UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 1997
Commission file number 1-6775
HOWARD B. WOLF, INC.
(Exact name of registrant as specified in its charter)
TEXAS
75-0847571
(State of Incorporation)
(IRS Employer Identification No.)
3809 Parry Avenue, Dallas, Texas
75226-1753
(Address of principal executive offices)
(Zip Code)
(214) 823-9941
(Telephone number)
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 ____.
Common stock, par value $0.33 1/3 per share:
1,056,191 shares outstanding as of
April 10, 1997<PAGE>
<PAGE>
HOWARD B. WOLF, INC.
INDEX
Page
Number
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Operations and Retained Earnings for the
three-month and nine-month periods ended
February 28, 1997 and February 29, 1996
(Unaudited) 3
Consolidated Balance Sheets
February 28, 1997(Unaudited) and May 31, 1996 4
Consolidated Statements of Cash Flows for the
nine-month period ended February 28, 1997
and February 29,1996(Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7,8 & 9
PART II.
OTHER INFORMATION
Item 9. Exhibits and Reports on Form 8-K 9
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<TABLE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statement
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
Feb 28, Feb29, Feb 28, Feb 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $3,421,547 $3,752,625 $10,692,947 $11,418,028
Cost and expenses:
Cost of sales 2,237,838 2,439,587 6,942,117 7,342,520
Selling, general
and administrative
expenses 934,327 984,451 2,942,844 3,010,137
Provision for bad
debt expense 22,500 12,500 90,199 57,500
3,194,665 3,436,538 9,975,160 10,410,157
226,882 316,087 717,787 1,007,871
Gain on sale of property,
plant and equipment
not used in operations -- -- -- 144,172
Other income 15,507 10,665 46,546 38,342
Interest income 17,827 8,016 38,839 15,133
Interest expense (8,987) (10,518) (23,110) (38,607)
Income before federal
income tax 251,229 324,250 780,062 1,166,911
Provision for federal
income tax (92,791) (113,467) (288,672) (408,238)
Net income 158,438 210,783 491,390 758,673
Retained earnings -
beginning of period 5,238,198 4,919,069 5,074,237 4,540,170
Cash dividends (84,495) (84,495) (253,486) (253,486)
Retained earnings -
end of period $5,312,141 $5,045,357 $ 5,312,141 $ 5,045,357
Average number of
shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Net income per share $.15 $.20 $.47 $.72
Cash dividends per share $.08 $.08 $.24 $.24
See notes to consolidated financial statements.
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<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
February 28, May 31,
1997 1996
<S> <C> <C>
Current assets
Cash and cash equivalents $1,532,891 $1,261,987
Accounts receivable (net) 2,242,300 1,976,798
Inventories 3,343,074 4,147,286
Prepaid expenses 147,160 160,367
Deferred federal income tax benefit 204,000 177,000
Total current assets 7,469,425 7,723,438
Property, plant and equipment 2,402,632 2,372,296
Less accumulated depreciation
and amortization (1,403,014) (1,286,013)
999,618 1,054,698
Property, plant and equipment
not used in operations,
less accumulated depreciation 5,810 5,810
Other assets 48,665 48,835
$8,524,518 $8,833,611
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 449,600 $1,096,197
Accrued compensation 350,873 253,871
Accrued taxes 1,737 56,127
Other accrued liabilities 24,799 16,629
Federal income tax payable 14,880 (35,938)
Total current liabilities 841,889 1,386,886
Deferred federal income tax 76,000 78,000
Shareholders' equity:
Common stock, par value $.33-1/3;
3,000,000 shares authorized,
1,081,191 shares issued 360,400 360,400
Additional paid-in capital 2,034,088 2,034,088
Retained earnings 5,312,141 5,074,237
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
7,606,629 7,368,725
$8,524,518 $8,833,611
Note: The consolidated balance sheet at May 31, 1996 has been taken from
the audited financial statements.
