FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 30, 1996
COMMISSION FILE NUMBER: 1-5555
WELLCO ENTERPRISES, INC.
(Exact name of registrant as specified in charter)
NORTH CAROLINA 56-0769274
(State of Incorporation) (I.R.S. Employer Identification No.)
150 Westwood Circle, P.O. Box 188, Waynesville, NC 28786
(Address of Principal Executive Office)
Registrant's telephone number, including area code 704-456-3545
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 .
374,382 shares of $1 par value common stock were outstanding on May 10, 1996.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WELLCO ENTERPRISES, INC.
CONSOLIDATED FINANCIAL STATEMENTS FILED WITH FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 30, 1996
The attached unaudited financial statements reflect all adjustments which are,
in the opinion of management, necessary to reflect a fair statement of the
financial position, results of operations, and cash flows for the interim
periods presented. All significant adjustments, except those related to the
repurchase of common stock as discussed in Note 3 to the Consolidated Financial
Statements, are of a normal recurring nature.
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 30, 1996 AND JULY 1, 1995
(in thousands)
ASSETS
<TABLE>
<CAPTION>
(unaudited)
MARCH 30, JULY 1,
1996 1995
--------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash .......................................... $ 1,117 $ 2,423
Marketable securities,current
(Note 1) .................................. 0 996
Receivables ................................... 4,689 3,267
Inventories-
Finished goods ............................ 1,056 1,723
Work in process ........................... 1,423 1,415
Raw materials ............................. 1,302 1,157
-------- --------
Total ..................................... 3,781 4,295
Deferred taxes and prepaid expenses ........... 263 429
-------- --------
Total ......................................... 9,850 11,410
-------- --------
MARKETABLE SECURITIES, non-current
(Note 1) ...................................... 0 3,787
INVESTMENT IN AFFILIATE (Note 2) ................... 0 5,529
MACHINERY LEASED TO LICENSEES
(less accumulated depreciation of
$1,446 and $1,408) ............................ 73 111
PROPERTY, PLANT AND EQUIPMENT:
Land .......................................... 107 107
Buildings ..................................... 774 774
Machinery and equipment ....................... 2,419 2,226
Furniture and automobiles ..................... 509 411
Leasehold Improvements ........................ 63 63
-------- --------
Total cost .................................... 3,872 3,581
Less accumulated depreciation and
amortization ............................... (2,760) (2,550)
-------- --------
Net ........................................... 1,112 1,031
-------- --------
INTANGIBLE ASSETS:
Excess of cost over net assets of
subsidiary at acquisition .................. 228 228
Intangible pension asset ...................... 642 642
-------- --------
Total ......................................... 870 870
DEFERRED TAXES ..................................... 365
-------- --------
TOTAL .............................................. $ 12,270 $ 22,738
======== ========
See Notes to Consolidated Financial Statements .....
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 30, 1996 AND JULY 1, 1995
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(unaudited)
MARCH 30, JULY 1,
1996 1995
----------- -------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowing from bank ............ $ 0 $ 20
Accounts payable .......................... 1,914 1,533
Accrued compensation ...................... 748 744
Accrued pension ........................... 116 286
Accrued income taxes ...................... 28 207
Other liabilities ......................... 231 388
-------- --------
Total ................................. 3,037 3,178
-------- --------
LONG-TERM LIABILITIES:
Pension obligation ........................ 1,860 1,887
Deferred taxes ............................ 0 10
Note payable (Note 4) ..................... 492 0
CONTINGENCY (Note 5)
STOCKHOLDERS' EQUITY (Note 3):
Common stock, $1.00 par value ............. 374 885
Additional paid-in capital ................ 598 1,409
Retained earnings ......................... 6,434 15,412
Pension liability adjustment .............. (525) (525)
Unrealized gain on marketable
securities ............................ 0 482
-------- --------
Total ................................. 6,881 $ 17,663
-------- --------
TOTAL .......................................... $ 12,270 $ 22,738
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL NINE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995
(in thousands except per share and number of shares)
<TABLE>
<CAPTION>
(unaudited)
MARCH 30, APRIL 1,
1996 1995
---------- --------
<S> <C> <C>
REVENUES (Note 5) ................................. $ 14,518 $ 14,208
--------- ---------
COSTS AND EXPENSES:
Cost of sales and services ................... 12,761 11,996
General and administrative expenses .......... 1,519 1,541
--------- ---------
Total ........................................ 14,280 13,537
--------- ---------
DIVIDEND AND INTEREST INCOME ...................... 191 350
NET INVESTMENT INCOME (Note 1) .................... 1,203 20
--------- ---------
INCOME BEFORE EQUITY IN (LOSS) INCOME OF
AFFILIATE AND STOCK REPURCHASE CHARGE ........ 1,632 1,041
EQUITY IN (LOSS) INCOME OF AFFILIATE (Note 2) ..... (601) 28
STOCK REPURCHASE CHARGE (Note 3) .................. (110)
--------- ---------
INCOME BEFORE INCOME TAXES ........................ 921 1,069
PROVISION FOR INCOME TAXES ........................ 290 330
--------- ---------
NET INCOME ........................................ $ 631 $ 739
========= =========
