<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-20802
CELEBRITY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1289223
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Physical Delivery Address:
4520 Old Troup Road
Tyler, Texas 75707
Mailing Address:
P.O. Box 6666
Tyler, Texas 75711
(903) 561-3981
(Address, including zip code, of principal executive
offices and registrant's telephone number, including area
code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
The registrant had 1,544,166 shares of Common Stock, par value $.01 per share,
outstanding as of February 11, 2000.
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page
----
<S> <C> <C>
Condensed Consolidated Balance Sheets at
December 31, 1999 and June 30, 1999
(Unaudited)...............................................................................2
Condensed Consolidated Statements of Operations
for the three months ended
December 31, 1999 and 1998 (Unaudited)....................................................3
Condensed Consolidated Statements of Operations
for the six months ended
December 31, 1999 and 1998 (Unaudited)....................................................4
Condensed Consolidated Statements of Cash
Flows for the six months ended
December 31, 1999 and 1998 (Unaudited) ..................................................5
Notes to Condensed Consolidated Financial
Statements (Unaudited)....................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................................7
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<S> <C> <C>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .....................................12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................................................13
SIGNATURES...............................................................................14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
CELEBRITY, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 558
Accounts receivable, net 10,025 13,157
Inventories 26,224 18,847
Other current assets 2,789 2,752
------------ ------------
Total current assets 39,038 35,314
Property, plant and equipment, net 9,026 9,479
Other assets 1,422 1,478
------------ ------------
Total assets $ 49,486 $ 46,271
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,692 $ 6,800
Accrued expenses 2,554 2,270
Current portion of long-term obligations 1,701 1,200
------------ ------------
Total current liabilities 12,947 10,270
Long-term obligations, net of current portion 27,219 27,083
------------ ------------
Total liabilities 40,166 37,353
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock 15 15
Paid-in capital 21,577 21,577
Accumulated deficit (12,196) (12,640)
Accumulated other comprehensive loss (76) (34)
------------ ------------
Total shareholders' equity 9,320 8,918
------------ ------------
Total liabilities and shareholders' equity $ 49,486 $ 46,271
============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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CELEBRITY, INC.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 21,454 $ 25,986
------------ ------------
Costs and operating expenses:
Cost of goods sold 15,537 18,903
Selling expenses 930 1,384
General and administrative expenses 3,923 3,986
Depreciation and amortization 360 374
------------ ------------
Total expenses 20,750 24,647
------------ ------------
Operating income 704 1,339
Interest expense, net (960) (966)
Other, net 448 25
------------ ------------
Income before income taxes 192 398
Provision for income taxes 133 168
------------ ------------
Net income $ 59 $ 230
------------ ------------
Other comprehensive income, net of tax:
Foreign currency translation adjustments (14) 2
------------ ------------
Other comprehensive income, net of tax 45 232
============ ============
Basic and diluted income per share $ 0.04 $ 0.15
============ ============
Basic weighted average common shares outstanding 1,544 1,573
============ ============
Diluted weighted average common shares outstanding 1,555 1,573
============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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CELEBRITY, INC.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended December 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 48,277 $ 53,112
------------ ------------
Costs and operating expenses:
Cost of goods sold 35,426 39,263
Selling expenses 1,904 2,546
General and administrative expenses 8,142 8,420
Depreciation and amortization 725 786
------------ ------------
Total expenses 46,197 51,015
------------ ------------
Operating income 2,080 2,097
Interest expense, net (1,773) (1,914)
Other, net 464 54
------------ ------------
Income before income taxes 771 237
Provision for income taxes 327 247
------------ ------------
Net income (loss) $ 444 $ (10)
------------ ------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (42) (1)
------------ ------------
Other comprehensive income (loss), net of tax 402 (11)
============ ============
Basic and diluted income (loss) per share $ 0.29 $ (0.01)
============ ============
