<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 0-21632
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ELLETT BROTHERS, INC.
(Exact name of Registrant as specified in its charter)
SOUTH CAROLINA 57-0957069
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
267 COLUMBIA AVENUE, CHAPIN, SOUTH CAROLINA 29036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 345-3751
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 periods 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
----- -----
As of November 1, 1996, 5,047,000 shares of no par value common stock of the
registrant were outstanding.
<PAGE> 2
ELLETT BROTHERS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1996
INDEX
Part I. Financial information
<TABLE>
<CAPTION>
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Item 1. Financial statements
Condensed consolidated balance sheets as of September 30, 1996 and December 31, 1995 3
Condensed consolidated statements of income for the three months ended September 30,
1996 and 1995, and the nine months ended September 30, 1996 and 1995 4
Condensed consolidated statements of cash flows for the nine months ended September 30,
1996 and 1995 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition and results of operations 7
</TABLE>
Part II. Other information
<TABLE>
<CAPTION>
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Item 6. Exhibits and reports on Form 8-K 10
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
----------- ----------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 144 $ 325
Accounts receivable, less allowance for doubtful accounts of $867 and $712
at September 30, 1996, and December 31, 1995, respectively 25,209 18,893
Other accounts receivable 637 337
Inventories 43,379 38,452
Prepaid expenses 3,938 3,940
Deferred income tax asset 392 293
-------- --------
Total current assets 73,699 62,240
-------- --------
Property, plant and equipment, at cost, less accumulated depreciation
and amortization 6,331 5,555
Other assets:
Intangible assets, at cost, less accumulated amortization 2,284 2,466
Other assets 27 14
-------- --------
Total other assets 2,311 2,480
-------- --------
$ 82,341 $ 70,275
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 9,451 $ 9,034
Accrued expenses 694 2,231
Current portion of long-term debt 500 463
-------- --------
Total current liabilities 10,645 11,728
-------- --------
Revolving credit facility 39,838 26,079
Long-term debt 7,126 7,454
Non-current deferred income tax liability 604 466
Shareholders' equity:
Preferred stock, no par value
(5,000 shares authorized, no shares issued or outstanding)
Common stock, no par value
(20,000 shares authorized, 5,047 and 5,230 shares issued and outstanding
as of September 30, 1996 and December 31, 1995, respectively) 12,460 13,487
Retained earnings 11,869 11,061
-------- --------
24,329 24,548
Unearned compensation (201) --
-------- --------
Total shareholders' equity 24,128 24,548
-------- --------
$ 82,341 $ 70,275
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Note: The balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
<PAGE> 4
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 38,857 $ 39,094 $107,951 $110,103
Cost of goods sold 31,833 31,418 87,806 89,491
-------- -------- -------- --------
Gross profit 7,024 7,676 20,145 20,612
Selling, general and administrative expenses 5,537 5,224 16,306 13,683
-------- -------- -------- --------
Income from operations 1,487 2,452 3,839 6,929
Other income (expenses):
Interest income 118 128 359 345
Interest expense (967) (825) (2,424) (2,312)
Other income (expense) (1) 9 (32) 142
-------- -------- -------- --------
Income before income taxes 637 1,764 1,742 5,104
Income tax expense 231 647 623 1,863
-------- -------- -------- --------
Net income $ 406 $ 1,117 $ 1,119 $ 3,241
======== ======== ======== ========
Earnings per share $ 0.08 $ 0.21 $ 0.22 $ 0.62
======== ======== ======== ========
Weighted average shares outstanding 5,085 5,230 5,160 5,230
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE> 5
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,119 $ 3,241
Adjustments to reconcile net income to net cash used in operating activities:
Non-cash charges to income 1,589 1,145
Changes in assets and liabilities:
Accounts receivable (7,451) (6,709)
Inventories (4,928) 858
Prepaid expenses 2 (1,875)
Accounts payable, trade 418 (1,583)
Other (1,551) 1,643
-------- --------
Net cash used in operating activities (10,802) (3,280)
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets 33 --
Purchase of property, plant and equipment (1,256) (259)
Purchase of intangible assets (36) --
Business acquisition -- (7,076)
Change in industrial revenue refunding bond reserve 44 (113)
-------- --------
Net cash used in investing activities (1,215) (7,448)
