<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 MAY 4, 2002
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 of (I.R.S. Employer
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,
40,695,607 shares outstanding as of June 1, 2002
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
Form 10-Q
Page No.
PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets at May 4, 2002 (unaudited),
February 2, 2002 and May 5, 2001 (unaudited) 3
Condensed Consolidated Statements of Operations - Thirteen Weeks Ended
May 4, 2002 (unaudited) and May 5, 2001 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Thirteen Weeks Ended
May 4, 2002 (unaudited) and May 5, 2001 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 14
</Table>
2
<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>
<Caption>
MAY 4, FEBRUARY 2, MAY 5,
2002 2002 2001
---------------------------------------
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 58,841 $ 254,943 $ 45,732
Merchandise inventory 412,168 409,067 481,578
Other current assets 15,452 15,024 13,223
---------------------------------------
Total current assets 486,461 679,034 540,533
---------------------------------------
NET FIXED ASSETS 154,942 160,430 148,844
DEFERRED INCOME TAXES 30,176 32,977 34,354
OTHER ASSETS 62,591 62,977 59,387
---------------------------------------
TOTAL ASSETS $ 734,170 $ 935,418 $ 783,118
=======================================
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 209,763 $ 378,902 $ 251,485
Income taxes payable 7,874 26,003 10,253
Accrued expenses and other 31,237 34,276 30,794
Deferred income taxes 6,527 6,160 7,711
Current portion of capital lease obligations 3,978 4,711 5,799
---------------------------------------
Total current liabilities 259,379 450,052 306,042
CAPITAL LEASE OBLIGATIONS, less current portion 8,720 9,500 12,277
OTHER LIABILITIES 26,965 27,800 28,313
---------------------------------------
TOTAL LIABILITIES 295,064 487,352 346,632
---------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000
shares authorized; none issued) -- -- --
Common stock ($0.01 par value; 200,000,000 shares
authorized; 54,015,627, 53,929,348 and
53,772,663 shares issued, respectively) 540 539 538
Additional paid-in capital 287,119 286,767 285,930
Unearned compensation - restricted stock (239) (280) (403)
Treasury stock at cost (13,264,087, 12,884,752 and
11,595,432 shares, respectively) (120,833) (117,811) (107,675)
Accumulated other comprehensive loss -- -- (1,887)
Retained earnings 272,519 278,851 259,983
---------------------------------------
TOTAL SHAREHOLDERS' EQUITY 439,106 448,066 436,486
---------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 734,170 $ 935,418 $ 783,118
=======================================
</Table>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THIRTEEN WEEKS ENDED
------------------------
MAY 4, MAY 5,
2002 2001
------------------------
Sales $ 279,479 $ 309,097
Cost of sales 185,859 205,982
------------------------
Gross profit 93,620 103,115
Selling, general and administrative expenses 103,932 106,779
------------------------
Loss from operations (10,312) (3,664)
Interest expense (income) 69 (341)
------------------------
Loss before income taxes (10,381) (3,323)
Income tax benefit (4,049) (1,246)
------------------------
NET LOSS $ (6,332) $ (2,077)
========================
BASIC LOSS PER SHARE $ (0.16) $ (0.05)
========================
Weighted average number of common shares outstanding - basic 40,739 42,513
========================
DILUTED LOSS PER SHARE $ (0.16) $ (0.05)
========================
Weighted average number of common shares outstanding - diluted 40,739 42,513
========================
</Table>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
THIRTEEN WEEKS ENDED
------------------------
MAY 4, MAY 5,
2002 2001
------------------------
Net cash used by Operating Activities $(187,045) $(201,855)
------------------------
Cash Flows from Investing Activities:
Purchases of fixed assets (5,253) (6,089)
Disposal of videocassette rental inventory, net of purchases 528 3
------------------------
Net cash used by investing activities (4,725) (6,086)
------------------------
Cash Flows from Financing Activities:
Payments of capital lease obligations (1,513) (1,393)
Payments for purchases of treasury stock (3,022) (10,100)
Exercise of stock options 203 82
------------------------
Net cash used by financing activities (4,332) (11,411)
------------------------
Net decrease in cash and cash equivalents (196,102) (219,352)
Cash and cash equivalents, beginning of year 254,943 265,084
------------------------
Cash and cash equivalents, end of period $ 58,841 $ 45,732
========================
Supplemental disclosure of non-cash investing and financing activities:
Income tax benefit resulting from exercises of stock options $ 156 $ 99
Issuance of treasury stock under incentive stock programs -- 4
Issuance of restricted shares under restricted stock plan -- 403
</Table>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 2002 AND MAY 5, 2001 (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements consist of Trans World
Entertainment Corporation, its wholly owned subsidiary Record Town, Inc.
