8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 6, 2014

 TRANS WORLD ENTERTAINMENT
CORPORATION

(Exact name of registrant as specified in its charter)

New York	0-14818	14-1541629
(State or other jurisdiction of incorporation or organization)	(Commission file number)	(I.R.S. Employer Identification No.)

38 Corporate Circle,
Albany, New York 12203
(Address of principal executive offices)

(518) 452-1242
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

£	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
£	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
£	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
£	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01 Entry Into Material Definitive Agreement.

On March 5, 2014 Trans World Entertainment Corporation, Wells Fargo Bank, National Association and certain other parties to the Amended and Restated Credit Agreement, dated April 15, 2010, entered into a Consent pursuant to which the lender consented to the payment of a special cash dividend of $0.50 per common share. A copy of the Consent is filed as Exhibit 10.1 to this current report on Form 8-K.

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On March 6, 2014, Trans World Entertainment Corporation issued a press release announcing its financial results for its fiscal fourth quarter ended February 1, 2014. A copy of Trans World Entertainment Corporation’s press release is furnished with this report as Exhibit 99.1, and is incorporated herein by reference.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K is being furnished under Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

ITEM 7.01. REGULATION FD DISCLOSURE

Attached hereto as Exhibit 99.2 is the transcript for the earnings conference call of Trans World Entertainment Corporation held on March 6, 2014. The information in this Current Report on Form 8-K, including the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section. Furthermore, such information, including the exhibit attached hereto, shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Certain information contained in this Current Report on Form 8-K, including information in Exhibit 99.2 hereto, is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes, among other things, statements concerning results of operations and Trans World Entertainment Corporation’s strategies. Trans World Entertainment Corporation cautions that there are factors that can cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Trans World Entertainment Corporation; accordingly, there can be no assurance that such suggested results will be realized. For a list of Trans World Entertainment Corporation’s risk factors, see the Company’s Annual Filing on Form 10-K with the Securities and Exchange Commission for the year ended February 2, 2013.

ITEM 8.01 Other Events.

On March 5, 2014, our board of directors declared a special cash dividend of $0.50 per common share, payable April 3, 2014, to shareholders of record at the close of business on March 20, 2014. A copy of our news release is filed as Exhibit 10.1 to this current report on Form 8-K.

2

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS

(c) EXHIBITS. The following are furnished as Exhibits to this Report:

Exhibit
No.	Description
10.1	Consent dated March 5, 2014, pursuant to Amended and Restated Credit Agreement, dated as of April 15, 2010 by and between Trans World Entertainment Corporation, Wells Fargo Bank, National Association, and the other parties thereto.
99.1	Trans World Entertainment Corporation Press Release dated March 6, 2014.
99.2	Trans World Entertainment Corporation Transcript for Earnings Call held on March 6, 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TRANS WORLD ENTERTAINMENT CORPORATION
Date: March 6, 2014	/s/ John Anderson
	John Anderson Chief Financial Officer

3

EXHIBIT INDEX

Exhibit No.	Description
10.1	Consent dated March 5, 2014, pursuant to Amended and Restated Credit Agreement, dated as of April 15, 2010 by and between Trans World Entertainment Corporation and Wells Fargo Bank, National Association.
99.1	Trans World Entertainment Corporation Press Release dated March 6, 2014.
99.2	Trans World Entertainment Corporation Transcript for Earnings Call held on March 6, 2014.

EX-10.1

Exhibit 10.1

March 5, 2014

Trans World Entertainment Corporation, as Lead Borrower
38 Corporate Circle
Albany, New York 12203

Re: 2014 Specified Restricted Payment (as defined below) – Trans World Entertainment Corporation, et al

Ladies and Gentlemen:

Reference is made to that certain Amended and Restated Credit Agreement, dated as of April 15, 2010 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the “Credit Agreement”), by, among others, Trans World Entertainment Corporation, Record Town, Inc. (“Record Town”), Record Town USA, LLC, Trans World New York, LLC, Trans World Florida, LLC, Movies Plus, Inc. and Record Town Utah, LLC (each such Person, individually a “Borrower” and collectively the “Borrowers”), Media Logic, USA, LLC, (individually a “Facility Guarantor” and collectively with any other Person now or hereafter party thereto as a Facility Guarantor, the “Facility Guarantors”) (the Borrowers and the Facility Guarantors are hereinafter referred to as the “Loan Parties”), the Lenders party thereto from time to time, and Wells Fargo Bank, National Association (as successor to Bank of America, N.A.), as Administrative Agent and Collateral Agent (in such capacities, the “Agent”), Swingline Lender and Issuing Bank. Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.

