-----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, L3U0bUrv7kt36m0pX0f0kalD4YQ1mUIkB+RJC8m00ANyQ2bp78u2tNa7veA6fuNB 3/1hx/A/SYhtczO+J7a+lA== 0000950144-98-006505.txt : 19980518 0000950144-98-006505.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950144-98-006505 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELLETT BROTHERS INC CENTRAL INDEX KEY: 0000902055 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [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: 98625548 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 ELLETT BROTHERS 10-Q 3-31-1998 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, 1998 -------------- 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 April 30, 1998, 5,120,918 shares of no par value common stock of the registrant were outstanding. Page 1 of 12 2 Form 10-Q Page 2 ELLETT BROTHERS, INC. AND SUBSIDIARIES MARCH 31, 1998 INDEX
PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Condensed consolidated balance sheets as of March 31, 1998 and December 31, 1997 3 Condensed consolidated statements of income for the three months ended March 31, 1998 and 1997 4 Condensed consolidated statements of cash flows for the three months ended March 31, 1998 and 1997 5 Notes to condensed consolidated financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualititative Disclosures About Market Risk 10 PART II. OTHER INFORMATION PAGE ---- Item 6. Exhibits and Reports on Form 8-K 11
3 Form 10-Q Page 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ELLETT BROTHERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, Dec. 31, 1998 1997 ----------- ---------- (unaudited) (see note) ASSETS Current assets: Cash and cash equivalents $ 139 $ 395 Accounts receivable, less allowance for doubtful accounts of $761 and $769 at March 31, 1998 and December 31, 1997, respectively 19,147 19,201 Other accounts receivable 1,103 1,820 Inventories 35,025 31,535 Prepaid expenses 2,470 1,488 Deferred income tax asset 540 534 -------- -------- Total current assets 58,424 54,973 -------- -------- Property, plant and equipment, at cost, less accumulated depreciation 6,742 6,703 Other assets: Intangible assets, at cost, less accumulated amortization 1,872 1,936 Other assets 27 2 -------- -------- Total other assets 1,899 1,938 -------- -------- $ 67,065 $ 63,614 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, trade $ 12,484 $ 4,424 Accrued expenses 1,647 1,884 Current portion of long-term debt 517 525 -------- -------- Total current liabilities 14,648 6,833 -------- -------- Revolving credit facility 22,173 26,788 Long-term debt 6,276 6,399 Non-current deferred income tax liability 232 258 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, 5,121 shares issued and outstanding as of March 31, 1998 and December 31, 1997) 12,425 12,402 Unearned compensation (148) (177) Retained earnings 11,459 11,111 -------- -------- Total shareholders' equity 23,736 23,336 -------- -------- $ 67,065 $ 63,614 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. Note: The balance sheet at December 31, 1997 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. See note 5 entitled Comprehensive Income on page 7. 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 March 31, -------------------------- 1998 1997 ---- ---- Sales $ 34,032 $ 36,801 Cost of goods sold 28,126 30,458 -------- -------- Gross profit 5,906 6,343 Selling, general and administrative expenses 4,795 5,149 -------- -------- Income from operations 1,111 1,194 Other income (expenses) : Interest income 123 136 Interest expense (526) (717) Other income (3) 10 -------- -------- Income before income taxes 705 623 Income tax expense 254 231 -------- -------- Net income $ 451 $ 392 ======== ======== Basic and diluted earnings per common share $ 0.09 $ 0.08 ======== ======== Weighted average shares outstanding 5,121 5,171 ======== ========
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)
Three Months Ended March 31, ------------------------ 1998 1997 ---- ---- Cash flows from operating activities: Net income $ 451 $ 392 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash charges to income 296 668 Changes in assets and liabilities: Accounts receivable 740 (1,587) Inventories (3,490) (1,653) Prepaid expenses (982) (762) Accounts payable, trade 8,060 4,489 Accrued expenses (237) (243) -------- -------- Net cash provided by operating activities 4,838 1,304 -------- -------- Net cash used in investing activities (245) (58) -------- -------- Cash flows from financing activities: Gross borrowings on revolving credit facility 30,190 34,758 Gross repayments on revolving credit facility (34,805) (35,699) Principal payments on capital lease obligations (8) (12) Principal payments on long-term debt (123) (112) Exercise of stock options by certain executive officers 3 Dividends to shareholders (103) (104) -------- -------- Net cash used in financing activities (4,849) (1,166) -------- -------- Net increase (decrease) in cash and cash equivalents (256) 80 Cash and cash equivalents : Beginning of period 395 139 -------- -------- End of period $ 139 $ 219 ======== ========
