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Accessories and audio products maker Recoton has filed for Chapter 11 protection and must sell all its remaining businesses.
The bankruptcy proceedings include debtor-in-possession (DIP) financing, the terms of which require Recoton to auction off its business properties and all related assets.
The company must apply the proceeds from such sales to reduce outstanding debt, which totaled about $235 million in long-term obligations last year. The sales, subject to the approval of the Bankruptcy Court, should be concluded by the end of June.
Operating results for the year, published in a Securities and Exchange document early in April, which notified the SEC about need for late filing, showed Recoton had net sales of $501.7 million, down 12 percent from the $570.7 million reported for the 12 months, ended Dec. 31, 2001. The company recorded a net loss for 2002 of $134.8 million, compared with a loss of $7.6 million year over year. Fourth-quarter figures were not presented.
Recoton's 2002 third quarter, ended Sept. 30 — the last three-month period reported by the company — showed relatively flat revenue of $75 million and a consolidated net loss of $25.6 million.
The voluntary bankruptcy action was initiated "to protect the value and viability of Recoton's operations and ensure that our customers receive necessary products, services and support while we seek to sell Recoton's assets as a going concern," said Bob Borchardt, president/CEO.
The DIP financing will provide Recoton with immediate funding to support its ongoing business requirements. The financing has been arranged with the company's existing senior lenders, led by Heller Financial and General Electric Capital.
Recoton has retained an investment banker, Jefferies & Co., to market its assets as going concerns. Jefferies has received several expressions of interest from potential bidders for these assets and businesses, according to Recoton.
Recoton and all of its U.S.-based subsidiaries voluntarily filed for bankruptcy protection earlier in April at the United States Bankruptcy Court for the Southern District of New York. The company has its headquarters here.
Late last month, Recoton — which offers products under the Recoton, Jensen, Ambico, Discwasher and Acoustic Research brands, among others — closed its New York offices, letting all employees go.
The office, which housed sales and advertising activities, was the northern base of operation for CEO Borchardt. Peter Ildau, corporate communications VP since 1993, left the company at this time. The closing followed last January's sale of Recoton's GameShark brand to Mad Catz Interactive for $5 million.
Mounting losses and heavy debt had forced Recoton to begin reorganizing and restructuring last December. At the time, the company expected to generate $90 million to $100 million from the combined sales of its video game segment, foreign audio operations, U.S. car audio accessory company and its U.K-based accessories products distributor.
The company' stock, which had been at about $6 only a year ago, had drifted down well over 90 percent just prior to the bankruptcy announcement, to a low of $0.20. Following the bankruptcy announcement, average daily volume of shares traded jumped to nearly 4.5 million for the thinly traded company, compared with earlier average daily volume of about 100,000 shares.
In November, Recoton announced a 10 percent layoff of its North American workforce and 10 percent lower executive compensation, which, together, were expected to produce annualized savings of about $7.6 million. Sale of its U.S. car audio maker, AAMP, and NHT (Now Hear This) loudspeaker business generated about $35 million.
Recoton, which traces its founding back to 1936, when it was selling phonograph record needles, entered the accessories business in 1968, seven years after Borchardt joined the company. Borchardt was named CEO in 1996 and chairman in 1998. He has been president since 1976. The company went public in 1969.
In 1991, Recoton acquired the assets of Discwasher, which sold maintenance products for records, cassettes and audio products. In 1995, it acquired certain assets of Ampersand, which made car stereo installation accessories.
International Jensen, maker of home audio and mobile speakers, was acquired in 1996. InterAct, a supplier of video game products and accessories, was added in 1998, and became the pillar of Recoton's video game accessories division.
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