SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended December 28, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From __________________ to __________________
Commission file number 0-22356
FRIEDMAN'S INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-2058362
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 West State Street
Savannah, Georgia 31401 31401
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(Address of principal executive offices) (Zip Code)
(912) 233-9333
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
The number of shares of Registrant's Class A Common Stock $.01 par
value per share, outstanding at February 11, 2003 was 17,423,706.
The number of shares of Registrant's Class B Common Stock $.01 par
value per share, outstanding at February 11, 2003 was 1,196,283.
Index
FRIEDMAN'S INC.
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Income Statements - Three months ended December 28, 2002 and
December 29, 2001
Balance Sheets - December 28, 2002, December 29, 2001 and
September 28, 2002
Statements of Cash Flows - Three months ended December 28, 2002
and December 29, 2001
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
i
FRIEDMAN'S INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share and number of store data)
THREE MONTHS ENDED DECEMBER,
----------------------------
2002 2001
-------- --------
Net Sales $198,127 $181,371
Operating Costs and Expenses:
Cost of goods sold including occupancy,
distribution and buying 98,204 89,522
Selling, general and administrative 64,058 60,342
Depreciation and amortization 3,088 2,777
-------- --------
Income from operations 32,777 28,730
Interest and dividend income from related party (1,559) (652)
Interest expense 1,792 1,045
-------- --------
Income before income taxes and minority interest 32,544 28,337
Income tax expense 11,289 9,926
Minority interest (44) (23)
-------- --------
Net income $21,299 $18,434
======== ========
Earnings per share - basic $1.14 $1.27
======== ========
Earnings per share - diluted $1.14 $1.26
======== ========
Weighted average shares - basic 18,620 14,521
Weighted average shares - diluted 18,747 14,618
Number of stores open 662 645
See notes to consolidated financial statements.
F-1
FRIEDMAN'S INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
DECEMBER 28, DECEMBER 29, SEPTEMBER 28,
2002 2001 2002
------------ ------------ -------------
(Unaudited) (Note)
ASSETS
Current Assets:
Cash $307 $570 $271
Accounts receivable, net of allowance for doubtful accounts of
$29,345 at December 28, 2002, $27,077 at December 29, 2001 and
$16,651 at September 28, 2002 196,390 171,890 149,868
Inventories 152,629 152,520 136,606
Deferred income taxes 3,788 3,002 3,788
Other current assets 10,652 9,471 9,608
-------- -------- --------
Total current assets 363,766 337,453 300,141
Equipment and improvements, net 52,287 54,543 50,117
Tradename rights 5,022 5,022 5,022
Receivable from Crescent Jewelers - 103,471 -
Investment in Crescent Jewelers 85,000 - 85,000
Other assets 7,164 3,022 7,603
-------- -------- --------
Total assets $513,239 $503,511 $447,883
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $97,876 $92,339 $31,070
Accrued and other liabilities 37,538 36,235 18,649
Bank debt, Crescent Jewelers - 103,471 -
Bank debt, Friedman's and capital lease obligations 605 28,348 590
-------- -------- --------
Total current liabilities 136,019 260,393 50,309
Long-term bank debt, Friedman's 73,866 - 114,808
Long-term capital lease obligation 322 929 618
Deferred income taxes and other liabilities 2,581 1,364 2,581
Stockholders' Equity:
Preferred stock, par value $.01, 10,000,000 shares
authorized and none issued - - -
Class A common stock, par value $.01, 25,000,000
shares authorized, 17,423,706, 13,328,545 and
17,423,706 issued and outstanding at December 28,
2002, December 29, 2001 and September, 28, 2002,
respectively 174 133 174
Class B common stock, par value $.01, 7,000,000 shares
authorized, 1,196,283 issued and outstanding 12 12 12
Additional paid-in-capital 153,948 119,055 153,991
Retained earnings 147,262 122,720 126,335
Stock purchase loans (945) (1,095) (945)
-------- -------- --------
Total stockholders' equity 300,451 240,825 279,567
-------- -------- --------
Total liabilities and stockholders' equity $513,239 $503,511 $447,883
======== ======== ========
Note: The balance sheet at September 28, 2002 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to consolidated financial statements.
