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 30, 2000
COMMISSION FILE NUMBER: 1-5555
WELLCO ENTERPRISES, INC.
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(Exact name of registrant as specified in charter)
NORTH CAROLINA 56-0769274
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(State of Incorporation) (I.R.S. Employer Identification No.)
150 Westwood Circle, P.O. Box 188, Waynesville, NC 28786
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(Address of Principal Executive Office)
Registrant's telephone number, including area code 828-456-3545
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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 .
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1,163,246 shares of $1 par value common stock were outstanding on February 13,
2001.
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 30, 2000
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.
-2-
WELLCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2000 AND JULY 1, 2000
(in thousands)
ASSETS
(unaudited)
DECEMBER 30, JULY 1,
2000 2000
------------ -------
CURRENT ASSETS:
Cash ....................................... $ 464 $ 73
Receivables ................................ 1,753 3,108
Inventories-
Finished goods ......................... 1,534 1,811
Work in process ........................ 1,403 1,224
Raw materials .......................... 2,563 2,062
--------- --------
Total .................................. 5,500 5,097
Deferred taxes and prepaid expenses ........ 844 713
--------- --------
Total ...................................... 8,561 8,991
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MACHINERY LEASED TO LICENSEES,
net of accumulated depreciation ............ 37 24
PROPERTY, PLANT AND EQUIPMENT:
Land ....................................... 107 107
Buildings .................................. 1,176 1,176
Machinery and equipment .................... 5,533 5,034
Furniture and automobiles .................. 903 873
Leasehold improvements ..................... 557 526
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Total cost ................................. 8,276 7,716
Less accumulated depreciation and
amortization ............................ (4,724) (4,319)
--------- --------
Net ........................................ 3,552 3,397
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INTANGIBLE ASSETS:
Excess of cost over net assets of
subsidiary at acquisition ............... 228 228
Intangible pension asset ................... 52 52
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Total ...................................... 280 280
DEFERRED TAXES ................................... 258 258
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TOTAL ............................................ $ 12,688 $ 12,950
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(continued on next page)
-3-
WELLCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2000 AND JULY 1, 2000
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
(unaudited)
DECEMBER 30, JULY 1,
2000 2000
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CURRENT LIABILITIES:
Short-term borrowing from bank (Note 2) ...... $ 685 $ 1,700
Accounts payable ............................. 1,035 861
Accrued compensation ......................... 907 1,076
Accrued pension .............................. 127 124
Accrued income taxes ......................... 726 629
Cash dividend payable ........................ 233 --
Other liabilities ............................ 395 395
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Total ........................................ 4,108 4,785
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LONG-TERM LIABILITIES:
Pension obligation ........................... 754 892
Note payable ................................. 701 701
STOCKHOLDERS' EQUITY :
Common stock, $1.00 par value ................ 1,164 1,164
Additional paid-in capital ................... 192 192
Retained earnings ............................ 6,199 5,646
Accumulated other comprehensive loss ......... (430) (430)
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Total ........................................ 7,125 6,572
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TOTAL .............................................. $ 12,688 $ 12,950
========= ========
See Notes to Consolidated Financial Statements.
-4-
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 30, 2000 AND JANUARY 1, 2000
(in thousands except per share and number of shares)
(unaudited)
DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
REVENUES ....................................... $ 10,096 $ 9,291
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COSTS AND EXPENSES:
Cost of sales and services ............... 8,007 8,125
Restructuring and realignment
costs (Note 4) ........................... -- 312
General and administrative expenses ...... 1,206 940
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Total .................................... 9,213 9,377
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INCOME FROM CONTRACT CLAIM AND
GRANT MONEY RECEIVED (Note 5) ................. 100 215
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OPERATING INCOME ............................... 983 129
NET INTEREST EXPENSE ........................... (98) (119)
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INCOME BEFORE INCOME TAXES ..................... 885 10
PROVISION FOR INCOME TAXES .................... 99 3
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NET INCOME ..................................... $ 786 $ 7
=========== ===========
BASIC EARNINGS PER SHARE (Note 3)
based on weighted average number of
shares outstanding ....................... $ 0.68 $ 0.01
=========== ===========
Shares used in computing basic
earnings per share ....................... 1,163,246 1,163,246
=========== ===========
DILUTED EARNINGS PER SHARE (Note 3) based
on weighted average number of shares
outstanding and dilutive stock
options ................................. $ 0.66 $ 0.01
=========== ===========
Shares used in computing diluted
earnings per share ....................... 1,186,289 1,168,391
=========== ===========
See Notes to Consolidated Financial Statements.
