March 29 (Bloomberg) -- In good years, DC-8 cargo planes used to land at the airport in Medford, Oregon, to haul away Royal Riviera pears, Moose Munch caramel popcorn and fruit baskets from Harry & David Holdings Inc.
The aircraft started arriving before the December holidays, when the company shipped most of its products, said Bill Hoke, Medford’s deputy city manager.
Hoke doesn’t recall seeing any of the cargo planes last year. Sales at Harry & David, controlled by New York buyout firm Wasserstein & Co., began to slump in 2008 as people cut back on sending gifts during the recession. The company, whose orchards have been a Medford fixture for more than a century, filed for bankruptcy protection yesterday after failing to make interest payments on about $200 million of debt.
The move has Hoke and other Medford residents wondering what will become of the region’s largest seasonal employer. Each fall, Harry & David hires 6,000 workers to help its permanent staff of 2,000 pick, pack and send fruit around the world.
“They pay on the lower end of the scale, but a lot of people depend on that second job,” Hoke said.
People return year after year to jobs at the company, Hoke said, squeezing in shifts around regular jobs or helping a main breadwinner stockpile cash for the holidays.
These days, extra cash is in short supply in Medford, a town of 73,000 that straddles I-5 in southern Oregon. The unemployment rate there stood at 12.9 percent in January, according to the U.S. Labor Department, compared with 11.1 percent for Oregon as a whole and 9 percent for the U.S.
“The last couple of years were brutal,” said David Thorndike, vice president of marketing at Medford Fabrication CSC Inc., which makes metal components for power plants and attachments for earthmovers and other construction equipment. “There’s not a whole lot of positive news for industry around here.”
Peter Buckley, a Democratic state representative whose district includes the Medford area, places blame for the bankruptcy squarely at the feet of Wasserstein & Co. The buyout firm, founded by the late Bruce Wasserstein, bought Harry & David in 2004 from Yamanouchi Pharmaceutical Co., then Japan’s third-largest drugmaker. It paid about $230 million.
In 2005, Wasserstein sold $245 million of bonds in Harry & David, paid off debt from the takeover, and paid an $82.6 million dividend to itself and other investors in the deal, according to regulatory filings from the company. Later that year, they took out another $19 million. Wasserstein and others had put up $82 million in cash for the purchase.
“They recouped their investment,” Buckley said in an interview. “They made millions. It was an unfortunate decision for them to gamble with so many people’s lives.”
Wasserstein had no comment on the bankruptcy, said Stephanie Pillersdorf, an outside representative of the firm at Sard Verbinnen & Co.
Some Harry & David employees did well before the bankruptcy, too. The company set aside $605,000 for executive officers and “key employees” as part of a management retention plan, according to a regulatory report filed on Feb. 24, just a month before the company sought protection from creditors. Selected employees will receive cash payments equal to 13 percent to 29 percent of their salaries, the company said.
Harry & David’s sales for the fiscal year ended June 26, 2010, fell 13 percent to $426.8 million from the previous year. They were down 24 percent from fiscal 2007, before the financial crisis and recession hit.
The company’s loss widened to $39.2 million in fiscal 2010 from $20.2 million a year earlier. It earned $4.6 million in fiscal 2008.
“It does seem like they’re the top of the discretionary list” for consumer purchases, so Harry & David would be vulnerable in a recession, said Joe Feldman, a retailing analyst at Telsey Advisory Group in New York.
Harry & David has been a fixture in town since Harry and David Rosenberg took over the family pear orchards after their hotelier father’s death in 1914. During the Depression, they began pitching their Comice pears to business leaders as gifts, according to the company’s website. Harry & David introduced its Fruit-of-the-Month Club in 1938.
In Medford, the local baseball stadium -- a venue used by high school players -- is called Harry & David Field.
“It’s a fantastic facility,” said Brad Hicks, chief executive officer of the Medford/Jackson County chamber of commerce. “Harry & David has been a cornerstone of our community.”
In recent years, the company moved away from its expertise in fruit and began to sell wine, chocolate and flowers. It also opened more than 100 stores and bought smaller competitors. In 2008, under Wasserstein’s watch, it took over Cushman Fruit Co., which started in 1945 as a single store in West Palm Beach, Florida, and grew into a mail-order shipper.
“They may have tried to get into the retail store strategy too aggressively,” Feldman said.
Now the fate of Harry & David is in the hands of turnaround expert Kay Hong from Alvarez & Marsal, a corporate restructuring company in New York. Hong, a graduate of Harvard Business School, replaced Steven Heyer as CEO in February.
Heyer had run Harry & David for a just a year. Previously he was president and chief operating officer at Coca-Cola Co. and Turner Broadcasting System Inc. and was CEO of Starwood Hotels & Resorts Worldwide Inc., which ousted him in 2007 after he clashed with the company’s directors. He’s also a founder of Avra Kehdabra Animation LLC, a computer animation studio company.
Heyer didn’t return a message seeking comment that was left at his home in Atlanta.
Hicks of the chamber of commerce is asking people in Medford to support Harry & David as it goes through its reorganization.
“I’m encouraging everyone in our community to go buy some more Moose Munch,” he said.
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