The Lead Borrower has advised the Administrative Agent that the Lead Borrower desires to make a Restricted Payment to its shareholders in the amount of $16,500,000 (the “2014 Specified Restricted Payment”), such amount consisting of cash on hand. Section 6.06(a) of the Credit Agreement prohibits the making of Restricted Payments except to the extent constituting Permitted Dividends. Absent the consent of the Required Lenders, the making of the 2014 Specified Restricted Payment would constitute an Event of Default under Section 7.01(d) as a result of a violation of Section 6.06(a) of the Credit Agreement. Accordingly, the Lead Borrower has requested that the Administrative Agent and the Required Lenders consent to the making of the 2014 Specified Restricted Payment notwithstanding the restrictions set forth in Section 6.06(a) of the Credit Agreement. The Administrative Agent and the Required Lenders have agreed to provide such consent, subject to the terms and conditions hereof.

Accordingly, the parties hereto hereby agree as follows:

1. Consent.

a. Subject to the terms and conditions of this letter agreement (this “Letter Agreement”), the Administrative Agent and the Lenders hereby consent to the making of the 2014 Specified Restricted Payment. The consent provided herein shall in no way constitute a modification or waiver of any other obligations of the Loan Parties under the Credit Agreement or any other Loan Documents, each of

Trans World Entertainment Corporation, as Lead Borrower 

March 5, 2014

Page 2

which remains in full force and effect. It is hereby agreed to and understood by the parties that this consent is a one-time consent related to the making of the 2014 Specified Restricted Payment with $16,500,000 of cash on hand only and is not an amendment to the Credit Agreement with respect to any other restrictions on Restricted Payments on any other occasion, nor is it a waiver of any Default or Event of Default now existing or hereafter arising under the Credit Agreement.

b. Notwithstanding the foregoing, prior to the making of the 2014 Specified Restricted Payment, each of the following conditions shall be satisfied:

i. no Default or Event of Default then exists or would arise as a result of the making of the 2014 Specified Restricted Payment other than as a result of a violation of Section 6.06(a) of the Credit Agreement as described above,

ii. (x) at no time during the six (6) month period ending on the date of the 2014 Specified Restricted Payment shall there have been any Borrowings, and (y) after giving effect to the making of the 2014 Specified Restricted Payment, as projected on a pro-forma basis for the six (6) month period following the making of such dividend or other distribution, there are no anticipated Borrowings,

iii. the 2014 Specified Restricted Payment shall be made in cash utilizing the Loan Parties’ cash on hand not consisting of Eligible Cash on Hand and not from proceeds of any Borrowings under the Credit Agreement, and

iv. the Administrative Agent shall have received evidence of satisfaction of the conditions contained in clauses (ii) and (iii) above on a basis (including, without limitation, giving due consideration to results for prior periods) reasonably satisfactory to the Administrative Agent.

2. Miscellaneous.

a. The Loan Parties represent and warrant that, after giving effect to this Letter Agreement, no Default or Event of Default now exists and is continuing.

b. Except as expressly waived or modified herein, all other terms and conditions of the Credit Agreement and the other Loan Documents remain in full force and effect. This Letter Agreement shall constitute a Loan Document for all purposes.

c. This Letter Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all contemporaneous or previous agreements and understandings, oral or written, relating to the subject matter hereof.

d. This Letter Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all

Trans World Entertainment Corporation, as Lead Borrower 

March 5, 2014

Page 3

of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Letter Agreement by telecopy or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Letter Agreement.

e. Any provision of this Letter Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

f. The Loan Parties represent and warrant that they have consulted with independent legal counsel of their selection in connection with this Letter Agreement and are not relying on any representations or warranties of the Agents or the other Credit Parties or their respective counsel in entering into this Letter Agreement.

g. This Letter Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflicts of laws principles thereof.

[SIGNATURE PAGES FOLLOW]

Trans World Entertainment Corporation, as Lead Borrower 

March 5, 2014

Page 4

If the foregoing correctly sets forth our understanding, please indicate your agreement by signing below.