-5-
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL THREE MONTHS ENDED
DECEMBER 30, 2000 AND JANUARY 1, 2000
(in thousands except per share and number of shares)
(unaudited)
DECEMBER 30, JANUARY 1,
2000 2000
------------ ----------
REVENUES ....................................... $ 5,031 $ 4,559
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COSTS AND EXPENSES:
Cost of sales and services ............... 4,075 4,032
Restructuring and realignment
costs (Note 4) ........................... -- (47)
General and administrative expenses ...... 653 469
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Total .................................... 4,728 4,454
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INCOME FROM CONTRACT CLAIM AND
GRANT MONEY RECEIVED (Note 5) ................. 100 215
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OPERATING INCOME ............................... 403 320
NET INTEREST EXPENSE ........................... (48) (71)
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INCOME BEFORE INCOME TAXES ..................... 355 249
PROVISION FOR INCOME TAXES .................... 20 51
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NET INCOME ..................................... $ 335 $ 198
=========== ===========
BASIC EARNINGS PER SHARE (Note 3)
based on weighted average number of
shares outstanding ....................... $ 0.29 $ 0.17
=========== ===========
Shares used in computing basic
earnings per share ....................... 1,163,246 1,163,246
=========== ===========
DILUTED EARNINGS PER SHARE (Note 3) based
on weighted average number of shares
outstanding and dilutive stock
options ................................. $ 0.28 $ 0.17
=========== ===========
Shares used in computing diluted
earnings per share ....................... 1,186,068 1,168,655
=========== ===========
See Notes to Consolidated Financial Statements.
-6-
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 30, 2000 AND JANUARY 1, 2000
(in thousands)
(unaudited)
DECEMBER 30, JANUARY 1,
2000 2000
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ...................................... $ 786 $ 7
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Adjustments to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation and amortization .............. 407 351
(Increase) decrease in-
Receivables .......................... 1,355 3,333
Inventories .......................... (403) (1,335)
Other current assets ................. (131) (137)
Increase (decrease) in-
Accounts payable ..................... 174 402
Accrued liabilities .................. (169) (266)
Accrued income taxes ................. 97 75
Pension obligation ................... (135) (205)
Other ................................ 36 (138)
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Total adjustments ............................... 1,231 2,080
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ............................ 2,017 2,087
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment ................ (575) (1,071)
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NET CASH USED IN INVESTING ACTIVITIES ................ (575) (1,071)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under short-term borrowings ........ (1,015) (1,060)
Principal payments of bank note payable ......... (36) (37)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ............................ (1,051) (1,097)
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NET INCREASE (DECREASE) IN CASH ...................... 391 (81)
CASH AT BEGINNING OF PERIOD .......................... 73 89
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CASH AT END OF PERIOD ................................ $ 464 $ 8
======= ========
(continued on next page)
- 7-
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 30, 2000 AND JANUARY 1, 2000
(in thousands)
(unaudited)
DECEMBER 30, JANUARY 1,
2000 2000
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SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for-
Interest ................................. $ 42 $118
Income taxes ............................. 9 10
NONCASH DIVIDEND ACCRUAL ........................... $233 $116
----
See Notes to Consolidated Financial Statements.
-8-
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL SIX MONTHS ENDED
DECEMBER 30, 2000
(in thousands except number of shares)
(unaudited)
Common Stock Additional
Par Paid-In Retained
Shares Value Capital Earnings
------------------------------------------
BALANCE AT JULY 1, 2000 1,163,246 $ 1,164 $ 192 $ 5,646
Net income for the fiscal six
months ended December 30, 2000 786
Cash dividend declared
($.20 per share) (233)
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BALANCE AT DECEMBER 30, 2000 1,163,246 $ 1,164 $ 192 $ 6,199
------------------------------------------
Accumulated
Other
Comprehensive
Loss
----------------
BALANCE AT JULY 1, 2000 $ (430)
Change for the fiscal six
months ended December 30, 2000 -
----------------
BALANCE AT DECEMBER 30, 2000 $ (430)
----------------
See Notes to Consolidated Financial Statements.
