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
March 31, 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 March 31, 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 months ended
March 31, 1996 and March 31, 1995 3
Consolidated Balance Sheet at
March 31, 1996 and December 31, l995 4
Consolidated Statements of Cash Flow
for the three months ended March 31,
l996 and March 31, 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)
Three Months ended
March 31
----------------------------
1996 1995
------------ ------------
Net Sales $ 10,449,000 $ 5,165,000
Cost of Sales 8,004,000 3,928,000
------------ ------------
Gross Profit 2,445,000 1,237,000
Selling, general & administrative
expenses 3,590,000 2,337,000
Interest (income) (87,000) (93,000)
Interest expense 315,000 249,000
------------ ------------
Income (loss) before Taxes (1,373,000) (1,256,000)
Provision for income taxes (501,000) (462,000)
------------ ------------
Net Loss $ (872,000) $ (794,000)
============ ============
Net Loss Per share: $ (0.30) $ (0.28)
============ ============
Average Common and Common Equivalent
Shares Outstanding 2,931,000 2,866,000
============ ============
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
3
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and Cash Equivalents $ 56,000 $ 467,000
Notes and Accounts Receivable, net of allowance
for doubtful accounts of $590,000 and $550,000,
respectively 9,909,000 8,882,000
Inventories 10,423,000 6,511,000
Prepaid Expenses and other current assets 369,000 442,000
Deferred Taxes 420,000 420,000
------------ ------------
Total Current Assets 21,177,000 16,722,000
Property, Plant and Equipment, net 1,660,000 1,419,000
(508,000) (445,000)
------------ ------------
1,152,000 974,000
Other Assets: Deferred taxes 3,487,000 3,044,000
goodwill 5,219,000 5,201,000
Other 270,000 173,000
------------ ------------
TOTAL ASSETS $ 31,305,000 $ 26,114,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long Term Debt $ 2,020,000 $ 2,004,000
Notes Payable 7,320,000 5,275,000
Accounts Payable,Trade 6,906,000 2,015,000
Accrued Liabilities 1,937,000 2,495,000
Deferred Income 1,938,000 1,904,000
------------ ------------
Total Current Liabilities 20,121,000 13,693,000
Noncurrent Liabilities
Long Term Senior Debt 4,200,000 4,400,000
Subordinated Debt 4,605,000 4,754,000
Less: Current Portion of Long-term Debt (2,020,000) (2,004,000)
------------ ------------
6,785,000 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 3,098,688 shares @3/96 &12/95 309,000 309,000
Additional Paid-in Capital 17,661,000 17,661,000
Retained Earnings (13,156,000) (12,284,000)
Treasury Stock (415,000) (415,000)
Cumulative Translation Adjustment 0
------------ ------------
Total Shareholders' Equity 4,399,000 5,271,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 31,305,000 $26,114,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
4
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ (872,000) $ (795,000)
Reconciliation of net cash provided by (used by) operating activities: 0
Depreciation and amortization of assets 63,000 32,000
Amortization of Goodwilll 150,000
0
Deferred Income 5,000
Other working capital items, assets (4,486,000) (4,397,000)
Other working capital items, liabilities 4,205,000 3,448,000
Decrease (increase) in deferred taxes (443,000)
Decrease (increase) in other assets 61,000 (552,000)
0
----------- -----------
Net cash provided by (used by) operating activities (1,317,000) (2,264,000)
0
0
INVESTING ACTIVITIES 0
Capital expenditures (24,000) (201,000)
Issuances of Common Stock 0 103,000
Cash (paid) or received for business acquired, net (438,000) 9,000
----------- -----------
Net cash used by investing activities (462,000) (89,000)
0
0
0
FINANCING ACTIVITIES 0
(Repayment) of long-term debt (184,000) (220,000)
Increase in Subordinated Debt (240,000) 483,000
Increase(decrease) in Line of Credit facility 1,792,000 2,065,000
0
0
0
----------- -----------
Net cash used by financing activities 1,368,000 2,328,000
0
Effect of exchange rate on cash balances 0
----------- -----------
Decrease in cash and cash equivalents (411,000) (25,000)
Cash and cash equivalents, beginning of period 467,000 31,000
----------- -----------
Cash and cash equivalents, end of period $ 56,000 $ 6,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period for interest $ 318,000 $ 249,000
Cash payments during the period for income taxes $ 147,000 $
</TABLE>
The accompanying notes to consolidated financial statements are an
integral 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. 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 (OEMI) in the
irrigation systems field.
CBE is a value-added reseller of Novell and Banyon networking systems as
well as a provider of computer and business equipment maintenance services
in the Massachusetts, Maine and Rhode Island 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)
Pervasiveness 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, or for leasehold improvements, the
period covered by the respective lease whichever is shorter.