-------- --------
Cash flows from financing activities:
Gross borrowings on revolving credit facility 116,288 116,489
Gross repayments on revolving credit facility (102,529) (105,032)
Principal payments on capital lease obligations (31) --
Principal payments on long-term debt (304) (41)
Common stock repurchase (1,277) --
Dividends to shareholders (311) (314)
-------- --------
Net cash provided by financing activities 11,836 11,102
-------- --------
Net change in cash and cash equivalents (181) 374
Cash and cash equivalents:
Beginning of period 325 --
-------- --------
End of period $ 144 $ 374
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE> 6
ELLETT BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
(in thousands, except per share data)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements, which
include the accounts of Ellett Brothers, Inc. and subsidiaries (the "Company"),
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1996. For
further information, refer to the financial statements and footnotes thereto
included in Ellett Brothers, Inc.'s annual report on Form 10-K for the year
ended December 31, 1995.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Finished goods $ 41,769 $ 37,391
Raw materials 1,009 718
Work in process 601 343
-------- --------
$ 43,379 $ 38,452
======== ========
</TABLE>
3. COMMON AND PREFERRED STOCK
The Company reacquired 100, 93, and 30 shares of its common stock in April,
July and September of 1996, respectively, and recorded it using the cost method
of accounting for treasury stock. In May 1996, the Company awarded 40 shares of
restricted common stock to Joseph F. Murray, Jr., President and Chief Executive
Officer. The restrictions will be released pro-rata over a four year period.
The stock award was valued at the market price per share, and unearned
compensation was recorded in equity. Compensation expense will be recognized as
the award vests over the four year period.
The Company had granted at September 30, 1996, and December 31, 1995, fully
vested options for 112 and 142 common shares, respectively. At September 30,
1996, the 112 shares under option had an exercise price of $7.00 per share
which equaled the market price per share on the date of grant. The options may
be exercised at any time on or before June 16, 2003. As of September 30, 1996,
no options had been exercised.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the operations and
financial condition of Ellett Brothers, Inc. and its subsidiaries (the
"Company"). This discussion and analysis should be read in conjunction with
the financial statements and related notes presented in the Company's annual
report on Form 10-K for the year ended December 31, 1995, and the condensed
consolidated financial statements and related notes included in this Form 10-Q.
RESULTS OF OPERATIONS
Sales for the three months ended September 30, 1996 were $38.9 million, as
compared to $39.1 million for the same period in 1995, a decrease of $237,000,
or 0.6%. Sales for the nine months ended September 30, 1996 were $108.0
million, as compared to $110.1 million for the same period in 1995, a decrease
of $2.2 million, or 2.0%. Included in these amounts were sales from the
subsidiaries of $4.3 million and $8.9 million for the three and nine months
ended September 30, 1996, respectively, and $4.1 million and $4.5 million for
the three and nine months ended September 30, 1995, respectively. Sales of
hunting and shooting sports products showed an increase of 1.4% in the three
months ended September 30, 1996 as compared to the same period in 1995, while
camping, archery and outdoor accessory sales declined 9.8% for the same period.
The marine accessory group also showed an increase in sales of 6.6% for the
three months ended September 30, 1996 as compared to the same period in 1995.
The increase in the hunting and shooting sports products sales for the third
quarter was stimulated by special promotions offered by certain firearm
manufacturers where the cost savings were passed along to the customers, as
well as more aggressive promotions at the distributor level. Management
believes that the weak consumer demand in 1995 and 1996 has led retailers to
reduce their inventory levels and subsequently purchase inventory more on a
"Just in Time" basis. Retailers are currently reluctant to purchase inventory
ahead of the typical hunting seasons, even with the incentive of extended terms
and additional discounts. Sales of the hunting and shooting, camping, archery
and outdoor accessories combined declined 8.3% for the nine months ended
September 30, 1996 as compared to the same period in 1995. Management believes
that the general slowdown in the hunting and shooting sports industry is likely
to continue to lead to difficult sales comparisons in the near future.
