-----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, SnahvrFI47wjMRtEdIJU6+jOkpD17kDca5MCvr9BthNpXZQJWD/RO8YvZSPQIM5c W/kLPQqV6POq/WqSk+I/EA== /in/edgar/work/20000613/0000795212-00-000005/0000795212-00-000005.txt : 20000919 0000795212-00-000005.hdr.sgml : 20000919 ACCESSION NUMBER: 0000795212-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000429 FILED AS OF DATE: 20000613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD ENTERTAINMENT CORP CENTRAL INDEX KEY: 0000795212 STANDARD INDUSTRIAL CLASSIFICATION: [5735 ] IRS NUMBER: 141541629 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14818 FILM NUMBER: 654073 BUSINESS ADDRESS: STREET 1: 38 CORPORATE CIRCLE CITY: ALBANY STATE: NY ZIP: 12203 BUSINESS PHONE: 5184521242 MAIL ADDRESS: STREET 1: 38 CORPORATE CIRCLE CITY: ALBANY STATE: NY ZIP: 12203 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD MUSIC CORP DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt First Quarter Filing on Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 29, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ------ TO ------ 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 (I.R.S. Employer of incorporation or organization) Identifaction 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, 48,374,076 shares outstanding as of May 27, 2000 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Form 10-Q Page No. PART 1. FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets at April 29, 2000 (unaudited), January 29, 2000 and May 1, 1999 (unaudited) 3 Condensed Consolidated Statements of Income - Thirteen Weeks Ended April 29, 2000 (unaudited) and May 1, 1999 (unaudited) 4 Condensed Consolidated Statements of Cash Flows - Thirteen Weeks Ended April 29, 2000 (unaudited) and May 1, 1999 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 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 12 Signatures 12 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION Item 1 - Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
April 29, January 29, May 1, 2000 2000 1999 (unaudited) (unaudited) ------------------------------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $113,331 $280,026 $46,994 Merchandise inventory 421,588 437,363 412,754 Other current assets 10,115 11,176 22,003 -------- -------- ------- Total current assets 545,034 728,565 481,751 -------- -------- ------- DEFERRED TAX ASSET 34,899 34,431 30,947 NET FIXED ASSETS 137,343 144,694 131,458 OTHER ASSETS 49,949 48,720 45,291 -------- -------- -------- TOTAL ASSETS $767,225 $956,410 $689,447 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $215,769 $353,294 $180,864 Income taxes payable 8,565 21,908 12,755 Accrued expenses and other 25,279 32,021 35,416 Current deferred taxes 12,507 12,469 --- Current portion of long-term debt and capital lease obligations 5,330 5,311 2,845 -------- -------- -------- Total current liabilities 267,450 425,003 231,880 LONG-TERM DEBT, less current portion --- --- --- CAPITAL LEASE OBLIGATIONS, less current portion 18,134 19,461 15,334 OTHER LIABILITIES 17,789 17,773 17,864 -------- -------- -------- TOTAL LIABILITIES 303,373 462,237 265,078 -------- -------- -------- SHAREHOLDERS' EQUITY: Preferred stock ($0.01 par value; 5,000,000 shares authorized; non issued) --- --- --- Common stock ($0.01 par value; 200,000,000 shares authorized; 53,460,736, 53,425,867 and 52,261,082 shares issued, respectively) 535 534 523 Additional paid-in capital 284,026 283,932 272,426 Treasury stock, at cost (5,104,432, 1,177,432 and 104,432 shares, respectively) (51,281) (11,855) (385) Unearned compensation - restricted stock (320) (348) (68) Retained earnings 230,892 221,910 151,873 -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 463,852 494,173 424,369 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $767,225 $956,410 $689,447 ======== ======== ======== 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 ----------------------- April 29, May 1, 2000 1999 ----------------------- Sales $310,116 $287,019 Cost of sales 199,272 182,075 --------- --------- Gross profit 110,844 104,944 Selling, general and administrative expenses 97,703 93,700 Costs related to the Camelot merger --- 25,721 --------- --------- Income (loss) from operations 13,141 (14,477) Interest expense (income) (1,231) 427 --------- --------- Income (loss) before income taxes 14,372 (14,904) Income tax expense (benefit) 5,390 (6,260) --------- --------- NET INCOME (LOSS) $8,982 ($8,644) ========= ========= BASIC EARNINGS (LOSS) PER SHARE $0.18 ($0.17) ========= ========= Weighted average number of common shares outstanding - basic 49,721 51,969 ========= ========= DILUTED EARNINGS (LOSS) PER SHARE $0.18 ($0.17) ========= ========= Weighted average number of common shares outstanding - diluted 50,684 51,969 ========= ========= See Notes to Condensed Consolidated Financial Statements.
