First Quarter Filing on Form 10-Q
<PAGE>
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 MAY 1, 1999
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) 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,
52,275,832 shares outstanding as of May 29, 1999
<PAGE>
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
May 1, 1999 (unaudited), January 30, 1999
and May 2, 1998 (unaudited) 3
Condensed Consolidated Statements of Income -
Thirteen Weeks Ended May 1, 1999 (unaudited)
and May 2, 1998 (unaudited) 4
Condensed Consolidated Statements of Cash
Flows - Thirteen Weeks Ended May 1, 1999 (unaudited)
and May 2, 1998 (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 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 16
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
May 1, January 30, May 2,
1999 1999 1998
(unaudited) (unaudited)
---------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $46,994 $139,411 $50,711
Merchandise inventory 412,754 426,078 357,127
Current deferred tax asset --- 633 ---
Other current assets 22,003 15,182 22,617
------- -------- -------
Total current assets 481,751 581,304 430,455
VIDEOCASSETTE RENTAL INVENTORY, net 1,204 1,238 4,022
DEFERRED TAX ASSET 30,947 29,580 5,429
NET FIXED ASSETS 131,458 139,124 111,786
OTHER ASSETS 44,087 47,364 59,800
-------- -------- --------
TOTAL ASSETS $689,447 $798,610 $611,492
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $180,864 $220,636 $169,528
Income taxes payable 12,755 12,734 1,969
Accrued expenses and other 35,416 68,597 44,235
Store closing reserve --- --- 8,220
Current deferred taxes --- --- 604
Current portion of long-term debt and
capital lease obligation 2,845 4,802 102
-------- -------- --------
Total current liabilities 231,880 306,769 224,658
-------- -------- --------
LONG-TERM DEBT, less current portion --- 20,000 ---
CAPITAL LEASE OBLIGATIONS, less
current portion 15,333 16,065 6,382
OTHER LIABILITIES 17,864 23,400 20,389
-------- -------- --------
TOTAL LIABILITIES 265,078 366,234 251,429
-------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value;
5,000,000 shares authorized; none issued) --- --- ---
Common stock ($.01 par value; 200,000,000
shares authorized; 52,261,082,
52,185,258 and 51,469,432 shares
issued, respectively) 523 522 515
Additional paid-in capital 272,426 271,805 259,513
Treasury stock, at cost (104,432,
105,432 and 105,432 shares, respectively) (385) (390) (407)
Unearned compensation - restricted stock (68) (78) (228)
Retained earnings 151,873 160,517 100,670
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 424,369 432,376 360,063
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $689,447 $798,610 $611,492
========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
May 1, May 2,
1999 1998
--------------------
<S> <C> <C>
Sales $287,019 $251,383
Cost of sales 182,075 160,970
----------------------
Gross profit 104,944 90,413
Selling, general and administrative expenses 93,700 85,098
Costs related to the Camelot merger 25,721 ---
--------- --------
Income (loss) from operations (14,477) 5,315
Interest expense 427 377
--------- --------
Income (loss) before income taxes (14,904) 4,938
Income tax expense (benefit) (6,260) 2,777
--------- --------
NET INCOME (LOSS) ($8,644) $2,161
========= ========
BASIC EARNINGS (LOSS) PER SHARE ($0.17) $0.04
========= ========
Weighted average number of common shares outstanding 51,969 48,895
========= ========
DILUTED EARNINGS (LOSS) PER SHARE ($0.17) $0.04
========= ========
Adjusted weighted average number of common
shares outstanding 51,969 51,549
========= ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------
May 1, May 2,
1999 1998
---------------------
<S> <C> <C>
Net cash used by operating activities ($62,696) ($120,289)
---------- ---------
Cash Flows from Investing Activities:
Acquisition of property and equipment (7,693) (12,405)
Disposal of videocassette rental
inventory, net 34 77
---------- ---------
Net cash used by investing activities (7,659) (12,328)
---------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock --- 36,772
Exercise of stock options 626 544
Payments of long term debt & lease obligation (22,688) (35,024)
----------------------
Net cash provided (used) by
financing activity (22,062) 2,292
----------------------
Decrease in cash and cash equivalents (92,417) (130,325)
Cash and cash equivalents, beginning balance 139,411 181,036
----------------------
Cash and cash equivalents, ending balance $46,994 $50,711
======================
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Income tax benefit resulting from exercise 181 915
Issuance of treasury stock under incentive 4 4
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999 and May 2, 1998
(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, by CAQ Corporation, a wholly-owned subsidiary of
the Company, with and into Camelot. 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 a
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 30, 1999.