-9-
WELLCO ENTERPRISES, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL SIX MONTHS ENDED DECEMBER 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Recent Statement of the Financial Accounting Standards Board
In June 1998, the Financial Accounting Standards Board issued the Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. SFAS No. 133 was effective for the Company's first quarter of the 2001
fiscal year. The Company has analyzed contracts and instruments outstanding
during the six months ended and on December 30, 2000 and has determined that
there is no impact from adopting this standard on its consolidated results of
operations or financial position.
2. LINE OF CREDIT:
The Company recently renewed its bank line of credit. Due to the Company's
increased cash from operations, the line was reduced from $4,000,000 to
$3,000,000. The line, which expires December 31, 2001, can be renewed annually
at the bank's discretion. This line of credit is secured by a blanket lien on
all machinery and equipment (carrying value of $2,352,000) and all
non-governmental accounts receivable and inventory ($1,036,000). At December 30,
2000, borrowings on the line of credit were $685,000 with $2,315,000 available
for additional borrowings.
The bank credit agreement contains, among other covenants, defined levels of net
worth and current ratio requirements. The Company was in compliance with all
loan covenants at December 30, 2000.
3. EARNINGS PER SHARE:
The Company computes its basic and diluted earnings per share amounts in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
per Share." Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net earnings by the weighted average
number of common shares outstanding during the period plus the dilutive
potential common shares that would have been outstanding upon the assumed
exercise of dilutive stock options.
The following is the reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
For the Six Months Ended 12/30/00
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS Available to Shareholders $ 786,000 1,163,246 $ 0.68
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Effect of Dilutive Stock-based
Compensation Arrangements 23,043
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Diluted EPS Available to Shareholders $ 786,000 1,186,289 $ 0.66
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-10-
For the Six Months Ended 1/1/00
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS Available to Shareholders $ 7,000 1,163,246 $ 0.01
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Effect of Dilutive Stock-based
Compensation Arrangements
5,145
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Diluted EPS Available to Shareholders $ 7,000 1,168,391 $ 0.01
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For the Three Months Ended 12/30/00
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS Available to Shareholders $ 335,000 1,163,246 $ 0.29
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Effect of Dilutive Stock-based
Compensation Arrangements 22,822
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Diluted EPS Available to Shareholders $ 335,000 1,186,068 $ 0.28
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For the Three Months Ended 1/1/00
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS Available to Shareholders $ 198,000 1,163,246 $ 0.17
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Effect of Dilutive Stock-based
Compensation Arrangements 5,409
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Diluted EPS Available to Shareholders $ 198,000 1,168,655 $ 0.17
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4. RESTRUCTURING AND REALIGNMENT COSTS:
In February 1999, the Board of Directors approved a restructuring plan to
consolidate and realign the Company's footwear manufacturing operations. In an
effort to reduce costs, the Company consolidated substantially all footwear
manufacturing operations in Aguadilla, Puerto Rico, where the Company has had
operations since 1956. At July 1, 2000, the Company had completed its
restructuring plan.
Restructuring and realignment costs (credit) recognized in the fiscal six months
and quarter ending January 1, 2000 were as follows:
-11-
Fiscal Six
Months Ending Quarter Ending
January 1, 2000 January 1,2000
Total Expenses Total Expenses
----------------------------------------------------------------
Severance ($90,000) ($122,000)
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Employee Training Costs 186,000 16,000
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Equipment Relocation and
Installation 107,000 20,000
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Legal and Other 109,000 39,000
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Total Cost (Credit) $312,000 ($47,000)
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5. CONTRACT CLAIM AND GRANT MONEY RECEIVED:
In November, 2000, $100,000 was received from the government of Puerto Rico
under a Special Incentives Contract which awarded the Company a grant of up to
$400,000 for reimbursement of costs it incurred related to the consolidation of
footwear manufacturing operations in Puerto Rico. The receipt, and
classification in the Company's Consolidated Financial Statements, of additional
amounts under this Contract is dependent upon audit by and negotiations with the
government of Puerto Rico. The Consolidated Statements of Operations for the six
months and three months ended December 30, 2000 include an income item of
$100,000 for the money received from this grant.