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Thirteen Weeks Ended ----------------------- April 29, May 1, 2000 1999 ----------------------- Net cash used by operating activities ($124,397) ($62,696) ---------- --------- Cash Flows from Investing Activities: Acquisition of property and equipment (1,655) (7,693) (Acquisition)/disposal of videocassette rental inventory, net (31) 34 ---------- --------- Net cash used by investing activities (1,686) (7,659) ---------- --------- Cash Flows from Financing Activities: Purchase of treasury shares (39,426) --- Exercise of stock options 123 626 Payments of long-term debt & lease obligations (1,309) (22,688) ---------- --------- Net cash used by financing activities (40,612) (22,062) ---------- --------- Decrease in cash and cash equivalents (166,695) (92,417) Cash and cash equivalents, beginning balance 280,026 139,411 ---------- --------- Cash and cash equivalents, ending balance $113,331 $46,994 ========== ========= Supplemental Disclosure of Non-Cash Investing and Financing Activities: Income tax benefit resulting from exercise of stock options $105 $181 Issuance of treasury stock under incentive stock programs --- 4 See Notes to Condensed Consolidated Financial Statements.
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS April 29, 2000 and May 1, 1999 (unaudited) Note 1. Basis of Presentation The accompanying unaudited financial statements consist of Trans World Entertainment Corporation and its subsidiaries, (the "Company"), all of which are wholly-owned. All significant inter-company accounts and transactions have been eliminated. On April 22, 1999, the Company acquired all of the issued and outstanding common stock of Camelot Music Holdings, Inc. ("Camelot") pursuant to the terms of an Agreement and Plan of Merger, dated October 26, 1998. Upon completion of the merger, Camelot became a wholly-owned subsidiary of the Company. The merger was accounted for as a tax-free pooling-of-interests. All financial and per share information for prior periods has been restated to reflect the results of the combined company. The 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 condensed consolidated financial statements reflect all normal, recurring adjustments which, in the opinion of management, are necessary for the fair presentation of such financial statements. Certain information and footnote disclosures normally included in the 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 January 29, 2000. Note 2. Seasonality The Company's business is seasonal in nature, with the highest sales and earnings occurring in the fourth fiscal quarter. Note 3. Depreciation and Amortization Depreciation and amortization of videocassette rental inventory included in cost of sales totaled $239,000 and $236,000 for the thirteen weeks ended April 29, 2000 and May 1, 1999, respectively. Depreciation and amortization of fixed assets for the Company's distribution centers included in cost of sales totaled $407,000 and $402,000 for the thirteen weeks ended April 29, 2000 and May 1, 1999, respectively. Depreciation and amortization for the remaining fixed assets included in Selling, General & Administrative expenses totaled $8.2 million and $7.7 million in the thirteen weeks ended April 29, 2000 and May 1, 1999, respectively. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS April 29, 2000 and May 1, 1999 (unaudited) (continued) Note 4. Earnings Per Share Weighted average shares is calculated as follows: Thirteen Weeks ended -------------------- April 29, May 1, 2000 1999 -------------------- (in thousands) Weighted average common shares outstanding - basic 49,721 51,969 Dilutive effect of employee stock options 963 --- ------ ------ Weighted average common shares outstanding - diluted 50,684 51,969 ====== ======
Unexercised employee stock options to purchase 2.9 million and 5.1 million common shares as of April 29, 2000 and May 1, 1999, respectively, were not included in the weighted average shares outstanding calculation because such options have an antidilutive effect. Note 5. Recently Issued Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," issued in June 1998 and, as amended, effective for all quarters of fiscal years beginning after June 15, 2000, will require companies to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management is currently evaluating the impact of SFAS No. 133 and anticipates that the adoption of the statement will not have a material effect on the Company's consolidated financial statements. The Accounting Standards Executive