SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THIS SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1996 Commission file number 1-6775
HOWARD B. WOLF, INC.
(Exact name of registrant as specified in its charter)
Texas 75-0847571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3809 Parry Avenue, Dallas, Texas 75226-1753
(Address of principal executive offices) (Zip Code)
(214) 823-9941
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.331/3 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein; and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
The aggregate market value of Registrant's common stock held by non-
affiliates (based upon the closing sale price on the American Stock
Exchange) on August 9, 1996 was approximately $3,992,179.
As of August 9, 1996, there were 1,056,191 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on September 17, 1996 are incorporated by reference into Part
III.
<PAGE>
HOWARD B. WOLF, INC.
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED MAY 31, 1996
PART I
Item 1. Business
General
Howard B. Wolf, Inc. (the "Company"), incorporated under the laws of
the State of Texas in 1952, designs, manufactures and sells women's fashion
apparel consisting primarily of dresses, suits, shirts and coordinated
groups of sportswear.
The Company's products are designed and presented for each season
(fall,holiday, spring and summer). Sales generally do not fluctuate
materially from quarter to quarter as a result of seasonal sales patterns
of the Company's business. Accordingly, there are no significant seasonal
fluctuations in quarterly fiscal year shipments.
Working capital requirements do not fluctuate materially. The Company
produces merchandise to meet sales orders and does not carry large
inventories to meet estimated sales requirements. The Company does not sell
on consignment. The merchandise return policy provides for return of
defective merchandise within ten days after receipt. Primary sale terms are
8/10 EOM and Net/10 EOM. Requests are received for extended payment terms
for up to thirty days from due date primarily for shipments made early in a
season. These requests are generally granted subject to the credit standing
of the customer. Extended payment requests do not have a material effect on
cash flow.
Principal Products and Markets
The Company merchandises its products (Fashion apparel for women)
under the following labels:
HOWARD WOLF DRESS label-comprised of dresses, ensembles and suits
and retails from approximately $90 to $250. It is intended for
career/professional and fashionable women who desire current styling and
good taste. The Howard Wolf Dress label, introduced in 1956, is well known
in the fashion field.
HOWARD WOLF SPORTSWEAR label-designed for career/professional and
fashionable women, is presented as separate shirts, pants, tops, jackets
and sweaters in coordinated groups. Introduced during the Fall 1972 season,
this label retails from approximately $50 to $250.
<PAGE>
ERNESTO W label-was introduced in 1976. This label is currently
used on special request only. It retails from approximately $40 to $150.
PRET-A-PORTE label-established in 1969, is currently used on
special request only. It retails from approximately $40 to $125.
HOWARD WOLF W label-started on 1993-is designed as separates in
fashionable larger sizes (0x-3x) that retails from approximately $60 to
$250.
The Howard Wolf collections are sold by independent sales
representatives, most of whom are compensated on a commission basis.
Representatives, during each fashion season, call upon retailers throughout
the country and show at the major domestic fashion markets.
Design and Production
The Company maintains a design staff in Dallas to design the styles
manufactured and sold by it. To an extent which the Company believes to be
unique for manufacturers in its price range, the Company continuously
monitors trends in style and fabric with particular emphasis on
developments in design for career/professional and fashionable women.
Design personnel of the Company make frequent trips to domestic and foreign
fashion markets. The Company operated one manufacturing facility during the
year on a forty-hour week, one shift basis, with employment and production
virtually constant throughout the year. The Company utilized primarily
domestic independent contractors for most of its sewing operations, which
are under the Company's supervision and made in accordance with its
specifications and production schedules. Certain manufacturing operations
(pattern making, grading and predominantly all cutting) continue to be
performed by the Company's employees at its Dallas facility.
The Company maintains strict quality control during the manufacturing
process. Finished products are received in the Dallas facility and are
carefully inspected and shipped from this location.
Raw Materials
Raw materials used in the Company's products are primarily fabrics and
trim items. They are of both domestic and foreign origin and are obtainable
from many resources.
