Even as an army of accountants and lawyers plot Harry & David's future — analyzing the potential impact of every move — some are saying the company's owners stayed the course too long for their own good.

Even as an army of accountants and lawyers plot Harry & David's future — analyzing the potential impact of every move — some are saying the company's owners stayed the course too long for their own good.

Renee Fellman, principal of Portland turnaround firm Renee Fellman & Associates, asserts Wasserstein & Co. should have made dramatic changes at the top, long before the Medford-based gourmet food and gift company fired its long-time chief executive officer, Bill Williams.

"Wasserstein's biggest blunder was waiting too long to replace Harry & David's CEO," Fellman said. "In spite of plunging profits in '08 and '09, Wasserstein waited until February 2010 to replace Bill Williams. Somewhere in there, they should have made a change and required a change in strategy."

Fellman has steered more than 30 companies clear of bankruptcy, taking on the role of interim CEO for 19 of them. She earned the Turnaround of the Year Award from the 9,000-member Turnaround Management Association in 1997 for her part in keeping Prepared Media Laboratories, a $120 million firm in Tualatin, out of bankruptcy.

"People who do not have much experience in running troubled companies, who have always been successful, think whatever steps they take will fix the problem," Fellman said. "Private equity firms are often loyal to the people they've selected and they really waited too long to bring Steve (Heyer) in."

Harry & David said in mid-January that it had hired Rothschild Inc. as a financial adviser, and Jones Day, a legal adviser, for its reorganization efforts. Recent activity suggests a Chapter 11 filing is forthcoming.

"Companies never want to file for bankruptcy until they have settled on an exit strategy," said Portland bankruptcy attorney Steve Hedberg, with Perkins Coie. "Otherwise they are going to be liquidated."

In the boom years between the dot-com and real-estate bubble collapses, it was hard for outsiders to detect operational issues at Harry & David Holdings and its predecessor Bear Creek Corp.

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.

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 in the financial solar plexus, including Harry & David. 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, thus ensuring Harry & David would face huge debt repayments for the first time in its history.

Now the Rogue Valley icon is facing a financial chasm and likely headed to Chapter 11 reorganization unless it can find a way to make a $7 million bond interest payment on March 1.

"When they hired Rothschild and Jones Day, they started looking at the various options," said Al Kennedy, a partner at the Portland law firm of Tonkon Torp.

Those options include negotiating with lenders to restructure loans — lower interest rates, payment reductions, lowering the principal — "or a combination of all those things," Kennedy said.

Because Harry & David is registered as a Delaware company — as are many major corporations for tax reasons — he predicted Chapter 11 protection will be sought in Delaware. "They analyze merger partners or the potential to sell the company," he said "Finally, they model the reorganization plan to see what the company is capable of doing with restructured debt and whether they can propose a plan of reorganization that satisfies (the bankruptcy code)."

Part of the reorganization plan involves establishing preferred or critical vendors, needed to help the company operate after it exits bankruptcy. Growers are among that class.

"Since that is a key to their continued survival, I'm sure they've been careful to maintain those relationships," Kennedy said.

On the other hand, he said, unsecured creditors whose products or services can be easily replaced aren't likely to be on the preferred list.

The major issue in restructuring the debt, Hedberg said, is how willing bondholders will be to adjust interest rates and payout time. "My guess is that Harry & David has already telegraphed its plan," Hedberg said.

While the time has come and gone to fix the company on the front end, Fellman thinks there are plenty of ways to improve a revamped Harry & David.

"Customer service matters today more than it used to," Fellman said. "That's one benefit of the recession: companies are paying more attention because they actually need customers now."

She said both Fruit of the Month Club and Moose Munch customers, as well as the rank-and-file employees selling them, should be surveyed. "Employees know these things," she said. "They know what's going on in the front lines, and that can be very revealing."

Reach reporter Greg Stiles at 541-776-4463 or e-mail business@mailtribune.com.