PER SHARE OF COMMON STOCK (based on
weighted average number of
shares outstanding) .......................... $ 0.89 $ 0.84
========= =========
Weighted average number of shares
outstanding .................................. 712,793 884,806
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL THREE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995
(in thousands except per share and number of shares)
<TABLE>
<CAPTION>
(unaudited)
MARCH 30, APRIL 1,
1996 1995
----------- --------
<S> <C> <C>
REVENUES ......................................... $ 5,484 $ 4,255
-------- --------
COSTS AND EXPENSES:
Cost of sales and services .................. 4,648 3,775
General and administrative expenses ......... 513 465
-------- --------
Total ....................................... 5,161 4,240
-------- --------
DIVIDEND AND INTEREST INCOME ..................... 20 125
NET INVESTMENT INCOME ............................ 501 21
-------- --------
INCOME BEFORE EQUITY IN INCOME
OF AFFILIATE ................................ 844 161
EQUITY IN INCOME OF AFFILIATE .................... 0 28
-------- --------
INCOME BEFORE INCOME TAXES ....................... 844 189
PROVISION FOR INCOME TAXES ....................... 260 50
-------- --------
NET INCOME ....................................... $ 584 $ 139
======== ========
PER SHARE OF COMMON STOCK (based on
weighted average number of
shares outstanding) ......................... $ 1.56 $ 0.16
-------- --------
Weighted average number of shares
outstanding ................................. 374,382 884,806
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL NINE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
MARCH 30, APRIL 1,
1996 1995
----------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ...................................... $ 631 $ 739
------- -------
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization ............... 248 256
Net investment (income) ..................... (1,203) (20)
Equity in (Loss) Income of Affiliate ........ 601 (28)
Stock repurchase charge ..................... 110
(Increase) decrease in-
Accounts receivable ..................... (1,422) 2,544
Inventories ............................. 514 (382)
Other current assets .................... 166 (50)
Increase (decrease)in-
Accounts payable ........................ 381 261
Accrued liabilities ..................... (323) (85)
Accrued income taxes .................... (179) (347)
Pension obligation ...................... (27) 25
Other ................................... (127)
------- -------
Total adjustments ............................... (1,261) 2,174
------- -------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ............................ (630) 2,913
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliate ......................... (4,474)
Net sales (purchases) of current
marketable securities ....................... 996 1,899
Purchases of noncurrent
marketable securities ....................... 0 (2,342)
Sales of noncurrent
marketable securities ....................... 4,260 1,866
Purchases of equipment .......................... (291) (229)
------- -------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES ........................... 4,965 (3,280)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from bank .................................. 4,500 2,050
Repayment of bank loan .......................... (4,520) (2,050)
Cash dividends paid ............................. (47) (111)
Purchase of common stock ........................ (5,574)
------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES ............................ (5,641) (111)
------- -------
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL NINE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
MARCH 30, APRIL 1,
1996 1995
----------- --------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH ...................... (1,306) (478)
CASH AT BEGINNING OF PERIOD .......................... 2,423 2,528
-------
CASH AT END OF PERIOD ................................ $ 1,117 $ 2,050
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for-
Interest .................................... $ 35 $ 45
Income taxes ................................ 378 690
Noncash decrease of investment
in Affiliate from stock repurchase .......... 4,928
Note issued as part of stock repurchase ......... 492
Noncash increase in investment
in Affiliate ................................ 986
Noncash increase in marketable
securities to fair value .................... 0 503
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
-8-
<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE FISCAL NINE MONTHS ENDED
MARCH 30, 1996 AND APRIL 1, 1995
(in thousands except number of shares)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Par Paid-In Retained
Shares Value Capital Earnings
----------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JULY 1, 1995 884,806 $ 885 $ 1,409 $15,412
Stock repurchased (510,424) (511) (811) (9,562)
Net income for the
fiscal nine months
ended March 30, 1996 631
Cash dividend declared
($.125 per share) (47)
----------------------------------------------
BALANCE AT MARCH 30, 1996 374,382 $ 374 $ 598 $ 6,434
==============================================
Pension Unrealized
Liability Investment
Adjustment Gain
---------------------------
<S> <C> <C>
BALANCE AT JULY 1, 1995 $ (525) $ 482
Change for the nine
months ended
March 30, 1996 (482)
---------------------------
BALANCE AT MARCH 30, 1996 $ (525) $ 0
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
WELLCO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL NINE MONTHS ENDED MARCH 30, 1996
1. MARKETABLE SECURITIES:
At July 1, 1995, Wellco owned marketable securities consisting of
corporate equity securities classified as available-for-sale and a U. S.
