<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 March 31, 2000
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 May 5, 2000.
<PAGE> 2
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page
----
<S> <C>
Condensed Consolidated Balance Sheets at
March 31, 2000 and June 30, 1999
(Unaudited)....................................... 2
Condensed Consolidated Statements of Operations
for the three months ended
March 31, 2000 and 1999 (Unaudited)............... 3
Condensed Consolidated Statements of Operations
for the nine months ended
March 31, 2000 and 1999 (Unaudited)............... 4
Condensed Consolidated Statements of Cash
Flows for the nine months ended
March 31, 2000 and 1999 (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
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................. 12
SIGNATURES........................................ 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
CELEBRITY, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 558
Accounts receivable, net of allowance of
1,078 and 1,693, respectively 12,585 13,157
Inventories, net 20,958 18,847
Other current assets 2,930 2,752
-------- --------
Total current assets 36,473 35,314
Property, plant and equipment, net 8,900 9,479
Other assets 1,244 1,478
-------- --------
Total assets $ 46,617 $ 46,271
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,153 $ 6,800
Accrued expenses 2,229 2,270
Current portion of long-term obligations 1,614 1,200
-------- --------
Total current liabilities 9,996 10,270
Long-term obligations, net of current portion 27,925 27,083
-------- --------
Total liabilities 37,921 37,353
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock 15 15
Paid-in capital 21,577 21,577
Accumulated deficit (12,783) (12,640)
Accumulated other comprehensive loss (113) (34)
-------- --------
Total shareholders' equity 8,696 8,918
-------- --------
Total liabilities and shareholders' equity $ 46,617 $ 46,271
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-2-
<PAGE> 4
CELEBRITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------
2000 1999
-------- ------
<S> <C> <C>
Net sales $23,532 $25,760
------- -------
Costs and operating expenses:
Cost of goods sold 17,147 18,703
Selling expenses 1,023 1,138
General and administrative expenses 4,558 4,583
Depreciation and amortization 357 422
------- -------
Total expenses 23,085 24,846
------- -------
Operating income 447 914
Interest expense, net (884) (900)
Other, net (123) (39)
------- -------
Loss before income taxes (560) (25)
Provision for income taxes 27 54
------- -------
Net loss $ (587) $ (79)
------- -------
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (37) (4)
------- -------
Other comprehensive loss, net of tax (624) (83)
======= =======
Basic and diluted loss per share $ (0.38) $ (0.05)
======= =======
Basic and diluted weighted average common shares outstanding 1,544 1,544
======= =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 5
CELEBRITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
---------------------
2000 1999
-------- ------
<S> <C> <C>
Net sales $ 71,809 $ 78,872
-------- --------
Costs and operating expenses:
Cost of goods sold 52,573 57,966
Selling expenses 2,927 3,684
General and administrative expenses 12,700 13,003
Depreciation and amortization 1,082 1,208
-------- --------
Total expenses 69,282 75,861
-------- --------
Operating income 2,527 3,011
Interest expense, net (2,657) (2,814)
Other, net 341 15
-------- --------
Income before income taxes 211 212
Provision for income taxes 354 301
-------- --------
Net loss $ (143) $ (89)
-------- --------
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (79) (5)
-------- --------
Other comprehensive loss, net of tax (222) (94)
======== ========
Basic and diluted loss per share $ (0.09) $ (0.06)
======== ========
Basic and diluted weighted average common shares outstanding 1,544 1,564
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 6
CELEBRITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
------- -------
<S> <C> <C>
Operating activities:
Net loss $ (143) $ (89)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
(Gain) Loss on disposition of assets (33) 46
Depreciation and amortization 1,082 1,208
Changes in operating assets and liabilities:
Accounts receivable 572 (1,179)
Inventories (2,111) 3,437
Other assets, net (70) 180
Accounts payable and accrued expenses (688) (955)
------- -------
Net cash provided by (used in) operating activities (1,391) 2,648
------- -------
Investing activities:
Additions to property and equipment (399) (755)
Proceeds from sale of equipment 55 66
------- -------
Net cash used in investing activities (344) (689)
------- -------
Financing activities:
Net proceeds from credit facility 1,884 143
Proceeds from long-term obligations 897 500
Payments on long-term obligations (1,531) (2,736)
Other 6 12
------- -------
Net cash provided by (used in) financing activities 1,256 (2,081)
------- -------
Effect of exchange rate changes on cash (79) (5)
------- -------
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.
