-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nro2B7d0cbmOrb4kjeMwo4+Fp456WifKZrmmQEPRXuEmxPh9Bt0U7sqCVRf+cRfT RI1+Wekcv08qGu1TfvqyTA== 0000795212-96-000028.txt : 19961218 0000795212-96-000028.hdr.sgml : 19961218 ACCESSION NUMBER: 0000795212-96-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961217 FILED AS OF DATE: 19961217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD ENTERTAINMENT CORP CENTRAL INDEX KEY: 0000795212 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL- COMPUTER & PRERECORDED TAPE STORES [5735] IRS NUMBER: 141541629 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14818 FILM NUMBER: 96681776 BUSINESS ADDRESS: STREET 1: 38 CORPORATE CIRCLE CITY: ALBANY STATE: NY ZIP: 12203 BUSINESS PHONE: 5184521242 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD MUSIC CORP DATE OF NAME CHANGE: 19920703 10-Q 1 THIRD QUARTER FILING ON FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR THE QUARTERLY PERIOD ENDED _X_ NOVEMBER 2, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ___ SECURITIES EXCHANGE ACT COMMISSION FILE NUMBER: 0-14818 TRANS WORLD ENTERTAINMENT CORPORATION (Exact name of registrant as specified in its charter) New York 14-1541629 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 38 Corporate Circle Albany, New York 12203 (Address of principal executive offices, including zip code) (518) 452-1242 (Registrant's telephone number, including area code) Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value, 9,742,325 shares outstanding as of November 30, 1996. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1 - Financial Statements (unaudited) Condensed Consolidated Balance Sheets -- November 2, 1996, February 3, 1996 and October 28, 1995 3 Condensed Consolidated Statements of Income -- Thirteen Weeks and Thirty-Nine Weeks Ended November 2, 1996 and October 28, 1995 5 Condensed Consolidated Statements of Cash Flows -- Thirty-Nine Weeks Ended November 2, 1996 and October 28, 1995 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 13 Signatures 13 PART I. FINANCIAL INFORMATION Item 1 - Financial Statements TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (unaudited)
November 2, February 3, October 28, 1996 1996 1995 ----------------------------------- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $8,324 $86,938 $6,618 Merchandise inventory 214,084 194,577 258,379 Refundable income taxes --- 8,308 --- Deferred tax asset 14,478 8,465 13,585 Other current assets 11,193 11,008 20,636 -------------------------------- Total current assets 248,079 309,296 299,218 -------------------------------- VIDEOCASSETTE RENTAL INVENTORY, NET 5,926 6,722 7,334 DEFERRED TAX ASSET 430 430 505 FIXED ASSETS: Property, plant and equipment 170,288 171,716 177,431 Less: Fixed asset write-off reserve 9,781 12,324 6,346 Accumulated depreciation and amortization 96,106 89,391 91,510 -------------------------------- 64,401 70,001 79,575 -------------------------------- OTHER ASSETS 3,558 3,882 4,048 -------------------------------- TOTAL ASSETS $322,394 $390,331 $390,680 ================================ See Notes to Condensed Consolidated Financial Statements.
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (unaudited)
November 2, February 3, October 28, 1996 1996 1995 ----------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $116,936 $131,302 $132,942 Notes payable 32,806 65,260 69,759 Accrued expenses and other 4,418 6,266 5,820 Store closing reserve 15,262 24,275 2,514 Current portion of long-term debt and capital leases 8,603 3,420 63,106 -------------------------------- Total current liabilities 178,025 230,523 274,141 -------------------------------- LONG-TERM DEBT, less current portion 44,912 53,770 574 CAPITAL LEASE OBLIGATIONS, less current portion 6,531 6,594 6,615 OTHER LIABILITIES 6,296 5,340 5,181 -------------------------------- TOTAL LIABILITIES 235,764 296,227 286,511 -------------------------------- SHAREHOLDERS' EQUITY: Common stock ($.01 par value; 20,000,000 shares authorized; 9,783,594, 9,731,208 and 9,731,208 issued, respectively) 98 97 97 Additional paid-in capital 24,417 24,236 24,236 Treasury stock at cost (41,394, 48,394 & 48,394 shares, respectively) (407) (503) (503) Unearned compensation - restricted stock (144) --- --- Retained earnings 62,666 70,274 80,339 -------------------------------- Total shareholders' equity 86,630 94,104 104,169 -------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $322,394 $390,331 $390,680 ================================ See Notes to Condensed Consolidated Financial Statements.