Basic weighted average common shares outstanding 1,544 1,573
============ ============
Diluted weighted average common shares outstanding 1,557 1,573
============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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CELEBRITY, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 444 $ (10)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 725 786
Changes in operating assets and liabilities:
Accounts receivable 3,132 2,649
Inventories (7,377) 391
Other assets, net (65) 523
Accounts payable and accrued expenses 2,176 (1,481)
------------ ------------
Net cash provided by (used in) operating activities (965) 2,858
------------ ------------
Investing activities:
Additions to property and equipment (199) (668)
Other 11 --
------------ ------------
Net cash used in investing activities (188) (668)
------------ ------------
Financing activities:
Net proceeds from (payments on) credit facility 1,644 (1,000)
Proceeds from long-term obligations 367 500
Payments on long-term obligations (1,374) (1,828)
Other (42) 11
------------ ------------
Net cash provided by (used in) financing activities 595 (2,317)
------------ ------------
Decrease in cash (558) (127)
Cash and cash equivalents at beginning of period 558 127
------------ ------------
Cash and cash equivalents at end of period $ -- $ --
============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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CELEBRITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE BUSINESS AND BASIS OF PRESENTATION
Description of Business
Celebrity, Inc. ("Celebrity" or the "Company") is a supplier of high
quality artificial flowers, ficus trees and plants, and other decorative
accessories to mass-market retailers, craft store chains, wholesale florists and
other retailers throughout North America and Europe. Celebrity imports and/or
produces over 14,000 home accent, decorative accessory and giftware items,
including artificial floral arrangements, floor planters and trees, and a broad
line of seasonal items such as Christmas trees, wreaths, garlands and other
ornamental products.
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of
Celebrity and its wholly-owned subsidiaries, Celebrity Exports International
Limited ("Celebrity Hong Kong"), The Cluett Corporation ("Cluett"), and Star
Wholesale Florist, Inc. ("Star Wholesale"). All intercompany accounts and
transactions have been eliminated.
The accompanying Condensed Consolidated Financial Statements are
unaudited and, in the opinion of management, reflect all adjustments that are
necessary for a fair presentation of the financial position and results of
operations for the periods presented. All of such adjustments are of a normal
and recurring nature. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the entire year.
The Condensed Consolidated Financial Statements should be read in conjunction
with the financial statement disclosures contained in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999.
2. INVENTORY
Inventories are valued at the lower of average cost or market. The
Company establishes valuation reserves for slow moving, discontinued or obsolete
products. The amounts of the valuation reserves are determined by estimating the
amount of markdown required to value those products at fair market value. The
composition of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ------------
<S> <C> <C>
Raw materials $ 10,831 $ 6,663
Finished goods 16,041 13,026
Less: Inventory reserves (648) (842)
------------ ------------
$ 26,224 $ 18,847
============ ============
</TABLE>
3. EARNINGS (LOSS) PER SHARE
The Company calculates earnings (loss) per share pursuant to Statement
of Financial Accounting Standards No. 128, Earnings per Share. Basic earnings
(loss) per share are computed by dividing net income (loss) by the weighted
average number of common shares outstanding. Diluted earnings (loss) per share
are computed by dividing net income (loss) by the weighted average number of
common shares and dilutive potential common shares outstanding.
For the quarter ended December 31, 1999, common share equivalents
related to shares issuable upon the exercise of stock options were 10,902
shares. Options to purchase 149,725 shares of Common Stock and a warrant to
purchase 25,000 shares of Common Stock were excluded from the diluted earnings
per share calculation because their exercise prices were greater than the
average market price of the Common Stock. For the quarter ended December 31,
1998 all outstanding options and warrants were excluded from the earnings per
share calculation because their exercise
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prices were greater than the average market price of the Common Stock. For the
six-month period ended December 31, 1999, common share equivalents related to
shares issuable upon exercise of stock options were 12,755 shares. Outstanding
options and warrants were excluded from the diluted loss per share calculations
for the six-month period ended December 31, 1998 because their inclusion would
be antidilutive due to the net losses incurred for the period.