F-2
FRIEDMAN'S INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
THREE MONTHS ENDED
------------------------------
DECEMBER 28, DECEMBER 29,
2002 2001
------------ ------------
Operating Activities:
Net income $21,299 $18,434
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 3,088 2,777
Provision for doubtful accounts 23,655 22,198
Minority interest in loss of consolidated subsidiary (44) (23)
Changes in assets and liabilities:
Increase in accounts receivable (70,177) (61,393)
Increase in inventories (16,023) (16,000)
Increase in other assets (561) (255)
Increase in accounts payable and
accrued liabilities 85,973 70,626
-------- --------
Net cash provided by operating activities 47,210 36,364
Investing Activities:
Additions to equipment and improvements (5,536) (3,478)
Repayments of employee stock purchase loans - 30
-------- --------
Net cash used in investing activities (5,536) (3,448)
Financing Activities:
Net repayments of revolving credit facilities (40,942) (32,515)
Payments on capital lease obligations (281) (89)
(Payments for) proceeds from employee stock purchases and
options exercised (43) 44
Payment of cash dividend (372) (254)
-------- --------
Net cash used in financing activities (41,638) (32,814)
-------- --------
Increase in cash 36 102
Cash, beginning of period 271 468
-------- --------
Cash, end of period $307 $570
======== ========
See notes to consolidated financial statements.
F-3
FRIEDMAN'S INC.
Notes to Consolidated Financial Statements
(Unaudited)
December 28, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended December 28,
2002 are not necessarily indicative of the results that may be expected for the
year ending September 27, 2003. For further information, refer to the financial
statements and footnotes thereto included in the Friedman's Inc. Annual Report
on Form 10-K for the year ended September 28, 2002. Certain reclassifications
have been made to prior year amounts to conform with current year presentation.
NOTE B - NEW ACCOUNTING STANDARDS
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46 "Consolidation of Variable Interest Entities" ("FIN
46"). The primary objectives of FIN 46 are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities" or "VIEs") and how to
determine when and which business enterprise should consolidate the VIE (the
"primary beneficiary"). This new model for consolidation applies to an entity in
which either (1) the equity investors (if any) do not have a controlling
financial interest or (2) the equity investment at risk is sufficient to finance
that entity's activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures regarding the nature, purpose, size and
activities of the VIE and the enterprise's maximum exposure to loss as a result
of its involvement with the VIE. The Company is required to adopt this
interpretation no later than July 1, 2003 for any VIEs in which it holds a
variable interest that it acquired before February 1, 2003. The interpretation
is effective immediately for any VIEs created after January 31, 2003 and for
VIEs in which an enterprise obtains an interest after that date. Management has
not yet determined the impact of FIN 46 with respect to the Company's investment
in Crescent Jewelers.
The Company adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144") on
September 29, 2002. This statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and supercedes FAS 121. FAS
144 is effective for fiscal years beginning after December 15, 2001. The
pronouncement did not have a material impact on the consolidated financial
statements.
NOTE C - STORE CLOSINGS
During fiscal 2001, the Company recorded store closing expenses,
principally for lease obligations, of $4.2 million for the closure or planned
closure of 33 stores. All 33 stores were closed by December 29, 2001. In
connection with these closings, the Company made payments of $0.1 million during
the three months ended December 28, 2002. The Company had a remaining liability
for lease obligations of approximately $0.2 million at December 28, 2002.
F-4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and other sections of this Form 10-Q may
constitute forward-looking statements for purposes of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, and as
such may involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. For these statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. These statements are made
based on management's current expectations or beliefs as well as assumptions
made by, and information currently available to, management. The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate," and similar
expressions are intended to identify such forward-looking statements. Our actual
results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including without
limitation those discussed under the section titled "Risk Factors" in the
reports that we file with the SEC from time to time, including our Annual Report
on Form 10-K for our fiscal year ended September 28, 2002. All written or oral
forward-looking statements attributable to us are expressly qualified in their
entirety by these cautionary statements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Revenue Recognition. We recognize revenue related to our merchandise
sales at the time of sale, reduced by a provision for returns. We estimate this
returns provision principally based on prior year return rates. Payments from
customers on our layaway program are recorded as a liability until the customer
fulfills the terms of the layaway. Once the customer completes the terms of the
layaway program, including taking receipt of the merchandise, a sale is
recognized.
