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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1995 Commission File No. 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)
Issuer's telephone number .................................... (201) 966-0104
Securities registered under Name of Exchange on which Registered:
Section 12(b) of the Exchange Act:
Common Stock, par value $.10 American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Series A Preferred Stock, par value $1.00, Purchase Right
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant.
Aggregate market value at March 15, 1996 amounted to $5,600,000
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date.
Common Stock, par value $.10, 2,949,447 shares at March 15, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31, 1995
are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting to be held
April 30, 1995 are incorporated by reference into Part III.
<PAGE>
PART I
Item 1. Business
Richton International Corporation (the "Company" or "Richton") is a
diversified service company with two operating subsidiaries, Century Supply
Corp. ("Century") and CBE Technologies, Inc. ("CBE"). Richton was formerly
engaged, until 1992, in the manufacture and marketing of fashion jewelry. In
November 1992 the Company sold its principal operating subsidiary, Coro Canada
Inc. (see Discontinued Operations below). Subsequently, on October 27, 1993,
Richton completed the acquisition of Century by (1) issuing $4.7 million in
notes, including $3.0 million in senior debt to Michigan National Bank; (2)
issuing 150,000 shares of Richton common stock, and (3) entering an agreement to
pay $.2 million per year for eight years beginning in 1995, subject to reduction
based on collections of accounts receivable.
CBE was acquired in March 1995 by the issuing of $5.0 million in notes
including $3.0 million in senior debt to Michigan National Bank.
Century is a leading full-service wholesale distributor of sprinkler
irrigation systems and outdoor lighting and decorative fountain equipment, with
branches in Michigan, Florida, Illinois, Indiana, Wisconsin, Kentucky,
Missouri, Georgia, Virginia, Maryland, New Jersey, North Carolina 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. The irrigation distribution industry,
like the wholesale distribution business in general, is fragmented and consists
of firms both larger and smaller than Century. Growth in the distribution
business frequently comes through acquisitions and mergers as larger firms
acquire smaller companies to expand market share and achieve economies of scale.
Century's primary customers are irrigation and landscape contractors who
install irrigation systems for commercial, residential and golf course watering
systems. Approximately 95% of its revenues are derived from irrigation products,
with the remaining 5% from lighting and fountains. Century represents more than
60 suppliers and provides a complete product line to approximately 6,500
customers through 41 branches.
Century is organized into three regions, each with a management team which
manages branches which operate as stand-alone units. Centralized management
maintains close control over receivables, inventory and other key factors
through a centralized order entry management information system. All branches
are linked to the system, and substantially all of Century's employees are
trained in computer usage to enhance customer service.
Century, whose assets constitute a material portion of Richton's total
assets, contributes a significant portion of Richton's net sales and operating
profit. Century's business is subject to possible adverse changes in master
distributorship agreements (see "Competition") and climatic and economic
conditions prevailing in market areas served by Century's branches. Weather is
the most significant noncontrollable element affecting Century's business.
Business is better during warm dry periods, especially in spring months.
Climatic factors that will adversely affect Century principally relate to
above-average rainfall during the primary selling season or other unusual
weather-related conditions. Thus, Century strives to achieve geographic
diversity when it can do so. The business of Century is also subject to seasonal
fluctuation since a greater portion of total sales comes from branches that are
located in the northern half of the United States, where sales occur principally
in warm weather months. The seasonality causes a significant disparity in
quarterly sales and results.
CBE is a value-added reseller of Novell and Banyon Computer 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 who are either
converting operations to more sophisticated communications technology or which
are already using such technology but need outside expertise to maintain
equipment. CBE plans to expand its business by acquiring smaller companies and
providing more services to existing customers.
1
<PAGE>
CBE's contract maintenance business is predominantly hardware oriented.
While it is subject to technological changes, those changes are not expected to
be as severe as software changes which impact network installations. In
addition, as a regional company, CBE's performance is subject to economic
conditions within its New England market region.
Discontinued Operations
In November 1992, Richton sold its principal operating subsidiary ("Coro
Canada") and certain trademarks and licenses to Coro International A.V.V. Coro
Canada was engaged in the manufacture and marketing of fashion jewelry.
Acquisitions
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 issued by Richton to the Chairman of the Company.
The note to the Chairman was subject to a fairness opinion of an independent
advisor chosen by Richton's Board of Directors. The note, to the former owners
which is guaranteed by both Century and Richton, is to be paid over the next six
years.
Suppliers
Century maintains a broad base of suppliers that enables the Company to
offer a wide range of irrigation equipment. Products are obtained from more than
60 suppliers with no one supplier comprising more than 30% of the average annual
purchases.
CBE acquires its products from OEM suppliers and wholesalers and
distributors, such as Tech Data Corporation, Merisel Inc., Globelle, and Ingram
Micro each of which accounts for approximately 10-12% of CBE's purchases.
Competition
Century faces different competitors in almost every market it serves.
