Third 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 OCTOBER 28, 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) 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,
45,442,064 shares outstanding as of November 25, 2000
<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 October 28, 2000 (unaudited),
January 29, 2000 and October 30, 1999 (unaudited) 3
Condensed Consolidated Statements of Income -
Thirteen Weeks and Thirty-nine Weeks Ended October 28, 2000
(unaudited) and October 30, 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Thirty-nine Weeks Ended October 28, 2000 (unaudited) and
October 30, 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 13
Signatures 13
<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>
October 28, January 29, October 30,
2000 2000 1999
-------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 72,703 $280,026 $ 86,682
Merchandise inventory 471,830 437,363 495,744
Current deferred tax asset --- --- 4,502
Other current assets 13,604 11,176 18,482
-------- -------- --------
Total current assets 558,137 728,565 605,410
-------- -------- --------
DEFERRED TAX ASSET 34,899 34,431 32,278
NET FIXED ASSETS 139,099 144,694 141,796
OTHER ASSETS 50,501 48,720 44,597
-------- ------- -------
TOTAL ASSETS $782,636 $956,410 $824,081
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $259,892 $353,294 $313,516
Income taxes payable 839 21,908 ---
Accrued expenses and
other liabilities 21,662 32,021 26,024
Current deferred taxes 9,568 12,469 ---
Current portion of long-term debt
and capital lease obligations 5,600 5,311 5,072
-------- -------- --------
Total current liabilities 297,561 425,003 344,612
--------- -------- --------
LONG-TERM DEBT, less current portion --- --- ---
CAPITAL LEASE OBLIGATIONS, less
current portion 15,231 19,461 19,666
OTHER LIABILITIES 29,290 17,773 18,541
-------- -------- --------
TOTAL LIABILITIES 342,082 462,237 382,819
-------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value;
5,000,000 shares authorized;
none issued) --- --- ---
Common stock ($.01 par value;
200,000,000 shares authorized;
53,678,821, 53,425,867 and
53,065,264 shares issued,
respectively) 537 534 531
Additional paid-in capital 284,868 283,932 280,152
Treasury stock, at cost (6,928,432,
1,177,432 and 104,432 shares,
respectively) (65,952) (11,855) (386)
Unearned compensation -
restricted stock (275) (348) (376)
Accumulated comprehensive loss (587) --- ---
Retained earnings 221,963 221,910 161,341
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 440,554 494,173 441,262
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $782,636 $956,410 $824,081
======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Page 3
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------- ---------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales $265,597 $275,968 $861,223 $840,262
Cost of sales 173,896 178,987 554,681 535,767
--------- --------- -------- --------
Gross profit 91,701 96,981 306,542 304,495
Selling, general and
administrative expenses 99,298 90,576 291,052 276,569
Costs related to the
Camelot merger --- --- --- 25,721
--------- --------- -------- --------
Income (loss)
from operations (7,597) 6,405 15,490 2,205
Interest expense
(income) (514) (108) (2,466) 784
--------- --------- -------- --------
Income (loss) before
income taxes (7,083) 6,513 17,956 1,421
Income tax expense
(benefit) 8,513 2,736 17,902 597
--------- --------- -------- --------
NET INCOME (LOSS) $(15,596) $ 3,777 $ 54 $ 824
========= ========= ======== ========
BASIC EARNINGS (LOSS)
PER SHARE $ (0.32) $ 0.07 $ 0.00 $ 0.02
========= ========= ======== ========
Weighted average number
of common shares
outstanding - basic 48,364 52,775 48,819 52,313
========= ========= ======== ========
DILUTED EARNINGS (LOSS)
PER SHARE $ (0.32) $ 0.07 $ 0.00 $ 0.02
========= ========= ========== ========
Weighted average number
of common shares
outstanding - diluted 48,364 53,974 49,696 53,177
========== ========= ========= ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 4
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
Thirty-nine Weeks Ended
-------------------------
October 28, October 30,
2000 1999
-------------------------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES $(120,233) $( 7,680)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (22,864) (37,067)
Acquisition of business,
net of cash acquired (4,862) ---
Purchase of other investments (2,414) ---
Disposal of videocassette
rental inventory, net 75 136
------------------------
Net cash used by investing activities (30,065) (36,931)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (54,097) ---
Proceeds from capital leases --- 8,436
Exercise of stock options 1,013 8,011
Payments of long term debt &
lease obligations (3,941) (24,565)
------------------------
Net cash used by financing activities (57,025) (8,118)
------------------------
Decrease in cash and cash equivalents (207,323) (52,729)
Cash and cash equivalents, beginning balance 280,026 139,411
------------------------
Cash and cash equivalents, ending balance $ 72,703 $ 86,682
========================
Supplemental disclosure of non-cash investing
and financing activities:
Income tax benefit resulting from exercise
of stock options $ 646 $ 1,081
Issuance of treasury stock under incentive
stock programs 7 13
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 5
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 28, 2000 and October 30, 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, except Second Spin, which is majority owned . All significant
inter-company accounts and transactions have been eliminated.
