Reader's Digest Association, the publisher of the once palm-sized magazine found in countless American bathrooms for generations, is teetering on the edge of bankruptcy. Bloomberg News reported that the publisher has hired the law firm of Kirkland & Ellis to "explore restructuring options." Ninety-nine times out of 100 that means Chapter 11 bankruptcy is only a matter of time.

It's a sad turn of events for the once-venerable media company. But it's hardly a surprise.Pleasantville, NY-based Readers Digest posted an operating loss of $337 million in fiscal 2008, compared with an operating loss of $35 million reported for the same period in 2007.

Surprisingly amidst its financial troubles, this year Readers Digest is launching three new titles, including Fresh Home Magazine, which debuted Feb. 27.

Though international revenue remained robust, sales in the U.S. tumbled amid a decline in advertising revenue at its flagship publication. As of its last SEC filing, Reader's Digest had more than $2 billion in debt.

The company thought it could escape its woes -- which have gone on for years -- by agreeing to sell itself to Ripplewood Holdings Plc in 2007 for $2.6 billion. That was not to be. In January, the company slashed 8 percent of its workforce to save money.

I will always have a soft spot for Reader's Digest. My first job after graduating college was as a reporter at a small daily newspaper in New Jersey. One of my readers sent a story I wrote to the magazine about a bureaucratic snafu I uncovered. The payment from the magazine was a nice addition to my meager wages. Best of all, my grandmother, a devoted Reader's Digest reader, was thrilled.

Not only have I not read the magazine since then, but I don't know anyone who has. I don't even think I have seen anyone buy a Reader's Digest.

But the future is not entirely bleak even though advertising spending remains dreadful. The company was smart enough to partner with TV cook Rachael Ray. Her magazine "Every Day With Rachael Ray" has strong ad sales.

Plus, its websites attract 18 million unique visitors a month. The company will have to boost that figure considerably to remain relevant. If Reader's Digest is to survive, it will have to transform itself into a modern media company that my late grandmother, or many of its other devoted readers, would not recognize.

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