Post-Chapter 11 Tower To Grow DVD Product9 Feb, 2004 By: Erik Gruenwedel
On the heels of its much-anticipated Chapter 11 bankruptcy protection filing, Tower Records says it would substantially increase DVD offerings in an effort to become a “broader carrier of different product; not just music,” according to CEO Allen Rodriguez.
Through December, music, in all formats, constituted 62 percent of Tower's 2003 sales, with video at 30 percent, according to company officials.
Video product, which represented just 14 percent of sales 18 months ago, is expected to increase to 40 percent by the end of the year.
“There was a change in [product] emphasis a year-and-a-half-ago, and we've been very much focused on the DVD side of the business,” Rodriguez said. “It's certainly growing rapidly, as you probably know better.”
Rodriguez said that unlike some of Tower's competitors, illegal music downloads did not contribute to the company's financial problems, which had amounted to a drop in 2003 of less than 5 percent in same-store sales.
“With all things considered, we've been relatively strong compared to our competitors. We didn't take near the hit that [they] have taken in term of digital downloads,” he said.
West Sacramento, Calif.-based Tower Monday filed a pre-packaged financial reorganization plan in U.S. Bankruptcy Court in Wilmington, Del., under which $110 million in senior debt will be converted to 85 percent equity ownership in the company in addition to $30 million in new senior notes.
Russ Solomon, who together with his brother and other family members founded Tower in 1960, remains as chairman emeritus and a member of the board of directors.
Rodriguez said that with an interest rate of 9-3/8 percent, the company was looking at $10 million annually in interest payments.
“We weren't going to pay back the principal, and that interest burden was tremendous,” he said. “Any company that has too much debt, their earnings may not be able to dig them out, which is why we struck the deal with the bondholders to do the debt for equity trade.
“Once that is gone, we'll have a far easier interest load that will be carried by the existing operations.”
Upon confirmation of the filing — to be completed in 45-to-60 days — Tower will receive $100 million in interim financing from its leading lender CIT Group/Business Credit in an effort to maintain business operations at 93 retail locations that employ about 2,600 people.
“We don't anticipate any layoffs at all,” said spokesperson Kevin Cassidy. “We've gone down that road for the last two years.”
Tower said it would shutter two undisclosed store locations.