SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------------------
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
-------------------------------------
For the Quarter Ended Commission file number
September 30, 1996 0-12361
RICHTON INTERNATIONAL CORPORATION
Exact name of registrant as specified in its charter
DELAWARE 05-0122205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
340 Main Street, Madison, New Jersey 07940
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (201) 966-0104
Securities registered pursuant to Name of Exchange on which Registered:
Section 12 (b) of the Act:
Common Stock, par value $.10 American Stock Exchange
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 period 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.10 2,949,447 shares at September 30, 1996
<PAGE>
Richton International Corporation
FORM 10-Q
INDEX
- -----------------------------------------------------------------------------
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements:
Consolidated Statements of Operations
for the three and nine months ended
September 30, 1966 and September 30, 1995 3
Consolidated Balance Sheet at
September 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flow
for the nine months ended September 30,1996
and September 30, 1995 5
Notes to Consolidated Financial
Statements 6
Item 2. - Management's Discussion and
Analysis of Results of Operation and
Financial Condition 9
PART II OTHER INFORMATION 10
2
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------ ------------ ------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 32,660,000 $ 23,089,000 $ 71,014,000 $ 53,094,000
0 0
Cost of Sales 22,946,000 16,682,000 50,082,000 38,326,000
------------ ------------ ------------ ------------
Gross Profit 9,714,000 6,407,000 20,932,000 14,768,000
0 0
0 0
Selling, general & administrative 0 0
expenses 7,326,000 4,485,000 16,417,000 11,004,000
0 0
Interest (income) (108,000) (84,000) (292,000) (221,000)
0 0
Interest expense 667,000 445,000 1,389,000 1,087,000
------------ ------------ ------------ ------------
0 0
Income Before Taxes 1,829,000 1,561,000 3,418,000 2,898,000
0 0
Provision for income taxes 722,000 689,000 1,323,000 1,186,000
------------ ------------ ------------ ------------
Net Income $ 1,107,000 $ 872,000 $ 2,095,000 $ 1,712,000
============ ============ ============ ============
Net Income Per Share: $ 0.34 0.28 0.65 0.55
============ ============ ============ ============
Average Common and Common Equivalent
Shares outstanding 3,247,000 3,152,000 3,247,000 3,129,000
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an intregral
part of these financial statements.
3
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 289,000 $ 467,000
Notes and Accounts Receivable, net of allowance
for doubtful accounts of $720,000 and $590,000,
respectively 19,723,000 8,882,000
Inventories 10,334,000 6,511,000
Prepaid Expenses and other current assets 644,000 442,000
Deferred Taxes 420,000 420,000
------------ ------------
Total Current Assets 31,410,000 16,722,000
Property, Plant and Equipment, 2,035,000 1,419,000
Allowance for Depreciation (671,000) (445,000)
------------ ------------
1,364,000 974,000
Other Assets: Deferred taxes 1,262,000 3,044,000
goodwill and other intangibles 4,967,000 5,374,000
------------ ------------
TOTAL ASSETS $ 39,003,000 $ 26,114,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long Term Debt $ 2,020,000 $ 2,004,000
Notes Payable 12,247,000 5,275,000
Accounts Payable,Trade 5,611,000 2,015,000
Accrued Liabilities 2,023,000 2,495,000
Deferred Income 2,333,000 1,904,000
------------ ------------
Total Current Liabilities 24,234,000 13,693,000
Noncurrent Liabilities
Long Term Senior Debt 5,400,000 4,400,000
Subordinated Debt 4,021,000 4,754,000
Less: Current Portion of Long-term Debt (2,020,000) (2,004,000)
------------ ------------
7,401,000 7,150,000
Stockholders' Equity
Preferred Shares,$1.00 par value; authorized
500,000 shares; none issued
Common Shares,$.10 par value; authorized
4,000,000 shares; issued 3,088,347 shares at June 30, 309,000 309,000
1996 and December 31, 1995
Additional Paid-in Capital 17,661,000 17,661,000
Retained Earnings (10,187,000) (12,284,000)
Treasury Stock (415,000) (415,000)
Cumulative Translation Adjustment 0
------------ ------------
Total Shareholders' Equity 7,368,000 5,271,000
Total Liabilities And Shareholders' Equity $ 39,003,000 $ 26,114,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an intregral
part of these financial statements.
