1,454
    )
    
    
    (321
    )
    
    $
    87,527Income from operations
    
    
    14,595
    
    
    
    1,261
    
    
    
    321
    
    
    
    16,177Income before provision for income taxes
    
    
    17,021
    
    
    
    1,261
    
    
    
    321
    
    
    
    18,603Provision for income taxes
    
    
    4,326
    
    
    
    517
    
    
    
    132
    
    
    
    4,975Net income
    
    
    12,695
    
    
    
    
    
    
    
    189
    
    
    
    12,884Net income per share  basic
    
    
    0.31
    
    
    
    
    
    
    
    0.01
    
    
    
    0.32Net income per share  diluted
    
    $
    0.31
    
    
    
    
    
    
    
    
    
    
    $
    0.31
 
 (1)
    
    See Note 7 for a complete discussion of the discontinued
operation. 24




---



##### 



NOTE 3  EARNINGS PER SHARE
 Earnings Per Share
  Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    
    26, 2005
    
    
    28, 2004Weighted
average
shares
outstanding:Basic
    
    
    40,349,000
    
    
    
    40,471,000
    
    
    
    40,604,000Dilutive
stock options
    
    
    814,000
    
    
    
    856,000
    
    
    
    911,000Diluted
    
    
    41,163,000
    
    
    
    41,327,000
    
    
    
    41,515,000
  NOTE 4  ACCOUNTS RECEIVABLE
 February
    
    
    February25, 2006
    
    
    26, 2005(in thousands of dollars)Gross receivables
    
    $
    55,244
    
    
    $
    51,265Reserve for estimated returns
    
    
    (21,181
    )
    
    
    (20,824
    )Other reserves
    
    
    (2,883
    )
    
    
    (2,590
    )Net receivables
    
    $
    31,180
    
    
    $
    27,851
  25




---



##### 



NOTE 5  INVENTORIES
 February
    
    
    February25, 2006
    
    

26,
2005(in thousands of dollars)Raw materials
    
    $
    10,123
    
    
    $
    7,468Work in process
    
    
    4,623
    
    
    
    3,703Finished product
    
    
    22,035
    
    
    
    21,765Total inventory
    
    $
    36,781
    
    
    $
    32,936
 NOTE 6  PROPERTY, PLANT AND EQUIPMENT, NET
 February
    
    
    February25, 2006
    
    

26, 2005(in thousands of dollars)Land
    
    $
    42
    
    
    $
    42Buildings and improvements
    
    
    2,606
    
    
    
    2,722Machinery, equipment
and software
    
    
    27,782
    
    
    
    28,384Total PP&E
    
    
    30,430
    
    
    
    31,148Accumulated depreciation
    
    
    (19,402
    )
    
    
    (19,180
    )Net PP&E
    
    $
    11,028
    
    
    $
    11,968
 NOTE 7  DISCONTINUED OPERATIONS  thePit.com
  Accounting for the Impairment of Long-Lived
Assets
   26




---



##### 



NOTE 8  GOODWILL AND INTANGIBLE ASSETS
    February 25, 2006Gross
    
    
    AccumulatedCarrying Value
    
    
    Amortization
    
    
    Net(in thousands of dollars)Licenses and contracts
    
    $
    21,569
    
    
    $
    (18,611
    )
    
    $
    2,958Intellectual property
    
    
    18,784
    
    
    
    (15,318
    )
    
    
    3,466Software and other
    
    
    2,482
    
    
    
    (2,482
    )
    
    
    Total intangibles
    
    $
    42,835
    
    
    $
    (36,411
    )
    
    $
    6,424
 February 26, 2005Gross
    
    
    AccumulatedCarrying Value
    
    
    Amortization
    
    
    Net(in thousands of dollars)Licenses and contracts
    
    $
    21,569
    
    
    $
    (17,942
    )
    
    $
    3,627Intellectual property
    
    
    18,784
    
    
    
    (14,284
    )
    
    
    4,500Software and other
    
    
    2,953
    
    
    
    (2,811
    )
    
    
    142FAS 132 pension
    
    
    275
    
    
    
    
    
    
    
    275Total intangibles
    
    $
    43,581
    
    
    $
    (35,037
    )
    
    $
    8,544
  WeightedAverageRemainingCategory
    
    Useful Life
    
    
    Useful LifeLicenses and contracts
    
    15 years
    
    4.4 yearsIntellectual property
    
    6 years
    
    3.4 years
 27




---



##### 



Fiscal Year
    
    Amount(in thousands)2007
    
    $
    1,7032008
    
    $
    1,7032009
    
    $
    1,7032010
    
    $
    1,0362011
    
    $
    279
  February
    
    
    February25, 2006
    
    
    26, 2005(amounts in thousands)Confectionery
    
    $
    7,699
    
    
    $
    7,699Entertainment
    
    
    55,706
    
    
    