government agency note classified as held-to-maturity. As of March 30,
1996 all marketable securities had been sold to provide the majority of
the cash portion of the consideration paid by Wellco to repurchase 510,424
shares of its outstanding common stock (see Note 3).
Proceeds from the sale of marketable securities classified as
available-for-sale were $4,260,000, resulting in gross realized gains of
$1,325,000 and gross realized losses of $122,000.
2. INVESTMENT IN AFFILIATE:
On December 30, 1994 Wellco purchased from Coronet Insurance Company
(Coronet) for cash 400,000 shares of the common stock of Alba Waldensian,
Inc. (Alba) which represented 21.5% of total Alba common shares. Because
Coronet owned more than 50% of Wellco's total outstanding common stock,
Wellco recorded as its carrying value of this investment Coronet's basis
in these Alba shares. The excess of that basis over Wellco's cost
($986,000) increased Additional Paid-In Capital by $650,000, net of the
effect of income taxes ($336,000). This investment has been accounted for
using the equity method.
Operating results for the fiscal nine months ended March 30, 1996 includes
as Loss (Equity) in Affiliate a charge of $601,000, representing Wellco's
$305,000 equity in Alba's loss for the six months July through December,
1995 and a $296,000 reduction of this investment's carrying value to fair
value . On December 29, 1995, these shares were used as part of the
consideration paid for the repurchase of 510,424 shares of Wellco's common
stock (See Note 3).
Other than this investment, there are no business relationships or
transactions between Wellco and Alba.
3. REPURCHASE OF COMMON STOCK:
On December 29, 1995 Wellco repurchased from Coronet Insurance Company
(Coronet) 510,424 shares of Wellco's common stock, which represents 57.69%
of total shares outstanding at that time. Cash of $5,460,000 and the
400,000 shares of Alba-Waldensian, Inc. (Alba) common stock were paid for
these Wellco shares. In addition, for the six fiscal years beginning with
the 1997 year which starts June 30, 1996, certain additional payments, not
to exceed $1,531,000, will be made contingent upon cumulative net income
exceeding certain defined amounts. After this repurchase there are 374,382
common shares outstanding. Under North Carolina law the shares repurchased
constitute authorized but unissued shares.
After this repurchase, Coronet owned 25,000 shares of Wellco which
represents approximately 7% of the remaining shares outstanding. The
Repurchase Agreement provides that for a period of ten years after
December 29, 1995 Coronet and any of its affiliates will limit their
ownership of Wellco common stock to not more than 20% of total shares
outstanding. The Consolidated Statement of Operations for the nine months
ended March 30, 1996 includes as Stock Repurchase Charge $110,000
representing the value assigned to this limitation.
-10-
<PAGE>
This repurchase was recorded at the cash paid, the fair value of the Alba
shares, the present value of the additional amount projected to be paid
during the six year period and the amount of investment banker, legal,
accounting and other costs incurred related to this share repurchase, a
total of $10,884,000. The par value of the common stock repurchased
($511,000) was charged against Common Stock. The excess of total amount
paid over the par value of Wellco's common stock repurchased was charged
to Additional Paid-In Capital ($811,000) and Retained Earnings
($9,562,000). The present value of projected additional payments
($492,000) to be made in the six year period is shown in the Consolidated
Balance Sheets as Note Payable.
