<PAGE> 1
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
X Securities Exchange Act of 1934
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For the quarter ended September 30, 1995
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition period from ___________________ to__________________
Commission File Number 1-5893
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MOVIE STAR, INC.
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(Exact name of registrant as specified in its charter)
New York 13-5651322
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
136 Madison Avenue, New York, N.Y. 10016
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(Address of principal executive offices) (Zip Code)
(212) 679-7260
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year,
if changed since last report.)
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
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The number of common shares outstanding on October 31, 1995 was 13,959,650.
<PAGE> 2
MOVIE STAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
Sept. 30, June 30,
1995 1995*
--------- --------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 185 $ 103
Receivables, net of allowances 18,553 8,789
Inventory (note 3) 31,903 36,085
Deferred income taxes 3,298 3,298
Prepaid expenses and other
current assets 489 381
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Total current assets 54,428 48,656
Property, plant and equipment (net) 5,821 6,053
Other assets 1,774 1,784
Deferred income taxes 711 711
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Total assets $62,734 $57,204
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Notes payable - bank $21,818 $15,803
Current maturities of long-term debt 21 29
Accounts payable and accrued expenses 10,810 10,176
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Total current liabilities 32,649 26,008
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Long-term debt 22,489 22,496
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Stockholders' equity
Common stock 160 160
Additional paid-in capital 3,731 3,731
Retained earnings 7,323 8,427
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11,214 12,318
Less: Treasury stock, at cost 3,618 3,618
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Total stockholders' equity 7,596 8,700
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Total liabilities and stockholders'
equity $62,734 $57,204
======= =======
</TABLE>
* Derived from audited financial statements.
See notes to consolidated condensed financial statements.
<PAGE> 3
MOVIE STAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1995 1994
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<S> <C> <C>
Net sales $24,927 $32,440
Cost of sales (note 3) 20,157 25,388
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Gross profit 4,770 7,052
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Selling, general and administrative
expenses 4,694 4,774
Interest expense 1,179 1,267
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5,873 6,041
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(Loss) income before provision for income taxes (1,103) 1,011
Provision for income taxes - 404
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Net (loss) income $(1,103) $ 607
======= ======
Net (loss) income per share $(.08) $.04
===== ====
Weighted average number of shares
outstanding 13,959 13,959
====== ======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
MOVIE STAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30,
------------------------------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,103) $ 607
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 294 337
Deferred income taxes - 404
Changes in operating assets and liabilities:
Receivables (9,764) (13,094)
Inventory 4,182 6,442
Prepaid expenses and other current assets (108) (467)
Other assets (26) (36)
Accounts payable and accrued expenses 634 (2,317)
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Net cash used in operating activities (5,891) (8,124)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for fixed assets (27) (96)
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Net cash used in investing activities (27) (96)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term obligations 6,015 8,023
Payment of long-term debt obligations (15) (50)
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Net cash provided by financing activities 6,000 7,973
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NET INCREASE (DECREASE) IN CASH 82 (247)
CASH, beginning of period 103 922
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CASH, end of period $ 185 $ 675
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during period for:
Interest $ 443 $ 466
======= =======
Income taxes (net of refunds received) $ (289) $ 26
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 5
MOVIE STAR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of September 30, 1995 and the results of operations for the three
months ended September 30, 1995 and 1994 and cash flows for the three
months ended September 30, 1995 and 1994, respectively.
The condensed consolidated financial statements and notes are presented
as required by Form 10-Q and do not contain certain information
included in the Company's year-end consolidated financial statements.
The year-end condensed consolidated balance sheet was derived from the
Company's audited financial statements. This Form 10-Q should be read
in conjunction with the Company's consolidated financial statements and
notes included in the 1995 Annual Report on Form 10-K.
2. The results of operations for the three months ended September 30, 1995
are not necessarily indicative of the results to be expected for the
full year.
3. Certain items included in these statements are based upon estimates.
The cost of sales is determined utilizing estimated gross profit rates.
The calculation of the actual cost of sales is predicated upon a
physical inventory taken only at the end of each fiscal year.
