NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
April 29, 2017 and April 30, 2016
Note 1. Nature of Operations
Trans World Entertainment Corporation and subsidiaries (“the Company”)
is one of the largest specialty retailers of entertainment products, including trend, video, music, electronics and related products
in the United States. The Company operates in two reportable segments: fye and etailz. The fye segment operates a chain of retail
entertainment stores and e-commerce sites,
www.fye.com
and
www.secondspin.com
.
As of April 29, 2017, the fye segment operated 273 stores totaling approximately 1.5 million square feet in the United States,
the District of Columbia and the U.S. Virgin Islands. The etailz segment generates substantially all of its revenue through Amazon
Marketplace. The Company’s business is seasonal in nature, with the peak selling period being the holiday season which falls
in the Company’s fourth fiscal quarter.
Liquidity and Cash Flows:
The Company’s primary sources
of working capital are cash provided by operations and borrowing capacity under its revolving credit facility. The Company’s
cash flows fluctuate from quarter to quarter due to various items, including seasonality of sales and earnings, merchandise inventory
purchases and returns, the related terms on the purchases and capital expenditures. Management believes it will have adequate resources
to fund its cash needs for the foreseeable future, including its capital spending, its seasonal increase in merchandise inventory
and other operating cash requirements and commitments.
Management anticipates any cash requirements
due to a shortfall in cash from operations will be funded by the Company’s revolving credit facility, as discussed in
note 9 in the condensed consolidated financial statements.
In connection with the preparation of these unaudited condensed
consolidated financial statements, the Company conducted an evaluation as to whether there were conditions and events,
considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as
a going concern within one year after the date of the issuance, or the date of availability, of the condensed
consolidated financial statements to be issued, noting that there did not appear to be evidence of substantial doubt of the
entity’s ability to continue as a going concern.
Note 2. Basis of Presentation
The accompanying condensed consolidated financial
statements consist of Trans World Entertainment Corporation, Record Town, Inc. (“Record Town”), Record Town’s
subsidiaries and etailz, Inc., all of which are wholly-owned. All intercompany 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 unaudited condensed
consolidated financial statements reflects all normal, recurring adjustments which, in the opinion of management, are necessary
for the fair presentation of such financial statements. The preparation of financial statements in conformity with accounting principles
generally accepted in the
United States of America (“U.S. GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant to rules and regulations applicable to
interim financial statements.
The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto
and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the year
ended January 28, 2017 contained in the Company’s Annual Report on Form 10-K filed April 13,
2017. The results of operations for the 13 weeks ended April 29, 2017 are not necessarily indicative of the
results to be expected for the entire fiscal year ending February 3, 2018.
The Company’s significant accounting policies
are the same as those described in Note 1 to the Company’s Consolidated Financial Statements on Form 10-K for the fiscal
year ended January 28, 2017.
There have been no material changes to the accounting
policies applied to our consolidated results and footnote disclosures.
Note 3. Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity
to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective
for the Company’s fiscal year beginning February 4, 2018. To date, the Company has identified relevant arrangements and performance
obligations and is assessing the impact of the new guidance. Evaluation is ongoing and it is too early to provide an assessment
of the impact. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing
financial reporting.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which will
replace most existing lease accounting guidance in U.S. GAAP. The core principle of this ASU is that an entity should recognize
the rights and obligations resulting from leases as assets and liabilities. The new standard requires qualitative and specific
quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about
the nature of an entity’s leasing activities, including significant judgments and changes in judgments. The new standard
will be effective for the Company’s fiscal year beginning February 2, 2019, and requires the modified retrospective method
of adoption. Early adoption is permitted. The Company is in the process of determining the method and timing of adoption and assessing
the impact of ASU 2016-02 on its consolidated financial statements. Given the nature of the operating leases for the Company’s
home office, distribution center, and stores, the Company expects an increase to the carrying value of its assets and liabilities.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test
goodwill for impairment by eliminating step two from the goodwill impairment test whereby a goodwill impairment loss is determined
by comparing the implied fair value of a reporting unit’s goodwill with the
carrying amount of that goodwill. Rather, an entity will perform its
annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is
effective for the Company in fiscal 2021, applied on a prospective basis, and early adoption is allowed for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017.
In March 2017, the
FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost,” which is intended to improve the presentation of net
periodic pension cost and net periodic post-retirement benefit cost in an entity’s financial statements by requiring
the service cost component be disaggregated from other components of net benefit costs and presented in the same line item or
items as other compensation costs for the employees. Additionally, only the service cost component of net benefit cost is
eligible for capitalization when applicable. ASU 2017-07 is effective for the Company’s fiscal year beginning February 2,
2019, and must be applied retrospectively. ASU 2017-07 is permitted for early adoption, but only at the beginning of an
annual period for which financial statements have not been issued or made available for issuance. The Company is currently
evaluating the impact that this ASU will have on its reporting and asset recognition.
