-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MBFkAU4sTVKTDzJdAVo8UQnqfOnM5VtSoMxXIQoqyJJElpzo/wBjpbPpfIuYRVPN 832FIRMNZv727KRc9H7zSg== /in/edgar/work/20000815/0000950144-00-010381/0000950144-00-010381.txt : 20000922 0000950144-00-010381.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950144-00-010381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELLETT BROTHERS INC CENTRAL INDEX KEY: 0000902055 STANDARD INDUSTRIAL CLASSIFICATION: [5090 ] IRS NUMBER: 570957069 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21632 FILM NUMBER: 701346 BUSINESS ADDRESS: STREET 1: 267 COLUMBIA AVE CITY: CHAPIN STATE: SC ZIP: 29036 BUSINESS PHONE: 8033453751 MAIL ADDRESS: STREET 1: P O BOX 128 CITY: CHAPIN STATE: SC ZIP: 29036 10-Q 1 e10-q.txt ELLETT BROTHERS INC. 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, 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 July 31, 2000, 4,356,518 shares of no par value common stock of the registrant were outstanding. Page 1 of 13 pages 2 Form 10-Q Page 2 ELLETT BROTHERS, INC. AND SUBSIDIARIES JUNE 30, 2000 INDEX Part I. Financial Information Page ---- Item 1. Financial Statements Condensed consolidated balance sheets as of June 30, 2000 and December 31, 1999 3 Condensed consolidated statements of income for the three months and six months ended June 30, 2000 and 1999 4 Condensed consolidated statements of cash flows for the six months ended June 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 Item 4. Submission of matters to a vote of shareholders 12 Item 6. Exhibits and Reports on Form 8-K 12 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)
June 30, Dec. 31, 2000 1999 ------- ------- (unaudited) (see note) ASSETS Current assets: Cash and cash equivalents $ 149 $ 346 Accounts receivable, less allowance for doubtful accounts of $589 and $634 at June 30, 2000 and December 31, 1999, respectively 22,961 21,777 Other receivables 750 1,109 Inventories 47,480 36,061 Prepaid expenses 1,623 1,154 Deferred income tax asset 1,639 834 ------- ------- Total current assets 74,602 61,281 ------- ------- Property, plant and equipment, at cost, less accumulated depreciation 9,318 9,352 Other assets: Intangible assets, at cost, less accumulated amortization 2,116 2,292 Other assets 1 1 ------- ------- Total other assets 2,117 2,293 ------- ------- $86,037 $72,926 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, trade $12,516 $ 7,891 Accrued expenses 1,912 1,879 Current portion of long-term debt 642 617 ------- ------- Total current liabilities 15,070 10,387 Revolving credit facility 39,518 30,327 Long-term debt 4,942 5,269 Deferred income tax liability and other 949 850 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, 4,317 shares issued and outstanding as of June 30, 2000 and December 31, 1999) 9,652 9,652 Common stock subscribed 317 317 Unearned compensation -- (12) Subscription receivable (465) (465) Retained earnings 16,063 16,608 Accumulated other comprehensive loss (9) (7) ------- ------- Total shareholders' equity 25,558 26,093 ------- ------- $86,037 $72,926 ======= =======
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. 4 Form 10-Q Page 4 ELLETT BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Sales $36,062 $38,319 $72,729 $77,265 Cost of goods sold 29,573 31,469 59,453 63,667 ------- ------- ------- ------- Gross profit 6,489 6,850 13,276 13,598 Selling, general and administrative expenses 6,252 5,271 12,232 10,564 ------- ------- ------- ------- Income from operations 237 1,579 1,044 3,034 Other income (expense): Interest income 93 114 207 245 Interest expense (867) (619) (1,499) (1,136) Other, net (7) 1 (13) 2 ------- ------- ------- ------- Income (loss) before income taxes (544) 1,075 (261) 2,145 Income tax expense (benefit) (188) 388 (61) 780 ------- ------- ------- ------- Net income (loss) $ (356) $ 687 $ (200) $ 1,365 ======= ======= ======= ======= Basic and diluted earnings (loss) per common share $ (0.08) $ 0.16 $ (0.05) $ 0.32 ======= ======= ======= ======= Weighted average shares outstanding 4,317 4,317 4,317 4,309 ======= ======= ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Form 10-Q Page 5 ELLETT BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six Months Ended June 30, 2000 1999 -------- -------- Cash flows from operating activities: Net income (loss) $ (200) $ 1,365 Adjustments to reconcile net income (loss) to net cash (used in) operating activities: Non-cash charges to income 765 657 Changes in assets and liabilities: Receivables (1,309) (1,933) Inventories (11,419) (10,301) Prepaid expenses (469) (1,276) Accounts payable, trade 4,625 3,737 Accrued expenses 33 158 -------- -------- Net cash used in operating activities (7,974) (7,593) -------- -------- Net cash used in investing activities, property, plant and equipment (767) (1,004) -------- -------- Cash flows from financing activities: Gross borrowings on revolving credit facility 82,476 85,261 Gross repayments on revolving credit facility (73,285) (76,013) Principal