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 $236,000 and $413,000 for the
thirteen weeks ended May 1, 1999 and May 2, 1998, respectively.
Depreciation and amortization of fixed assets for the companies'
distribution centers is included in the condensed consolidated
statements of income in cost of sales and was $402,000 and $375,000
for the thirteen weeks ended May 1, 1999 and May 2, 1998,
respectively. Depreciation and amortization for the remaining fixed
assets is included in Selling, General and Administrative expenses
and was $7.7 million and $5.4 million in the thirteen weeks ended
May 1, 1999 and May 2, 1998, respectively.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1999 and May 2, 1998 (unaudited)
(continued)
Note 4. Earnings Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which was effective for the Company for the
fiscal year ended January 31, 1998. This standard requires the
Company to disclose basic earnings per share and diluted earnings
per share. Basic earnings per share is calculated by dividing net
income by the weighted average common shares outstanding. Diluted
earnings per share is calculated by dividing net income by the sum
of the weighted average shares that would have been outstanding if
the dilutive potential common shares had been issued for the
Company's common stock options from the Company's stock option
plans. For the thirteen weeks ended May 1, 1999 and May 2, 1998 the
additional potentially dilutive common shares included in the
diluted earnings per share calculation were zero and 2,654,000,
respectively. Total stock options to purchase 5,104,000 and zero
shares of common stock outstanding during the thirteen weeks ended
May 1, 1999 and May 2, 1998, respectively, were not included in the
computation of diluted earnings per share because to do so would
have been anti-dilutive.
Note 5. Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," issued in June
1998 and effective for all quarters of fiscal years beginning after
June 15, 1999, with an exposure draft having been issued which may
defer the effective date to 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 has evaluated the impact of the new rules on
the Company's consolidated financial statements and concluded that
there will be no impact on its current results of operations or its
financial position.
The Accounting Standard's Executive Committee Statement of Position
98-1 ("SOP 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 SOP
98-1 for the fiscal year beginning January 31, 1999. The
application of this statement to the Company's consolidated
financial statements did not have a material impact on its results
of operations or its financial position because a substantial
portion of the Company's software is purchased from outside vendors.
The Accounting Standard's Executive Committee Statement of Position
98-5 ("SOP 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
SOP 98-5 for the fiscal year beginning January 31, 1999. The
application of this statement to the Company's consolidated
financial statements did not have a material impact on its results
of operations or its financial position because such costs are
already being expensed as incurred.
<PAGE>
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 May 1, 1999
Compared to the Thirteen Weeks Ended May 2, 1998
Sales. The Company's total sales increased 14% to $287.0 million
for the thirteen weeks ended May 1, 1999 compared to $251.3 million
for the same period last year. The increase was primarily
attributable to a comparable store sales increase of 3%, and the
addition of new stores including Spec's Music, which was acquired by
Camelot in July 1998. Comparable store sales for the Camelot stores
acquired were flat with last year while the comparable store sales
for the Trans World stores, excluding the Camelot stores acquired,
increased 5%.
Gross Profit. Gross profit, as a percentage of sales, improved to
36.6% from 36.0% in the thirteen weeks ended May 1, 1999 compared to
the same period in 1998. This improvement is due to improved
inventory shrink results and an increase in the gross margin for
stores acquired through the Camelot acquisition. This increase in
gross profit is primarily related to the return to normal discount
and credit terms Camelot started to receive, in the first quarter of
1998, upon its emergence from protection under Chapter 11 of the
Bankruptcy Code.
