Fern Darwick of Medford worked at Harry & David in the 1950s, when she was paid 85 cents an hour. She and others say they hope the longtime Medford company will survive bankruptcy. - Bob Pennell

Harry & David troubles concern former employees

Former Harry & David employees expressed concerns over its bankruptcy filing Monday and said they hope the 77-year-old gourmet food retailer will be able to survive.

Known worldwide for its fruit-filled gift baskets, the Medford company filed a Chapter 11 deal with creditors in Delaware bankruptcy court to reorganize its finances.

Medford resident Fern Darwick headed down to the Harry & David Country Village to make sure it was still open after hearing the news. Darwick's granddaughter is one of the company's many seasonal workers, she said. Darwick worked under the company's founders, Harry and David Holmes, after graduating from Jacksonville School in 1950.

"I worked 12 hours a day for 85 cents an hour," Darwick said. "I would go into Harry's and David's offices and pick up their mail."

Brad Earl, chief financial officer for the Medford School District, worked at Harry & David from 1999 to September 2007. Earl's tenure occurred during the boom years between the dot-com and real estate bubble collapses. The company reported strong sales and reasonable profits, reaching its apex in fiscal 2007 when revenue topped $561 million with net earnings exceeding $32 million.

"I was the treasurer. The money guy," Earl said. "The company was good. The credit market was good."

Several other former employees contacted by the Mail Tribune declined to discuss the bankruptcy or their experiences at Harry & David. Some stated they were contractually prohibited from making public comments about the company.

One of the last projects Earl worked on was the sale of Jackson & Perkins. The floral business was considered a "break-even" part of the holdings. The roses required two to three years of growth before they could be sold, and they required a lot of land — land that had become very valuable in the real estate boom.

"Harry & David always saw (Jackson & Perkins) as a distraction, a way to offset administrative costs," he said. "The feeling was if they sold (Jackson & Perkins), it would help the cash cow at the time — which was Harry & David."

Then the real estate market drove off the cliff, followed by the meltdown of financial markets and the Great Recession. With billions of dollars sucked out of the economy and millions of people losing their jobs, the ripple effect hit hundreds of businesses hard, including Harry & David.

"The dampening economy really hurt the business," Earl said. "The company is primarily about gifting. As corporations and private parties scrambled to cut their budgets, the effect was devastating."

Back in Darwick's day, corporate orders and gift packages sent to soldiers overseas were a mainstay of the company.

"I think the worst thing (now) is people are not sending baskets overseas to the veterans," she said.

Even though fiscal 2008 — which included Christmas 2007 — still looked good in terms of sales, with the company's second-best-ever revenue total of $545 million, profit tumbled to $4.6 million. That was followed by downward sales and a net spiral that saw losses of $20.2 million in 2009 and $39.2 million 2010. In four years, Harry & David's bottom line had experienced a $71 million decline.

Wasserstein added its own considerable burden to the company by leveraging the operation to make its purchase in 2004, thus ensuring Harry & David would face huge debt repayments for the first time in its history.

Earl said it is easy to point fingers at the out-of-area venture capitalists.

"Looking back, it's easy to go 'shame on them'," Earl said. "The owners, they don't live in the Rogue Valley. It's just another piece of their financial holdings. If the owners were in it for the sake of the company, they wouldn't have drained all the cash out of the business."

As consumers scrimped on the company's luxury gourmet snack offerings, Harry & David had to turn to creditors to prop it up and amassed nearly $200 million in short- and long-term obligations in the process.

As a former banker himself, Earl said those who continued to finance Harry & David, even as it failed to perform, had their own part to play in the financial fiasco.

"All deals are ultimately about getting the investment back," he said. "The bankers, and everybody, kept thinking they'd recover their investment."

As of Monday, the gourmet food retailer had reached agreement with holders of about 81 percent of its senior notes on a reorganization plan that will eliminate most of its debt, the company said in its bankruptcy filing.

"From what I've read, they're basically walking away on a lot of debt," Earl said. "It's obvious they need a certain amount of cash to run the business. And, arguably, there isn't a lot of equity. (The investors) are going on faith the company can turn around, or that they will get pennies on the dollar if it is sold."

At the end of fiscal 2008, Harry & David had expanded its stores to 143 nationwide, but now is down to 70.

"That was an effort to expose the brand to new customers," said Earl, adding he had visited a new Harry & David store in Houston.

"The store looks fantastic," Earl said. "There's only one thing missing — customers."

Harry & David said it has approximately 1,950 full-time employees throughout its operation. No additional "wide scale" layoffs are planned, said Cassandra Bujarski, a spokesperson for Sard Verbinnen & Co., a New York public relations firm and adviser on acquisitions and mergers.

If the bankruptcy leads to new restructuring and/or new owners, Earl and Darwick both said they hope the company remains in the Rogue Valley.

"Right now it might be a smokin' deal," Earl said. "Somebody in the gifting business, like 1-800-Flowers, might snap it up."

Harry & David has a long history in this valley, Earl and Darwick said, and it should remain where it was born.

"It's weathered anthrax scares and 9/11," Earl said. "I hope they can push this through. We really need this company in the Rogue Valley. People are losing their jobs. Houses are being foreclosed on."

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