Gross profit was $7.0 million (18.1% of sales) for the three months ended
September 30, 1996, as compared to $7.7 million (19.6% of sales) for the same
period in 1995, a decrease of $652,000, or 8.5%. Gross profit for the nine
months ended September 30, 1996 was $20.1 million (18.7% of sales), as compared
to $20.6 million (18.7% of sales) for the same period in 1995, a decrease of
$467,000, or 2.3%. The decline in the gross profit as a percent of sales in the
third quarter was mainly due to lowering prices within the traditional
distribution business to remain competitive, including an increased percentage
of current year sales being generated by promotional mini-catalogs. Management
expects the competitive pricing pressures on the traditional distribution
business to continue. The higher gross profits, as a percentage of sales from
the subsidiaries, helped to offset the decline in gross profit as a percentage
of sales in the traditional distribution business.
Selling, general and administrative expenses for the three months ended
September 30, 1996 were $5.5 million (14.2% of sales), as compared to $5.2
million (13.4% of sales) for the same period in 1995, an increase of $313,000,
or 6.0%. Selling, general and administrative expenses for the nine months
ended September 30, 1996 were $16.3 million (15.1% of sales), as compared to
$13.7 million (12.4% of sales) for the same period in 1995, an increase of $2.6
million, or 19.2%. Increased expenses were incurred as a result of operating
the subsidiaries for a full year as compared to a partial year in 1995,
increased costs incurred with the computer equipment and information systems
upgrades and increased expenses in catalog and mini-catalog production.
Expenses that decreased were directly related to the decrease in sales, such as
sales and management bonuses and net shipping charges.
Interest expense was $967,000 (2.5% of sales) for the three months ended
September 30, 1996, as compared to $825,000 (2.1% of sales) for the same period
in 1995, an increase of $142,000, or 17.2%. Interest expense for the nine
months ended September 30, 1996 was $2.4 million (2.2% of sales), as compared
to $2.3 million (2.1% of sales) for the same period in 1995, an increase of
$112,000, or 4.8%. The benefit of lower interest rates through the third
quarter of 1996, as compared to the same period in 1995, was more than offset
by increased borrowings to operate the subsidiaries and fund the increase in
working capital.
<PAGE> 8
Income tax expense was $231,000 for the three months ended September 30, 1996
as compared to $647,000 for the same period in 1995. Income tax expense was
$623,000 for the nine months ended September 30, 1996 as compared to $1.9
million for the same period in 1995. The effective tax rate for the three
months ended September 30, 1996 was 36.3%, as compared to 36.7% for the same
period in 1995. The effective tax rate for the nine months ended September 30,
1996 was 35.8%, as compared to 36.5% for the same period in 1995. The
difference in tax rate is the result of having multi-state operations in the
first nine months of 1996, which were not in operation in the first nine months
of 1995.
SEASONALITY AND QUARTERLY INFORMATION
Historically the Company's business has been seasonal. The sales of hunting and
shooting sports products, as well as camping, archery and outdoor accessories,
usually increase in the third quarter of each year and peak early in the fourth
quarter. Sales of marine accessories usually increase in the first quarter of
each year, then peak midway through the second quarter and continue at similar
levels through the first half of the third quarter. Operations of the
subsidiaries acquired during 1995 are also expected to be seasonal, producing
significantly higher sales and gross profit during the third and fourth
quarters, with losses expected in the first and, possibly, second quarters. The
Company's quarterly operating results may also be affected by a wide variety of
factors, such as legislative and regulatory changes, competitive pressures, and
general economic conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are results of operations and
borrowings under its revolving credit facility. Pursuant to its operating
strategy, the Company maintains minimal cash balances and is substantially
dependent on, among other things, the availability of adequate working capital
financing to support inventories and accounts receivable.
Net cash used in operating activities was $10.8 million during the nine months
ended September 30, 1996 as compared to $3.3 million for the same period in
1995. The increase in net cash used in operating activities in 1996 was mainly
due to lower net income, growth of inventories and a decrease in accrued
expenses. Inventories have continued to grow in 1996, as compared to prior year
levels, due to special bulk purchases from certain firearm vendors in
anticipation of peak season demand. In addition, other opportunity purchases
were made from vendors which have given larger discounts for these volume
purchases. The inventory increase was partially offset by an increase in
accounts payable and a decline in prepaid expenses.
