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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 30, 1994
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-14818
TRANS WORLD MUSIC CORP.
(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 such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate 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,
9,709,964 shares outstanding as of June 3, 1994
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -- April 30, 1994,
January 29, 1994 and May 1, 1993 3
Condensed Consolidated Statements of Income -- Thirteen
Weeks Ended April 30, 1994 and May 1, 1993 4
Condensed Consolidated Statements of Cash Flows --
Thirteen Weeks Ended April 30, 1994 and May 1, 1993 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
April 30, January 29, May 1,
ASSETS 1994 1994 1993
- - - ------ --------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,061 $ 26,046 $ 5,957
Merchandise inventory 226,828 238,949 178,799
Other current assets 12,167 12,764 7,040
--------- --------- --------
Total current assets 247,056 277,759 191,796
--------- --------- --------
VIDEOCASSETTE RENTAL INVENTORY, net 6,670 6,166 6,165
FIXED ASSETS:
Property, plant and equipment 171,782 167,203 139,999
Less accumulated depreciation
and amortization 76,628 73,157 64,763
--------- --------- ---------
95,154 94,046 75,236
--------- --------- ---------
OTHER ASSETS 1,968 2,293 1,200
--------- --------- ---------
TOTAL ASSETS $ 350,848 $ 380,264 $ 274,397
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - - ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 72,603 $ 156,263 $ 64,376
Notes payable 62,995 --- 53,633
Other current liabilities 13,751 19,958 11,671
--------- --------- ---------
Total current liabilities 149,349 176,221 129,680
--------- --------- ---------
LONG-TERM DEBT, less current portion 65,976 66,054 18,005
CAPITAL LEASE OBLIGATIONS, less
current portion 6,952 7,044 7,301
OTHER LIABILITIES 4,379 4,871 3,413
SHAREHOLDERS' EQUITY
Common stock ($.01 par value; 20,000,000
shares authorized; 9,731,208, 9,731,208
and 9,730,358 issued respectively) 97 97 97
Treasury stock, at cost (12,000, 12,000
& 5,000 shares, respectively) (162) (162) (69)
Other shareholders' equity 124,257 126,139 115,970
--------- --------- ---------
Total shareholders' equity 124,192 126,074 115,998
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 350,848 $ 380,264 $ 274,397
========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
April 30, May 1,
1994 1993
--------- ---------
<S> <C> <C>
Sales $ 109,200 $ 103,224
Cost of sales 68,370 65,123
--------- ---------
Gross profit 40,830 38,101
Selling, general and administrative expenses 37,562 34,028
Depreciation and amortization 4,168 3,533
--------- ---------
Income (Loss) from operations (900) 540
Interest expense 2,232 1,074
--------- ---------
Loss before income taxes (3,132) (534)
Income tax benefit (1,250) (207)
--------- ---------
NET LOSS $ (1,882) $ (327)
========= =========
LOSS PER SHARE $ (.19) $ (.03)
========= =========
Weighted average number of common
shares outstanding 9,719 9,723
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
April 30, May 1,
1994 1993
--------- ---------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES $ (74,547) $ (52,243)
--------- ---------
INVESTING ACTIVITIES:
Acquisition of property and equipment (5,565) (3,431)
Purchases of videocassette rental
inventory, net of amortization (504) (8)
--------- ---------
Net cash used by investing activities (6,069) (3,439)
--------- ---------
FINANCING ACTIVITIES:
Payments of long-term debt and
capital lease obligations (364) (183)
Net increase in revolving line of credit 62,995 53,633
Other --- (4)
--------- ---------
Net cash provided by financing activities 62,631 53,446
--------- ---------
Net decrease in cash and cash equivalents (17,985) (2,236)
Cash and cash equivalents, beginning of period 26,046 8,193
--------- ---------
Cash and cash equivalents, end of period $ 8,061 $ 5,957
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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TRANS WORLD MUSIC CORP. 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 Music Corp. 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 the 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 January 29, 1994.
Note 2. 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 years, the
fourth fiscal quarter has represented substantially all of the Company's net
income for the year.
Note 3. 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,
relating to stock options, are excluded from the calculations, as their
inclusion would have an anti-dilutive impact on the loss per share.