Finance charges and credit insurance revenues (excluding credit
property insurance) are earned based on the declining principal of each contract
using the interest method. Credit property insurance revenues are recorded on a
straight-line basis over the term of the contract. Product warranties are
recorded on a straight-line basis over the estimated warranty period. We
periodically review the estimated term of product warranties and may adjust the
estimated term over which our product warranty revenue is recognized based on
actual trends and experience. The effect of our estimation may be an increase or
decrease in our warranty revenue and, as a result, a corresponding increase or
decrease in our net sales. We classify finance charges, credit insurance and
other credit service revenues as a reduction in selling, general and
administrative expenses.
Accounts Receivable. Approximately 50% of our merchandise sales are
made under installment contracts due in periodic payments over periods typically
ranging from three to 24 months. Accounts receivable is comprised of purchased
merchandise, finance charges, credit insurance, product warranties and late
fees, less unearned finance charges, product warranties, credit insurance and
our allowance for doubtful accounts. We follow industry practice and include
amounts due after one year in current assets.
We conduct credit approval and collection procedures at each store and
follow internal company guidelines to evaluate the credit worthiness of our
customers and to manage the collection process. In order to minimize our credit
risk, we generally require down payments on credit sales and offer credit
insurance to our customers. We believe that we are not dependent on a given
industry or business for our customer base and, therefore, have no significant
concentration of credit risk.
We maintain an allowance for uncollectible accounts. We estimate the
reserve each quarter based on historical experience, the composition of
outstanding balances, credit experience trends and other relevant information.
The application of this methodology may result in increases or decreases in our
provision for uncollectible accounts from quarter to quarter. Our policy is
generally to write off in full any credit account receivable if no payments have
been received for 120 days and any other credit accounts receivable, regardless
of payment history, if judged uncollectible (for example, in the event of fraud
in the credit application or bankruptcy). We contract with collection agencies
on a contingent fee basis to collect accounts previously written off. Upon
write-off of an account, we record as a receivable an estimate of the
1
amount to be recovered by the collection agencies based on our historical
experience. Such amounts, currently 7% of amounts written-off, are credited to
the allowance for uncollectible accounts.
We do not require separate collateral to secure credit purchases made
by our customers, but we do retain a security interest in the purchased item.
Store Opening and Closing Costs. We expense store-opening costs when
incurred. We determine our store-closing costs, consisting of fixed asset
impairment charges and accruals for remaining lease obligations, and recognize
these costs in the period in which we make the decision that a store will be
closed. Effective December 29, 2002, remaining lease obligations and other store
closure costs will be accrued in the period in which the store is closed.
Indicators of impairment generally do not exist with respect to our property and
equipment except in circumstances of store closings.
THREE MONTHS ENDED DECEMBER 28, 2002 COMPARED TO THREE MONTHS ENDED
DECEMBER 29 , 2001
RESULTS OF OPERATIONS
Net sales increased 9.2% to $198.1 million for the three months ended
December 28, 2002, from $181.4 million for the three months ended December 29,
2001. The increase in sales was attributable to a comparable store sales
increase of 6.9% and the net addition of 17 new stores.
Cost of goods sold, including occupancy, distribution and buying costs
include: (i) merchandise acquisition cost, (ii) freight cost related to the
receipt and distribution of merchandise, (iii) physical inventory adjustments,
(iv) costs to refurbish customer returns, (v) payroll costs (including payroll
taxes and employee benefit costs) associated with our buying and distribution
personnel, (vi) other costs associated with our buying and distribution
functions and (vii) store rents and other occupancy costs. Cost of goods sold,
including occupancy, distribution and buying costs, increased 9.7% to $98.2
million, or 49.6% of net sales, for the three months ended December 28, 2002,
versus $89.5 million, or 49.4% of net sales, for the three months ended December
29, 2001. The increase in cost of goods sold, including occupancy, distribution
and buying costs was due to the increase in net sales. The increase in cost of
goods sold as a percentage of net sales was primarily the result of a shift in
sales mix. Lower margin bridal and diamond products constituted a higher
percentage of the sales mix, and higher margin gold and color products
constituted a lower percentage of the sales mix than in the prior year. We do
not expect the increase in cost of goods sold, including occupancy, distribution
and buying costs as a percentage of net sales, to constitute a continuing
material trend.