Customers
The Company sells to approximately 800 retailers who operate more than
1,200 stores throughout North America. No customer accounts for more than
10% of sales. Customers include many leading department and specialty
stores. Permanent showrooms are maintained in the Dallas Apparel Mart, the
Atlanta Merchandise Mart and the Los Angeles Mart.
<PAGE>
In addition to sales to retailers, the Company operated two "Fashion
Showroom" retail stores located in Dallas and San Benito, Texas for the
sale of merchandise resulting from excess production, specially produced
merchandise and seconds.
Backlog Orders
The Company had approximately $4,800.000 of unshipped order on hand at
May 31, 1996 ($4,800.000 on May 31, 1995). These orders are believed to be
firm. All backlog orders are expected to be filled in the current fiscal
year.
Competition
The fashion apparel manufacturing industry is highly competitive, and
the Company competes with many other manufacturers, some of which are
larger in sales and resources. The principal methods of competition are
price and style. Price is primarily based on fabrication, trim and style.
Manufacturing process employed by the Company provide competitive product
pricing. Style is based on current trends and fashions. The Company's
design techniques and thorough exploration of fashion centers worldwide
provide competitive styling. The Company believes that its products compete
effectively in terms of buyer acceptance with those of its competition in
the Company's price range and areas of style concentration. The Company has
no information to determine what share of the market its products represent
in terms of sales.
Employees
The Company employed 93 persons on a full-time basis at May 31, 1996.
Of these, 11 were executive, administrative and clerical employees; 14 were
sales representatives; 54 were design, cutting and manufacturing personnel
and 14 were engaged in other activities such as shipping, warehouse
management, security and transportation. The Company had no employees
represented by a union and believes that it enjoys good relations with its
employees.
Environmental Considerations
The cost and effect of complying with environmental regulations are
not material due to the nature of the Company's business.
Item 2. Properties
<PAGE>
The principal offices of the Company are in Dallas, Texas where the
Company owns a three-story brick building containing approximately 90,000
square feet. This facility, containing the executive, design,
administrative, and data processing facilities, is also devoted to some
manufacturing, and all merchandise is shipped from this location. These
facilities are suitable for the Company's operations with adequate space
and improvements. Approximately twenty percent of the 90,000 square feet is
not presently utilized by the Company and has been leased to an unrelated
entity.
The Company owns one other facility in Greenville, Texas, which is
leased to a nonrelated entity and is shown in the balance sheet as
property, plant, and equipment not used in operations. The other facility
in Dallas was sold in November 1995.
The following table sets forth pertinent information concerning each
of the above properties:
Interest Square
Location property feet
Principal office and manufacturing facility Fee 90,000
Greenville facility Fee 11,900
The Company leases (under short-term leases from three to five years)
permanent showrooms in the apparel marts in Atlanta, Dallas, and Los
Angeles.
Substantially all of the machinery and equipment required in the
operation of the business is either owned or leased by the Company under
short term leases from thirty months to thirty six months, and is in good
operating condition.
Item 3. Legal Proceedings
The Company is not involved in any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matter
The common stock of the Company is traded on the American Stock
Exchange. The following table gives the high and low sales prices and the
amount of dividends paid for the fiscal quarters indicated:
<PAGE>
1996 Date ended High Low Dividend
First quarter August 31, 1995 $6 5/8 $5 5/8 .08
Second quarter November 30, 1995 6 3/4 6 1/4 .08
Third quarter February 29, 1996 7 3/8 6 9/16 .08
Fourth quarter May 31, 1996 7 5/8 6 1/4 .08
1995 Date ended High Low Dividend
First quarter August 31, 1994 $7 5/8 $6 .07
Second quarter November 30, 1994 7 3/8 6 5/8 .07
Third quarter February 28, 1995 7 5/8 6 1/2 .08
Fourth quarter May 31, 1995 7 3/4 5 7/8 .08
The Company's common stock closed at $6 5/8 on August 9, 1996.
As of August 9, 1996, there were 280 holders of record of the
Company's common stock. The Company paid dividends during fiscal years 1996
and 1995. There are no restrictions on the Company's ability to pay
dividends other than those provided by statute. The payment of dividends is
reviewed each period by the Board of Directors taking into consideration
earnings, business requirements and economic conditions. A dividend of $.08
per share was declared by the Board of Directors payable August 29, 1995 to
shareholders of record August 9, 1996.
