<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, 2000
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 October 31, 2000, 4,337,818 shares of no par value common stock of the
registrant were outstanding.
Page 1 of 13 pages
<PAGE> 2
Form 10-Q
Page 2
ELLETT BROTHERS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
Page
----
<S> <C> <C>
Item 1. Financial Statements
Condensed consolidated balance sheets as of September 30, 2000 and December 31, 1999 3
Condensed consolidated statements of income for the three months and nine months ended
September 30, 2000 and 1999 4
Condensed consolidated statements of cash flows for the nine months ended September 30,
2000 and 1999 5
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II. Other Information
Page
----
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 3
Form 10-Q
Page 3
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ELLETT BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, Dec. 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS (unaudited) (see note)
Current assets:
Cash and cash equivalents $ 302 $ 346
Trade accounts receivable, less allowance for doubtful accounts of $570 and $634
at September 30, 2000 and December 31, 1999, respectively 28,220 21,777
Other receivables 568 1,109
Inventories 42,842 36,061
Prepaid expenses 2,040 1,154
Deferred income tax asset 1,744 834
-------- --------
Total current assets 75,716 61,281
-------- --------
Property, plant and equipment, at cost, less accumulated depreciation 9,091 9,352
Other assets:
Intangible assets, at cost, less accumulated amortization 2,024 2,292
Other assets 1 1
-------- --------
Total other assets 2,025 2,293
-------- --------
$ 86,832 $ 72,926
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 12,717 $ 7,891
Accrued expenses 2,285 1,879
Current portion of long-term debt 654 617
-------- --------
Total current liabilities 15,656 10,387
-------- --------
Revolving credit facility 40,096 30,327
Long-term debt 4,761 5,269
Deferred income tax liability and other 947 850
Commitments and contingencies (See Note 7)
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, 4,338 and 4,317 shares issued and outstanding
as of September 30, 2000 and December 31, 1999, respectively) 9,872 9,652
Common stock subscribed 42 317
Unearned compensation -- (12)
Subscription receivable (465) (465)
Retained earnings 15,918 16,608
Accumulated other comprehensive income (loss) 5 (7)
-------- --------
Total shareholders' equity 25,372 26,093
-------- --------
$ 86,832 $ 72,926
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Note: The balance sheet at December 31, 1999 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 Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 44,509 $ 45,931 $ 117,238 $ 123,196
Cost of goods sold 36,836 37,503 96,289 101,170
--------- --------- --------- ---------
Gross profit 7,673 8,428 20,949 22,026
Selling, general and administrative expenses 6,765 5,817 18,997 16,381
--------- --------- --------- ---------
Income from operations 908 2,611 1,952 5,645
Other income (expense):
Interest income 118 135 324 380
Interest expense (955) (720) (2,453) (1,856)
Other, net (8) (2) (21) --
--------- --------- --------- ---------
Income (loss) before income taxes 63 2,024 (198) 4,169
Income tax expense (benefit) 34 722 (28) 1,502
--------- --------- --------- ---------
Net income (loss) $ 29 $ 1,302 $ (170) $ 2,667
========= ========= ========= =========
Basic and diluted earnings (loss) per common share $ 0.01 $ 0.30 $ (0.04) $ 0.62
========= ========= ========= =========
Weighted average shares outstanding 4,344 4,317 4,326 4,311
========= ========= ========= =========
</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>
Nine Months Ended
September 30,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (170) $ 2,667
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Non-cash charges to income 1,475 1,235
Changes in assets and liabilities:
Receivables (6,665) (8,046)
Inventories (6,781) (9,377)
Prepaid expenses (886) (1,132)
Accounts payable, trade 4,826 2,849
Accrued expenses 406 552
--------- ---------
Net cash used in operating activities (7,795) (11,252)
--------- ---------
Net cash used in investing activities, property, plant and equipment (986) (1,717)
Cash flows from financing activities:
Gross borrowings on revolving credit facility 123,452 131,187
Gross repayments on revolving credit facility (113,683) (117,110)
Principal payments on long-term debt (471) (481)
Subscription receivable and other 14 (42)
Common stock repurchase (55) --
Dividends to shareholders (520) (512)
--------- ---------
Net cash provided by financing activities 8,737 13,042
--------- ---------
Net (decrease) increase in cash and cash equivalents (44) 73
Cash and cash equivalents:
Beginning of period 346 183
--------- ---------
End of period $ 302 $ 256
========= =========
</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)
SEPTEMBER 30, 2000
(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 and nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the full year ending December 31, 2000. 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, 1999.
