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Courtesy of Reuters....

Tower Records Restates First-Half Income

Sat June 21, 2003 03:21 PM ET

By Ed Christman

NEW YORK (Billboard) - Tower Records continues to perform a high-wire act.

As if putting the chain up for sale while juggling negotiations with bondholders to convert that debt into equity wasn't enough high drama for its nervous suppliers, Tower on June 16 announced a wider third-quarter loss and surprised the industry by restating income for its first two quarters.

Tower's third-quarter financials show that the company lost $13.8 million on sales of $122 million in the quarter ended April 30, compared with the $8.6 million loss it had in the corresponding period in the previous year, when sales were $137.5 million.

At the same time, Tower restated the results of its first and second fiscal quarters, which eliminated the only profitable quarter it had posted in the past three years. Initially, Tower reported a first-quarter profit of $23 million, thanks to the $37.4 million it made in selling its Japanese chain for about $124 million last Oct. 11.

But Tower incorrectly calculated the sale's profit and had to restate earnings on that deal at $15.8 million because of the reclassification of the Japanese subsidiary's accumulated comprehensive loss. As a result, Tower instead shows a net loss of $1.1 million for its fiscal first quarter ended Oct. 31, 2002.

Consequently, Tower had to amend the results in its six-month numbers for the period ended Jan. 31 to a net loss of $26 million, as opposed to the $5.8 million it previously showed for that period. So, when looking at nine-month numbers, Tower now shows a net loss of $39.8 million on sales of $428.9 million.

The third-quarter 10-Q filing also shows that the company had drawn down $53.3 million of its $100 million facility, leaving $24.2 million in availability, based on the loan's collateral lending formula. But with a loan reserve of $15 million, that leaves Tower with $9.2 million to access before it slips into technical default if it draws down more. That slim availability once again places suppliers at the edge of their seats.

Tower's bondholders are also nervous. The company recently decided to forgo the $5 million interest payment that was due on the debentures June 1, after a one-month grace period elapsed from the original May 1 due date. That could have put Tower in default on its revolving credit facility. But on June 10, Tower made a filing with the Securities and Exchange Commission, stating, in effect, that its lender, CIT Group/Business Credit, will give the chain until Sept. 30 to comply with the loan.

Meanwhile, Lloyd Greif -- president/CEO of Los Angeles-based Greif & Co., which is shopping the chain -- makes it sound like interested parties are lining up outside his door.

The appearance of a buyer would certainly induce Tower's bondholders to make the debt-to-equity swap. But given that Best Buy had to literally give away Musicland to be free of the troubled chain last week, some vendor financial executives wonder if a Tower sale would be any easier, even if it has a better-known brand.

With all eyes glued to those multiple story lines, some financial executives in the independent label community say they fear that next, bondholders or a potential buyer could try and force suppliers to forgive Tower some product payments -- or, in the parlance of the music industry, "take a haircut." But major-label financial executives say they would aggressively resist anything that even remotely resembles that strategy.

They point out that whomever owns Tower will need the majors' support going forward, which is why a prepackaged Chapter 11 wouldn't work. And in an outright Chapter 11 filing, the bondholders would lose any possible reward that a Tower sale might bring, because they would be in the same class as the rest of the unsecured creditors.

The upside for bondholders is that if they get, say, 80% of the company's equity -- because most of them bought into the debentures when they were in the 15 cent-20 cent (on the dollar) range -- they could make a nice profit if a sale were to realize, say, in excess of $50 million. The risk in converting to equity is that Tower may still ultimately fail and file Chapter 11, which would probably wipe out all equity.

Reuters/Billboard

http://asia.reuters.com/newsArticle.jht ... ID=2966692

Interesting that the majors would take a tough stance re: forgiving Tower on some product payments. I guess they figure they don't need the likes of Tower all that much. Funny thing is, tough, is that the majors may have to buy the chain themselves as it doesn't appear that any potential buyers exist.

One of the things NOT going for it, is that it's just a music store, and really has NOTHING else to offer a potential suiter/buyer, let alone consumers. Music is not enough. It's a dinosaur, and a thing of the past, and for this reason and others, it cant compete anymore as just a record store.

The Best Buy's/Circuit City's are Kings in Retails these days, because they diversified their offerings to consumers, by undercutting the Tower's music prices, and have virtually "driven" DVD use penetration, into the homes, quicker than even the experts have anticipated, outstripping demand for DVD players AND software.