In May 2017, the FASB
issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,” which provided
clarity as to what changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting
in Topic 718. ASU 2017-09 is effective for the Company for interim and annual periods beginning in fiscal year beginning
February 2, 2019, with early adoption permitted and is applied prospectively
to changes in terms or conditions of awards occurring on or after the adoption date. The Company will consider the impact that
this standard may have on future stock-based payment award modifications should they occur.
Note 4. Asset Acquisitions
Business Combination-etailz
On October 17, 2016, the Company completed the
purchase of all of the issued and outstanding shares of etailz, Inc. (etailz), an innovative and leading digital marketplace retailer.
etailz operates both domestically and internationally. They use a data driven approach to digital marketplace retailing utilizing
proprietary software and ecommerce insight coupled with a direct customer relationship engagement to identify new distributors
and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions.
The
Company paid $32.3 million in cash, issued 5.7 million shares of Trans World Entertainment Corporation stock at closing to the
shareholders of etailz as consideration for their shares, and paid $4.3 million in cash advances to settle obligations of the selling
shareholders. Based on the fair value of $3.56 per share on the acquisition date, the shares had a value of $20.4 million. An earn-out
of up to a maximum of $14.6 million would be payable in fiscal 2018 and fiscal 2019 subject to the achievement by etailz of $6
million in operating income in fiscal 2017 and $7.5 million in fiscal 2018 as outlined in the share purchase agreement prior to
its amendment as discussed in the following paragraph. In connection with the acquisition, the
Company
assumed the liability of the selling shareholders for etailz’s employee retention bonus plan, of which $1.9 million was due
and payable at closing and funded as part of the cash advances and the remaining $2.3 million will be earned over a two year service
period. The acquisition and related
costs were funded primarily from the Company’s
cash on hand and short term borrowings under its revolving credit facility. The acquisition was accounted for using the purchase
method of accounting.
Subsequent to the end of the Company’s first fiscal quarter, the
share purchase agreement with the selling shareholders of etailz was amended to provide that $11.5 million be released from the
earnout escrow account and the $3.1 million remaining in the earnout escrow account may be payable in cash to the selling shareholders
in 2019, subject to the achievement by etailz of operating income in excess of $15.5 million during the twenty-four month period
ended February 2, 2019. In the event that etailz achieves operating income in excess of $13.5 million, but less than $15.5 million,
an earnout of $1.6 million would be payable in 2019. If etailz operating income is below $13.5 million, the $3.1 million escrow
would be returned to the Company.
The amount released from escrow was disbursed on May 5, 2017 as follows:
$5.0 million to the Company for future investment, $5.0 million to the selling shareholders, and $1.5 million to the Company
(to be allocated to increase the maximum amount available under the etailz employee retention bonus plan from $4.2 million to $5.7
million).
The results of operations of etailz will be reported in the Company’s
etailz segment and has been included in the consolidated results of operations of the Company from the date of acquisition. The
following unaudited pro forma financial information for the thirteen weeks ended April 30, 2016, presents consolidated information
as if the etailz acquisition had occurred on February 1, 2016. Because of different fiscal period ends, and in order to present
results for comparable periods, the unaudited pro forma financial information for the thirteen weeks ended April 30, 2016, combines
(i) the Company’s historical statement of operations for the thirteen weeks ended April 30, 2016, and (ii) etailz historical
statement of income for the period from February 1, 2016 through April 30, 2016. The unaudited pro forma financial information
is presented after giving effect to certain adjustments for acquisition-related costs, depreciation, amortization of definite lived
intangible assets, interest expense on acquisition financing, and related income tax effects. The unaudited pro forma financial
information is based upon currently available information and upon certain assumptions that the Company believes are reasonable
under the circumstances. The unaudited pro forma financial information does not purport to present what the Company’s results
of operations would actually have been if the aforementioned transaction had in fact occurred on such date or at the beginning
of the period indicated, nor does it project the Company’s financial position or results of operations at any future date
or for any future period.
|
|
Thirteen Weeks Ended
|
|
|
|
April 30,
2016
|
|
|
|
|
|
Pro forma total revenue
|
|
$
|
102,426
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
(1,010
|
)
|
|
|
|
|
|
Pro forma basic and diluted loss per share
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
Pro forma weighted average number of common shares outstanding – basic and diluted
|
|
|
36,751
|
|
Collaborative Arrangement
On April 11, 2017, the Company entered into
an agreement with another party for the purpose of acquiring and selling certain retail merchandise. etailz holds a 50% economic interest in the arrangement as of April 29, 2017. The cash investment was
$2.6 million dollars. The $2.6 million investment was included in other assets as of April 29, 2017.