2. INVENTORIES
Inventories consisted of the following:
September 30, December 31,
2000 1999
------- -------
Finished goods $41,524 $34,686
Raw materials 781 1,048
Work in process 537 327
------- -------
$42,842 $36,061
======= =======
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which was later
amended by SFAS No. 138. SFAS No. 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
is effective for financial statements for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company has not adopted SFAS No. 133;
however, management anticipates that SFAS No. 133 is not expected to have a
material impact on the Company's consolidated financial position, results of
operations, or cash flows due to the Company's limited use of derivative
instruments.
4. EARNINGS AND DIVIDENDS PER COMMON SHARE
Although the Company had options outstanding during the year ended December 31,
1999 and the nine month period ended September 30, 2000, they have an
antidilutive effect on earnings per share. As such, basic and diluted earnings
(loss) per share for the quarters and nine months ended September 30, 2000 and
1999, and the year ended December 31, 1999 is computed as net income (loss)
divided by the weighted average shares outstanding. The Company paid dividends
of $0.04 per share to all shareholders of record as of March 6, June 12, and
September 12, 2000 during the nine months ended September 30, 2000.
5. COMPREHENSIVE INCOME
Comprehensive income includes net income and all other changes to the Company's
equity, with the exception of transactions with shareholders ("other
comprehensive income"). The Company's only component of other comprehensive
income relates to unrealized gains and losses on available for sale securities.
The following table reconciles net income to comprehensive income for the three
and nine month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 29 $ 1,302 $ (170) $ 2,667
Other comprehensive income (loss) on available for sale securities 14 1 12 (17)
------- ------- ------- -------
Comprehensive income (loss) $ 43 $ 1,303 $ (158) $ 2,650
======= ======= ======= =======
</TABLE>
<PAGE> 7
Form 10-Q
Page 7
6. BUSINESS SEGMENT INFORMATION
The Company's reportable segments are business units that offer different
products and have separate management teams and infrastructures. The business
units have been aggregated into two reportable segments. These segments are:
Hunting, Shooting, Camping, Archery & Outdoor Products ("HS&A") and Marine
Products. The "Other" segment includes the Company's operations of Vintage
Editions and Evans Sports. The operations of Archery Center International (ACI),
which was purchased in the fourth quarter of 1999, are included in HS&A.
The accounting policies of the segments are the same as those described in the
Company's annual report on Form 10-K for the year ended December 31, 1999. The
Company evaluates performance based upon operating income of the business units.
The following table presents information about reported segments for the three
months ended September 30, 2000 and 1999 (in millions):
2000 HS&A MARINE OTHER TOTAL
--------------------------------------------------------------------------------
Sales $ 35.8 $ 6.5 $ 2.2 $ 44.5
Operating income .5 .2 .2 .9
Capital expenditures .2 - - .2
Depreciation .4 - - .4
1999 HS&A MARINE OTHER TOTAL
--------------------------------------------------------------------------------
Sales $ 36.1 $ 6.7 $ 3.1 $ 45.9
Operating income 1.6 .6 .4 2.6
Capital expenditures .7 - - .7
Depreciation .1 - .1 .2
A reconciliation of total segment operating income to total consolidated income
before taxes for the three months ended September 30 (in millions) is as
follows:
2000 1999
--------------------------------------------------------------------------------
Operating income $ .9 $ 2.6
Interest income and other income, net .1 .1
Interest expense (.9) (.7)
--------------------------------------------------------------------------------
Income before taxes $ .1 $ 2.0
The following table presents information about reported segments for the nine
months ended September 30, 2000 and 1999 (in millions):
2000 HS&A MARINE OTHER TOTAL
--------------------------------------------------------------------------------
Sales $ 90.9 $ 23.2 $ 3.1 $117.2
Operating income (loss) .9 1.4 (.4) 1.9
Identifiable segment assets 60.8 6.7 3.4 70.9
Capital expenditures 1.0 - - 1.0
Depreciation 1.0 .1 .1 1.2
