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: DECEMBER 28, 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 .
1,123,146 shares of $1 par value common stock were outstanding on February 10,
1997.
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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 DECEMBER 28, 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 are of a normal recurring nature.
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1996 AND JUNE 29, 1996
(in thousands)
ASSETS
<TABLE>
<CAPTION>
(unaudited)
DECEMBER 28, JUNE 29,
1996 1996
------------ --------
<S> <C> <C>
CURRENT ASSETS:
Cash .......................................... $ 966 $ 673
Receivables ................................... 3,925 5,242
Inventories-
Finished goods ............................ 1,539 1,296
Work in process ........................... 1,841 1,267
Raw materials ............................. 1,746 1,361
-------- --------
Total ..................................... 5,126 3,924
Deferred taxes and prepaid expenses ........... 333 377
-------- --------
Total ......................................... 10,350 10,216
-------- --------
MACHINERY LEASED TO LICENSEES
(less accumulated depreciation of
$1,469 and $1,456) ............................ 50 63
PROPERTY, PLANT AND EQUIPMENT:
Land .......................................... 107 107
Buildings ..................................... 774 774
Machinery and equipment ....................... 2,570 2,430
Furniture and automobiles ..................... 522 532
Leasehold Improvements ........................ 63 63
-------- --------
Total cost .................................... 4,036 3,906
Less accumulated depreciation and
amortization ............................... (2,886) (2,768)
-------- --------
Net ........................................... 1,150 1,138
-------- --------
INTANGIBLE ASSETS:
Excess of cost over net assets of
subsidiary at acquisition .................. 228 228
Intangible pension asset ...................... 623 623
-------- --------
Total ......................................... 851 851
DEFERRED TAXES ..................................... 429 429
-------- --------
TOTAL .............................................. $ 12,830 $ 12,697
======== ========
See Notes to Consolidated Financial Statements .....
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1996 AND JUNE 29, 1996
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(unaudited)
DECEMBER 28, JUNE 29,
1996 1996
------------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ............................ $ 1,736 $ 1,779
Accrued compensation ........................ 647 793
Accrued pension ............................. 133 166
Accrued income taxes ........................ 101 139
Cash dividend declared ...................... 112 --
Other liabilities ........................... 266 343
Current maturity of note payable ............ 351
-------- --------
Total ................................... 3,346 3,220
-------- --------
LONG-TERM LIABILITIES:
Pension obligation .......................... 1,904 1,939
Note payable (Note 2) ....................... 938 492
STOCKHOLDERS' EQUITY (Notes 1, 2, and 3):
Common stock, $1.00 par value ............... 1,123 374
Additional paid-in capital .................. -- 598
Retained earnings ........................... 6,141 6,696
Pension liability adjustment ................ (622) (622)
-------- --------
Total ................................... 6,642 7,046
-------- --------
TOTAL ............................................ $ 12,830 $ 12,697
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(in thousands except per share and number of shares)
<TABLE>
<CAPTION>
(unaudited)
DECEMBER 28, DECEMBER 30,
1996 1995
------------- ------------
<S> <C> <C>
REVENUES (Note 4) ............................. $ 9,728 $ 9,034
----------- -----------
COSTS AND EXPENSES:
Cost of sales and services ............... 8,003 8,113
General and administrative expenses ...... 1,098 1,006
----------- -----------
Total .................................... 9,101 9,119
----------- -----------
DIVIDEND AND INTEREST INCOME .................. 29 171
NET INVESTMENT INCOME ......................... -- 702
----------- -----------
TOTAL DIVIDEND, INTEREST & INVESTMENT
INCOME ................................... 29 873
----------- -----------
INCOME BEFORE EQUITY IN (LOSS)
OF AFFILIATE AND STOCK REPURCHASE CHARGE.. 656 788
EQUITY IN (LOSS) OF AFFILIATE ................. -- (601)
STOCK REPURCHASE CHARGE ....................... -- (110)
----------- -----------
INCOME BEFORE INCOME TAXES .................... 656 77
PROVISION FOR INCOME TAXES .................... 150 30
----------- -----------
NET INCOME .................................... $ 506 $ 47
=========== ===========
PER SHARE OF COMMON STOCK (based on
weighted average number of
shares outstanding) ...................... $ 0.45 $ 0.02
=========== ===========
Weighted average number of shares
outstanding (Note 3) ..................... 1,123,146 2,654,418
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL THREE MONTHS ENDED
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(in thousands except per share and number of shares)
<TABLE>
<CAPTION>
(unaudited)
DECEMBER 28, DECEMBER 30,
1996 1995
------------- ------------
<S> <C> <C>
REVENUES .......................................... $ 4,738 $ 4,656
----------- -----------
COSTS AND EXPENSES:
Cost of sales and services ................... 3,917 4,154
General and administrative expenses .......... 575 542
----------- -----------
Total ........................................ 4,492 4,696
----------- -----------
DIVIDEND AND INTEREST INCOME ...................... 12 83
NET INVESTMENT INCOME ............................. -- 684
----------- -----------
INCOME BEFORE EQUITY IN (LOSS)
OF AFFILIATE AND STOCK REPURCHASE CHARGE...... 258 727
EQUITY IN (LOSS) OF AFFILIATE ..................... -- (479)
STOCK REPURCHASE CHARGE ........................... -- (110)
----------- -----------
INCOME BEFORE INCOME TAXES ........................ 258 138
PROVISION FOR INCOME TAXES ........................ 50 20
----------- -----------
NET INCOME ........................................ $ 208 $ 118
=========== ===========
PER SHARE OF COMMON STOCK (based on
weighted average number of
shares outstanding) .......................... $ 0.18 $ 0.04
----------- -----------
Weighted average number of shares
outstanding (Note 3) ......................... 1,123,146 2,654,418
=========== ===========
See Notes to Consolidated Financial Statements ....