Century competes with other distributors by providing local warehousing
electronic linkage to a centralized computer system that enables Century
customers to get rapid product delivery and by providing value-added services to
its contractors including design assistance, training seminars and incentive
programs and development of sales leads.
Century has master distributor agreements in place with Rainbird, Hardie and
Hunter as well as with other OEM suppliers that authorize Century as a
distributor of their products for a number of geographic locations. These
agreements are renewable annually, and there is no assurance that these
agreements will be renewed. Century also competes against large discount stores
and plumbing supply companies that on occasion sell irrigation products and from
time to time offer special purchase arrangements but who do not provide the
range of services that Century offers.
CBE competes with many companies, both larger and smaller than CBE, to
provide maintenance service. Larger companies generally are OEM suppliers that
also provide network installation and maintenance services and offer a broader
line of product and service than CBE.
Employee Relations
At December 31, 1995, the Company employed approximately 300 full-time
employees. None of these employees are covered by a collective bargaining
agreement.
The Company considers its employees to be one of its greatest assets and
provides training courses on sales, product features and benefits, management
skills and communication. This has created an effective, knowledgeable and
self-motivated work force with a strong focus on customer service.
2
<PAGE>
Working Capital
Century's business is seasonal due principally to the fact that irrigation
systems are normally installed during warm weather and a majority of Century's
branches are located in the northern half of the United States. As a result
Century's monthly and quarterly sales, operating results and working capital
requirements fluctuate significantly. Century relies on short-term borrowing to
finance its working capital needs. From December through March, Century's
working capital requirements are at a minimum, with short-term borrowings,
historically, at approximately $5.0 million. Working capital requirements begin
to expand in April, and by July short-term borrowings have increased to
approximately $14 million. From July through December receivables are
liquidated, releasing substantial amounts of cash that may be used to reduce
short-term borrowing. (See Note 6 of Notes to Consolidated Financial Statements
for a description of the Company's credit line.)
Liquidity
Richton's use of its tax loss carry forward provides a significant cash
benefit. However, to maximize that benefit, the Company is not permitted to
raise any significant amounts of equity capital. Thus, in order for the Company
to meet its capital needs necessary to achieve its growth due to such
restrictions the Company must rely largely on debt financing. As a result,
Richton continues to have a high ratio of debt to equity.
At December 31, 1995, the Company's long-term debt was $9.15 million,
including $4.4 million of senior secured debt owed to a Michigan bank. Of the
balance of the outstanding debt, $2.2 million is owed to Mr. Sullivan. Notes
issued to Mr. Sullivan were subject to a fairness opinion issued by an
independent advisor chosen by Richton's Board of Directors. The bank debt
carries with it a loan covenant that restricts upstreaming of funds to Richton
from Century and precludes distribution of funds to shareholders.
Even as the Company's financial position improves, in part through
utilization of the tax loss carry forward, high financial leverage will continue
to present a high degree of risk.
Item 2. Properties
Richton's executive offices at 340 Main Street, Madison, New Jersey, are
leased on a month-to-month basis. Century's principal offices are in Madison
Heights, Michigan, under a lease that expires in November 2000. Century leases
warehouse and sales space in its other branches. The aggregate of such leased
space is approximately 190,000 square feet. Expiration dates extend to December
1999. Eight of these facilities are leased from the former owner of Century for
a period of five years commencing October, 1995 under a lease agreement whose
terms approximate current market value. CBE's principal offices are located in
Boston, Massachusetts. This office is leased under an agreement which expires on
June 1998. CBE leases approximately 8,000 square feet of additional office
space in Warwick, Rhode Island and Portland, Maine.
Richton believes that its properties are adequately equipped, maintained and
suited to the purpose for which they are used.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
3
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market information:
The Company's Common Stock trades on the American Stock Exchange under the
symbol "RHT".
The following table sets forth the high and low sales prices for the Common
Stock. The quotations shown are as reported by the American Stock Exchange.
1995 1994
--------------- ---------------
Calendar Quarter High Low High Low
---------------- ---- --- ---- ---
First .................. $3 3/4 $2 3/8 $2 9/16 $1 15/16
Second ................. 3 3/8 2 5/8 2 1/4 1 7/8
Third .................. 4 1/8 3 2 9/16 2
Fourth ................. 3 11/16 3 1/16 6 1/2 2 1/2
(b) Approximate Number of Equity Stockholders:
Approximate
Number
of Record Holders
Title of Class at February 28, 1996
-------------- --------------------
Common Stock, $.10 par value 736
(c) Dividends:
No cash dividends were paid by the Company in fiscal 1995 and 1994.
