ALBANY, N.Y., April 29 /PRNewswire-FirstCall/ —
Trans World Entertainment Corporation (Nasdaq: TWMC) today announced its final
financial results for fiscal year 2002. These results replace the results
previously disclosed by the Company in its release dated February 27, 2003.
These results reflect the final determination of the charge taken by the
Company in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 142, Goodwill and Other Intangible Assets, which was adopted by
the Company at the beginning of the fiscal year. Also included in these
results is the effect of the Company’s adoption of Emerging Issues Task Force
(EITF) No. 02-16, Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor. The Company also took a non-cash,
after-tax charge of $2.3 million to write-off an investment.
As reported in its release dated February 27, 2003, the Company had
determined that its goodwill balances were impaired. The Company subsequently
completed its assessment of the impairment in accordance with SFAS No. 142
and, as anticipated, wrote off its entire balance of goodwill of $40.9 million
or $0.72 per share.
Subsequent to its release dated February 27, 2003, the Company adopted new
guidance issued in March 2003, by the Emerging Issues Task Force (EITF)
No. 02-16, Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor. In adopting the new guidance, the
Company changed its previous method of accounting, which was consistent with
generally accepted accounting principles. Under the new accounting guidance,
vendor allowances are generally considered a reduction in the price of a
vendor’s inventory product and recognized as a reduction in cost of goods
sold, unless the allowance represents a reimbursement of a specific,
incremental and identifiable cost incurred to sell the vendor’s products. This
change in accounting principle has the effect of increasing gross profit and
selling, general and administrative expenses (SG&A) for the year, and
decreasing inventory and related cost of sales. The gross profit rate
increased by 3.8% and the SG&A rate increased by 3.9 % as a result of adoption
of this guidance in fiscal 2002.
The Company adopted the new guidance effective from the beginning of
fiscal 2002, which resulted in a one-time, non-cash, after-tax charge of
$13.7 million, or $0.34 per share, which was classified as a “cumulative
effect of change in accounting principle”. The effect of adopting this
guidance was to decrease earnings from operations by $0.02 per share.
The following table shows the restated fiscal 2002 quarterly results
including the adoption of EITF No.02-16 effective from the beginning of the
year:
IMPACT OF EITF No. 02-16 ON FISCAL 2002 QUARTERS
Quarter 4 Quarter 3 Quarter 2 Quarter 1
Net income (loss) as
reported - $ (14,059) $(6,445) $ (6,332)
Effect of change in
accounting principle,
net of income taxes - (701) (558) 1,142
Cumulative effect of change
in accounting principle,
net of income taxes - - - $(13,684)
Net income (loss)
as restated $(4,833) $(14,760) $(7,003) $(18,874)
Basic earnings (loss)
per share, as reported $ (0.35) $ (0.16) $ (0.16)
Effect of change in
accounting principle,
net of income taxes $ - $ (0.01) $ (0.03) $ 0.03
Cumulative effect of
change in accounting
principle, net of
income taxes $ - $ - $ - $ (0.34)
Basic earnings (loss)
per share, as restated $ (0.11) $ (0.36) $ (0.19) $ (0.47)
Diluted earnings (loss)
per share, as reported $ (0.35) $ (0.16) $ (0.16)
Effect of change in
accounting principle,
net of income taxes $ - $ (0.01) $ (0.03) $ 0.03
Cumulative effect of
change in accounting
principle, net of
income taxes $ - $ - $ - $ (0.34)
Diluted earnings (loss)
per share, as restated $ (0.11) $ (0.36) $ (0.19) $ (0.47)
Subsequent to the press release dated February 27, 2003, the Company
recorded a non-cash after-tax charge of $2.3 million or $0.06 per share in the
fourth quarter of fiscal 2002 for the write-off of an impaired investment.
Including the effect of the adjustments discussed in this release, total
sales for the fiscal year ended February 1, 2003, were $1.3 billion, a
decrease of 8% from last year and the net loss was $45.5 million or $1.13 loss
per share. Comparable store sales decreased 5%.