<PAGE>
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)
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A"), as a percentage of sales,
decreased to 32.6% from 33.9% in the thirteen weeks ended May 1,
1999 compared to the same period in 1998. The improvement is
primarily due to the leveraging of operating expenses and the
reduction of Camelot's administrative expenses during the period.
Interest Expense. Net interest expense was $427,000 in the thirteen
weeks ended May 1, 1999 compared to $377,000 for the thirteen weeks
ending May 2, 1998. The increase in interest expense is due to an
increase in long-term debt for the Spec's acquisition, partially
offset by the reduction of average daily borrowings on the revolving
credit facility during the first quarter of 1999.
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 of 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 42.0% for the thirteen weeks ended May 1, 1999 from
56.2% for the thirteen weeks ended May 2, 1998 due to the Company
incurring non-deductible amortization expense for the issuance of
stock options during 1998. During 1999, the Company's effective tax
rate was impacted by the non-deductiblity of certain expenses
related to the Camelot merger, offset by timing differences of asset
impairments in accordance with SFAS 121.
Net Income. The Company incurred a net loss of $8.6 million in the
thirteen weeks ended May 1, 1999 compared to a net income of $2.2
million during the same period last year. The loss was caused by
the $25.7 million one-time Camelot merger charge. Excluding the
one-time merger-related charge, the resultant increase is due to
the increase in gross margin and the leveraging of selling, general
and administrative expenses. The after-tax effect of the $25.7 million
Camelot merger charge reduced earnings from $0.12 per share to a loss
of $0.17 per share.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Cash generated from operations is the Company's primary source of
liquidity. The Company had unused lines of credit aggregating $100
million at May 1, 1999.
The Company's working capital at May 1, 1999 was $249.9 million and
its ratio of current assets to current liabilities was 2.1 to 1.0.
During the first quarter of 1999, the Company's net cash used by
operations was $62.7 million, compared to $120.3 million used in the
first quarter of 1998. The most significant uses of cash during the
period were a $39.8 million seasonal reduction of accounts payable,
a $33.2 million reduction in accrued expenses and a $20.0 million
payoff of Camelot indebtedness, partially offset by a $13.3 million
reduction in inventory.
Capital Resources
On April 22, 1999, the Company acquired by merger Camelot Music
Holdings, Inc., a Delaware corporation ("Camelot") 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 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 1999, the Company had capital
expenditures of $7.7 million out of a total of $57.0 million, net of
construction allowances, planned for the year. The plan includes
$14.0 million to upgrade the Camelot stores to the Company's
point-of-sale register system. During the quarter the Company
opened or relocated 9 stores and closed 23 stores.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
YEAR 2000 COMPLIANCE
The Company has completed an assessment of the business risks
related to the Year 2000 issue. The results of the assessment
indicated that:
- - awareness of Year 2000 issues is well known throughout the
Company;
- - the assessment of Year 2000 sensitive items is complete;
- - a list of items and business relationships sensitive to the Year
2000 issue has been compiled;
- - renovation of the core information technology ("IT") systems has
been completed;
- - third-party compliance tracking has begun; and
- - verification of embedded chip ("non-IT") system readiness for Year
2000 compliance has begun.
The Company's Year 2000 issue remediation process includes the
following phases: Awareness, Assessment, Renovation, Validation,
and Implementation. As indicated above, the Awareness, Assessment
and Renovation phases are complete. The Awareness phase included
establishing an internal Year 2000 committee, interviewing key
Company personnel at all levels, including those at the stores,
distribution center and home office, and vendor compliance tracking.
Activities in the Assessment phase included contacting merchandise
vendors regarding their Year 2000 remediation activities,
discussions with the Company's software vendors and service
providers, identification of all source code and all imbedded chip
logic that could contain date logic, analyzing source codes for the
Company systems identifying each individual occurrence of date
logic, and simulating the Year 2000 environment by rolling forward
the date in test files of its principal IT systems. For the
Renovation phase, all core IT system programming modifications have
been completed by the Company's systems development staff. The
system programming modifications included upgrading the
distribution, inventory management and accounting systems and
installation of new Year 2000 compliant POS registers and software.
Installation of the new POS system and software in the Trans World
stores was completed during the second quarter of fiscal 1998. This
POS system will be installed in the recently acquired Camelot stores
by the end of the second quarter. Replacements for the other
(non-core) IT systems are being implemented on schedule. The
non-core IT systems being replaced include a system for tracking the
opening of new stores and a system for managing lease payments.
Validation and Implementation efforts are underway. Formal systems
testing for both IT and non-IT systems is expected to be completed
by the end of the second quarter of fiscal 1999. In order to
complete the Validation and Implementation phases, the Company will
process daily, weekly and monthly transactions on the main corporate
IT systems platform, IBM AS/400. The compliance testing will be
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
YEAR 2000 COMPLIANCE (continued)
completed in a dedicated environment within the AS/400 to assure
acceptance of all transactions in the year 2000.
The Company has evaluated the pre-merger Year 2000 compliance
efforts of Camelot Music and determined that third party compliance
tracking and verification of non-IT system readiness for Year 2000
compliance needs to be completed. Many of the Core IT systems,
including inventory management, accounting and POS will be replaced
by the Trans World systems which will be evaluated as part of the
Company's Validation and Implementation phases. Additionally,
those Camelot systems that are not being replaced, including the
systems used in the Canton distribution center, will be tested to
validate the vendor compliance representations.
The Company is exposed to both internal and external Year 2000
risks. Internal risks exist due to the Company's dependence on its
IT and non-IT systems. The Company is dependent on its IT and
non-IT systems for many of its everyday operations including
inventory management, merchandise distribution, cash management,
accounting and financial reporting. The Company utilizes a variety
of vendors for its system needs. The Company has initiated
discussions with its vendors and monitored their Year 2000
compliance programs and the compliance of their merchandise or
services with required standards. Although the majority of these
vendors represent that their products are Year 2000 compliant, the
Company will perform testing to validate the vendor representations
no later than the second quarter of fiscal 1999. In the normal
course of business, the Company replaced its POS register system
with a Year 2000 compliant system during 1998. Preliminary
contingency plans for failure of internal systems include
implementing manual procedures such as the use of manual merchandise
picking and shipping to replace automated distribution center
equipment.
External risks are represented by the fact that the Company utilizes
approximately 2,700 different suppliers in the normal course of its
business. Five major merchandise vendors account for approximately
73% of all purchases. Additionally, 50 other merchandise vendors
account for nearly 15% of purchases. The Company is also dependent
on financial institutions for consolidation of cash collections, and
for cash payments. Although the Company uses its own trucks for
shipment of merchandise to approximately 20% of its stores, the
Company does rely on a number of trucking companies for the
remainder of its merchandise distribution. Evaluation of the
Company's vendors' Year 2000 readiness began in the fourth quarter
of 1998, and is expected to be completed by the end of the second
quarter of fiscal 1999. Upon completion of the assessment of vendor
readiness, contingency plans will be developed for all third parties
where Year 2000 compliance appears to be at risk.
The Company presently believes that its most likely worst-case Year
2000 scenarios would relate to the possible failure in one or more
geographic regions of third-party systems over which the Company has
no control and for which it has no ready substitute, such as, but
not limited to, power and telecommunications services. Each store
has a "crash kit" which allows it to operate without power and
telecommunications services and includes the ability to manually
process all sales transactions. However, in the event of a power
disruption, it is highly unlikely that a store would be open for
business due to the lack of lighting and the security-related
concerns. The Company has in place a disaster recovery plan that
addresses recovery from various kinds of disasters, including
recovery from significant interruptions to data flows and
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
YEAR 2000 COMPLIANCE (continued)
distribution capabilities at its data systems center and
distribution center. The Company's disaster recovery plan provides
specific routines for actions, personnel assignments and back-up
arrangements to ensure effective response to a disaster affecting
key business functions including merchandise replenishment, cash
management and distribution center operations. Common routines and
back up arrangements include off-site storage of information, manual
processing of critical applications and the establishment of a chain
of communication for key personnel. The Company is using that plan
to further develop specific Year 2000 contingency plans identified
by its third-party assessment phase which will emphasize locating
alternate sources of supply, methods of distribution and ways of
processing information.
