EX-99.2 5 nc10009016x1_ex99-2.htm EXHIBIT 99.2
Exhibit 99.2

Unaudited Pro Forma Condensed Consolidated Financial Statements

The following unaudited pro forma condensed consolidated statements of operations for the fiscal years ended February 3, 2018, February 2, 2019, and the thirty nine weeks ended November 2, 2019 present the Company’s results of operations as adjusted to give effect to the divestiture of certain assets and liabilities of the fye business (the “Transaction”) as if it had occurred at the beginning of the earliest period. The accompanying unaudited pro forma condensed consolidated balance sheet as of November 2, 2019 presents the Company’s financial position as if the Transaction had occurred on November 2, 2019. The unaudited pro forma condensed consolidated balance sheet as of November 2, 2019 reflects the elimination of certain assets and liabilities of the fye business to be sold as part of the Transaction, the elimination of all intercompany accounts, the inclusion of the cash proceeds from the Transaction, the application of such proceeds to repay certain outstanding debt, and the recognition of the estimated loss from the Transaction. The estimated loss on the sale of the fye business will change upon final determination and settlement of post-closing adjustments.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s most recent annual report on Form 10-K for the period ended February 2, 2019 and in the Company’s most recent quarterly report on Form 10-Q for the period ended November 2, 2019.


The unaudited pro forma information below is provided for information purposes only and is not indicative of what the actual financial position or results of operations of the Company would have been had the Transaction actually occurred on the dates indicated, nor does it purport to indicate the future financial position or results of operations of the Company. The pro forma adjustments are based upon available information and assumptions believed to be reasonable in the circumstances. There can be no assurance that such information and assumptions will not change from those reflected in the pro forma condensed financial statements and notes thereto.

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)

 
  
Historical
Trans World
Entertainment
Corporation
Year-ended
February 3,
2018
    
Disposition
of fye
Business(1)
    
Pro Forma
Adjustments
    
Pro Forma
Trans World
Entertainment
Corporation
Year-ended
February 3,
2018
  
Net sales
  
$
437,173
    
$
(262,714
)
  
$
—
    
$
174,459
  
Other revenue
    
5,683
      
(5,683
)
    
—
      
—
  
Total revenue
    
442,856
      
(268,397
)
    
—
      
174,459
  
                                 
Cost of sales
    
299,013
      
(164,143
)
    
—
      
134,870
  
Gross profit
    
143,843
      
(104,254
)
    
—
      
39,589
  
Selling, general and administrative expenses
    
167,924
      
(124,408
)
    
4,547
(2) 
    
48,063
  
Income from joint venture
    
(1,787
)
    
—
      
—
      
(1,787
)
Asset impairment charges
    
29,107
      
(29,107
)
    
—
      
—
  
Loss from operations
    
(51,401
)
    
49,261
      
(4,547
)
    
(6,687
)
Interest expense
    
332
      
—
      
(155
)(3)
    
177
  
Other loss (income)
    
(8,881
)
    
149
      
—
      
(8,732
)
(Loss) income before income taxes
    
(42,852
)
    
49,112
      
(4,392
)
    
1,868
  
Income tax (benefit) expense
    
(299
)
    
285
      
—
      
(14
)
Net (loss) income
  
$
(42,553
)
    
48,827
      
(4,392
)
    
1,882
  
                                 
Basic and diluted (loss) income per share:
                                
Basic and diluted loss per common share
  
$
(23.52
)
                  
$
1.04
  
                                 
Weighted average number of common shares outstanding – basic
    
1,810
                      
1,810
  
                                 
Weighted average number of common shares outstanding – diluted
    
1,810
                      
1,811
  

Notes:
 
(1)
Represents the elimination of the operating results of the fye business for the period presented, which is consistent with the terms of that certain Asset Purchase Agreement dated January 23, 2020, by and among Trans World Entertainment Corporation, Record Town, Inc., Record Town USA LLC, Record Town Utah LLC, Trans World FL LLC, Trans World New York, LLC, 2428392 Inc., and 2428391 Ontario Inc., o/a Sunrise Records (the “Asset Purchase Agreement”).
 