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
February 28, February 29,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 491,390 $ 758,673
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities--
Depreciation and amortization 117,001 112,558
Provision for losses on accounts
receivable 90,199 57,500
Deferred federal income tax (29,000) (57,000)
Gain on sale of property, plant
and equipment not used in operations -- (44,172)
Net changes in operating assets
and liabilities
Accounts receivable (355,701) 43,896
Inventories 804,212 (106,248)
Prepaid expenses 13,207 (52,231)
Accounts payable and accrued liabilities (595,815) (661,824)
Federal income tax payable 50,818 45,480
Net cash provided by (used in)
operating activities 586,311 (3,368)
Cash flows from investing activities:
Additions to property, plant
and equipment (61,921) (258,595)
Sale of property, plant and equipment
not used in operations -- 250,000
Net cash used in investing activities (61,921) (8,595)
Cash flows from financing activities:
Cash dividends paid (253,486) (253,486)
Net cash used in financing activities (253,486) (253,486)
Net change in
cash and cash equivalents 270,904 (265,449)
Cash and cash equivalents
at beginning of period 1,261,987 1,375,569
Cash and cash equivalents
at end of period $ 1,532,891 $ 1,110,120
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The consolidated balance sheet as of February 28, 1997, the consolidated
statements of operations and the consolidated statements of cash flows
for the three-month and nine-month periods ended February 28, 1997 and
February 29, 1996 have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows as of and for
the periods ended February 28, 1997 and February 29, 1996 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's May
31, 1996 annual report to shareholders. The results of operations for
the nine-month period ended February 28, 1997 are not necessarily
indicative of the operating results for the full year ending May 31,
1997.
Feb. 28, 1997 May 31, 1996
(UNAUDITED)
Cash and cash equivalents consist of:
Cash $ 140,282 $ 138,018
Money market funds 146,368 516,165
Matured funds at factor 1,246,241 607,804
$ 1,532 891 $ 1,261,987
Allowances for collection
losses and discounts are:
Collection losses $ 118,296 $ 76,728
Discounts 10,164 8,758
$ 128,460 $ 85,486
Inventories consist of:
Raw materials $ 888,953 1,195,129
Work-in-process 804,845 995,539
Finished goods 1,649,276 1,956,618
$ 3,343,074 $ 4,147,286
Accumulated depreciation on
property, plant and equipment
not used in operations is: $ 131.195 $ 131,195
Provision for federal income
tax detail is:
Current tax expense $ 317,672 $ 458,194
Deferred tax benefit (29,000) 2,000
$ 288,672 $ 460,194
Cash flow information:
Cash payments for interest $ 23,110 $ 48,511
Cash payments for
federal income taxes $ 340,532 $ 460,000
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation
LIQUIDITY AND CAPITAL RESOURCES
Working capital at February 28, 1997 was $6,627,536, an increase of
$290,984 from May 31, 1996. Cash and cash equivalents increased
$270,904 during the nine-month period ended February 28, 1997. The cash
increase resulted primarily from lower cash requirements for raw material
due to reduced inventory balances. Cash was used to fund normal working
capital requirements, including the acquisition of additions to property,
plant and equipment and payment of dividends. Accounts receivable
increased $265,502 as a result of the timing of shipments during the
third quarter. Inventories decreased $804,212 to align with lower sales
volume. Accounts payable and accrued liabilities decreased $595,815
primarily due to the payment of normal maturities and accrued expenses
during the nine-month period.
The current ratio at February 28, 1997 is 8.9 to 1 (5.5 to 1 at May 31,
1996). Total liabilities to assets equals eleven percent (seventeen
percent at May 31, 1996).
The company factors its accounts receivable with a commercial factor on a
matured basis. (Funds are remitted by the factor upon maturity of the
invoices, plus a set number of collection days.) The factor establishes
a credit line per customer on a non-recourse basis. Any credit extended
by the company in excess of the credit line is factored on a recourse basis
($1,323,000 at February 28,1997 - $948,000 at May 31, 1996).
Capital acquisition and improvement expenditures totaled $61,921 during
the nine-month period ended February 28, 1997. It is estimated that
approximately $40,000 additional capital expenditures will be made over
the next quarter, consisting primarily of equipment and improvements to
existing facilities. Funding will come from cash flows generated through
operating activities. No significant dispositions of equipment occurred
during the nine-month period ended February 28, 1997 and none are
expected during the next three-month period.