4. NOTE PAYABLE:
This represents the present value of the expected future payments to be
made under the stock repurchase referred to in Note 3. The discount rate
used was 10%, and the expected payment schedule for each of the six fiscal
years is:
<TABLE>
<CAPTION>
Present Value of
Fiscal Year Expected Payment
- ----------- ----------------
<S> <C>
1997 $93,000
1998 -0-
1999 -0-
2000 43,000
2001 186,000
2002 170,000
--------
Total $492,000
========
</TABLE>
Actual payments under the note will only be made for amounts by which 60%
of each fiscal year's net income exceeds certain defined amounts,
calculated on a cumulative basis, with the first payment being due for the
1997 fiscal year which ends June 28, 1997. The note does not provide for
the payment of interest and does not require a minimum yearly payment.
Total payments under the note cannot exceed $1,531,000 and all obligations
under the note terminate after the 2002 fiscal year.
Adjustments will be made to the amount recorded based on actual amounts
paid and if future events significantly change estimated future payments.
5. GOVERNMENT BOOT CONTRACT REVENUES:
Revenues in the nine month period ended March 30, 1996 include $721,000
representing the estimated amount of contract change orders that have not
as yet been negotiated with the government. Any difference between the
estimates and the actual amounts negotiated will be recorded in the period
in which negotiations are completed.
-11-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparing The Nine Months Ended March 30, 1996 and April 1, 1995:
Income before income taxes in the current period was $921,000 compared to
$1,069,000 in the prior one. Current period income was reduced by a $601,000
charge for Loss in Affiliate, representing Wellco's $305,000 equity in the
six-month loss of Alba-Waldensian, Inc. (Alba), and the $296,000 write down to
fair value of that investment. Wellco has owned 400,000 common shares of Alba
(21.5% of total shares) since December 30, 1994. Wellco's investment in Alba was
exchanged on December 29, 1995, as part of the purchase price, for Wellco's
repurchase of 510,424 shares of its common stock. Income was also reduced by a
Stock Repurchase Charge of $110,000, which is the portion of the stock
repurchase price allocated to an agreement limiting the selling shareholders'
ownership of total Wellco shares for a period of ten years (see Note 3 to the
Consolidated Financial Statements).
Income before income taxes, the Loss in Affiliate and the Stock Repurchase
Charge was $1,632,000, which compares to income of $1,041,000 in the prior
period. The total of interest, dividend and investment income in the current
period is $1,394,000 compared to $370,000 in the prior period, primarily because
the current period includes gains from the sale of all marketable securities
previously owned by Wellco. Before Loss in Affiliate, Stock Repurchase Charge
and interest, dividend and investment income, the Company had a pretax income of
$238,000 in the current period compared to income of $671,000 in the prior
period. The major reasons for this change in pretax income are:
1. Revenues increased $310,000. While pairs of combat boots sold to the U. S.
government were almost the same as the prior period, sales of combat boots
to other customers increased, and the current period also includes revenues
from contract bottoming of boots for two customers.
2. Greater revenues from these sources more than offset a decrease in
machinery sales. Prior period revenues include significant machinery sales
to one new customer and to one long-time customer. These sales can vary
significantly from period to period with the needs of this group of
customers.
3. Gross margins on the increased combat boot sales and contract bottoming did
not offset the loss of margin on lower machinery sales. Revenues from
technical assistance fees and equipment rentals from licensees, which vary
with their shipments, were also lower in the current period. Labor
inefficiencies, primarily in contract bottoming, also reduced gross
margins.
4. In the prior period, the U. S. government issued certain contract price
increase adjustments, primarily for the increased cost of leather used in
manufacturing combat boots, whose actual amounts were greater than
previously recorded estimates. This increased pretax profits $54,000 in the
prior period.
The major categories of fixed and semi-variable manufacturing costs increased by
a total $55,000. Health insurance costs, for which the Company is self funded,
increased $39,000. The long and cold winter resulted in utility costs increasing
$20,000.
Income taxes were provided at approximately the same rate in both periods.
