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 August 31, 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
September 25, 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 periods ended August 31, 1998 and
August 31, 1997 (Unaudited).................. 3
Consolidated Balance Sheets
August 31, 1998 (Unaudited) and May 31, 1998 4
Consolidated Statements of Cash Flows for the
three-month periods ended August 31, 1998
and August 31, 1997 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited)... ................................ 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 7 - 9
PART II. OTHER INFORMATION
Item 9.
Exhibits and Reports on Form 8-K............... 10
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Part 1. FINANCIAL INFORMATION
Item 1. Financial Statement
HOWARD B. WOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Three Months Ended
August 31,
1998 1997
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Net sales $3,148,230 $3,680,093
Cost and expenses:
Cost of sales 2,156,047 2,381,043
Selling, general and
administrative expenses 955,841 1,026,994
Provision for
bad debt expense 27,459 22,500
Income from operations 8,883 249,556
Other income 14,097 15,539
Interest income 3,029 10,135
Interest expense (19,700) (9,770)
Income before federal
income tax 6,309 265,460
Provision for federal
income tax (1,076) (95,264)
Net income 5,233 170,196
Retained earnings -
beginning of period 5,433,784 5,369,844
Cash dividends (84,495) (84,495)
Retained earnings -
end of period $5,354,522 $5,455,545
Average number of
shares outstanding 1,056,191 1,056,191
Basic and diluted
earnings per share $.01 $.16
Cash dividends per share $.08 $.08
See notes to consolidated financial statements.
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HOWARD B. WOLF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, May 31,
1998 1998
(Unaudited) (Audited)
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Current assets:
Cash and cash equivalents $ 718,245 $1,128,991
Accounts receivable - net 2,341,067 2,530,137
Inventories 4,308,225 4,620,568
Prepaid expenses 221,476 159,322
Refundable federal income tax 140,737 112,813
Deferred federal income tax 203,000 234,000
Total current assets 7,932,750 8,785,831
Property, plant and equipment 2,499,775 2,494,332
Less accumulated depreciation
and amortization (1,603,118) (1,555,118)
896,657 939,214
Plant and equipment
not used in operations,less
accumulated depreciation 678 678
Other assets 51,957 51,957
$8,882,042 $9,777,680
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $1,161,032 $1,975,408
Total current liabilities 1,161,032 1,975,408
Deferred federal income tax 72,000 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 5,354,522 5,433,784
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
7,649,010 7,728,272
$8,882,042 $ 9,777,680
Note: The consolidated balance sheet at May 31, 1998 has been taken from
the audited financial statements.
See notes to consolidated financial statements.
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HOWARD B. WOLF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
August 31,
1998 1997
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Cash flows from operating activities
Net income $ 5,233 $ 170,196
Adjustments to reconcile net income to
net cash used in operating activities--
Depreciation and amortization 48,000 42,000
Provision for losses on
accounts receivable 27,459 22,500
Change in deferred federal income tax 29,000 (9,000)
Net changes in operating assets and liabilities--
Accounts receivable 161,611 12,910
Inventories 312,343 72,983
Prepaid expenses (62,154) (43,030)
Refundable federal income tax (27,924) -
Accounts payable and accrued liabilities (814,376) (580,403)
Federal income tax payable - 91,339
Net cash used in operating activities (320,808) (220,505)
Cash flows from investing activities
Additions to property, plant and equipment (5,443) (28,452)
Net cash used in investing activities (5,443) (28,452)
Cash flows from financing activities
Cash dividends paid (84,495) (84,495)
Net cash used in financing activities (84,495) (84,495)
Net decrease in cash and cash equivalents (410,746) (333,452)
Cash and cash equivalents
at beginning of period 1,128,991 1,921,415
Cash and cash equivalents at end of period $ 718,245 $ 1,587,963
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The consolidated balance sheet as of August 31, 1998, the consolidated
statements of operations and the consolidated statements of cash flows
for the three-month periods ended August 31, 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 August 31, 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, 1998 annual report to shareholders. The results of operations
for the three-month period ended August 31, 1998 are not necessarily
indicative of the operating results for the full year ending May 31, 1999.
