RadioShack Seeks Cash… Is Bankruptcy On The Horizon?

Image via Flickr/ Nicholas Eckhart

For nearly a century electronics hobbyists have turned to RadioShack for all their favorite gizmos and gadgets. The days of Tandy computers, walkie-talkies and tape recorders have long passed, and what was once the favorite shopping spot for nerds, geeks and whiz kids may soon be nothing more than a memory, a chapter in technological history.

RadioShack (NYSE:RSH) released its second-quarter earnings report Sept. 11, confirming the struggling company saw yet another quarter of profit losses and fallen revenue. At just $673.8 million, RadioShack’s second-quarter sales were down from $861.4 during the same period last year. Store sales during the same period fell 20 percent, while the company experienced a $119.4 million loss in net earnings – more than double the $51.1 million loss reported in the second quarter last year, or a $1.35 per-share loss.

“For the past 18 months we have been working hard on our turnaround plan. While we are advancing on many fronts, we may need additional capital in order to complete our work,” RadioShack CEO Joseph Magnacca said in a statement Thursday morning. “As a result, we are actively exploring options for overhauling our balance sheet and are in advanced discussions with a number of parties.”

RadioShack’s finances have been in such a deplorable state, in fact, that the company was unable to proceed with plans to close 1,100 poorly-performing stores when it could not secure financing to pay severance, dispose of inventory and break leases. Instead, it scaled those plans back and closed just 200 stores. Now, RadioShack is seeking a lifeline – capital that would allow the company to restructure its debt and cut additional costs by ridding itself of more failing stores.

Search For Cash

RadioShack shares rose 16 percent in premarket trade Sept. 11 after the struggling electronics retailer said it was in advanced discussions with a number of parties, including UBS AG and investment firm Standard General LP, which already owns 10 percent of RadioShack, over options to overhaul its balance books. According to RadioShack, those options could include debt restructuring, store consolidations and other measures that would significantly reduce costs.

The details of a recapitalization have yet to be finalized, and we are reviewing several alternatives, some of which would require consent from our lenders,” Magnacca said.

According to a Bloomberg source, money invested would be used to refinance debt outstanding under a $535 million asset-backed revolving credit line from General Electric Co. unit GE Capital. RadioShack says it is also in talks with third parties and its financial stakeholders about other options, including a possible sale. Although some form of recapitalization is the company’s most likely and preferable course of action, RadioShack is unable to guarantee it will “be able to strike such a deal.”

Road To Bankruptcy

If RadioShack is unable to find a solution to its monetary woes outside of bankruptcy court, the 93-year-old company may be forced to file for Chapter 11 bankruptcy protection. The struggling electronics retailer filed a document with the SEC Sept. 11, confirming bankruptcy may be on its horizon.

If acceptable terms of a sale or partnership or out-of court restructuring cannot be accomplished, we may not have enough cash and working capital to fund our operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern,” RadioShack claimed in the SEC filing. “As a result, we may be required to seek to implement an in-court proceeding under Chapter 11 of the United States Bankruptcy Code.”

While a Chapter 11 bankruptcy filing would allow RadioShack to restructure its debt with its creditors, the company offered no assurance that even such a drastic step will be successful. Should restructuring be unachievable, RadioShack will likely be required to liquidate under Chapter 7 bankruptcy, according to the SEC filing. Such measures would effectively serve as the final nail in the company’s coffin and require it sell off its assets.

RadioShack runs more than 4,400 company-operated stores in the United States and Mexico, as well as more than 1,200 dealer stores in 25 countries. It employs about 27,000 people.