-12-
<PAGE>
Forward Looking Information:
On August 2, 1995, the government exercised its second and last option under the
Company's current combat boot contract for a minimum 277,000 pairs. Deliveries
under this second option will be over a period of twelve months, and Wellco made
the first delivery in January, 1996. Deliveries under the first option, which
were completed in December, 1995, were for the same 277,000 pairs and were over
a period of sixteen months. The second option's shorter delivery period will
increase sales of combat boots to the U.
S. government through December 1996.
Since 1992, the government has had a policy of reducing its inventory of combat
boots by buying fewer pairs than were consumed. One result of this policy was
the sixteen month delivery schedule under the first option of the current
contract. The current contract's second and final option's delivery schedule is
over twelve months only because the contract sets a date beyond which
contractors are not required to make any further deliveries.
In the past, combat boot manufacturers shipped all of their production to
government run depots where boots were held for later distribution to customers.
Since June, 1995, between 20% and 30% of manufacturers' production has been
shipped direct to customers with the balance being shipped to depots. Combat
boot manufacturers have been working with the Defense Personnel Support Center
on a plan that would continue reducing inventories, while having the least
negative impact on manufacturers. Inventory reduction can be accomplished and
the government can save significant warehousing and distribution costs if
manufacturers ship all combat boots direct to customers. Under this plan,
manufacturers would produce 85% of total customer needs. This production,
combined with 15% of customer needs sent to manufacturers from the government
depots, would all be shipped direct from the manufacturer to the customer.
Contractors would receive a distribution fee, both for boots they manufacture
and for boots supplied from the depots. Wellco believes that this system will be
incorporated in a new contract with award expected in August, 1996, and first
delivery expected in January, 1997. Wellco believes that, if incorporated into
the new contract, this plan would result in manufacturers being able to maintain
their production at a rate not significantly less than that for the current
second option while significantly reducing the government's warehousing and
distribution costs, and accomplish the inventory reduction plan. Wellco also
believes that this plan would significantly improve customer service. As with
any bid, there is no assurance that Wellco will be awarded a contract, or that
contract prices will offset the effect on operating results of any reduction in
pairs awarded to Wellco.
In late August, 1995, the Company was awarded a $1,184,000 development boot
contract from the U. S. government. The objective of this contract is to develop
changes to the combat boot that will result in fewer lower extremity disorders.
This work is divided into three phases and will be completed in about two years.
Development, testing and delivery of prototype boots under the first phase of
this contract was completed in late February, 1996. The contract's continuation
into either one or both of the other phases is at the option of the government,
and depends on an evaluation of first phase results. The Company believes the
government will elect to continue with this work, with the next phase beginning
in the period July through December, 1996.
As discussed below in the section on liquidity and capital resources, Wellco has
sold all of its marketable securities to provide the cash portion of the total
price paid for the repurchase of 510,424 share of its common stock. The nine
month period ended March 30, 1996 includes investment income of $1,203,000 from
the sale of these securities. The sale of these securities will have a negative
effect on future periods net income to the extent that interest, dividends and
investment income would have been realized from these securities. 400,000 shares
of Alba-Waldensian, Inc. common stock owned by Wellco were exchanged as part of
the total price to repurchase these Wellco shares . Future periods Consolidated
Statements of Operations will not include any equity in the income or loss of
Alba.
-13-
<PAGE>
Comparing The Three Months Ended March 30, 1996 and April 1, 1995:
Income before income taxes in the current period was $844,000 compared to
$189,000 in the prior one. Current period income includes interest, dividend and
investment income of $521,000 compared to $146,000 in the prior period.
Before interest, dividend and investment income, the Company had pretax profit
of $323,000 in the current period compared to income of $15,000 in the prior
period. The major reasons for this increase are:
1. Pairs of combat boots sold to the U. S. government increased approximately
22% in the current period. Shipments in the current period were under a 12
month delivery schedule compared to 16 months in the prior period.
2. The current period includes revenues from the first phase of the
development boot contract and the sale of combat boot manufacturing
materials to a foreign customer.
This all resulted in revenues increasing $1,229,000 and a significant
improvement in margins.
General and administrative expenses increased $48,000, primarily from a larger
provision for employee bonuses which vary with profits.
The effective tax rate in the current period is approximately 31% compared to
26%. This increase reflects the expectation that a greater portion of fiscal
year 1996 pretax income will be from sources in the United States.
