Krause's Files for Bankruptcy Protection


Battered by a long period of losses and the sluggish economy, Krause's Furniture Inc. filed for bankruptcy protection from creditors Friday, saying it will close 32 of its 89 showrooms and quit business in several major cities.

More than 100 of Krause's 988 employees will lose their jobs in the downsizing. The Brea manufacturer and retailer of custom-made furniture did not disclose the amount of its assets and debts.

The company said it has enough funds to stay in business through the end of September as it attempts to reorganize, potentially through a management buyout of its operations. If the buyout or the sale of assets to another party isn't successful by Sept. 30, the company said, it plans to cease operations and liquidate the remaining business.

Krause's announcement late Friday afternoon came two months after its accounting firm, Arthur Andersen, resigned in the wake of questioning Krause's ability to survive. The company lost $9 million on sales of $36 million during the first quarter, including a charge of $3.1 million from previous store closures. Krause's has not had a profitable quarter since the fourth quarter of 1994.

The chain has operated in an unusual niche between high-end designer furniture and the mass market, letting customers pick out styles, patterns and designs and then custom-making the sofas and chairs.

It faces a highly competitive industry at a time when the slow economy has reduced demand for home furnishings. Even consumers with good jobs and no immediate money worries have delayed big-ticket purchases while they see how the slowdown and energy prices play out, analysts say.

Krause's said its main lender has committed in writing to provide more financing and the company has oral commitments from providers of raw materials, factors that will allow it to operate its factory, ship existing orders and take new ones. The company said the so-called debtor-in-possession financing it has arranged is designed to support operation of the 57 showrooms until Sept. 30.

The company said it asked U.S. Bankruptcy Judge James N. Barr in Santa Ana to authorize the new financing, allow it to pay workers without interruption and to continue providing health benefits for workers.

Some current managers and investors, along with new investors, have proposed to buy Krause's surviving 57 showrooms, distribution centers and Brea factory. The proposal, which would have to be approved by a bankruptcy judge, anticipates the new company purchasing existing inventory and raw materials from the old and continuing in business, Krause's said. The company said it also will invite other bids for its assets.

The voluntary bankruptcy filing was made under Chapter 11 provisions that allow Krause's to continue operating while it reorganizes its affairs. Among other advantages, it will allow Krause's to break leases on showrooms that are operating at a loss.

The 57 showrooms that will remain in business operated at a profit last year, Krause's said. The 32 showrooms that will close will hold going-out-of-business sales for three to six weeks.

Krause's already closed 11 showrooms this year, and after the latest closures will no longer have any operations in Portland, Ore., Chicago, Dallas and Houston. It previously announced closure of all showrooms in Colorado Springs, Colo.; Fort Lauderdale, Fla.; and Atlanta.

Krause's said it expects the American Stock Exchange to delist its shares because of the bankruptcy filing. Its shares closed unchanged Friday at 6 cents; the Chapter 11 filing was announced after the market closed.

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