("Record Town"), Record Town's subsidiaries, all of which are wholly owned and
Second Spin.com, 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
reflects 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 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.
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 February 2, 2002.
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 fixed assets for the Company's distribution
centers included in cost of sales totaled $562,000 and $399,000 for the thirteen
weeks ended May 4, 2002 and May 5, 2001, respectively. Depreciation and
amortization for the remaining fixed assets included in selling, general &
administrative ("SG&A") expenses totaled $9.6 million and $8.8 million in the
thirteen weeks ended May 4, 2002 and May 5, 2001, respectively.
6
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 2002 AND MAY 5, 2001 (UNAUDITED)
(CONTINUED)
NOTE 4. EARNINGS PER SHARE
Weighted average shares are calculated as follows:
<Table>
<Caption>
Thirteen Weeks ended
--------------------
May 4, May 5,
2002 2001
------ ------
Weighted average common shares outstanding - basic 40,739 42,513
Dilutive effect of employee stock options -- --
------ ------
Weighted average common shares outstanding-diluted 40,739 42,513
====== ======
Anti-dilutive stock options 4,280 4,598
====== ======
</Table>
For the thirteen week periods ending May 4, 2002 and May 5, 2001, the impact of
outstanding stock options was not considered because the Company had a net loss
and such impact would be anti-dilutive.
NOTE 5. COMPREHENSIVE INCOME (LOSS)
The Company's total comprehensive income (loss) was as follows:
<Table>
<Caption>
Thirteen Weeks ended
--------------------
May 4, May 5,
2002 2001
------- -------
Net income (loss) ($6,332) ($2,077)
Other comprehensive loss:
Unrealized loss on available-for-sale securities -- (405)
------- -------
Total comprehensive (loss) ($6,332) ($2,482)
======= =======
</Table>
NOTE 6. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. SFAS No. 141 also specifies criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for separately.
SFAS No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
and subsequently, SFAS No. 144 after its adoption.
7
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 2002 AND MAY 5, 2001 (UNAUDITED)
(CONTINUED)
NOTE 6. RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
Effective February 4, 2002 the Company adopted SFAS 142. SFAS 142
requires that goodwill and intangible assets with indefinite lives, including
such assets recorded in past business combinations, no longer be amortized, but
instead be tested for impairment on an annual basis or when events occur or
circumstances change that would more likely than not reduce the fair value of
goodwill below its carrying amount. In addition, SFAS 142 requires that the
impairment test be performed through the application of a fair value test, as
opposed to the undiscounted cash flow approach used by the Company to evaluate
impairment as prescribed under previous guidance. Intangible assets with finite
lives will continue to be amortized over their useful lives.
The initial adoption of SFAS 142 requires the Company to perform a two-step
fair-value based goodwill impairment test. The first step of the test compares
the book values of the Company's reporting units to their estimated fair values.
The estimated fair values of the reporting units are computed using the present
value of future cash flows, and are reconciled to the Company's market
capitalization as of the date of adoption. In the second step of the goodwill
impairment test, the Company compares the implied fair value of goodwill in
accordance with the methodology prescribed by SFAS 142 to its book value to
determine if a writedown is needed.
Because of the extensive effort needed to comply with adopting SFAS Nos. 141
and 142, it is not practical to reasonably estimate the impact of adopting these
Statements on the Company's consolidated financial statements at the date of
this report, including whether the Company will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.