A case in point, of Best Buy's Power, is the embargoed Eagles cd/dvd set. Things like this are going to become common place, for special music issues.

Unfortunately for consumers, I don't feel that Best Buy is going to become better, when it comes to stocking new releases. First, because it wont have to become "better", because in some localities it's going to become a monopoly, over chain and mom/pop cd stores.

It looks like the only competition will REALLY be, with, say, Border Books. It will be interesting to see if Border's, "get's it", and does something with it.

Tower is just a music store with very high prices and not very knowledgeable staff. For me, I'm sticking with the mom n' pops as they have the knowledge and cut some good deals on new releases. Granted, they're not as low as Beast Buy, but at least my dollar is staying in the local economy rather than some corporate behemoth. In many cases (the Police reissues for $10.44 come to mind) they are quite a bit lower than BB the first couple of weeks of the release.

Borders has the same problem that Tower does. High prices and unknowledgable staff.

Granted, I live in a market large enough to support both Best Buy and the mom n' pops. Tower had two stores in this market, but has already closed one. I don't make special trips out to Tower to pay $18.99 per CD. Up in Seattle, there is a local chain taking it to Tower hard, by opening up a store just down the street. Knowledgeable staff, great used selection and good pricing on new releases. Looks like the formula for me.

At my favorite Tower, I just look for the new sale items, the imports, the Oldies, Country and Jazz sections.

Dvd's come next, and in the same general order...new sale items, getting the most of my attention.

For Circuit City and Beast Buy (great dig there), I know that unless I am there when the store opens on release day, most of the time, I am going to have to return, sometimes a week to ten days, later, at the earliest, to get the complete release schedule...as in the case of Sam Cooke and Steely Dan.

For me, my local store is a FRY outlet. Pretty good deal there, as they promise to match Beast Buy prices...WITH a copy of the week's circular. Saves on gas.

But then this isn't perfect, either !

For some reasons, unknown to me, the release Thing, is now universal to all retail stores. No product, or not enough product in the stores on release day, then at least a two week wait for it to be in, in quantity.

The staff ignorance is a "given", unfortunately all around, and in every purchase problem. I feel it has less to do with Music Purchases, than to do the way our Society is these days. No one cares. Only if someone wants something from you, do you get attention. Wouldn't you like a "nickel" for everytime you were told, "if it's not on the shelf, we don't have it" ?

But then that's why we have this great, informative forum...to share information and be here listening and enjoying Luke's great storehouse of Music Knowledge !
It's a great privilege to be a part of this forum, and "be here" with everyone to share.


Mike

FWIW, I had an interesting experience at Circuit City the other day. I couldn't find where the Sam Cooke section was, and after assuming they simply didn't stock him, a drippy looking kid asks me if I need help. I said "I don't think you can help me", but did mention Sam Cooke. Surprisingly, he took me right to the section.

Of course CC had none of the new discs on Tuesday, but that's another story.

Luke,

The first day of release, CC and BB had "Portrait of the Legend", and the pricey DVD. I snapped up a copy at BB.

Yesterday, CC still had only the DVD, Borders and BB had "Keep Movin On" and "Aint that Good News".

Another fine mess !

PS...At BB I did find a DVD/CD version of the new Steely Dan and broke down out of exasperation, and picked up "Keep Movin On"...just not to go out empty handed of a Sam Cooke title ! I know, I know I should have waited, but.....


I just LOVE IT, when those moron clerks ask..."Can I help you !"

Slowly I turned...

Is ANYONE picking up the "Tribute to the Lady" CD ???

Sounds Verrrrrrrrrrrrrrrrry interesting !



Mike

Maybe. Import only, of course. I wonder if that's mono or stereo. The tracks on the BMG box are mono, but then again it seems as if ABKCO has been able to uncover a bit more than BMG.

I'll probably pick up Copa when I can find it.

BTW, I just happened to go over to BSN (I haven't been there in ages). Everybody is complaining about Wonderful World not being presented in twin-track form. "ABKCO loves mono." I would have loved to have heard the song in true twin-track form, but shit, the song has NEVER been released in stereo before. It's in stereo here. And ABKCO is evil because they "love mono"? Give me a fucking break.

lukpac wrote:I said "I don't think you can help me", but did mention Sam Cooke.

What tone of voice did you use?

I usually tell people I'm browsing or some such.