In a move that didn’t surprise most financial anylists, Circuit City filed for Chapter 11 bankruptcy early Monday morning, after laying off 800 workers on Friday. The filing indicates the company has $1 billion in assets and owes more than $1 billion to creditors and other parties. An internal email (sent to us anonymously) sent out to employees at the company’s Short Pump-area nationwide headquarters stressed that the company was not going out of business.
Dear Associates,
You may have seen today’s announcement that Circuit City has filed a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code. While words like “bankruptcy” and “Chapter 11″ may sound scary, this does not mean Circuit City is going out of business. As difficult as this decision was, we believe we will be able to emerge as a stronger company. I want to give you an overview about how this will help our company and how we arrived at this important decision.
Recently we have taken some important actions to create a more efficient chain with a streamlined cost structure. We believe these changes are absolutely critical for the organization as we move forward. Last week we announced the closure of 155 domestic segment stores. In addition, late last week, we made certain workforce reductions in the field and at our corporate headquarters.
Despite these efforts to reduce costs, our liquidity situation has deteriorated in the wake of the economic and business challenges we have been facing. Vendor concerns about the company’s liquidity and ability to pay for its purchases have escalated considerably since we provided an update on our liquidity position last week. The situation required us to take action, especially as we head into the important holiday selling season. As a result, the company determined the best direction is to restructure our business under the protection of Chapter 11.
A formal restructuring should give us the time and resources we need to address our financial challenges while we continue our normal operations. Importantly, operating under the protection of Chapter 11 also provides the company’s vendors with assurances about payments which should help us be sufficiently stocked for the holiday season. Restructuring should also allow us to strengthen our balance sheet, create a more efficient expense structure and, we believe, position the company to compete more effectively. 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.
It is important to note the following:
- As a first step, we have asked for customary Court authority to pay our associates in the ordinary course, just as we did prior to the Chapter 11 filing.
- We expect to pay our vendors for all goods delivered and services provided after the filing.
- We remain committed to being the destination of choice for our guests’ consumer electronics needs, and our stores should be sufficiently stocked for the holiday season
We understand how difficult the recent announcements have been on everyone at this company, and we recognize the changes personally affect many people you have worked with day to day. Further, we know there is never a good time for individuals to be impacted by decisions like these, and we deeply regret the effect this has had on our associates. Please know that we took these difficult, but necessary, business actions only after significant deliberation.
In the meantime, we remain committed to providing you with as much information as possible. We will soon post a copy of the press release related to today’s announcement as well as other relevant materials on circuitcity.com. If you have further questions or concerns, please speak with your supervisor who will help you find the information you need.
In closing, I want to thank you all for your loyalty and dedicated effort as we go forward. I strongly believe that by taking the right actions now, this business can move forward effectively. We have a 60-year history as a leader in the consumer electronics industry, and with your help and support, we can all do our part to ensure that Circuit City will emerge as a stronger business with a solid financial footing.
Sincerely,
Jim Marcum
Vice Chairman and Acting President and Chief Executive Officer
Circuit City Stores, Inc.
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