-5-
<PAGE> 7
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>
MARCH 31, JUNE 30,
2000 1999
--------- --------
<S> <C> <C>
Raw materials $ 10,204 $ 6,663
Finished goods 11,318 13,026
Less: Inventory reserves (564) (842)
-------- --------
$ 20,958 $ 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.
Outstanding options and warrants were excluded from the diluted loss
per share calculations for the quarter and nine-month periods ended March 31,
2000 and March 31, 1999 because their inclusion would be antidilutive due to the
net losses incurred for the periods.
-6-
<PAGE> 8
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 of the Board, President 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.
5. SUBSEQUENT EVENT
On May 1, 2000, substantially all the assets of Star Wholesale were
sold to Michaels Stores, Inc. for approximately $2.2 million (after post-closing
adjustment) and the assumption of specified liabilities. The assets sold
consisted primarily of inventory and other assets used in connection with the
operation of a wholesale florist supply business in Dallas, Texas. Star
Wholesale's fiscal 1999 revenues were approximately $5.1 million.
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.
-7-
<PAGE> 9
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 Nine Months
Ended Ended
March 31, March 31,
----------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
---- ---- ---- ----
Costs and operating expenses:
Cost of goods sold 73% 73% 73% 73%
Selling expenses 4% 4% 4% 5%
General and administrative expenses 19% 18% 18% 16%
Depreciation and amortization 2% 1% 1% 2%
---- ---- ---- ----
Total expenses 98% 96% 96% 96%
---- ---- ---- ----
Operating income 2% 4% 4% 4%
Interest expense, net (4)% (4)% (4)% (4)%
Other, net -- -- -- --
---- ---- ---- ----
Income (loss) before income taxes (2)% -- -- --
Provision for income taxes -- -- -- --
---- ---- ---- ----
Net loss (2)% -- -- --
==== ==== ==== ====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000, COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Net sales decreased 8.6% from $25.8 million in the third quarter of
fiscal 1999 to $23.5 million in the third quarter of fiscal 2000. The primary
factor resulting in the sales decrease in the quarter was lower sales of
decorative metal products resulting from the Company's June 1998 decision to
exit the India Exotics decorative metal products business, and a lower level of
shipments from the Company's Hong Kong subsidiary.
Cost of goods sold decreased 8.3% from $18.7 million in the third
quarter of fiscal 1999 to $17.1 million in the third quarter of fiscal 2000. The
decrease was attributable to the lower sales volume. Cost of goods sold as a
percentage of net sales was 72.9% in the third quarter of fiscal 2000, compared
with 72.6% in the prior year.
Selling expenses decreased from $1.1 million in the third quarter of
fiscal 1999 to $1.0 million in the third quarter of fiscal 2000. The decrease
was attributable to expense reductions. Selling expenses as a percentage of net
sales were 4.3% in the third quarter of fiscal 2000, compared with 4.4% in the
prior year.
General and administrative expenses were $4.6 million for both the
third quarter of fiscal 2000 and the third quarter of fiscal 1999. General and
administrative expenses as a percentage of net sales were 19.4% in the third
quarter of fiscal 2000, compared with 17.8% in the prior year.
Depreciation and amortization expenses of $357,000 in the third quarter
of fiscal 2000 decreased from $422,000 in the third quarter of fiscal 1999. The
decrease was primarily attributable to assets becoming fully depreciated during
the intervening periods.
-8-
<PAGE> 10
Interest expenses of $884,000 in the third quarter of fiscal 2000
decreased from $900,000 in the third quarter of fiscal 1999. Interest expenses
as a percentage net sales were 3.8% in the third quarter of fiscal 2000,
compared with 3.5% in the prior year.
Other expenses of $123,000 in the third quarter of fiscal 2000
increased from $39,000 in the third quarter of fiscal 1999. Other expenses in
the third quarter of fiscal 2000 included a $200,000 expense related to the
settlement of a lawsuit. Other expenses as a percentage of net sales were 0.5%
in the third quarter of fiscal 2000, compared with 0.2% in the prior year.
Provision for income taxes of $27,000 in the third quarter of fiscal
2000 decreased from $54,000 in the third quarter of fiscal 1999. The tax
provision recognized in both periods was principally related to foreign
operations and the decrease in the provision was related to decreased income
from foreign operations.
NINE MONTHS ENDED MARCH 31, 2000, COMPARED WITH NINE MONTHS ENDED
MARCH 31, 1999
Net sales decreased 9.0% from $78.9 million in fiscal 1999 to $71.8
million in fiscal 2000. The sales decrease was attributable to (i) lower sales
of decorative metal products resulting from the Company's June 1998 decision to
exit the India Exotics decorative metal products business, (ii) lower shipments
from the Company's Hong Kong subsidiary, and (iii) lower sales in the Company's
domestic floral businesses, due in part to customer bankruptcies.
Cost of goods sold decreased from $58.0 million in fiscal 1999 to $52.6
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 73.5% in fiscal 1999 to 73.2% in fiscal 2000. The lower cost of
goods sold percentage in fiscal 2000 was attributable to a mix of higher margin
products sold.
Selling expenses decreased from $3.7 million in fiscal 1999 to $2.9
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 4.7% in fiscal 1999, compared with 4.1% in fiscal 2000.
General and administrative expenses decreased from $13.0 million in
fiscal 1999 to $12.7 million in fiscal 2000. General and administrative expenses
as a percentage of net sales were 17.7% in fiscal 2000, compared with 16.5% in
the prior year.
Depreciation and amortization expenses of $1.1 million in fiscal 2000
decreased from $1.2 million in the prior year. The decrease was primarily
attributable to assets becoming fully depreciated during the intervening
periods.
Interest expenses of $2.7 million in fiscal 2000 decreased from $2.8
million in the prior year. Interest expenses as a percentage net sales were 3.7%
in fiscal 2000, compared with 3.6% in the prior year.
Other income of $341,000 in fiscal 2000 increased from $15,000 in the
prior year. Other income in fiscal 2000 included $331,000 from the settlement of
an insurance claim, and a $200,000 expense related to the settlement of a
lawsuit. Other income as a percentage of net sales was 0.5% in fiscal 2000,
compared with 0.0% in the prior year.
Provision for income taxes of $354,000 in fiscal 2000 increased from
$301,000 in the prior year. The tax provision recognized in both periods was
principally related to foreign operations and the increase in the provision was
related to increased income from foreign operations.
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.
-9-
<PAGE> 11
The Company maintains a revolving credit facility for its Celebrity,
Cluett, Color Concepts, Star Wholesale and Importers Outlet 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 March 31, 2000,
was $22.1 million, and the amount outstanding under the revolving credit
facility was $21.6 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 March 31, 2000.
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 of the Board, President and Chief Executive Officer
("RP"). RHP also provided a letter of credit to the lenders in the amount of
$375,000 as additional security. The January 2000 amendment to the credit
facility also contained 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 March 31, 2000, 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 March 31, 2000, $500,000 of such borrowings
were outstanding, bearing an interest rate of 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 RP), 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 and RP. 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
-10-
<PAGE> 12
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.
-11-
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule (1).
(b) Reports on Form 8-K:
None
- -------------------
(1) Included with EDGAR version only.
-12-
<PAGE> 14
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: May 11, 2000 By: /s/ Robert H. Patterson, Jr.
-------------------------------------------------
Robert H. Patterson, Jr., Chairman of the
Board, President and Chief Executive
Officer (Authorized Officer)
Dated: May 11, 2000 By: /s/ Lynn Skillen
-------------------------------------------------
Lynn Skillen, Vice President - Finance
(Principal Financial and Accounting
Officer)
-13-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,663
<ALLOWANCES> 1,078
<INVENTORY> 20,958
<CURRENT-ASSETS> 36,473
<PP&E> 17,765
<DEPRECIATION> 8,865
<TOTAL-ASSETS> 46,617
<CURRENT-LIABILITIES> 9,996
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 8,681
<TOTAL-LIABILITY-AND-EQUITY> 46,617
<SALES> 71,809
<TOTAL-REVENUES> 71,809
<CGS> 52,573
<TOTAL-COSTS> 69,282
<OTHER-EXPENSES> 341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,657
<INCOME-PRETAX> 211
<INCOME-TAX> 354
<INCOME-CONTINUING> (143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143)
<EPS-BASIC> (0.09)<F1>
<EPS-DILUTED> (0.09)<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 NOT BEEN RESTATED TO REFLECT THE REVERSE
STOCK SPLIT.
</FN>
</TABLE>
