-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFPlNBOClRngYU5w0KPBfyRdqrJwt2Vo3TfMy6SWIJ1qWhtD6mZ7idFM1WhMN7bn kuyDO6P372q0jzp/VapfMw== 0000108018-97-000009.txt : 19970827 0000108018-97-000009.hdr.sgml : 19970827 ACCESSION NUMBER: 0000108018-97-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970826 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: WOLF HOWARD B INC CENTRAL INDEX KEY: 0000108018 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 750847571 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06775 FILM NUMBER: 97669899 BUSINESS ADDRESS: STREET 1: 3809 PARRY AVE CITY: DALLAS STATE: TX ZIP: 75226-1753 BUSINESS PHONE: 2148239941 MAIL ADDRESS: STREET 1: 3809 PARRY AVE CITY: DALLAS STATE: TX ZIP: 75226 10-K 1 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, 1997 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 14, 1997 was approximately $3,615,558. As of August 14, 1997, 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 16, 1997 are incorporated by reference into Part III. HOWARD B. WOLF, INC. FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED MAY 31, 1997 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 $100 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. 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 and regional 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. 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 $4,600.000 of unshipped order on hand at May 31, 1997 ($4,800.000 on May 31, 1996). 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 processes 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 96 persons on a full-time basis at May 31, 1997. Of these, 12 were executive, administrative and clerical employees; 13 were sales representatives; 57 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 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 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 six months to forty eight 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 1997. 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: 1997 Date ended High Low Dividend First quarter August 31, 1996 $7 5/8 $6 1/2 .08 Second quarter November 30, 1996 7 3/8 6 1/8 .08 Third quarter February 28, 1997 6 3/4 5 7/8 .08 Fourth quarter May 31, 1997 7 5 1/2 .08 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 The Company's common stock closed at $6.00 on August 14, 1997. As of August 14, 1997, there were 268 holders of record of the Company's common stock. The Company paid dividends during fiscal years 1997 and 1996. 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 28,1997 to shareholders of record August 8, 1997. Item 6. Selected Consolidated Financial Data 1997 1996 1995 1994 1993 Net sales $14,242 $15,213 $14,436 $14,269 $12,938 Income before federal income tax 1,004 1,332 1,220 1,222 1,101 Provision for federal income tax 370 460 431 441 392 Net income 634 872 789 781 708 Net income per share: .60 .83 .75 .74 .67 Cash dividends per common share .32 .32 .30 .28 .23 Total assets 9,552 8,834 8,796 8,266 7,542 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, 1997 was $6,713,684, an increase of $377,132, or six percent from the previous year. The current ratio at May 31, 1997 is 4.7 to 1 (5.5 to 1 in 1996). Total liabilities to assets equals twenty percent (seventeen percent in 1996). 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 cash balance at May 31, 1997 increased $659,428, or approximately fifty two percent over 1996. The increase was provided by opertaing activities of $1,061,952 less $64,543 used in investing activities and $337,981 used in financing activities. The accounts receivable balance increased approximately twenty two percent at May 31, 1997 primarily related to the timing of shipments during the fourth quarter. Inventories decreased approximately eight percent as sales decreased by six perecnt. Accounts payable and accrued liabilities increased approximately twenty five percent due to the timing of raw material deliveries. 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". The provisions of the Taxpayer Relief Act of 1997 are not expected to have a material impact on liquidity, financial conditions or operations. The deferred tax asset at May 31, 1997 totals $214,000. Approximately $630,000 of taxable income will need to be generated in order to fully utilize the deferred tax. The company has had in excess of one milliion dollars in taxable income over the last five years. In view of current operations management believes that adequate taxable income will be generated in order to fully utilize the deferred tax. The deductible temporary differences that are expected to reverse consists of depreciation which totals $74,000. It is expected that these differences should reverse out over the life of the assets, or approxi- mately ten years. All other temporary differences are expected to reverse in fiscal 1998. Capital acquisition and improvement expenditures during fiscal 1997 totaled approximately $63,000, 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 1997 and none are planned during fiscal 1998. Capital acquisition and improvement expenditures for the 1997 fiscal year are planned to total approximately $200,000, which will 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. Shipments in fiscal 1998 are expected to be relatively equal during each quarter. Inventories are planned to remain at approximately the same level during the coming year subject to temporary seasonal requirements. The payment of dividends is reviewed each quarter taking into consideration liquidity, net income, 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 these increased costs through greater productivity, operating efficiencies and selective price adjustments. RESULTS OF OPERATIONS 1997 Compared to 1996 Net income for the fiscal year ended May 31, 1997 was $633,588, or $.60 per share, compared to $872,048, or $.83 per share in the 1996 fiscal year. 1996 net income includes $95,154 (net of tax) or $.09 per share, from the gain on the sale of property, plant and equipment not used in opertions. Net sales for the 1997 fiscal year were $14,242,006. Net sales were approximately six percent lower compared to 1996. 1997 sales reflected the retail fashion apparel industry's continued tough economic climate. Segments of our customer base were affected by a negative foreign exchange rate and an overall weakened consumer demand. Management is working aggressively to overcome negative industry and economic trends by offering a broader product line, exploring alternative sales methods and increasing penetration in our market base. Cost of sales decreased seven tenths of one percent as a percentage relationship to net sales. The percentage decrease resulted primarily from slightly lower overhead costs and expenses. Selling, general and administrative expenses increased approximately one and four tenths percent as a percentage relationship to net sales. The percentage increase resulted primarily due to higher general and administrative expenses. The provision for bad debt expense increased to $127,491 in 1997 from $60,204 in 1996. Other income in fiscal 1997 increased approximately twenty percent, primarily due to higher rental income from property, plant and equipment not used in operations. Interest income increased approximately two hundred four percent, primarily resulting from higher average cash balances. Interest expense decreased approximately thirty nine percent, resulting primarily from a reduction of extended terms on factored customer accounts. 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. Interest expense increased approximately fifty one percent, primarily due to interest costs on extended terms granted on customer accounts. Item 8. Consolidated Finacial Statements and Supplemantary 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, 1997, 1996 and 1995 10 Consolidated Balance Sheets at May 31, 1997 and 1996 11 Consolidated Statements of Cash Flows for the years ended May 31, 1997, 1996 and 1995 12 Notes to Consolidated Financial Statements 13-17 Consolidated Schedules for the years ended May 31, 1997, 1996 and 1995: 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 consolidated 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 state- ments, 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. /s/Eugene K. Friesen 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. We have audited the accompanying consolidated balance sheets of Howard B. Wolf, Inc. and subsidiaries as of May 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operationa and their cash flows for each of the years in the three-year period ended May 31, 1997 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, 1997, 1996 and 1995. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ Lane Gorman and Trubitt, L.L.P. Lane Gorman Trubitt, L.L.P., Certified Public Accountants Dallas, Texas July 9, 1997 HOWARD B. WOLF, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years ended May 31, 1997 1996 1995 Net sales $14,242,066 $15,213,047 $14,434,556 Cost and expenses: Cost of sales 9,392,340 10,132,998 9,381,061 Selling, general and administrative expenses 3,820,471 3,859,302 3,909,200 Provision for bad debt expense 127,491 60,204 29,829 13,340,302 14,052,504 13,320,090 Income from operations 901,764 1,160,543 1,115,466 Gain on sale of property,plant and equipment not used in operations - 144,172 - Other income 64,591 53,848 96,503 Interest income 67,399 22,159 40,138 Interest expense (29,675) (48,510) (32,161) Income before federal income tax 1,004,079 1,332,212 1,219,946 Provision for federal income tax (370,491) (460,164) (430,758) Net income 633,588 872,048 789,188 Retained earnings- beginning of year 5,074,237 4,540,170 4,067,839 Cash dividends (337,981) (337,981) (316,857) Retained earning-end of year $5,369,844 $5,074,237 $4,540,170 Average number of shares outstanding 1,056,191 1,056,191 1,056,191 Net income per share $.60 $.83 $.75 See accompanying notes