An approximate breakdown of the inventory in thousands is as follows:
<TABLE>
<CAPTION>
Sept. 30, June 30,
1995 1995
--------- ---------
<S> <C> <C>
Raw materials $ 4,491 $ 6,870
Work-in-process 3,268 5,354
Finished goods 24,144 23,861
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$ 31,903 $ 36,085
========= ========
</TABLE>
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Overview
The Company has incurred losses for the two years ended June 30, 1995 and the
three months ended September 30, 1995 and, as previously disclosed, expects to
continue suffering losses through fiscal 1996. These losses are primarily due
to the Company's difficulties in sourcing its goods offshore, a more
competitive market, the weak retail climate for the Company's products and the
Company's past inability to cut overhead sufficiently.
In August 1995, the Company hired Barbara Khouri as its new Chief Executive
Officer. The Company anticipates that Ms. Khouri's extensive senior
management experience in the intimate apparel industry will assist the Company
in returning to profitability. Under Ms. Khouri's leadership, management has
devised a plan to consolidate and realign all of the operational areas of the
Company to reduce costs and create an organizational structure that is more
productive, effective and efficient. The plan emphasizes increased control of
the Company's import operations and offshore manufacturing. The initial phase
of this strategic plan was implemented in November 1995 with the realignment of
the Company's separate intimate apparel divisions into one
functionally-oriented cohesive operating unit. It is anticipated that as a
result of this realignment, the Company will reduce selling, general and
administrative costs by approximately $2,000,000 annually and allow the Company
to capitalize upon the strengths of its management team and the organization as
a whole. In connection with the Company's realignment, a one-time charge of
$150,000 for payroll related expenses has been recorded in the three months
ended September 30, 1995. Management's plan also includes strategies to
improve gross profit margins and better respond to the changing needs of the
Company's customers on a short and long-term basis.
Additionally, in September 1995, the Company announced its plans to divest
itself of its men's work and leisure shirt division to focus the attention of
its personnel and resources on its core intimate apparel business.
Results of Operations
Net sales for the three months ended September 30, 1995 decreased by $7,513,000
(23%) to $24,927,000 compared to the similar period in 1994. The decrease in
sales resulted primarily from lower sales in the popular-priced intimate
apparel product line and the recently discontinued men's work and leisure shirt
product line of approximately $4,900,000 and $1,500,000, respectively. The
lower sales in the popular-priced intimate apparel product line resulted from
the elimination of that product line's trade business, the weak retail climate
for the Company's products and the inability of the Company to source
effectively.
The gross profit percentage decreased from 21.7% in 1994 to 19.1% in 1995. The
decrease was due primarily to lower margins in the Company's popular-priced
intimate apparel product line and to higher markdowns
<PAGE> 7
taken by the Company's outlet stores in the current three-month period as
compared to the same period last year. The lower margins in the Company's
popular-priced intimate apparel product line resulted primarily from a more
competitive market, the weak retail climate for the Company's products and the
inability of the Company to source effectively.
Selling, general and administrative expenses decreased by $80,000 to $4,694,000
for the three months ended September 30, 1995 as compared to 1994. This
decrease was principally from a reduction in salary expense of $151,000 and
sales related expenses of $187,000, offset by a one-time charge, in connection
with the Company's realignment discussed above, of $150,000 for payroll related
expenses and by a net increase in other general overhead expenses.
Interest expense for the three months ended September 30, 1995 decreased by
$88,000 to $1,179,000 compared to the similar period in 1994 due to lower
borrowing needs during the quarter.
The Company had a loss from operations of $1,103,000 for the three months ended
September 30, 1995, compared to income from operations of $1,011,000 for the
same period in 1994. This decrease was due principally to lower sales and
margins, offset partially by lower selling, general and administrative
expenses.
No income tax benefit was provided by the Company for the three months ended
September 30, 1995 compared to a provision for income taxes of $404,000 for the
three months ended September 30, 1994.
As a result of the above factors, the financial results reflect a net loss of
$1,103,000 for the three months ended September 30, 1995 compared to net income
of $607,000 for the three months ended September 30, 1994.
Liquidity and Capital Resources
For the three months ended September 30, 1995, the Company's working capital
decreased by $869,000 to $21,779,000, principally from operating losses.
During the three months ended September 30, 1995, cash increased by $82,000.