4. CREDIT FACILITY
On October 28, 1999, the Company and its lender amended the Company's
credit facility to provide a $1.5 million seasonal bridge advance. The initial
term of the bridge advance was 90 days, but the term was subsequently extended
through June 15, 2000, with monthly reductions of $300,000 beginning February
15, 2000. The advance bears interest at 12.5% per annum. The purpose of the
advance was to fund seasonal inventory increases. The advance was guaranteed by
RHP Management LLC (an entity controlled by Robert H. Patterson, Jr., the
Company's Chairman and Chief Executive Officer). RHP Management LLC also
provided a letter of credit to the lender in the amount of $375,000 as
additional security.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, financial condition and prospects of Celebrity. The actual
results of operations of Celebrity could differ materially from those indicated
by the forward-looking statements because of various risks and uncertainties,
including without limitation (i) changes in customer demand for the Company's
products at the retail level, (ii) trends in the retail and wholesale decorative
accessories industries, (iii) inventory risks attributable to possible changes
in customer demand, compounded by extended lead times in ordering the Company's
products from overseas suppliers and the Company's strategy of maintaining a
high merchandise in stock percentage, (iv) the effects of economic conditions,
including the economic instability in the Far East, (v) supply and/or shipment
constraints or difficulties, (vi) the impact of competitors' pricing, (vii) the
effects of the Company's accounting policies, (viii) changes in foreign trade
regulations, including changes in duty rates, possible trade sanctions, import
quotas and other restrictions imposed by U.S. and foreign governments, (ix) the
effects of the assumption of control over Hong Kong by the People's Republic of
China (the "PRC") on July 1, 1997, (x) risks associated with a heavy reliance on
products coming from manufacturers in the PRC, (xi) currency risks, including
changes in the relationship between the U.S. dollar and the Hong Kong dollar,
and (xii) other risks detailed in the Company's other Securities and Exchange
Commission filings. These risks and uncertainties are beyond the ability of the
Company to control, and in many cases, the Company cannot predict the risks and
uncertainties that could cause its actual results to differ materially from
those indicated by the forward-looking statements. When used herein, the words
"believes," "expects," "plans," "intends" and similar expressions as they relate
to the Company or its management generally are intended to identify
forward-looking statements.
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RESULTS OF OPERATIONS
The following table sets forth certain items in the condensed
consolidated statements of operations of Celebrity expressed as percentages of
net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31, December 31,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
-------- -------- -------- --------
Costs and operating expenses:
Cost of goods sold 73% 73% 73% 74%
Selling expenses 4% 5% 4% 5%
General and administrative expenses 18% 15% 17% 16%
Depreciation and amortization 2% 2% 2% 1%
-------- -------- -------- --------
Total expenses 97% 95% 96% 96%
-------- -------- -------- --------
Operating income 3% 5% 4% 4%
Interest expense, net (4)% (3)% (3)% (4)%
Other, net 2% -- 1% --
-------- -------- -------- --------
Income (loss) before income taxes 1% 2% 2% --
Provision for income taxes 1% 1% 1% --
-------- -------- -------- --------
Net income (loss) -- 1% 1% --
======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999, COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1998
Net sales decreased 17.4% from $26.0 million in the second quarter of
fiscal 1999 to $21.5 million in the second quarter of fiscal 2000. The primary
factor resulting in the sales decrease in the quarter was reduced shipments from
the Company's Hong Kong subsidiary. Shipments last year were affected by a
shortage of shipping containers, which delayed revenues from the first quarter
to the second quarter in the prior year. This year the Company was able to
maintain a more orderly flow of shipments because of the increased availability
of shipping containers.
Cost of goods sold decreased 17.8% from $18.9 million in the second
quarter of fiscal 1999 to $15.5 million in the second quarter of fiscal 2000.
The decrease was attributable to the lower sales volume. Cost of goods sold as a
percentage of net sales was 72.4% in the second quarter of fiscal 2000, compared
with 72.7% in the prior year period.
Selling expenses decreased from $1.4 million in the second quarter of
fiscal 1999 to $0.9 million in the second quarter of fiscal 2000. The decrease
was attributable to restructuring of the sales and marketing departments and
expense reductions implemented in the third and fourth quarters of fiscal 1999.
Selling expenses as a percentage of net sales were 4.3% in the second quarter of
fiscal 2000, compared with 5.3% in the prior year period.
General and administrative expenses decreased from $4.0 million in the
second quarter of fiscal 1999 to $3.9 million in the second quarter of fiscal
2000. General and administrative expenses as a percentage of net sales were
18.3% in the second quarter of fiscal 2000, compared with 15.3% in the prior
year period.
