Bad Day in Toyland

FAO Inc. (King of Prussia, Pa.) announced that it expects to file for Chapter 11 bankruptcy protection for itself and its operating subsidiaries, ZB Company Inc. and FAO Schwarz Inc., by the end of the week.

The filing would allow the company to sell its FAO Schwarz and The Right Start businesses and assets and to liquidate its Zany Brainy business. At the request of its lenders, the company has also engaged liquidators to sell inventory of all three of its brands pending the outcome of its efforts to find buyers by Dec. 15, 2003.

If transactions are not completed by then, the company could be required to speed up liquidation efforts in order to conduct an orderly wind-up of its affairs. During that time, it said daily operations will continue and stores will remain open; however, all retail sales will be final.

Last month, FAO reported that lenders balked at its request for additional operating capital to help it through the holiday season, stating that the company was already in default. FAO had said that sales in its retail stores and through its catalogs and Internet sites had been disappointing and anticipated holiday sales were also not meeting expectations.

FAO, formerly The Right Start (which changed its name after acquiring FAO Schwarz in 2002), declared Chapter 11 bankruptcy protection in January of this year, but emerged in April.