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August 31, 1998 May 31, 1998
(Unaudited) (Audited)
Cash and cash equivalents consist of:
Cash $ 246,567 $ 290,833
Money market funds 209,720 207,461
Matured funds at factor 261,958 630,697
$ 718,245 $1,128,991
Allowances for collection
losses and discounts are:
Collection losses $ 118,161 $ 118,609
Discounts 11,114 13,937
$ 129,275 $ 132,546
Inventories consist of:
Raw materials $ 1,084,733 $ 991,748
Work-in-process 492,794 1,067,345
Finished goods 2,730,698 2,561,475
$ 4,308,225 $ 4,620,568
Accumulated depreciation on
plant and equipment
not used in operations is: $ 136,327 $ 136,327
Accounts payable and accrued
liabilities consist of:
Accounts payable - trade $ 887,844 $ 1,667,482
Accrued compensation 110,760 191,390
Accrued taxes 146,460 100,207
Other accrued liabilities 15,968 16,329
$ 1,161,032 $ 1,975,408
Provision for federal income
tax detail is:
Current tax expense $ (27,924) $ 244,477
Deferred tax benefit 29,000 (20,000)
$ 1,076 $ 224,477
Cash flow information:
Cash payments for interest $ 19,700 $ 35,133
Cash payments for
federal income taxes $ 33,000 $ 387,925
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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 August 31, 1998 was $6,771,718, a decrease of
$38,705 from May 31, l998. Cash and cash equivalents decreased
approximately thirty-six percent during the three-month period ended
August 31, 1998. Cash was used to fund normal working capital
requirements, including acquisition of property, plant and equipment
additions, payment of dividends and payment of matured accounts
payable and accrued liabilities. Accounts receivable decreased
approximately seven percent primarily due to the timing of
shipments during the quarter. Inventories decreased approximately
seven percent. Accounts payable and accrued liabilities decreased
approximately forty-one percent primarily due to payment of normal
maturities and accrued expenses during the three-month period.
The current ratio at August 31, 1998 is 6.8 to 1 (4.4 to 1 at May 31,
1998). Total liabilities to assets equals fourteen percent (twenty-
one percent at May 31, 1998).
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.
Capital acquisition and improvement expenditures totaled $5,443
during the three-month period ended August 31, 1998. It is
estimated that approximately $245,000 additional capital
expenditures will be made over the next three 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 three-month period ended August 31, 1998.
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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 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits", which is effective for
fiscal years beginning after December 15, 1997.
Based on current operations and internally generated cash flows,
management believes that adequate resources will be available to
meet current and future liquidity requirements.
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to
accurately process information that may be date sensitive. Any of the
Company's programs that recognize a date using "00" as the year 1900
rather than the year 2000 could result in errors or system failures.
The Company utilizes a number of computer programs across its entire
operation. The Company has not completed its assessment, but currently
believes that costs of addressing this issue will not have a material
adverse impact on the Company's financial position. However, if the
Company and third parties upon which it relies are unable to address
this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur,
the Company is devoting all resources required to resolve any significant
year 2000 issues in a timely manner.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income,"
which is effective for the Company's fiscal year ending May 31, 1999.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains, and losses) in a full
set of general purpose financial statements. SFAS No. 130 has been adopted by
the Company. There are no components of comprehensive income for the quarter
ended August 31, 1998 and therefore, no change in the financial statement
format for the Company as of August 31, 1998.
The FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," which is effective for financial statements
for periods in fiscal years beginning after December 15, 1997, but does not
need to be applied to interim financial statements in the initial year of its
application. SFAS No. 131 changes the way public companies report
information about operating segments does not presently apply to the
Company's operations. If segment reporting becomes applicable in a future
period, the Company will adopt SFAS no. 131 in that period.
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RESULTS OF OPERATIONS
August 31, 1998 first quarter net sales decreased approximately fourteen
percent compared to the first quarter of the previous year. The
decrease resulted primarily from an overall soft demand for women's
apparel.
Cost of sales, as a percentage relationship to net sales, increased
approximately four percentage points from the first quarter last year.
The percentage increase resulted primarily from higher discounts and
allowances and the effect of lower net sales. The factory outlet mall
store located in Napa, California was closed September 8, 1998 due to
lower than anticipated sales.
Selling, general and administrative expenses increased
approximately two and one-half of one percentage point as a
relationship to net sales compared to last year's first quarter.
The percentage increase resulted primarily from the expenses of the two
factory outlet mall stores operating in the 1998 first quarter. The
provision for bad debt expense was $27,459 compared to $22,500 in 1997.
Other income decreased approximately nine percent from the first quarter
last year, resulting primarily from lower rental income from
property not used in operations.
Interest income decreased approximately seventy percent compared to
the first quarter of the previous year due primarily to lower average
cash balances.
Interest expense, compared to last year's first quarter, was
approximately one-hundred-two percent higher. The increase resulted
primarily from factor interest charges on recourse accounts
receivable.
The federal income tax provision effective tax rate of seventeen (17)
percent differs from the statutory rate of thirty four (34) percent
as a result of nondeductible life insurance premiums, nondeductible
portion of meals, accelerated depreciation, capitalization of certain
expenses in inventories, the difference between the doubtful account
reserve and write-offs, and change in tax rates due to lower taxable
income.
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Part II. OTHER INFORMATION
Item 9. No reports on Form 8-K were filed during the three-month
period ended August 31, 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.
/s/ Eugene K. Friesen
Eugene K. Friesen
Senior Vice President and Treasurer
(Chief Accounting Officer)
/s/ Howard B. Wolf
Howard B. Wolf
Chairman of the Board
September 25, 1998
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