The Company does not offer a retirement plan nor offer post retirement or
employment benefits. Accordingly, there will be no impact on the Company
due to SFAS 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions and SFAS 112, Employers' Accounting for Post
Employment Benefits.
Based on current operations and internally generated cash flows,
management believes that adequate resources will be available to meet
current and future liquidity requirements.
<PAGE>
RESULTS OF OPERATIONS
Net sales for the third quarter and nine-month periods ended February 28,
1997 decreased approximately nine percent and six percent, respectively,
in each period compared to the 1996 third quarter and nine-month periods.
Net sales for the third quarter ended February 28, 1997 were
approximately six percent lower than in the preceding second quarter.
The decreases in each period resulted primarily from an overall weak
demand for women's fashion apparel.
Cost of sales, as a percentage relationship to net sales, for the third
quarter ended February 28, 1997 increased approximately four tenths of
one percentage point over the 1996 third quarter. 1997 third quarter cost
of sales, as a percentage relationship to net sales, compared to the
preceding second quarter was approximately two and one-half percentage
points higher. For the nine-month periods ended February 28, 1997 and
February 29, 1996, cost of sales, as a percentage relationship to net
sales, was approximately six tenths of one percentage point higher in the
1997 period. The increases in each period resulted primarily from the
effect of lower net sales and higher sales discounts and allowances.
Selling, general and administrative expenses increased, as a percentage
relationship to net sales for the third quarter and nine-month periods
ended February 28, 1997 and February 29, 1996, approximately one and one
tenth of one percentage point in each period over the comparable periods
of the preceding year. The percentage increases resulted from the effect
of lower net sales. 1997 third quarter selling, general and
administrative expenses decreased as a percentage relationship to net
sales by one and eight tenths of one percent compared to the previous
second quarter primarily resulting from the effect of higher selling and
marketing expenses in the second quarter. The provision for bad debts
for the nine-month period ended February 28, 1997 of $90,199 compares to
the 1996 provision of $57,500. The increase is due primarily to the
continuing overall weak demand in the women's fashion apparel market.
Other income in the 1997 third quarter increased approximately forty five
percent compared to the 1996 third quarter. Other income in the 1997
nine-month period ended February 28, 1997 increased approximately twenty
one percent over the 1996 comparable period. Other income decreased
approximately seven percent in the 1997 third quarter compared to the
receding second quarter ended November 30, 1996. The changes in each
period resulted primarily from differences in rental income from
property not used in operations.
Interest income in the three-month and nine-month periods ended February
28, 1997 increased approximately one hundred twenty two percent and one
hundred fifty seven percent, respectively, compared to the same periods
in 1996. Interest income increased approximately twenty nine percent in
the 1997 third quarter compared to the preceding second quarter. The
increases resulted primarily from higher average cash balances.
<PAGE>
For the three-month and nine-month periods ended February 28, 1997
interest expense decreased approximately fifteen percent and forty
percent , respectively, compared to the same periods ended in 1996.
Interest expense in the February 28, 1997 third quarter increased
approximately sixty five percent compared to the preceding second quarter
ended November 30, 1996. The changes in each period resulted primarily
from factor interest costs on recourse accounts receivable.
The federal income tax provision effective tax rate of thirty seven
percent is greater than the statutory rate (thirty four percent) as a
result of nondeductible life insurance premiums, nondeductible portion of
meals, accelerated depreciation, capitalization of certain expenses in
inventories and the difference between the doubtful account reserve and
the doubtful account write-off.
Part II. OTHER INFORMATION
Item 9. No reports on Form 8-K were filed during the three-month period
ended February 28, 1997.
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.
HOWARD B. WOLF, INC.
Eugene K. Friesen /s/
Eugene K. Friesen
Senior Vice President and Treasurer
(Chief Financial Officer)
Robert D Wolf /s/
Robert D. Wolf
President
(Chief Executive Officer)
April 14, 1997
<TABLE> <S> <C>
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<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 1,533
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<RECEIVABLES> 2,242
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<INVENTORY> 3,343
<CURRENT-ASSETS> 7,469
<PP&E> 2,402
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