(Troubled Company Reporter - Feb. 11, 2011
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Harry & David Holdings, Inc., filed its quarterly report on Form
10-Q, disclosing that it was unable to maintain a sufficient
available cash balance at December 31, 2010, and to maintain a
minimum fixed charge coverage ratio under its $105 million
revolving credit facility and, as a result, the Company will not
be able to borrow under the facility unless it is amended or the
financial covenant non-compliance is waived.
The Company reported net income of $13.8 million on $262.1 million
of sales for the thirteen weeks ended December 25, 2010, compared
with net income of $31.7 million on $267.0 of sales for the
thirteen weeks ended December 26, 2009.
The Company's balance sheet at December 25, 2010, showed
$304.3 million in total assets, $360.8 million in total
liabilities, and a stockholders' deficit of $56.5 million.
"Based on our current working capital and anticipated working
capital requirements, we will not be able to finance continuing
operations including servicing its payment obligations under the
Senior Notes, without securing new capital and restructuring our
obligations. There can be no assurance that our efforts to obtain
new capital and restructure our obligations will be successful;
and therefore, there is substantial doubt as to our ability to
continue as a going concern," the Company said in the filing.
A full-text copy of the Form 10-Q is available for free at:
http://researcharchives.com/t/s?7315
About Harry & David Holdings
Harry & David Holdings, Inc. is a multi-channel specialty retailer
and producer of branded premium gift-quality fruit and gourmet
food products and gifts marketed under the Harry & David(R),
Wolferman's(R) and Cushman's(R) brands. The Company has 122
stores across the country.
Harry & David has said preliminary financial results for the
fiscal 2011 second quarter ended December 25, 2010, were
significantly below its expectations. As a result, Harry & David
said it has retained Rothschild Inc. as financial advisor and
Jones Day as legal advisor to explore recapitalization
alternatives.
The Company also said that, based on results of operations in the
second quarter of this fiscal year, it will not satisfy financial
covenants under its credit facility.
* * *
As reported in the Troubled Company Reporter on January 27, 2011,
Moody's Investors Service downgraded Harry & David's Probability
of Default and Corporate Family ratings to 'Ca' from 'Caa3'. The
ratings outlook is negative.
The downgrade to 'Ca' reflects Moody's view that Harry & David
will likely default on its debt obligations in the very near-term.
The Company recently announced that will not be able to borrow on
its revolver -- a critical source of operating liquidity -- as a
result of covenant violations. Additionally, Harry & David is
facing an estimated $7 million interest payment on March 1, 2011
on its senior unsecured notes, and a substantial scheduled debt
maturity in March 2012 when the Company's $58 million senior
unsecured notes mature. As of December 25, 2010, Harry & David
estimated that it had $66.9 million of cash and $57.9 million of
accounts payable.
In January 2011, Standard & Poor's Ratings Services lowered its
corporate credit rating (unsolicited) on Harry & David Operations
Corp. to 'CC' from 'CCC'. The outlook is negative.
Standard & Poor's credit analyst Mariola Borysiak, said "We
believe that Harry & David's current capital structure is
unsustainable and that the Company will seek to restructure its
balance sheet. In our opinion, this could lead to a selective
default or a filing for protection under Chapter 11."
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