Item 6. Selected Consolidated Financial Data
1996 1995 1994 1993 1992
Net sales $15,213 $14,436 $14,269 $12,938 $10,779
Income from continuing
operations before
federal income tax and
accounting change 1,332 1,220 1,222 1,101 740
Provision for federal
income tax 460 431 441 392 272
Income from continuing
operations before
accounting change 872 798 781 708 468
Cumulative prior years'
effect of a change in
accounting for
income taxes - - - - (33)
Net income 872 789 781 708 435
Income per share:
Income from continuing
operations before
accounting change .83 .75 .74 .67 .44
Cumulative prior years'
effect of a change
in accounting for
income taxes - - - - (.03)
Net income .83 .75 .74 .67 .41
Cash dividends per
common share .32 .30 .28 .23 .20
Total assets 8,834 8,796 8,266 7,542 7,343
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations
FINANCIAL CONDITION
Liquidity and Capital Resources
Working capital at May 31, 1996 was $6,336,552, an increase of
$541,585, or 9.3 per cent from the previous year. The current ratio at May
31, 1996 is 5.5 to 1 (4 to 1 in 1995). Total liabilities to assets equals
seventeen percent (twenty two percent in 1995).
Cash was used to fund normal working capital requirements, including
acquisition of property, plant and equipment, payment of dividends and
payment of matured accounts payable and accrued liabilities. The May 31,
1996 cash balance decreased $113,582 in financing activities less $8,065
provided by investing activities and $216,334 provided by operating
activities.
The Accounts receivable balance was approximately the same as in 1995
inventories increased approximately three percent primarily resulting from
an accelerated production of finished goods for fall shipments. Accounts
payable and accrued liabilities decreased approximately twenty three
percent. The Company's goal of shipping each seasons orders as early in the
retail selling season as possible often accelerates the acquisition of
inventory components and affects the level of inventories and accounts
payable.
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 factor's approved credit line is factored on a
recourse basis.
The Company does not have a retirement plan nor offers post retirement
or employment benefits. Accordingly, there will be no impact on the Company
due to SFAS 106,"Employers'Accounting for Post Employment Benefits".
Capital acquisition and improvement expenditures during fiscal 1996
totaled approximately $241,000, consisting primarily of new equipment and
improvements to facilities. These expenditures were funded out of current
working capital. There were no significant dispositions of fixed assets
used in operations during fiscal 1996 and none are planned during fiscal
1997. The Company sold it's Dallas, Texas facility not used in operations
in November 1995 for $250,000. Capital acquisition and improvement
expenditures for the 1997 fiscal year are planned to total approximately
$100,000. These expenditures are planned to consist of new equipment to
increase operating efficiencies and improvements to existing facilities.
Funding will come from cash flows generated through operations. Present
facilities are adequate with room for expansion and no material requirements
for additional facilities or major capital expenditures are anticipated in
the next few years.
<PAGE>
Shipments in fiscal 1997 are expected to be relatively equal during
each quarter. Inventories are expected to remain at approximately the same
level during the year subject to temporary seasonal requirements. The
payment of dividends is reviewed each quarter taking into consideration
liquidity, earnings, business requirements and economic conditions.
Based on current operations and internally generated cash flows,
management believes that adequate resources will be available to meet
current and future liquidity requirements.
Inflation
Inflationary higher prices for materials, labor, overhead and other
expenses increased costs. The Company attempts to offset the effects of
theses increased costs through greater productivity, operating efficiencies
and selective price adjustments.
RESULTS OF OPERATIONS
1996 Compared to 1995
Net income for the fiscal year ended May 31, 1996 was $872,048, or
$.83 per share, compared to $789,188, or $.75 per share in the 1995 fiscal
year. Income before federal income tax was $1,332,212 in 1996 versus income
before federal income tax of $1,219,946 in 1995.