Very truly yours,
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent, Collateral Agent, and a Lender
By:	/s/ Peter A. Foley
Name:	Peter A. Foley
Title:	Authorized Signatory

Signature Page to Letter Agreement regarding 2014 Specified Restricted Payment

Trans World Entertainment Corporation, as Lead Borrower 

March 5, 2014

Page 5

The foregoing is acknowledged, agreed and accepted:

TRANS WORLD ENTERTAINMENT
CORPORATION, as Lead Borrower and as
a Borrower

By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

RECORD TOWN, INC., as a Borrower

By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

RECORD TOWN USA, LLC, as a
Borrower

By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

TRANS WORLD NEW YORK, LLC, as a
Borrower

By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

TRANS WORLD FLORIDA, LLC, as a
Borrower

By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

Signature Page to Letter Agreement regarding 2014 Specified Restricted Payment

Trans World Entertainment Corporation, as Lead Borrower 

March 5, 2014

Page 6

MOVIES PLUS, INC., as a Borrower

By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

RECORD TOWN UTAH, LLC, as a
Borrower

By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

MEDIA LOGIC USA, LLC, as a Facility
Guarantor

By:	Record Town, Inc., its sole member
By:	/s/ Edwin Sapienza
Name:	Edwin Sapienza
Title:	Corporate Secretary

Signature Page to Letter Agreement regarding 2014 Specified Restricted Payment 

EX-99.1

Exhibit 99.1

	Contact: Trans World Entertainment John Anderson   Chief Financial Officer (518) 452-1242		Contact: Financial Relations Board Marilynn Meek   (mmeek@frbir.com) (212) 827-3773
38 Corporate Circle
Albany, NY 12203
www.twec.com		NEWS RELEASE

TRANS WORLD ENTERTAINMENT ANNOUNCES FOURTH QUARTER AND ANNUAL RESULTS

Company reports net income of $8.3 million for fiscal 2013

Announces special cash dividend of $0.50 per share

Albany, NY, March 6, 2014 -- Trans World Entertainment Corporation (Nasdaq: TWMC) today reported financial results for its fourth quarter and fiscal year ended February 1, 2014. For the thirteen weeks ended February 1, 2014 (“Fourth Quarter”), the Company reported net income of $12.5 million, or $0.39 per diluted share and for the 52 weeks ended February 1, 2014 (“Fiscal 2013”), the Company reported net income of $8.3 million, or $0.25 per diluted share. For the fourteen weeks ended February 2, 2013, the Company reported net income of $35.0 million, or $1.09 per diluted share and for the 53 weeks ended February 2, 2013 (“Fiscal 2012”), the Company reported net income of $33.7 million, or $1.06 per diluted share. Fiscal 2012 results included a one-time gain of $22.8 million from the sale of real property in Miami, Florida. Excluding the gain, the Company recorded net income of $12.2 million, or $0.38 per diluted share for the fourth quarter, and $10.9 million, or $0.34 per diluted share for Fiscal 2012.

Comparable store sales for the Fourth Quarter were down 5.3% compared to the same quarter last year. Total sales for the Fourth Quarter decreased 14.8% to $139.2 million compared to $163.4 million in 2012. The decrease in sales was due to one less week of business in Fiscal 2013 and a 5.1% decline in average stores in operation to 354 during the Fourth Quarter compared to 373 stores last year.

Gross profit for the Fourth Quarter was $49.4 million, or 35.5% of sales, as compared to $59.8 million, or 36.6%, of sales for the fourth quarter last year.

Selling, general and administrative expenses (“SG&A expenses”) decreased 23.1% for the Fourth Quarter to $35.3 million compared to $45.9 million for the Fourth Quarter last year. As a percentage of sales, SG&A expenses were 25.4% in the Fourth Quarter compared to 28.1% for the fourth quarter last year.

For Fiscal 2013, comparable store sales were down 5.0% as compared to Fiscal 2012. Total sales for Fiscal 2013 decreased 14.2% to $393.7 million, compared to $458.5 million for Fiscal 2012. During Fiscal 2013, the Company operated an average of 354 stores compared to 378 stores in Fiscal 2012, a 6.3% decline.

Gross profit for Fiscal 2013 was $147.9 million, or 37.6% of sales, compared to $172.1 million, or 37.5%, of sales for Fiscal 2012. For Fiscal 2013, SG&A expenses decreased 13.6% to $133.8 million compared to $154.8 million in Fiscal 2012. As a percentage of sales, SG&A expenses were 34.0% in fiscal 2013 compared to 33.8% in Fiscal 2012.