Item 6. Selected Financial Data
SUMMARY OF OPERATIONS
(In thousands, except percentages and per share amounts)
<TABLE>
<CAPTION>
December 31 April 30
----------------------------------- ---------------------
1995(A) 1994 1993(B) 1993(D) 1992(C)
------- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales ..................... $ 66,659 $ 50,306 $ 11,080 -- $ 16,751
Gross Profit percentage ....... 27.9% 28.0% 26.5% -- 31.5%
Operating Profit .............. 3,466 2,702 (847) -- (2,902)
Interest expense, net ......... 1,092 817 21 $ 55 100
Income (loss) from operations . 1,365 1,004 (573) (1,001) (2,243)
Income (loss) from Discontinued
Operation ................... -- -- (426) 164 (5,283)
Net Income (loss) ............. 1,365 1,004 (999) (837) (8,293)
Net Income (loss) per share ... $ 0.43 $ 0.34 $ (0.37) $ (.32) $ (3.15)
Income (loss) from operation
per share equivalent
</TABLE>
FINANCIAL POSITION
(in thousands, except ratios)
December 31 April 30
------------------------------- ------------------
1995(A) 1994 1993(B) 1993(D) 1992(C)
------- ---- ------- ------- -------
Total Assets ....... $26,114 $15,801 $15,849 $3,096 $12,355
Long-term Debt ..... 7,150 3,834 6,621 -- 188
Working Capital .... 3,029 2,341 2,537 2,682 2,298
Current Ratio ...... 1.22 to 1 1.28 to 1 1.32 to 1 6.66 to 1 1.27 to 1
- - - --------------
Notes to Selected Financial Data:
Note A -- The Registrant acquired CBE effective March 29, 1995.
Note B -- The Registrant acquired Century Supply Corp. effective August 31,
1993.
Note C -- The Registrant sold Coro (Canada) Inc. for $4.0 million, plus
assumption of $.9 million debt. This transaction resulted in a $5.3
million loss being reflected in the results for April 30, 1992.
Note D -- The Registrant was a shell company with no operating units from May,
1992 until August, 1993.
4
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read along with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements on pages F-1
through F-12.
RESULTS OF OPERATIONS
1995 Compared with 1994
Sales for the year ended December 31, 1995 were $66.7 million, an increase
of $16.4 million over the 1994 amount of $50.3 million. The acquisition of CBE
in March 1995 contributed $7.7 million of the increase (see Acquisitions). The
balance of the increase was principally due to acquisition by Century of
additional branches in Georgia and Virginia and to increased penetration of
existing markets. The markets served by Century had generally favorable weather
conditions throughout the selling season. The CBE results reflect approximately
10% improvement over that experienced by its predecessor company in 1994. The
increase was driven by higher sales of computer maintenance contracts and
network installations, offset by a decline in the typewriter maintenance
contract revenues.
Gross profit for the year ended December 31, 1995 increased $4.5 million to
$18.6 million, 31.6% over the 1994 amount of $14.1 million. The sales increase
noted above contributed to all of the gross profit increase. CBE's gross profit
percentage was below prior year results of the predecessor company due
principally to decline in typewriter maintenance contracts, which carry a higher
gross profit percentage. Thus, while sales and gross profit for CBE increased
year to year, gross profit percentages declined. The Company expects this trend
of declining typewriter based revenues to continue.
Selling, general and administrative expenses for the year ended December 31,
1995 increased $3.7 million to $15.1 million from $11.4 million for the year
ended December 31, 1994. The addition of CBE accounted for $2.6 million of the
increase. Included in the administrative expenses for CBE for the period ended
December 31, 1995 was a $1.0 million charge attributable to the impairment of
goodwill. This charge relates to the typewriter portion of CBE's business which,
as noted above, experienced a decline in sales below that reported last year.
The balance of the increase in selling and administrative expenses is
principally due to the increase in the number of Century branches.
Interest expense, net for the year ended December 31, 1995 increased to $1.1
million from $.8 million in the year ended December 31, 1994. The increase is
principally due to the additional $5.0 million term debt for the acquisition of
CBE, partially offset by lower borrowing for working capital.
Federal and state income tax provision for the year ended December 31, 1995
was approximately $1.0 million, an increase of approximately $.1 million over
the year ended December 31, 1994. The effective higher tax rate for 1994 is
principally due to a $.15 million nonrecurring charge included in the 1994
amount relating to a federal tax audit of Century's prior year tax returns.
Net income for the year ended December 31, 1995 was $1.365 million or $.43
per share. This compares with $1.0 million or $.34 per share reported for the
year ended December 31, 1994. The higher net income is due to higher sales.
1994 Compared with 1993
Effective August 31, 1993, Richton acquired Century Supply Corp. This
acquisition was accounted for as a purchase. Thus, the Consolidated Statements
of Operations for the year 1994 are not comparable to the prior year as
Century's operations are included from September 1, 1993.
Sales for the 1994 calendar year were $50.3 million and net income was $1.0
million or $.34 per share. For the 1993 calendar year sales were $11.0 million
and the net loss was $1.0 million or ($.37 per share). The 1993 net loss
includes a loss on disposal of discontinued business of $.43 million or ($.16
per share).
During 1994 Century added branches in Virginia, Illinois and the Province of
Ontario, Canada. At the end of 1995 Century has added, through acquisition,
branches in Georgia and Virginia. Currently, Century has 38 branches which
represents a net increase of thirteen (13) since Richton acquired Century.