payments on long-term debt (302) (275) Dividends to shareholders (345) (338) -------- -------- Net cash provided by financing activities 8,544 8,635 -------- -------- Net (decrease) increase in cash and cash equivalents (197) 38 Cash and cash equivalents: Beginning of period 346 183 -------- -------- End of period $ 149 $ 221 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Form 10-Q Page 6 ELLETT BROTHERS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 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 six months ended June 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: June 30, December 31, 2000 1999 -------- ---------- Finished goods $45,467 $34,686 Raw materials 1,442 1,048 Work in process 571 327 ------- ------- $47,480 $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." SFAS No. 133 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, as deferred by SFAS No. 137. 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 six month period ended June 30, 2000, they have an antidilutive effect on earnings per share. As such, basic and diluted earnings per share for the quarters and six months ended June 30, 2000 and 1999, and the year ended December 31, 1999 is computed as net income 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 and June 12, 2000 during the six months ended June 30, 2000. 7 Form 10-Q Page 7 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 components of other comprehensive income relate to unrealized gains and losses on available for sale securities. The Company's comprehensive income (loss) for the six month periods ended June 30, 2000 and 1999 was $(202) and $1,347, respectively. The following table reconciles net income to comprehensive income for the six month periods ended June 30, 2000 and 1999: 2000 1999 --------- --------- Net income (loss) $(200) $1,365 Other comprehensive loss on available for sale securities (2) (18) --------- --------- Comprehensive income (loss) $(202) $1,347 ========= ========= 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 other operations. 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 June 30, 2000 and 1999 (in millions):
- --------------------------------------------------------------------------------------------------------------------- 2000 HS&A MARINE OTHER TOTAL - --------------------------------------------------------------------------------------------------------------------- Sales $ 25.7 $ 9.8 $ .5 $ 36.0 Operating income (loss) (.3) .8 (.3) .2 Identifiable segment assets 57.3 9.7 3.4 70.4 Capital expenditures .3 .0 .0 .3 Depreciation .3 .0 .1 .4 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- 1999 HS&A MARINE OTHER TOTAL - --------------------------------------------------------------------------------------------------------------------- Sales $ 28.2 $ 9.7 $ .4 $ 38.3 Operating income (loss) .9 .9 (.2) 1.6 Identifiable segment assets 45.1 8.5 3.2 56.8 Capital expenditures .5 .0 .0 .5 Depreciation .1 .1 .0 .2 - ---------------------------------------------------------------------------------------------------------------------
A reconciliation of total segment operating income to total consolidated income (loss) before taxes for the three months ended June 30 (in millions) is as follows:
- -------------------------------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------------------------------- Operating income $ .2 $ 1.6 Interest income and other income, net .1 .1 Interest expense (.8) (.6) - -------------------------------------------------------------------------------------------------------- Income (loss) before taxes $ (.5) $ 1.1 - --------------------------------------------------------------------------------------------------------
8 Form 10-Q Page 8 The following table presents information about reported segments for the six months ended June 30, 2000 and 1999 (in millions):
- --------------------------------------------------------------------------------------------------------------------- 2000 HS&A MARINE OTHER TOTAL - --------------------------------------------------------------------------------------------------------------------- Sales $ 55.1 $ 16.7 $ .9 $ 72.7 Operating income (loss) .4 1.2 (.6) 1.0 Identifiable segment assets 57.3 9.7 3.4 70.4 Capital expenditures .8 .0 .0 .8 Depreciation .6 .1 .1 .8 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- 1999 HS&A MARINE OTHER TOTAL - --------------------------------------------------------------------------------------------------------------------- Sales $ 60.2 $ 16.2 $ .9 $ 77.3 Operating income (loss) 2.2 1.3 (.5) 3.0 Identifiable segment assets 45.1 8.5 3.2 56.8 Capital expenditures 1.0 .0 .0 1.0 Depreciation .3 .1 .0 .4 - ---------------------------------------------------------------------------------------------------------------------
A reconciliation of total segment operating income to total consolidated income (loss) before taxes for the six months ended June 30 (in millions) is as follows:
- ---------------------------------------------------------------------------------------------------------- 2000 1999 - ---------------------------------------------------------------------------------------------------------- Operating income $ 1.0 $ 3.0 Interest income and other income, net .2 .2 Interest expense (1.5) (1.1) - ---------------------------------------------------------------------------------------------------------- Income (loss) before taxes $ (.3) $ 2.1 - ----------------------------------------------------------------------------------------------------------
A reconciliation of identifiable segment assets to total assets as of June 30 (in millions) is as follows:
- ---------------------------------------------------------------------------------------------------------- 2000 1999 - ---------------------------------------------------------------------------------------------------------- Identifiable segment assets $ 70.4 $ 56.8 Other corporate assets 15.6 21.6 - ---------------------------------------------------------------------------------------------------------- Total assets $ 86.0 $ 78.4 - ----------------------------------------------------------------------------------------------------------
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. 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 June 30, 2000 were $36.1 million, as compared to $38.3 million for the same period in 1999, a decrease of $2.2 million, or 5.9%. Sales for the six months ended June 30, 2000 were $72.7 million, as compared to $77.3 million for the same period in 1999, a decrease of $4.6 million, or 5.9%. Included in these amounts were sales from the subsidiaries of $1.9 million and $3.6 million for the three and six months ended June 30, 2000, respectively. Subsidiary sales now include Archery Center International (ACI) which was acquired in the fourth quarter of 1999. Sales in our distribution business decreased 10.0% for the quarter and 9.5% for the six months when compared to the same periods in 1999. Hunting and shooting sports products were impacted by the lack of Y2K sales that occurred in the first and second quarters of 1999 and special purchases not available in the market in the second quarter of 2000. Hunting and shooting sports products were down 15.4% for the second quarter and 15.2% for the six months compared to 1999. Sales of marine accessory products declined 2.2% for the quarter, but increased 0.4% for the six month period, as higher fuel prices were detrimental to the marine industry in the second quarter. Camping, archery and outdoor accessories were down 5.5% for the quarter and 3.6% for the six months as compared to 1999. Excluding ACI, which was acquired in the fourth quarter of 1999, sales from the subsidiaries increased 37.7% for the second quarter and 12.2% for the six months as compared to 1999. Gross profit was $6.5 million (18.0% of sales) for the three months ended June 30, 2000, as compared to $6.9 million (17.9% of sales) for the same period in 1999, a decrease of approximately $400,000. Gross profit for the six months ended June 30, 2000 was $13.3 million (18.3% of sales), as compared to $13.6 million (17.6% of sales) for the same period in 1999, a decrease of approximately $300,000. Even with the sales decrease, our gross margin as a percent of sales increased 0.12% in the second quarter and 0.66% for the six months, as compared to 1999. This increase was driven by the changing mix of products, as hunting and shooting sports products declined as a percentage of sales, while our subsidiaries increased as a percentage of total sales. Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2000 were $6.3 million (17.3% of sales), as compared to $5.3 million (13.8% of sales) for the same period in 1999, an increase of $1.0 million, or 18.6%. SG&A expenses for the six months ended June 30, 2000 were $12.2 million (16.8% of sales), as compared to $10.6 million (13.7% of sales) for the same period in 1999, an increase of $1.6 million, or 15.8%. SG&A expenses have increased over 1999 both for the quarter and six months primarily due to increased depreciation and operating expenses associated with the new computer system in 2000, as well as from the addition of ACI. Interest expense was $867,000 (2.4% of sales) for the three months ended June 30, 2000, as compared to $619,000 (1.6% of sales) for the same period in 1999, an increase of $248,000, or 40.0%. Interest expense for the six months ended June 30, 2000 was $1.5 million (2.1% of sales), as compared to $1.1 million (1.5% of sales) for the same period in 1999, an increase of approximately $400,000, or 31.9%. Interest expense increased for the second quarter and six months over 1999 as a result of higher inventory levels as compared to 1999 and increased borrowing rates. Inventory increased in the first part of the year during our computer conversion as a precautionary measure and when the unexpected softening in the market occurred, the Company was in an overstock