<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 June 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
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 August 1, 1996, 5,077,000 shares of no par value common stock of the
registrant were outstanding.
Page 1 of 10 pages.
<PAGE> 2
Form 10-Q
Page 2
ELLETT BROTHERS, INC. AND SUBSIDIARIES
JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
Part I. Financial information
- -------- ---------------------
Page
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<S> <C> <C>
Item 1. Financial statements
Condensed consolidated balance sheets as of June 30, 1996 and December 31, 1995 3
Condensed consolidated statements of income for the three months ended June 30,
1996 and 1995, and the six months ended June 30, 1996 and 1995 4
Condensed consolidated statements of cash flows for the six months ended June 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
Part II. Other information Page
- -------- ----------------- ----
Item 4. Submission of matters to a vote of shareholders 9
Item 6. Exhibits and reports on Form 8-K 9
</TABLE>
<PAGE> 3
Form 10-Q
Page 3
PART I. FINANCIAL INFORMATION
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1996 1995
----------- ----------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 102 $ 325
Accounts receivable, less allowance for doubtful accounts
of $1,023 and $712 at June 30, 1996, and December 31,
1995, respectively 19,816 18,893
Other accounts receivable 500 337
Inventories 44,140 38,452
Prepaid expenses 7,047 3,940
Deferred income tax asset 380 293
------- --------
Total current assets 71,985 62,240
------- --------
Property, plant and equipment, at cost, less accumulated
depreciation and amortization 6,370 5,555
Other assets:
Intangible assets, at cost, less accumulated amortization 2,314 2,466
Other assets 27 14
------- --------
Total other assets 2,341 2,480
------- --------
$80,696 $70,275
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 8,719 $ 9,034
Accrued expenses 660 2,231
Current portion of long term debt 487 463
------- --------
Total current liabilities 9,866 11,728
------- --------
Revolving credit facility 38,481 26,079
Long-term debt 7,255 7,454
Non-current deferred income tax liability 600 466
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, 5,170 and 5,230 shares issued and
outstandingas of June 30, 1996 and December 31, 1995, respectively) 13,162 13,487
Retained earnings 11,566 11,061
------- --------
24,728 24,548
Unearned compensation (234) --
------- --------
Total shareholders' equity 24,494 24,548
------- --------
$80,696 $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
Form 10-Q
Page 4
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 32,372 $ 32,860 $ 69,094 $ 71,009
Cost of goods sold 25,778 26,991 55,973 58,073
Gross profit -------- -------- -------- --------
6,594 5,869 13,121 12,936
Selling, general and administrative expenses 5,250 4,398 10,769 8,459
-------- -------- -------- --------
Income from operations 1,344 1,471 2,352 4,477
Other income (expenses):
Interest income 107 114 241 217
Interest expense (830) (821) (1,457) (1,487)
Other income (expense) (54) 41 (31) 133
-------- -------- -------- --------
Income before income taxes 567 805 1,105 3,340
Income tax expense 202 289 392 1,216
-------- -------- -------- --------
Net income $ 365 $ 516 $ 713 $ 2,124
======== ======== ======== ========
Earnings per share $ 0.07 $ 0.10 $ 0.14 $ 0.41
======== ======== ======== ========
Weighted average shares outstanding 5,166 5,230 5,198 5,230
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE> 5
Form 10-Q
Page 5
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 713 $ 2,124
Adjustments to reconcile net income to net
cash used in operating activities:
Non-cash charges to income 1,105 616
Changes in assets and liabilities:
Accounts receivable (1,718) (1,815)
Inventories (5,689) (3,453)
Prepaid expenses (3,106) (1,310)
Accounts payable, trade (314) (3,164)
Other (1,559) (838)
------- -------
Net cash used in operating activities (10,568) (7,840)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,099) (145)
Business acquisition -- (2,055)
Change in industrial revenue refunding bond reserve 44 (107)
------- -------
Net cash used in investing activities (1,055) (2,307)
------- -------
Cash flows from financing activities:
Gross borrowings on revolving credit facility 81,082 81,610
Gross repayments on revolving credit facility (68,680) (71,254)
Principal payments on capital lease obligations (19) --
Principal payments on long-term debt (200) --
Common stock repurchase (575) --
Dividends to shareholders (208) (209)
------- -------
Net cash provided by financing activities 11,400 10,147
------- -------
Net change in cash and cash equivalents (223) --
Cash and cash equivalents:
Beginning of period 325 --
------- -------
End of period $ 102 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE> 6
Form 10-Q
Page 6
ELLETT BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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 six months ended June 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>
June 30, December 31,
1996 1995
--------- -----------
<S> <C> <C>
Finished goods $ 42,495 $ 37,391
Raw materials 1,111 718
Work in process 534 343
--------- ---------
$ 44,140 $ 38,452
========= =========
</TABLE>
3. COMMON AND PREFERRED STOCK
The Company reacquired 100 shares of its common stock in April 1996 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.
