Circuit City Files for Bankruptcy in U.S. and Canada
In a last-ditch effort to keep operating, consumer-electronics giant Circuit City has filed for bankruptcy protection in both the United States and Canada.
Just days after the Richmond, Va.-based company announced it would close 155 of its 770 retail stores and cut 20 percent of it U.S. workforce, Circuit City on Monday said it has faced significant financial challenges and needs to file for Chapter 11 protection in the United States, while seeking protection under the Companies' Creditors Arrangement Act in Canada.
"Despite our aggressive efforts to address [financial] issues, our company filed a voluntary petition for reorganization," said James Marcum, Circuit City's acting CEO. "This filing will give us the time and resources to address our financial challenges while continuing to provide you, our guests, with consumer elect products and services you want for the holiday season."
Circuit City has also asked the U.S. bankruptcy court in Virginia to grant it the authority to continue operations and move forward with its guest services, which includes accepting exchanges, returns and gift cards from customers. The company has also asked the court for approval to continue providing benefits and wages to its employees.
Also part of its bankruptcy effort is a request to negotiate a $1.1 billion debtor-in-possession revolving-credit facility to supplement its working capital in replacement of its $1.3 billion asset-based credit facility. This will help the company pay off vendors and partners for services received after the bankruptcy filing.
Since early 2007, Circuit City has been moving in a downward spiral. Store closings began in February 2007, when the company shuttered dozens of stores in Canada as well as several domestic superstores. In the same month, Circuit City's chief financial officer, Michael Foss, left the company. In March, the company announced that it would lay off 3,400 people.
In April 2008, Blockbuster said it would pay $1 billion for Circuit City, but withdrew its offer by July.
Things really began to head south in September 2008, when Philip Schoonover, the chief executive brought on to turn things around for Circuit City, announced his resignation, just two years and three months after joining the company.
Lack of Support
Several factors led up to the bankruptcy filing, including some vendor issues, according to Bill Cimino, a Circuit City spokesperson. Cimino cited vendor support, vendor concerns about Circuit City's liquidating process, and its ability to pay back vendors while operating in a tough economy.
Marcum said the filing will restore the company's financial footing and allow it to more competitively operate its remaining stores.
The bankruptcy process will allow the company to strengthen its balance sheet, create an efficient expense structure, and position the company to compete more effectively, according to Jim Babb, another Circuit City spokesperson.
"We hope to emerge as a stronger business with an improved national distribution channel for our vendors and a more compelling offering for our customers," Babb said.
Circuit City officials said it will be business as usual at the stores and call centers as the company works through its bankruptcy process.