5
<PAGE>
Financial Condition
As noted in Part I, Century relies on short-term borrowing to finance its
working capital needs. During December through March Century's working capital
requirements are at minimum, with short-term borrowings, historically, of
approximately $5.0 million. Working capital requirements begin to expand in
April, and by July short-term borrowings have increased to approximately $14
million. From July through December receivables are liquidated, releasing
substantial amounts of cash that may be used to reduce short-term borrowing.
(See Note 6 of Notes to Consolidated Financial Statements for a description of
the Company's credit line.) In February 1995, the Company renegotiated its
revolving credit facility and long-term debt agreement with Michigan National
Bank. This revised agreement (a) lowered the rate of interest charged on the
term debt by a point, (b) increased the term debt by $3.0 million to allow the
Company to purchase CBE, and (c) reduced or eliminated several of the
restrictive covenants contained in the initial agreement. The Company continues
to be restricted in upstreaming funds from Century and is prohibited from
distributing funds to its shareholders.
The Company's working capital improved to approximately $3.0 million at
December 31, 1995, an increase of nearly $.7 million over that at December 31,
1994. The improvement in the working capital is due principally to the higher
operating profits generated, the acquisition of CBE, and to the use of the net
tax loss carry forward.
Through Richton has continued to generate sufficient cash to liquidate its
term debt as it becomes due, 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.
Item 8. Financial Statements and Supplemental Data
The financial statements required by this Item are set forth below:
Page
Description Number
----------- ------
Report of Independent Public Accountant ............................... F-1
Consolidated Balance Sheets at December 31, 1995 and
December 31, 1994 ................................................... F-2
Consolidated Statements of Operations for the three years ended
December 31, 1995 ................................................... F-3
Consolidated Statements of Shareholders' Equity for the three years
ended December 31, 1995 ............................................. F-4
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 ................................................... F-5
Notes to Consolidated Financial Statements ............................ F-6
Richton International Corporation
Quarterly analysis of sales, operating margin, net income and earnings per
share
<TABLE>
<CAPTION>
Equivalent
Pre-Tax Net Income Earnings Shares
Sales Gross $ Profit% Profit Per Share Outstanding
----- ------- ------- ------ ------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Qtr. 1995 5,165,000 1,237,000 23.95 (1,256,000) (794,000) (0.277) 2,866,000
1994 4,656,000 1,055,000 22.66 (1,076,000) (717,000) (0.266) 2,694,000
2nd Qtr. 1995 24,840,000 7,124,000 28.68 2,593,000 1,634,000 0.516 3,166,000
1994 20,343,000 5,774,000 28.38 2,252,000 1,423,000 0.495 2,874,000
3rd Qtr. 1995 23,089,000 6,407,000 27.75 1,561,000 872,000 0.277 3,152,000
1994 16,053,000 4,475,000 29.56 942,000 579,000 0.195 2,963,000
4th Qtr. 1995 13,565,000 3,790,000 27.94 (524,000) (347,000) (0.109) 3,179,000
1994 9,254,000 2,530,000 27.34 (233,000) (281,000) (0.095) 2,963,000
---- ---------- ---------- ----- --------- --------- -----
Year 1995 66,659,000 18,558,000 27.84 2,374,000 1,365,000 0.433 3,161,000
1994 50,306,000 14,104,000 28.04 1,885,000 1,004,000 0.337 2,975,000
</TABLE>
6
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Executive Officers of Registrant
Identification of the executive officers:
Officer
Name Age Positions and Offices Since
---- --- --------------------- -----
Fred R. Sullivan 81 Director, Chairman of the Board & 1989
Chief Executive Officer
Cornelius F. Griffin 56 Vice President & Chief
Financial Officer 1985
Marshall E. Bernstein 57 Secretary 1985
There is no family relationship among any of the executive officers and
directors of the Company. Each executive officer holds office for one year or
until a respective successor is chosen, except that each officer may be removed
from office, with or without cause, at any time by the Board of Directors.
The business experience of the executive officers is:
Fred R. Sullivan--Director, Chairman of the Board & Chief Executive Officer
for more than five years.
Cornelius F. Griffin--Vice President & Chief Financial Officer for more than
five years.
Marshall E. Bernstein--For more than five years a Member of the law firm of
Robinson, Brog Leinwand Greene Genovese & Gluck P.C. and predecessor.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than April 30, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than April 30, 1995.
Item 13. Certain Relationships and Related Transaction
The information required by Item 13 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than April 30, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1)(2) The list of financial statements and financial statement schedules
required by this item are included in Item 8 on page 6.