2000 HS&A MARINE OTHER TOTAL
--------------------------------------------------------------------------------
Sales $ 96.3 $ 22.9 $ 4.0 $123.2
Operating income (loss) 3.8 1.9 (.1) 5.6
Identifiable segment assets 59.1 7.5 3.6 70.2
Capital expenditures 1.7 - - 1.7
Depreciation .4 .1 .1 .6
A reconciliation of total segment operating income to total consolidated income
before taxes for the nine months ended September 30 (in millions) is as follows:
2000 1999
--------------------------------------------------------------------------------
Operating income $ 1.9 $ 5.6
Interest income and other income, net .3 .4
Interest expense (2.4) (1.8)
--------------------------------------------------------------------------------
Income (loss) before taxes $ (.2) $ 4.2
<PAGE> 8
Form 10-Q
Page 8
A reconciliation of identifiable segment assets to total assets as of September
30 (in millions) is as follows:
2000 1999
--------------------------------------------------------------------------------
Identifiable segment assets $ 70.9 $ 70.2
Other corporate assets 15.9 13.5
--------------------------------------------------------------------------------
Total assets $ 86.8 $ 83.7
7. CONTINGENCY
The Company is a party to litigation in connection with the distribution of its
inventory. Twenty-nine cities and/or counties and one advocacy group have filed
lawsuits against the firearms industry as a whole. These lawsuits list numerous
manufacturers and distributors as defendants in the claims. To date, three of
the thirty suits have been dismissed, as the judges have found the complaints
"without standing" under the laws of their respective states. The Company was
named in four of these remaining twenty-seven suits. The Company and all
distributors were dismissed from one of these lawsuits (the Hamilton-Cargill
lawsuit) in the first quarter of 1999. For the remaining defendants, this case
is under appeal. Pending the appeal, there are three remaining industry-wide
cases in which the Company is named. Although the outcome cannot be predicted,
it is the opinion of management that the Company has meritorious defenses and
the disposition of these matters will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.
8. SUBSEQUENT EVENT
The Company announced on November 6, 2000 that it has received an offer from a
group of controlling stockholders to acquire the Company through a cash merger
at $2.75 per share. The stockholder group currently owns approximately 64.1% of
the outstanding shares of the Company and intends to retain all of its shares.
The offer to acquire the Company came during a regularly scheduled meeting of
the Company's Board of Directors. The Board appointed a special committee of
outside directors to consider the offer.
<PAGE> 9
Form 10-Q
Page 9
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, 1999, and the condensed
consolidated financial statements and related notes included in this Form 10-Q.
Sales for the three months ended September 30, 2000 were $44.5 million, as
compared to $45.9 million for the same period in 1999, a decrease of $1.4
million, or 3.1%. Sales for the nine months ended September 30, 2000 were $117.2
million, as compared to $123.2 million for the same period in 1999, a decrease
of $6.0 million, or 4.9%. Included in these amounts were sales from all of the
subsidiaries of $6.5 million and $10.1 million for the three and nine months
ended September 30, 2000, respectively, and $3.2 million and $4.0 million for
the three and nine months ended September 30, 1999, respectively. Subsidiary
sales now include ACI, which was purchased in the fourth quarter of 1999.
Excluding ACI, subsidiary sales decreased 33.4% for the third quarter and 23.7%
for the nine months as compared to 1999.
Third quarter sales did not show any improvement from the second quarter in our
distribution business. The overall soft market resulted in dealers being
cautious in their purchases in the quarter, as shown by a decrease in average
order size of almost 25% during the quarter. After a strong third quarter in
1999, our distribution business decreased 11.2% in the three months ended
September 30, 2000, as compared to the same period in 1999. Our hunting and
shooting sports products sales had a 18.3% decrease compared to 1999, while our
camping, archery and outdoor accessories products sales experienced a 0.2%
increase over 1999. Marine products had a 3.9% decrease, as compared to 1999.