(2)
Represents adjustment for the corporate level expenses of the parent company. Does not reflect (i) income or expenses arising out of the Transition Services Agreement or (ii) certain severance payments that will be payable by the Company in respect of employees not transferred to the Purchaser, which amounts will not be known prior to consummation of the Transaction.
 
(3)
Represents an adjustment of interest expense assuming that $14.5 million of cash proceeds were received at the beginning of the period and applied to repay debt.


TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)

   
Historical
Trans World
Entertainment
Corporation
Year-ended
February 2,
2019
    
Disposition
of fye
Business(1)
    
Pro Forma
Adjustments
    
Pro Forma
Trans World
Entertainment
Corporation
Year-ended
February 2,
2019
  
Net sales
  
$
412,997
    
$
(226,097
)
  
$
—
    
$
186,900
  
Other revenue
    
5,193
      
(5,193
)
    
—
      
—
  
Total revenue
    
418,190
      
(231,290
)
    
—
      
186,900
  
                                 
Cost of sales
    
290,116
      
(142,031
)
    
—
      
148,085
  
Gross profit
    
128,074
      
(89,259
)
    
—
      
38,815
  
Selling, general and administrative expenses
    
165,222
      
(111,768
)
    
7,750
(2) 
    
61,204
  
Asset impairment charges
    
59,658
      
(1,946
)
    
—
      
57,712
  
Loss from operations
    
(96,806
)
    
24,455
      
(7,750
)
    
(80,101
)
Interest expense
    
723
      
—
      
(498
)(3)
    
225
  
Other income
    
(227
)
    
227
      
—
      
—
  
Loss before income taxes
    
(97,302
)
    
24,228
      
(7,252
)
    
(80,326
)
Income tax expense
    
80
      
(53
)
    
—
      
27
  
Net loss
  
$
(97,382
)
    
24,281
      
(7,252
)
    
(80,353
)
                                 
Basic and diluted loss per share:
                                
Basic and diluted loss per common share
  
$
(53.67
)
                  
$
(44.30
)
                                 
Weighted average number of common shares outstanding – basic and diluted
    
1,814
                      
1,814
  


Notes:
 
(1)
The elimination of the operating results of the fye business for the period presented, which is consistent with the terms of the Asset Purchase Agreement, as defined herein.
 
(2)
Represents adjustment for the corporate level expenses of the parent company. Does not reflect (i) income or expenses arising out of the Transition Services Agreement or (ii) certain severance payments that will be payable by the Company in respect of employees not transferred to the Purchaser, which amounts will not be known prior to consummation of the Transaction.
 
(3)
Represents an adjustment of interest expense assuming that $14.5 million of cash proceeds were received at the beginning of the period and applied to repay debt.


TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)

   
Historical
Trans World
Entertainment
Corporation
Thirty-nine
Weeks ended
November 2,
2019
    
Disposition
of fye
Business(1)
    
Pro Forma
Adjustments
    
Pro Forma
Trans World
Entertainment
Corporation
Thirty-nine
Weeks ended
November 2,
2019
  
Net sales
  
$
223,100
    
$
(125,092
)
  
$
—
    
$
98,008
  
Other revenue
    
2,510
      
(2,510
)
    
—
      
—
  
Total revenue
    
225,610
      
(127,602
)
    

      98,008
 
                                 
Cost of sales
    
152,025
      
(76,932
)
    
—
      
75,093
  
Gross profit
    
73,585
      
(50,670
)
    
—
      
22,915
  
Selling, general and administrative expenses
    
95,470
      
(68,915
)
    
6,525
(2) 
    
33,080
  
Asset impairment charges
    
16,035
      
(16,035
)
    
—
      
—
  
Loss from operations
    
(37,920
)
    
34,280
      
(6,525
)
    