At June 30, 1996, and December 31, 1995, the Company had granted options for 142
common shares, all of which were fully vested. At June 30, 1996, the 142 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 June 30, 1996, no options had been exercised.
<PAGE> 7
Form 10-Q
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.
Sales for the three months ended June 30, 1996 were $32.4 million, as
compared to $32.9 million for the same period in 1995, a decrease of $488,000,
or 1.5%. Sales for the six months ended June 30, 1996 were $69.1 million, as
compared to $71.0 million for the same period in 1995, a decrease of $1.9
million, or 2.7%. Included in these amounts were sales from the subsidiaries of
$2.8 million and $4.6 million for the three and six months ended June 30, 1996,
respectively, and $366,000 for the three and six months ended June 30, 1995.
Management believes that the government legislation and subsequent one-time
sales increase in 1994, along with the softening of general consumer spending
in the latter half of 1995, led to a decline in sales of hunting and shooting
sports products which has continued into the second quarter of 1996. As a
result, sales of hunting and shooting sports products and camping, archery and
outdoor accessories for the three months ended June 30, 1996 declined by 13%
and 12%, respectively. The decline in these product groups was primarily due to
the lower sales of firearms and related accessories. During the same quarter,
marine accessories sales increased 4% over the same period in 1995. Management
believes that the general slowdown in the hunting and shooting sports industry
will continue to lead to difficult sale comparisons in the near future.
Gross profit was $6.6 million (20.4% of sales) for the three months ended June
30, 1996, as compared to $5.9 million (17.9% of sales) for the same period in
1995, an increase of $725,000, or 12.4%. Gross profit for the six months ended
June 30, 1996 was $13.1 million (19.0% of sales), as compared to $12.9 million
(18.2% of sales) for the same period in 1995, an increase of $185,000, or 1.4%.
The increase in the gross profit as a percent of sales was mainly the result of
the higher gross profit as a percent of sales generated by the subsidiaries.
Management expects the competitive pricing pressures on the hunting and shooting
business to continue, and expects that an increased percentage of current year
sales will be generated by promotional mini-catalogs, which generally have lower
gross margins.
Selling, general and administrative expenses for the three months ended June 30,
1996 were $5.3 million (16.2% of sales), as compared to $4.4 million (13.4% of
sales) for the same period in 1995, an increase of $852,000, or 19.4%. Selling,
general and administrative expenses for the six months ended June 30, 1996 were
$10.8 million (15.6% of sales), as compared to $8.5 million (11.9% of sales) for
the same period in 1995, an increase of $2.3 million, or 27.3%. Increased
expenses were incurred as a result of operating the subsidiaries, larger bad
debt write-offs, and increased expenses in catalog and mini-catalog production.
Expenses that decreased were directly related to the decrease in sales, such as
sales bonuses and net shipping charges.
