Mail Stop 03-08
March 16, 2005
By Facsimile and U.S. Mail
Ms. Tammy Francis
Controller and Chief Financial Officer
Wellco Enterprises, Inc.
150 Westwood Circle
Waynesville, NC 28786
RE: Wellco Enterprises, Inc.
Form 10-K for the fiscal year ended July 3, 2004
Filed October 1, 2004
Forms 10-Q for the quarterly periods ended October 2, 2004
and
January 1, 2005
File No. 1-05555
Dear Ms. Francis:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise your
documents in response to these comments. If you disagree, we will
consider your explanation as to why our comment is inapplicable or
a
revision is unnecessary. Please be as detailed as necessary in
your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Fiscal Year Ended July 3, 2004
General
1. Unless otherwise indicated, where a comment below requests
additional disclosures or other revisions to be made, these
revisions
should be included in your future filings, as applicable.
Cover Page
2. In future filings, please revise to state the aggregate market
value of voting and non-voting common equity held by non-
affiliates
as of the last business day of your most recently completed second
fiscal quarter.
Item 9A. Controls and Procedures
(b) Changes in Internal Controls, page 6
3. Please refer to Item 308(c) of Regulation S-K and revise your
disclosure to indicate whether there were "any changes," not just
"significant" changes, in your internal control over financial
reporting during your last fiscal quarter that materially
affected,
or are reasonably likely to materially affect your internal
control
over financial reporting.
Please also confirm to us supplementally that there were no
changes
in your internal control over financial reporting that occurred
during the fourth quarter of fiscal 2004 that materially affected,
or
are reasonably likely to materially affect, your internal control
over financial reporting.
2004 Annual Report
Management`s Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations, page 4
4. Throughout MD&A, you use the term "excess costs." Please
clarify
your disclosure to indicate exactly what this term means in the
context of your discussion.
Liquidity and Capital Resources, page 12
5. Your presentation of income before depreciation and other non-
cash
adjustments represents a non-GAAP measure subject to the
disclosure
and reconciliation requirements of Item 10(e) of Regulation S-K.
Based on the context of your disclosure, we assume this measure is
intended as a liquidity and not a performance measure. If our
assumption is incorrect, please advise. Otherwise, please revise
your disclosures as follows:
(a) identify this measure as a non-GAAP liquidity measure;
(b) provide a detailed reconciliation to cash flows from operating
activities;
(c) indicate the substantive reasons why you believe presentation
of
this non-GAAP measure provides useful information to investors;
and
(d) disclose how management uses this non-GAAP measure.
Additionally, please present cash flows from investing and
financing
activities alongside this non-GAAP liquidity measure. See
Question
12 of the Frequently Asked Questions Regarding the Use of Non-GAAP
Financial Measures issued on June 13, 2003, which is available on
our
website, www.sec.gov.
6. Please consider revising your contractual obligations table to
include:
(a) interest payments on your debt; and
(b) required and planned funding of your pension and retiree
health
benefits plans.
Because the table is aimed at increasing transparency of cash
flow,
we believe these payments should be included in the table. If you
choose not to include these payments, a footnote to the table
should
clearly identify the excluded item(s) and provide any additional
information that is material to understanding your cash
requirements.
See Item 303(a)(5) of Regulation S-K and footnote 46 to SEC
Release
No. 33-8350.
Financial Statements
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies, page 20
General
7. Please disclose the types of expenses that you include in the
cost
of sales and services line item and the types of expenses that you
include in the general and administrative expenses line item. In
doing so, please disclose specifically whether you include inbound
freight charges, purchasing and receiving costs, inspection costs,
warehousing costs, internal transfer costs and the other costs of
your distribution network in cost of sales and services. If you
currently exclude a significant portion of these costs from cost
of
sales and services, please provide cautionary disclosure in MD&A
that
your gross margins may not be comparable to others, since some
entities include the costs related to their distribution network
in
cost of sales and services and others like you exclude all or a
portion of them from gross margin, including them instead in a
line
item such as general and administrative expenses. To the extent
the
excluded costs are material to your operating results, quantify
these
amounts in MD&A. If you determine that these amounts are
immaterial
for disclosure, please supplementally provide us with your
qualitative and quantitative assessment of materiality for all
periods presented.
9. Pension Plans, page 26
8. Please disclose your investment polices and strategies,
including
target allocation percentages or range of percentages for each
major
category of plan assets. Additionally, please disclose the basis
used to determine the overall expected long-term rate-of-return-on
assets assumption. Refer to paragraphs 5.d.(2) and 5.d.(3) of
SFAS
132(R).
9. Please disclose the measurement date(s) used to determine the
pension and other retiree health benefit measurements. See
paragraph
5.k. of SFAS 132(R).
22. Subsequent Event, page 40
10. Please confirm to us supplementally that it has been your
consistent accounting policy to record reimbursements under the
Puerto Rico government program in the fiscal period in which the
reimbursements are received. Also help us understand why it is
your
policy to record these payments on a cash basis, rather than
accruing
them as earned. As a result of this policy, we note that in
periods
of "surge" production, reported gross margins are relatively low
whereas in the following period when the labor reimbursements are
received, recorded gross margins are relatively high.
Report of Independent Registered Public Accounting Firm, page 41
11. Please amend your filing to include a revised audit report
which
states that the audit was conducted in accordance with the
standards
of the Public Company Accounting Oversight Board (United States).
Your current audit report, which refers to the "auditing"
standards
of the Public Company Accounting Oversight Board (United States)
is
not sufficient in this regard as the reference to the standards of
the Public Company Accounting Oversight Board (PCAOB) should not
be
limited in any way. Please refer to PCAOB Auditing Standard No.
1
and SEC Release 34-49707.
* * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. Please furnish a letter that keys your responses
to
our comments and provides any requested supplemental information.
Detailed response letters greatly facilitate our review. Please
file
your amended filing and response letter on EDGAR. Please
understand
that we may have additional comments after reviewing your amended
filing and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filings or
in
response to our comments on your filings.
If you have any questions regarding these comments,
please
direct them to Staff Accountant Yong Kim at (202) 942-2904. In
her
absence, direct your questions to Robyn Manuel at (202) 942-7786.
Any other questions regarding disclosures issues may be directed
to
me at (202) 942-2905.
Sincerely,
George F. Ohsiek
Branch Chief
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Ms. Francis
Wellco Enterprises, Inc.
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