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Depreciation and amortization expense of $360,000 in the second quarter
of fiscal 2000 decreased from $374,000 in the second quarter of fiscal 1999. The
decrease was primarily attributable to assets becoming fully depreciated during
the interim periods.
Interest expense of $960,000 in the second quarter of fiscal 2000 was
comparable to interest expense of $966,00 in the second quarter of fiscal 1999.
Interest expense as a percentage net sales was 4.5% in the second quarter of
fiscal 2000, compared with 3.7% in the prior year period.
Other income of $448,000 in the second quarter of fiscal 2000 increased
from $25,000 in the second quarter of fiscal 1999. Other income in the second
quarter of fiscal 2000 included $331,000 from the settlement of an insurance
claim. Other income as a percentage of net sales was 2.1% in the second quarter
of the fiscal 2000, compared with 0.1% in the prior year period.
Provision for income taxes of $133,000 in the second quarter of fiscal
2000 decreased from $168,000 in the second quarter of fiscal 1999. The tax
provisions recognized in both periods were principally related to foreign
operations and the decrease in the provision was related to decreased income
from foreign operations.
SIX MONTHS ENDED DECEMBER 31, 1999, COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1998
Net sales decreased 9.1% from $53.1 million in fiscal 1999 to $48.3
million in fiscal 2000. The sales decrease was attributable to (i) lower sales
of The Cluett Corporation, a wholly-owned subsidiary of the Company ("Cluett"),
which had a sales decline to customers in the discount/mass-market retail
segment, (ii) lower sales in the Company's domestic floral division, due in part
to customer bankruptcies, and (iii) lower sales of decorative metal products
resulting from the Company's June 1998 decision to exit the India Exotics
decorative metal products business.
Cost of goods sold decreased from $39.3 million in fiscal 1999 to $35.4
million in fiscal 2000. The decrease was primarily attributable to the lower
sales volume in fiscal 2000. Cost of goods sold as a percentage of net sales
decreased from 73.9% in fiscal 1999 to 73.4% in fiscal 2000. The lower cost of
goods sold percentage in fiscal 2000 was attributable to a mix of higher margin
products, primarily resulting from the Company's decision to exit the India
Exotics business.
Selling expenses decreased from $2.5 million in fiscal 1999 to $1.9
million in fiscal 2000. The decrease was attributable to restructuring of the
sales and marketing departments and expense reductions implemented in the third
and fourth quarters of fiscal 1999. Selling expenses as a percentage of net
sales were 4.8% in fiscal 1999, compared with 3.9% in fiscal 2000.
General and administrative expenses decreased from $8.4 million in
fiscal 1999 to $8.1 million in fiscal 2000. General and administrative expenses
as a percentage of net sales were 16.9% in fiscal 2000, compared with 15.9% in
the prior year.
Depreciation and amortization expense of $725,000 in fiscal 2000
decreased from $786,000 in the prior year. The decrease was primarily
attributable to assets becoming fully depreciated during the interim periods.
Interest expense of $1.8 million in fiscal 2000 decreased from $1.9
million in the prior year. Interest expense as a percentage net sales was 3.7%
in the second quarter of fiscal 2000, compared with 3.6% in the prior year.
Other income of $464,000 in fiscal 2000 increased from $54,000 in the
prior year. Other income in fiscal 2000 included $331,000 from the settlement of
an insurance claim. Other income as a percentage of net sales was 1.0% in fiscal
2000, compared with 0.1% in the prior year.
Provision for income taxes of $327,000 in fiscal 2000 increased from
$247,000 in the prior year. The tax provisions recognized in both periods were
principally related to foreign operations and the increase in the provision was
related to increased income from foreign operations.
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LIQUIDITY AND CAPITAL RESOURCES
Celebrity's sales and marketing strategy has required significant
investment in inventory and receivables. The Company follows the industry
practice of offering extended terms to qualified customers for sales of
Christmas merchandise. These sales generally take place between the months of
June and October on terms not requiring payment until December 1. The Company
has traditionally relied on borrowings under its revolving credit facility and
cash flows from operations to fund these and other working capital needs.