Net sales totaled $15,213,047 for the 1996 fiscal year, approximately
five percent over the previous year.The increase results primarily from
sales mix and selective price increases. The HOWARD WOLF label continues to
experience good customer acceptance. However, an overall weakened demand
for women's apparel continues to exert greater competitive pressures on
sales and margins. Management's goal is to continue to broaden the HOWARD
WOLF market base by greater penetration into domestic and foreign markets.
Cost of sales increased from 65.0 percent to 66.6 percent as a
percentage relationship to net sales. The percentage increase resulted
primarily from product sales mix and increased sales allowances.
Selling, general and administrative expenses decreased approximately
one and one-half percent as a percentage relationship to net sales. The
percentage decrease resulted primarily from the effect of higher net sales.
The provision for bad debt expense increased to $60,204 from $29,829 in
1995.
Other income decreased approximately forty four percent, primarily due
to lower rental income from property not used in operations.
Interest income decreased approximately forty five percent, primarily
due to lower average cash balances.
<PAGE>
Interest expense increased approximately fifty one percent, primarily
due to interest costs on extended terms granted on customer accounts.
RESULTS OF OPERATIONS
1995 Compared to 1994
Net income for the fiscal year ended May 31, 1995 was $789,188, or $.75
per share, compared to $780,781 or $.74 per share in the 1994 fiscal year.
Income before federal income tax was $1,219,946 in 1995 versus income
before federal income tax of $1,221,504 in 1994.
Net sales totaled $14,435,556 for the 1995 fiscal year, approximately
one percent over the previous year. The Howard Wolf product line continues
to be well received by its customers. A weak demand for soft goods
continues to place extreme competitive pressures on retailers of women's
apparel. Management's goal isto continue to broaden its market base through
increased penetration into domestic and foreign markets.
Cost of sales decreased slightly to 65.0 percent from 65.7 percent as
a percentage relationship to net sales. The decrease resulted primarily
from product sales mix and decreased sales allowances.
Selling, general and administrative expenses increased approximately
one percent as a percentage relationship to net sales. The percentage
increase resulted primarily from higher selling and shipping costs. The
provision for bad debt expense decreased approximately fifty five percent
resulting primarily from a continuously broadened and selective customer
base.
Other income increased approximately seven percent, primarily due to
higher rental income from property not used in operations.
Interest income increased approximately two percent, primarily due to
slightly higher interest rates.
Interest expense increased approximately sixty six percent. The
increase resulted primarily from extended terms on customer accounts.
Item 8. Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Management 9
Independent Auditor's Report 9
Consolidated statements of operations and
retained earnings for the years ended
May 31, 1996, 1995 and 1994 10
<PAGE>
Consolidated balance sheets at May 31, 1996 and 1995 11
Consolidated statements of cash flows for the years
ended May 31, 1996, 1995 and 1994 12
Notes to consolidated financial statements 13-17
Consolidated schedules for the years ended
May 31, 1996, 1995 and 1994:
II-Allowance for collection losses and discounts 19
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule or because the information required is included in the
consolidated financial statements and notes thereto.
Report of Management
Management is responsible for the consolidated financial statements
and all information in this annual report. The statements have been
prepared in conformity with generally accepted accounting principles.
Financial information elsewhere in this report is consistent with that in
the financial statements. The consolidated statements have been audited by
Lane Gorman Trubitt, L.L.P., independent auditors. Their role is to express
an opinion as to whether management's financial statements, considered in
their entirety, present fairly the Company's financial position, operating
results and cash flows.
Management maintains and relies on systems of internal accounting
controls designed and intended to provide reasonable assurance that
assets are safeguarded from loss or unauthorized use and that
transactions are executed in accordance with management's authorization
and are properly recorded. These systems are tested and evaluated by
management as well as by the independent auditors in connection with their
annual audit.
The Board of Directors selects an Audit Committee composed of two
directors. The committee meets periodically with the independent auditors
to review the scope and results of the audit, principles applied in
financial reporting, and financial and operational controls. The
independent auditors and corporate accountants have free access to the
audit committee, who are not employees of the company. On the recommen-
dation of the Audit Committee, the Board of Directors selects and
engages the independent auditors.