HOWARD B. WOLF, INC. CONSOLIDATED BALANCE SHEETS May 31, ASSETS 1997 1996 Current assets: Cash and cash equivalents $1,921,415 $1,261,987 Accounts receivable-net 2,415,244 1,976,798 Inventories 3,815,653 4,147,286 Prepaid expenses 160,994 160,367 Deferred federal income tax 214,000 177,000 8,527,306 7,723,438 Property, plant and equipment 2,360,038 2,340,711 Less accumulated depreciation and amortization (1,389,205) (1,286,013) 970,833 1,054,698 Property, plant and equipment not used in operations 2,718 5,810 Other assets 51,097 49,665 $9,551,954 $8,833,611 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $1,772,987 $1,422,824 Federal income tax payable (receivable) 40,635 (35,938) Total current liabilities 1,813,622 1,386,886 Deferred federal income tax 74,000 78,000 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 5,369,844 5,074,237 Less common stock in treasury, at cost, 25,000 shares (100,000) (100,000) 7,664,332 7,368,725 $9,551,954 $8,833,611 See accompanying notes
HOWARD B. WOLF, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended May 31 1997 1996 1995 Cash flows from operating activities: Net income $ 633,588 $ 872,048 $ 789,188 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 150,067 152,625 135,229 Provision for losses on accounts receivable 127,491 60,204 29,829 Change in deferred federal income tax (41,000) 2,000 (49,000) Gain on sale of property, plant and equipment not used in operations - (144,172) - Net changes in operating assets and liabilities- Accounts receivable (565,937) (67,690) (247,408) Inventories 331,633 (122,426) (606,768) Prepaid expenses (626) (53,737) 108 Accounts payable and accrued liabilities 350,163 (420,924) 44,972 Federal income tax payable 76,573 (61,594) 16,948 Net cash provided by operating activities 1,061,952 216,334 113,098 Cash flows from investing activities: Other assets (1,432) (830) (258) Additions to property, plant and equipment (63,111) (241,105) (210,474) Sale of property, plant and equipment not used in operations - 250,000 - Net cash (used in) provided by investing activities (64,543) 8,065 (210,732) Cash flows from financing activities: Cash dividends paid (337,981) (337,981) (316,857) Net cash used by financing activities (337,981) (337,981) (316,857) Net decrease in cash and cash equivalents 659,428 (113,582) (414,491) Cash and cash equivalents at beginning of year 1,261,987 1,375,569 1,790,060 Cash and cash equivalents at end of year $1,921,415 $1,261,987 $1,375,569 See accompanying notes
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 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: 1997-$29,675; 1996-$48,108; 1995- $32,161. Cash payments for federal income taxes were: 1997-$341,854; 1996- $519,758; 1995-$460,000. Cash and cash equivalents Cash and cash equivalents consist of: 1997 1996 Cash $ 945,759 $ 138,018 Money market funds 400,162 516,165 Matured funds at factor 575,494 607,804 $1,921,415 $1,261,987 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 $1,454,000 at May 31, 1997 ($856,000 at May 31, 1996).The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk. The balance of accounts receivable factored and matured funds with a commercial factor of approximately $2,538,000 at May 31, 1997 are uninsured ($2,050,000 at May 31, 1996). Accounts receivable Accounts receivable are net of allowances for collection losses and discounts of $131,931 in 1997 and $85,480 in 1996. HOWARD B. WOLF, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) At May 31, 1997 and 1996 approximately $1,962,000 and $1,442,000 respectively, of accounts receivable were factored with a commercial factor. Approximately $1,133,000 and $948,000 were factored with recourse at May 31, 1997 and 1996, respectively. Inventories Inventories consist of: 1997 1996 Raw materials $1,237,574 $1,195,129 Work-in-process 1,043,457 995,539 Finished goods 1,534,622 1,956,618 $3,815,653 $4,147,286 Property, plant and equipment Details of property, plant and equipment at cost and the estimated useful lives used in computing depreciation and amortization are: Estimated useful lives 1997 1996 Property, plant and equipment: Land - $ 109,846 $ 109,846 Buildings 25 years 661,727 661,727 Machinery and equipment 3-10 years 921,182 915,407 Building and Lease- hold Improvements 4-10 years 667,283 653,731 $2,360,038 $2,340,711 Property, plant and equipment not used in operations: Land - $ - $ - Buildings 25 years 137,005 137,005 137,005 137,005 Less accumulated depreciation (134,287) (131,195) $ 2,718 $ 5,810 Accounts payable and accrued liabilities Accounts payable and accrued liabilities consist of: 1997 1996 Accounts payable-trade $1,241,286 $1,096,197 Accrued compensation 410,148 253,871 Accrued taxes 76,795 56,127 Other accrued liabilities 44,758 16,629 $1,772,987 $1,422,824 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, 1997, amounts available under this line were $100,000. No amounts were drawn under this line of credit as of May 31, 1997. Leases Certain