Inventory was $150.2 million at the end of Fiscal 2013, versus $155.4 million at the end of Fiscal 2012, a reduction of 3.4%. Cash on hand at the end of Fiscal 2013 was $131.0 million, compared to $133.0 million at the end of Fiscal 2012. During the Fourth Quarter, the Company repurchased approximately 286,000 shares of common stock at an average price of $4.29 per share, for an aggregate purchase price of approximately $1.2 million. In Fiscal 2013, including shares purchased as part of a tender offer, the Company repurchased approximately 1 million shares of common stock for an aggregate purchase price of $5.4 million. The Company has approximately $19.4 million available for purchase under its repurchase program.

In addition, the Company announced a special cash dividend of $0.50 per common share, payable April 3, 2014, to shareholders of record at the close of business on March 20, 2014. The total special dividend payout is estimated to be $16 million to be paid from cash on hand.

“We are pleased to reward our shareholders with a special dividend. We continue to maintain strong financial flexibility and working capital to fund our growth initiatives,” said Robert J. Higgins, Chairman and Chief Executive Officer.

Trans World will host a teleconference call today, Thursday, March 6, 2014, at 10:00 AM ET to discuss its financial results. Interested parties can listen to the simultaneous webcast on the Company’s corporate website, www.twec.com.

Trans World Entertainment is a leading specialty retailer of entertainment products, including video, music, trend, electronics, video games and related products. The Company operates retail stores in the United States, the District of Columbia and Puerto Rico, primarily under the names f.y.e. for your entertainment and Suncoast and on the web at www.fye.com, www.wherehouse.com, and www.secondspin.com.

Certain statements in this release set forth management’s intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses. Actual results may differ materially from those indicated in such statements. Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities and Exchange Commission.

—     table to follow     —

2

TRANS WORLD ENTERTAINMENT CORPORATION

Financial Results

STATEMENTS OF OPERATIONS:
(in thousands, except per share data)

	Thirteen Weeks Ended and Fourteen Weeks Ended(1)											Fiscal Year Ended (2)
	February 1, 2014		% to Sales			February 2, 2013			% to Sales			February 1, 2014		% to Sales			February 2, 2013			% to Sales
Net sales	$	139,186				$	163,449					$	393,659				$	458,544
Cost of sales		89,825		64.5	%		103,699			63.4	%		245,755		62.4	%		286,422			62.5	%
Gross profit		49,361		35.5	%		59,750			36.6	%		147,904		37.6	%		172,122			37.5	%
Selling, general and administrative expenses		35,284		25.4	%		45,861			28.1	%		133,801		34.0	%		154,789			33.8	%
Gain on sale of asset, net		—		0.0	%		(22,750	)		-13.9	%		—		0.0	%		(22,750	)		-5.0	%
Depreciation and amortization		1,015		0.7	%		1,010			0.6	%		3,728		1.0	%		3,783			0.8	%
Income from operations		13,062		9.4	%		35,629			21.8	%		10,375		2.6	%		36,300			7.9	%
Interest expense, net		480		0.4	%		513			0.3	%		1,930		0.5	%		2,318			0.5	%
Income before income taxes		12,582		9.0	%		35,116			21.5	%		8,445		2.1	%		33,982			7.4	%
Income tax expense		49		0.0	%		107			0.1	%		168		0.0	%		248			0.1	%
Net income	$	12,533		9.0	%	$	35,009			21.4	%	$	8,277		2.1	%	$	33,734			7.3	%
Basic income per common share:
Basic income per share	$	0.39				$	1.11					$	0.25				$	1.07
Weighted average number of common shares outstanding - basic		32,314					31,670						32,584					31,577
Diluted income per common share:
Diluted income per share	$	0.39				$	1.09					$	0.25				$	1.06
Weighted average number of common shares outstanding - diluted		32,541					32,055						32,862					31,878

SELECTED BALANCE SHEET CAPTIONS: (in thousands, except store data)	February 1, 2014		February 2, 2013
Cash and cash equivalents	$	131,002	$	132,982
Merchandise inventory		150,167		155,429
Fixed assets (net)		12,419		9,057
Accounts payable		77,647		79,438
Borrowings under line of credit		—		—
Long-term capital lease obligations, less current portion		938		2,004
Stores in operation, end of period		339		358
Stores in operation, average during the period		354		378

(1) - The fourth fiscal quarter ended February 1, 2014 contains 13 weeks.

The fourth fiscal quarter ended February 2, 2013 contains 14 weeks.

(2) - The fiscal year ended February 1, 2014 contains 52 weeks.

(2) - The fiscal year ended February 2, 2013 contains 53 weeks.