Eugene K. Friesen
Senior Vice President and Treasurer
Chief Financial Officer
Independent Auditor's Report
The Board of Directors and Shareholders
Howard B. Wolf, Inc.
<PAGE>
We have audited the accompanying consolidated balance sheets of Howard
B. Wolf, Inc. and subsidiaries as of May 31, 1996 and 1995, and the
related consolidated statements of operations and retained earnings, and
cash flows for each of the years in the three-year period ended May 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects,the financial position of
Howard B. Wolf, Inc. and subsidiaries as of May 31, 1996 and 1995, and the
results of their operationa and their cash flows for each of the years in
the three-year period ended May 31, 1996 in conformity with generally
accepted accounting principles.
We have also audited Schedule II of Howard B. Wolf, Inc. and subsidiaries
for the years ended May 31, 1996, 1995 and 1994. In our opinion, this
schedule presents fairly, in all material respects, the information
required to be set forth therein.
Lane Gorman Trubitt, L.L.P., Certified Public Accountants
Dallas, Texas
July 15, 1996
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Years ended May 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Net sales $15,213,047 $14,435,556 $14,268,517
Cost and expenses:
Cost of sales 10,132,998 9,381,061 9,371,075
Selling, general and
administrative expenses 3,859,302 3,909,200 3,720,424
Provision for bad
debt expense 60,204 29,829 65,893
14,052,504 13,320,090 13,157,392
1,160,543 1,115,466 1,111,125
Gain on sale of property,plant
and equipment not used in
operations 144,172 - -
Other income 53,848 96,503 90,441
Interest income 22,159 40,138 39,288
Interest expense (48,510) (32,161) (19,350)
Income before federal income tax 1,332,212 1,219,946 1,221,504
Provision for federal income tax 460,164 430,758 440,723
Net income 872,048 789,188 780,781
Retained earnings-
beginning of year 4,540,170 4,067,839 3,582,791
Cash dividends (337,981) (316,857) (295,733)
Retained earning-end of year $5,074,237 $4,540,170 $4,067,839
Average number of shares
outstanding 1,056,191 1,056,191 1,056,191
Net income per share $.83 $.75 $.74
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEET
May 31 1996, 1995 and 1994
ASSETS
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,261,987 $1,375,569
Accounts receivable-net 1,976,798 1,984,284
Inventories 4,147,286 4,024,860
Prepaid expenses 160,357 106,630
Deferred federal income tax benefit 177,000 183,000
7,723,438 7,674,343
Property, plant and equipment 2,340,711 2,113,701
Less accumulated depreciation
and amortization (1,286,013) (1,155,133)
1,054,698 958,568
Property, plant and equipment
not used in operations 5,810 114,288
Other assets 49,665 48,835
$8,833,611 $8,796,034
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $1,422,824 $1,853,720
Federal income tax payable (receivable) (35,938) 25,656
Total current liabilities 1,386,886 1,879,376
Deferred federal income tax 78,000 82,000
Shareholders' equity:
Common stock,par $.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 5,074,237 4,540,170
Less common stock in treasury,
at cost, 25,000 shares (100,000) (100,000)
7,368,725 6,834,658
$8,833,611 $8,796,034
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
Years ended May 31, 1966, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income $ 872,048 $ 789,188 $ 780,781
Adjustments to reconcile net
income to net cash provided
by operating activities-
Depreciation and amortization 152,625 135,229 118,040
Provision for losses
on accounts receivable 60,204 29,829 65,893
Decrease in deferred
federal income tax credit (4,000) (4,000) (1,000)
Gain on sale of property,
plant and equipment not
used in operations (144,172) - -
Net changes in operating
assets and liabilities-
Accounts receivable-net (67,690) (247,408) (851,434)
Inventories (122,426) (606,768) (300,168)
Prepaid expenses (53,737) 108 42,558
Accounts payable and
accrued liabilities (420,924) 44,972 231,188
Federal income tax benefit 6,000 (45,000) 11,000
Federal income tax payable (61,594) 16,948 8,708
Net cash provided by
operating activities 216,334 113,098 105,566
Cash flows from investing activities:
Other assets (830) (258) (1,489)
Additions to property,
plant and equipment (241,105) (210,474) (170,947)
Sale of property, plant
and equipment not used
in operations 250,000 - -
Net cash provided (used)
by investing activities 8,065 (210,732) (172,436)
Cash flows from
financing activities:
Cash dividends paid (337,981) (316,857) (295,733)
Net cash used by
financing activities (337,981) (316,857) (295,733)
Net decrease in cash
and cash equivalents (113,582) (414,491) (362,603)
Cash and cash equivalents
at beginning of year 1,375,569 1,790,060 2,152,663
Cash and cash equivalents
at end of year $1,261,987 $1,375,569 $1,790,060
See accompanying notes
</TABLE>
<PAGE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business
The Company designs, manufactures and sells women's fashion apparel.