(10,165
)
Interest expense
    
554
      
—
      
(445
)(3)
    
109
  
Other loss
    
388
      
(388
)
    
—
      
—
  
Loss before income taxes
    
(38,862
)
    
34,668
      
(6,080
)
    
(10,274
)
Income tax expense
    
223
      
(192
)
    
—
      
31
  
Net loss
  
$
(39,085
)
  
$
34,860
    
$
(6,080
)
  
$
(10,305
)
                                 
Basic and diluted loss per share:
                                
Basic and diluted loss per common share
  
$
(21.51
)
                  
$
(5.67
)
                                 
Weighted average number of common shares outstanding – basic and diluted
    
1,817
                      
1,817
  

Notes:
 
(1)
The elimination of the operating results of the fye business for the period presented, which is consistent with the terms of the Asset Purchase Agreement, as defined herein.
 
(2)
Represents adjustment for the corporate level expenses of the parent company. Does not reflect (i) income or expenses arising out of the Transition Services Agreement or (ii) certain severance payments that will be payable by the Company in respect of employees not transferred to the Purchaser, which amounts will not be known prior to consummation of the Transaction.
 
(3)
Represents an adjustment of interest expense assuming that $14.5 million of cash proceeds were received at the beginning of the period and applied to repay debt.



TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in thousands)

   
Historical
Trans World
Entertainment
Corporation
as of
November 2,
2019
    
Disposition
of fye
Business(1)
    
Pro Forma
Adjustments
    
Pro Forma
Trans World
Entertainment
Corporation
as of
November 2,
2019
  
ASSETS
                        
Current assets:
                        
Cash and cash equivalents
  
$
3,073
    
$
—
    
$
—
    
$
3,073
  
Restricted cash
    
950
      
—
      
—
      
950
  
Accounts receivable
    
4,284
      
—
      
—
      
4,284
  
Merchandise inventory
    
101,130
      
(78,608
)
    
—
      
22,522
  
Prepaid expenses and other current assets
    
4,719
      
(2,298
)
    
—
      
2,421
  
Total current assets
    
114,156
      
(80,906
)
    
—
      
33,250
  
Restricted cash
    
5,139
      
—
      
—
      
5,139
  
Operating lease right-of-use assets
    
4,987
      
(2,885
)
    
—
      
3,404
  
Fixed assets, net
    
8,978
      
(5,574
)
    
—
      
2,102
  
Intangible assets, net
    
2,810
      
—
      
—
      
2,810
  
Other assets
    
5,410
      
(62
)
    
—
      
5,348
  
Total assets
  
$
141,480
    
$
(89,427
)
  
$
—
      
52,053
  
                                 
LIABILITIES
                                
Current liabilities:
                                
Accounts payable
  
$
29,994
    
$
(15,429
)
    
—
      
14,565
  
Short term borrowings
    
27,771
      
—
      
(14,490
)(2)
    
13,281
  
Accrued expenses and other current liabilities
    
5,584
      
(131
)
    
—
      
5,453
  
Deferred revenue
    
5,989
      
(5,989
)
    
—
      
—
  
Current portion of operating leases
    
9,440
      
(8,918
)
    
—
      
522
  
Total current liabilities
    
78,778
      
(30,467
)
    
(14,490
)
    
33,821
  
Operating lease liabilities
    
16,227
      
(13,275
)
    
—
      
2,952
  
Other long term liabilities
    
21,600
      
(2,270
)
    
—
      
19,330
  
Total liabilities
    
116,605
      
(46,012
)
    
(14,490
)
    
56,103
  
                                 
Shareholders’ equity (Accumulated deficit)
    
24,875
      
(43,415
)
    
14,490
      
(4,050
)(3)
Total liabilities and shareholders’ equity
  
$
141,480
    
$
(89,427
)
  