3

EX-99.2

Exhibit 99.2

Trans World Entertainment’s CEO Discusses Q4 2013 Results - Earnings Call Transcript

Executives

Robert Higgins - Chairman and Chief Executive Officer

John Anderson - Chief Financial Officer

Analysts

William Myers - Miller Asset Management

Trans World Entertainment Corp. (TWMC) Q4 2013 Earnings Conference Call March 6, 2014 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Trans World Entertainment fourth quarter 2013 results conference call. (Operator Instructions) I will now turn the call over to your host, Bob Higgins, Chairman and CEO. Please go ahead.

Robert Higgins

Thank you, Stephanie. Good morning, everyone. Thank you for joining us, as we discuss our fourth quarter and annual results. On the call with me today is John Anderson, our Chief Financial Officer.

Total sales for the quarter were $139 million, a decrease of 15% compared to the last year. This was due to one less week of business this year and a 5% decrease in average store count, which led to an 8% decrease in total square footage.

In the fourth quarter our comp store sales were negative 5%. For fiscal 2013, comp store sales were down 5% as compared to fiscal 2012. Total sales for fiscal 2013 decreased 14% to $394 million compared to $459 million for fiscal ’12.

For the fourth quarter, net income was $12.5 million or $0.39 per diluted shares compared to net income of $35 million or $1.09 per diluted share in the fourth quarter of 2012. In fiscal 2013, our net income was $8.3 million or $0.25 per diluted share compared to $33.7 million or $1.06 per diluted share in fiscal 2012.

Now, I’ll touch on our sales performance by category by quarter. Video comp sales declined 4%. Video represented 44% of our business during the quarter compared to 43% last year.

Growth in Blu-ray was offset by declines in DVD. Music comp sales declined 13%. The Music category represented 26% of our business for the quarter compared to 28% last year.

In our trend category, comp sales increased 9%. We continue to take advantage of opportunities to strengthen our selection and shift our mix to growing categories of entertainment-related merchandize. Trend represented 15% of our business for the quarter compared to 13% last year.

Electronic comp sales decreased 15%. Electronics represented 10% of our business for the quarter compared to 11% last year. The decline in electronics is due to increased competition in headphones.

Video Game comp sales were up 10%. Video Game sales were driven by the release of new gaming consoles. Video Game sales represented 5% of our business for the quarter, the same level as last year.

Now, John will take you through the financial results for the quarter and fiscal year. John?

John Anderson

Thanks Bob. Good morning. I will discuss our results for prior year periods, excluding a one-time gain of $22.8 million from the sale of real property in Miami, Florida.

Our net income for the quarter was $12.5 million or $0.39 per dilute share, as compared to last year’s net income of $12.2 million or $0.38 per diluted share. EBITDA for the quarter was $14.1 million, as compared to $13.9 million last year.

Our gross margin rate for the quarter decreased 110 basis points to 35.5% of sales, from 36.6% last year. The decrease in gross profit as a percent of sales was due to lower margin rates across the majority of our product categories and deleveraging of distribution and freight expenses against the decline in sales.

SG&A expenses were $35.3 million, a reduction of 23% from last year’s fourth quarter. The decrease in SG&A expenses was due to lower employee incentives, a reduction in store count and a 13-week quarter this year versus 14 weeks in fiscal 2012. SG&A expenses as a percent of sales were 25.4%, as compared to 28.1% for the same period last year. Net interest expense was $480,000 in the quarter versus $513,000 last year.

For fiscal 2013, our net income was $8.3 million or $0.25 per diluted share compared to $10.9 million or $0.34 per diluted share for fiscal 2012. For fiscal 2013, EBITDA was $14.1 million compared to $17.3 million last year.

Our gross margin rate for the year increased 10 basis points to 37.6% of sales from 37.5% last year. Annual SG&A expenses were $133.8 million, a reduction of 14% from the prior year. SG&A expenses as a percent of sales were 34% as compared to 33.8% last year. Net interest expense was $1.9 million for the year versus $2.3 million last year.

We ended the year with cash of $131 million compared to $133 million last year. During the fourth quarter the company repurchased 286,000 shares of common stock at an average price of $4.29 per share for an aggregate purchase price of approximately $1.2 million. For fiscal 2013, including shares purchased as part of a tender offer, the company repurchased approximately 1 million shares of common stock for an aggregate purchase price of $5.4 million. The company has approximately $19.4 million available for purchase under their repurchase program.

Year-over-year, we have lowered our inventory by $5 million and finished the quarter with a $150 million in inventory, 3% below last year’s $155 million. We ended the year with 339 stores and 2 million square feet in operation, versus last year’s 358 stores and 2.2 million square feet.

Now, I’ll turn it back over to Bob.

Robert Higgins

Thanks, John. As John mentioned, we ended the year with cash of $131 million. Our strong financial position provides us many options to enhance shareholder value.

As highlighted in our press release, our board has approved a special cash dividend of $0.50 per share. The company has approximately $19.4 million available for purchase under their repurchase program. The board will continue to monitor the company’s financial needs and resources and consider all options to enhance shareholder value.

As mentioned on our third quarter call, we have begun an initiative to transform our merchandize mix and shopping experience both in our stores and online by adding new entertainment related products to compliment our core product lines and appeal to a broader customer base.

The company has completed the initial phase of the initiative. The initial phase involves gathering data to analyze our current business, identify potential categories, suppliers and partnerships for new businesses and to evaluate opportunities to enhance the current shopping experience in our stores.

Information was gathered through customer interviews, focus groups and surveys, interviews with store associates and retail industry experts and a review of the current competitive environment.

The next phases of the plan will be to test and implement strategies to transform our stores and provide our customers with a new and improved shopping experience developed based on the review of data collected in the first phase. We will provide further details on the next steps of this initiative on future calls.

We’re moving in the right direction as we opened or relocated 14 stores in 2013 and continue to shift our product mix towards growth categories and look forward to the future to drive sales and earnings.

After careful consideration, I have advised the company’s Board of Directors of my plans to step down as Chief Executive Officer of the company upon the completion of a process to choose my successor. In the meantime, I will continue as CEO overseeing the company’s transition to a full entertainment retailer.

Following my retirement as CEO, I will remain in my role as Chairman of the Board. The Board of Directors has formed a committee to oversee the search for a new CEO and has engaged an outside search firm that will consider both internal and external candidates. It is an exciting time for our company and I look forward to working with my successor on continuing our strategic vision.

Now, I’d like to open up the call for any questions that anyone has.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from William Myers with Miller Asset Management.

William Myers - Miller Asset Management

I am actually glad to hear that you have this plan for transforming the merchandise mix and you’ve been analyzing data, and I am pretty excited to hear what the outcome can be. I know you just said that you’re not going to be sharing that, but maybe if I could ask a more general question.

Music, I think you said is now 26% of your business. And I’ve always thought of your stores as music store. So I guess, I am still thinking about the way they were in the past? And I am wondering if you could comment on that? Is music on its way out or is it going to be just a smaller niche among your new businesses?

Robert Higgins

It’s hard to just say, Bill, because first of all, we feel that a ton of people are getting out of the business. So the business, the pie is getting much smaller from the physical side, but there are many less players in it than there were. So we don’t know today whether that’s going to be a 25% of our business, 20% or whatever.

And we haven’t really explored the downloading aspect of it yet either, and that’s something we’re very seriously looking at, so it’s hard to say right now. We are known as record stores in many cases, and the video is a much bigger business for us than the music business. So we know we have to shift and make our stores different. And that’s what we’re working on.

William Myers - Miller Asset Management

And one more question. You did really well with trend and that’s nice to see that. And again, from I tend to think of trend is, things like t-shirts. Should I think of that some other way or is that about right?

Robert Higgins

T-shirts is one of our good categories, but there are a lot of other categories such as Minecraft, and we did very well with that this year. And there is a lot of different trend product that we haven’t even gotten into yet, and that’s where we’re looking at.

William Myers - Miller Asset Management

So I should be watching for new trend products in your stores.

Robert Higgins

Yes. And you’ll go in and you’ll see new trend products that are there today, but it might not be as expansive as we will build in the future, and in fact it won’t be.

William Myers - Miller Asset Management

And one final question from me. Would you say that you’re going to attempt to close more stores than you opened again this year? Is that likely to be the trend for this year?

Robert Higgins

I would say that it’s likely to be the trend. We’re doing both with closing and relocations. But I don’t think it will be a -- every year it gets narrower, and I don’t think it will be as excessive as we had in some years in the past. Last year it wasn’t that excessive either. But I would say, we’ll continue to probably close for the next few years probably more than we open.

Operator

And I’m currently showing no questions at this time.

Robert Higgins

Okay, Stephanie. Then I’d like to thank everyone for their time today. And we look forward to talking to you about our first quarter results for 2014 on May 22. Thank you very much. Thank you, Stephanie.

Operator

Thank you. Thank you, ladies and gentlemen. That does conclude today’s conference. You may all disconnect. And everyone have a great day.