Circuit City (CC) to Close 155 Stores; Provides Update on Liquidity Position

November 3, 2008 9:59 AM EST

Circuit City Stores, Inc. (NYSE: CC) today provided an update on its liquidity position and its previously announced ongoing comprehensive business review.

Due in part to its deteriorating liquidity position and the continued weak macroeconomic environment, the company has decided to take certain restructuring actions immediately, including closing 155 domestic segment stores, reducing future store openings and aggressively renegotiating certain leases. The company also is considering all available options and alternatives to restructure its business.

Over the past several weeks, a number of factors have impacted severely the company's liquidity position. These factors include the following:

• Waning consumer confidence and a significantly weakened retail environment have impacted negatively the company's sales and gross profit margin rate to a greater degree than management had anticipated previously.
  
• Following the company's second quarter results announcement, the company's liquidity position and the sharply worsened overall economic environment led some of Circuit City's vendors to take restrictive actions with respect to payment terms and the credit they make available to the company. Additionally, the recent disruption in the financial markets has contributed to certain of the company's vendors experiencing insurmountable challenges with obtaining credit insurance for the company's purchases. As a result of this and other considerations, certain of the company's vendors have set more restrictive payment terms than in previous quarters, including in some cases requiring payment before shipment. Vendors also have limited the credit available to the company for purchases, including in some cases not providing customary increases in credit lines for holiday purchases. While management is working diligently to secure the support of its vendors and believes it has maintained good relationships with these important partners, the current mix of terms and credit availability is becoming unmanageable for the company.
  
• To date, the company has been unable to collect an income tax refund of approximately $80 million that the company believes it is owed from the federal government.
  
• Due primarily to the weakened economic environment and its potential impact on the timing of sales of the company's inventory and costs and expenses associated with such sales, a recent third-party appraisal conducted for the company's asset-based credit facility resulted in a reduction of the estimated net orderly liquidation value of the company's inventory. This valuation adjustment was made despite the mix of merchandise remaining consistent with the previous appraisal in November 2007. This reduction has led to a lower borrowing base and reduced availability for the current period compared with what the company had expected previously.

Circuit City Stores, Inc. operates as a specialty retailer of consumer electronics, home office products, entertainment software, and related services.

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