4
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ 2,095,000 $ 1,712,000
Reconciliation of net cash provided by (used by )operating activities:
Depreciation and amortization of assets 228,000 205,000
Amortization of Goodwill 1,229,000
0
Deferred Income 58,020 42,000
Other working capital items, assets (13,162,736) (9,397,000)
Other working capital items, liabilities 1,868,192 1,607,000
Decrease (increase) in deferred taxes 1,782,000 1,175,000
Decrease (increase) in other assets 33,378 (13,000)
------------ ------------
Net cash provided by (used by) operating activities (5,869,146) (4,669,000)
0
0
INVESTING ACTIVITIES 0
Capital expenditures (101,657) (210,000)
Issuances of Common Stock 0 146,000
Cash (paid) or received for businesses acquired,net (594,763) (175,000)
------------ ------------
Net cash used by investing activities (696,420) (239,000)
0
0
0
FINANCING ACTIVITIES 0
Increase (Decrease) of long-term debt 1,016,000 (460,000)
Increase(Decrease) in Subordinated Debt (1,197,574) (334,000)
Reduction in installment obligation (150,000) (151,000)
0
Increase(decrease) in line of Credit 6,719,140 6,215,000
0
------------ ------------
Net cash provided by financing activities 6,387,566 5,270,000
0
Effect of exchange rate on cash balances 0 5,000
------------ ------------
Decrease in cash and cash equivalents (178,000) 367,000
Cash and cash equivalents, beginning of period 467,000 40,000
------------ ------------
Cash and cash equivalents, end of period $ 289,000 $ 407,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period for interest $ 1,023,000 $ 909,000
Cash payments during the period for income taxes $ 261,000 $ 294,000
Supplemental Disclosure of Non-Cash Activities
During the nine month period ended September 30, 1995, the Company issued
48,536 shares of the Company's common stock to the Chairman in lieu of
compensation and interest owed to him of $146,000.
</TABLE>
The accompanying notes to consolidated financial statements are an intregral
part of these financial statements.
5
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements and related notes included herein have
been prepared by the Richton International Corporation (the "Company") without
audit, pursuant to the requirements of Form 10-Q. All adjustments, including
those of a normal recurring nature which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented
have been made. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
requirements. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
consolidated financial statements and related notes be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. The results for any
interim period should not be construed as representative for the year taken as a
whole due, among other things, to the seasonality of the Company's business.
1. Description of Business:
Richton International Corporation ("Company") is a holding company with two
principal subsidiaries, Century Supply Corp ("Century") and CBE
Technologies Inc. ("CBE"). Century is a leading full-service wholesale
distributor of sprinkler irrigation systems, outdoor lighting and
decorative fountain equipment. Branches are in Michigan, Florida, Illinois,
Indiana, Wisconsin, Kentucky, Missouri, Georgia, Virginia, Maryland, North
Carolina, New Jersey and Ontario, Canada. Irrigation products have
historically been sold by manufacturers primarily through wholesale
distributors. Century is a major distributor in the United States for three
of the leading four original equipment manufacturers (OEM) in the
irrigation systems field.
CBE is a value-added reseller of Novell, Banyon and Microsoft networking
systems as well as a provider of computer and business equipment
maintenance services in the Massachusetts, Maine, Rhode Island, New Jersey
and California markets. CBE's major customers are Fortune 1000 corporations
and medium size companies either converting operations to more
sophisticated communications technology or using the technology but with a
need for outside expertise to maintain equipment.
2. Summary of Significant Accounting Policies:
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of the Company and all wholly-owned
subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
As of August 31, 1993 the Company acquired 100% of the issued and
outstanding shares of Century Supply Corp. On March 30, 1995 the Company
acquired CBE (See Note 3).
6
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash equivalents - Cash and cash equivalents are defined as cash
on demand at a bank, and certificates of deposit and or government
securities purchased with maturities of less than three months.
Allowance For Doubtful Accounts - The Company provides an allowance for
doubtful accounts arising from operations of the business, which allowance
is based upon a specific review of certain outstanding and historical
collection performance. In determining the amount of the allowance, the
Company is required to make certain estimates and assumptions and actual
results may differ from these estimates and assumptions.
Inventories - The Company uses the first-in first-out ("FIFO") method of
accounting for inventory.
Property and Equipment - Property and equipment is recorded at cost and is
depreciated over the estimated useful lives of the assets using both the
straight line and accelerated methods, normally 5 years. For leasehold
improvements, the period covered is the respective lease period - 2 to 10
years.