7
<PAGE>
(a) Exhibits:
(2) Exhibits
2.1 --Stock Purchase Agreement dated as of July 31, 1993 and amendment
thereto dated August 27, 1993 by and among Ernest Hodas as
trustee of the Ernest Hodas Revocable Trust , The Hodas Family
Limited Partnership, Ernest Hodas, Century Supply Corp., Century
Acquisition Corporation and Richton International Corporation
--Incorporated by reference to Exhibit 2.1 to Registrant's Current
report on Form 8--for January 5, 1994
2.2 --Agreement for the Purchase of Assets dated March 29, 1995 by and
among CBE Acquisition Corp., (the "Buyer"), Century Supply Corp.,
Richton International Corporation and CBE Technologies, Inc. (the
"Seller")
--Incorporated by reference to Exhibit 2.1 to Registrant's Current
report on Form 8-K-- for April 5, 1995
(3) Exhibits
3.1 --Certificate of Incorporation of Richton International Corporation
3.2 --By laws of Richton International Corporation
(4) Exhibit
4.1 --Stock Certificate (Specimen)
(10) Exhibits--Material contracts
10.1 --1990 Long-Term Incentive Plan
--Incorporated by reference to Exhibit (b) to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1990
10.2 --Amendment to the 1990 Long Term Incentive Plan providing for an
additional 150,000 shares for issuance under the Plan
--Incorporated by reference to Exhibit 10(b) to Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1994
Incorporated
10.3 --Retirement Plan for Employees of Richton International
Corporation dated February 1986
--Incorporated by reference to Exhibit 10(k) to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1986
10.4 --Amendment dated April 10, 1987 to Retirement Plan for Employees
of Richton International Corporation
--Incorporated by reference to Exhibit 10(k) to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
10.5 --Amendment dated August 1, 1989 to Retirement Plan for Employees
of Richton International Corporation
--Incorporated by reference to Exhibit 10(m) to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1990
10.6 --Amendment dated December 31, 1994 to Retirement Plan for Employee
of Richton International Corporation
--Incorporated by reference to Exhibit 10(f) to Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1994
8
<PAGE>
10.7 --Restated Excess Benefit Plan for Salaried Employees of Richton
International Corporation dated July 15, 1986
--Incorporated by reference to Exhibit 10(l) to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
10.8 --Amendment dated June 4, 1987 to Restated Excess Benefit Plan for
Salaried Employees of Richton International Corporation
--Incorporated by reference to Exhibit 10(m) to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
10.9 --Rights Agreement dated January 26, 1987
--Incorporated by reference to Exhibit 10(m) to Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
10.11--Amendment dated November 1, 1994 to Rights Agreement
--Incorporated by reference to Exhibit 10(j) to Registrant's Annual
Report on Form 10- KSB for the fiscal year ended December 31,
1994
10.12--Loan and Financing Agreement dated October 27, 1993 between
Michigan National Bank and Century Supply Corp.
--Incorporated by reference to Exhibit 28.1 to Registrant's Current
report on Form 8-- for January 5, 1994
10.13--Letter Agreement dated March 21, 1994 amending the Credit Note
with Michigan National Bank
--Incorporated by reference to Exhibit 10(l) to Registrant's Annual
Report on Form 10- KSB for the year ended December 31, 1994
10.14--Letter Agreement dated June 23, 1994 amending the Credit Note
with Michigan National Bank
--Incorporated by reference to Exhibit 10(m) to Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1994
10.15--A Term note for $3 million dated October 27, 1993 made by Century
Supply Corp. (the "borrower") in favor of Michigan National Bank
(the "payee")
--Incorporated by reference to Exhibit 28.2 to Registrant's Current
report on Form 8-- for January 5, 1994
10.16--A Credit note for $8 million dated October 27,1993 made by
Century Supply Corp. (the "borrower") in favor of Michigan
National Bank (the "payee")
--Incorporated by reference to Exhibit 28.3 to Registrant's Current
report on Form 8-- for January 5, 1994
10.17--Subordination Agreement dated October 27, 1993 among Michigan
National Bank (the "bank"), Century Supply Corp. (the "borrower")
and Richton International Corporation (the "Subordinating
Creditor")
--Incorporated by reference to Exhibit 28.4 to Registrant's Current
report on Form 8-- for January 5, 1994
9
<PAGE>
10.18--Subordination Agreement dated October 27, 1993 among Michigan
National Bank (the "bank"), Richton International Corporation and
Ernest Hodas, as Trustee of the Ernest Hodas Revocable Trust (the
"Trustee") and the Hodas Family Limited Partnership (the
"Partnership") and Ernest Hodas (collectively referred to a
"Subordinating Creditor")
--Incorporated by reference to Exhibit 28.5 to Registrant's Current
report on Form 8-- for January 5, 1994
10.19--The Purchase Price Promissory Note for $500,000 dated October 27,
1993 between Century Acquisition Corporation and Ernest Hodas as
agent for the Hodas Family Limited Partnership and Ernest Hodas
as Trustee of the Ernest Hodas Revocable Trust
--Incorporated by reference to Exhibit 2.2 to Registrant's Current
report on Form 8--for January 5, 1994
10.20--Non-Competition and Non-Disclosure Agreement dated October 27,
1993 by and between Ernest Hodas and Century Supply Corp.