    59,867Total goodwill
    
    $
    63,405
    
    
    $
    67,566
  28




---



##### 



NOTE 9  DEPRECIATION AND AMORTIZATION
 Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    

26, 2005
    
    

28, 2004(in thousands of dollars)Depreciation expense
    
    $
    3,542
    
    
    $
    3,375
    
    
    $
    3,312Amortization of:Intangible assets
    
    
    1,703
    
    
    
    1,797
    
    
    
    1,881Compensation & other
    
    
    500
    
    
    
    570
    
    
    
    452Deferred financing fees
    
    
    84
    
    
    
    91
    
    
    
    123Total depreciation
and amortization
    
    $
    5,829
    
    
    $
    5,833
    
    
    $
    5,768
 NOTE 10  ACCRUED EXPENSES AND OTHER LIABILITIES
 Fiscal Year EndedFebruary
    
    
    February25, 2006
    
    
    26, 2005(in thousands of dollars)Royalties
    
    $
    6,864
    
    
    $
    5,400Advertising and
marketing expenses
    
    
    3,659
    
    
    
    5,079Employee
compensation
    
    
    2,938
    
    
    
    4,031Deferred revenue
    
    
    828
    
    
    
    1,555Inventory in transit
    
    
    1,647
    
    
    
    1,363Deferred rent expense
    
    
    1,031
    
    
    
    1,123Other
    
    
    8,378
    
    
    
    8,934Total accrued expenses
and other liabilities
    
    $
    25,345
    
    
    $
    27,485
 NOTE 11  LONG-TERM DEBT
  29




---



##### 



NOTE 12  INCOME TAXES
   Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    

26, 2005
    
    

28, 2004(in thousands of dollars)Continuing operations
    
    $
    3,346
    
    
    $
    (4,119
    )
    
    $
    (4,975
    )Discontinued operations
    
    
    1,865
    
    
    
    209
    
    
    
    517Total
    
    $
    5,211
    
    
    $
    (3,910
    )
    
    $
    (4,458
    )
  Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    

26, 2005
    
    

28, 2004(in thousands of dollars)United States
    
    $
    (106
    )
    
    $
    12,364
    
    
    $
    9,163Europe
    
    
    1,325
    
    
    
    4,049
    
    
    
    10,941Canada
    
    
    (1,011
    )
    
    
    (1,282
    )
    
    
    (996
    )Latin America
    
    
    392
    
    
    
    256
    
    
    
    (505
    )Total
    
    $
    600
    
    
    $
    15,387
    
    
    $
    18,603
  30




---



##### 



Fiscal Year EndedFebruary
    
    February
    
    February25, 2006
    

26, 2005
    

28, 2004(in thousands of dollars)Current income
tax benefit (provision):Federal
    
    $
    1,074
    
    
    $
    124
    
    
    $
    19Foreign
    
    
    501
    
    
    
    (1,031
    )
    
    
    (2,771
    )State and local
    
    
    (532
    )
    
    
    (1,081
    )
    
    
    (186
    )Total current
    
    $
    1,043
    
    
    $
    (1,988
    )
    
    $
    (2,938
    )Deferred income tax benefit (provision):Federal
    
    $
    1,737
    
    
    $
    (1,880
    )
    
    $
    (1,454
    )Foreign
    
    
    (101
    )
    
    
    (41
    )
    
    
    (373
    )State and local
    
    
    667
    
    
    
    (210
    )
    
    
    (210
    )Total deferred
    
    $
    2,303
    
    
    $
    (2,131
    )
    
    $
    (2,037
    )Total benefit (provision)
for income taxes
    
    $
    3,346
    
    
    $
    (4,119
    )
    
    $
    (4,975
    )
  Fiscal Year EndedFebruary
    
    February
    
    February25, 2006
    

26, 2005
    

28, 2004(in thousands of dollars)Computed expected tax provision
    
    $
    (210
    )
    
    $
    (5,385
    )
    
    $
    (6,511
    )Decrease (increase) in
taxes resulting from:Effect of foreign operations
    
    
    292
    
    
    
    2,282
    
    
    
    967State and local taxes,
net of federal tax effect
    
    
    87
    
    
    
    (917
    )
    
    
    (308
    )European Commission fine
    
    
    
    
    
    
    (578
    )
    
    
    Tax-exempt interest income
    
    
    489
    
    
    
    285
    
    
    
    208Reversal of reserve for
tax exposure items
    
    
    2,536
    
    
    
    
    
    
    
    R & D tax credits
    
    
    
    
    
    
    210
    
    
    
    310Meals and entertainment disallowance
    
    
    (41
    )
    
    
    (43
    )
    
    
    (24
    )Merchandise contributions
    
    
    111
    
    
    
    111
    
    
    
    174Medicare Part D prescription subsidy
    
    
    84
    
    
    
    
    
    
    
    Other items, net
    
    
    (2
    )
    
    
    (84
    )
    
    
    209Benefit (provision) for income taxes
    
    $
    3,346
    
    
    $
    (4,119
    )
    