In January, 2000 the federal government's Alternative Disputes Resolution (ADR)
procedure was used to reach a final and non-appealable settlement of the
Company's claim against a government contracting agency. The Consolidated
Statements of Operations for the six months and three months ended January 1,
2000 include an income item of $215,000 for the settlement of this claim.
6. Commitment:
At December 30, 2000, the Company had a $500,000 commitment to purchase capital
equipment.
-12-
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 30, 2000 and January 1, 2000:
Income before income taxes was $885,000 for the fiscal six months ended December
30, 2000 (the "current period") compared to income before income taxes of
$10,000 in the prior year six month period ended January 1, 2000 (the "prior
period"). The major reasons for the improvement in income are:
Revenues increased $805,000 in the current period as compared to
the prior period. Total pairs of boots shipped under contracts with
the U. S. government increased 13%.
Pairs of Direct Molded Sole (DMS) combat boots shipped to the U. S.
government increased 43%. For several years the government has been
reducing its depot inventories of DMS combat boots by purchasing from
contractors fewer pairs than were consumed. The Company attributes the
increase in DMS pairs shipped in the first six months of fiscal 2001 to
the fact that this inventory reduction program was completed in the
Company's 2000 fiscal year which ended July 1, 2000.
However, pairs of Intermediate Cold/Wet (ICW) boots shipped to
the U. S. government decreased 86%. In August 2000 Wellco completed
shipments under a three-year contract to supply the U.S. government
with the ICW boot. The government is presently evaluating responses,
including those of Wellco, to a new ICW boot solicitation.
Revenues from sales of boot manufacturing equipment and materials to
licensees increased in the current period. These sales vary with the
needs of existing licensees and the licensing of new customers.
Cost of sales and services in the current period was $118,000 less than
the prior period. Cost of sales in the prior period includes costs
related to factory set up and labor inefficiencies of new employees,
which were related to the transfer of certain boot manufacturing
operations from Waynesville, North Carolina to Aguadilla, Puerto Rico.
These are costs in addition to restructuring and realignment costs.
The increase in revenues, combined with the reduction in cost of sales
and services, resulted in gross profit for the six months ended
December 30, 2000 increasing by $923,000 over the prior period.
General and administrative expenses increased $266,000 in the current
period. An increased provision for employee bonuses, which is based on
the Company's net income, was the primary reason for this increase.
Also, travel costs and military show expense increased because the
Company participated in several military shows in the current period.
In November, 2000, $100,000 was received from the government of Puerto
Rico under a Special Incentives Contract which awarded the Company a
grant of up to $400,000 for reimbursement of costs it incurred related
to the consolidation of footwear manufacturing operations in Puerto
Rico. The receipt, and classification in the Company's Consolidated
Financial Statements, of additional amounts under this Contract is
dependent upon audit by and negotiations with the government of Puerto
Rico.
-13-
The prior period included a non-recurring income item of $215,000
representing the final settlement of a contract claim (see Note 5 to
the Consolidated Financial Statements).
The prior year period included restructuring and realignment costs
totaling $312,000. These costs relate to a February, 1999 restructuring
plan under which the Company has consolidated substantially all
footwear manufacturing operations at its facility in Aguadilla, Puerto
Rico. As detailed in Note 4 to the Consolidated Financial Statements,
the Restructuring and Realignment Costs charged against prior period
operations are made up of:
Restructuring credit of $ 90,000. During that period, the Company's
actuary completed calculation of actual pension cost for terminated
employees. The estimated cost was originally recorded in the fourth
quarter of the 1999 fiscal year. The actual cost was $122,000 less than
estimated. In addition, the prior period includes a restructuring cost
of $32,000 to increase the amount previously accrued for health care
costs on terminated employees.
Realignment costs of $402,000 consisting of: new employee training
costs ($186,000); cost to move machinery, install machinery and
refurbish and prepare building ($107,000); and legal and other costs
($109,000).
