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, 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
January 13, 1998
HOWARD B. WOLF, INC.
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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, 1997 and November 30, 1996
(Unaudited) 3
Consolidated Balance Sheets
November 30, 1997 (Unaudited) and May 31, 1997 4
Consolidated Statements of Cash Flows for the
six month period ended November 30, 1997
and November 30, 1996 (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
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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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $3,861,720 $3,640,522 $7,541,813 $7,271,400
Cost and expenses:
Cost of sales 2,401,080 2,291,556 4,782,123 4,704,279
Selling, general and
administrative expenses 1,204,707 1,058,949 2,231,701 2,008,517
Provision for
bad debt expense 22,500 45,199 45,000 67,699
3,628,287 3,395,704 7,058,824 6,780,495
Income from operations 233,433 244,818 482,989 490,905
Other income 18,512 16,620 34,051 31,039
Interest income 15,945 13,797 26,080 21,012
Interest expense (7,902) (5,452) (17,672) (14,123)
Income before federal
income tax 259,988 269,783 525,448 528,833
Provision for federal
income tax (90,992) (103,545) (186,256) (195,881)
Net income 168,996 166,238 339,192 332,952
Retained earnings -
beginning of period 5,455,545 5,156,456 5,369,844 5,074,237
Cash dividends (84,496) (84,496) (168,991) (168,991)
Retained earnings -
end of period $5,540,045 $5,238,198 $5,540,045 $5,238,198
Average number of
shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Net income per share $.16 $.16 $.32 $.32
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
ASSETS
November 30, May 31,
1997 1997
(Unaudited) (Audited)
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Current assets:
Cash and cash equivalents $1,540,736 $1,921,415
Accounts receivable (net) 2,551,896 2,415,244
Inventories 3,921,532 3,815,653
Prepaid expenses 258,807 160,994
Deferred federal income tax 211,000 214,000
Total current assets 8,483,971 8,527,306
Property, plant and equipment 2,418,509 2,360,038
Less accumulated depreciation
and amortization (1,461,205) (1,389,205)
957,304 970,833
Property, plant and equipment
not used in operations,less
accumulated depreciation 2,718 2,718
Other assets 51,097 51,097
$9,495,090 $9,551,954
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,134,884 $1,241,286
Accrued compensation 250,885 410,148
Accrued taxes 165,080 76,795
Other accrued liabilities 34,742 44,758
Federal income tax payable 1,966 40,635
Total current liabilities 1,587,557 1,813,622
Deferred federal income tax 73,000 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 5,540,045 5,369,844
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
7,834,533 7,664,332
$9,495,090 $ 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.
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HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
November 30,
1997 1996
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Cash flows from operating activities:
Net income $ 339,192 $ 332,952
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization 72,000 78,001
Provision for losses on accounts
receivable 45,000 67,699
Changes in deferred federal income tax 2,000 (62,000)
Net changes in assets and liabilities--
Accounts receivable (181,651) 380,947
Inventories (105,879) 226,144
Prepaid expenses (97,814) 50,286
Accounts payable and accrued liabilities (187,396) (465,632)
Federal income tax payable (38,669) 31,559
Net cash provided by (used in)
operating activities (153,217) 639,956
Cash flow from investing activities:
Additions to property, plant and equipment (58,471) (43,601)
Net cash used in investing activities (58,471) (43,601)
Cash flows from financing activities:
Cash dividends paid (168,991) (168,991)
Net cash used in financing activities (168,991) (168,991)
Net increase (decrease) in cash and cash
equivalents (380,679) 427,364
Cash and cash equivalents at beginning of
period 1,921,415 1,261,987
Cash and cash equivalents at end of period $ 1,540,736 $ 1,689,351
See notes to consolidated financial statements.
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of November 30, 1997, the consolidated
statements of operations and the consolidated statements of cash flows for
the three-month and six-month periods ended November 30, 1997 and 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 November 30, 1997 and 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, 1997 annual
report to shareholders. The results of operations for the six-month period
ended November 30, 1997 are not necessarily indicative of the operating
results for the full year ending May 31, 1998.