Gross profit was $7.7 million (17.2% of sales) for the three months ended
September 30, 2000. This compares to $8.4 million (18.4% of sales) for the same
period in 1999, a decrease of $755,000. Gross profit for the nine months ended
September 30, 2000 was $20.9 million (17.9% of sales), as compared to $22.0
million (17.9% of sales) for the same period in 1999, a decrease of $1.1
million. Our gross margins as a percent of sales decreased 1.2% for the third
quarter, while our margin percentage year-to-date was basically equal to the
same period in 1999. Margins for the quarter were affected in all areas of our
distribution operations due to the mix of products.
Selling, general and administrative (SG&A) expenses for the three months ended
September 30, 2000 were $6.8 million (15.2% of sales), as compared to $5.8
million (12.7% of sales) for the same period in 1999, an increase of $948,000,
or 16.3%. SG&A expenses for the nine months ended September 30, 2000 were $19.0
million (16.2% of sales), as compared to $16.4 million (13.3% of sales) for the
same period in 1999, an increase of $2.6 million, or 15.9%. SG&A expenses have
increased over 1999 both for the quarter and for the nine months, primarily due
to increased depreciation and operating expenses associated with the new
computer system in 2000, as well as the addition of ACI, which was purchased in
the fourth quarter of 1999.
Interest expense was $955,000 (2.1% of sales) for the three months ended
September 30, 2000, as compared to $720,000 (1.6% of sales) for the same period
in 1999, an increase of $235,000, or 32.6%. Interest expense for the nine months
ended September 30, 2000 was $2.5 million (2.1% of sales), as compared to $1.9
million (1.5% of sales) for the same period in 1999, an increase of $597,000, or
32.2%. Interest expense was up for the third quarter, primarily due to higher
interest rates. For the nine months, borrowings to support higher inventory
levels in the early part of the year during our computer conversion increased
interest expense. With the unexpected softening in the market, it took longer to
balance our inventory levels where they should be and achieved our desired
results during the third quarter from this effort.
Income tax expense for the three months ended September 30, 2000 was $34,000, as
compared to $722,000 for the same period in 1999. An income tax benefit of
$28,000 was recorded for the nine months ended September 30, 2000, as compared
to income tax expense of $1.5 million for the same period in 1999.
Net income for the three months ended September 30, 2000 was $29,000 (0.1% of
sales), or $0.01 per share, as compared to a net income of $1.3 million (2.8% of
sales), or $0.30 per share, for the same period in 1999. Net loss for the nine
months ended September 30, 2000 was $170,000 (0.2% of sales), or ($0.04) per
share, as compared to a net income of $2.7 million (2.2% of sales), or $0.62 per
share for the same period in 1999.
<PAGE> 10
Form 10-Q
Page 10
SUBSEQUENT EVENT
The Company announced on November 6, 2000 that it has received an offer from a
group of controlling stockholders to acquire the Company through a cash merger
at $2.75 per share. The stockholder group currently owns approximately 64.1% of
the outstanding shares of the Company and intends to retain all of its shares.
The offer to acquire the Company came during a regularly scheduled meeting of
the Company's Board of Directors. The Board appointed a special committee of
outside directors to consider the offer.
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 all
subsidiaries are very seasonal, producing significantly higher sales and gross
profit during the third and fourth quarters, with losses generated 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash from 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 nine months ended September 30, 2000, net cash used in operating
activities was $7.8 million, as compared to $11.3 million for the same period in
1999. The net cash used in 2000 over the cash generated from operations was for
increases in inventory and accounts receivable, offset by an increase in
accounts payable.
Net cash used in investing activities was $1.0 million for the nine months ended
September 30, 2000, as compared to $1.7 million for the same period in 1999. The
net cash used in 2000 was primarily for computer equipment and software.
Net cash provided by financing activities was $8.7 million for the nine months
ended September 30, 2000, as compared to $13.0 million for the same period in
1999. During the nine months ended September 30, 2000, the Company's net
borrowings were $9.7 million as compared to $14.1 million during the same period
in 1999.
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 seasonal for all the subsidiaries.