The Company maintains a revolving credit facility for its Celebrity,
Cluett, Color Concepts, Star Wholesale and Value Florist operations. Borrowing
limits under the revolving credit facility are based on specified percentages of
eligible accounts receivable and inventories. As a result of such limits, the
maximum amount the Company was eligible to borrow at December 31, 1999, was
$22.0 million, and the amount outstanding under the revolving credit facility
was $21.4 million. In addition to the revolving credit facility, the lender made
a term loan to the Company in the original principal amount of $3.5 million. The
term loan was payable in monthly installments of principal of $200,000 that
began May 1, 1998. Interest on the outstanding balance under the revolving
credit facility was at a reference bank's prime rate of interest plus .25% per
annum, and interest on the outstanding balance of the term loan was at a rate of
12.5% per annum. In July 1999, the Company entered into an amended and restated
agreement with the lender whereby the following changes, among others, were
made: (i) the term of the revolving credit facility was extended from January
2001 to July 2002, (ii) the interest rate charged by the lender was reduced to
prime plus applicable percentages, ranging from 0% to 0.5%, based on specified
EBITDA requirements, (iii) the financial ratio covenants were reset and (iv)
monthly fees were reduced from $15,000 to $2,000. In addition, the remaining
outstanding balance on the term loan was paid in full. Amounts borrowed under
the revolving credit facility are secured by accounts receivable, inventory,
equipment, and general intangibles (including intellectual property) of
Celebrity and its subsidiary borrowers. Substantially all stock of the Company's
subsidiaries has been pledged to the lender. The revolving credit facility
contains covenants limiting the incurrence of indebtedness, prohibiting the
payment of dividends and requiring the Company to maintain certain financial
ratios. The Company was in compliance with all covenants of the revolving credit
facility at December 31, 1999.
On October 28, 1999, the Company and its lender amended the Company's
credit facility to provide a $1.5 million seasonal bridge advance. The initial
term of the bridge advance was 90 days, but the term was subsequently extended
through June 15, 2000, with monthly reductions of $300,000 beginning February
15, 2000. The advance bears interest at 12.5% per annum. The purpose of the
advance was to fund seasonal inventory increases. The advance was guaranteed by
RHP Management LLC ("RHP"), an entity controlled by Robert H. Patterson, Jr.,
the Company's Chairman and Chief Executive Officer ("RP"). RHP also provided a
letter of credit to the lender in the amount of $375,000 as additional security.
The January 2000 amendment to the credit facility also contains provisions
permitting the Company to borrow and repay, from time to time, up to $1.0
million from RHP.
Celebrity Hong Kong generally makes full cash payments for products
ordered for Celebrity's account or for direct shipment to customers after the
manufacturers deliver products in Hong Kong for export. Celebrity Hong Kong
finances cash payments to its vendors through export credit facilities
established with three Hong Kong banks, each of which is guaranteed by the
Company. Generally, under the terms of these facilities each bank finances, with
recourse, export bills for specific shipments by Celebrity Hong Kong to its
customers. Each bank is reimbursed when payment is received for shipments it has
financed. At December 31, 1999, an aggregate of $1.8 million of export bills was
financed by the three banks. All of these export bills were related to direct
shipments to customers and Celebrity Hong Kong's related potential recourse
liability was accounted for as a contingent obligation. Covenants under the
Company's revolving credit facility restrict the aggregate amount of export
bills that may be financed under the export credit facilities to $7.0 million.
Celebrity Hong Kong has borrowed working capital from RP for short-term working
capital needs from time to time. At December 31, 1999 no such borrowings were
outstanding. At February 11, 2000, however, $500,000 of such borrowings were
outstanding, accruing interest at 10% per annum.
