Friedman’s Inc., a publicly traded company with 653 stores across the Southeast, Mid-Atlantic and Midwest and roughly 4,000 employees, has filed for bankruptcy. The Chapter 11 filing was made Friday in the U.S. Bankruptcy Court in Savannah and was announced by the company early Saturday morning in a statement.
The company said it made the decision after senior lenders last week reduced their cash flow to the struggling Savannah-based chain, after delayed inventory shipments caused the company not to meet its minimum sales goals.
The bankruptcy filing should provide the “breathing room necessary to complete financial restructuring initiatives the company embarked upon more than five months ago,” Friedman’s said in the statement.
A hearing on the Chapter 11 filing is scheduled for Tuesday at 2 p.m. “By availing ourselves of the Chapter 11 process now, Friedman’s expects that our vendors will resume shipping inventory in anticipation of the upcoming Valentine’s Day holiday,” CEO Sam Cusano said in the statement. “Chapter 11 is a tool that will allow us to build upon our core strengths so that we can emerge as a stronger, financially viable business.”
Cusano took over as CEO in June, 2004, after former chief executive Bradley Stinn resigned.
The bankruptcy filing came after several years of financial and legal problems for the company. Among them:
* In December, 2004, the attorneys general of Texas, Tennessee, and Florida filed suit against the company for using deceptive tactics in the way the jeweler charged customers for insurance.
* In October, 2004, the company said that the U.S. Securities and Exchange Commission. (SEC) launched an investigation to determine whether to revoke its over-the-counter stock.
* In May, 2004, the company’s shares were delisted from the New York Stock Exchange. All the suits allege that Friedman’s violated generally accepted accounting principles by improperly understating the allowance for doubtful accounts for credit program receivables. This had the effect of materially overstating revenue and income, the lawsuits allege.
* In November, 2003, no fewer than 14 law firms filed suit against the company for alleging that the company violated generally accepted accounting principles by improperly understating the allowance for doubtful accounts for credit program receivables. This had the effect of materially overstating revenue and income, the lawsuits allege.
* It was in the same month that Friedman’s announced that it would have to restate earnings from 2000 through the first three quarters of 2003 because of accounting issues that involved estimates for bad debt.
* In October, 2003, the compnay said its business practices were being investigated by the U.S. Justice Department and the SEC.
* The investigation was launched because of a August, 2003, receivables factoring company, Capital Factors filed a lawsuit against the Friedman’s and 11 other companies for misrepresentation of a former vendor’s accounts receivables. Capital Factors alleges that the companies intentionally or negligently participated with Cosmopolitan Gem Corp., a Bangkok-based jewelry manufacturer, in the misrepresentation of the balance of Cosmopolitan’s accounts receivable, the effect of which was to induce Capital Factors to continue to advance funds to Cosmopolitan, Friedman’s said in its SEC filing. Capital Factors also alleges that Cosmopolitan’s customers improperly made payments on accounts with Cosmopolitan directly to Cosmopolitan.
Throughout this time the company made numerous changes to its board while it worked on ways to restructure its finances.
Friedman’s, which trails only industry leaders Zale Corp. and Signet Group in size, was started in 1920 and was family-owned until 1990, when it was bought by Morgan Schiff, which also owns Crescent Jewelers of Oakland, Calif.