It's principal market is retail clothing and department stores in the
United States.
Summary of significant accounting policies
The consolidated financial statements include the accounts of the
Company and all subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Raw materials are priced at the lower of cost (identified unit basis)
or market and work-in-process and finished goods are priced at the lower of
average cost or market.
Property, plant and equipment is stated at cost. Depreciation and
amortization of machinery and equipment, leasehold improvements and the
building included in property, plant and equipment are provided by the
straight-line method. Depreciation of the buildings included in property,
plant and equipment not used in operations is provided for by both the
accelerated and straight-line methods.
Income taxes are provided on pre-tax earnings as reported in the
consolidated financial statements. Deferred income taxes result from
temporary differences between pre-tax earnings reported in the consolidated
financial statements and taxable income.
Net income per share is computed on the weighted average number of
common shares outstanding during the period.
In preparing the Company's financial statements, management is
required to make estimates and assumptions that effect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ form these estimates.
Fair value of financial instruments are estimated to approximate the
related book values, unless otherwise indicated, based on market
information available to the Company.
Cash flow information
<PAGE>
The consolidated statement of cash flows provides information about
changes in cash and cash equivalents. Cash equivalents consist of highly
liquid debt instruments with a maturity, when purchased, of three months or
less.
Cash payments for interest were: 1996-$48,108; 1995-$32,161; 1994-
$19,350. Cash payments for federal income taxes were: 1996-$519,758; 1995-
$460,000; 1994-$399,897.
Cash and cash equivalents
Cash and cash equivalents consist of:
1996 1995
Cash $ 138,018 $ 412,670
Money market funds 516,165 134,075
Matured funds at factor 607,804 828,824
$1,261,987 $1,375,569
Credit Risk
The Company and its subsidiaries maintain cash balances at several
financial institutions located in Texas. Accounts in each institution are
insured by the Federal Deposit Insurance Corporation up to $100.000.
Uninsured balances aggregate to approximately $856,000 at May 31, 1996
($1,119,000 at May 31, 1995).The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit
risk.
0 The balance of accounts receivable factored and matured funds with a
commercial factor of approximately $2,050,000 at May 31, 12996 are
uninsured ($1,662,000 at May 31, 1995).
Accounts receivable
Accounts receivable are net of allowances for collection losses and
discounts of $85,486 in 1996 and $97,810 in 1995.
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At May 31, 1996 and 1995 approximately $1,442,000 and $833,000
respectively, of accounts receivable were factored with a commercial
factor. Approximately $948,000 and $614,000 were factored with recourse at
May 31, 1996 and 1995, respectively.