In June 1997, the Company entered into a revolving credit facility with
an additional lender, which was scheduled to mature in June 2004. Amounts
borrowed under the facility were secured by certain real estate owned by the
Company, with interest accruing at the rate of LIBOR plus 2.65% per annum. In
April 1999 the Company executed the necessary documents to sell the real estate
that secured the revolving credit facility to Crest Properties, Ltd., a Texas
limited partnership ("Crest") (an entity controlled by Robert H. Patterson, Jr.,
Chairman of the Board, President and Chief Executive Officer of the Company),
for $7,500,000. As part of the same transaction, the properties were leased back
to the Company. The same lender provided similar financing for Crest, requiring
the guarantee of the Company
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<PAGE> 12
and Mr. Patterson. Due to the continuing involvement of the Company in the
financing and the related party control of Crest, the sale-leaseback was
accounted for as a financing lease, by recording the sales proceeds as a
liability and recording future rental payments, exclusive of an interest
portion, as a reduction of the liability in accordance with Statement of
Financial Accounting Standard No. 98, Accounting for Leases.
In September 1997, the Company borrowed $500,000 from RHP. The
principal amount outstanding accrued interest at a fluctuating rate per annum
equal to RHP's cost of borrowing, which was the prime rate of a reference bank
plus 1.5% per annum. The proceeds from this loan were used to pay certain
intercompany accounts payable to Celebrity Hong Kong. In July 1998, the Company
borrowed an additional $500,000 from RHP for seasonal working capital needs,
which accrued interest at 10% per annum. In April 1999, a portion of the
proceeds from the sale-leaseback transaction was utilized to pay the principal
and accrued interest due RHP for these loans.
The Company does not plan to make any significant capital expenditures
in fiscal 2000 other than those incurred in the normal course of business for
facilities and equipment, and those in connection with the Company's continuing
program to upgrade its management information systems.
The Company's products are primarily sourced in the Far East, with a
majority produced in the PRC. The Company's source or cost of supply could be
affected by a variety of factors, including general economic conditions in the
Far East, changes in currency valuations, export credit availability, freight
carrier availability and cost, and U.S. trade policy and law related to imports.
If the U.S. government were to terminate normal trading relations status for the
PRC or impose punitive tariff rates on products imported by the Company in
retaliation for market access barriers in the PRC, the duty on products imported
by the Company from the PRC would increase significantly. If the Company were to
face an increase in product cost from any of these factors, it would (i) attempt
to increase the prices charged to its customers, (ii) ask its suppliers to
reduce the prices charged to the Company and (iii) seek to identify more
favorable sources; however, unless and until these efforts were successful, the
Company's results of operations could be affected adversely.
The Company believes that its current financial position, credit
facilities and cash flows from operations will be adequate to fund its
operations and expansion plans for the foreseeable future. There is no
assurance, however, that these sources will be sufficient to fund its operations
or that any necessary additional financing will be available, if at all, in
amounts required or on terms satisfactory to the Company.
YEAR 2000 PROJECT
In 1997 the Company began the process of identifying, evaluating and
implementing changes to its critical computer programs and equipment to address
the year 2000 issue. The project plan included discovery, assessment,
remediation, system testing, contingency planning and internal certification.
The Company successfully completed its year 2000 rollover without any
mission-critical information technology or non-information technology system
disruptions. The Company is not aware of any year 2000-related problems with
third-party vendors of mission-critical information technology systems. However,
it will continue to maintain contingency plans with respect to its third-party
vendor relationships.
Although the year 2000 event has occurred, there can be no assurance
that there will be no problems related to the year 2000 for a period of time
after January 1, 2000. If year 2000 issues are not adequately addressed, the
Company could face, among other things, business disruptions, operational
problems, financial losses, legal liability and similar risks, and the Company's
business, results of operations and financial position could be materially
adversely affected.
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<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of shareholders on November 9,
1999. The following are the results of the matters voted upon at the meeting:
(a) With respect to the election of directors whose terms will expire
in 2000, shares were voted as follows:
<TABLE>
<CAPTION>
Robert H. Richard B.D. C.A. Valerie Anne
Patterson, Jr. Yuen Hunter Langner Mars
<S> <C> <C> <C> <C> <C>
For 1,381,066 1,381,554 1,382,954 1,382,954 1,382,854
Withheld 24,248 23,760 22,360 22,360 23,460
--------- --------- --------- --------- ---------
Total 1,405,314 1,405,314 1,405,314 1,405,314 1,405,314
========= ========= ========= ========= =========
</TABLE>
(b) With respect to the ratification of the selection of
PricewaterhouseCoopers LLP as the Company's independent auditors for the 2000
fiscal year, shares were voted as follows:
<TABLE>
<S> <C>
For ........................................... 1,394,466
Against ....................................... 8,073
Abstentions ................................... 2,775
</TABLE>
-12-
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Amendment Number Two to Amended and Restated Loan and Security
Agreement dated January 31, 2000, by and among Foothill
Capital Corporation and Registrant and certain of its
subsidiaries.