Management reiterated that it expected earnings to be in the range of
$0.15 to $0.20 per share for fiscal year 2003 on total sales approximating
2002 levels. Including the impact of adoption of EITF No.02-16, gross margin
is expected to be 36% and SG&A, in the range of 31% to 32%. The impact of EITF
No. 02-16 on the quarterly results for fiscal 2003 is expected to be
comparable to its impact in fiscal 2002.
Trans World Entertainment is a leading specialty retailer of music and
video products. The Company operates retail stores in 46 states, the District
of Columbia, the U.S. Virgin Islands, Puerto Rico and an e-commerce site,
www.fye.com. In addition to its mall locations, operated under the “For Your
Entertainment” (“FYE”) brand, the Company also operates freestanding locations
under the names Coconuts Music and Movies, Strawberries Music, Spec’s and
Planet Music.
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.
TRANS WORLD ENTERTAINMENT CORPORATION
Financial Results
INCOME STATEMENTS:
(in millions, except per share data)
Fiscal Year Ended 2002
As reported Adj. for FAS 142
2/27/2003 (1)
February 1 % to February 1, % to
2003 Sales 2003 Sales
Sales $1,281.9
Cost of sales 863.4 67.3%
Gross profit 418.5 32.7%
Selling, general and
administrative expenses 372.0 29.0%
FAS 142 impairment charge (1) 40.9 3.2%
Depreciation and amortization 40.2 3.1%
Income (loss) from operations 6.3 0.6% (40.9) -3.2%
Interest expense (income) 1.1 0.1%
Income (loss) before income taxes and
before cumulative effect of change in
accounting principle 5.2 0.5% (40.9) -3.2%
Income tax expense (benefit) 4.6 0.5% (11.8) -0.9%
Income (loss) before cumulative
effect of change in accounting
principle $0.6 0.0% ($29.1) -2.3%
Cumulative effect of change in
accounting principle
(net of income taxes) (2) - -
Net income (loss) $0.6 0.0% $(29.1) -2.3%
Basic earnings (loss) per common
share:
Earnings (loss) per share before
cumulative effect of change
in accounting principle $0.01 ($0.72)
Cumulative effect of change in
accounting principle,
net of income taxes - -
Basic earnings (loss) per share $0.01 ($0.72)
Weighted average number of
common shares outstanding 40.2 40.2
Diluted earnings (loss) per common
share:
Earnings (loss) per share before
cumulative effect of change
in accounting principle $0.01 ($0.72)
Cumulative effect of change in
accounting principle,
net of income taxes - -
Diluted earnings (loss) per share $0.01 ($0.72)
Weighted average number of
common shares outstanding 40.2 40.2
INCOME STATEMENTS:
(in millions, except per share data)
Fiscal Year Ended 2002
Adj. for EITF Adj. for Investment
02-16 (2) Impairment (3)
February 1, % to February 1, % to
2003 Sales 2003 Sales
Sales
Cost of sales (48.3) -3.8%
Gross profit 48.3 3.8%
Selling, general and
administrative expenses 49.9 3.9% 3.8 0.3%
FAS 142 impairment charge (1)
Depreciation and amortization
Income (loss) from operations (1.6) -0.1% (3.8) -0.3%
Interest expense (income)
Income (loss) before income taxes
and before cumulative effect of
change in accounting principle (1.6) -0.1% (3.8) -0.3%
Income tax expense (benefit) (0.6) 0.0% (1.5) -0.1%
Income (loss) before cumulative
effect of change in accounting
principle ($1.0) -0.1% ($2.3) -0.2%
Cumulative effect of change in
accounting principle
(net of income taxes) (2) (13.7) -1.1% -
Net income (loss) $(14.7) -1.2% $(2.3) -0.2%
Basic earnings (loss) per common
share:
Earnings (loss) per share before
cumulative effect of change
in accounting principle ($0.02) ($0.06)
Cumulative effect of change in
accounting principle,
net of income taxes ($0.34) -
Basic earnings (loss) per share ($0.36) ($0.06)
Weighted average number of
common shares outstanding 40.2 40.2
Diluted earnings (loss) per common
share:
Earnings (loss) per share before