Interest expense was $830,000 (2.6% of sales) for the three months ended June
30, 1996, as compared to $821,000 (2.5% of sales) for the same period in 1995,
an increase of $9,000, or 1.1%. Interest expense for the six months ended June
30, 1996 was $1.5 million (2.1% of sales), as compared to $1.5 million (2.1% of
sales) for the same period in 1995, a decrease of $30,000, or 2.0%. The benefit
of lower interest rates in the first half of 1996 as compared to the same period
in 1995 were substantially offset by increased borrowings to purchase the
subsidiaries and fund the growth in working capital.
Income tax expense was $202,000 for the three months ended June 30, 1996 as
compared to $289,000 for the same period in 1995. Income tax expense was
$392,000 for the six months ended June 30, 1996 as compared to $1.2 million for
the same period in 1995. The effective tax rate for the three months ended June
30, 1996 was 35.6%, as compared to 35.9% for the same period in 1995. The
effective tax rate for the six months ended June 30, 1996 was 35.5%, as compared
to 36.4% for the same period in 1995. The difference in tax rate is the result
of having operations in the first six months of 1996 in Missouri and Colorado,
which were not in operation in the first six months of 1995. This impacted the
state tax paid, as a percentage of income before taxes, as compared to the prior
year.
<PAGE> 8
Form 10-Q
Page 8
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 new
subsidiaries are expected to be very 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 very minimal cash balances and is substantially
dependent on, among other things, the availability of adequate working capital
financing to support inventories and accounts receivable.
During the six months ended June 30, 1996, net cash used in operating activities
was $10.6 million as compared to $7.8 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 and growth of the subsidiaries inventories. The decrease in net
cash used in investing was due to the net difference of computer equipment
purchased in 1996 and the business acquisition in 1995. During the six months
ended June 30, 1996, the Company obtained the additional cash needed to fund
operations by increasing borrowings under its revolving credit facility by $12.4
million. The Company also paid dividends of $208,000 in the six months ended
June 30 ,1996.
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. In the fourth
quarter, the higher sales volumes have traditionally served to reduce inventory
to its lowest point at year-end.
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.
Recently, the Company entered into several commitments to upgrade the computer
equipment and information systems in the aggregate amount of approximately $1.3
million, of which approximately $550,000 is intended to be leased over a three
year period. This is the second of several phases that is expected to take place
over the next two years. 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 began
in 1995. Remaining payments for 1996 will be $317,000, 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 $469,000 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> 9
Form 10-Q
Page 9
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of shareholders
On May 15, 1996, the Company held its annual meeting of shareholders for
the purpose of electing six members to the Board of Directors, to ratify the
adoption of the Ellett Brothers, Inc. 1996 Stock Incentive Plan, and to ratify
the appointment of the Company's independent auditors. At such meeting, Robert
D. Gorham, Jr., E. Wayne Gibson, Joseph F. Murray, Jr., William H. Batchelor,
Charles V. Ricks and William H. Stanley were nominated and re-elected as
directors of the Company. The ratification of the adoption of the Ellett
Brothers, Inc. 1996 Stock Incentive Plan and the appointment of Coopers &
Lybrand as the Company's independent auditors, subject to the acceptance by the
Company's Board of Directors of a definitive fee proposal, were approved by the
majority of the shares entitled to a vote at the meeting.
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 June 30, 1996.
<PAGE> 10
Form 10-Q
Page 10
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: August 13, 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 SIX MONTHS ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 21,339
<ALLOWANCES> 1,023
<INVENTORY> 44,140
<CURRENT-ASSETS> 71,985
<PP&E> 11,982
<DEPRECIATION> 5,612
<TOTAL-ASSETS> 80,696
<CURRENT-LIABILITIES> 9,866
<BONDS> 7,255
0
0
<COMMON> 13,737
<OTHER-SE> (575)
<TOTAL-LIABILITY-AND-EQUITY> 80,696
<SALES> 69,094
<TOTAL-REVENUES> 69,094
<CGS> 55,973
<TOTAL-COSTS> 55,973
<OTHER-EXPENSES> 10,769
<LOSS-PROVISION> 632
<INTEREST-EXPENSE> 1,457
<INCOME-PRETAX> 1,105
<INCOME-TAX> 392
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 713
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