    $
    (4,975
    )
 31




---



##### 



February
    
    February25, 2006
    
    26, 2005(in thousands of dollars)Deferred
income tax assets:Pension
    
    $
    1,137
    
    
    $
    4,047Inventory
    
    
    3,192
    
    
    
    3,034Postretirement benefits
    
    
    3,395
    
    
    
    1,969Foreign tax credits
    
    
    2,533
    
    
    
    1,399Estimated losses
on sales returns
    
    
    2,578
    
    
    
    2,442Rent
    
    
    423
    
    
    
    463Other
    
    
    277
    
    
    
    581Capital loss
    
    
    1,632
    
    
    
    Total deferred income tax assets
    
    $
    15,167
    
    
    $
    13,935Deferred income tax liabilities:Depreciation
    
    
    (2,853
    )
    
    
    (3,042
    )Package design
    
    
    
    
    
    
    (1,204
    )Prepaid expenses
    
    
    (293
    )
    
    
    (1,287
    )Total deferred income tax liabilities
    
    
    (3,146
    )
    
    
    (5,533
    )Net deferred
    
    $
    12,021
    
    
    $
    8,402
  32




---



##### 



NOTE 13  EMPLOYEE BENEFIT PLANS
      Percentage of Plan Assets2007
    
    2006
    
    2005Asset CategoryEquity Securities
    
    
    62
    %
    
    
    65
    %
    
    
    54
    %Debt Securities
    
    
    38
    %
    
    
    35
    %
    
    
    40
    %Cash
    
    
    
    %
    
    
    
    %
    
    
    6
    %
  33




---



##### 



PostretirementPension
    
    
    HealthcareFebruary
    
    
    February
    
    
    February
    
    
    February25,2006
    
    
    26,2005
    
    
    25,2006
    
    
    26,2005(in thousands of dollars)Change In Benefit ObligationBenefit obligation at beginning of year
    
    $
    45,191
    
    
    $
    39,709
    
    
    $
    10,569
    
    
    $
    10,755Service cost
    
    
    1,703
    
    
    
    1,419
    
    
    
    394
    
    
    
    305Interest cost
    
    
    2,516
    
    
    
    2,414
    
    
    
    615
    
    
    
    568Benefits paid
    
    
    (1,779
    )
    
    
    (1,462
    )
    
    
    (674
    )
    
    
    (619
    )Actuarial (gains) / losses
    
    
    1,627
    
    
    
    2,786
    
    
    
    1,143
    
    
    
    (440
    )Participants contributions
    
    
    28
    
    
    
    19
    
    
    
    
    
    
    
    Foreign currency impact
    
    
    (574
    )
    
    
    306
    
    
    
    
    
    
    
    Plan amendments
    
    
    386
    
    
    
    
    
    
    
    (1,729
    )
    
    
    Curtailments
    
    
    (4,639
    )
    
    
    
    
    
    
    
    
    
    
    Settlements
    
    
    (3,520
    )
    
    
    
    
    
    
    
    
    
    
    Special termination benefits
    
    
    573
    
    
    
    
    
    
    
    309
    
    
    
    Benefit obligation at end of year
    
    $
    41,512
    
    
    $
    45,191
    
    
    $
    10,627
    
    
    $
    10,569Change in Plan AssetsFair value of plan assets at beginning of year
    
    $
    29,751
    
    
    $
    25,551
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    2,571
    
    
    
    1,722
    
    
    
    
    
    
    
    Employer contributions
    
    
    3,718
    
    
    
    3,666
    
    
    
    674
    
    
    
    619Benefits paid
    
    
    (5,299
    )
    
    
    (1,462
    )
    
    
    (674
    )
    
    
    (619
    )Participants contributions
    
    
    28
    
    
    
    19
    
    
    
    
    
    
    
    Foreign currency impact
    
    
    (509
    )
    
    
    255
    
    
    
    
    
    
    
    Fair value of plan assets at end of year
    
    $
    30,260
    
    
    $
    29,751
    
    
    $
    
    
    
    $
    
  PostretirementPension Plan
    
    Healthcare Plan2006
    
    2005
    
    2006
    
    2005Discount rate
    
    
    5.7
    %
    
    
    5.6
    %
    
    
    5.7
    %
    
    
    5.6
    %Rate of compensation increase
    
    
    N/A
    
    
    
    4.0
    %
    
    
    N/A
    
    
    
    N/AHealthcare cost trend on covered charges
    
    
    N/A
    
    
    
    N/A
    
    
    10.0%, grading to to 5.0% in 2011
    
    10.0%, grading to to 5.0% in 2010
  34




---



##### 



PostretirementPension
    
    HealthcareFebruary
    
    February
    
    February
    
    February25, 2006
    
    26, 2005
    
    25, 2006
    
    26, 2005(in thousands of dollars)Funded statusFunded status at year end
    
    $
    (11,253
    )
    
    $
    (15,440
    )
    