The rate of tax provision for income taxes for the six months ended December 30,
2000 was 11% compared to a 30% rate of tax for the prior period. The current
period income tax rate is lower because of an increase in the estimated portion
of total consolidated pretax income being from operations in Puerto Rico.
Forward Looking Information:
Wellco is presently shipping boots under the third option year of its DMS boot
contract which covers the period from April 16, 2000 to April 15, 2001. This
contract has one more one-year option period after April 15, 2001. The U.S.
government has issued a non-binding letter of intent to exercise the fourth and
final option, which would cover the year April 16, 2001 through April 15, 2002.
If the government does not exercise this fourth option, there should be another
solicitation issued to procure boots.
Responses are due on February 20, 2001 to a U. S. government solicitation which
will result in contracts for the purchase of the Infantry Combat Boot (ICB) for
the next five years. The solicitation provides for a small annual quantity to be
supplied to the Marine Corps and a larger quantity that will be supplied to the
Army, contingent upon its adoption of the ICB boot as replacement for a
substantial portion of its current usage of the all leather combat boot, which
is one of the boots supplied under the DMS boot contract mentioned above. The
Company plans to respond to this solicitation. The Company cannot predict with
certainty either its success in receiving a contract award or whether the Army
will adopt the ICB boot. This is a situation which could have a positive,
neutral or negative effect on future operations.
In August 2000, Wellco completed shipments under a three-year contract to supply
the U. S. government with the Intermediate Cold/Wet boot (ICW). The government
recently made a one year contract award, with a one year option, to another
company for the ICW boot. The government is presently evaluating responses,
including that of Wellco, to a ICW boot solicitation which would result in
contracts for one year with four one year options. As with any solicitation,
Wellco cannot predict with certainty its success in receiving a contract from
this solicitation.
The Company and a new foreign customer have executed an agreement under which
the Company will supply certain machinery and materials for a military boot
factory. In addition, the Company and an existing U. S. customer have executed
an agreement under which the Company will supply certain new technology, and
earn fees which will vary with that customer's use of the related technology.
-14-
The receipt, and classification in the Company's Consolidated Financial
Statements, of additional amounts under the Special Incentives Contract
mentioned in footnote 5, is dependent upon audit by and negotiations with the
government of Puerto Rico.
In June 1998, the Financial Accounting Standards Board issued the Statement of
Financial Accounting Standards (SFAS) No. 133, " Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. SFAS No. 133 was effective for the Company's first fiscal quarter of the
2001 fiscal year. The Company has analyzed contracts and instruments outstanding
during the six months ended and on December 30, 2000 and has determined that
there is no impact from adopting this standard on its consolidated results of
operations or financial position.
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 July 1, 2000. Those statements include, but may not be limited
to, all statements regarding intent, beliefs, expectations, projections,
forecasts, and plans of the Company and its management. Actual results may
differ materially from management expectations. The Company assumes no
obligations to update any forward-looking statements.
Comparing The Three Months Ended December 30, 2000 and January 1, 2000:
Income before income taxes was $355,000 in the fiscal three months ended
December 30, 200 (the "current period") compared to income before income taxes
of $249,000 in the prior year three month period ended January 1, 2000 (the
"prior period").
Revenues in the current period were $472,000 (10%) more that the prior period.
The primary reason for this increase was the increase in DMS combat boot sales
which more than offset a decrease in boot manufacturing equipment and materials
sold to licensees. Cost of sales and services only increased $43,000 because the
prior period includes the factory set up and labor inefficiencies stated above
in the six month comparison. General and administrative expenses increased
$184,000. The primary reasons for this increase was variable employee bonuses,
the addition of one administrative person, inflation increases in employee
compensation and increased travel costs.
Included in the current period is the $100,000 income from grant money received
from the Puerto Rico Special Incentives Contract mentioned in the six month
comparison above.
The prior period included a credit from Restructuring and Realignment of
$47,000. As detailed in Note 4 to the Consolidated Financial Statements, this
represents:
Restructuring credit of $122,000. As stated in the above discussion on
the six month period, this represents the adjustment of estimated
pension costs on terminated employees to actual.
Realignment costs of $75,000 consisting of: new employee training costs
($16,000); cost to move machinery, install machinery and refurbish and
prepare building ($20,000); and legal and other costs ($39,000).
