Trans World Entertainment Announces Final Fiscal Year 2002 Results

  • Company Confirms Goodwill Impairment Charge –
  • Company Adopts EITF 02-16 –

    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