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 November 30, 1996
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
January 14, 1997<PAGE>
HOWARD B. WOLF, INC.
<PAGE>
INDEX
Page
Number
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Operations and Retained Earnings for the
three-month and six-month periods ended
November 30, 1996 and November 30, 1995
(Unaudited)........................... 3
Consolidated Balance Sheets
November 30, 1996 (Unaudited) and May 31, 1996 4
Consolidated Statements of Cash Flows for the
six month period ended November 30, 1996
and November 30, 1995 (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
PART II. OTHER INFORMATION
Item 9.
Exhibits and Reports on Form 8-K 8
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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 Six Months Ended
November 30, November 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $3,640,522 $3,875,864 $7,271,400 $7,665,403
Cost and expenses:
Cost of sales 2,291,556 2,365,326 4,704,279 4,902,933
Selling, general and
administrative expenses 1,058,949 1,121,702 2,008,517 2,025,686
Provision for
bad debt expense 45,199 22,500 67,699 45,000
3,395,704 3,509,528 6,780,495 6,973,619
244,818 366,336 490,905 691,784
Gain on sale of property,
plant and equipment
not used in operations -- 144,172 -- 144,172
Other income 16,620 17,845 31,039 27,677
Interest income 13,797 4,908 21,012 7,117
Interest expense (5,452) (16,182) (14,123) (28,089)
Income before federal
income tax 269,783 517,079 528,833 842,661
Provision for federal
income tax (103,545) (180,376) (195,881) (294,771)
Net income 166,238 336,703 332,952 547,890
Retained earnings -
beginning of period 5,156,456 4,666,851 5,074,237 4,540,159
Cash dividends (84,496) (84,496) (168,991) (168,991)
Retained earnings -
end of period $5,238,198 $4,919,058 $5,238,198 $4,919,058
Average number of
shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Net income per share $.16 $.32 $.32 $.52
Cash dividends per share $.08 $.08 $.16 $.16
See notes to consolidated financial statements.
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<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
November 30, May 31,
1996 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,689,351 $1,261,987
Accounts receivable (net) 1,528,152 1,976,798
Inventories 3,921,142 4,147,286
Prepaid expenses 110,081 160,367
Deferred federal income tax
benefit 238,000 177,000
Total current assets 7,486,726 7,723,438
Property, plant and equipment 2,384,312 2,340,711
Less accumulated depreciation
and amortization (1,364,014) (1,286,013)
1,020,298 1,054,698
Property, plant and equipment
not used in operations,less
accumulated depreciation 5,810 5,810
Other assets 49,665 49,665
$8,562,499 $8,833,611
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $577,598 $1,096,197
Accrued compensation 112,970 253,871
Accrued taxes 97,216 56,127
Other accrued liabilities 169,408 16,629
Federal income tax payable (4,379) (35,938)
Total current liabilities 952,813 1,386,886
Deferred federal income tax 77,000 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 5,238,198 5,074,237
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
7,532,686 7,368,725
$8,562,499 $ 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)
Six Months Ended
November 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 332,952 $ 547,890
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization 78,001 70,558
Provision for losses on accounts
receivable 67,699 45,000
Deferred federal income tax credit (1,000) (2,000)
Deferred federal income tax benefit (61,000) (9,000)
Gain on sale of property, plant and equipment
not used in operations -- (144,172)
Net changes in assets and liabilities--
Accounts receivable 380,947 102,841
Inventories 226,144 (191,785)
Prepaid expenses 50,286 (29,935)
Accounts payable and accrued liabilities (465,632) (217,479)
Federal income tax payable 31,559 66,013
Net cash provided by operating activities 639,956 237,931
Cash flow from investing activities:
Additions to property, plant and equipment (43,601) (229,071)
Sale of property, plant and equipment
not used in operations -- 250,000
Net cash provided by (used in) investing
activities (43,601) 20,929
Cash flows from financing activities:
Cash dividends paid (168,991) (168,991)
Net cash used in financing activities (168,991) (168,991)
Net increase in cash and cash equivalents 427,364 89,869
Cash and cash equivalents at beginning of
period 1,261,987 1,375,569
Cash and cash equivalents at end of period $ 1,689,351 $ 1,465,438
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The consolidated balance sheet as of November 30, 1996, the consolidated
statements of operations and the consolidated statements of cash flows for
the three-month and six-month periods ended November 30, 1996 and 1995 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 November 30, 1996 and 1995
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 six-month period
ended November 30, 1996 are not necessarily indicative of the operating
results for the full year ending May 31, 1997.
