<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 March 31, 1997
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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 April 30, 1997, 5,176,918 shares of no par value common stock of the
registrant were outstanding.
Page 1 of 10 pages.
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Form 10-Q
Page 2
ELLETT BROTHERS, INC. AND SUBSIDIARIES
MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
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Page
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Item 1. Financial Statements
Condensed consolidated balance sheets as of March 31, 1997 and December 31, 1996 3
Condensed consolidated statements of income for the three months ended March 31,
1997 and 1996 4
Condensed consolidated statements of cash flows for the three months ended March 31,
1997 and 1996 5
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
<CAPTION>
Part II. Other Information Page
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Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
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Form 10-Q
Page 3
PART I. FINANCIAL INFORMATION
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1997 1996
-------- --------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 219 $ 139
Accounts receivable, less allowance for doubtful accounts of $789 and $750
at March 31, 1997 and December 31, 1996, respectively 21,623 19,716
Other accounts receivable 467 878
Inventories 41,409 39,756
Prepaid expenses 4,489 3,727
Deferred income tax asset 541 591
-------- --------
Total current assets 68,748 64,807
-------- --------
Property, plant and equipment, at cost, less accumulated depreciation 6,059 6,190
Other assets:
Intangible assets, at cost, less accumulated amortization 2,206 2,262
Other assets 101 101
-------- --------
Total other assets 2,307 2,363
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$ 77,114 $ 73,360
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 12,397 $ 7,909
Accrued expenses 1,113 1,356
Current portion of long-term debt 521 513
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Total current liabilities 14,031 9,778
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Revolving credit facility 30,574 31,515
Long-term debt 6,836 6,969
Non-current deferred income tax liability 636 461
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, 5,177 and 5,065 shares issued and outstanding
as of March 31, 1997 and December 31, 1996, respectively) 12,618 12,550
Unearned compensation (206) (250)
Retained earnings 12,625 12,337
-------- --------
Total shareholders' equity 25,037 24,637
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$ 77,114 $ 73,360
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Note: The balance sheet at December 31, 1996 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.
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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
March 31,
--------------------------
1997 1996
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<S> <C> <C>
Sales $ 36,801 $ 36,722
Cost of goods sold 30,458 30,195
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Gross profit 6,343 6,527
Selling, general and administrative expenses 5,149 5,519
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Income from operations 1,194 1,008
Other income (expenses):
Interest income 136 134
Interest expense (717) (627)
Other income 10 23
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Income before income taxes 623 538
Income tax expense 231 190
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Net income $ 392 $ 348
======== ========
Earnings per common share $ 0.08 $ 0.07
======== ========
Weighted average shares outstanding 5,171 5,230
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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Form 10-Q
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ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 392 $ 348
Adjustments to reconcile net income to net cash used in operating activities:
Non-cash charges to income 668 689
Changes in assets and liabilities:
Accounts receivable (1,587) (1,717)
Inventories (1,653) (5,968)
Prepaid expenses (762) (1,903)
Accounts payable, trade 4,489 6,352
Accrued expenses (243) (1,417)
-------- --------
Net cash provided by (used in) operating activities 1,304 (3,616)
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Net cash used in investing activities (58) (321)
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Cash flows from financing activities:
Gross borrowings on revolving credit facility 34,758 39,664
Gross repayments on revolving credit facility (35,699) (35,569)
Principal payments on capital lease obligations (12) (8)
Principal payments on long-term debt (112) (100)
Exercise of stock options by certain executive officers 3 --
Dividends to shareholders (104) (105)
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Net cash provided by (used in) financing activities (1,166) 3,882
-------- --------
Net increase (decrease) in cash and cash equivalents 80 (55)
Cash and cash equivalents:
Beginning of period 139 325
-------- --------
End of period $ 219 $ 270
======== ========
</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)
MARCH 31, 1997
(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 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 months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the full year
ending December 31, 1997. 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, 1996.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
Finished goods $39,756 $38,283
Raw materials 1,241 1,096
Work in process 412 377
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$41,409 $39,756
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</TABLE>
3. COMMON AND PREFERRED STOCK
On November 18, 1996, the Company issued new options to two of its executive
officers to purchase shares of stock at 85% of the market value at the date of
exercise. The new options provided that any shares acquired upon exercise would
replace on a share for share basis the ten-year options originally granted in
1993 and repriced in 1995 to purchase the same number of shares. The term of
these options was for one month and expired on December 18, 1996. Both officers
gave their intent to exercise the options before the expiration date and the
transaction was pending at year end. On January 6, 1997, 112 shares of common
stock were issued to the officers.
4. EARNINGS PER SHARE
The Company will adopt Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", on December 31, 1997. SFAS No. 128 requires the
Company to change its method of computing, presenting and disclosing earnings
per share information. Upon adoption, all prior periods' data presented will be
restated to conform to the provisions of SFAS No. 128.
The Company has calculated the basic and diluted earnings per share for the
three months ended March 31, 1996 and 1997, under the provisions of SFAS No.
128, and determined them to be the same as the reported earnings per share,
$0.07 and $0.08, respectively.
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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, 1996, and the consolidated
financial statements and related notes included in this Form 10-Q.
Sales for the three months ended March 31, 1997 were $36.8 million, as compared
to $36.7 million for the same period in 1996, an increase of $79,000, or 0.2%.
Included in these amounts were sales from the subsidiaries of $2.0 million and
$1.8 million for the three months ended March 31, 1997 and 1996, respectively.