The following table provides a reconciliation of reported net loss for the
three months ended May 5, 2001 to the net loss that would have been reported had
SFAS 142 been applied as of February 4, 2001:
<Table>
<Caption>
Thirteen Weeks Ended
(Amounts in thousands, except per share amounts) May 4, 2002 May 5, 2001
- ----------------------------------------------------------------------------
Reported net loss $(6,332) $(2,077)
Add goodwill amortization, net of tax -- 431
--------------------------
Adjusted net loss $(6,332) $(1,646)
==========================
Basic and diluted loss per share:
Reported net loss per share $(0.16) $(0.05)
Add goodwill amortization, net of tax per share -- 0.01
--------------------------
Adjusted net loss per share $(0.16) $(0.04)
==========================
</Table>
8
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 2002 AND MAY 5, 2001 (UNAUDITED)
(CONTINUED)
NOTE 6. RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation that results from the acquisition,
construction, development and (or) normal use of the assets as a liability in
the period in which it is incurred if a reasonable estimate of fair value can be
made . The standard also requires the Company to record a corresponding asset
which is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company is required
to adopt SFAS No. 143 for the quarter ending May 3, 2003. The Company is
currently assessing SFAS No. 143 and the impact that adoption will have on the
consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized in the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. The Company was required to
adopt SFAS No. 144 for the quarter ending May 4, 2002. The adoption of SFAS No.
144 did not have a material impact on the Company's consolidated financial
statements.
9
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 2002 AND MAY 5, 2001 (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 IRS vs. CM Holdings Inc., a wholly-owned subsidiary of the Company. The
case was brought against CM Holdings Inc. by the IRS to challenge the deduction
of interest expense related to corporate-owned life insurance policies held by
Camelot, a subsidiary of CM Holdings Inc., for certain tax years that ended on
or before February 1994. The court ruled that interest deductions on policy
loans should not be allowed and the Company is responsible for the taxes and
related interest and penalties. As a result of the District Court decision, the
Company accrued $11.0 million during 2000, which is reflected in other
(long-term) liabilities in the consolidated balance sheet as of May 4, 2002,
February 2, 2002 and May 5, 2001. The Company filed an appeal in response to the
decision. On October 30, 2001, the Company's appeal was heard by the United
States Third Circuit Court of Appeals, and a decision is pending.
On August 8, 2000, 30 Attorneys General served a complaint against the
Company, five major music distributors and two other specialty retailers in
the United States District Court for the Southern District of New York ("AG's
suit"). The complaint has been subsequently amended to add additional states
as plaintiffs and to reflect the transfer of the case to the United States
District Court in Maine pursuant to the Multidistrict Litigation Rules. The
AG's suit alleges that the distributors and retailers conspired to violate
certain anti-trust laws and to fix prices by requiring retailers to adhere to
minimum advertised prices in order to receive cooperative advertising funds
from the distributors. The complaint alleges that consumers were damaged in
an unspecified amount and seeks treble damages and civil penalties. Following
the service of the AG's suit, these same defendants were named as defendants
in private class action suits ("Class Actions"), each with similar
allegations as in the AG's suit. The Class Actions have been consolidated
along with the AG's suit in the United States District Court in Maine. The
Company believes the lawsuits are without merit and presented its case at a
settlement hearing held on April 30, 2002. In order to avoid a lengthy and
costly litigation, the Company continues to have discussions with the
plaintiffs. At this stage of the litigation, it is difficult to assess or
predict the potential outcome.
The Company is subject to other legal proceedings and claims that have arisen in
the ordinary course of its 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.
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
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 MAY 4, 2002
COMPARED TO THE THIRTEEN WEEKS ENDED MAY 5, 2001
SALES. The Company's total sales decreased 10% to $279.5 million for the
thirteen weeks ended May 4, 2002 compared to $309.1 million for the thirteen
weeks ended May 5, 2001. The decrease was due to a comparable store sales
decrease of 6% and a decrease of 92 stores in operation from the end of the
first quarter last year.