27 Financial Data Schedule (1).
(b) Reports on Form 8-K:
None
- -------------------
(1) Included with EDGAR version only.
-13-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CELEBRITY, INC.
Dated: February 11, 2000 By: /s/ Robert H. Patterson, Jr.
------------------------------------------------
Robert H. Patterson, Jr., Chairman of the Board,
President and Chief Executive Officer
(Authorized Officer)
Dated: February 11, 2000 By: /s/ Lynn Skillen
------------------------------------------------
Lynn Skillen, Vice President - Finance
(Principal Financial and Accounting Officer)
-14-
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Amendment Number Two to Amended and Restated Loan and Security
Agreement dated January 31, 2000, by and among Foothill
Capital Corporation and Registrant and certain of its
subsidiaries.
27 Financial Data Schedule (1).
</TABLE>
- -------------------
(1) Included with EDGAR version only.
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NUMBER TWO TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment Number Two to Amended and Restated Loan and
Security Agreement ("Amendment") is entered into as of January 31, 2000, by and
between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), and
CELEBRITY, INC., a Texas corporation, THE CLUETT CORPORATION, a California
corporation, INDIA EXOTICS, INC., a Texas corporation, VALUE FLORIST SUPPLIES,
INC., a Texas corporation and STAR WHOLESALE FLORIST, INC., a Texas corporation
(collectively "Borrowers"), in light of the following:
FACT ONE: Borrowers and Foothill have previously entered into
that certain Amended and Restated Loan and Security Agreement, dated as of July
15, 1999 (as amended, the "Agreement").
FACT TWO: Borrowers and Foothill desire to amend the Agreement
as provided for and on the conditions herein.
NOW, THEREFORE, Borrowers and Foothill hereby amend and
supplement the Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
2. AMENDMENTS.
(a) The definition of "Bridge Period" in Section 1.1 is
hereby amended to read as follows:
"Bridge Period" means the period beginning on October 28, 1999 through
and including June 15, 2000."
(b) The definition of "Bridge Limit" in Section 1.1 is
hereby amended to read as follows:
"Bridge Limit" means $1,500,000 from October 28, 1999 through February
14, 2000; $1,200,000 from February 15, 2000 through March 14, 2000;
$900,000 from March 15 through April 14, 2000; $600,000 from April 15,
2000 through May 14, 2000; $300,000 from May 15, 2000 through June 14,
2000; and $0 on June 15, 2000 and thereafter."
(c) Notwithstanding Sections 7.1 and 7.8 of the Agreement
to the contrary Borrowers shall be permitted to borrow and repay, from time to
time on an
1
<PAGE> 2
unsecured basis, up to an aggregate amount of $1,000,000 outstanding at any one
time from RHP Management, LLC, a Texas limited liability company.
3. REPRESENTATIONS AND WARRANTIES. Borrowers hereby affirm to
Foothill that all of Borrowers' representations and warranties set forth in the
Agreement are true, complete and accurate in all respects as of the date hereof.
4. NO DEFAULTS. Borrowers hereby affirm to Foothill that no
Event of Default has occurred and is continuing as of the date hereof.
5. CONDITION PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the following:
(a) Payment by Borrowers to Foothill of an amendment fee
in the aggregate amount of $15,000, such fee to be charged to Borrowers' loan
account pursuant to Section 2.6(e) of the Agreement; and
(b) Receipt by Foothill of an executed copy of this
Amendment.