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended ----------------------------------------------- November 2, October 28, November 2, October 28, 1996 1995 1996 1995 ----------------------------------------------- Sales $97,583 $103,165 $300,922 $319,369 Cost of sales 61,366 67,195 192,920 208,430 ------------------------------------------- Gross profit 36,217 35,970 108,002 110,939 Selling, general and administrative expnses 33,899 36,832 100,262 113,123 Depreciation and amortization 3,475 3,978 10,655 12,333 ------------------------------------------- Loss from operations (1,157) (4,840) (2,915) (14,517) Interest expense 2,657 3,635 8,800 10,954 ------------------------------------------- Loss before income tax benefit (3,814) (8,475) (11,715) (25,471) Income tax benefit (1,337) (3,382) (4,107) (10,163) ------------------------------------------- NET LOSS ($2,477) ($5,093) ($7,608) ($15,308) =========================================== LOSS PER SHARE ($0.25) ($0.52) ($0.78) ($1.57) =========================================== Weighted average number of common shares outstanding 9,741 9,733 9,738 9,723 =========================================== See Notes to Condensed Consolidated Financial Statements.
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Thirty-Nine Weeks Ended ----------------------- November 2, October 28, 1996 1995 ----------------------- NET CASH USED BY OPERATING ACTIVITIES ($37,680) ($69,305) ----------------------- INVESTING ACTIVITIES: Acquisition of property and equipment (5,576) (6,354) Disposal of videocassette rental inventory, net of amortization 796 138 ----------------------- Net cash used by investing activities (4,780) (6,216) ----------------------- FINANCING ACTIVITIES: Net decrease in revolving line of credit (32,454) (5,188) Payments of long-term debt and capital lease obligations (3,738) (2,764) Capital stock transactions, net 38 --- ----------------------- Net cash used by financing activities (36,154) (7,952) ----------------------- Net decrease in cash and cash equivalents (78,614) (83,473) Cash and cash equivalents, beginning of period 86,938 90,091 ----------------------- Cash and cash equivalents, end of period $8,324 $6,618 ======================= See Notes to Condensed Consolidated Financial Statements.
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements consist of Trans World Entertainment Corporation and its subsidiaries (the Company), all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. Joint venture investments, none of which are material, are accounted for using the equity method. The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in these consolidated financial statements reflects all normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to rules and regulations applicable to interim financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996. Note 2. Restructuring Reserve The Company recorded a pre-tax restructuring charge of $35 million in January, 1996 to reflect the anticipated costs associated with a program to close 163 stores through fiscal 1997. This charge is in addition to a $21 million restructuring charge recorded in fiscal 1994 to reflect the costs associated with the closing of 179 stores (versus a plan of 143). The restructuring charge includes the write-down of fixed assets, estimated cash payments to landlords for early termination of operating leases and the cost of returning product to the Company's distribution center and vendors. The charge also includes estimated legal, lender, and consulting fees, including those that the Company was obligated to pay on behalf of its lenders while it worked to renegotiate its credit agreements. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2. Restructuring Reserve (cont'd)
Total costs charged to the restructuring reserves during the first nine months of 1996 are summarized as follows: First First Second Third Third Quarter Quarter Quarter Quarter Quarter Beginning Charges Charges Charges Ending Reserve Against Against Against Reserve Balance Reserve Reserve Reserve Balance ------------------------------------------------------- (in thousands) Non-cash write-offs $13,906 $1,810 $1,139 $1,026 $9,931 Cash outflows 22,693 2,300 3,768 1,513 15,112 ------------------------------------------------------- Total $36,599 $4,110 $4,907 $2,539 $25,043 =======================================================