Committee Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," issued in March 1998 and effective for fiscal years beginning after December 15, 1998, requires that certain costs of computer software developed or obtained for internal use be capitalized. The Company adopted this statement for the fiscal year beginning January 31, 1999. There was no impact on the Company's results of operations or financial position because it did not develop any new software internally, nor did it purchase any software. The Accounting Standards Executive Committee Statement of Position 98-5, "Accounting for the Costs of Start-up Activities," issued in April 1998 and effective for fiscal years beginning after December 15, 1998, requires start-up costs and organization costs to be expensed as incurred. The Company adopted this statement for the fiscal year beginning January 31, 1999. There was no impact on the Company's results of operations or financial position because such costs were already being expensed as incurred. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS April 29, 2000 and May 1, 1999 (unaudited) (continued) Note 6. Legal Proceedings The Company is party to various claims, legal actions, and complaints arising in the ordinary course of its business, including pre-petition assessments by the Internal Revenue Service ("IRS") aggregating approximately $7.9 million and relating to Camelot's corporate-owned life insurance program. No judgment has been rendered regarding these IRS assessments as of April 29, 2000. A trial to decide the matter was concluded on May 5, 2000 in the Federal District Court for the District of Delaware. A decision is expected to be rendered in the third or fourth quarter of fiscal 2000. In the event that a judgment is rendered against the Company in the full amount of the proposed assessment, the Company's results of operations would be materially adversely affected with a charge to earnings of approximately $7.9 million plus interest since January 1998. In the opinion of management, the IRS assessments and all other claims, legal actions and complaints are without merit or involve such amounts that unfavorable disposition will not have a material impact on the financial position, results of operations or cash flows of the Company. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 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 April 29, 2000 Compared to the Thirteen Weeks Ended May 1, 1999 Sales. The Company's total sales increased 8% to $310.1 million for the thirteen weeks ended April 29, 2000 compared to $287.0 million for the thirteen weeks ended May 1, 1999. The increase was attributable to a comparable store sales increase of 8%. For the thirteen weeks ended April 29, 2000, comparable stores sales increased 7% for mall stores and 10% for free standing stores. By merchandise category, comparable store sales increased 5% in music, 26% in video and 24% in accessories. Gross Profit. Gross profit, as a percentage of sales, decreased to 35.7% from 36.6% in the thirteen weeks ended April 29, 2000 compared to the thirteen weeks ended May 1, 1999. This decrease is primarily due to a more competitive pricing structure implemented at the Camelot stores acquired during the first quarter last year. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A"), as a percentage of sales, decreased to 31.5% from 32.6% in the thirteen weeks ended April 29, 2000 compared to the thirteen weeks ended May 1, 1999. The improvement is primarily due to the leveraging of operating expenses and the elimination of Camelot's administrative expenses during the period. Interest Expense (Income). Net interest income was $1.2 million in the thirteen weeks ended April 29, 2000 compared to an expense of $427,000 for the thirteen weeks ended May 1, 1999. The improvement in net interest is due to the repayment of long-term debt related to Camelot's acquisition of Spec's Music and increased investment income from higher average cash balances. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Costs Related to the Camelot Merger. A one-time pre-tax charge of $25.7 million for costs related to the merger with Camelot was taken in the thirteen weeks ended May 1, 1999. The charge includes a write-off of redundant assets between the two companies of $8 million, investment banking fees and other professional costs of $10 million, printing and mailing costs for the joint proxy/prospectus filed on March 29, 1999 of $2 million, system and integration costs of $2 million and severance costs of $4 million. Income Tax Expense (Benefit). The Company's effective tax rate decreased to 37.5% for the thirteen weeks ended April 29, 2000 from 42.0% for the thirteen weeks ended May 1, 1999. During 1999, the Company's effective tax rate was impacted by certain non-deductible expenses related to the Camelot merger, which were partially offset by timing differences relating to asset impairments in accordance with SFAS 121. Net Income. The Company's net income increased to $9.0 million for the thirteen weeks ended April 29, 2000, compared to a net loss of $8.6 million for the same period last year. Excluding the one-time Camelot merger-related costs, 1999 net income was $6.6 million. The improved bottom line performance can be attributed to increased sales, reduced SG&A and improved interest, net. LIQUIDITY AND CAPITAL RESOURCES Liquidity. The Company's primary sources of working capital are cash flows from operations and borrowings under its revolving credit facility. The Company had cash balances of approximately $113.3 million for the quarter ended April 29, 2000, compared to $280.0 million at the end of fiscal 1999. Cash used by operating activities was $124.4 million for the thirteen weeks ended April 29, 2000. The primary uses of cash were a $137.5 million seasonal reduction of accounts payable and a $13.8 million net reduction in income tax payable, partially offset by a $15.8 million reduction in inventory. Cash used in financing activities was $40.6 million for the thirteen weeks ended April 29, 2000. The primary use of cash was for the purchase of 3.9 million shares of common stock under a program authorized by the Board of Directors on January 7, 2000. As of April 29, 2000, the Company had completed the purchase of the 5.0 million shares authorized by the Board. The Company has a three-year $100 million secured revolving credit facility with Congress Financial Corporation that expires in July 2000 and automatically renews on a year-to-year basis thereafter with the consent of both parties. The Company expects to extend the current facility for three more years. The Revolving Credit Facility contains certain restrictive provisions, including provisions governing cash dividends and acquisitions, is collateralized by merchandise inventory and has a TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES PART 1. FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) minimum net worth covenant. On April 29, 2000, the Company had no outstanding borrowings under the Revolving Credit Facility, and $100 million was available. Capital Resources. On April 22, 1999, the Company acquired by merger Camelot Music Holdings, Inc., ("Camelot") a Delaware corporation, by issuing 1.9 shares of the Company's common stock in exchange for each share of Camelot's outstanding common stock. Upon consummation of the merger, Camelot became a wholly-owned subsidiary of the Company. The Company gained an additional 483 stores and 2.1 million square feet of retail selling space as a result of the merger. The merger was accounted for as a tax-free pooling-of-interests. All financial and per share information for prior periods has been restated to reflect the results of the combined company. During the first quarter of 2000, the Company had capital expenditures of $1.7 million. The Company plans to spend $35.0 million, net of construction allowances, for capital expenditures in fiscal 2000. During the quarter, the Company opened or relocated 8 stores and closed 29 stores. TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (A) Exhibits - Exhibit No Description Page No. 27 Financial Data Schedule N/A (electronic 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 to 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 June 13, 2000 By: /s/ ROBERT J. HIGGINS ----------------------- Robert J. Higgins Chairman and Chief Executive Officer (Principal Executive Officer) June 13, 2000 By: /s/ JOHN J. SULLIVAN --------------------- John J. Sullivan Senior Vice President and Chief Financial Officer (Chief Financial and Accounting Officer) EX-27 2 0002.txt ARTICLE 5 FDS FOR QUARTERLY REPORT OF FORM 10-Q
5 THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000795212 TRANS WORLD ENTERTAINMENT CORPORATION
AMOUNT ITEM DESCRIPTION (IN THOUSANDS, EXCEPT PER SHARE DATA) - ---------------- ------------------------------------- FEB-03-2001 JAN-30-2000 APR-29-2000 3-MOS 113,331 0 0 0 421,588 545,034 282,893 145,550 767,225 267,450 0 0 0 535 463,317 767,225 310,116 310,116 199,272 199,272 97,703 0 (1,231) 14,372 5,390 0 0 0 0 8,982 .18 .18
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