Harry & David to explore recapitalization for needed operating capital

By Caroline Salls

Pittsburgh, Jan. 18 - Harry & David Holdings, Inc. has hired Rothschild Inc. as its financial adviser and Jones Day as legal adviser to explore recapitalization alternatives after its preliminary financial results for the quarter ended Dec. 25 fell "significantly below" expectations, according to a company news release.

Based on results of operations in the quarter in question, the company said it will not satisfy financial covenants under its revolving credit facility and will not be able to borrow on the facility unless it is amended or the non-compliance is waived.

While it believes cash on hand is sufficient to fund short-term operations, Harry & David will not be able to finance its continuing operations without securing new capital and restructuring its debt based on its current working capital and anticipated working capital requirements and results of operations.

The company said it plans to hold discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize.

While final results of operations are not expected to be available until early next month, Harry & David said it expects to report $262 million of second-quarter net sales, compared with $267 million in the same period last year, and adjusted EBITDA from continuing operations of $36 million, compared to $67 million a year ago.

Despite making product improvements, introducing new packaging, accelerating marketing initiatives, enhancing Harry & David's website and taking cost-reduction actions, the company said sales and margins for the quarter were disappointing.

Harry & David said it was forced to offer significantly greater than expected discounts during the key holiday selling season.

As of Dec. 25, the company had an estimated cash balance of $66.9 million and accounts payable of $57.9 million, compared with a cash balance of $108.5 million and accounts payable of $32.5 million at Dec. 26, 2009.

Harry and David is a Medford, Ore.-based gourmet food and fruit gifts purveyor.

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