--Incorporated by reference to Exhibit 2.3 to Registrant's Current
report on Form 8--for January 5, 1994
10.21--Consulting Agreement dated October 27, 1993 by and between
Century Supply Corp. and Ernest Hodas
--Incorporated by reference to Exhibit 2.4 to Registrant's Current
report on Form 8--for January 5, 1994
10.22--Promissory Note for $510,691 dated October 27, 1993 between
Century Supply Corp. and Ernest Hodas
--Incorporated by reference to Exhibit 2.5 to Registrant's Current
report on Form 8--for January 5, 1994
10.23--Guaranty dated October 27, 1993 by Richton International
Corporation in favor of the Hodas Family Limited Partnership and
Ernest Hodas, as Trustee of the Ernest Hodas Revocable Trust and
Ernest Hodas
--Incorporated by reference to Exhibit 2.6 to Registrant's Current
report on Form 8--for January 5, 1994
10.24--Subordination Agreement dated October 27, 1993 between Michigan
National Bank, Century Supply Corp. (the "borrower"), Ernest
Hodas, as Trustee of the Ernest Hodas Revocable Trust and the
Hodas, Family Limited Partnership and Ernest Hodas (collectively
referred to as "Subordinating creditor")
--Incorporated by reference to Exhibit 28.6 to Registrant's Current
report on Form 8-- for January 5, 1994
10.25--Stock Pledge Agreement dated October 27, 1993 by and between
Richton International Corporation and Michigan National Bank
--Incorporated by reference to Exhibit 28.7 to Registrant's Current
report on Form 8-- for January 5, 1994
10.26--Guarantee dated October 27, 1993 by Richton International
Corporation and issued to Michigan National Bank on behalf of
Century Supply Corp.
--Incorporated by reference to Exhibit 28.8 to Registrant's Current
report on Form 8-- for January 5, 1994
10.27--Series A Warrant to Purchase 236,250 shares of Common Stock of
Richton International Corporation
--Incorporated by reference to Exhibit 28.9 to Registrant's current
report on Form 8--for January 5, 1994
10
<PAGE>
10.28--Subordinated Note issued by Richton International Corp. dated
October 26, 1993 to Mr. Fred R. Sullivan in the principal amount
of $1,181,250.
--Incorporated by reference to Exhibit 28.10 to Registrant's
Current report on Form 8-- for January 5, 1994
10.29--Subordinated Promissory Note for $1.0 million dated March 29,
1995 between CBE Acquisition Corp. and CBE Liquidating Corp.
--Incorporated by reference to Exhibit 2.2 to Registrant's Current
report on Form 8-K-- for April 5, 1995
10.30--Subordinated Promissory Note for $1.0 million dated March 29,
1995 between Richton International Corporation and Fred R.
Sullivan
--Incorporated by reference to Exhibit 2.3 to Registrant's Current
report on Form 8-K-- for April 5, 1995
10.31--Guaranty dated March 29, 1995 by Richton International Corp. in
favor of the CBE Liquidating Corp.
--Incorporated by reference to Exhibit 2.4 to Registrant's Current
report on Form 8-K-- for April 5, 1995
10.32--Guaranty dated March 29, 1995 by Century Supply Corp. in favor of
the CBE Liquidating Corp.
--Incorporated by reference to Exhibit 2.5 to Registrant's Current
report on Form 8-K-- for April 5, 1995
(11) Exhibit
11.1 --Calculation of earnings per share
(21) Exhibits--Subsidiaries of the Registrant
(99) Exhibits--Other
99.1 --Fairness Opinion received from Quirk, Carson & Pettit relating to
the $1,181,250 promissory note agreement between F.R. Sullivan
and the Registrant
99.2 --Fairness Opinion received from Quirk, Carson & Pettit relating to
the $1.0 million the promissory note agreement between F.R.
Sullivan and the Registrant
(b) Reports on Form 8-K:
None.
