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, 1998
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 14, 1998
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 nine-month periods ended
February 28, 1998 and February 28, 1997
(Unaudited) 3
Consolidated Balance Sheets
February 28, 1998 (Unaudited) and May 31, 1997 4
Consolidated Statements of Cash Flows for the
nine month periods ended February 28, 1998
and February 28, 1997 (Unaudited) 5
Notes to Consolidated Financial Statements 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
<PAGE>
<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
February 28, February 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $3,276,419 $3,421,547 $10,818,232 $10,692,947
Cost and expenses:
Cost of sales 2,248,220 2,237,838 7,030,343 6,942,117
Selling, general and
administrative expenses 928,033 934,327 3,159,734 2,942,844
Provision for
bad debt expense 30,000 22,500 75,000 90,199
3,206,253 3,194,665 10,265,077 9,975,160
Income from operations 70,166 226,882 553,155 717,787
Other income 6,676 15,507 40,727 46,546
Interest income 10,560 17,827 36,640 38,839
Interest expense (7,185) (8,987) (24,857) (23,110)
Income before federal
income tax 80,217 251,229 605,665 780,062
Provision for federal
income tax (36,535) (92,791) (222,791) (288,672)
Net income 43,682 158,438 382,874 491,390
Retained earnings -
beginning of period 5,540,045 5,238,198 5,369,844 5,074,237
Cash dividends (84,495) (84,495) (253,486) (253,486)
Retained earnings -
end of period $5,499,232 $5,312,141 $5,499,232 $5,312,141
Average number of
shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Basic and diluted
earnings per share $.04 $.15 $.36 $.47
Cash dividends per share $.08 $.08 $.24 $.24
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, May 31,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,009,010 $1,921,415
Accounts receivable (net) 2,402,738 2,415,244
Inventories 4,096,164 3,815,653
Prepaid expenses 227,148 160,994
Deferred federal income tax 214,000 214,000
Total current assets 7,949,060 8,527,306
Property, plant and equipment 2,451,059 2,360,038
Less accumulated depreciation
and amortization (1,506,205) (1,389,205)
944,854 970,833
Property, plant and equipment
not used in operations,less
accumulated depreciation 2,718 2,718
Other assets 51,097 51,097
$8,947,729 $9,551,954
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 726,887 $1,241,286
Accrued compensation 318,438 410,148
Accrued taxes 76,028 76,795
Other accrued liabilities 18,155 44,758
Federal income tax payable (56,499) 40,635
Total current liabilities 1,083,009 1,813,622
Deferred federal income tax 71,000 74,000
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 5,499,232 5,369,844
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
7,793,720 7,664,332
$8,947,729 $ 9,551,954
Note: The consolidated balance sheet at May 31, 1997 has been taken from
the audited financial statements.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
February 28,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 382,874 $ 491,390
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization 117,000 117,001
Provision for losses on accounts
receivable 75,000 90,199
Change in deferred federal income tax (3,000) (29,000)
Net changes in assets and liabilities--
Accounts receivable (62,495) (355,701)
Inventories (280,511) 804,212
Prepaid expenses (66,155) 13,207
Accounts payable and accrued liabilities (633,477) (595,815)
Federal income tax payable (97,134) 50,818
Net cash provided by (used in)
operating activities (567,898) 586,311
Cash flow from investing activities:
Additions to property, plant and equipment (91,021) (61,921)
Net cash used in investing activities (91,021) (61,921)
Cash flow from financing activities:
Cash dividends paid (253,486) (253,486)
Net cash used in financing activities (253,486) (253,486)
Net increase (decrease) in cash and cash
equivalents (912,405) 270,904
Cash and cash equivalents at beginning of
period 1,921,415 1,261,987
Cash and cash equivalents at end of period $ 1,009,010 $ 1,532,891
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of February 28, 1998, the consolidated
statements of operations and the consolidated statements of cash flows for
the three-month and nine-month periods ended February 28, 1998 and 1997 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, 1998 and 1997
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, 1997 annual
report to shareholders. The results of operations for the nine-month period
ended February 28, 1998 are not necessarily indicative of the operating
results for the full year ending May 31, 1998.
February 28, 1998 May 31, 1997
(Unaudited) (Audited)
Cash and cash equivalents consist of:
Cash $ 222,879 $ 945,759
Money market funds 205,145 400,162
Matured funds at factor 580,986 575,494
S 1,009,010 $ 1,921,415
Allowances for collection
losses and discounts are:
Collection losses $ 108,927 $ 116,228
Discounts 20,395 15,703
$ 129,322 $ 131,931
Inventories consist of:
Raw materials $ 1,128,841 $ 1,237,574
Work-in-process 732,999 1,043,457
Finished goods 2,234,324 1,534,622
$ 4,096,164 $ 3,815,653
Accumulated depreciation on
property, plant and equipment
not used in operations is: $ 134,287 $ 134,287
Provision for federal income
tax detail is:
Current tax expense $ 219,791 $ 411,491
Deferred tax (benefit) expense 3,000 (41,000)
$ 222,791 $ 370,491
Cash flow information:
Cash payments for interest $ 24,857 $ 29,675
Cash payments for
federal income taxes $ 322,925 $ 341,854
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Working capital at February 28, 1998 was $6,866,051, an increase of
$152,367 from May 31, 1997. Cash and cash equivalents decreased $912,405
during the nine-month period ended February 28, 1998. The decrease
resulted primarily from funding raw material purchases and the timing of
shipments during the third quarter. Cash was used to fund normal
working capital requirements, including acquisition of new store furniture,
fixtures and improvements, additions to property, plant and equipment
of existing facilities and payment of dividends. Accounts receivable
decreased $12,506. Inventories increased $280,511 primarily due to the
opening of a pilot factory retail store and ordinary seasonal requirements.