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income .................................. $ 506 $ 47
------- -------
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization ........... 155 166
Net investment (income) ................. -- (702)
Equity in loss of affiliate ............. 601
Stock repurchase charge ................. 110
(Increase) decrease in-
Accounts receivable ................. 1,317 (1,014)
Inventories ......................... (1,202) 547
Other current assets ................ 43 187
Increase (decrease)in-
Accounts payable .................... (43) 338
Accrued liabilities ................. (256) (553)
Accrued income taxes ................ (38) (138)
Pension obligation .................. (35) (27)
Other ............................... -- (266)
------- -------
Total adjustments ........................... (59) (751)
------- -------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ........................ 447 (704)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of current
marketable securities ................... -- 996
Sales of noncurrent
marketable securities ................... -- 37
Purchases of equipment ...................... (154) (202)
------- -------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES ....................... (154) 831
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from bank .............................. 4,500
Purchase of common stock .................... (5,617)
------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES ........................ -- (1,117)
------- -------
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH ..................... 293 (990)
CASH AT BEGINNING OF PERIOD ......................... 673 2,423
------- -------
CASH AT END OF PERIOD ............................... $ 966 $ 1,433
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for-
Interest ................................... $ 16 $ 18
Income taxes ............................... 187 131
Adjustment of stock repurchase note ............ 798
Note issued as part of stock repurchase ........ 492
Noncash exchange of investment in
Affiliate for stock repurchase ............. 4,928
Noncash increase in marketable
securities to fair value ................... -- 410
======= =======
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 28, 1996
(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 JUNE 29, 1996 374,382 $374 $ 598 $ 6,696
Net income for the
fiscal six months
ended December 28, 1996 506
Adjustment of note payable
from stock repurchase (798)
Transfer to Common Stock
the par value of stock
issued in stock split 748,764 749 (598) (151)
Cash dividend declared
($.10 per share) (112)
-------------------------------------------------
BALANCE AT DECEMBER 28, 1996 1,123,146 $ 1,123 $ - $ 6,141
=================================================
Pension
Liability
Adjustment
-----------
<S> <C>
BALANCE AT JUNE 29, 1996 $ (622)
Change for the fiscal six
months ended
December 28, 1996
------------
BALANCE AT DECEMBER 28, 1996 $ (622)
============
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
WELLCO ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL SIX MONTHS ENDED DECEMBER 28, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Stock Options-
In October 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." This standard defines
a fair value based method of accounting for employee stock
options, and gives companies a choice of measuring stock-based
compensation expense by adopting the fair value method or
continuing to measure compensation using the intrinsic value
approach of Accounting Principles Board (APB) Opinion No. 25, the
former standard. If a company elects to continue using APB 25,
SFAS 123 requires, among other things, disclosure of pro forma
net income and earnings per share as if the fair value based
accounting method in SFAS 123 had been adopted. This statement is
effective for the Company's 1997 fiscal year and, as permitted by
SFAS 123, the new disclosures will first be made in the 1997
fiscal year annual report. The Company will continue using APB 25
to record stock-based compensation expense. The Company has stock
options outstanding for 52,500 shares of its Common stock to
which this disclosure will apply. Under the present stock option
plan, the option price is the same as the market price on the
date of option award, therefore Wellco will not recognize
compensation expense for these options under APB 25.