    $
    (10,628
    )
    
    $
    (10,568
    )Unrecognized actuarial losses
    
    
    9,058
    
    
    
    14,599
    
    
    
    2,824
    
    
    
    1,789Unamortized prior service cost
    
    
    360
    
    
    
    276
    
    
    
    (1,728
    )
    
    
    Unrecognized initial transition obligation / (asset)
    
    
    (611
    )
    
    
    (744
    )
    
    
    1,701
    
    
    
    1,900Accrued benefit cost
    
    $
    (2,446
    )
    
    $
    (1,309
    )
    
    $
    (7,831
    )
    
    $
    (6,879
    )
   PostretirementPension
    
    HealthcareFebruary
    
    February
    
    February
    
    February25, 2006
    
    26, 2005
    
    25, 2006
    
    26, 2005(in thousands of dollars)Prepaid benefit cost
    
    $
    4,602
    
    
    $
    5,353
    
    
    $
    
    
    
    $
    Accrued benefit liability
    
    
    (16,252
    )
    
    
    (16,808
    )
    
    
    (7,831
    )
    
    
    (6,879
    )Intangible asset
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    Accumulated other comprehensive
income
    
    
    9,204
    
    
    
    9,871
    
    
    
    
    
    
    
    Net amount recognized in the
consolidated balance sheets
    
    $
    (2,446
    )
    
    $
    (1,309
    )
    
    $
    (7,831
    )
    
    $
    (6,879
    )
  Projected Benefit Obligation
    
    Accumulated Benefit ObligationExceeds the Fair Value of Plan Assets
    
    Exceeds the Fair Value of Plan AssetsFebruary
    
    February
    
    February
    
    February25, 2006
    

26, 2005
    

25, 2006
    

26, 2005(in thousands of dollars)Projected benefit obligation
    
    $
    36,761
    
    
    $
    45,191
    
    
    $
    36,761
    
    
    $
    40,081Accumulated benefit obligation
    
    
    36,761
    
    
    
    40,591
    
    
    
    36,761
    
    
    
    36,429Fair value of plan assets
    
    $
    24,943
    
    
    $
    29,751
    
    
    $
    24,943
    
    
    $
    24,851
 35




---



##### 



PostretirementU.S. Pension Plan
    
    
    Healthcare Plan2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Discount rate
    
    
    5.6
    %
    
    
    6.0
    %
    
    
    6.3
    %
    
    
    5.6
    %
    
    
    6.0
    %
    
    
    6.3
    %Expected return on plan assets
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of compensation increase
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.5
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AHealthcare cost trend on covered charges
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    10.0%, decreasing to 5.0% in 2010
    
    10.0%, decreasing to 5.0% in 2009
    
    10.0%, decreasing to 5.0% in 2008
   PostretirementPension
    
    HealthcareFiscal Years Ended
    
    Fiscal Years EndedFebruary
    
    February
    
    February
    
    February
    
    February
    
    February25,2006
    
    26,2005
    
    28,2004
    
    25,2006
    
    26,2005
    
    28,2004(in thousands of dollars)Service cost
    
    $
    1,703
    
    
    $
    1,419
    
    
    $
    1,384
    
    
    $
    394
    
    
    $
    304
    
    
    $
    283Interest cost
    
    
    2,516
    
    
    
    2,414
    
    
    
    2,390
    
    
    
    615
    
    
    
    568
    
    
    
    602Expected return on
plan assets
    
    
    (2,239
    )
    
    
    (2,096
    )
    
    
    (1,451
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of:Initial transition obligation (asset)
    
    
    (62
    )
    
    
    (59
    )
    
    
    (51
    )
    
    
    199
    
    
    
    199
    
    
    
    199Prior service cost
    
    
    81
    
    
    
    132
    
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    Actuarial losses
    
    
    1,011
    
    
    
    808
    
    
    
    1,117
    
    
    
    109
    
    
    
    
    
    
    
    47Curtailments, settlements, and
special termination benefits
    
    
    1,842
    
    
    
    
    
    
    
    
    
    
    
    309
    
    
    
    
    
    
    
    336Net periodic benefit cost
    
    $
    4,852
    
    
    $
    2,618
    
    
    $
    3,520
    
    
    $
    1,626
    
    
    $
    1,071
    
    
    $
    1,467
   36




---



##### 



Fiscal year ending
    
    Pension
    
    Postretirement
    
    Federal Subsidy2007
    
    $
    2,491,000
    
    
    $
    688,000
    
    
    $
    83,0002008
    
    $
    2,960,000
    
    
    $
    749,000
    
    
    $
    89,0002009
    
    $
    3,366,000
    
    
    $
    820,000
    
    
    $
    96,0002010
    
    $
    3,192,000
    
    
    $
    885,000
    
    
    $
    102,0002011
    
    $
    2,917,000
    
    
    $
    931,000
    
    
    $
    108,0002012-2016
    
    $
    14,179,000
    
    
    $
    4,499,000
    
    
    $
    524,000
   One Percentage PointIncrease
    
    Decrease(in thousands of dollars)On total service and interest cost component
    
    $
    163
    
    
    $
    (133
    )On postretirement benefit obligation
    
    $
    1,251
    
    
    $
    (1,059
    )
 NOTE 14  STOCK OPTION PLAN
   February 25, 2006
    
    February 26, 2005
    
    February 28, 2004Wtd.
    