$
—
    
$
52,053
  

Notes:
(1)
Represents the elimination of certain assets of the fye business sold to the Purchaser and certain liabilities of the fye business assumed by the Purchaser, which is consistent with the terms of the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement, the Company will retain liabilities and obligations of the fye business not assumed by the Purchaser, including liabilities relating to pending lawsuits (including pending store manager class actions) and liabilities with respect to severance obligations for employees not transferred to the Purchaser. Below represents a reconciliation of previously disclosed fye segment assets and liabilities to the certain assets sold and liabilities assumed by the Purchaser.

 
fye segment assets as of November 2, 2019
  
$
107,707
  
   Less assets not sold:        
   Cash and cash equivalents    
(2,893
)
 
Restricted cash
    
(6,089
)
 
Accounts receivable
    
(2,444
)
 
Prepaid expenses and other current assets
    
(1,563
)
 
Other assets
    
(5,291
)
 
fye business assets sold
  
$
89,427
  
           
 
fye segment liabilities as of November 2, 2019
  
$
104,338
  
 
Less liabilities not assumed:
        
 
Accounts payable
    
(6,960
)
 
Short-term borrowings
    
(27,771
)
 
Accrued expenses and other current liabilities
    
(4,259
)
 
Other long-term liabilities
    
(19,336
)(i)
 
fye business liabilities assumed
  
$
46,012
  

 
(i)
Other long-term liabilities consist of the Company’s Supplemental Executive Retirement Plan in the amount of $15.8 million and liabilities for uncertain tax positions in the amount of $3.3 million and certain other liabilities

(2)
Represents application of the estimated cash proceeds (without giving effect to $1 million required to be deposited into an escrow account pursuant to the Asset Purchase Agreement) of the Transaction to pay down short-term borrowings, as required under the Company’s existing credit facility. Under the Asset Purchase Agreement, the purchase price for the Transaction varies based on Net Inventory (as defined in the Asset Purchase Agreement) sold to Purchaser as determined as of 12:00 a.m. on February 1, 2020 (the “Effective Time”), subject to post-closing adjustment. As of November 2, 2019, Net Inventory was approximately $56.0 million, short term borrowings were $27.7 million, the purchase price would have been approximately $14.5 million, and, following application of the proceeds of the Transaction to pay down short-term borrowings, approximately $13.3 million of borrowings remained outstanding under the Company’s existing credit facility. The Company’s operations are seasonal and Net Inventory and short term borrowings as of November 2, 2019, are not representative of expected Net Inventory and expected short term borrowings as of the Effective Time. See footnote (3) below for a sensitivity analysis of the estimated Transaction purchase price based on Net Inventory sold. As of January 4, 2020, the most recent fiscal month end, Net Inventory was approximately $44 million, short term borrowings were approximately $10.9 million, and the purchase price would have been approximately $11.5 million. All amounts, if any, remaining outstanding under the Company’s credit facility after application of the proceeds would be immediately due and payable.
   
(3)
Represents the estimated loss of approximately $29.0 million to be recorded as a result of the divestiture (determined as the estimated net assets sold of $43.4 million less estimated net proceeds of $14.5 million). The estimated loss will change upon the final determination and settlement of post-closing adjustments and other divestiture-related costs. Below represents a sensitivity analysis of the impact on the estimated sale price and estimated loss on divestiture based on a range of possibilities for Net Inventory sold to the Purchaser (in thousands, as determined as merchandise inventory less accounts payable).

 
Estimated Net
Inventory sold
to Purchaser
    
Estimated net
assets sold
    
Estimated sale
proceeds
    
Estimated loss
on divestiture
  
 
$
55,961
    
$
(43,415
)
  
$
14,490
    
$
(28,925
)
   
39,000
      
(19,236
)
    
9,500
      
(9,736
)
   
40,000
      
(20,236
)
    
10,000
      
(10,236
)
   
41,000
      
(21,236
)
    
10,500
      
(10,736
)
   
42,000
      
(22,236
)
    
11,000
      
(11,236
)
   
43,000
      
(23,236
)
    
11,250
      
(11,986
)