A bit of history

Harry & David files for Chapter 11 bankruptcy

MEDFORD, ORE. 
March 28, 2011 6:06am

•  Great Recession is no gift to gift basket marketer

•  ‘The best opportunity for Harry & David to restructure its balance sheet’

Fruit and nut marketer Harry & David Holdings Inc. of Medford, Ore., has filed for Chapter 11 bankruptcy proection.

The Great Recession is getting the blame for declining sales of its traditional fruit and nut gift baskets.

The pre-arranged filing Monday has in place agreements with holders of about 81 percent of the company’s senior notes that will eliminate substantial indebtedness and provide equity financing to restructure the company’s balance sheet.

The company says its online, mail order and retail outlets continue to operate normally.

Supporting noteholders agreed to vote in favor of the company’s pre-arranged plan and exchange their notes for stock. In addition, they have agreed to backstop a $55 million rights offering that will provide Harry & David with the necessary equity financing to emerge from Chapter 11, the company says.

The company says it has also secured a commitment from its current lenders to provide up to $100 million in exit financing to facilitate the plan of reorganization.

“We believe that entering into this agreement provides the best opportunity for Harry & David to restructure its balance sheet on an expedited basis, strengthen its operations and create long-term value, while continuing to provide customers with the highest quality products and service,” says Kay Hong, chief restructuring officer and interim chief executive officer. “Harry & David is an iconic brand, and we believe this is an important first step to position the business for long-term profitable growth.”

Net sales for the 13-week period ended Dec. 25, 2010 decreased 1.8 percent to $262.1 million, compared to the same period last year.

“Sales and operatings fell well below expectations due to market and competitive conditions,” said Steven Heyer, who was then the company’s chief executive officer. “Our focus from here will be on continuing to build our customer base, revamping our products to offer substantially more value to our customers in order to grow profitably, as well as pursuing options to recapitalize our business.”

For the company’s second fiscal quarter of 2011, consolidated gross profit decreased 20.6 percent from the prior comparable period to $104.2 million. Consolidated gross profit margin was 39.7 percent in the second quarter of fiscal 2011, a 940 basis point decrease from 49.1% in same period in fiscal 2010.

The decreases in gross profit and gross margin were primarily due to higher discounts and markdowns, lower average selling prices and higher product costs, the company said in its 8-K filing with the Securities and Exchange Commission.

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