Circuit City, Electronics Retailer, Seeks Bankruptcy (Update5)

Nov. 10 (Bloomberg) -- Circuit City Stores Inc., the 59-year-old seller of televisions and computers, filed for bankruptcy protection, becoming the biggest retail casualty of the slowing U.S. economy and frozen credit markets.

The chain sought Chapter 11 protection in U.S. Bankruptcy Court in Richmond, Virginia, today after suppliers concerned about declining sales at almost 1,500 U.S. and Canadian stores cut off credit and demanded up-front cash for shipments. The company owes $119 million to Hewlett-Packard Co., the world's largest maker of personal computers, and $116 million to Samsung Electronics Co., the top maker of flat-panel displays, according to a filing.

Circuit City, the biggest electronics retailer in the U.S. until the mid-1990s, filed for bankruptcy before it had a chance to take in cash from the holiday selling season, when it gets more sales than any other time of the year. The chain is losing market share to Best Buy Co. and Wal-Mart Stores Inc. while Amazon.com Inc. and other online retailers undercut it with lower prices.

``It's very incongruent for retailers to file bankruptcy before Christmas,'' Burt Flickinger, managing director of consultant Strategic Resource Group in New York, said in a Bloomberg Television interview.

The Richmond-based company, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock-market value in two years. It plans to stay in business while restructuring.

Trouble Paying

Vendor concern that Circuit City wouldn't be able to pay its bills ``escalated considerably'' in the past week, the company said in its filing. It also filed for bankruptcy in Canada.

Circuit City fell 14 cents to 11 cents at 9:30 a.m. before the start of trading on the New York Stock Exchange. The NYSE halted buying and selling of the shares after the stock's early plunge.

On Nov. 3, the retailer said it would close a fifth of its U.S. stores and renegotiate leases on some locations to conserve cash. The closings will leave it with about 566 U.S. stores and trim about 20 percent of the 43,000-strong workforce. Circuit City also said today it will cut 700 jobs in its store-support department.

Circuit City said it owes about $650 million to suppliers, with electronics manufacturers Sony Corp., Zenith Corp., Toshiba Corp., Garmin Ltd. and Nikon Inc. among the creditors. The retailer listed $3.4 billion in assets and $2.32 billion in liabilities.

Borrowed Money

The company said it obtained $1.1 billion in bankruptcy financing arranged by Bank of America Corp. to replace a $1.3 billion line of credit. Circuit City had drawn on $898 million of the credit line by the time of the filing, meaning it borrowed more than $675 million in the six weeks since it reported earnings in September.

Management tried to sell the company in May after Blockbuster Inc. made a preliminary offer that was later withdrawn. The retailer fired higher-paid workers and opened smaller stores to cut costs. Until the shift, the company's strategy had been to sell in locations as large as 44,000 square feet (4,090 square meters).

The second-biggest U.S. electronics retailer hired FTI Consulting Inc. for restructuring advice and replaced its chief executive officer Philip Schoonover in September with Director James Marcum, who led two other retailers through bankruptcies. Marcum, an associate of activist investor Mark Wattles, was named interim CEO.

More Losses

On Sept. 29, Circuit City reported a loss of $239.2 million that was more than triple from a year earlier after sales fell for the sixth straight quarter.

Circuit City's rivals gained market share by offering Apple Inc. and Dell Inc. computers. Larger Best Buy and discount retailer Wal-Mart lowered prices on flat-panel televisions to lure U.S. customers, who are limiting spending because of higher food costs, further job losses and declining home values.

The global financial crisis is making it harder for the chain to stock its shelves and for consumers to finance purchases.

The case is In Re Circuit City Stores Inc., 08-35653, U.S. Bankruptcy Court for the Eastern District of Virginia (Richmond).

Following is a list of the biggest unsecured creditors in the Circuit City bankruptcy:

Name of Creditor         Type of Claim       Claim Amount


Hewlett-Packard US            Trade          $118,797,964
Operations

Samsung Electronics           Trade          $115,925,716
Amer Inc.

Sony Computer                 Trade          $60,009,803
Entertainment

Zenith Electronics Corp.      Trade          $41,162,162

Toshiba America Business      Trade          $17,919,395
Solutions Inc.

Alliance Entertainment        Trade          $15,799,754

Garmin International          Trade          $15,444,498
Inc.

Olympus Corporation           Trade          $15,095,651

Nikon Inc.                    Trade          $14,926,445

Paramount Home Video          Trade          $13,761,444

Panasonic Company             Trade          $13,283,022
National Acct.

Mitsubishi Digital            Trade          $12,883,892
Electronics

Eastman Kodak Co.             Trade          $11,510,410

Lenovo, Inc.                  Trade          $10,920,887

Warner Home Video             Trade          $10,738,637

IBM                           Trade          $9,354,353

OnCorp US, Inc.               Trade          $8,470,923

Microsoft Corp                Trade          $8,088,245
Consignment

Sharp Electronics Corp.       Trade          $7,054,093

Vizio                         Trade          $6,951,769

Source: Circuit City Bankruptcy Filing

To contact the reporters on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net; Dawn McCarty in Wilmington, Delaware, at dmccarty@bloomberg.net;

To contact the editors responsible for this story: Patrick Oster at poster@bloomberg.net; Michael Nol at mnol@bloomberg.net.