2. NOTE PAYABLE:
This represents the present value of estimated future payments to be made
under a note payable related to Wellco's repurchase of 510,424 shares of
its common stock from its former majority shareholder on December 29,
1995. 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 2003 fiscal year payment.
At December 28, 1996 and primarily because of the possibility of new
contracting opportunities with the U. S. government, Wellco revised its
estimates of the amount that will be paid under this note payable, and
adjusted the note's recorded amount accordingly. This increased the Note
Payable as shown in the Consolidated Balance Sheet by $798,000, and
reduced Retained Earnings by the same amount. The present value of
estimated note payments, which reflects maximum total payments of
$1,531,000, discounted at 10% is as follows:
<TABLE>
<CAPTION>
Present Value of
Paid in Fiscal Year Expected Payment
- ------------------- ----------------
<S> <C>
1997 $ 351,000
1998 746,000
1999 192,000
-----------
Total $ 1,289,000
===========
</TABLE>
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<PAGE>
An imputed amount of interest is being charged against operations using
the same 10% discount rate. Adjustments will be made to the estimated
amount recorded based on actual amounts paid and if future events
significantly change estimated future payments.
3. STOCK SPLIT:
A three-for-one stock split was declared by the Board of Directors on
November 19, 1996 payable on January 3, 1997 to stockholders of record on
December 6, 1996. The par value of the new shares issued, $749,000, was
transferred to Common Stock from Additional Paid-In Capital ($598,000) and
Retained Earnings ($151,000). All share and per share amounts in the
financial statements have been retroactively adjusted to give effect to
this stock split.
4. GOVERNMENT BOOT CONTRACT REVENUES:
Revenues in the six month period ended December 28, 1996 include $306,000
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. Revenues in this six month period was
reduced by $30,000 representing adjustments to such estimates previously
recorded in the 1996 fiscal year.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparing The Six Months Ended December 28, 1996 and December 30, 1995:
Income before income taxes in the current period was $656,000 compared to
$77,000 in the first six months of the prior fiscal year. The prior year
contained several non-recurring items, which were:
1. 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 had 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.
2. The total of interest, dividend and investment income was $873,000 in the
first six months of the previous year compared to $29,000 in the current
period. The prior period included the sale of one marketable security at an
amount significantly greater that its carrying value. All marketable
securities were subsequently sold in the third quarter of fiscal year 1996
to pay for the stock repurchase. The current period only includes interest
income earned on excess operating funds.
The loss before the above non-recurring items, dividend, interest and investment
income in the prior period was $85,000 compared to income of $627,000 in the
current period. The primary reasons for this change are:
1. Pairs of combat boots sold to the U. S. government increased approximately
32,000 (about 30%) in the current period. In the six months ended December
28, 1996, Wellco was shipping combat boots under the second option of its
current contract. For the prior period, shipments were under the first
option. Both options are for the same total pairs, but the delivery period
for the second option is twelve months and for the first option it was
sixteen months. Sales of combat boots to customers other than the U. S.
government decreased in the current period. These boots, which are
substantially modified from those sold to the U. S. government, usually
have a lower gross margin, and this had the effect of increasing the
overall gross margin.
Increased revenues from combat boot sales more than offset a decrease in
sales of boot manufacturing raw materials and machinery. The prior
period included a significant sale to one customer. These sales can
vary significantly from period to period, depending on customers' needs.
2. Current period income was also reduced by $30,000 which represents an
adjustment to estimates recorded in the 1996 fiscal year related to certain
contract actions not yet settled with the U. S. government.
3. Current period income was also reduced by $32,000 representing interest on
a note payable related to the December 29, 1995 repurchase of Wellco stock.
4. Gross margins improved significantly in the current period. Technical
assistance fees and rental
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<PAGE>
income increased with no significant increase in cost. The major
categories of fixed and semi- variable manufacturing costs
decreased $21,000, primarily because of a decrease in employee
group health insurance, for which Wellco is self-funded. Certain
other sales, on which margins are higher than those for combat
boots, increased. Compared to last year, boot mold manufacturing
has been very busy increasing the inventory of leased molds,
which has resulted in a higher recovery of fixed manufacturing
costs.
General and administrative costs increased because of higher employee
compensation costs, and increased participation in military equipment shows.
Income taxes are provided at the estimated overall rate for the fiscal year.
Forward Looking Information:
Deliveries under the second and last option of the current U. S. government
combat boot contract were substantially completed in December 1996.