Also included in the prior period is the previously discussed $215,000 income
item which represents the final settlement of a contract claim.
-15-
The income tax rate (the percent of Provision) for Income Taxes to the Income
Before Income Taxes) for current period was 6% compared to 20% in the prior
period. The current period income tax rate is lower because of an increase in
the estimated portion of total consolidated pretax income being from operations
in Puerto Rico, and from a reduction in the estimated fiscal year 2001 overall
income tax rate from that estimated for the first fiscal quarter ended September
30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Wellco uses cash from operations and a bank line of credit to supply most of its
liquidity needs.
The following table summarizes, at the end of the most recent fiscal quarter and
the last fiscal year, the amounts of cash and unused line of credit:
(in thousands)
December 30, 2000 July 1, 2000
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Cash $464 $73
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Unused Line of Credit 2,315 2,300
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Total $2,779 $2,373
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The increase in the unused line of credit at December 30, 2000 resulted
primarily from cash provided by operations during the first six months of fiscal
year 2001, which was primarily used to pay down the line of credit. The amount
of unused line of credit at December 30 reflects the $1,000,000 reduction in the
total amount of this credit (see footnote 2).
The following table summarizes the major sources (uses) of cash for the six
months ended December 30, 2000:
(in thousands)
December 30, 2000
------------------------------------------------------------------
Net Income Excluding Depreciation and Amortization $1,193
------------------------------------------------------------------
Net Change in Accounts Receivable, Inventories, Accounts Payable,
Accrued Liabilities, and Accrued
Income Taxes 1,054
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Other (230)
------------------------------------------------------------------
Net Cash Provided by Operations 2,017
------------------------------------------------------------------
Cash Used to Repay Lines of Credit (1,015)
------------------------------------------------------------------
Cash Used to Repay Bank Note Payable (36)
------------------------------------------------------------------
Cash Used to Purchase Plant and Equipment (575)
------------------------------------------------------------------
Net Increase in Cash $391
------------------------------------------------------------------
In the six months ended December 30, 2000, cash provided by operations was
$2,017,000. This primarily resulted from net income plus non-cash depreciation
and amortization($1,193,000), a net reduction in accounts receivable and
-16-
inventory ($952,000). Cash from operations was primarily used to pay down the
bank line of credit and purchase equipment.
The Company recently renewed its bank line of credit. Due to the Company's
increased cash from operations, the line was reduced from $4,000,000 to
$3,000,000. The line, which expires December 31, 2001, can be renewed annually
at the bank's discretion. The amount outstanding under this line at December 30,
2000 was $685,000. The Company expects to continue to rely on this bank line of
credit. The Company was in compliance with all loan covenants at December 30,
2000.
At December 30, 2000, the Company had a $500,000 commitment to purchase capital
equipment. The Company does not know of any other demands, commitments,
uncertainties, or trends that will result in or that are reasonablely likely to
result in its liquidity increasing or decreasing in any material way.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
The Company does not have any derivative financial instruments, other financial
instruments, or derivative commodity instruments that requires disclosures.
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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 2000 Annual Stockholders Meeting of Wellco Enterprises, Inc. was
held on November 14, 2000. The only matter voted on at that meeting
was the election of directors. The results of voting were:
1. Directors were elected as follows:
Nominee for Director Shares Voted For Shares Withheld From
--------------------------------------------------------------
Claude S. Abernethy, Jr. 1,015,974 49,018
--------------------------------------------------------------
Rolf Kaufman 1,015,974 49,018
--------------------------------------------------------------
Horace Auberry 1,015,974 49,018
--------------------------------------------------------------
2. The 1999 Stock Option Plan for Key Employees was approved and
the voting was as follows:
Shares Voted For Shares Voted Against Shares Abstained
--------------------------------------------------------------
815,145 77,610 2,030
--------------------------------------------------------------
3. The 1999 Stock Option Plan for Non-employee Directors was
approved and the voting was as follows:
Shares Voted For Shares Voted Against Shares Abstained
--------------------------------------------------------------
815,127 77,678 2,030
--------------------------------------------------------------
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
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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\
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David Lutz, President and Treasurer Tammy Francis, Controller
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February 13, 2001
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