11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Richton International Corporation:
We have audited the accompanying consolidated balance sheets of Richton
International Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Richton International
Corporation and subsidiaries, as of December 31, 1995 and 1994 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
Roseland, New Jersey
March 6, 1996
F-1
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents ..................... $ 467,000 $ 31,000
Notes and Accounts Receivable, net of allowance
for doubtful accounts of $590,000 and
$550,000, respectively ...................... 8,882,000 5,227,000
Inventories ................................... 6,511,000 4,794,000
Prepaid Expenses and other current assets ..... 442,000 160,000
Deferred Taxes ................................ 420,000 364,000
------------ ------------
Total Current Assets ...................... 16,722,000 10,576,000
Property, Plant and Equipment, net .............. 974,000 705,000
Other Assets:
Deferred taxes ................................ 3,044,000 4,375,000
Goodwill ...................................... 5,201,000 --
Other ......................................... 173,000 145,000
------------ ------------
TOTAL ASSETS .................................... $ 26,114,000 $ 15,801,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long Term Debt ............. $ 2,004,000 $ 1,128,000
Notes Payable ................................. 5,275,000 3,475,000
Accounts Payable, Trade ....................... 2,015,000 1,655,000
Accrued Liabilities ........................... 2,495,000 1,977,000
Deferred Income ............................... 1,904,000 --
------------ ------------
Total Current Liabilities ................. 13,693,000 8,235,000
Noncurrent Liabilities
Long Term Senior Debt ......................... 4,400,000 2,060,000
Subordinated Debt ............................. 4,754,000 2,902,000
Less: Current Portion of Long-term Debt ....... (2,004,000) (1,128,000)
------------ ------------
7,150,000 3,834,000
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 December 31, 1995 and
3,029,470 shares issued at December 31, 1994 309,000 303,000
Additional Paid-in Capital .................... 17,661,000 17,490,000
Retained Earnings ............................. (12,284,000) (13,649,000)
Treasury Stock ................................ (415,000) (415,000)
Cumulative Translation Adjustment ............. 0 3,000
------------ ------------
Total Shareholders' Equity ................ 5,271,000 3,732,000
------------ ------------
Total Liabilities and Shareholders' Equity .... $ 26,114,000 $ 15,801,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
F-2
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Months Ended December 31
------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales ....................................... $ 66,659,000 $ 50,306,000 $ 11,080,000
Cost of Sales ................................... 48,101,000 36,202,000 8,146,000
------------ ------------ ------------
Gross Profit .................................... 18,558,000 14,104,000 2,934,000
Selling, general and administrative expenses .... 15,092,000 11,402,000 3,781,000
Interest (income) ............................... (349,000) (339,000) (175,000)
Interest expense ................................ 1,441,000 1,156,000 196,000
------------ ------------ ------------
Income (loss) before income taxes and disposal of
business ...................................... 2,374,000 1,885,000 (868,000)
Provision for income taxes ...................... 1,009,000 881,000 (295,000)
------------ ------------ ------------
Income (Loss) before disposal of Business ....... 1,365,000 1,004,000 (573,000)
Loss on disposal of Business .................... -- -- (426,000)
------------ ------------ ------------
Net Income (Loss) ............................... $ 1,365,000 $ 1,004,000 $ (999,000)
============ ============ ============
Per share:
Income (Loss) from continuing operations ...... $ 0.43 $ 0.34 $ (0.21)
Loss on disposal of Business .................. -- -- (0.16)
------------ ------------ ------------
Net Income (Loss) ............................... $ 0.43 $ 0.34 $ (0.37)
============ ============ ============
Average Common and Common Equivalent Shares
Outstanding ................................... 3,161,000 2,975,000 2,696,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
F-3
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-in Accumulated Treasury Translation
Shares Capital Deficit Stock Adjustment
-------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ............ $276,000 $16,850,000 $(13,654,000) $(415,000)
Issuances of 150,000 common shares ...... 16,000 284,000
Issuances of warrants to purchase
236,250 common shares ................. 143,000
Net Loss ................................ (999,000)
-------- ----------- ------------ --------- ------
Balance at December 31, 1993 ............ 292,000 17,277,000 (14,653,000) (415,000)
Issuances of 109,097 common
shares ................................ 11,000 213,000
Cumulative Translation Adjustment ....... 3,000
Net Income .............................. 1,004,000
-------- ----------- ------------ --------- ------
Balance at December 31, 1994 ............ 303,000 17,490,000 (13,649,000) (415,000) 3,000
Issuances of 58,877 common
shares ................................ 6,000 171,000
Cumulative Translation Adjustment ....... (3,000)
Net Income .............................. 1,365,000
-------- ----------- ------------ --------- ------
$309,000 $17,661,000 $(12,284,000) $(415,000) $ 0
======== =========== ============ ========= ======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
F-4
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve Months ended December 31
---------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) ................................... $ 1,365,000 $ 1,004,000 $ (999,000)
Reconciliation of net cash provided by (used by)
operating activities:
Depreciation and amortization of assets ....... 424,000 207,000 69,000
Write-off of Goodwill ......................... 1,000,000 -- --
Loss on sale of discontinued business ......... 426,000
Other working capital items, assets ........... (3,658,000) 297,000 2,185,000
Other working capital items, liabilities ...... 131,000 -- --
Decrease (increase) in deferred taxes ......... 1,275,000 683,000 (527,000)
Increase (decrease) in other assets ........... (180,000) 41,000 (367,000)
Deferred Income ............................... (95,000) -- --
----------- ----------- -----------
Net cash provided by operating activities ......... 262,000 2,232,000 787,000
INVESTING ACTIVITIES
Capital expenditures ................................ (147,000) (292,000) (66,000)
Cash paid for business acquired ..................... (166,000) -- (2,000,000)
----------- ----------- -----------
Net cash used by investing activities ............. (313,000) (292,000) (2,066,000)
FINANCING ACTIVITIES
(Repayment) of long-term debt ....................... (1,310,000) (1,622,000) (1,926,000)
Increase (decrease) in Line of Credit facility ...... 1,800,000 (354,000) 354,000
----------- ----------- -----------
Net cash provided by (used by) financing activities 490,000 (1,976,000) (1,572,000)
Effect of exchange rate on cash balances ............ (3,000) 3,000 --
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents .... 436,000 (33,000) (2,851,000)
Cash and cash equivalents, beginning of period ...... 31,000 64,000 2,915,000
----------- ----------- -----------
Cash and cash equivalents, end of period ............ $ 467,000 $ 31,000 $ 64,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments during the period for interest .... $ 1,408,000 $ 1,030,000 $ 435,000
Cash payments during the period for income taxes $ 366,000 $ 61,000 $ 1,237,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
Supplemental Disclosure of Non-Cash Activities:
During the twelve months ended December 31, 1995, the Company issued 58,877
shares of the Company's common stock to the Chairman in lieu of compensation and
interest owed to him of $177,000. During the same twelve month period in 1994,
the Company issued 109,097 shares of common stock to the Chairman in lieu of
compensation and interest owed to him of $224,000.