6. COSTS AND EXPENSES. Borrowers shall pay to Foothill all of
Foothill's out-of-pocket costs and expenses (including, without limitation, the
fees and expenses of its counsel, which counsel may include any local counsel
deemed necessary, search fees, filing and recording fees, documentation fees,
appraisal fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
7. LIMITED EFFECT. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the
Agreement, the terms and provisions of this Amendment shall govern. In all other
respects, the Agreement, as amended and supplemented hereby, shall remain in
full force and effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which when so executed and delivered shall be deemed to be an original.
All such counterparts, taken together, shall constitute but one and the same
2
<PAGE> 3
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Victor Barwig
------------------------------------
Title: Vice President
----------------------------
CELEBRITY, INC.,
a Texas corporation
By: /s/ Lynn Skillen
------------------------------------
Title: Vice President
----------------------------
THE CLUETT CORPORATION,
a California corporation
By: /s/ Lynn Skillen
------------------------------------
Title: Vice President
----------------------------
INDIA EXOTICS, INC.,
a Texas corporation
By: /s/ Lynn Skillen
------------------------------------
Title: Vice President
----------------------------
VALUE FLORIST, INC.,
a Texas corporation
By: /s/ Lynn Skillen
------------------------------------
Title: Vice President
----------------------------
STAR WHOLESALE FLORIST, INC.,
a Texas corporation
By: /s/ Lynn Skillen
------------------------------------
Title: Vice President
----------------------------
3
<PAGE> 4
REAFFIRMATION OF GUARANTY
Each of the undersigned has executed a Continuing Guaranty (the
"Guaranty") in favor of Foothill Capital Corporation, a California corporation
("Foothill") respecting the obligations of Celebrity, Inc., a Texas corporation
("Celebrity"), The Cluett Corporation, a California corporation ("Cluett"), Star
Wholesale Florist, Inc. a Texas corporation ("Star"), Value Florist Supplies,
Inc., a Texas corporation ("Value"), and India Exotics, Inc., a Texas
corporation ("India") (Celebrity, Cluett, Star, Value and India are each a
"Borrower" and collectively the "Borrowers") owing to Foothill. Each of the
undersigned acknowledges the terms of Amendment Number Two to Amended and
Restated Loan and Security Agreement, dated as of January 31, 2000, and
reaffirms and agrees that (a) its Guaranty remains in full force and effect, (b)
nothing in such Guaranty obligates Foothill to notify either of the undersigned
of any changes in the financial accommodations made available to Borrowers or to
seek reaffirmations of the Guaranty, and (c) no requirement to so notify either
of the undersigned or to seek reaffirmations in the future shall be implied by
the execution of the reaffirmation.
Dated: January 31, 2000
MAGICSILK, INC.,
a Texas corporation
By: /s/ Lynn Skillen
------------------------------
Name: Lynn Skillen
Title: Vice President
RHP MANAGEMENT, LLC,
a Texas limited liability company
By: /s/ Robert H. Patterson, Jr.
------------------------------
Name: Robert H. Patterson
Title: President
4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,333
<ALLOWANCES> 1,308
<INVENTORY> 26,224
<CURRENT-ASSETS> 39,038
<PP&E> 17,622
<DEPRECIATION> 8,596
<TOTAL-ASSETS> 49,486
<CURRENT-LIABILITIES> 12,947
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 9,305
<TOTAL-LIABILITY-AND-EQUITY> 49,486
<SALES> 48,277
<TOTAL-REVENUES> 48,277
<CGS> 35,426
<TOTAL-COSTS> 46,197
<OTHER-EXPENSES> 464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,773
<INCOME-PRETAX> 771
<INCOME-TAX> 327
<INCOME-CONTINUING> 444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444
<EPS-BASIC> 0.29<F1>
<EPS-DILUTED> 0.29<F1>
<FN>
<F1>FEBRUARY 26, 1999, THE SHAREHOLDERS OF THE COMPANY APPROVED CERTAIN AMENDMENTS
TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION THAT EFFECTED A
FOUR-TO-ONE REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK. THE EFFECTIVE
TIME OF THE REVERSE STOCK SPLIT WAS THE END OF BUSINESS ON FEBRUARY 26, 1999.
PRIOR FINANCIAL DATA SCHEDULES HAVE BEEN RESTATED TO REFLECT THE REVERSE STOCK
SPLIT.
</FN>
</TABLE>
