Circuit City files for bankruptcy protection

[Sonnie]

Circuit City files for bankruptcy protection

By Karen Jacobs

ATLANTA (Reuters) - Circuit City Stores Inc, the No. 2 U.S. consumer electronics retailer, filed for bankruptcy on Monday just weeks before the start of the holiday shopping season, becoming the largest retailer to file for Chapter 11 since Kmart in 2002.

Circuit City fell victim to tighter credit terms from vendors, a dwindling cash position and decreased consumer spending amid a deepening economic crisis.

The filing comes one week after the 59-year-old retailer said it would close 155 U.S. stores, or more than one-fifth of its retail base, and cut 17 percent of its U.S. work force.

The retailer and 17 affiliates filed for protection from creditors in U.S. bankruptcy court in Richmond, Virginia, where it is based. Its Canadian operations also filed for creditor protection in an Ontario court.

Analysts said there was now a possibility the company would close more U.S. stores as it negotiates to exit costly leases in Chapter 11.

"Don't rule anything out yet," said Jefferies & Co analyst Dan Binder. "You could go away, you could restructure to something smaller, maybe somebody buys the brand and a couple hundred stores and maybe it ends up a regional player."

The company could face an uphill struggle to reorganize and emerge from bankruptcy since credit is tight and consumer spending has plummeted.

"It has a lot to do with the macroeconomic crisis in the world right now," said Aravindh Vanchesan, program manager for the retail systems group at consulting firm Frost & Sullivan. "Right now, customers are cutting back on spending."

U.S. home-goods retailer Linens 'n Things tried to maintain operations by closing a portion of its stores after its May Chapter 11 filing, but finally liquidated altogether. Last week, smaller electronics chain Tweeter filed Chapter 11 and said it was holding store-closing sales.

RECENT LAYOFFS

In Monday's filing, Chief Financial Officer Bruce Besanko said the company hoped to secure financing to continue its turnaround. The company expressed hope it would be able to emerge from Chapter 11 in the first half of 2009.

"Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season, which could cause irreparable harm to the company and its stakeholders," Besanko said.

Besanko's statement said 1,300 workers were laid off on November 7. That day, the Richmond newspaper reported that hundreds of workers had been let go from company headquarters.

The Chapter 11 filing caps a tough two years for the company, which posted losses for five of the past six quarters and faced a proxy contest from a major shareholder this year. Movie-rental firm Blockbuster Inc withdrew a takeover bid for Circuit City in July.

The company's stock has swooned 99 percent since January 2007 and now trades at less than 50 cents. The shares were suspended by the NYSE on Monday.

SUPPLIER SQUEEZE

In recent weeks, suppliers pinched by the global credit crunch tightened terms, sometimes requiring upfront payment from Circuit City before shipping goods.

Industry leader Best Buy Co, discounter Wal-Mart Stores and regional retailers such as hhgregg are expected to benefit from electronics store closures in the longer term, analysts have said.

But the flood of discounted merchandise from liquidating Circuit City stores could hurt Best Buy this holiday shopping season, which is expected to be one of the bleakest in recent years as consumers grapple with rising unemployment and the soft economy.

"Longer term, you've got Best Buy, who's dominant in the sector, taking share. But in the short run it could feel the pain of the liquidation activity," Binder said.

According to the filing, Circuit City had $3.4 billion of assets and $2.32 billion of debt as of August 31, and more than 100,000 creditors.

The company has arranged a commitment for debtor-in-possession financing of $1.1 billion, which will allow it to continue to operate.

Among the company's largest unsecured creditors are Hewlett-Packard Co, which is owed $118.8 million; Samsung Electronics Co, owed $115.9 million; and Sony Corp, the filing shows. The largest shareholders include HBK Master Fund LP and First Pacific Advisors LLC, according to the filing.

Best Buy shares closed down 38 cents, or 1.5 percent, to $25.21 on the New York Stock Exchange on Monday, and hhgregg fell 18 cents, or 3.5 percent, to $4.93.