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) MARCH 31, 1998 (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, 1998 are not necessarily indicative of the results that may be expected for the full year ending December 31, 1998. 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, 1997. 2. INVENTORIES Inventories consisted of the following:
March 31, December 31, 1998 1997 ----------- ------------ Finished goods $ 33,852 $ 30,406 Raw materials 782 885 Work in process 391 244 --------- --------- $ 35,025 $ 31,535 ========= =========
3. COMMON AND PREFERRED STOCK In January 1997, the Company issued 112 shares of common stock to two executives of the Company for $475. The market value of these shares on the measurement date was $559. The shares carry restrictions over their transferability which will be lifted over a two year period ending in January 1999. The difference between the market value and the price at which the shares were sold to the executives is reflected as unearned compensation and is being amortized over the two year period. In connection with the issuance of these shares, the Company received promissory notes totaling $452, which has been classified at December 31, 1997 as an offset to shareholders' equity, and $23 in cash from the executives. Balances due under the promissory notes, which bear interest at 5.6%, payable semi-annually, become due on a pro-rata basis as the shares are sold by the executives. The Company reacquired 46 and 10 shares in June and December of 1997, and recorded it using the cost method of accounting for treasury stock. Additionally, the Board of Directors of the Company is authorized to issue, at its discretion, up to 5,000 shares of preferred stock in one or more series with the number of shares, designation, relative rights and preferences, and limitations to be determined by resolution of the Board of Directors. However, no share of stock of any class shall be subject to preemptive rights or have cumulative voting provisions. 7 Form 10-Q Page 7 4. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 is designed to improve the earnings per share information provided in financial statements by simplifying the prior computational guidelines, revising the disclosure requirements, and increasing comparability of earnings per share data on an international basis. This pronouncement, which became effective for periods ending after December 15, 1997, required the restatement of earnings per share data for all periods presented in the form of basic earnings per share and diluted earnings per share. The Company had no options outstanding during the year ended December 31, 1997. The earnings per share calculations reported by the Company equal basic and diluted earnings per share calculated under the provisions of SFAS No. 128. Basic and diluted earnings per share for the quarter ended March 31, 1998 and the year ended December 31, 1997 is earnings divided by the weighted average shares outstanding. 5. COMPREHENSIVE INCOME On January 1, 1998 the Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income." As required by the SFAS No. 130, prior year information has been modified to conform with the new presentation. 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 total comprehensive income for the three month periods ended March 31, 1998 and 1997 was $464 and $392, respectively. Information concerning the Company's other comprehensive income for the three month periods ended March 31, 1998 and 1997 is as follows:
1998 1997 ---- ---- Net unrealized gains on available for sale securities $ 21 $ - Income tax expense relating to unrealized gains on available for sale securities (8) - ------ ------ Other comprehensive income $ 13 $ - ====== ======
8 Form 10-Q Page 8 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, 1997, and the consolidated financial statements and related notes included in this Form 10-Q. Sales for the three months ended March 31, 1998 were $34.0 million, as compared to $36.8 million for the same period in 1997, a decrease of $2.8 million, or 7.5%. Included in these amounts were sales from the subsidiaries of $421,000 and $2.0 million for the three months ended March 31, 1998 and 1997, respectively. During the first quarter of 1998, sales for the traditional distribution business declined $1.2 million, or 3.3%. Sales in the hunting and shooting sports product group had a decrease of $1.7 million, or 7.6%. Marine accessories showed continued growth with an increase of $401,000, or 7.8%, while camping, archery and outdoor accessories sales increased by $183,000, or 2.8%. Sales were impacted by one less selling day in the quarter versus 1997, along with the extreme weather patterns in much of the country, as well as a change for the industry wide trade show from three to five business days. Subsidiary sales in 1997 included $1.7 million of Safesport Manufacturing which was liquidated in 1997. Excluding Safesport, subsidiary sales increased 36.7% in the first quarter of 1998. Gross profit was $5.9 million (17.4% of sales) for the three months ended March 31, 1998, as compared to $6.3 million (17.2% of sales) for the same period in 1997, a decrease of $437,000, or 6.9%. Excluding the