<PAGE>
Inventories
Inventories consist of:
Raw materials $1,195,129 $1,381,292
Work-in-process 995,539 984,509
Finished goods 1,956,618 1,659,059
$4,147,286 $4,024,860
Property, plant and equipment
Details of property, plant and equipment and the estimated useful
lives used in computing depreciation and amortization are:
Estimated
useful lives 1996 1995
Property, plant and
equipment, at cost:
Land - $ 109,846 $ 109,846
Buildings 25 years 661,727 661,727
Machinery and
equipment 3-10 years 915,407 714,027
Building and Lease-
hold Improvements 4-10 years 653,731 628,101
$2,340,711 $2,113,701
Property, plant and
equipment not used in
operations, at cost:
Land - $ - $ 45,700
Buildings 25 years 137,005 415,734
137,005 461,434
Less accumulated
depreciation (131,195) (347,146)
$ 5,810 $ 114,288
Accounts payable and accrued liabilities
Accounts payable and accrued
liabilities consist of:
1996 1995
Accounts payable-trade $1,096,197 $1,277,763
Accrued compensation 253,871 456,525
Accrued taxes 56,127 56,449
Other accrued liabilities 16,629 62,983
$1,422,824 $1,853,720
<PAGE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Line of credit
The Company has an oral agreement for a line of credit with a bank in
the amount of $100,000 bearing no interest. The line is collateralized by
the general assets of the company. As of May 31, 1996, amounts available
under this line were $88,500 due to a letter of credit outstanding in the
amount of $11,500 which is due June 15, 1996. No amounts were drawn under
this line of credit as of May 31, 1995.
Leases
Certain equipment, manufacturing facilities and showrooms are leased
for periods expiring at various dates through fiscal 2000, at aggregate
annual rentals of approximately $99,000 in 1996, $91,000 in 1995 and
$91,000 in 1994, which consisted entirely of minimum rentals. In most
cases, management expects that in the normal course of business leases will
be renewed or replaced by other leases.
The future minimum lease payments required under operating leases that
have an initial or remaining lease term in excess of one year at May 31,
1996 were as follows:
Operating
leases
1997 $ 76,532
1998 74,360
1999 19,224
2000 3,922
2001 -
$174,038
Shareholders' Equity
On July 23, 1996 the Board of Directors declared a quarterly cash
divided of $.08 per share payable August 29, 1995 to shareholders of record
on August 9, 1996.
Federal Income Tax
The detail of the provision for federal income tax follows:
For the years ended May 31,
1996 1995 1994
Current tax expense $458,194 $479,758 $430,723
Deferred tax
(benefit) expense 2,000 (49,000) 10,000
Provision for income tax $460,194 $430,758 $440,723
Deferred taxes are reported in accordance with SFAS No. 109. Under the
asset and liability approach specified by SFAS No.109, the deferred tax
liability or asset is determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by
the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense is the result of changes in the liability for
<PAGE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
deferred taxes. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available
evidence, are not expected to be realized. Income tax expense is the
current tax payable or refundable for the period plus or minus the net
change in the deferred tax assets and liabilities.
Total deferred tax assets and liabilities in the consolidated balance
sheet are as follows:
For the years ended May 31,
Assets 1996 1995 1994
Bad debt reserve $ 26,000 $ 30,000 $ 35,000
Discounts reserve 3,000 3,000 1,000
Inventory capitalization
of selling, general and
administrative costs 148,000 150,000 102,000
$177,000 $183,000 $138,000
Liabilities
Depreciation $ 78,000 $ 82,000 $ 86,000
The income tax provision reconciled to the tax computed at federal
statutory rates is as follows:
For the years ended May 31,
1996 1995 1994
Tax at statutory rates $452,951 $414,782 $415,311
Tax effect on non-
deductible items 11,906 15,182 13,519
Other-net (6,663) 49,794 1,893
$458,194 $479,758 $430,723
Deferred tax
(benefit) expense (2,000) (49,000) 10,000
$460,194 $430,758 $440,723
The components of deferred income tax expense are as follows:
For the years ended May 31,
1996 1995 1994
Difference between tax
and book depreciation $ (4,080) $ (3,424) $ (1,529)
Difference between tax
and book allowance for
doubtful accounts 3,876 5,106 1,599
Difference between tax
and book basis of
merchandise inventories 1,890 (48,386) 5,383
Reserve for discounts 314 (2,296) 4,547
Deferred tax
(benefit) expense $ 2,000 $(49,000) $ 10,000
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Selected quarterly financial data (UNAUDITED)
First Quarter Second Quarter Third Quarter Fourth Quarter
Ended Ended Ended Ended
Aug 31,1995 Nov 30,1995 Feb 29,1996 May 31,1996
<S> <C> <C> <C> <C>
Net sales $3,789,539 $3,875,864 $3,752,623 $3,795,021
Gross profit 1,251,932 1,510,538 1,313,038 1,004,541
Income before
federal
income tax 325,582 517,079 324,250 165,301
Net income 211,187 336,703 210,783 113,375
Net income
per share .20 .32 .20 .11
Average number
of shares
outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Aug 31,1994 Nov 30,1994 Feb 28,1995 May 31, l995
Net sales $3,592,856 $3,670,474 $3,708,165 $3,464,061
Gross profit 1,228,872 1,371,707 1,306,137 1,147,061
Income before
federal
income tax 317,567 345,143 322,694 234,542
Net income 206,364 222,761 210,009 150,054
Net income
per share .20 .21 .20 .14
Average number
of shares
outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Item 9. Changes in and disagreements with accountants
on accounting and financial disclosure matters
None
PART III
The information required by items 10, 11, 12 and 13 of Part III is
incorporated by reference from the indicated pages in the Company's
definitive proxy statement for its annual meeting of shareholders to be
held September 17, 1996.