Source: Reuters

[MatrixDweller]

I've been reading that this development is related to poor executive management of the company.
http://news.cnet.com/8301-13506_3-10093574-17.html

[tonyvdb]

You know what really bites about this? About five years ago they bought out the entire Radio shack franchise in Canada and converted them all to "The source" so we did not have any Radio Shack stores any more. Now with this announcement they are closing all the Source stores in Canada by Christmas.

[tcarcio]

This was a long time coming, But you never know maybe they will get a bailout too. Every other company has their hand in our pocket so it wouldn't surprise me......

[Mike P.]

tonyvdb wrote:

You know what really bites about this? About five years ago they bought out the entire Radio shack franchise in Canada and converted them all to "The source" so we did not have any Radio Shack stores any more. Now with this announcement they are closing all the Source stores in Canada by Christmas.

I had nothing but grief from "The Source". I got so tired of returning their over priced non working "NEXXTECH" products that I finally quit shopping there. Hopefully they'll be replaced by another company with better products.

[tonyvdb]

Mike P. wrote:

I had nothing but grief from "The Source". I got so tired of returning their over priced non working "NEXXTECH" products that I finally quit shopping there. Hopefully they'll be replaced by another company with better products.

I agree with you there, I miss Radio Shack. CC should have never been allowed to buy them out in the first place. Radio shack always had some neat trinkets that you simply could not find anywhere else. Getting LED's, solder on connectors or resisters form RS as well was nice.

[MatrixDweller]

Actually Circuit City bought InterTAN, the Canadian holding company that owned Radio Shack Canada. Radio Shack later sued Circuit City and forced them to rebrand their stores and all merchandise to exclude the Radio Shack name.

If The Source by Circuit City closes in Canada it leaves a big hole for Radio Shack to move back in. If Radio Shack was smart they would enter a deal to buy back their most profitable retail locations in Canada from The Source.

As for Radio Shack as a company, they are terrible. They were always over priced here in Canada (except their batteries). You could usually find electronic components (ie: resistors, capacitors, etc) for half the price somewhere else. They are also notoriously terrible to their employees.

[tonyvdb]

MatrixDweller wrote:

As for Radio Shack as a company, they are terrible. They were always over priced here in Canada (except their batteries). You could usually find electronic components (ie: resistors, capacitors, etc) for half the price somewhere else. They are also notoriously terrible to their employees.

Radio Shack was the "convenience" store for those odd parts. overpriced yes, but at least I did not have to drive halfway across the city to get it cheep.

[Sonnie]

Here's a snippet from an email I received from them in reference to our affiliate relations...

As a valued partner of Circuit City, we believe it is critical for you to hear from us about an important action that we have taken. While Circuit City has a long history of being a leader in the consumer electronics industry, we have recently faced significant financial challenges. Despite our aggressive efforts to address these challenges, our company decided to file a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia on November 10, 2008.

We were eager to contact you immediately following this action given that we have important advertisements scheduled to run in your publication in the coming weeks. It is important for you to understand that this announcement does not mean that Circuit City is going out of business.

Rather, this filing gives our company the time and resources necessary to overcome our financial challenges while we continue normal operations. To this end, Circuit City has received initial court approval for a $1.1 billion debtor-in-possession (DIP) revolving credit facility to supplement its working capital and provide additional liquidity while it works to reorganize the business. Most importantly, we are committed to being the destination of choice for all of our guests' consumer electronic needs, and we will continue to advertise in the publications that serve those communities.

During the reorganization process, we are committed to paying our vendors on a timely basis and expect to pay for goods received and services provided after the commencement of our bankruptcy case in the ordinary course of business. Specifically, we want you to know that the commitment we have made for advertisements running after November 10, 2008 will be honored and we plan to pay in full. Therefore, we request that there be no interruptions to the advertisements we have scheduled with your publication.

[thxgoon]

I worked for Soundtrack when they filed for bankruptcy about 4 years ago. They were subsequently bought out and renamed 'Ultimate Electronics' and became a more viable company that is doing well. I don't think Circuit will go under but I certainly hope that recent events will turn them into a better retailer. Of the majors, they are my least favorite even as they carry brands I favor.