On September 27, 1996, Wellco submitted a bid against a solicitation for the
next U. S. government combat boot contract, and the government estimated a
contract award date of mid-December 1996. As has happened so many times in the
past, the award date has been extended three times, and it is now estimated to
be in late February.
Wellco has, just as it has done in the past, continued to manufacture and
inventory combat boots in anticipation of the award. Management believes any
risk associated with this practice is justified in order to maintain its skilled
work force and to be able to provide quick response on government orders when
the contracts are awarded. Revenues and income in the 1997 fiscal year third
quarter which will end March 29, 1997 may be adversely affected by this delay in
contract award. Any adverse effect will be minimized by Wellco having
significant pairs of boots ready to ship upon contract award, and any adverse
effect should be reversed in future periods, since the delay will not have any
effect on the total number of pairs Wellco will ship under the new contract.
As with the current contract, the government plans, but is not required to make
awards to each of the expected four bidders, and will use the best value method
of evaluating bids. Under this method, the highest rated bidder receives 35% of
total pairs, the second highest rated bidder gets 25%, and the other two bidders
receive 20% each. Under best value, bidders are rated on their past performance,
quality history and other criteria, and bid prices are not the most important
factor. Since this bidding process is competitive, management cannot state with
absolute certainty that Wellco will receive a contract award or what percent it
will be awarded. For the current contract, Wellco is the 25% supplier.
Contracts awarded from the new solicitation will provide for a base year award
and four option years. Prior to each option's exercise, the government will
evaluate each contractor's performance during the prior period and will make the
35%/25%/20%/20% option award based on that evaluation, with the best performing
contractor getting the greater percent.
Since 1992, the government has been reducing its inventory of combat boots by
buying fewer pairs than were consumed. The current solicitation establishes
total minimum and maximum pairs to be ordered for each year of the contract of
703,220 and 1,055,828. These amounts are less than estimated consumption and are
less than the total annual pairs ordered under the current contract
(approximately 1,108,000 pairs). The government has stated that their intent,
but not their binding commitment, to purchase total annual pairs of combat boots
equal to 78% of consumption, which would be approximately 880,000 based on
estimated consumption. In addition, during the first year of new contracts
resulting from this solicitation, the government will buy an additional total
205,000 pairs of the desert combat boot which will be used to establish a war
reserve stock. The Company estimates that the government will reach its desired
inventory level between
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<PAGE>
the fourth and fifth year of the contract, at which time we expect orders to
increase to the level of consumption. The effect of reduced total pairs
purchased on future operating results will depend on many factors, with per pair
price and the percent awarded to Wellco being the major ones.
Wellco has also bid on three other U. S. government contracts, with two bids
being for boot products constructed with processes other than those presently
used by the Company, and one being to provide certain specialized
footwear-related services to U. S. Military personnel. If awarded some or all of
these contracts, the Company's military boot manufacturing operations and
services related thereto would be increased. Although confident for success in
at least one of these bids, management cannot state with absolute certainty that
Wellco will receive any contract prior to its actual award.
On September 30, 1996, Wellco was awarded a contract from a state to provide an
estimated 45,000 pairs of six inch work shoes. Deliveries under this contract
are for the period October, 1996 through September, 1997.
Wellco has also received notification of intent to award a contract to its
machinery and licensing subsidiary, Ro-Search, Inc., for the installation of a
footwear manufacturing facility at a domestic location. Ro-Search also received
indications, but no confirmed order, that its oldest customer will be soon
confirm an order for footwear molds which will be the largest single order ever
placed with Ro-Search . Performance under both of these will be primarily in the
1998 fiscal year.
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. In September, 1996, the
government committed funds to the second phase. We understand that the
government is presently summarizing the results of their testing of phase one
prototype boots, and we expect performance on phase two to start soon and be
completed this summer.
Except for historical information, this Form 10-Q includes forward looking
statements that involve risks and uncertainties, including, but not limited to,
the receipt of contracts from the U. S. government and the performance
thereunder, the ability to control costs under fixed price contracts, the
cancellation of contracts, and other risks detailed from time to time in the
Company's Securities and Exchange Commission filings, including Form 10-K for
the year ended June 29, 1996. Actual results may differ materially from
management expectations.
Comparing The Three Months Ended December 28, 1996 and December 30, 1995:
Because the stock repurchase occurred on December 29, 1995, the prior year
quarter reflects the non-recurring items mentioned above (the Loss in Affiliate,
the Stock Repurchase Charge and the significant investment income). Before these
non-recurring items, dividend and interest income and income taxes, the prior
period had a loss of $40,000 compared to income of $246,000 in the current three
month period.