Pages of Proxy
Statement
Item 10. Directors and Executive
Officers of the Registrant 3-4
Item 11. Executive Compensation 5
Item 12. Executive Ownership of Certain
Beneficial Owners and Management 2-3
Item 15. Certain Relationships and Related Transactions 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements and financial statement schedules
The financial statements and schedules listed in the accompanying
index to consolidated financial statements are filed as part of
this annual report.
3. Exhibits
None
(b) Report on Form 8-K
No reports were filed in the fourth quarter ended May 31, 1996.
<PAGE>
</TABLE>
<TABLE>
HOWARD B. WOLF, INC.
SCHEDULE II-ALLOWANCE FOR COLLECTION LOSSES AND DISCOUNTS
Years ended May 31, 1996, 1995 and 1994
Balance at Additions Amount Balance
beginning charged charged Discounts at end
of year to income off(2) allowed of year
<S> <C> <C> <C> <C> <C>
Year ended
May 31, 1996
Collection losses $ 88 $ 60 $ 72 $ - $ 77
Discounts 10 1,027(1) 1 1,027 9
$ 99 $1,087 $ 73 $1,027 $ 86
Year ended
May 31,1995
Collection losses $103 $ 40 $ 55 $ - $ 88
Discounts 3 845(1) (7) 845 10
$106 $ 885 $ 48 $ 845 $ 98
Year ended
May 31,1994
Collection losses $108 $ 84 $ 88 - $ 103
Discounts 16 834(1) 13 834 3
$124 $ 918 $101 $834 $ 106
(1) Charged to net sales.
(2) Net of recoveries.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Howard B. Wolf, Inc.
By:
Robert D. Wolf
President
(Chief Executive Officer)
August 26,1996
By:
Eugene K. Friesen
Senior Vice President and Treasurer
(Principal Accounting Officer)
August 26,1996
Pursuant of the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/Creed L. Ford III
Creed L. Ford III
Director
August 26,1996
/s/Eugene K. Friesen
Eugene K. Friesen
Senior Vice President,Treasurer and Director
August 26,1996
/s/Joel Held
Joel Held
Director
August 26,1996
/s/Juan Villamizar
Juan Villamizar
Director
August 26,1996
/s/Howard B. Wolf
Howard B. Wolf
Chairman of the Board,Secretary and Director
August 26,1996
/s/Robert D. Wolf
Robert D. Wolf
President, Chief Executive Officer and Director
August 26,1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 1,262
<SECURITIES> 0
<RECEIVABLES> 2,063
<ALLOWANCES> 85
<INVENTORY> 4,147
<CURRENT-ASSETS> 7,723
<PP&E> 2,341
<DEPRECIATION> 1,286
<TOTAL-ASSETS> 8,834
<CURRENT-LIABILITIES> 1,387
<BONDS> 0
0
0
<COMMON> 360
<OTHER-SE> 7,009
<TOTAL-LIABILITY-AND-EQUITY> 8,834
<SALES> 15,213
<TOTAL-REVENUES> 15,289
<CGS> 10,133
<TOTAL-COSTS> 14,053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 1,332
<INCOME-TAX> 460
<INCOME-CONTINUING> 872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 872
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