LIQUIDITY AND CAPITAL RESOURCES
Wellco uses cash from operations to supply most of its liquidity needs. A bank
line of credit is maintained for supplying any unforeseen cash needs.
The following table summarizes at the end of the most recent fiscal nine months
and the last fiscal year the availability of cash from the Company's most liquid
assets and from its existing borrowing sources:
<TABLE>
<CAPTION>
(in thousands)
Fiscal Nine Months, Fiscal Year
March 30, 1996 July 1, 1995
------------------- ------------
<S> <C> <C>
Cash ............................................. $1,117 $2,423
Marketable Securities, Current ................... 0 996
Unused Line of Credit ............................ 1,500 1,480
------ ------
Total ............................................ $2,617 $4,899
====== ======
</TABLE>
Marketable securities were sold to pay for the stock repurchase. The cash
decrease was caused by the U. S. government's slowness in processing certain
contract documents necessary to effect timely payment of invoices for combat
boot shipments.
-14-
<PAGE>
On December 29, 1995, the Company repurchased 510,424 of its common shares for a
price consisting partially of a $5,460,000 cash payment and $114,000 in related
expenses. The initial payment was partially financed by a short term bank loan.
All marketable securities were subsequently sold to repay the bank loan. The
following table summarizes this and the other major sources (uses) of cash for
the nine months ended March 30, 1996:
<TABLE>
<CAPTION>
(in thousands)
March 30,
1996
----------
<S> <C>
Net Income Plus Depreciation, Less Net Investment Income,
Loss in Affiliate and Stock Repurchase Charge .................... $ 387
Net Change in Accounts Receivable, Inventory,
Accounts Payable and Accrued Liabilities ......................... (1,029)
Other ............................................................ 12
Net Cash Used By Operations ..................................... (630)
Cash from Bank Loan Used to Repurchase Stock ..................... 4,500
Cash Used to Repay Bank Loan ..................................... (4,520)
Cash Paid to Repurchase Stock and Related Expenses ............... (5,574)
Net Cash From Sale of Marketable Securities ...................... 5,256
Cash Used to Purchase Equipment .................................. (291)
Cash Dividend Paid ............................................... (47)
Net Decrease in Cash ............................................. $(1,306)
</TABLE>
The most significant potentially negative effect on liquidity of the stock
repurchase could be the sale of marketable securities, to the extent that these
securities, being marketable, could have been sold to meet other liquidity and
capital needs, and to the extent that they were a source of cash from interest
and dividends. If significant cash needs arise in the future, other sources may
have to be found. The Company does not presently know of any such significant
future cash needs.
During the three months ended March 30, 1996, the government's slowness in
payment caused the short term use of the bank line of credit. The government
does pay interest on late payments. This is the primary reason for the decrease
in cash that came from the net change in accounts receivable, inventory,
accounts payable and accrued liabilities.
The Company believes that its cash resources are adequate to meet presently
known operating activity needs. The Company has no material commitments for
capital equipment. Note 4 to the Consolidated Financial Statements provides
information about a commitment to make additional cash payments from the stock
repurchase, contingent upon net incomes for the six fiscal years 1997 through
2002. The Company does not know of any other demands, commitments,
uncertainties, or trends that will result in or that are reasonably likely to
result in its liquidity increasing or decreasing in any material way.
The bank line of credit, which provides for total borrowings of $1,500,000, will
expire and be subject to renewal on December 30, 1996.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in Securities. N/A
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders: N/A
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K.
a). Exhibits: Exhibit 27, Fincncial Data Schedule follows
this schedule.
b). Reports on Form 8-K:
On January 16, 1996 a Form 8-K dated December 29, 1995
was filed reporting a Change in Control of Registrant
(Item 1 of Form 8-K) and the Disposition of Assets (Item
2 for Form 8-K), all related to the December 29, 1995
stock repurchase. Certain pro forma financial information
was filed under Item 7 of the Form 8-K.
SIGNATURE
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.
Wellco Enterprises, Inc., Registrant
\S\ David Lutz
David Lutz, Executive Vice President,
Treasurer and Principal Financial Officer
May 13, 1996
-16-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS FOR THE 3RD QUARTER 10-Q, PERIOD ENDED
MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000105532
<NAME> WELLCO ENTERPRISES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> MAR-30-1996
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0
0
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