WLC Wellco Enterprises

Wellco Enterprises, Inc. (AMEX: WLC) today reported net income for the third fiscal quarter ended April 1, 2006 (current three month period) of $162,000, equivalent to basic and diluted earnings per share of $0.13 from revenues of $13,395,000. This compares to net income $209,000, equivalent to basic and diluted earnings per share of $0.16 from revenues of $14,646,000 in the prior year three month period ended April 2, 2005 (prior three month period). Compared to the prior period, total revenues in the current period decreased by $1,251,000. DOD contract pairs sold during the current period and prior period were comparatively similar. However, during the current period the Company shipped more pairs of a lower contract priced boot. Also, during the prior quarter the Company shipped more commercial pairs of boots due to some large sales to foreign customers. Gross profit for the three months ended April 1, 2006 was $1,006,000 or 7.5% of revenues as compared to gross profit of $915,000 or 6.2% for the prior period. For the nine month period ended April 1, 2006 (current nine month period) the Company had a net loss of ($259,000), equivalent to basic and diluted loss per share of ($.20), from revenues of $32,754,000. This compares with net income of $1,127,000, equivalent to basic earnings per share of $.89 ($.87 diluted), from revenues of $40,406,000 in the prior year nine months ended April 2, 2005 (prior nine month period). In the current period, the Company shipped 377,000 pairs of boots under contract with the U.S. Department of Defense as compared to 480,000 pairs in the prior period, a decrease of 103,000 or 21%. In the prior period, delivery orders issued by the DOD for Hot Weather boots incorporated a "surge" requirement to meet the need in Iraq. The "surge" requirement was substantially completed in the prior period. The majority of the Company's boot manufacturing operations occur at the factory of a wholly-owned subsidiary located in Puerto Rico. The Company is participating in a Puerto Rican government program to assist manufacturers in the training of new and expanded work force under which the Company is reimbursed for part of the compensation paid to certain employees. During the current nine month period, the Company received $405,000 of reimbursement under this program, which is included in revenues. In the prior nine month period, the Company received $1,165,000. The Company's policy is to recognize the reimbursements as revenue in the period in which it is received, and not when the related compensation is paid. Gross profit for the nine months ended April 1, 2006 was $1,836,000 or 5.6% of revenues as compared to gross profit of $3,618,000 or 9.0% for the prior nine month period. This decrease in gross profit as a percentage of revenues is primarily due to higher per unit manufacturing costs associated with lower production levels and the decrease of $760,000 in reimbursement revenues from the Puerto Rican government mentioned above. In addition, in early August 2005, the only U.S. supplier of a DOD required component had a significant quality problem. The rate of boot production was reduced due to the limited supply of this component. After this supplier solved its quality problem, the rate of production continued to be impaired, as it took that supplier several weeks to reestablish full production. For the current nine month period, the Company reflected income tax expense of $88,000 on a pretax loss of $171,000. This is the result of the U.S. parent and one subsidiary having consolidated income before taxes and the Puerto Rican subsidiary having a pretax loss. The Puerto Rican subsidiary's losses are not available to offset the taxable income for the U.S. jurisdiction companies who file a consolidated federal income tax return. The composition of the pretax income or loss between the parent and each of the subsidiaries impacts the income tax expense or benefit for each interim period. The effective income tax rate for the prior period was 21% of pretax income. At a May 16, 2006 meeting, the Wellco Board of Directors declared a cash dividend of $.15 per share payable on June 30, 2006 to shareholders of record on June 2, 2006. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION Statements throughout this report that are not historical facts are forward-looking statements. These statements are based on current expectations and beliefs, and involve numerous risks and uncertainties. Many factors could affect the Company's actual results, causing results to differ materially from those expressed in any such forward-looking information. These factors include, but are 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 2, 2005. 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 obligation to update any forward-looking statements. -0- *T WELLCO ENTERPRISES, INC. CONSOLIDATED OPERATING RESULTS (UNAUDITED) (000's omitted except for per share amounts and number of shares) ---------------------------------------------------------------------- Fiscal Nine Months Fiscal Three Months Ended Ended ---------------------------------------------------------------------- April 1, April 2, April 1, April 2, 2006 2005 2006 2005 ---------------------------------------------------------------------- Revenues $32,754 $40,406 $13,395 $14,646 ---------------------------------------------------------------------- Operating Income 36 1,637 366 327 ---------------------------------------------------------------------- Net Interest Expense 207 203 98 66 ---------------------------------------------------------------------- Income (Loss) Before Income Taxes (171) 1,434 268 261 ---------------------------------------------------------------------- Provision for Income Taxes 88 307 106 52 ---------------------------------------------------------------------- Net Income (Loss) $(259) $1,127 $162 $209 ---------------------------------------------------------------------- Basic Earnings (Loss) Per Share (0.20) 0.89 0.13 0.16 ---------------------------------------------------------------------- Diluted Earnings (Loss) Per Share (0.20) 0.87 0.13 0.16 ---------------------------------------------------------------------- Weighted Average Number of Common Shares Outstanding: ---------------------------------------------------------------------- For Basic Earnings Per Share 1,270,746 1,261,660 1,270,746 1,270,746 ---------------------------------------------------------------------- For Diluted Earnings Per Share 1,270,746 1,297,748 1,286,035 1,305,000 ---------------------------------------------------------------------- *T