cumulative effect of change
in accounting principle ($0.02) ($0.06)
Cumulative effect of change in
accounting principle,
net of income taxes ($0.34) -
Diluted earnings (loss) per share ($0.36) ($0.06)
Weighted average number of
common shares outstanding 40.2 40.2
INCOME STATEMENTS:
(in millions, except per share data)
Fiscal Year Ended 2002 Fiscal
Final 2001
February 1, % to February 2, % to
2003 Sales 2002 Sales
Sales $1,281.9 $1,388.0
Cost of sales 815.1 63.6% 935.3 67.4%
Gross profit 466.8 36.4% 452.7 32.6%
Selling, general and
administrative expenses 425.7 33.2% 382.1 27.5%
FAS 142 impairment charge (1) 40.9 3.2% -
Depreciation and amortization 40.2 3.1% 40.6 2.9%
Income (loss) from operations (40.0) -3.1% 30.0 2.2%
Interest expense (income) 1.1 0.2% 0.3 0.1%
Income (loss) before income taxes
and before cumulative effect
of change in accounting
principle (41.1) -3.2% 29.7 2.1%
Income tax expense (benefit) (9.3) -0.7% 12.9 0.9%
Income (loss) before cumulative
effect of change in accounting
principle ($31.8) -2.5% $16.8 1.2%
Cumulative effect of change in
accounting principle
(net of income taxes) (2) $(13.7) -1.1% -
Net income (loss) $(45.5) -3.6% $16.8 1.2%
Basic earnings (loss) per common
share:
Earnings (loss) per share before
cumulative effect of change
in accounting principle ($0.79) $0.40
Cumulative effect of change in
accounting principle,
net of income taxes ($0.34) -
Basic earnings (loss) per share ($1.13) $0.40
Weighted average number of
common shares outstanding 40.2 41.9
Diluted earnings (loss) per common
share:
Earnings (loss) per share before
cumulative effect of change
in accounting principle ($0.79) $0.39
Cumulative effect of change in
accounting principle,
net of income taxes ($0.34) -
Diluted earnings (loss) per share ($1.13) $0.39
Weighted average number of
common shares outstanding 40.2 42.6
SELECTED BALANCE SHEET CAPTIONS:
(in millions, except store data)
Cash and cash equivalents $197.0 $254.9
Merchandise inventory 378.0 409.1
Fixed assets (net) 155.4 160.4
Accounts payable 326.9 378.9
Long-term debt and capital lease
obligations, less current portion 7.9 9.5
Stores in operation 855 902
(1) The Company recorded a non-cash impairment charge in fiscal 2002
related to Statement of Financial Accounting Standard (SFAS) No. 142,
concerning the accounting for goodwill. The Company completed its
annual impairment assessment, as prescribed by FAS 142, and has
determined that its goodwill asset balance is impaired. At fiscal
year end 2002 the Company had $40.9 million recorded in goodwill and
the entire amount was written-off after completing its final
assessment.
(2) The Company adopted the new guidance regarding vendor allowances
issued by the Emerging Issues Task Force ("EITF") No. 02-16,
"Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor" effective from the beginning of
fiscal 2002. In accordance with the new guidance, vendor
allowances are recognized as a reduction in cost of goods sold,
unless the allowance represents a reimbursement of a specific,
incremental and identifiable cost incurred to sell the vendor's
products. In adopting this new guidance, the Company changed its
previous method of accounting, which was consistent with generally
accepted accounting principles. The new practice will have the effect
of increasing the gross profit and increasing selling, general and
administration costs.
(3) The Company recorded a non-cash charge relating to the write off of
an impaired investment.
SOURCE Trans World Entertainment Corporation
CONTACT: John Sullivan, Executive Vice President and Chief Financial
Officer of Trans World Entertainment Corporation, +1-518-452-1242, ext. 7400;
or Kimberly Storin, Investor Relations Counsel, The MWW Group,
+1-212-704-9727,
Web site: http://www.fye.com