Goodwill - Goodwill is amortized on a straight-line basis over periods of 5
- 15 years.
Long-Lived Assets - During l995, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long Lived Assets" ("SFAS 121"). SFAS 121 required, 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, using an estimate of the related business
segment's undiscounted future cash flow over the remaining useful life,
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of long-lived assets 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 service and
typewriter maintenance services. Subsequent to the acquisition of CBE, the
typewriter contract maintenance business experienced a decline in revenues.
A determination was made that an impairment had occurred on the amount of
7
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
goodwill allocated to this line of business and accordingly, the Company
recorded a write-down of Goodwill in the amount of $1.0 million in the 4th
quarter of 1995.
Deferred Income - Deferred income represents income received from customers
related to service contracts that extended for specified period of time,
less 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
statement or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements 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. Acquisition:
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
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
8
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$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.
Three Months Ended March 31
----------------------------------
l996 l995
---------------- -----------
(Unaudited) (Unaudited)
Net Sales $ 10,449,000 $ 7,572,000
================ ===========
Net Loss ($ 872,000) ($ 783,000)
================ ===========
Net Loss per Share ($ .30) ($ .27)
================ ===========
5. 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.
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. As a result, no valuation allowance has been
provided. For the year ended December 31, 1995 and 1994 $3,158,000 and
$3,392,000 of Net Operating loss carry forwards have been utilized to
offset taxable income.
9
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Earnings (Losses) per Common Share and Common Share Equivalent:
Earnings (losses) per common share equivalent were calculated on the basis
of 2,931,000, and 2,866,000 weighted average common shares for the twelve
month periods ended March 31, 1996 and March 31, 1995 respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Results of Operations
Sales and net loss for the three months ended March 31, 1996 of $10.4 million
and $.87 million or ($.30 per share,) respectively. For the three months ended
March 31, 1995 sales and net loss were $5.2 million and $.79 million or ($.28
per share), respectively. The 1996 results include CBE Technologies, Inc. which,
as previously reported was acquired effective March 31, 1995.
The higher loss results from increased number of irrigation distributor branches
in 1996 as compared to the prior year and to the continuing amortization of
goodwill of approximately $.15 million acquired in the purchase of CBE.
During this most recent quarter, Century Supply has acquired two additional
branches in Maryland and New Jersey, and CBE has acquired a service and training
business in Portland, Maine. These acquisition were completed for cash and notes
payable and included additional amounts of goodwill.
Liquidity and Capital Resources
The Company's working capital declined during the most recent quarter by
approximately $2.0 million as compared with a $1.0 million decline in working
capital during the same quarter last year. The increased decline in 1996 is
principally related to the higher loss in l996 and to the increase in goodwill
associated with the acquisition of two separate businesses, a wholesale
distributor of irrigation products located in Maryland and a training, computer
maintenance and service company located in Portland, Maine.
The Company at its' own initiative has entered into discussions with its'
bankers to possibly extend and improve its' lines of credit and term loan
arrangements.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
On April 30, 1996 the Company's held its Annual Meeting of Shareholders in New
York. At this meeting, with nearly 97% of the common shares represented, the
Shareholders took the following actions:
11
<PAGE>
Part II - Item 4 - continued
1) Elected Mr. Fred R. Sullivan and Mr. Norman Alexanders directors
For: 2,836,004 Abstain: 18,638
The following directors, Messrs. Philippe Gutzwiller, Thomas Hilb, and Stanley
Leifer who were not up for election at this meeting will continue in office for
the coming year.
2) Confirmed the appointment of Arthur Andersen & Co. LLP as
auditors for 1996.
For: 2,837,062 Against: 141701 Abstain: 2,879
3) Rejected the Shareholder Proposal
For: 81,566 Against: 2,432,328 Abstain: 10,807
Item 6. Exhibits and Report on Form 8-K
(b) No reports on Form 8-K were filed.
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: May 7, 1996
Madison, New Jersey
12
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 56
<SECURITIES> 0
<RECEIVABLES> 10,499
<ALLOWANCES> 590
<INVENTORY> 10,423
<CURRENT-ASSETS> 21,177
<PP&E> 1,660
<DEPRECIATION> 508
<TOTAL-ASSETS> 31,305
<CURRENT-LIABILITIES> 20,121
<BONDS> 0
<COMMON> 309
0
0
<OTHER-SE> 4,090
<TOTAL-LIABILITY-AND-EQUITY> 31,305
<SALES> 10,449
<TOTAL-REVENUES> 10,449
<CGS> 8,004
<TOTAL-COSTS> 3,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> (1,373)
<INCOME-TAX> (501)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (872)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0
</TABLE>