Note 5. Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite
useful lives are not amortized, but are tested for impairment at least annually. Goodwill represents the excess of the purchase
price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.
Determining the fair value of a reporting unit
requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates, and
future market conditions, among others. Goodwill and other long-lived assets are reviewed for impairment if circumstances indicate
that the carrying amount may not be recoverable.
We are continuing to amortize certain vendor relationships, technology,
and trade names and trademarks that have finite lives.
Identifiable intangible assets as of April 29, 2017 consisted
of the following (in thousands, except weighted-average amortization period):
|
|
April
29, 2017
|
|
|
|
Weighted
Average
Amortization
Period
(in months)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor relationships
|
|
|
120
|
|
|
$
|
19,100
|
|
|
$
|
1,054
|
|
|
$
|
18,046
|
|
Technology
|
|
|
60
|
|
|
|
6,700
|
|
|
|
733
|
|
|
|
5,967
|
|
Trade names and trademarks
|
|
|
60
|
|
|
|
3,200
|
|
|
|
327
|
|
|
|
2,873
|
|
|
|
|
|
|
|
$
|
29,000
|
|
|
$
|
2,114
|
|
|
$
|
26,886
|
|
The changes in net intangibles and goodwill from January 28, 2017 to April 29, 2017 were as follows:
(in thousands)
|
|
January 28,
2017
|
|
|
Amortization
|
|
|
April 29,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor relationships
|
|
$
|
18,522
|
|
|
$
|
476
|
|
|
$
|
18,046
|
|
Technology
|
|
|
6,302
|
|
|
|
335
|
|
|
|
5,967
|
|
Trade names and trademarks
|
|
|
3,033
|
|
|
|
160
|
|
|
|
2,873
|
|
Net amortized intangible assets
|
|
$
|
27,857
|
|
|
$
|
971
|
|
|
$
|
26,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
39,191
|
|
|
|
—
|
|
|
$
|
39,191
|
|
Total unamortized intangible assets
|
|
$
|
39,191
|
|
|
|
—
|
|
|
$
|
39,191
|
|
Estimated amortization expense for the remainder of fiscal 2017 and
the five succeeding fiscal years and thereafter is as follows:
Year
|
|
Annual
Amortization
|
|
(in thousands)
|
|
|
|
2017
|
|
$
|
2,919
|
|
2018
|
|
|
3,890
|
|
2019
|
|
|
3,890
|
|
2020
|
|
|
3,890
|
|
2021
|
|
|
3,325
|
|
2022
|
|
|
1,910
|
|
Thereafter
|
|
|
7,062
|
|
Note 6. Depreciation and Amortization
Depreciation and amortization included
in the condensed consolidated statements of operations is as follows:
|
|
Thirteen Weeks Ended
|
|
|
|
April 29,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Cost of sales
|
|
$
|
154
|
|
|
$
|
100
|
|
Selling, general and administrative expenses
|
|
|
3,223
|
|
|
|
1,463
|
|
Total
|
|
$
|
3,377
|
|
|
$
|
1,563
|
|
Note 7. Segment Data
As described in Note 1
to the condensed consolidated financial statements, we operate in two reportable segments as shown in the following table. etailz
results included in the tables below are for the period starting when etailz was acquired, therefore, results are only
included in the thirteen weeks ended April 29, 2017.
|
|
Thirteen Weeks Ended
|
|
(in thousands)
|
|
April 29,
2017
|
|
|
April 30,
2016
|
|
Total Revenue
|
|
|
|
|
|
|
|
|
fye
|
|
$
|
64,944
|
|
|
$
|
75,730
|
|
etailz
|
|
|
37,023
|
|
|
|
—
|
|
Total Company
|
|
$
|
101,967
|
|
|
$
|
75,730
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
fye
|
|
$
|
26,910
|
|
|
$
|
30,826
|
|
etailz
|
|
|
9,395
|
|
|
|
—
|
|
Total Company
|
|
$
|
36,305
|
|
|
$
|
30,826
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
|
|
|
|
|
|
fye
|
|
$
|
(4,386
|
)
|
|
$
|
(685
|
)
|
etailz
|
|
|
(821
|
)
|
|
|
—
|
|
Total Company
|
|
$
|
(5,207
|
)
|
|
$
|
(685
|
)
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
fye
|
|
$
|
201,335
|
|
|
$
|
258,681
|
|
etailz
|
|
|
98,722
|
|
|
|
—
|
|
Total Company
|
|
$
|
300,057
|
|
|
$
|
258,681
|
|
Note 8. Restricted Cash
At April 29, 2017, the Company had restricted cash of $13.0 million
and $10.5 million reported in current and other assets on the accompanying condensed consolidated balance sheet,
respectively. The Company did not have restricted cash as of April 30, 2016.