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. Certain amounts in prior years' financial
statements have been reclassified to conform with the current year presentation.
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 $190,000 and $180,000 for the thirteen weeks ended October 28,
2000 and October 30, 1999, respectively. Depreciation and amortization of
videocassette rental inventory included in cost of sales totaled $605,000 and
$680,000 for the thirty-nine weeks ended October 28, 2000 and October 30, 1999,
respectively.
Depreciation and amortization of fixed assets for the Company's distribution
centers included in cost of sales totaled $413,000 and $410,000 for the thirteen
weeks ended October 28, 2000 and October 30, 1999, respectively. For the
thirty-nine week periods ended October 28, 2000 and October 30, 1999,
depreciation and amortization of fixed assets for the Company's distribution
centers included in cost of sales totaled $1.2 million. Depreciation and
amortization for the remaining fixed assets included in Selling, General &
Administrative ("SG&A") expenses totaled $9.1 million and $9.4 million in the
thirteen weeks ended October 28, 2000 and October 30, 1999, respectively. The
depreciation and amortization included in SG&A was $26.3 and $26.7 million for
the thirty-nine week periods ended October 28, 2000 and October 30, 1999,
respectively.
Page 6
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 28, 2000 and October 30, 1999
(unaudited)
(continued)
Note 4. Earnings Per Share
Weighted average shares are calculated as follows:
<TABLE>
Thirteen Weeks ended Thirty-nine Weeks ended
------------------------- -------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding - basic 48,364 52,775 48,819 52,313
Dilutive effect of
employee stock options --- 1,199 877 864
----------- ----------- ---------- ----------
Weighted average common shares
outstanding-diluted 48,364 53,974 49,696 53,177
=========== =========== ========== ==========
Anti dilutive stock options 5,675 1,442 3,108 1,115
=========== =========== ========== ==========
</TABLE>
For the thirteen week period ended October 28, 2000, the impact of outstanding
options were not considered because the Company had a net loss. For all other
periods presented, antidilutive stock options outstanding had an exercise price
greater than the average market price during the period.
Note 5. Comprehensive Income (Loss)
The Company's total comprehensive income (loss) was as follows:
<TABLE>
Thirteen Weeks ended Thirty-nine Weeks ended
------------------------- -------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss) ($15,596) $3,777 $54 $824
Other comprehensive loss:
Unrealized loss on available-for-sale
securities (587) --- (587) ---
----------- ----------- ---------- ----------
Total comprehensive
income (loss) ($16,183) $3,777 ($533) $824
=========== =========== ========== ==========
</TABLE>
Note 6. Recently Issued Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Statement
No. 133 has subsequently been amended by Financial Accounting Standards Board
Statement No. 137 which delays the effective date for implementation of
Statement No. 133 until fiscal quarters of fiscal years beginning after June 15,
2000. Management is currently evaluating the impact of SFAS No. 133 on the
Company's consolidated financial statements and is in the process of reviewing
all contractual arrangements of the Company.
Page 7
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 28, 2000 and October 30, 1999 (unaudited)
(continued)
Note 7. Legal Proceedings
On October 16, 2000, the United States District Court for the District of
Delaware issued an opinion in favor of the Internal Revenue Service ("IRS"), in
the case of the IRS vs. Camelot Music Holdings Inc.("Camelot"), a wholly-owned
subsidiary of the Company. The case was brought against Camelot by the IRS to
challenge the deduction of interest expenses for certain tax years that ended on
or before February 1994, related to corporate owned life insurance policies held
by CM Holdings. The court ruled that the interest deductions should not be
allowed and the Company is responsible for interest and penalties. As a result
of the ruling, the Company reserved $11 million during the quarter ended October
28, 2000. The Company has filed a notice of appeals in the United States Third
Circuit Court of Appeals in response to the decision.
On August 8, 2000, twenty eight states filed an antitrust action in the United
States District Court for the Southern District of New York, against the five
major music distributors (EMI Music Distribution, Bertelsmann Music Group, Inc.,
Warner-Elektra-Atlantic Corporation, Sony Music Entertainment, Inc., Universal
Music and Video Distribution Corp.), the Company, Musicland Stores Corporation
and MTS Inc. (Tower Records). The states are seeking unspecified damages for
alleged illegal price-fixing agreements related to the five major music
distributors' minimum advertised pricing ("MAP") policies. The states allege
that the policy increased compact disc prices in violation of state and federal
antitrust law, kept compact disc prices artificially high and penalized
retailers that did not participate. It is management's belief that the lawsuit
is without merit and the Company will ultimately prevail in this regard.
The Company is subject to other legal proceedings and claims that have arisen in
the ordinary course of business and have not been finally adjudicated. Although
there can be no assurance as to the ultimate disposition of these matters, it is
management's opinion, based upon the information available at this time, that
the expected outcome of these matters, individually or in the aggregate, will
not have a material adverse effect on the results of operations and financial
condition of the Company.
Note 8. Subsequent Events
On October 30, 2000, the Company acquired the assets of 112 stores owned by Wax
Works, Inc., a privately-held music and video retailer. The stores operate
under the name "Disc Jockey" and are located primarily in mall locations
throughout the Midwest and Southern United States. The acquisition will be
accounted for using the purchase method. The Company paid $52.0 million for the
assets, including merchandise inventory, fixed assets, leasehold interests and
other related current assets. The Company will recognize approximately $10.2
million in goodwill related to the acquisition which will be amortized on a
straight-line basis over a 15 year period.
NOTE 9. Other Investments
Included in SG&A is a $2.1 million write-off of an investment in an internet
business.
Page 8
<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 October 28, 2000
Compared to the Thirteen Weeks Ended October 30, 1999
Sales. The Company's total sales decreased 4% to $265.6 million for the
thirteen weeks ended October 28, 2000 compared to $276.0 million for the
thirteen weeks ended October 30, 1999. The decrease was attributable to a
comparable store sales decrease of 4%.
For the thirteen weeks ended October 28, 2000, comparable store sales decreased
4% for both mall and free standing stores. By merchandise category, comparable
store sales were down 9% in music, and increased 24% in video and 7% in
accessories. Music sales were negatively impacted by a weak new release
schedule for the quarter, as well as the continued decline in sales of full
length cassettes and cassette singles. The increase in video sales was driven
by the growth in the DVD format.
Gross Profit. Gross profit, as a percentage of sales, decreased to 34.5% in the
thirteen weeks ended October 28, 2000 from 35.1% in the thirteen weeks ended
October 30, 1999. The decrease in margin relates to the loss of sales in the
high margin singles category and increased promotional pricing early in the
quarter in response to soft sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A"), as a percentage of sales, increased to 37.4%
in the thirteen weeks ended October 28, 2000 from 32.8% in the thirteen weeks
ended October 30, 1999. Included in SG&A is a $2.1 million write-off of an
investment in an internet business. Excluding the one-time charge, SG&A
expenses were 36.6% of sales. The increase primarily relates to increased
spending on initiatives including branding, supply chain and e-commerce.
Page 9
<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)
Interest Expense (Income). Net interest income was $514,000 in the thirteen
weeks ended October 28, 2000 compared to $108,000 for the thirteen weeks ended
October 30, 1999. The improvement in net interest relates to increased
investment income from higher average cash balances and higher interest rates.
Income Tax Expense. The Company's income tax expense was $8.5 million for the
thirteen weeks ended October 28, 2000. Included in income tax expense was an
$11.0 million charge, which resulted from a court decision disallowing the
deduction of interest expenses related to corporate owned life insurance
policies (see Note 7. Legal Proceedings). Excluding the charge, the Company's
effective tax rate was 35.1% for the thirteen weeks ended October 28, 2000,
decreasing from 42.0% for the thirteen weeks ended October 30, 1999. During
1999, certain non-deductible expenses related to the Camelot merger impacted the
Company's effective tax rate.
Net Income. The Company's net loss was $15.6 million for the thirteen weeks
ended October 28, 2000, compared to net income of $3.8 million for the same
period last year. Excluding one-time charges, the Company's net loss was $3.1
million. The decrease in net income is attributable to decreased sales, lower
gross margins and increased SG&A expenses.
Thirty-nine Weeks Ended October 28, 2000
Compared to the Thirty-nine Weeks Ended October 30, 1999
Sales. The Company's total sales increased 2% to $861.2 million for the
thirty-nine weeks ended October 28, 2000 compared to $840.3 million for the
thirty-nine weeks ended October 30, 1999. Comparable store sales increased 2%
for the period.
For the thirty-nine weeks ended October 28, 2000, comparable store sales
increased 2% for mall stores and 3% for free standing stores. By merchandise
category, comparable store sales decreased 2% in music and increased 25% in
video and 8% in accessories.
Gross Profit. Gross profit, as a percentage of sales, decreased to 35.6% in the
thirty-nine weeks ended October 28, 2000 from 36.2% in the thirty-nine weeks
ended October 30, 1999. The decrease in margin relates to the loss of sales in
the high margin singles category and increased promotional pricing in the third
quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A"), as a percentage of sales, increased to 33.8%
in the thirty-nine weeks ended October 28, 2000 from 32.9% in the thirty-nine
weeks ended October 30, 1999. The increase primarily relates to increased
spending on initiatives including branding, supply chain and e-commerce.
Page 10
<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)
Interest Expense (Income). Net interest income was $2.5 million in the
thirty-nine weeks ended October 28, 2000 compared to an expense of $0.8 million
for the thirty-nine weeks ended October 30, 1999. The improvement in net
interest is due to increased investment income from higher average cash balances
and higher interest rates.
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 thirty-nine weeks
ended October 30, 1999. The charge includes a write-off of redundant assets
between the two companies of $8.0 million, investment banking fees and other
professional costs of $10.0 million, printing and mailing costs for the joint
proxy/prospectus filed on March 29, 1999 of $2.0 million, system and integration
costs of $2.0 million and severance costs of $4.0 million.
Income Tax Expense (Benefit). The Company's income tax expense was $17.9
million for the thirty-nine weeks ended October 28, 2000. Included in income
tax expense was an $11.0 million charge, which resulted from a court decision
disallowing the deduction of interest expenses, related to corporate owned life
insurance policies (see Note 7. Legal Proceedings). Excluding the charge, the
Company's effective tax rate was 38.4% for the thirty-nine weeks ended October
28, 2000, decreasing from 42.0% for the thirty-nine weeks ended October 30,
1999. During 1999, certain non-deductible expenses related to the Camelot
merger impacted the Company's effective tax rate.
Net Income. The Company's net income decreased to $54,000 for the thirty-nine
weeks ended October 28, 2000, compared to $824,000 for the same period last
year. Excluding the one-time charges, net income was $12.4 million for the
thirty-nine weeks ended October 28, 2000, compared to $15.7 excluding the
one-time Camelot merger-related costs. The decrease in net income is
attributable to lower gross margins and higher SG&A expenses.
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 $72.7 million at October 28, 2000, compared to
$280.0 million at the end of fiscal 1999.
Cash used by operating activities was $120.2 million for the thirty-nine weeks
ended October 28, 2000. The primary uses of cash were a $93.4 million reduction
of accounts payable, a $34.5 million increase in inventory and a $21.1 million
net reduction in income taxes payable.
Cash used in financing activities was $57.0 million for the thirty-nine weeks
ended October 28, 2000. The primary use of cash was $54.1 million for the
purchase of 5.8 million shares of common stock under repurchase programs
authorized by the Board of Directors. As of October
Page 11
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Liquidity and Capital Resources
(continued)
28, 2000, the Company had completed the purchase of 5.8 million shares of the
10.0 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 2003 and automatically
renews on a year-to-year basis thereafter with the consent of both parties. The
Revolving Credit Facility contains certain restrictive provisions, including
provisions governing cash dividends and acquisitions, is collateralized by
merchandise inventory and contains a minimum net worth covenant. On October 28,
2000, the Company had no outstanding borrowings under the Revolving Credit
Facility, and $100 million was available for borrowing.
On August 11, 2000, the Company acquired a majority interest in SecondSpin.com
for $5.0 million. In addition, SecondSpin.com can borrow up to $10.0 million in
the form of convertible debt. As of October 28, 2000, SecondSpin.com had
borrowed $2.5 million and had an additional $7.5 million available to borrow.
Capital Resources. On April 22, 1999, the Company acquired by merger 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 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 thirty-nine weeks of 2000,
the Company had capital expenditures of $22.9 million. The Company plans to
spend $35.0 million, net of construction allowances, for capital expenditures in
fiscal 2000. During the first thirty-nine weeks of 2000, the Company opened or
relocated 32 stores and closed 64 stores.
Page 12
<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 October 19, 2000, the Company filed a report on Form 8-K announcing the
United States District Court for the District of Delaware issued an opinion in
favor of the IRS, in the case of IRS vs. Camelot Music Holdings, Inc., a
wholly-owned subsidiary of the Company.
On November 13, 2000, the Company filed a report on Form 8-K announcing the
closing on the acquisition of the Disc Jockey music chain from Wax Works, Inc.
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
December 12, 2000 By: /s/ ROBERT J. HIGGINS
----------------------
Robert J. Higgins
Chairman and Chief
Executive Officer
(Principal Executive Officer)
December 12, 2000 By: /s/ JOHN J. SULLIVAN
----------------------
John J. Sullivan
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