The same factors discussed above that effected the six month period comparison
are the major ones affecting the three month period comparison. Pairs of combat
boots sold to the U. S. government increased approximately 21,000 pairs (about
43%), which was primarily caused by the shorter delivery period for the second
option. The $30,000 adjustment to previously recorded estimates of certain
contract actions and the $32,000 interest on the stock repurchase note payable
both occurred in the current three month period.
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.
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<PAGE>
The following table summarizes at the end of the most recent fiscal six 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 Six Months, Fiscal Year
December 28, 1996 June 29, 1996
------------------ -------------
<S> <C> <C>
Cash ......................................... $ 966 $ 673
Unused Line of Credit ........................ 1,500 1,500
------ ------
Total ........................................ $2,466 $2,173
====== ======
</TABLE>
The following table summarizes the major sources (uses) of cash for the six
months ended December 28, 1996:
<TABLE>
<CAPTION>
(in thousands)
December 28,
1996
------------
<S> <C>
Net Income Plus Depreciation .................................... $ 661
Net Change in Accounts Receivable, Inventory,
Accounts Payable and Accrued Liabilities ........................ (222)
Other ........................................................... 8
Net Cash Provided By Operations ................................ 447
Cash Used to Purchase Equipment ................................. (154)
-----
Net Increase in Cash ........................................... $ 293
=====
</TABLE>
Accounts receivable decreased because of some improvement in the timeliness of
the U. S. government's payments and because of the receipt of payments from
certain significant June 29, 1996 receivables. A build up of inventories in
anticipation of the award for a new contract with the U.S. government
substantially offset the cash provided from the accounts receivable decrease.
The payment in December 1996 of certain short term deferred compensation caused
the net $222,000 decrease in cash. The inventory build up has continued since
December 28, 1996 and has required more cash. It is likely that short term funds
will be needed from the bank line of credit before the contract is awarded,
boots are shipped and the government pays the related invoices.
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 2 to the Consolidated Financial Statements provides
information about a commitment to make additional cash payments from a stock
repurchase, with the amount of payments contingent upon net income 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 31, 1997.
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<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:
The 1996 Annual Stockholders Meeting of Wellco Enterprises, Inc.
was held on November 19, 1996. Two items were voted on and the
results of that voting is shown below.
1. Directors were elected as follows:
<TABLE>
<CAPTION>
Shares Withheld
Nominee for Director Shares Voted For From
<S> <C> <C>
James T. Emerson 326,297 5,500
David Lutz 326,297 5,500
Fred K. Webb, Jr. 326,297 5,500
Joseph Minio 326,097 5,700
William D. Schubert 326,097 5,700
</TABLE>
2. The 1996 Stock Option Plan for Key Employees was approved and
the voting was as follows:
Shares Voted For Shares Voted Against Shares Abstained
267,380 18,812 12,200
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K.
a). Exhibits: None
b). Reports on Form 8-K: None
-16-
<PAGE>
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\________________________________ \s\______________________________
David Lutz, President and Treasurer Tammy Francis, Controller
February 11, 1997
-17-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE 2ND QUARTER 10-Q, PERIOD ENDED DECEMBER 28,
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> 6-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> DEC-28-1996
<EXCHANGE-RATE> 1
<CASH> 966
<SECURITIES> 0
<RECEIVABLES> 3,962
<ALLOWANCES> 37
<INVENTORY> 5,126
<CURRENT-ASSETS> 10,796
<PP&E> 5,555
<DEPRECIATION> 4,355
<TOTAL-ASSETS> 12,830
<CURRENT-LIABILITIES> 3,346
<BONDS> 938
0
0
<COMMON> 1,123
<OTHER-SE> 5,519
<TOTAL-LIABILITY-AND-EQUITY> 12,830
<SALES> 9,728
<TOTAL-REVENUES> 9,728
<CGS> 8,003
<TOTAL-COSTS> 8,003
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 656
<INCOME-TAX> 150
<INCOME-CONTINUING> 506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 506
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<FN>
A THREE FOR ONE STOCK SPLIT WAS PAID TO SHAREHOLDERS ON JANUARY 3, 1997.
PRIOR PERIOD FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR
THIS RECAPITALIZATION. THE ABOVE EARNINGS PER SHARE WAS COMPUTED
ON SHARES OUTSTANDING AS SPLIT.
</FN>
</TABLE>