Note 3. Seasonality The Company's business is seasonal in nature, with the highest sales and earnings occurring in the fourth fiscal quarter. In the past three fiscal years, before considering restructuring charges, the fourth quarter has represented substantially all of the Company's net income for the year. Note 4. Earnings (Loss) Per Share Earnings (Loss) per share is based on the weighted average number of common shares outstanding during each fiscal period. Common stock equivalents, which relate to employee stock options, are excluded from the calculations, as their inclusion would have an anti-dilutive impact on the loss per share. PART I. FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following is an analysis of the Company's results of operations, liquidity and capital resources. To the extent that such analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment for the Company's products, including the entry or exit of non-traditional retailers of the Company's products to or from its markets; the release by the music industry of an increased or decreased number of "hit releases"; general economic factors in markets where the Company's products are sold; and other factors discussed in the Company's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS Thirteen Weeks Ended November 2, 1996 (Third Quarter 1996) Compared to Thirteen Weeks Ended October 28, 1995 (Third Quarter 1995) - ------------------------------------------------------------------------------ Sales. The Company's total sales declined $5.6 million or 5.4% for the third quarter ended November 2, 1996 compared to the third quarter ended October 28, 1995. The decrease in sales is due to the Company operating approximately 20% fewer stores offset by a comparable store sales increase of 4.3%. During the past 12 months, the Company opened 5 stores and closed 113 stores, resulting in a 0.4 million net decrease in square footage to 2.2 million square feet in operation. Gross Profit. Gross profit as a percentage of sales increased to 37.1% in the third quarter ended November 2, 1996 from 34.9% in the third quarter ended October 28, 1995. The increase in the gross margin rate is due to improvements in merchandising mix and merchandise discounts received from vendors. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("S,G&A") as a percentage of sales decreased to 34.7% in the third quarter of 1996, from 35.7% in the third quarter of 1995. The percentage decrease is due to an increase in comparable store sales and a decrease in S,G&A expenses, primarily related to the closure of underperforming stores. Interest Expense. Interest expense decreased to $2.7 million in the third quarter ended November 2, 1996 from $3.6 million in the third quarter ended October 28, 1995. Although interest rates were higher in the third quarter of 1996, amounts outstanding under the Company's loan agreements were lower than in the same period of 1995. Total debt as of November 2, 1996 is $86 million, versus $133 million a year ago. Long-term debt is $53 million, compared to $63 million in the comparable 1995 period. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Net Loss. The $2.5 million net loss for the third quarter ended November 2, 1996 compares to a $5.1 million net loss in the third quarter ended October 28, 1995. The $2.6 million reduction in the loss for the quarter is due to a comparable store sales increase, higher gross margin rate, lower SG&A expenses and lower interest expense. Thirty-Nine Weeks (Nine Months) Ended November 2, 1996 Compared to Thirty-Nine Weeks (Nine Months) Ended October 28, 1995 ----------------------------------------------------------------------------- Sales. The Company's sales decreased by $18.4 million or 5.8% in the first nine months of 1996 compared to the first nine months of 1995 while the Company operated approximately 20% fewer stores. During the first nine months of the year, comparable store sales increased 4.6%. Gross Profit. Gross profit as a percentage of sales increased to 35.9% in the nine months ended November 2, 1996 from 34.7% in the nine months ended October 28, 1995. The increase in the gross margin rate is due to improvements in merchandising mix and merchandise discounts received from vendors. Selling, General and Administrative Expenses. S,G&A as a percentage of sales decreased to 33.3% in the first nine months of 1996 from 35.4% in the first nine months of 1995. Receipt of $2.5 million upon the termination of a business development agreement accounted for 0.8% of the improved percentage. The increase in comparable store sales and the closing of underperforming stores also contributed to the improved percentage. Interest Expense. Interest expense decreased to $8.8 million in the nine months ended November 2, 1996 from $11.0 million in the nine months ended October 28, 1995. Although interest rates were higher in 1996, amounts outstanding under the Company's loan agreements were lower than in the same period of 1995. Total debt as of November 2, 1996 is $86 million, versus $133 million a year ago. Long-term debt is $53 million, compared to $63 million in the comparable 1995 period. Net Loss. The $7.6 million net loss for the first nine months of 1996 compares to a $15.3 million net loss in the first nine months of 1995. The $7.7 million reduction in the loss for the first nine months is due to the comparable store sales increase, higher gross margin rate, lower SG&A expenses, lower interest expense and a $1.6 million after tax benefit upon termination of a business development agreement. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) LIQUIDITY AND CAPITAL RESOURCES Liquidity and Sources of Capital. Cash used by operating and investing activities in the first nine months of the fiscal year were financed through borrowings under the Company's revolving credit facilities, which permit aggregate borrowings of up to $61.2 million. The Company's working capital at November 2, 1996 was $70.0 million and its ratio of current assets to current liabilities was 1.4 to 1. During the first nine months of 1996 the Company's cash flow used by operations was $37.7 million, compared to $69.3 million used in the first nine months of 1995. The most significant uses of cash in the period were $14.3 million in normal reductions of accounts payable, $19.5 million in inventory purchases and $9.0 million of expenditures relating to the Company's underperforming store closing program. The Company is in compliance with all covenants under its credit and long-term note agreements as of and for the period ended November 2, 1996. CAPITAL EXPENDITURES During the third quarter of 1996, the Company had capital expenditures of $2.6 million. Total capital expenditures for the first nine months of 1996 were $5.6 million out of a planned fiscal 1996 capital expenditure budget of approximately $12.0 million, net of construction allowances. During the quarter ten stores were either opened or relocated bringing the year-to-date total to twelve new stores. Although management's strategy continues to be focused on closing underperforming stores and reducing outstanding debt, new stores are being opened and existing stores are being relocated if the economic conditions are favorable. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) PROVISION FOR BUSINESS RESTRUCTURING During the fourth quarter of fiscal 1995 the Company undertook a comprehensive examination of store profitability and adopted a second business restructuring plan which when combined with the 1994 restructuring charge included closing over 300 stores out of 700 stores in operation during 1994. Management concluded that select retail entertainment markets had begun to reflect an overcapacity of retail outlets, and large discount-priced electronics stores and other superstores were having an adverse impact on certain of the Company's retail stores. This resulted in the Company recording a $35 million pre-tax restructuring charge in 1995. The components of the restructuring charge included approximately $24 million in reserves for future cash outlays and approximately $11 million in asset writedowns. The cash outflows will be financed from operating cash flows and liquidation of merchandise inventory from the stores identified for closure. The timing of the store closures will depend on the Company's ability to negotiate reasonable lease termination agreements. Management will continually review the opportunity to accelerate the closing of underperforming stores. Sixteen stores were closed in the third quarter of 1996, bringing the total number of closures to 238 through the end of the third quarter of 1996. Annual sales associated with the stores closed in the third quarter of 1996 totaled $8.1 million in 1995. The Company is experiencing improved earnings and cash flow benefits as a result of the restructuring program and expects continued improvement as the remaining store closures are completed throughout the remainder of 1996 and 1997. PART II - OTHER INFORMATION TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES Item 6 - Exhibits and Reports on Form 8-K ----------------------------------------- (A) Exhibits Exhibit No. Description Page No. ----------- ----------- -------- 27 Financial Data Schedule (electronically filing only) (B) Reports on Form 8-K - None. Omitted from this Part II are items which are not applicable or to which the answer is negative for the periods covered. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANS WORLD ENTERTAINMENT CORPORATION December 17, 1996 By: /s/ ROBERT J. HIGGINS ------------------------- Robert J. Higgins Chairman, President and Chief Executive Officer (Principal Executive Officer) December 17, 1996 By: /s/ JOHN J. SULLIVAN ------------------------ John J. Sullivan Senior Vice President - Finance Chief Financial Officer (Chief Financial and Accounting Officer EX-27 2 ART. 5 FDS FOR QUARTERLY REPORT ON FORM 10-Q
5 THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000795212 TRANS WORLD ENTERTAINMENT CORPORATION 1,000
Amount Item Description (in thousands, except per share data) ----------------- ------------------------------------- FEB-1-1997 FEB-4-1996 NOV-2-1996 9-MOS 8,324 0 0 0 214,084 248,079 170,288 96,106 322,394 178,025 51,443 0 0 98 86,532 322,394 300,922 300,922 192,920 192,920 110,917 0 8,800 (11,715) (4,107) 0 0 0 0 (7,608) (0.78) (0.78)
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