Inventories increase during the first half of the year to accommodate the sales
expected in the third and fourth quarters. Accounts receivable 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 refunding bonds began
in 1995. Remaining payments for 2000 will be $163,000, and maturities for 2001
and 2002 will be $667,000 and $716,000, respectively. The annual interest
charges on the Company's industrial revenue bonds, at a fixed rate of 7.5%, will
be $124,000 for the remainder of 2000, and $479,000 and $429,000 for 2001 and
2002, 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 2000 and the
foreseeable future.
<PAGE> 11
Form 10-Q
Page 11
Advisory Note Regarding Forward-Looking Statements
Certain of the statements contained in Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) that are not
historical facts are forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers of this report on Form 10-Q that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from those expressed or implied by such
forward-looking statements. Although the Company's management believes that
their expectations of future performance are based on reasonable assumptions
within the bounds of their knowledge of their business and operations, there can
be no assurance that actual results will not differ materially from their
expectations. Factors which could cause actual results to differ from
expectations include, among other things, reductions in, or lack of growth of,
firearm sales; potential negative effects of existing and future gun control
legislation on consumer demand for firearms; the potential negative impact on
gross margins from shifts in the Company's product mix toward lower margin
products; seasonal fluctuations in the Company's business; competition from
national, regional and local distributors and various manufacturers who sell
products directly to the Company's customer base; competition from sporting
goods mass merchandisers or "superstores" which sell in competition with the
Company's primary customer base; exposure to product liability lawsuits; the
challenges and uncertainties in the implementation of the Company's expansion
and development strategies; the Company's dependence on key personnel; and other
factors described in this report and in other reports filed by the Company with
the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk for a change in interest rates relates
solely to its debt under its revolving credit facility ($40.1 million at
September 30, 2000 and $30.3 million at December 31, 1999). The Company does not
currently use derivative financial instruments.
Approximately $5.4 million of the Company's debt at September 30, 2000 and $5.9
million at December 31, 1999 was subject to fixed interest rates and principal
payments. This debt is comprised of the Company's long-term debt under its
industrial revenue refunding bonds which carry an interest rate of 7.5%.
The Company is exposed to changes in interest rates primarily as a result of its
debt in a variable rate revolving credit facility ("Facility") used to maintain
liquidity and fund the Company's business operations. Pursuant to the Company's
operating strategies, it maintains minimal cash balances and is substantially
dependent on, among other things, the availability of adequate working capital
financing to support inventories and accounts receivables. The Facility provides
the Company with a revolving line of credit and letters of credit. The maximum
amount that can be outstanding at anytime is $45.0 million. The term of the
Facility expires on September 30, 2001. Borrowings under the Facility bear
interest at a rate equal to, at the Company's option, prime rate plus 0.375% or
2.25% above the 30 or 90 day LIBOR rate. Combinations of these rates can be used
for the various loans that comprise the total outstanding balance under the
Facility. The interest rates of the Facility are subject to change based on
changes in the Company's leverage ratio and net income. At September 30, 2000,
the interest rate was 8.63%. The definitive extent of the Company's interest
rate risk under the Facility is not quantifiable or predictable because of the
variability of future interest rates and business financing requirements.
The Company's long-term debt has a fair value, based upon current interest
rates, of approximately $46.0 million at September 30, 2000 and $37.0 million at
December 31, 1999. Fair value will vary as interest rates change. The following
table presents the aggregate maturities and historical cost amounts of the fixed
debt principal and interest rates by maturity dates at September 30, 2000:
Maturity Date Fixed Rate Debt Interest Rate
-----------------------------------------------------------------------------
2000 $ 163,000 7.5%
2001 667,000 7.5%
2002 716,000 7.5%
2003 767,000 7.5%
-----------------------------------------------------------------------------
Thereafter 3,102,000 7.5%
-----------------------------------------------------------------------------
$ 5,415,000 7.5%
<PAGE> 12
Form 10-Q
Page 12
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, 2000.
<PAGE> 13
Form 10-Q
Page 13
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, 2000
By: /s/ Joseph F. Murray, Jr.
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Joseph F. Murray, Jr.
President, Chief Executive Officer and Director
By: /s/ George E. Loney
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George E. Loney
Chief Financial Officer
(principal financial and accounting officer)