    
    
    
    
    Wtd.
    
    
    
    
    
    Wtd.Avg.
    
    
    
    
    
    Avg.
    
    
    
    
    
    Avg.Exercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseStock Options
    
    Shares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    3,762,919
    
    
    $
    7.22
    
    
    
    3,800,407
    
    
    $
    6.90
    
    
    
    3,756,977
    
    
    $
    6.73Granted
    
    
    60,000
    
    
    $
    7.74
    
    
    
    262,000
    
    
    $
    9.34
    
    
    
    890,000
    
    
    $
    8.52Exercised
    
    
    (261,886
    )
    
    $
    5.06
    
    
    
    (270,550
    )
    
    $
    4.55
    
    
    
    (234,680
    )
    
    $
    4.85Forfeited
    
    
    (146,823
    )
    
    $
    9.34
    
    
    
    (28,938
    )
    
    $
    9.50
    
    
    
    (611,890
    )
    
    $
    9.01Outstanding at end of year
    
    
    3,414,210
    
    
    $
    7.30
    
    
    
    3,762,919
    
    
    $
    7.22
    
    
    
    3,800,407
    
    
    $
    6.90Options exercisable at end of year
    
    
    2,956,624
    
    
    $
    7.08
    
    
    
    2,973,416
    
    
    $
    6.80
    
    
    
    2,973,323
    
    
    $
    6.44Weighted average fair value of
options granted during the year
    
    $
    2.25
    
    
    
    
    
    
    $
    2.99
    
    
    
    
    
    
    $
    2.70
 37




---



##### 



Options Outstanding
    
    Options ExercisableOutstanding
    
    
    
    
    
    Weighted
    
    Exercisable
    
    Weightedas of
    
    Weighted Average
    
    Average
    
    as of
    
    AverageFebruary
    
    Remaining
    
    Exercise
    
    February
    
    ExerciseExercise  Price Range
    
    25, 2006
    
    Contractual Life
    
    Price
    
    25, 2006
    
    Price$1.76-$3.53
    
    
    673,150
    
    
    
    1.9
    
    
    $
    2.64
    
    
    
    673,150
    
    
    $
    2.64$3.54-$5.29
    
    
    416,250
    
    
    
    3.0
    
    
    $
    4.45
    
    
    
    416,250
    
    
    $
    4.45$5.30-$7.05
    
    
    96,500
    
    
    
    3.3
    
    
    $
    6.96
    
    
    
    96,500
    
    
    $
    6.96$7.06-$8.81
    
    
    1,029,583
    
    
    
    6.9
    
    
    $
    8.27
    
    
    
    746,665
    
    
    $
    8.24$8.82-$10.57
    
    
    973,977
    
    
    
    6.1
    
    
    $
    9.84
    
    
    
    799,309
    
    
    $
    9.94$10.58-$12.34
    
    
    224,750
    
    
    
    4.9
    
    
    $
    11.23
    
    
    
    224,750
    
    
    $
    11.233,414,210
    
    
    
    5.0
    
    
    $
    7.30
    
    
    
    2,956,624
    
    
    $
    7.08
 NOTE 15  CAPITAL STOCK
   NOTE 16  DIVIDENDS
  NOTE 17  LEGAL PROCEEDINGS
  38




---



##### 



39




---



##### 



NOTE 18  SEGMENT AND GEOGRAPHIC INFORMATION
 Disclosures About
Segments of an Enterprise and Related Information.
     40




---



##### 



BUSINESS SEGMENTS
 Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    
    26, 2005
    
    
    28, 2004(in thousands of dollars)NET SALES:Candy
    
    $
    134,117
    
    
    $
    133,214
    
    
    $
    134,637Gum
    
    
    10,144
    
    
    
    10,548
    
    
    
    12,551Total Confectionery
    
    
    144,261
    
    
    
    143,762
    
    
    
    147,188Sports
    
    
    95,376
    
    
    
    105,384
    
    
    
    107,308Non-sports
    
    
    54,201
    
    
    
    45,085
    
    
    
    40,421Total Entertainment
    
    
    149,577
    
    
    
    150,469
    
    
    
    147,729Total Net Sales
    
    $
    293,838
    
    
    $
    294,231
    
    
    $
    294,917CONTRIBUTED MARGIN:Confectionery
    
    $
    43,842
    
    
    $
    46,781
    
    
    $
    45,734Entertainment
    
    
    34,983
    
    
    
    44,950
    
    
    
    42,355Total Contributed margin
    
    $
    78,825
    
    
    $
    91,731
    
    
    $
    88,089Reconciliation of contributed margin to income
before (provision) for income taxes:Total contributed margin
    
    $
    78,825
    
    
    $
    91,731
    
    
    $
    88,089Unallocated general and administrative
expenses and manufacturing overhead
    
    
    (76,383
    )
    
    
    (73,217
    )
    
    
    (66,237
    )Depreciation and amortization
    
    
    (4,754
    )
    
    
    (5,833
    )
    
    
    (5,675
    )(Loss) income from operations
    
    
    (2,312
    )
    
    
    12,681
    
    
    
    16,177Interest income, net
    
    
    2,912
    
    
    
    2,706
    
    
    
    2,426Income before benefit (provision) for income taxes
    
    $
    600
    
    
    $
    15,387
    
    
    $
    18,603
   41




---



##### 



GEOGRAPHIC AREAS
 Fiscal Year EndedFebruary
    
    
    February
    
    
    February25, 2006
    
    

26, 2005
    
    

28, 2004(in thousands of dollars)Net Sales:United States
    
    $
    207,834
    
    
    $
    197,998
    
    
    $
    201,181Europe
    
    
    61,350
    
    
    
    70,252
    
    
    
    65,135Canada, Latin America and Asia
    
    
    24,654
    
    
    
    25,981
    
    
    
    28,601Total Net Sales
    
    $
    293,838
    
    
    $
    294,231
    
    
    $
    294,917Income from Operations:United States
    
    $
    (5,336
    )
    
    $
    7,029
    
    
    $
    2,992Europe
    
    
    (843
    )
    
    
    795
    
    
    
    9,535Canada, Latin America and Asia
    
    
    3,867
    
    
    
    4,857
    
    
    
    3,650Total (Loss) Income from Operations
    
    $
    (2,312
    )
    
    $
    12,681
    
    
    $
    16,177
 As of February
    
    
    As of February25, 2006
    
    
    26, 2005Identifiable Assets:United States
    
    $
    217,495
    
    
    $
    236,974Europe
    
    
    44,781
    
    
    
    47,623Canada, Latin America and Asia
    
    
    6,362
    
    
    
    5,793Total Identifiable Assets
    
    $
    268,638
    
    
    $
    290,390
 NOTE 19  ACQUISITION OF WIZKIDS, LLC
    42




---



##### 



Total consideration
    
    $
    29,500,000Less: Working capital adjustment
    
    
    (1,123,500
    )Deferred compensation agreement
    
    
    (2,000,000
    )Plus: Purchase of license
    
    
    1,326,130Transaction costs
    
    
    679,075Total purchase price
    
    $
    28,381,705
  Current assets
    
    $
    8,201,851Property and equipment
    
    
    564,743Other assets
    
    
    115,000Liabilities assumed, current
    
    
    (5,426,072
    )Fair value of net assets acquired
    
    
    3,455,522Intangible assets
    
    
    6,200,000Goodwill
    
    
    18,726,183Total estimated fair value of net
assets acquired and goodwill
    
    $
    28,381,705
    Fiscal Year EndedFebruary 28, 2004 (restated)(amounts in thousands, except share data)Net sales
    
    $
    310,726Income from operations
    
    
    14,374Net income
    
    $
    11,773Net income per share  basic
    
    $
    0.29 diluted
    
    $
    0.28
 43




---



##### 



NOTE 20  FAIR VALUE OF FINANCIAL INSTRUMENTS
    NOTE 21  OFF-BALANCE SHEET ARRANGEMENTS
  44




---



##### 



NOTE 22- QUARTERLY RESULTS OF OPERATIONS (Unaudited)
  Quarter EndedMay 28, 2005
    
    Agust 27, 2005
    
    November 26,2005
    
    February 25, 2006As Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    AsReported (a)
    
    Restated (b)
    
    Reported (a)
    
    Restated (b)
    
    Reported (a)
    
    Restated (b)
    
    As reportedNet sales
    
    $
    78,866
    
    
    $
    78,584
    
    
    $
    75,277
    
    
    $
    74,936
    
    
    $
    72,808
    
    
    $
    72,808
    
    
    $
    67,510Gross profit on sales
    
    
    27,674
    
    
    
    27,644
    
    
    
    28,420
    
    
    
    28,376
    
    
    
    21,306
    
    
    
    21,306
    
    
    
    18,458Income (loss) from continuing
operations
    
    
    397
    
    
    
    507
    
    
    
    3,285
    
    
    
    3,378
    
    
    
    (1,300
    )
    
    
    (1,300
    )
    
    
    (4,897
    )(Loss) gain from discontinued
operations  net of tax
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (53
    )
    
    
    (3,691
    )
    
    
    (3,691
    )
    
    
    1,102Net income (loss)
    
    
    897
    
    
    
    897
    
    
    
    4,837
    
    
    
    4,837
    
    
    