Goodwill - Goodwill is amortized on a straight-line basis over periods of 5
- 15 years as follows:
@ 12/31/95 Amortization
Business Line Amount Period
------------- ---------- ------------
Typewriter Maintenance $1,700,000 5 years
Computer Maintenance 3,360,000 15 years
Other 140,000 5 years
Long-Lived Assets -During 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121 " Accounting for the
Impairment of Long Lived Assets" ("SFAS 121"). SFAS 121 requires, among
other things, that an entity review its long-lived assets and certain
related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
As a result, the Company, continually evaluates whether events and
7
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
circumstances have occurred that indicate the remaining estimated useful
life of long-lives assets, including goodwill, may not be recoverable. The
acquisition of CBE (See Note 3) resulted in goodwill of approximately $6.0
million which was based on CBE's two major lines of business - computer
maintenance and network installation services and typewriter services.
Subsequent to the acquisition of CBE, the typewriter contract maintenance
business experienced a decline in revenues and it was determined that
expected future cash flows (undiscounted and without interest charges)
would be less than the carrying amount of the goodwill allocated to the
typewriter maintenance business. Based on discounted estimated future cash
flows, the Company recorded a write-down of Goodwill in the amount of $1.0
million, in 1995 and an additional charge of $.8 million in the third
calendar quarter of 1996, which was included in selling, general and
administrative expenses in the consolidated income statement of operations
for the respective periods involved.
Deferred Income - Deferred income represents income received from customers
related to service contracts that extended for specified period of time,
less than one year. Income is recognized proportionally over the life of
the contract.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). This statement requires the Company to recognize
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and the tax basis of assets and liabilities.
Accounting for Stock Based Compensation - The Financial Accounting
Standards Board has issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Option Compensation." The Company is required to
adopt this standard for the year ending December 31, 1996. The Company has
elected to adopt the disclosure requirement of this pronouncement in 1996.
The adoption of this pronouncement will have no impact on the Company's
statement of operations.
3. Acquisitions:
The Company acquired all of the outstanding shares of Century for $6.2
million in cash, 150,000 shares of Richton's common stock and $1.7 million
payable to the former owner over a period of six years, a portion of which
is subject to a right of off-set, as defined. The transaction has been
accounted for using the purchase method of accounting. Accordingly, the
purchase price has been allocated to the assets acquired and the
liabilities assumed based on the estimated fair value at date of
8
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquisition. The excess of purchase price over the estimated fair value of
the net assets acquired has been recorded as a Deferred Tax Benefit which
benefit will be amortized as earnings are realized. (See Note 5) The
operating results of Century are included in the Company's consolidated
results of operations from the effective date of acquisition.
On March 29, 1995 the Company, through its wholly owned subsidiary,
Century, acquired all the operating assets and business of CBE
Technologies, Inc. for $5.0 million consisting of bank borrowings of $3.0
million, a $1.0 million unsecured promissory note to the former owners and
$1.0 million borrowed under a subordinated promissory note from the
President of the Company. The note was subject to a fairness opinion of an
independent advisor chosen by Richton's Board of Directors.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of CBE had occurred on January 1, 1995.
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
acquisition been made as of those dates or of the results which may occur
in the future.
Nine Months Ended September 30
------------------------------
1996 1995
(Unaudited) (Unaudited)
Net Sales $ 71,765,000 $55,501,000
============= ===========
Net Income $ 2,095,000 $ 1,724,000
============= ===========
Net Income per Share $ .65 $ .55
============= ===========
4. Income Taxes:
At December 31, 1995, the Company has deferred tax assets of approximately
$3.5 million.
At December 31, 1995, the Company has available approximately $8.1 million
of net operating loss carry forwards, expiring in varying amounts between
1997 and 2007, which may be used to reduce future income tax payable.
9
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under SFAS #109, a valuation reserve is not required if it is determined
that it is more likely than not that the related benefit of deferred tax
assets will be realized. Based on prior utilization and estimates of future
taxable income, the Company expects that the remaining net operating loss
carry forward will be utilized. As a result, no valuation allowance has
been provided. For the years ended December 31, 1995 and 1994, $3,158,000
and $3,392,000, respectively, of Net Operating loss carry forwards have
been utilized to offset taxable income.