In connection with the acquisition of etailz and under the terms of
the share purchase agreement, the Company designated $1.5 million of the restricted cash to be made available to satisfy any indemnification
claims within 18 months from the date of acquisition and $14.6 million of the restricted cash to equal the maximum earn-out amount
that could be paid to the selling shareholders of etailz in accordance with the share purchase agreement.
In addition, as a result of the death of its former Chairman, the
Company received $7.4 million, which is held in a rabbi trust and was classified as restricted cash in other assets on the
accompanying condensed consolidated balance sheet.
A summary of cash, cash equivalents and restricted cash is as follows
(in thousands):
|
|
April 29,
|
|
|
January 28,
|
|
|
April 30,
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
Cash and cash equivalents
|
|
$
|
15,803
|
|
|
$
|
27,974
|
|
$
|
90,856
|
Restricted cash
|
|
|
23,497
|
|
|
|
16,103
|
|
|
—
|
Total cash, cash equivalents and restricted cash
|
|
$
|
39,300
|
|
|
$
|
44,077
|
|
$
|
90,856
|
Note 9. Line of Credit
In January 2017, the Company entered into a $50 million asset
based credit facility (“Credit Facility”) which amended the previous credit facility. The availability under the Credit
Facility is subject to limitations based on inventory levels. The principal amount of all outstanding loans under the Credit Facility,
together with any accrued but unpaid interest, are due and payable in January 2022, unless otherwise paid earlier pursuant to the
terms of the Credit Facility. Payments of amounts due under the Credit Facility are secured by the assets of the Company. The Credit
Facility contains a provision to increase availability to $75 million during October to December of each year, as needed.
Interest under the Credit Facility will accrue, at the election
of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the
level of availability, with the Applicable Margin for LIBO Rate loans ranging from 2.25% to 2.75% and the Applicable Margin for
Prime Rate loans ranging from 0.75% to 1.25%. In addition, a commitment fee ranging from 0.375% to 0.50% is also payable on unused
commitments.
The Credit Facility contains customary affirmative and negative
covenants, including restrictions on dividends and share repurchases, incurrence of additional indebtedness and acquisitions, covenants
around the net number of store closings, and restrictions related to the payment of cash dividends, including limiting the amount
of dividends and share repurchases to $5.0 million annually and not allowing borrowings under the amended facility for the six
months before or six months after the dividend payment.
During the first quarters of fiscal 2017 and 2016, the Company
did not have any borrowings under its existing credit facilities. Peak borrowings under its credit facility during fiscal 2016
were $21.5 million. As of April 29, 2017 and April 30, 2016, the Company had no outstanding letters of credit. The Company had
$35 million and $37 million available for borrowing as of April 29, 2017 and April 30, 2016, respectively.
Note 10. Stock Based Compensation
As of April 29, 2017, there was approximately $845 thousand
of unrecognized compensation cost related to stock awards that is expected to be recognized as expense over a weighted average
period of 2.5 years.
As of April 29, 2017, stock awards authorized
for issuance under the Company’s current long term equity incentive plans totaled 8.0 million shares. There are certain authorized
stock awards for which the Company no longer grants awards. Of these awards authorized for issuance, 2.6 million shares were granted
and are outstanding, 1.3 million shares of which were vested and exercisable. Awards available for future grants at April 29, 2017
were 1.1 million shares.
The following table summarizes stock award activity during the
thirteen weeks ended April 29, 2017:
|
|
Employee and Director Stock Award Plans
|
|
|
|
Number of
Shares
Subject To
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Other
Share
Awards (1)
|
|
|
Weighted
Average
Grant Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 28, 2017
|
|
|
2,459,564
|
|
|
$
|
3.58
|
|
|
|
7.3
|
|
|
|
170,927
|
|
|
$
|
3.87
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Canceled
|
|
|
(24,250
|
)
|
|
|
3.74
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance April 29, 2017
|
|
|
2,435,314
|
|
|
$
|
3.58
|
|
|
|
7.1
|
|
|
|
170,927
|
|
|
$
|
3.87
|
|
Exercisable April 29, 2017
|
|
|
1,188,064
|
|
|
$
|
3.51
|
|
|
|
5.4
|
|
|
|
63,427
|
|
|
$
|
4.50
|
|
(1)
|
Other Share Awards include deferred shares granted to Directors and restricted share units granted
to executive officers.
|
As of April 29, 2017, the intrinsic value
of stock awards outstanding and exercisable was approximately $12 thousand.