The Company used $5,891,000 in its operations. In addition, it used cash for
the purchase of fixed assets of $27,000 and the payment of long-term
obligations of $15,000. These activities were funded by an increase in
short-term borrowings of $6,015,000.
Inventory at September 30, 1995, decreased by $6,467,000 to $31,903,000 from
$38,370,000 at September 30, 1994 due to lower inventory levels in each of the
Company's divisions.
The Company intends to reduce the required sinking fund payment of $3,750,000
due in 1996 on its outstanding subordinated debentures by the $2,550,000 of
debentures previously purchased by the Company. Based upon the Company's
recent financial results and the anticipated loss in fiscal 1996, the Company
does not presently anticipate that its earnings will be sufficient to pay the
balance of the payment due in October 1996. In addition, management believes
it is unlikely that future sinking fund requirements in each year after 1996
can be made from earnings. If the Company does not refinance its debentures
prior to October 1996, it will have to rely on other sources of financing to
make the balance of the payment due in October 1996. There can be no assurance
that the Company will have sufficient availability under its short-term line of
credit for the purpose of making the
<PAGE> 8
required sinking fund payment in October 1996, or that if available, the
Company's banks will allow it to utilize the short-term line of credit for such
purpose. The Company does not anticipate any future significant purchases of
its stock or debentures and anticipates that capital expenditures for fiscal
1996 will be less than $500,000. However, depending on price and the
availability of funds, the Company may seek to take advantage of opportunities
to purchase its debentures to further reduce its October 1996 sinking fund
requirements. The Company has retained the services of the investment banking
firm Houlihan Lokey Howard & Zukin.
The Company has extended its lines of credit with two banks to June 30,1996,
subject to monthly borrowing limitations based on the Company's anticipated
working capital requirements. The Company's borrowing needs are as high as
approximately $21,000,000 in October 1995 to a projected low of approximately
$2,000,000 in the second half of fiscal 1996. This reduction in borrowing
needs is primarily due to the Company's decision to divest itself of its men's
work and leisure shirt division and to liquidate its inventory. The credit
lines bear interest of up to 1.25% above the banks' prime rate. As collateral
for such lines, the Company has pledged all of its accounts receivable and its
finished goods inventory imported pursuant to letters of credit issued under
such lines.
Even though the Company suffered losses in fiscal 1995 and the first quarter of
fiscal 1996 and expects a loss in fiscal 1996, anticipated working capital
needs will be substantially lower in the second half of fiscal 1996 due to the
Company's decision to divest itself of its men's work and leisure shirt product
line. With the elimination of this product line, the Company can focus the
attention of its personnel and financial resources on its core intimate apparel
business.
As a result, management believes its available borrowing under these lines of
credit through June 30, 1996, along with anticipated internally generated
funds, will be sufficient to cover its working capital requirements.
<PAGE> 9
PART II Other Information
Item 1 - Legal proceedings - Not Applicable
Item 2 - Changes in Securities - Not Applicable
Item 3 - Defaults Upon Senior Securities - Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 5 - Other Information - None
Item 6 - (a) Exhibits - None
(b) Form 8-K Report - None
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 hereunto duly authorized.
MOVIE STAR, INC.
By: /s/ CLAYTON E. MEDLEY
----------------------------------------
CLAYTON E. MEDLEY
President
By: /s/ SAUL POMERANTZ
----------------------------------------
SAUL POMERANTZ
Senior Vice President;
Chief Financial Officer
November 14, 1995
<PAGE> 10
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 185
<SECURITIES> 0
<RECEIVABLES> 20,473
<ALLOWANCES> 1,920
<INVENTORY> 31,903
<CURRENT-ASSETS> 54,428
<PP&E> 13,914
<DEPRECIATION> 8,093
<TOTAL-ASSETS> 62,734
<CURRENT-LIABILITIES> 32,649
<BONDS> 22,489
<COMMON> 160
0
0
<OTHER-SE> 7,436
<TOTAL-LIABILITY-AND-EQUITY> 62,734
<SALES> 24,927
<TOTAL-REVENUES> 24,927
<CGS> 20,157
<TOTAL-COSTS> 20,157
<OTHER-EXPENSES> 4,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,179
<INCOME-PRETAX> (1,103)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,103)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,103)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