November 30, 1996 May 31, 1996
Cash and cash equivalents consist of:
Cash $ 241,602 $ 138,018
Money market funds 144,842 516,165
Matured funds at factor 1,302,907 607,804
$1,689,351 $1,261,987
Allowances for collection
losses and discounts are:
Collection losses $ 99,217 $ 76,728
Discounts 9,701 8,758
$ 108,918 $ 85,486
Inventories consist of:
Raw materials $ 942,265 $ 1,195,129
Work-in-process 954,742 995,539
Finished goods 2,024,135 1,956,618
$ 3,921,142 $ 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 $ 257,881 $ 458,194
Deferred tax (benefit) expense (62,000) 2,000
$ 195,881 $ 460,194
Cash flow information:
Cash payments for interest $ 14,123 $ 48,511
Cash payments for
federal income taxes $ 226,322 $ 460,000
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1996 was $6,533,913, an increase of
$197,361 from May 31, 1996. Cash and cash equivalents increased $427,364
during the six-month period ended November 30, 1996. The cash increase
resulted primarily due to the timing of shipments during the quarter. Cash
was used to fund normal working capital requirements, including acquisition
of property, plant and equipment and payment of dividends. Accounts
receivable decreased $448,646 as a result of the timing of shipments
during the quarter. Inventories decreased $226,144 due primarily to lower
sales. Accounts payable and accrued liabilities decreased $465,632
primarily due to payment of normal maturities and accrued expenses during
the six-month period.
The current ratio at November 30, 1996 is 7.9 to 1 (5.5 to 1 at May 31,
1996). Total liabilities to assets equals twelve 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. Credit extended by the
Company in excess of the credit line is factored on a recourse basis
($986,000 at November 30, 1996 - $948,000 at May 31, 1996).
Capital acquisition and improvement expenditures totaled $43,601 during
the six-month period ended November 30, 1996. It is estimated that
approximately $55,000 additional capital expenditures will be made over
the next two quarters, consisting primarily of equipment and improvements
to existing facilities. Funding will come from cash flows generated through
operating activities. No significant disposition of equipment occurred
during the six-month period ended November 30, 1996, and none is 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 second quarter and six-month periods ended November 30,
1996 decreased approximately six percent and five percent, respectively,
in each period compared to the 1995 second quarter and six-month periods.
The decreases resulted primarily from an overall weak demand for women's
apparel. Net sales for the second quarter ended November 30, 1996 were
approximately the same as in the preceding first quarter.
Cost of goods sold, as a percentage relationship to net sales for the
second quarter ended November 30, 1996, increased approximately two
percentage points over the 1995 second quarter, resulting primarily from
lower net sales and higher sales discounts and allowances. 1996 second
quarter cost of goods sold, as a percentage relationship to net sales,
compared to the preceding first quarter was approximately three and one-
half percentage points lower as a result of a more favorable product sales
mix. For the six-month periods ended November 30, 1996 and 1995, cost of
sales, as a percentage relationship to net sales, was approximately one
percentage point higher in the 1996 period resulting primarily from lower
net sales and higher sales discounts and allowances.
Selling, general and administrative expenses, as a percentage relationship
to net sales, were approximately the same for both second quarters ended
November 30, 1996 and 1995. The 1996 second quarter expenses, as a
percentage relationship to net sales, increased approximately three
percentage points over the preceding first quarter ended August 31, 1996,
due primarily to higher selling and marketing expenses. For the
six-month period ended November 30, 1996, selling, general and
administrative expenses, as a percentage relationship to net sales,
increased approximately one percentage point compared to the 1995
six-month period. The increase resulted primarily from the effect of
lower net sales. The provision for bad debts for the six-month period
ended November 30, 1996 of $67,699 compares to the 1995 provision of
$45,000. The increase is due primarily to the continuing overall weak
demand for women's apparel.
Other income in the 1996 second quarter decreased approximately seven
percent compared to the 1995 second quarter primarily due to lower rental
income from property not used in operations. Other income in the 1996
six-month period ended November 30 increased approximately twelve percent,
over the 1995 comparable period resulting primarily from higher rental
income from property not used in operations. Other income increased
approximately fifteen percent in the 1996 second quarter compared to the
preceding first quarter ended August 31, 1996 resulting primarily from
higher rental income from property not used in operations.
Interest income in the three-month and six-month periods ended November 30,
1996 increased one hundred eighty one percent and one hundred ninety five
percent, respectively, compared to the same periods in 1995. Interest
income increased approximately ninety one percent in the 1996 second
quarter compared to the preceding first quarter. The increases resulted
primarily from higher average cash balances.
<PAGE>
For the three-month and six-month periods ended November 30, 1996 interest
expense decreased approximately sixty six percent and fifty percent,
respectively, compared to the same periods ended in 1995. Interest expense
in the November 30, 1996 second quarter decreased approximately thirty
seven percent compared to the preceding first quarter ended August 31,1996.
The decreases resulted primarily from lower factor interest costs on
recourse accounts receivable.
The federal income tax provision effective tax rate of 37.04 percent is
greater than the statutory rate (34 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 November 30, 1996.
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)
January 14, 1997
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