By Trudy Tynan
The Associated Press

SPRINGFIELD, Mass. - KB Toys Inc. became the second major casualty of this past holiday's toy price wars, filing Wednesday for bankruptcy protection and announcing that it will close up to 500 stores and cut its work force.

The privately held retailer with about 1,300 stores, mostly in shopping malls, blamed heavy price cutting by giant discounters, primarily Wal-Mart Stores Inc., which began reducing prices on hot toys like Hokey Pokey Elmo in October, several weeks earlier than in the past.

Last month, KB Toys informed suppliers that it was slowing payments amid sluggish sales.

"It was brutal," Michael Glazer, KB Toys' CEO, said, noting that sales were down double digits this past holiday season. "It was disruptive in many ways."

The filing under Chapter 11 of the federal bankruptcy laws will enable KB to keep operating while developing a reorganization plan. The chain, which accounts for about 4 percent to 5 percent of the U.S. toy business, said it hopes to emerge from bankruptcy protection before the 2004 holiday season.

In early December, FAO Inc., owner of the famed FAO Schwarz toy stores, filed for Chapter 11 for the second time.

Toys "R" Us Inc., the nation's second-largest toy chain behind Wal-Mart, also suffered this past holiday season. Earlier this month, it said its overall sales rose less than 1 percent for the critical holiday sales period and that sales at U.S. stores open more than a year fell almost 5 percent.

The 80-year-old KB Toys, based in Pittsfield, Mass., also announced it secured $350 million in financing from the Fleet Retail Group.

In its petition filed in U.S. Bankruptcy Court in Delaware, the retailer listed $507 million in assets and $461 million in liabilities as of Jan. 3.

It said it had about $116 million in outstanding unpaid bills for merchandise.

KB listed Hasbro Inc. as its biggest unsecured creditor, which is owed $15.3 million. The second largest is Lego Systems Inc., which is owed $9.91 million.