BlockBuster Seeks Circuit City and Other Financially Challenged U.S. Companies for April 15

 
The items below are taken from the Credit Manager’s Weekly Summary of Financially Challenged Companies. Please visit the insideARM bookstore for a limited time half-price deal on a Summary subscription. A full issue contains information on more than 200 companies.

Blockbuster Inc., the Dallas-based chain of video-rental stores, announced that it earlier made a more than $1 billion offer to acquire Circuit City Stores Inc., the Richmond, Va. electronics retailer. Blockbuster made the offer two months ago but is only now going public with the bid because Circuit City has failed to provide access to its books, although Circuit City’s board is considering the offer. Circuit City, with nearly 1,400 stores and outlets in the U.S. and Canada, has been struggling with weak sales amid efforts to turn itself around. Its shares have slumped 80% over the past year. Blockbuster, in contrast, has been improving, recently turning around a year-earlier loss in its first quarter, reporting net income of $30 million. A merger would expand Blockbuster beyond its core movie-rental operations and would reportedly achieve “significant cost savings”.

Fremont General Corp., a troubled mortgage lender, is selling its investment and loan bank to an industrial bank being set up by CapitalSource Inc., following pressure from state and federal authorities to recapitalize the books of the investment-and-loan unit. CapitalSource will pay $48 million plus 2% of the unit’s deposits, which stood at $5.6 billion as of the end of March. CapitalSource will also lend the unit as much as $200 million.

Frontier Airlines Holdings Inc. followed a string of airlines into Chapter 11, although the Denver carrier said it will continue operating as it tries to strengthen its financial situation. Frontier, which has faced shrinking cash and tough competition, blamed its bankruptcy filing, however, on a decision by credit-card processor First Data Corp. to hold back turning over revenue to the airline, a move that threatened Frontier’s liquidity. Still, Frontier maintains it has sufficient cash to continue operating for the time being. In its nine months ended 12/31, Frontier lost $18.7 million, double its loss in the year-earlier period, as its cash dwindled 16%–to $170 million.

Griffin Land & Nurseries Inc., the New York firm whose subsidiary, Imperial Nurseries, grows and distributes container-based plants to garden center operators nationwide, reported a first quarter net loss of $1.6 million, on a 2% revenue decline–to $4.5 million. This compares with the loss of $1.2 million for the same period one year earlier.

Linens ‘N Things Inc., the New Jersey home products retailer which has 585 stores nationwide and which was purchased two years ago by Apollo Management LP, is expected to file for Chapter 11 bankruptcy protection. With a nearly $15 million quarterly payment due this week on its $650 million bond, the home furnishings retailer is hoping to work out an agreement with its lenders and largest vendors to delay the filing. After reporting a fiscal 2007 loss of $242 million on sales of $2.8 billion, the company realized that with its increasing debt load and the economic downturn, it was having a tough time competing with its rivals Bed Bath & Beyond Inc. and Wal-Mart Stores Inc.

M/I Homes Inc., the Columbus, Ohio homebuilder which reported a fiscal 2007 loss of $135 million on revenue of just over $1 billion, reported that it estimates first quarter sales will decline 40%. The company, which expects to release its first quarter results by 4/30, also reported its new sales contracts declined by more than 40%–to 542. The firm is beginning to take steps to improve its financial flexibility by not only amending its credit facility but also reducing its bank debt by more than $60 million–to $42 million. At the beginning of 2007 the company’s bank debts stood at just over $400 million.

Moore-Handley Inc., the Birmingham, Ala. distributor of hardware and home center products reported its first quarter net declined 84%–to $49,000, on a 13% sales decline–to $6.4 million. Operating income also declined to $516,000 during the quarter from more than $1 million for the same period one year earlier.

Movie Gallery Inc., the Dothan, Ala. movie rental firm which has closed more than 1,000 stores nationwide in order to stay afloat, has seen the U.S. Bankruptcy Court approve its reorganization plan. Now operating more than 3,400 outlets, the company’s CEO said that “Movie Gallery is now poised to emerge as a competitive and financially stable company”. The reorganization plan includes a conversion of the company’s $320 million in senior notes and a commitment from Sopris Capital Advisors to invest as much as $50 million to purchase new equity in the reorganized company. Movie Gallery expects to emerge from bankruptcy protection before 5/31.

Mothers Work Inc., the Philadelphia maternity wear retailer which operates 765 stores nationwide, expects to report a second quarter loss of as much as ten cents a share. The company had anticipated earning a profit of thirty-five cents a share. Same-store sales are expected to decline around 3% while overall sales are expected to decline to around $139 million.

Trans World Entertainment Corp., the Albany, N.Y. music and video retail chain which was being purchased by Riley Investment Management LLC as well as the company’s chairman, Robert Higgins, has extended the deadline for that buyout offer. Now set for 5/31, the deadline has been extended twice. With more than 800 stores, most under the f.y.e. name, Trans World reported a fiscal 2007 net loss of $99 million on a 14% sales decline–to $1.3 billion.

Tuesday Morning Corp., the Dallas retailer which has been adversely affected by the housing market, expects to report a larger than anticipated quarterly loss. The company expects to report a loss of as much as twelve cents a share for its third quarter ended 3/31 on a sales decline of as much as 6%–to $178 million. Comparable store sales are expected to decline more than 8%.

Workstream Inc., the Ottawa, Canada provider of software that automates the hiring process and helps manage human resources operations, reported a third quarter net loss of $19.7 million, on a 12% revenue decline–to $6.2 million. This compares with a loss of $4.3 million for the same period one year earlier.