Accounts payable and accrued liabilities decreased $633,479 primarily
due to the payment of normal maturities and accrued expenses during
the nine-month period.
The current ratio at February 28, 1998 is 7 to 1 (5 to 1 at May 31,
1997). Total liabilities to assets equals thirteen percent (twenty
percent at May 31, 1997).
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
($1,143,000 at February 28, 1998 - $1,133,000 at May 31, 1997).
Capital acquisition and improvement expenditures totaled $91,021 during
the nine-month period ended February 28, 1998. It is estimated that
approximately $50,000 in additional capital expenditures will be made over
the fourth quarter, consisting of new store furniture, fixtures and
improvements and improvements to existing facilities. Funding will come
from cash flows generated through operating activities. No significant
disposition of equipment occurred during the nine-month period ended
February 28, 1998 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 1998 third quarter decreased approximately four and
two-tenths percent from 1997 third quarter and fifteen and two-tenths
percent from the prior second quarter as the Company experienced soft
womens fashion apparel sales and lower than planned sales due to
inclement weather in the pilot factory store in Napa, California. Net
sales for the nine-month period ended February 28, 1998 were approximately
one and one-tenth percent higher than in the 1997 nine-month period.
Cost of sales, as a percentage relationship to net sales for the third
quarter ended February 28, 1998, increased approximately three and two-
tenths percentage points over the 1997 third quarter. 1998 third quarter
cost of sales, as a percentage relationship to net sales, compared to the
preceding second quarter was approximately six and four tenths percentage
points higher. The increases in each period resulted primarily from the
effect of lower net sales, higher sales discounts and allowances and product
costs. For the nine-month periods ended February 28, 1998 and 1997, cost of
sales, as a percentage relationship to net sales, was approximately one-tenth
of one percentage point higher in the 1998 period.
Selling, general and administrative expenses increased, as a percentage
relationship to net sales for the third quarter and nine-month periods ended
February 28, 1998 and 1997, approximately one percentage point and one and
seven-tenths percentage points, respectively, in each period over the
comparable periods of the preceding year. The percentage increases resulted
primarily from the effect of lower net sales. 1998 third quarter selling,
general and administrative expenses decreased as a percentage relationship
to net sales by two and nine tenths of one percent compared to the previous
second quarter resulting primarily from lower selling and marketing expenses.
The provision for bad debts for the nine-month period ended February 28,
1998 of $75,000 compares to the 1997 provision of $90,199.
Other income in the 1998 third quarter decreased approximately fifty seven
percent compared to the 1997 third quarter. Other income in the 1998 nine-
month period ended February 28, 1998 decreased approximately thirteen
percent from the 1997 comparable period. Other income decreased approximately
sixty four percent in the 1998 third quarter compared to the second quarter
ended November 30, 1997. 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,
1998 decreased approximately forty one percent and six percent, respectively,
compared to the same periods in 1997. Interest income decreased approximately
thirty four percent in the 1998 third quarter compared to the preceding
second quarter. The decreases resulted primarily from lower average cash
balances.
<PAGE>
For the three-month and nine-month periods ended February 28, 1998 interest
expense decreased approximately twenty percent and increased approximately
eight percent, respectively, compared to the same periods ended in 1997.
Interest expense in the February 28, 1998 third quarter decreased
approximately nine percent compared to the preceding second quarter ended
November 30, 1997. 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 six and
eight tenths 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 provision for losses on
accounts receivable.
Part II. OTHER INFORMATION
Item 9. No reports on Form 8-K were filed during the three-month period
ended February 28, 1998.
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, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 1,009
<SECURITIES> 0
<RECEIVABLES> 2,403
<ALLOWANCES> 0
<INVENTORY> 4,096
<CURRENT-ASSETS> 7,949
<PP&E> 2,451
<DEPRECIATION> 1,506
<TOTAL-ASSETS> 8,948
<CURRENT-LIABILITIES> 1,083
<BONDS> 0
0
0
<COMMON> 360
<OTHER-SE> 7,533
<TOTAL-LIABILITY-AND-EQUITY> 8,948
<SALES> 10,818
<TOTAL-REVENUES> 10,896
<CGS> 7,030
<TOTAL-COSTS> 10,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 606
<INCOME-TAX> 223
<INCOME-CONTINUING> 383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 383
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