November 30, 1997 May 31, 1997
(Unaudited) (Audited)
Cash and cash equivalents consist of:
Cash $ 379,501 $ 945,759
Money market funds 203,001 400,162
Matured funds at factor 958,234 575,494
S 1,540,736 $ 1,921,415
Allowances for collection
losses and discounts are:
Collection losses $ 124,809 $ 116,228
Discounts 14,570 15,703
$ 139,379 $ 131,931
Inventories consist of:
Raw materials $ 1,002,638 $ 1,237,574
Work-in-process 1,029,962 1,043,457
Finished goods 1,888,932 1,534,622
$ 3,921,532 $ 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 $ 184,256 $ 411,491
Deferred tax (benefit) expense 2,000 (41,000)
$ 186,256 $ 370,491
Cash flow information:
Cash payments for interest $ 17,672 $ 29,675
Cash payments for
federal income taxes $ 222,925 $ 341,854
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1997 was $6,896,414, an increase of
$182,730 from May 31, 1997. Cash and cash equivalents decreased $380,679
during the six-month period ended November 30, 1997. The cash decrease
resulted primarily from funding raw material purchases and the timing of
shipments during the second 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
increased $136,651 primarily as a result of the timing of shipments
during the second quarter. Inventories increased $105,879 to align with
sales volume and the opening of a pilot Howard Wolf retail store.
Accounts payable and accrued liabilities decreased $187,396 primarily
due to payment of normal maturities and accrued expenses during
the six-month period.
The current ratio at November 30, 1997 is 5 to 1 (5 to 1 at May 31,
1997). Total liabilities to assets equals seventeen 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. Credit extended by the
Company in excess of the credit line is factored on a recourse basis
($1,289,000 at November 30, 1997 - $1,133,000 at May 31, 1997).
Capital acquisition and improvement expenditures totaled $58,471 during
the six-month period ended November 30, 1997. It is estimated that
approximately $100,000 additional capital expenditures will be made over
the next quarter, consisting of $75,000 in new store furniture, fixtures
and improvements and $25,000 in 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, 1997 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,
1997 increased approximately six percent and four percent, respectively,
in each period compared to the 1996 second quarter and six-month periods.
Net sales for the second quarter ended November 30, 1997 were
approximately five percent higher than in the preceding first quarter.
The increase in each period resulted primarily from a slightly stronger
product demand.
Cost of goods sold, as a percentage relationship to net sales for the
second quarter ended November 30, 1997, decreased approximately
eight tenths of one percentage point from the 1996 third quarter. 1997
second quarter cost of sales, as a percentage relationship to net sales,
compared to the preceding first quarter was approximately two and
five tenths percentage points lower. For the six-month periods ended
November 30, 1997 and 1996, cost of sales, as a percentage relationship
to net sales, was approximately one and three tenths percentage points
lower in the 1997 period. The decreases in each period resulted primarily
from the effect of higher net sales and a more favorable product
sales mix.
Selling, general and administrative expenses increased, as a percentage
relationship to net sales in the second quarter and six-month periods ended
November 30, 1997 and 1996, approximately two percent in each period
compared to the comparable periods of the preceding year. The percentage
increases resulted primarily from higher selling and marketing expenses.
1997 second quarter selling, general and administrative expenses increased
as a percentage relationship to net sales by three and three tenths
percent compared to the previous first quarter resulting primarily from
higher selling and marketing expense. The provision for bad debts for the
six-month periods ended November 30, 1997 and 1996 is $45,000 and $67,699,
respectively.
Other income in the second quarter and six-month periods ended November 30,
1997 increased approximately eleven percent and ten percent, respectively,
compared to the comparable periods of the preceding year. Other income
increased approximately nineteen percent in the 1997 second quarter
compared to the preceding first quarter ended November 30, 1996. The
increases resulted primarily from rental income from property not used
in operations.
Interest income in the three-month and six-month periods ended November 30,
1997 increased approximately sixteen percent and twenty four percent,
respectively, compared to the same periods in 1996. Interest income
increased approximately fifty seven percent in the 1997 second quarter
compared to the preceding first quarter. The increases in all periods
resulted primarily from higher average cash balances.
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For the three-month and six-month periods ended November 30, 1997 interest
expense increased approximately forty five percent and twenty five percent,
respectively, compared to the same periods ended in 1996. Interest expense
in the November 30, 1997 second quarter decreased approximately nineteen
percent compared to the preceding first quarter ended August 31,1997.
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 five 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 November 30, 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)
January 13, 1998
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