Safesport operation, gross profit would have been $5.8 million (16.6% of sales) in the first quarter of 1997. In the distribution business, where our improvements were focused, gross margin as a percentage of sales increased 43 basis points. As a result, gross margin dollars per day increased 1.1%, despite the reduction in sales per day by 1.8%. Gross margin as a percentage of sales for the hunting and shooting sports products increased 49 basis points, while marine accessories increased 39 basis points and camping, archery and outdoor accessories decreased 103 basis points. Selling and general and administrative expenses for the three months ended March 31, 1998 were $4.8 million (14.1% of sales), as compared to $5.1 million (14.0% of sales) for the same period in 1997, a decrease of $354,000, or 6.9%. Excluding the Safesport operation in 1997, selling and general and administration expenses for the three months would have been $4.5 million (12.8% of sales). The increase in the first quarter of 1998 over 1997 of $300,000, excluding the Safesport operation, is primarily due to the computer equipment and information systems upgrade, increased costs of insurance, and a change in the allocation of costs at the subsidiaries. Interest expense was $526,000 (1.5% of sales) for the three months ended March 31, 1998, as compared to $717,000 (1.9% of sales) for the same period in 1997, a decrease of $191,000, or 26.6%. Interest expense decreased due to lower borrowings over the prior year. Income tax expense was $254,000 for the three months ended March 31, 1998, as compared to $231,000 for the same period in 1997, an increase of $23,000, or 9.7%. The effective tax rate for the three months ended March 31, 1998 was 35.9%, as compared to 37.1% for the same period in 1997. The decrease in the effective tax rate was due to the deferred tax items. Net income for the three months ended March 31, 1998 was $451,000 ($0.09 per share) as compared to $392,000 ($0.08 per share) for the three months ended March 31, 1997. Excluding the results of the Safesport operation in the three months ended March 31, 1997, net income was $578,000 ($0.11 per share). 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. 9 Form 10-Q Page 9 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 $4.8 million for the three months ended March 31, 1998 as compared to net cash provided by operating activities of $1.3 million for the same period in 1997. The increase in cash provided by operating activities was mainly due to a larger increase in trade payables and a decrease in accounts receivable offset partially by a larger increase in inventory in the first quarter of 1998 versus the first quarter of 1997. Net cash used in investing activities was $245,000 for the three months ended March 31, 1998 as compared to $58,000 for the same period in 1997. The net cash used was primarily for computer equipment and information systems upgrades. Net cash used in financing activities was $4.8 million for the three months ended March 31, 1998 as compared to $1.2 million for the same period in 1997. During the quarter ended March 31, 1998, the Company used cash collections in excess of the current borrowings to reduce its revolving credit facility by $4.6 as well as to make principal payments on long-term debt and to pay dividends. Working capital requirements for the Company's traditional distribution business have historically been somewhat seasonal in nature. Accounts receivable have generally increased in the first quarter primarily because of the customary industry practice during the first quarter of each year 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. The accounts receivable decrease in the first quarter of 1998 was different due to lower sales. 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 generally 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 1998 will be $391,667, and maturities for 1999 and 2000 will be $566,667 and $616,667, respectively. The annual interest charges on the Company's industrial revenue bonds, at a fixed rate of 7.5%, will be $422,188 for the remainder of 1998, and $567,000 and $565,000 for 1999 and 2000, 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 1998 and for the foreseeable future. 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 10 Form 10-Q Page 10 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 Pursuant to Securities and Exchange Commission Release 33-7386 (January 31, 1997), the disclosure requirement contemplated by Item 305 of Regulation S-K in response to this Item 3 is not currently mandated for the Company. 11 Form 10-Q Page 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended March 31, 1998. 12 Form 10-Q Page 12 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 15, 1998 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 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ELLETT BROTHERS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 139 0 19,908 761 35,025 58,424 13,615 6,873 67,065 14,648 6,276 0 0 12,425 11,311 67,065 34,032 34,032 28,126 28,126 4,795 32 (526) 705 254 451 0 0 0 451 0.09 0.09
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