4. Statement of Cash Flows:
The components of other working capital items included in the Consolidated
Statement of Cash Flows are as follows:
For Nine Months Ended
September 30
l996 l995
(in thousands)
---------------------------------------
Receivables $ (9,971) $ (6,466)
Inventories (3,003) (2,869)
Prepaid Expenses (189) (62)
------------------ ------------------
Increse in Working
Capital Assets $(13,163) $ (9,397)
======== ========
Accounts Payable 2,467 61
Accrued Expenses (366) 1,546
------------------ ------------------
Increase Working
Capital Liabilities $ 2,091 $ 1,607
======== ========
5. Bank Borrowing:
The Company recently completed a renegotiation and modification of its Loan
and Financing agreement with its bank. The principal modifications of this
agreement are (a) an increase in the term loan to $5.6 million from $4.0
million, (b) a reduction in the interest rate on the credit line to prime
less .125% or LIBOR plus 2.35%t, from Prime, (c) provide for a potential
reduction on the interest rate of the Term loan by adding an option to
select LIBOR plus 2.5% on 30, 60 or 90 day basis, (d) increase the line of
credit facility to $18.0 million from $15.0 million and increase the basis
upon which that line is determined. The term loan will continue to amortize
at the rate of $.2 million per quarter. In addition certain financial
covenants and distribution restrictions were also modified.
6. Earnings (Losses) per Common Share and Common Share Equivalent:
Earnings per common share equivalent were calculated on the basis of
3,247,000, and 3,129,000 weighted average common shares including 298,000
and 180,000 of equivalent shares, respectively, for the nine month periods
ended September 30, 1996 and September 30, 1995 respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
Results of Operations
Richton International Corporation ("RHT") reported sales and net income for
the three months ended September 30, 1996 of $32.7 million and $1.1 million
or $.34 per share, respectively. For the three months ended September 30,
1995 sales and net income were $23.1 million and $.87 millions, or $.28 per
share, respectively.
Sales and net income for the nine months ended September 30, 1996 were
$71.0 million and $2.1 million, or $.65 per share, respectively. For the
nine months ended September 30, 1995 sales and net income were $53.1
million and $1.71 million or $.55 per share respectively.
The higher sales in 1996 are due largely to satisfactory weather conditions
in its markets areas and geographical expansion by Century. In addition,
the current year results include a full nine months of operations of CBE
which was acquired effective March 30, 1995. During this past quarter CBE
opened new branches in Los Angeles, California and New York City.
Gross profit as a percentage of sales increase during this current nine
month period to 29.4% from 27.8% incurred during the same nine month period
last year. The higher margins in 1996 are due principally to a favorable
mix of products sold.
Operating expenses for the nine months ended September 30, 1996 were $16.4
million, an increase of approximately $5.4 million over the same nine month
period a year earlier. This increase is due principally to geographical
expansion noted above and to an increased goodwill amortization of
approximately $1.1 million.
Liquidity and Capital Resources
Working Capital at September 30, 1996 was nearly $7.0 million, an increase
of nearly $4.0 million from December 1995, and more than $1.9 million from
June 1996. This improvement in working capital is due to higher profits,
the continued use of the net tax loss carry forward, and to the conversion
of approximately $1.2 million of revolving use of credit to term loan
basis. During the most recent nine months period the Company was able to
reduce subordinated debt by nearly $1.35 million and invest nearly $.7
million in Capital expenditures.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
Though the Company continued to generate sufficient cash to liquidate its
term debt as it becomes due and/or to pay for acquisitions of new branches
for both Century and CBE there is no assurance, given the high degree of
leverage and the seasonality of its principal business, that it can
continue to do so in the future.
SIGNATURES
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RICHTON INTERNATIONAL CORPORATION
(Registrant)
/s/ Cornelius F. Griffin
------------------------------
Cornelius F. Griffin
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 7, 1996
Madison, New Jersey
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 289,000
<SECURITIES> 0
<RECEIVABLES> 20,443,000
<ALLOWANCES> 720,000
<INVENTORY> 10,334,000
<CURRENT-ASSETS> 31,410,000
<PP&E> 2,035,000
<DEPRECIATION> (671,000)
<TOTAL-ASSETS> 39,003,000
<CURRENT-LIABILITIES> 24,234,000
<BONDS> 7,401,000
0
0
<COMMON> 309,000
<OTHER-SE> 7,059,000
<TOTAL-LIABILITY-AND-EQUITY> 39,003,000
<SALES> 71,014,000
<TOTAL-REVENUES> 71,014,000
<CGS> 50,082,000
<TOTAL-COSTS> 16,417,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,097,000
<INCOME-PRETAX> 3,418,000
<INCOME-TAX> 1,323,000
<INCOME-CONTINUING> 2,095,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,095,000
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