Selling, general and administrative expenses include: (i) payroll costs
(including payroll taxes and employee benefit costs), excluding payroll costs
associated with our buying and distribution personnel, (ii) advertising costs,
(iii) operating costs such as insurance, utility, business related travel,
professional service fees and other related business expenses, and (iv)
provisions for bad debt and collection expense reduced by earned finance
charges, earned credit insurance and late fee revenues. Selling, general and
administrative expenses increased 6.2% to $64.1 million for the three months
ended December 28, 2002, from $60.3 million for the three months ended December
29, 2001. As a percentage of net sales, selling, general and administrative
expenses decreased to 32.3% for the three months ended December 28, 2002 as
compared to 33.3% for the comparable period last year. The decrease in selling,
general and administrative expenses as a percentage of net sales was primarily
the result of the leveraging effect of expenses associated with the increase in
net sales.
Depreciation and amortization charges increased 11.2% to $3.1 million
for the three months ended December 28, 2002, from $2.8 million for the three
months ended December 29, 2001. Depreciation and amortization charges as a
percentage of net sales was 1.6% for the three months ended December 28, 2002
compared to 1.5% for the three months ended December 29, 2001. Depreciation and
amortization charges were higher primarily due to the addition of new stores as
well as additional investment in store renovations.
2
Interest and other income from a related party increased to $1.6
million for the three months ended December 28, 2002 compared to $0.7 million
for the three months ended December 29, 2001. The increase was due to interest
and dividend income earned on the Company's investment in Crescent Jewelers.
Interest expense increased to $1.8 million for the three months ended December
28, 2002 compared to $1.0 million for the three months ended December 29, 2001.
The increase in interest expense was primarily due to higher average borrowing
levels. See "Liquidity and Capital Resources."
Net income increased by 15.5% to $21.3 million for the three months
ended December 28, 2002 compared to $18.4 million for the three months ended
December 29, 2001. Basic earnings per share was $1.14 for the three months ended
December 28, 2002 compared to $1.27 for the three months ended December 29,
2001. Basic weighted average common shares outstanding increased 28.2% to
18,620,000 for the three months ended December 28, 2002 from 14,521,000 for the
three months ended December 29, 2001. Diluted earnings per share was $1.14 for
the three months ended December 28, 2002 compared to $1.26 for the three months
ended December 29, 2001. Diluted weighted average common shares outstanding
increased 28.2% to 18,747,000 for the three months ended December 28, 2002 from
14,618,000 for the three months ended December 29, 2001. The increase in basic
and diluted weighted average shares outstanding was primarily due to the
issuance of 4.1 million shares of common stock in an offering completed on
February 11, 2002.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended December 28, 2002, net cash provided by
operating activities was $47.2 million compared to $36.4 million for the three
months ended December 29, 2001. During the three months ended December 28, 2002,
cash provided by operations was favorably impacted by net income excluding
non-cash expenses for provision for doubtful accounts and depreciation and
amortization and decreases in inventory levels net of accounts payable, offset
by growth in customer accounts receivable.
Investing activities, principally capital expenditures associated with
new and renovated stores, used cash of $5.5 million for the three months ended
December 28, 2002 compared to $3.5 million during the three months ended
December 29, 2001. The increase was due primarily to the opening of more stores
than in the comparable period in the prior year. The Company opened sixteen new
stores in the quarter ended December 2002 compared to seven new stores in the
quarter ended December 2001.
Financing activities used $41.6 million of cash for the three months
ended December 28, 2002 compared to $32.8 million for the three months ended
December 29, 2001. In both years, cash was used primarily to pay down the
Company's revolving credit facilities.
Our Credit Facility. On August 28, 2002, we entered into a new
three-year $150 million secured revolving credit facility, which replaced our
three-year $67.5 million senior secured revolving credit facility that was
scheduled to expire on September 15, 2002. The facility provides for borrowings
on 65% of eligible receivables and the lesser of 50% of eligible inventories or
$75.0 million. Borrowings under the credit facility bear interest at our option
of either the prime rate plus applicable margin ranging from zero to 0.25% or
the Eurodollar rate plus applicable margin ranging from 1.75% to 2.50%. The
applicable margin is determined based on a calculation of the fixed charge
coverage ratio. The facility contains certain financial covenants and is secured
by a lien on substantially all of our personal property. At December 28, 2002,
$73.9 million was outstanding under the facility, with interest accruing on such
borrowings in a range from 3.63% to 4.75%.