For the thirteen weeks ended May 4, 2002, comparable store sales decreased 7%
for mall stores and 5% for free standing stores. By merchandise category,
comparable store sales decreased 18% in music, increased 30% in video, 48% in
video games and decreased 5% in other merchandise categories.
Music sales were negatively impacted by lower sales of new releases, which
management believes is due in part to the unauthorized duplication and
distribution of music. The industry's major distributors have begun testing
copy protection methods designed to mitigate the unauthorized duplication of
music. In addition, the cassette and singles formats continue to decline. The
Company expects the declining trend in cassettes to continue and will
continue to minimize the amount of store square footage allocated to this
category. The singles category was impacted by a decline in the number of
releases offered for sale by distributors.
Video sales were driven by a 67% increase in DVDs. The Company expects to
increase the amount of selling square footage allocated to DVDs as the category
continues to grow.
GROSS PROFIT. Gross profit, as a percentage of sales, was 33.5% in the thirteen
weeks ended May 4, 2002 compared to 33.4% in the thirteen weeks ended May 5,
2001.
11
<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)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") decreased $2.9 million to $103.9 million in the
thirteen weeks ended May 4, 2002 as compared to $106.8 million in the thirteen
weeks ended May 5, 2001. However, as a percentage of sales, SG&A increased to
37.2% in the first quarter of 2002, from 34.5% in first quarter of 2001. The
increase in SG&A as a percentage of sales is due to lower sales.
INTEREST EXPENSE (INCOME). Interest expense was $0.1 million in the thirteen
weeks ended May 4, 2002 compared to interest income of $0.3 million for the
thirteen weeks ended May 5, 2001. The decrease in interest income relates to a
decrease in investment income resulting from lower interest rates on invested
cash balances.
INCOME TAX EXPENSE (BENEFIT). The Company's income tax benefit was $4.0
million for the thirteen weeks ended May 4, 2002, as compared to an income
tax benefit of $1.2 million for the thirteen weeks ended May 5, 2001. The
Company's effective tax rate for the thirteen weeks ended May 4, 2002 was
39.0%, as compared to 37.5% for the thirteen weeks ended May 5, 2001. The
increase in rate is due to an increase in the valuation allowance for
deferred taxes related to state net operating losses and a decrease in the
Company's income before income taxes.
NET LOSS. The Company's net loss was $6.3 million for the thirteen weeks ended
May 4, 2002, compared to a loss of $2.1 million for the same period last year.
The increase in net loss is attributable to a decrease in sales and gross
profit.
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 $58.8 million at May 4, 2002, compared to $254.9 million at the
end of fiscal 2001 and $45.7 million at May 5, 2001.
Cash used by operating activities was $187.0 million for the thirteen weeks
ended May 4, 2002. The primary uses of cash were a $169.1 million seasonal
reduction of accounts payable and an $18.1 million reduction in income taxes
payable.
Cash used by financing activities was $4.3 million for the thirteen weeks ended
May 4, 2002. The primary use of cash was $3.0 million for the purchase of
approximately 400,000 shares of common stock under a program authorized by the
Board of Directors.
12
<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)
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 May 4, 2002,
the Company had no outstanding borrowings under the revolving credit facility,
and $100 million was available for borrowing.
CAPITAL RESOURCES. During the first quarter of 2002, the Company had capital
expenditures of $5.3 million. The Company plans to spend between $40 million
and $45 million, net of construction allowances, for capital expenditures in
fiscal 2002. During the first thirteen weeks of 2002, the Company opened or
relocated 7 stores and closed 22 stores.
13
<Page>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
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.
---------- ----------- --------
(B) REPORTS ON FORM 8-K -
NONE
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
June 17, 2002 BY: /S/ ROBERT J. HIGGINS
--------------------------
Robert J. Higgins
Chairman and Chief Executive Officer
(Principal Executive Officer)
June 17, 2002 BY: /S/ JOHN J. SULLIVAN
------------------------
John J. Sullivan
Executive Vice President, Treasurer and Chief
Financial Officer (Principal Financial and
Chief Accounting Officer)
14