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - Continued
Note 4. Subsequent Event
The Company held its annual meeting of shareholders on June 10, 1994. At
the meeting, the shareholders approved an amendment to the Restated Certificate
of Incorporation to change the corporate name to Trans World Entertainment
Corporation. In addition, the Shareholders also approved the 1994 Stock Option
Plan. Under the 1994 Plan, a total of 1,000,000 shares of Common Stock may be
granted to eligible employees, no options may be granted with an exercise price
below fair market value of the Company's Common Stock, and limiting the number
of stock options which can be granted to any one participant during the term of
the plan.
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- - - ---------------------
Thirteen Weeks Ended April 30, 1994 Compared to Thirteen Weeks Ended May 1, 1993
- - - --------------------------------------------------------------------------------
Sales. The Company's sales increased 5.8% for the thirteen weeks ended
April 30, 1994 over the thirteen weeks ended May 1, 1993. The $6 million sales
increase is attributable to the sales generated from new stores opened by the
Company since May 1, 1993. During the past year, the Company opened 93 stores
and closed 54. Comparable store sales, which are sales for stores that were open
for the entire month during both periods, declined 4% from the prior year. The
decline in comparable store sales was a significant factor in the net loss for
1994's first quarter.
Gross Profit. Gross profit, as a percentage of sales, increased from 36.9%
to 37.4% in the thirteen week period ended April 30, 1994, when compared to
1993. The higher gross margin is due to an increase in purchase discounts in
the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A"), as a percentage of sales, increased from
33.0% to 34.4% in the thirteen week period ended April 30, 1994 when compared
to 1993. The increase in SG&A, as a percent of sales, was due primarily to the
decline in store sales in the Company's comparable stores.
Interest Expense. Interest expense increased $1.2 million in the thirteen
week period ended April 30, 1994 compared to 1993. The increase is attributed
to both an increase in the Company's average borrowings and an increase in the
Company's weighted average borrowing rate.
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TRANS WORLD MUSIC CORP. 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 were financed through the Company's long-term debt securities and
borrowings under the Company's revolving credit facility. These seasonal
borrowings under the revolving credit facility are a normal part of the
Company's business. The Company's revolving credit facility permits aggregate
borrowings up to $75 million.
The most significant uses of cash in the thirteen week period ended April 30,
1994 were the $83.7 million and $5.4 million seasonal reductions in accounts
payable and income taxes payable, respectively. This was funded through
borrowings under the Company's revolving credit facility and the reduction in
merchandise inventory. The Company also continued its store expansion program,
utilizing $5.6 million to fund increases in fixed assets, primarily in new
stores, store expansions and store renovations. The Company has and expects to
continue to finance store renovation programs with funds generated from
operations, principally through reductions in merchandise inventory levels, and
the existing revolving credit facility.
Effective January 30, 1994, the Company's original debt agreement relating to
its $50 million of unsecured senior notes was amended. The amendment makes the
fixed charge ratio covenant less restrictive, adds an inventory turnover
covenant which is consistent with that of the Company's other debt agreements,
adds a covenant requiring minimum proforma debt capitalization requirements,
changes the payment schedule to mature one year earlier, and increases the
interest rate from 6.91% to 7.5%. In addition, the Company amended its $75
million revolving credit agreement and the debt agreement relating to its $17.5
million of unsecured senior notes, making the fixed charge ratio less
restrictive.
CAPITAL EXPENDITURES
- - - --------------------
The Company opened eighteen new stores and closed nine stores, ending the
first quarter with 696 stores in operation. Management plans to open
approximately 20 stores in the second quarter and 50 to 60 stores for the entire
fiscal year, approximately 20 of which are relocations. New store openings,
combined with the Company's ongoing store renovation program and other capital
improvements, will require approximately $20 million in capital expenditures in
1994. In addition, the store expansion program requires an increase in
merchandise inventory averaging approximately $250,000 per new store, which is
partially funded by trade payables.
9
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits - NONE.
(B) Reports on Form 8-K - Current Report on Form 8-K, filed on
May 5, 1994.
- - - -------------------------------------------------------------------------------
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered.
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TRANS WORLD MUSIC CORP. AND SUBSIDIARIES
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 MUSIC CORP.
JUNE 14, 1994 By: /s/ ROBERT J. HIGGINS
---------------------
Robert J. Higgins,
President and Director
(Principal Executive Officer)
JUNE 14, 1994 By: /s/ ROBERT A. HELPERT
---------------------
Robert A. Helpert
Executive Vice President and
Chief Administrative Officer
(Principal Financial and Accounting
Officer)
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