In connection with the acquisition of etailz, the Company issued
1,572,552 restricted shares of Company stock to a key etailz employee, with a grant date fair value of $3.56 per share. These shares
vest ratably through January 2019. As of April 29, 2017, the Company recognized $622 thousand of compensation cost related to these
shares. As of April 29, 2017, there was approximately $4.8 million of unrecognized compensation cost related to these restricted
shares that is expected to be recognized as expense over the next 21 months.
Note 11. Accumulated Other Comprehensive
Loss
Accumulated other comprehensive loss that the Company reports
in the condensed consolidated balance sheets represents net loss, adjusted for the difference between the accrued pension liability
and accrued benefit cost, net of taxes, associated with the Company’s defined benefit plans. Comprehensive income consists
of net income and the reclassification of pension costs previously reported in comprehensive income for the thirteen weeks ended
April 29, 2017 and April 30 2016.
Note 12. Defined Benefit Plan
The Company maintains a non-qualified Supplemental Executive
Retirement Plan (“SERP”) for certain executive officers of the Company. The SERP provides eligible executives defined
pension benefits that supplement benefits under other retirement arrangements. During the thirteen weeks ended April 29, 2017,
the Company did not make any cash contributions to the SERP and presently expects to pay approximately $1.2 million in benefits
relating to the SERP during fiscal 2017.
The measurement date
for the SERP is the fiscal year end, using actuarial techniques which reflect estimates for mortality, turnover and expected retirement.
In addition, management makes assumptions concerning future salary increases. Discount rates are generally established as of the
measurement date using theoretical bond models that select high-grade corporate bonds with maturities or coupons that correlate
to the expected payouts of the applicable liabilities.
The following represents the components
of the net periodic pension cost related to the Company’s SERP for the respective periods:
|
|
Thirteen Weeks Ended
|
|
|
|
April 29,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
16
|
|
|
$
|
15
|
|
Interest cost
|
|
|
139
|
|
|
|
137
|
|
Amortization of pension costs
|
|
|
4
|
|
|
|
55
|
|
Amortization of net gain
(1)
|
|
|
(9
|
)
|
|
|
(4
|
)
|
Net periodic pension cost
|
|
$
|
150
|
|
|
$
|
203
|
|
(1)
|
The amortization of net gain is related to a Director Retirement
Plan previously provided by the Company.
|
Note 13. Basic and Diluted Loss Per
Share
Basic income per share is calculated by dividing net income
by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any. It is computed
by dividing net income by the sum of the weighted average shares outstanding and additional common shares that would have been
outstanding if the dilutive potential common shares had been issued for the Company’s common stock awards from the Company’s
Stock Award Plans.
Weighted average shares are calculated
as follows:
|
|
Thirteen Weeks Ended
|
|
|
|
April 29,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Weighted average common shares outstanding – basic
|
|
|
36,177
|
|
|
|
30,761
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of employee stock options
|
|
|
37
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding–diluted
|
|
|
36,214
|
|
|
|
30,930
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options
|
|
|
2,266
|
|
|
|
1,934
|
|
Note 14. Income Taxes
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent on the generation of future taxable income. Management considers the scheduled
reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment.
Based on available objective evidence, management concluded that a full valuation allowance should continue to be recorded against
the Company’s deferred tax assets.
Management will continue to assess the need for and amount of the valuation allowance against
the deferred tax assets by giving consideration to all available
evidence to the Company’s ability to generate future taxable income in its conclusion of the need for a full valuation allowance.
Any reversal of the Company’s valuation allowance will favorably impact its results of operations in the period of reversal.
The Company is currently unable to determine whether or when that reversal might occur, but it will continue to assess the realizability
of its deferred tax assets and will adjust the valuation allowance if it is more likely than not that all or a portion of the deferred
tax assets will become realizable in the future. The Company has significant net operating loss carry forwards and other tax attributes
that are available to offset projected taxable income and current taxes payable, if any, for the year ending February 3, 2018.
The deferred tax impact resulting from the utilization of the net operating loss carry forwards and other tax attributes
will be offset by a reduction in the valuation allowance. As of January 28, 2017, the Company had a net operating loss carry forward
of $181.4 million for federal income tax purposes and approximately $243 million for state income tax purposes that expire at various
times through 2036 and are subject to certain limitations and statutory expiration periods.
TRANS WORLD ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION