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, 1999
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, 1999
<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, 1999 and February 28, 1998
(Unaudited)............................. 3
Consolidated Balance Sheets
February 28, 1999 (Unaudited) and May 31,
1998.................................... 4
Consolidated Statements of Cash Flows for
the nine-month period ended February 28,
1999 and February 28, 1998 (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 6.
Exhibits and Reports on Form 8-K......... 8
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statement
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net sales....................... $2,491,598 $3,276,419 $8,280,894 $10,818,232
Cost and expenses:
Cost of sales................. 3,764,261 2,248,220 8,275,299 7,030,343
Selling, general and
administrative expenses... 861,055 928,033 2,687,514 3,159,734
Provision for bad debt expense 84,367 30,000 149,326 75,000
--------- --------- --------- ----------
4,709,683 3,206,253 11,112,139 10,265,077
--------- --------- --------- ----------
Income (Loss) from operations (2,218,085) 70,166 (2,831,245) 553,155
Loss on abandonment of assets (69,878) -- (89,878) --
Gain on sale of property, plant
and equipment not used
in operations................... 240,002 -- 240,002 --
Other income............ 8,418 6,676 37,920 40,727
Interest income............... 5,147 10,560 15,012 36,640
Interest expense............. (8,052) ( 7,185) (32,565) (24,857)
--------- --------- --------- ----------
Income (loss) before federal
income tax (2,042,448) 80,217 (2,660,754) 605,665
Federal income tax (provision)
credit.. 724,787 ( 36,535) 906,865 (222,791)
--------- --------- --------- ----------
Net income (loss)............... (1,317,661) 43,682 (1,753,889) 382,874
Retained earnings - beginning
of period..... 4,828,564 5,540,045 5,433,783 5,369,844
Cash dividends.................. -- (84,495) (168,991) (253,486)
--------- --------- --------- ----------
Retained earnings - end of period $3,510,903 $5,499,232 $3,510,903 $ 5,499,232
========= ========= ========= ==========
Average number of shares
outstanding..... 1,056,191 1,056,191 1,056,191 1,056,191
========= ========= ========= ==========
Basic and diluted earnings
earnings (loss) per share $(1.25) $.04 $(1.66) $.36
Cash dividends per share...... - $.08 $.16 $.24
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEETS
February 28, May 31,
1999 1998
ASSETS --------- ---------
<S> <C> <C>
Current assets: (Unaudited) (Audited)
Cash and cash equivalents.................. $1,231,913 $1,128,991
Accounts receivable (net).............. 1,712,323 2,530,137
Inventories.............................. 1,377,901 4,620,568
Prepaid expenses.......................... 112,638 159,322
Refundable federal income tax ............ 1,035,131 112,813
Deferred federal income tax benefit....... 118,000 234,000
--------- ---------
Total current assets................... 5,587,906 8,785,831
Property, plant and equipment................. 2,496,881 2,494,332
Less accumulated depreciation and
amortization............................. (1,782,771) (1,555,118)
--------- ---------
714,110 939,214
Property, plant and equipment not used in
operations, less accumulated depreciation... - 678
Other assets.................................. 51,957 51,957
--------- ---------
$6,353,973 $9,777,680
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 293,902 $1,667,482
Accrued compensation..................... 68,972 191,390
Accrued taxes............................ 85,887 100,207
Other accrued liabilities............. 30,821 16,329
--------- ---------
Total current liabilities........... 479,582 1,975,408
Deferred federal income tax.............. 69,000 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........................ 3,510,903 5,433,784
Less common stock in treasury,
at cost, 25,000 shares................ (100,000) (100,000)
--------- ---------
5,805,391 7,728,272
$6,353,973 $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.
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
February 28, February 28,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ ($1,753,889) $ 382,874
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization......... 144,662 117,000
Provision for losses on accounts receivable 149,326 75,000
Deferred federal income tax........... 111,000 (3,000)
Abandonment of leasehold improvements 89,878 -
Gain on sale of property, plant and equipment
not used in operations.............. (240,002) -
Net changes in operating assets and liabilities--
Accounts receivable............... 668,487 (62,495)
Inventories.................. 3,242,667 (280,511)
Prepaid expenses............. 46,684 (66,155)
Refundable federal income tax (922,318) -
Accounts payable and accrued liabilities.. (1,495,826) (633,477)
Federal income tax payable...... - (97,134)
--------- ---------
Net cash provided by (used in)
operating activities................... 40,669 (567,898)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment... (8,758) (91,021)
Proceeds from sale of property, plant and
equipment not used in operations........... 240,002 -
--------- ---------
Net cash provided (used in) investing
activities.............................. 231,244 (91,021)
--------- ---------
Cash flows from financing activities:
Cash dividends paid................... (168,991) (253,486)
--------- ---------
Net cash used in financing activities... (168,991) (253,486)
--------- ---------
Net change in cash and cash equivalents.. 102,922 (912,405)
Cash and cash equivalents at beginning of
period.................................. 1,128,991 1,921,415
--------- ---------
Cash and cash equivalents at end of period $1,231,913 $1,009,010
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In 1952 Howard B. Wolf, Inc. began the designing, manufacturing and
marketing of the HOWARD WOLF label, which consisted primarily of
dresses for career and professional women who demanded smart,
fashionable clothes at a competitive price. Its primary market was
better women's specialty stores and department stores. Over the last
several years the product line was expanded to include sportswear,
blouses and larger size women's dresses and sportswear. Due to
generational and societal changes in women's clothes buying habits
many better women's specialty stores were experiencing a significant
decline in business. In order to offset declining sales to its
primary market, the Company explored marketing in Mexico and Canada,
chain and catalogue distribution as well as vertical retailing by
opening two pilot outlet mall retail stores in premium outlet malls.
Successful marketing was never achieved in these markets. Upon
continued research and study, management determined that it would be
necessary to find a compatible company to acquire or merge with in
order to gain sales volume and efficiencies necessary to generate
acceptable profit levels. Over the last four years the Company was
unable to find a suitable partner and with sales volume continuing to
decline, more retail women's specialty stores going out of business
and many apparel manufacturers closing, on February 3, 1999 the Board
of Directors adopted a Plan of Liquidation and Dissolution to be
presented to the shareholders of the Company at a duly called
meeting.
As a result of the Board of Directors recommendation to the
shareholders to sell the assets of the Company, all significant
assets have been sold and accordingly no provision has been made to
reduce the useful lives of the assets.
The Company will incur losses during the fourth quarter of fiscal
year 1999. Based on the assumed losses in the fourth quarter and
assumed future expenses of liquidation, management believes it has
sufficient resources and liquidity to meet its financial obligations
through the liquidation and have significant liquidity to distribute
to its shareholders.
The consolidated balance sheet as of February 28, 1999, the
consolidated statements of operations and the consolidated statements
of cash flows for the three-month and nine-month periods ended
February 28, 1999 and 1998 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, 1999 and 1998 have been
made. Upon approval of the Plan of Liquidation and Dissolution by the
shareholders the Company will adopt the liquidation basis of
accounting.
<PAGE>
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 nine-month period ended February 28,
1999 are not necessarily indicative of the operating results for the
full year ending May 31, 1999.
February 28, 1999 May 31, 1998
---------- ----------
(Unaudited) (Audited)
Cash and cash equivalents consist of:
Cash $ 384,032 $ 290,833
Money market funds 213,498 207,461
Matured funds at factor 634,383 630,697
---------- ----------
$ 1,231,913 $ 1,128,991
========== ==========
Allowances for collection
losses and discounts are:
Collection losses $ 165,900 $ 118,609
Discounts 9,201 13,937
---------- ----------
$ 175,101 $ 132,546
========== ==========
Inventories consist of:
Raw materials $ 68,739 $ 991,748
Work-in-process 256,703 1,067,345
Finished goods 1,052,459 2,561,475
---------- ----------
$ 1,377,901 $ 4,620,568
========== ==========
Accumulated depreciation on
property, plant and equipment
not used in operations is: $ 0 $ 136,327
========== ==========
Provision for federal income
tax detail is:
Current tax expense (credit) $(1,017,865) $ 244,477
Deferred tax benefit 111,000 (20,000)
---------- ----------
$ (906,865) $ 224,477
========== ==========
Cash flow information:
Cash payments for interest $ 32,565 $ 35,133
========== ==========
Cash payments for
federal income taxes $ - $ 387,925
========== ==========
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation
LIQUIDITY AND CAPITAL RESOURCES
Working capital at February 28, 1999 was $5,108,324, a decrease of
$1,702,099 from May 31, 1998. Cash and cash equivalents increased
$102,922 during the nine-month period ended February 28, 1999. The
cash increase resulted primarily from the reduction of inventories
$3,242,667 and accounts receivable $817,814 during the third
quarter as a result of lower sales and the adoption of a plan of
liquidation and dissolution by the Board of Directors on February 3,
1999 (see notes to financial statements above). Accounts payable and
accrued liabilities decreased $1,495,826 primarily due to the payment
of normal maturities and accrued expenses and lower purchases during
the last three months of the nine-month period ended February 28,
1999.
The current ratio at February 28, 1999 is 18 to 1 (4 to 1 at May 31,
1998). Total liabilities to assets equals nine percent (twenty-one
percent at May 31, 1998).
The company factors its accounts receivable with a commercial factor.
Prior to February 3, 1999 factoring was on a matured basis (funds
are remitted by the factor upon maturity of the invoices, plus a set
number of collection days) and on February 3, 1999 factoring was to
changed to an "as collected" basis (funds are available to the
Company as they are collected by the factor).
Capital acquisition and improvement expenditures totaled $8,758
during the nine-month period ended February 28, 1999. During the
third quarter property, plant and equipment not used in operations
located in Greenville, Texas was sold. Due to the impending
recommended plan of liquidation and dissolution no further capital
acquisitions are planned. Upon approval by the shareholders of the
Plan of Liquidation and Dissolution it is planned that by May 31,
1999 all significant capital assets will be sold. (On March 16, 1999
the Company's principal office and manufacturing facility was sold
for approximately $1,700,000 and leased back through June 30, 1999 at
an expected cost of $50,000.)
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.
The Company's computerized information systems will not be updated to
resolve the potential impact of the year 2000 problems as the pending
Plan of Liquidation and Dissolution will cause the company to cease
operation and business prior to the end of 1999.
<PAGE>
RESULTS OF OPERATIONS
Net sales for the 1999 third quarter decreased approximately five and
six-tenths percent from the 1999 second quarter, and approximately
twenty-four percent from the 1998 third quarter. Net sales for the
nine-month period ended February 28, 1999 were approximately twenty-
four percent lower than in the 1998 nine-month period. Sales in all
periods were lower primarily due to the soft demand for women's
apparel.
Cost of sales, as a percentage relationship to net sales, for the
third quarter ended February 28, 1999 increased approximately eighty-
three percentage points over the 1998 third quarter and approximately
sixty-two percent higher compared to the preceding second quarter.
For the nine-month periods ended February 28, 1999 and 1998, cost of
sales, as a percentage relationship to net sales, was approximately
thirty-five percent higher in the 1999 period. The increase resulted
primarily due to higher discounts and allowances experienced in the
1999 third quarter to coordinate inventories to lower sales levels.
Selling, general and administrative expenses increased, as a
percentage relationship to net sales for the third quarter and nine-
month periods ended February 28, 1999 and 1998, approximately six
percentage points and two percentage points, respectively, in each
period over the comparable periods of the preceding year. 1998 third
quarter selling, general and administrative expenses increased as a
percentage relationship to net sales by approximately two percentage
points compared to the previous second quarter. The increases in
each period resulted primarily from the effect of lower sales and an
overall reduction of selling, general and administrative expenses.
The provision for bad debts for the nine-month period ended February
28, 1999 of $149,326 compares to the 1998 provision of $75,000
primarily due to the soft economic conditions experienced in the
retail womens apparel sector of the economy.
Other income in the 1999 third quarter and nine-month periods
compared to the 1998 periods were approximately the same . Other
income in the third quarter ended February 28, 1999 was approximately
thirteen thousand dollars higher compared to the preceding second
quarter ended November 30, 1998 primarily due to unamortized
leasehold costs charged off in the second quarter.
Interest income in the three-month and nine-month periods ended
February 28, 1999 decreased approximately fifty- one percent and
seventy-four percent, respectively, compared to the same periods in
1998. Interest income decreased approximately twenty five percent
compared to the preceding second quarter. The decreases resulted
primarily from lower average cash balances and slightly lower
interest rates.
<PAGE>
For the three-month and nine-month periods ended February 28, 1999
interest expense increased approximately twelve percent and twenty-
six percent, respectively, compared to the same periods ended in
1998. Interest expense in the February 28, 1999 third quarter
increased approximately sixty-seven 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 credit effective tax rate of thirty-four and
one tenth percent is approximately equal to the statutory rate
(thirty four percent). The following adjustments to the book loss
were approximately equal. 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 6. Two reports on Form 8-K were filed during the three-month
period ended February 28, 1999.
Form 8-K dated February 3, 1999, Announced Plan of Liquidation
and Dissolution.
Form 8-K dated February 16, 1999, Announced sale agreement of
Howard Wolf label.
<PAGE>
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, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 1,232
<SECURITIES> 0
<RECEIVABLES> 1,712
<ALLOWANCES> 0
<INVENTORY> 1,378
<CURRENT-ASSETS> 5,588
<PP&E> 2,497
<DEPRECIATION> 1,783
<TOTAL-ASSETS> 6,354
<CURRENT-LIABILITIES> 480
<BONDS> 0
0
0
<COMMON> 360
<OTHER-SE> 5,445
<TOTAL-LIABILITY-AND-EQUITY> 6,354
<SALES> 8,281
<TOTAL-REVENUES> 8,574
<CGS> 8,276
<TOTAL-COSTS> 11,112
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (2,661)
<INCOME-TAX> (907)
<INCOME-CONTINUING> (1,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (1,754)
<EPS-PRIMARY> (1.66)
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</TABLE>