The Company's direct costs for its Year 2000 remediation efforts
total $167,000 to date, as of May 1, 1999. Anticipated future costs
are $590,000, but could include an additional $600,000 to address
Year 2000 issues identified as a result of remediation testing.
These costs do not include expenditures made in the normal course of
business, during 1997 and 1998, to upgrade its distribution,
inventory management and accounting systems, or costs to install new
Year 2000 compliant POS registers and software. Future costs will
be funded by cash flows generated from operations.
The Company's estimate of the costs of achieving Year 2000
compliance and the date by which Year 2000 compliance will be
achieved are based on management's best estimates, which were
derived using numerous assumptions about future events including the
continued availability of certain resources, third-party
modification plans and other factors. However, there can be no
assurance that these estimates will be achieved, and actual results
could differ materially from these estimates. Specific facts that
might cause such material differences include the availability and
cost of personnel trained in Year 2000 remediation work, the ability
to locate and correct all relevant computer codes, the success
achieved by the Company's customers and suppliers in reaching Year
2000 readiness, the timely availability of necessary replacement
items and similar uncertainties.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
A) A special meeting of Shareholders of Trans World Entertainment
Corporation was held on Thursday, April 22, 1999.
B) A proposal to amend the Company's Certificate of Incorporation to
increase the number of Authorized Shares of Common Stock from 50
million shares to 200 million shares was approved as follows:
FOR 22,830,363
AGAINST 931,164
ABSTAIN 2,307
C) A proposal to issue 1.9 shares to Trans World Entertainment
Corporation's Common Stock for every one share of Camelot
Music Holdings, Inc. Common Stock, a total of 20,685,608
additional shares, was approved as follows:
FOR 23,263,293
AGAINST 498,634
ABSTAIN 1,907
D) In the case of each individual nominee named below, authority to
vote was withheld with respect to the number of shares shown
opposite their name in Column 1, and each nominee received the
number of votes set opposite their name in Column 2 for
election as director of the Corporation.
<TABLE>
<CAPTION>
Column 1 Column 2
Name of Nominee Withheld Votes for
----------------------------------------------------
<S> <C> <C>
Michael B.Solow 513,077 23,250,757
George R. Zoffinger 513,077 23,250,757
</TABLE>
E) A proposal to amend the Company's Certificate of Incorporation to
adopt a classified board of directors was approved as follows:
FOR 17,606,949
AGAINST 6,102,171
ABSTAIN 5,714
<PAGE>
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 -
On April 23, 1999, the Company filed a report on Form 8-K
announcing the closing of the acquisition of Camelot Music Holdings,
Inc. in the form of a merger.
On May 11, 1999, the Company filed a report on Form 8-K/A with
audited financial statements for Camelot Music Holdings, Inc. and pro
forma financial statements for the combined company.
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 15, 1999 By: /s/ ROBERT J. HIGGINS
----------------------
Robert J. Higgins
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
June 15, 1999 By: /s/ JOHN J. SULLIVAN
---------------------
John J. Sullivan
Senior Vice President
and Chief Financial Officer
(Chief Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 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.
<CIK> 0000795212
<NAME> TRANS WORLD ENTERTAINMENT CORPORATION
<CAPTION>
AMOUNT
ITEM DESCRIPTION (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------- -------------------------------------
<S> <C>
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<PERIOD-TYPE> 3-MOS
<CASH> 46,944
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 412,754
<CURRENT-ASSETS> 481,751
<PP&E> 262,766
<DEPRECIATION> 131,308
<TOTAL-ASSETS> 689,447
<CURRENT-LIABILITIES> 231,880
<BONDS> 0
0
0
<COMMON> 523
<OTHER-SE> 423,846
<TOTAL-LIABILITY-AND-EQUITY> 689,447
<SALES> 287,019
<TOTAL-REVENUES> 287,019
<CGS> 182,075
<TOTAL-COSTS> 182,075
<OTHER-EXPENSES> 119,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> (14,904)
<INCOME-TAX> (6,260)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,644)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