    (3,662
    )
    
    
    (3,662
    )
    
    
    (833
    )Basic net income (loss) per share- From continuing operations
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.05
    )- After discontinued operations
    
    $
    
    
    
    $
    0.02
    
    
    $
    
    
    
    $
    0.12
    
    
    $
    (0.09
    )
    
    $
    (0.09
    )
    
    $
    (0.02
    )Diluted net income (loss) per share- From continuing operations
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.05
    )- After discontinued operations
    
    $
    
    
    
    $
    0.02
    
    
    $
    
    
    
    $
    0.12
    
    
    $
    (0.09
    )
    
    $
    (0.09
    )
    
    $
    (0.02
    )
 Quarter EndedMay 29, 2004
    
    August 28, 2004
    
    November 27,2004
    
    February 26, 2005As Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    AsReported (a)
    
    Restated (b)
    
    Reported (a)
    
    Restated (b)
    
    Reported (a)
    
    Restated (b)
    
    Reported (a)
    
    Restated (b)Net sales
    
    $
    88,089
    
    
    $
    87,592
    
    
    $
    68,781
    
    
    $
    68,405
    
    
    $
    70,278
    
    
    $
    70,278
    
    
    $
    68,345
    
    
    $
    67,956Gross profit on sales
    
    
    33,799
    
    
    
    33,738
    
    
    
    26,280
    
    
    
    26,192
    
    
    
    23,621
    
    
    
    23,621
    
    
    
    21,459
    
    
    
    21,480Income (loss) from continuing
operations
    
    
    5,639
    
    
    
    5,804
    
    
    
    4,812
    
    
    
    4,964
    
    
    
    3,367
    
    
    
    3,405
    
    
    
    (1,712
    )
    
    
    (1,492
    )(Loss) gain from discontinued
operations  net of tax
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    (66
    )
    
    
    (82
    )
    
    
    (82
    )
    
    
    
    
    
    
    (129
    )Net income (loss)
    
    
    4,102
    
    
    
    4,125
    
    
    
    3,655
    
    
    
    3,677
    
    
    
    2,791
    
    
    
    2,814
    
    
    
    451
    
    
    
    299Basic net income (loss) per share- From continuing operations
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.01
    
    
    $
    0.01- After discontinued operations
    
    $
    
    
    
    $
    0.10
    
    
    $
    
    
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.01
    
    
    $
    0.01Diluted net income (loss) per share- From continuing operations
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.01
    
    
    $
    0.01- After discontinued operations
    
    $
    
    
    
    $
    0.10
    
    
    $
    
    
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.01
    
    
    $
    0.01
   45




---



##### 



NOTE 23- COMMITMENTS
  FiscalYear
    
    Amount2007
    
    $
    2,5792008
    
    
    2,2472009
    
    
    2,1282010
    
    
    1,8262011
    
    
    1,284Thereafter
    
    
    536$
    10,600
    NOTE 24- RESTRUCTURING CHARGE
  November 26,
    
    
    Payments
    
    
    Additions
    
    
    February 25,2005
    
    
    
    
    
    
    
    
    
    
    2006Termination costs
    
    $
    1,100
    
    
    $
    (1,420
    )
    
    $
    1,300
    
    
    $
    980Pension settlement
    
    
    
    
    
    
    
    
    
    
    1,050
    
    
    
    1,050$
    1,100
    
    
    $
    (1,420
    )
    
    $
    2,350
    
    
    $
    2,030
 46




---



##### 



Managements Report on Internal Control Over Financial Reporting
   Internal Control - Integrated
Framework
  
 47




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal ControlIntegrated
Framework
 
 48




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 49




---



##### 



Market and Dividend Information
 TOPP
 Fiscal year ended
    
    
    Fiscal year endedFebruary 25, 2006
    
    
    February 26, 2005Stock Price
    
    
    Dividends
    
    
    Stock Price
    
    
    DividendsHigh
    
    
    Low
    
    
    Paid
    
    
    High
    
    
    Low
    
    
    PaidFirst quarter
    
    $
    9.55
    
    
    $
    8.47
    
    
    $
    0.04
    
    
    $
    9.76
    
    
    $
    8.40
    
    
    $
    0.04Second quarter
    
    $
    10.94
    
    
    $
    8.97
    
    
    $
    0.04
    
    
    $
    10.09
    
    
    $
    8.82
    
    
    $
    0.04Third quarter
    
    $
    10.26
    
    
    $
    7.11
    
    
    $
    0.04
    
    
    $
    10.55
    
    
    $
    9.23
    
    
    $
    0.04Fourth quarter
    
    $
    8.22
    
    
    $
    6.99
    
    
    $
    0.04
    
    
    $
    10.00
    
    
    $
    9.38
    
    
    $
    0.04
 50




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##### 



Selected Consolidated Financial Data
 2006
    
    2005 (1)
    
    2004 (1)
    
    2003 (1)
    