Our credit facility contains the following financial covenants:
- our trailing twelve-month Consolidated Leverage Ratio, measured as
of the end of each fiscal period, must not be greater than
2.0 to 1.0;
- our Consolidated Adjusted Tangible Net Worth, measured as of
the end of each fiscal period, must not be less than the sum of
$140 million through August 23, 2003, and for
3
each fiscal period thereafter, must not be less than the sum of
$140 million plus as of the end of each fiscal year, commencing
with the Fiscal Year Ending September 27, 2003, an amount
equal to 50% of Consolidated Net Income for that fiscal year,
which increases will be cumulative, plus an amount equal to
75% of net proceeds from certain equity transactions;
- our Consolidated Fixed Charge Ratio for the preceding four (4)
Fiscal Quarters, measured as of the end of each fiscal quarter,
must not be less than 1.15 to 1.0; and
- our retail sales must not be less than $89.6 million for
Fiscal Period ending December 28, 2002 and for each year
thereafter, must not be less than 70% of the projected retail
sales delivered to the agent and the lenders, in each case
measured as of the fiscal period ending December of each year.
For further information about the financial and other covenants
contained in our credit facility, we refer you to the text of the agreement,
which was filed as an exhibit to our Current Report on Form 8-K filed with the
SEC on September 10, 2002.
Financial Support of Crescent Jewelers. In connection with the credit
facility, we restructured our financial support of Crescent Jewelers by
terminating our guarantee of Crescent Jewelers' previous $112.5 million senior
secured revolving credit facility and making a direct investment in Crescent
Jewelers of $85.0 million. This investment consists of $50.0 million of Series A
preferred stock and $35.0 million of a senior subordinated note. Based in part
on our financial support of $85.0 million, on August 28, 2002, Crescent Jewelers
replaced its previous $112.5 million senior secured revolving credit facility
with a $50.0 million secured credit facility. We continue to hold a warrant that
we received on September 15, 1999 to purchase 50% of the capital stock of
Crescent Jewelers for an exercise price of $500,000. That warrant will expire on
September 14, 2014.
The Crescent Jewelers Series A preferred stock carries a floating rate
dividend equal to the all-in cost of funds under our credit facility, plus a
pre-tax amount approximating a proportionate share of the 2% guarantee fee
payable by Crescent Jewelers under our guarantee of their previous credit
facility, less the tax benefit we receive from the dividends received deduction.
This calculation currently yields an approximate dividend rate of 6.2%.
Cumulative dividends on the Series A preferred stock are payable semi-annually
on January 15th and July 15th. Dividends in the amount of $1,107,000 were earned
but not paid on the Series A preferred stock on January 15, 2003.
The Crescent Jewelers senior subordinated note carries a floating
interest rate equal to the all-in cost of funds under our credit facility, plus
an amount approximating a proportionate share of the 2% guarantee fee payable by
Crescent Jewelers under our guarantee of their previous credit facility. This
calculation currently yields an approximate interest rate of 7.54%. Interest on
the note is payable semi-annually on January 15th and July 15th. Interest in the
amount of $942,000 was due and paid to us by Crescent Jewelers on January 15,
2003.
The investments were recorded on our balance sheet as a noncurrent
asset and are currently carried at their face value. In accordance with the
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115"), we are required to
evaluate whether there has been an other than temporary decline in the value of
the investment on a quarterly basis. Any other than temporary reduction in value
would result in an immediate income statement charge, which would reduce our
reported net income and our earnings per share. As a result of our evaluation,
there has not been a decline in the value of our investment in Crescent
Jewelers.
Dividends. On November 14, 2002, the Board of Directors declared a
quarterly dividend of $.02 per share payable on January 15, 2003, to holders of
record of our Class A and Class B common stock as of December 31, 2002.