During the first quarter of 1997, sales for the traditional distribution
business declined $129,000, or 0.4%. Sales in the hunting and shooting sports
product group had an increase of $92,000, or 0.4%. Marine accessories showed
continued growth with an increase of $396,000, or 8.4%, while camping, archery
and outdoor accessories sales declined by $617,000, or 8.5%. Retailers have
continued to reduce their purchases of accessories related to the hunting and
shooting products which has led to the continued decline in camping, archery and
accessories sales and offset the gains achieved in the other product groups.
Subsidiary sales increased by $208,000 over last year, primarily due to
Safesport Manufacturing. The Safesport sales increase was due to comparatively
lower sales in the first quarter of 1996 due to the relocation of its
distribution facilities. While it appears that the hunting and shooting sports
industry is slowly returning from its recent declines, management believes that
until there is more substantial growth within the industry, the difficult sale
comparisons could continue into the future.
Gross profit was $6.3 million (17.2% of sales) for the three months ended March
31, 1997, as compared to $6.5 million (17.8% of sales) for the same period in
1996, a decrease of $184,000, or 2.8%. This decline was primarily driven by
larger sales of marine electronics and other lower margin marine accessories and
overhead allocation in the subsidiaries during a period of low production and
sales. Management believes that the competitive pricing pressures that have
forced the decline in margins over the past few years will continue affecting
gross profit of the Company as a whole.
Selling, general and administrative expenses for the three months ended March
31, 1997 were $5.1 million (14.0% of sales), as compared to $5.5 million (15.0%
of sales) for the same period in 1996, a decrease of $370,000, or 6.7%.
Increased expenses were incurred as a result of stock awards to certain
executive officers, expenses related to the computer system upgrades and a
building addition, and larger than normal associate insurance claims. These
increased expenses were offset by larger decreases in bad debt expense, shipping
expenses and telephone expense.
Interest expense was $717,000 (1.9% of sales) for the three months ended March
31, 1997, as compared to $627,000 (1.7% of sales) for the same period in 1996,
an increase of $90,000, or 14.4%. Interest expense increased due to rising
interest rates and a moderate increase in borrowings over the prior year.
Income tax expense was $231,000 for the three months ended March 31, 1997, as
compared to $190,000 for the same period in 1996, an increase of $41,000, or
21.6%. The effective tax rate for the three months ended March 31, 1997 was
37.1%, as compared to 35.3% for the same period in 1996. The increase in the
effective tax rate was due to the reversal of deferred tax items.
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 have been seasonal, producing significantly higher sales and gross
profit during the third and fourth quarters, with losses in the first and 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.
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Form 10-Q
Page 8
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been 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 provided by operating activities was $1.3 million for the three months
ended March 31, 1997 as compared to net cash used in operating activities of
$3.6 million for the same period in 1996. The increase in cash provided by
operating activities was mainly due to slower buildup of inventories in the
first quarter of 1997 as compared to the same period last year. The seasonal
inventory buildup in the prior year was due to the Company taking advantage of
large volume buys of certain products for the traditional distribution business
and the buildup of necessary inventory items for Safesport during their
relocation.
Net cash used in investing activities was $58,000 for the three months ended
March 31, 1997 as compared to $321,000 for the same period in 1996. The decrease
was mainly due to the building addition in 1996 to accommodate the warehousing
operations for Safesport that was being relocated from Denver, Colorado to
Newberry, South Carolina.
Net cash used in financing activities was $1.2 million for the three months
ended March 31, 1997 as compared to net cash provided by financing activities of
$3.9 million for the same period in 1996. During the quarter ended March 31,
1997, the Company used cash collections in excess of the current borrowings to
reduce its revolving credit facility by $941,000 as well as to make principal
payments on long-term debt and to pay dividends. Prior year cash from financing
was a result of revolver borrowings to fund working capital requirements.
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 to offer 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.
Working capital requirements have been seasonal for the subsidiaries.
Inventories have increased during the first half of the year to accommodate the
sales in the third and fourth quarters. Accounts receivable generally decline to
their lowest point in the second quarter just before the sales increase in the
second half of the year.
Principal maturities on the Company's industrial revenue bonds for the remainder
of 1997 will be $354,000, and maturities for 1998 and 1999 will be $517,000 and
$567,000, respectively. The annual interest charges, assuming a fixed rate of
10.625%, are $677,000 for the remainder of 1997, and $859,000 and $804,000 for
1998 and 1999, 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, and debt
service requirements for the remainder of 1997 and for the foreseeable future.
<PAGE> 9
Form 10-Q
Page 9
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 March 31, 1997.
<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: May 14, 1997
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 THREE MONTHS ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 219
<SECURITIES> 0
<RECEIVABLES> 22,879
<ALLOWANCES> 787
<INVENTORY> 41,409
<CURRENT-ASSETS> 68,748
<PP&E> 12,218
<DEPRECIATION> 6,159
<TOTAL-ASSETS> 77,114
<CURRENT-LIABILITIES> 14,031
<BONDS> 6,836
0
0
<COMMON> 12,618
<OTHER-SE> 12,419
<TOTAL-LIABILITY-AND-EQUITY> 77,114
<SALES> 36,801
<TOTAL-REVENUES> 36,801
<CGS> 30,458
<TOTAL-COSTS> 30,458
<OTHER-EXPENSES> 5,149
<LOSS-PROVISION> 155
<INTEREST-EXPENSE> 717
<INCOME-PRETAX> 623
<INCOME-TAX> 231
<INCOME-CONTINUING> 392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