situation. Accordingly, the Company has taken steps to reduce the inventory levels and is already experiencing some results from this effort. An income tax benefit of $188,000 was recorded for the three months ended June 30, 2000, as compared to an income tax expense of $388,000 for the same period in 1999. The income tax benefit was $61,000 for the six months ended June 30, 2000, as compared to an income tax expense of $780,000 for the same period in 1999. The effective tax rate for the three months ended June 30, 2000 was a tax benefit of 34.6%, as compared to a tax expense of 36.1% for the same period in 1999. The effective tax rate for the six months ended June 30, 2000 was a tax benefit of 23.4%, as compared to a tax expense of 36.3% for the same period in 1999. 10 Form 10-Q Page 10 Net loss for the three months ended June 30, 2000 was $356,000 (1.0% of sales), as compared to a net income of $687,000 (1.8% of sales), for the same period in 1999. Net loss for the six months ended June 30, 2000 was $200,000 (0.3% of sales), as compared to a net income of $1.4 million (1.8% of sales) for the same period in 1999. 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 are very 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. 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. Net cash used in operating activities was $8.0 million for the six months ended June 30, 2000, as compared to net cash used in operating activities of $7.6 million in 1999. The net cash used in 2000 was due primarily to an increase in inventory partially offset by an increase in accounts payable. Net cash used in investing activities was $767,000 for the six months ended June 30, 2000, as compared to $1.0 million for the same period in 1999. The net cash used in 2000 was primarily for computer equipment and information systems upgrades. Net cash provided by financing activities was $8.5 million for the six months ended June 30, 2000, as compared to $8.6 million for the same period in 1999. During the six months ended June 30, 200, the Company's net borrowings were $9.2 million as compared to $9.2 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 the subsidiaries. Inventories generally increase during the first half of the year to accommodate the sales expected 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 refunding bonds began in 1995. Remaining payments for 2000 will be $317,000, 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 $255,000 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, and debt service requirements for the remainder of 2000 and the foreseeable future. 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 ($39.5 million at June 30, 2000 and $30.3 million at December 31, 1999). The Company does not currently use derivative financial instruments. Approximately $5.6 million of the Company's debt at June 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 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 1.75% 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 June 30, 2000, the interest rate was 8.39%. 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 $44.2 million at June 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 June 30, 2000: Maturity Date Fixed Rate Debt Interest Rate - ------------------------ --------------------------- -------------------------- 2000 $ 317,000 7.5% 2001 667,000 7.5% 2002 716,000 7.5% 2003 767,000 7.5% Thereafter 3,117,000 7.5% - ------------------------ --------------------------- -------------------------- $ 5,574,000 7.5% 12 Form 10-Q Page 12 PART II. OTHER INFORMATION Item 4. Submission of matters to a vote of shareholders On May 17, 2000, the Company held its annual meeting of shareholders for the purpose of electing six members to the Board of Directors 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. Each nominee received the vote of a majority of the shares represented and entitled to vote at the meeting. The appointment of PricewaterhouseCoopers LLP as the Company's independent auditors was approved by the majority of the shares represented and entitled to a vote at the meeting. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule (for SEC 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, 2000. 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: August 14, 2000 By: /s/ Joseph F. Murray, Jr. ----------------------------------------------- Joseph F. Murray, Jr. President, Chief Executive Officer and Director By /s/ George E. Loney ------------------------------------------------ George E. Loney Chief Financial Officer (principal financial and accounting officer) EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ELLETT BROTHERS, INC. FOR THE THREE MONTHS ENDED JUNE 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JUN-30-2000 149 0 23,550 589 47,480 74,602 18,210 8,892 86,037 15,070 4,942 0 0 9,969 15,589 86,037 72,729 72,729 59,453 59,453 12,232 0 1,499 (261) (61) (200) 0 0 0 (200) (0.05) (0.05)
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