FAO Files for Chapter 11

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Suffering from weak sales, competition from discounters and pinched by tightening credit, FAO Inc., King of Prussia, PA, filed for Chapter 11 bankruptcy protection yesterday.


The company said it will close 75-80 of its 253 stores, up from 70 last month. FAO owns U.S. toy retailers FAO Schwarz, Zany Brainy and The Right Start.


On Dec. 17, the company warned that it would likely file for bankruptcy protection if its bank, Wells Fargo Retail Finance LLC, did not relax borrowing restrictions.


In the filing, FAO listed assets of $257.4 million and liabilities of $238.4 million. FAO lost $23.6 million for the third quarter ended Nov. 2.


The company said it reached an agreement with its existing bank lenders to use cash collateral that, upon court approval, will enable it to fund employee obligations and ongoing operating needs.


"The company has been in contact with many of its suppliers, and they have indicated that they will continue to support FAO, Inc. during the reorganization period," president/CEO Jerry R. Welch said in a statement.


FAO, Inc., formerly The Right Start, Inc., owns and operates FAO Schwarz, The Right Start and Zany Brainy. The Right Start began in 1985 with the creation of the Right Start catalog. In September 2001, the company purchased assets of Zany Brainy Inc. for $100 million. It purchased FAO Schwarz in January 2002 for $55 million and assumed its current form.


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