equipment, manufacturing facilities and showrooms are leased for periods expiring at various dates through fiscal 2000, at aggregate annual rentals of approximately $103,000 in 1997, $99,000 in 1996 and $91,000 in 1995, 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, 1997 were as follows: Operating leases 1998 $ 95,014 1999 22,694 2000 3,922 2001 - 2002 - 121,630 Shareholders' Equity On July 8, 1997 the Board of Directors declared a quarterly cash divided of $.08 per share payable August 28, 1997 to shareholders of record on August 8, 1997. Federal Income Tax The detail of the provision for federal income tax follows: For the years ended May 31, 1997 1996 1995 Current tax expense $411,491 $458,194 $479,758 Deferred tax (benefit) expense (41,000) 2,000 (49,000) Provision for income tax $370,491 $460,194 $430,758 There are two components of the income tax provision, current and deferred. Current income tax provisions approximate taxes to be paid or refunded for the applicable period. Balance sheet amounts of deferred taxes are recognized on the temporary differences between the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. 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. Deferred tax expense or benefit is then recognized for the change in deferred tax liabilities or assets between periods. HOWARD B. WOLF, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Total deferred tax assets and liabilities in the consolidated balance sheets are as follows: For the years ended May 31, Assets 1997 1996 1995 Bad debt reserve $ 40,000 $ 26,000 $ 30,000 Discount reserve 5,000 3,000 3,000 Inventory capitalization of selling, general and administrative costs 169,000 148,000 150,000 $214,000 $177,000 $183,000 Liabilities Depreciation $ 74,000 $ 78,000 $ 82,000 The income tax provision reconciled to the tax computed at federal statutory rates is as follows: For the years ended May 31, 1997 1996 1995 Tax at statutory rates $341,387 $452,951 $414,782 Tax effect on non- deductible items 13,472 11,906 15,182 Other-net 56,632 (6,663) 49,794 $411,491 $458,194 $479,758 Deferred tax (benefit) expense (41,000) 2,000 (49,000) $370,491 $460,194 $430,758 The components of deferred income tax (benefit) expense are as follows: For the years ended May 31, 1997 1996 1995 Difference between tax and book depreciation $ (3,400) $ (4,080) $ (3,424) Difference between tax and book allowance for doubtful accounts (13,430) 3,876 5,106 Difference between tax and book basis of merchandise inventories (21,809) 1,890 (48,386) Reserve for discounts (2,361) 314 (2,296) Deferred tax (benefit) expense $(41,000) $ 2,000 $(49,000) Advertising costs The Comapany's policy is to expense all advertising costs in the period un which the advertising first takes place. Advertising expense was approximately $122,000, $155,000 and $168,000 for the years ended May 31, 1997, 1996 and 1995, respectively. 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 31,1996 Nov 30,1996 Feb 28,1997 May 31,1997 Net sales $3,630,878 $3,640,522 $3,421,547 $3,549,119 Gross profit 1,218,155 1,348,966 1,183,709 1,098,896 Income before federal income tax 259,050 269,783 251,229 224,017 Net income 166,714 166,238 158,438 142,198 Net income per share .16 .16 .15 .13 Average number of shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191 Aug 31,1995 Nov 30,1995 Feb 29,1996 May 31,1996 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
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 16, 1997. 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, 1997. HOWARD B. WOLF, INC. SCHEDULE II-ALLOWANCE FOR COLLECTION LOSSES AND DISCOUNTS Years ended May 31, 1997, 1996 and 1995 000's Omitted Balance at Additions Amount Balance beginning charged charged Discounts at end of year to income off(2) allowed of year Year ended May 31, 1997 Collection losses $ 77 $ 127 $ 88 $ - $ 116 Discounts 9 1,048(1) (7) 1,048 16 $ 85 $1,175 $ 81 $1,048 $ 13 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 (1) Charged to net sales. (2) Net of recoveries.
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:/s/ Robert D. Wolf Robert D. Wolf President (Chief Executive Officer) August 26,1997 By:/s/ Eugene K. Friesen Eugene K. Friesen Senior Vice President and Treasurer (Principal Accounting Officer) August 26,1997 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 26,1997 /s/Eugene K. Friesen Eugene K. Friesen Senior Vice President,Treasurer and Director August 26,1997 /s/Joel Held Joel Held Director August 26,1997 /s/Juan Villamizar Juan Villamizar Director August 26,1997 /s/Howard B. Wolf Howard B. Wolf Chairman of the Board,Secretary and Director August 26,1997 /s/Robert D. Wolf Robert D. Wolf President, Chief Executive Officer and Director August 26,1997 EX-27 2
5 1,000 12-MOS MAY-31-1997 MAY-31-1997 1,921 0 2,547 132 3,816 8,527 2,360 1,389 9,552 1,814 0 0 0 360 7,304 9,552 14,242 14,374 9,392 13,340 0 0 30 1,004 370 634 0 0 0 634 .60 .60
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