Net cash used in investing activities was $1.2 million during the nine months
ended September 30, 1996 as compared to $7.4 million for the same period in
1995. The decrease in net cash used in investing activities was mainly due to
the business acquisitions in 1995, offset somewhat by increased purchases of
fixed assets in 1996. The increase in purchases of fixed assets was mainly due
to computer equipment and information systems upgrades.
Net cash provided by financing activities was $11.8 million during the nine
months ended September 30, 1996 as compared to $11.1 million for the same
period in 1995. The Company obtained the additional cash needed to fund
operations by increasing borrowings under its revolving credit facility by
$13.8 million and $11.5 million during the nine months ended September 30, 1996
and 1995, respectively. During the nine months ended September 30, 1996, the
Company used a portion of the proceeds from the revolving credit facility to
make principal payments on long-term debt, to repurchase common stock and to pay
dividends.
Working capital requirements for the Company's traditional distribution
business have historically been somewhat seasonal in nature. Accounts
receivable have generally increased in the first quarter primarily because of
the customary industry practice during the first quarter of each year whereby
the Company has offered to its customers extended payment terms for purchases
of certain products, thereby extending the payment due dates for a portion of
its sales into the third and fourth quarters of the year. Accounts receivable
have generally increased further early in the third quarter as additional 60 to
90 day extended terms have been offered to stimulate sales in advance of the
Company's highest volume quarters. Accounts receivable usually decrease in the
fourth quarter as payments are received on prior quarters' sales and a larger
percentage of current sales are made with shorter payment terms. Inventory
generally builds during the first two quarters and peaks in the third quarter
to support the higher sales volumes of the third and fourth quarters.
<PAGE> 9
Working capital requirements are also expected to be seasonal for the
subsidiaries. Inventories are expected to increase during the first half of the
year to accommodate the sales expected in the third and fourth quarters.
Accounts receivable are expected to decline to their lowest point in the second
quarter just before the sales increase in the second half of the year.
During the nine months ended September 30, 1996, the Company entered into
several commitments to upgrade its computer equipment and information systems
in the aggregate amount of approximately $1.3 million, of which approximately
$550,000 is expected to be paid in lease payments over a three year period. The
total cost of the computer upgrades is expected to be approximately $2.5
million.
Principle maturities on the Company's industrial revenue refunding bonds for
the remainder of 1996 will be $112,500, and maturities for 1997 and 1998 will
be $467,000 and $517,000, respectively. Future interest charges, assuming a
fixed rate of 10.625%, will be approximately $231,000 for the remainder of
1996, and $908,000 and $859,000 for 1997 and 1998, respectively.
Management believes that cash generated from operations, and available under
the Company's revolving credit facility, will be sufficient to finance its
operations, expected working capital needs, capital expenditures, debt service
requirements, and business acquisitions for the remainder of 1996 and through
the end of 1998.
<PAGE> 10
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (For SEC use only).
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
Ellett Brothers, Inc.
Date: November 14, 1996
By: /s/ Joseph F. Murray, Jr.
---------------------------------------
Joseph F. Murray, Jr.
President, Chief Executive
Officer and Director
By: /s/ Richard M. Eddinger
---------------------------------------
Richard M. Eddinger
Vice President and Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ELLETT BROTHERS, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 144
<SECURITIES> 0
<RECEIVABLES> 26,713
<ALLOWANCES> 867
<INVENTORY> 43,379
<CURRENT-ASSETS> 73,699
<PP&E> 12,129
<DEPRECIATION> 5,798
<TOTAL-ASSETS> 82,341
<CURRENT-LIABILITIES> 10,645
<BONDS> 7,126
0
0
<COMMON> 12,460
<OTHER-SE> 11,668
<TOTAL-LIABILITY-AND-EQUITY> 82,341
<SALES> 107,951
<TOTAL-REVENUES> 107,951
<CGS> 87,806
<TOTAL-COSTS> 87,806
<OTHER-EXPENSES> 16,306
<LOSS-PROVISION> 835
<INTEREST-EXPENSE> 2,424
<INCOME-PRETAX> 1,742
<INCOME-TAX> 623
<INCOME-CONTINUING> 1,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,119
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