    2002 (1)(in thousands of dollars, except share data, unaudited)OPERATING DATA:Net sales
    
    $
    293,838
    
    
    $
    294,231
    
    
    $
    294,917
    
    
    $
    284,649
    
    
    $
    296,053Gross profit on sales
    
    
    95,784
    
    
    
    105,031
    
    
    
    103,704
    
    
    
    101,684
    
    
    
    113,717Selling, general and administrative
expenses
    
    
    98,096
    
    
    
    92,350
    
    
    
    87,527
    
    
    
    78,801
    
    
    
    79,240(Loss) income from operations
    
    
    (2,312
    )
    
    
    12,681
    
    
    
    16,177
    
    
    
    22,883
    
    
    
    38,403Interest income, net
    
    
    2,912
    
    
    
    2,706
    
    
    
    2,426
    
    
    
    2,515
    
    
    
    4,892Loss from discontinued
operations  net of tax
    
    
    (2,707
    )
    
    
    (353
    )
    
    
    (744
    )
    
    
    (1,736
    )
    
    
    (1,614
    )Net income
    
    $
    1,239
    
    
    $
    10,915
    
    
    $
    12,884
    
    
    $
    16,936
    
    
    $
    28,462Basic net income per shareFrom continuing operations
    
    $
    0.10
    
    
    $
    0.28
    
    
    $
    0.34
    
    
    $
    0.45
    
    
    $
    0.70From discontiinued operations
    
    
    (0.07
    )
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    (0.04
    )
    
    
    (0.04
    )Basic net income per share
    
    $
    0.03
    
    
    $
    0.27
    
    
    $
    0.32
    
    
    $
    0.41
    
    
    $
    0.66Diluted net income per shareFrom continuing operations
    
    $
    0.10
    
    
    $
    0.27
    
    
    $
    0.33
    
    
    $
    0.44
    
    
    $
    0.68From discontiinued operations
    
    
    (0.07
    )
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    (0.04
    )
    
    
    (0.04
    )Diluted net income per share
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.31
    
    
    $
    0.40
    
    
    $
    0.64Dividends per share
    
    $
    0.16
    
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    
    
    
    $
    Wtd. avg. shares outstanding  basic
    
    
    40,349,000
    
    
    
    40,471,000
    
    
    
    40,604,000
    
    
    
    41,353,000
    
    
    
    43,073,000Wtd. avg. shares outstanding  diluted
    
    
    41,163,000
    
    
    
    41,327,000
    
    
    
    41,515,000
    
    
    
    42,065,000
    
    
    
    44,276,000BALANCE SHEET DATA:Cash and equivalents
    
    $
    28,174
    
    
    $
    36,442
    
    
    $
    56,959
    
    
    $
    85,684
    
    
    $
    98,007Short-term investments
    
    
    53,269
    
    
    
    69,955
    
    
    
    36,878
    
    
    
    28,575
    
    
    
    23,050Working capital
    
    
    127,713
    
    
    
    139,910
    
    
    
    134,099
    
    
    
    142,416
    
    
    
    137,504Net property, plant and equipment
    
    
    11,028
    
    
    
    11,968
    
    
    
    13,049
    
    
    
    13,548
    
    
    
    13,102Total assets
    
    
    268,638
    
    
    
    290,390
    
    
    
    275,526
    
    
    
    262,875
    
    
    
    257,561Long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity
    
    $
    204,636
    
    
    $
    219,168
    
    
    $
    211,340
    
    
    $
    196,642
    
    
    $
    193,665
 
 (1)
    
    See description of restatement at Note 2 to the Consolidated Financial Statements. 51




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##### 



BOARD OF DIRECTORS
 Arthur T. Shorin*
 Allan A. Feder
 Stephen D. Greenberg
 Ann Kirschner
 David Mauer
 Edward D. Miller*
 Jack H. Nusbaum
 Richard Tarlow
 
 *Nominated to stand for re-election to the Companys Board of Directors at the 2006 Annual Meeting of Stockholders. OFFICERS
 Arthur T. Shorin
 Scott Silverstein
 John Budd
 John Buscaglia
 Michael P. Clancy
 Ira Friedman
 Warren Friss
 Catherine K. Jessup
 Michael K. Murray
 William G. OConnor
 Christopher Rodman
 52




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##### 



SUBSIDIARIES
 Topps Argentina SRL
 Topps Europe Limited
 Topps Canada, Inc.
 Topps Italia SRL
 Topps International Limited
 WizKids, Inc.
 Topps UK Limited
 Topps Finance, Inc.
 Topps Enterprises, Inc.
 CORPORATE INFORMATION
 Annual Meeting
 Investor Relations
 Corporate Counsel
 Independent Auditors
 Registrar and Transfer Agent
 Form 10-K  A copy of the Companys Annual Report on Form 10-K as filed with the Securities
and Exchange Commission is available without charge at the Topps website www.topps.com or upon
written request to the Chief Financial Officer.
 53