4
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our market risk is limited to fluctuations in interest rates as it
pertains to our borrowings under our credit facility. We pay interest on
borrowings at our option of either the prime rate plus an applicable margin
ranging from 0% to 0.25% or the Eurodollar rate plus an applicable margin
ranging from 1.75% to 2.50%. If the interest rates on our borrowings average 100
basis points more in fiscal 2003 than they did in the three months ended
December 28, 2002, our interest expense would increase and income before income
taxes would decrease by $450,000. This amount is determined solely by
considering the impact of the hypothetical change in the interest rate on our
borrowing cost without consideration for other factors such as actions
management might take to mitigate its exposure to interest rate changes. In
addition, the dividend on our preferred stock investment in Crescent Jewelers as
well as the interest rate on the subordinated debt we hold from Crescent
Jewelers, are both calculated based on our borrowing costs. As a result, any
increase in our borrowing costs would be offset, in part, by increases in the
dividend and interest rate on our Crescent Jewelers investments.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and our principal financial officer,
we concluded an evaluation of the effectiveness of our "disclosure controls and
procedures" on December 19, 2002. Our evaluation tested controls and other
procedures designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities and Exchange Act of
1934, as amended, is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and
forms. Based on this evaluation, our principal executive officer and principal
financial officer concluded as of December 19, 2002, that the information
required to be disclosed in our reports that we file or submit under the
Securities Exchange Act is accumulated and communicated to management, including
our principal executive officer and principal financial officer, as appropriate,
in a manner that allows timely decisions regarding required disclosure.
There were no significant changes in our disclosure controls and
procedures or in other factors that could significantly affect these controls
and procedures subsequent to December 19, 2002.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Furnish the exhibits required by Item 601 of Regulation S-K.
EXHIBIT INDEX
Exhibit
Number
3.1 Registrant's Certificate of Incorporation, as amended
(incorporated by reference from Exhibit 4(a) to the Registrant's
Registration Statement on Form S-8 (File No. 333-17755) dated
March 21, 1997).
3.2 Bylaws of the Registrant (incorporated by reference from Exhibit
3.2 to the Registrant's Registration Statement on Form S-1
(File No. 33-67662), and amendments thereto, originally filed on
August 19, 1993).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of
holders of Class A and Class B Common Stock of the Registrant.
4.2 Form of Class A Common Stock certificate of the Registrant
(incorporated by reference from Exhibit 4.2 to the Registrant's
Registration Statement on Form S-1 (File No. 33-67662), and
amendments thereto, originally filed on August 19, 1993).
99.1 Section 906 Certification of the CEO
99.2 Section 906 Certification of the CFO
(b) The Company did not file a Current Report on Form 8-K during the
three month period ended December 28, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRIEDMAN'S INC.
Date: February 11, 2003 BY: /s/ Victor M. Suglia
Victor M. Suglia
Senior Vice President and
Chief Financial Officer
CERTIFICATION OF PERIODIC REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bradley J. Stinn, Chief Executive Officer, of Friedman's Inc.
(the "Company"), do hereby certify, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, that:
1. I have reviewed this Quarterly Report on Form 10-Q of the Company
for the fiscal quarter ended December 28, 2002 (this "Report");
2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other
financial information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this Report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) Designated such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Report is being prepared;
b) Evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this Report (the "Evaluation Date"); and
c) Presented in this Report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and
6. The Company's other certifying officers and I have indicated in
this Report whether there were significant changes in internal controls or in
the other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: February 11, 2003
/s/ Bradley J. Stinn
--------------------------
Bradley J. Stinn
Chief Executive Officer
CERTIFICATION OF PERIODIC REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Victor M. Suglia, Chief Financial Officer, of Friedman's Inc. (the
"Company"), do hereby certify, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, that:
1. I have reviewed this Quarterly Report on Form 10-Q of the Company
for the fiscal quarter ended December 28, 2002 (this "Report");
2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other
financial information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this Report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) Designated such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Report is being prepared;
b) Evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this Report (the "Evaluation Date"); and
c) Presented in this Report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and
6. The Company's other certifying officers and I have indicated in this
Report whether there were significant changes in internal controls or in the
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 11, 2003
/s/Victor M. Suglia
--------------------------
Victor M. Suglia and
Senior Vice President
Chief Financial Officer