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
F-5
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, New Jersey, North Carolina 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 full service computer solutions provider. Based in Boston,
Massachusetts, 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 New England market. CBE's major customers are Fortune 1000
corporations and medium size companies either converting operations to more
sophisticated communications technology or requiring outside expertise to
maintain sophisticated communication 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 29, 1995 the Company
acquired CBE (See Note 3).
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, Plant & Equipment--Property, Plant 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 1995, 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 flows, continually evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful life of long-lived asset 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 goodwill allocated to
this line of business and accordingly, the Company has recorded a write-down of
Goodwill in the amount of $1.0 million in the accompanying consolidated
statement of operations.
Deferred Income--Deferred income represents income received from customers
related to service contracts that extend for specified period of time, less than
one year. Income is recognized proportionally over the life of the contract.
F-6
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS #109). This statement requires the Company to recognize deferred
tax assets and liabilities for the expected future tax consequencies 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-Based 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.
Reclassifications--Certain reclassifications have been made to the prior
year financial statements to conform with the current year presentation.
3. Acquisition:
In 1993 the Company acquired all of the outstanding shares of Century for
$6.2 million in cash, 150,000 shares of common stock and $1.7 million payable to
the former owner over a period of six years, a portion of which was 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 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 issued by Richton to the Chairman of the Company.
The note was subject to a fairness opinion of an independent advisor chosen by
Richton's Board of Directors. The transaction has been accounted for using the
purchase method of accounting. Accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based on the estimated
fair value at the date of acquisition. The excess of the purchase price over the
estimated fair value of the net assets acquired has been recorded as goodwill.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition had occurred on January 1, 1994. 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.
Twelve Months Ended December 31
-------------------------------
1995 1994
----------- -----------
(Unaudited) (Unaudited)
Net Sales .......... $69,066,000 $59,340,000
=========== ===========
Net Income ......... $ 1,365,000 $ 1,035,000
=========== ===========
Net Income per Share $ .43 $ .35
=========== ===========
4. Property and Equipment:
December 31
---------------------------
1995 1994
---------- ----------
Building & Improvements ...... $ 474,000 $ 328,000
Autos & Trucks ............... 372,000 252,000
Machinery & Equipment ........ 242,000 164,000
Furniture & Fixtures ......... 331,000 230,000
---------- ----------
$1,419,000 $ 974,000
Less: Accumulated Depreciation 445,000 269,000
---------- ----------
$ 974,000 $ 705,000
========== ==========
F-7
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Income Taxes:
At December 31, 1995, the Company has deferred tax assets of approximately
$3.5 million. Significant components of the deferred tax assets as of December
31, are as follows:
1995 1994
---------- ----------
Current:
Allowance for bad debts ........ $ 200,000 $ 187,000
Accrued Pension Cost ........... 97,000 97,000
Other .......................... 123,000 80,000
---------- ----------
$ 420,000 $ 364,000
========== ==========
Long Term:
Net Operating Loss carry forward $2,748,000 $3,821,000
Goodwill ....................... 261,000 --
Depreciation ................... 40,000 43,000
Other .......................... (5,000) 511,000
---------- ----------
$3,044,000 $4,375,000
========== ==========
At December 31, 1995, the Company has available approximately $8,081,000 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.
The provision for income taxes for the three years ended December 31, 1995
consists of the following:
1995 1994 1993
----------- ----------- -----------
Federal
Current ... $ (436,000) -- --
Deferred .. 1,275,000 $ 791,000 $ (295,000)
State & Local 151,000 90,000 --
Foreign ..... 19,000 -- --
----------- ----------- -----------
$ 1,009,000 $ 881,000 $ (295,000)
=========== =========== ===========
A reconciliation of the Federal provision for income taxes at the statutory
rate to the actual provision for income taxes for the three years ended December
31, 1995, is as follows:
1995 1994 1993
---- ---- ----
Federal ............... 35% 34% 34%
State & Local ......... 8 5
Other ................. 7
---- ---- ----
43% 46% 34%
==== ==== ====
6. Short-Term Borrowing:
In connection with the acquisition of CBE, Century and the Company entered
into a modification of the existing Loan and Financing Agreement (the
"Agreement") with a Bank consisting of a Senior term note (See Note 7) and a
Line of credit facility. Principal provisions of this modification were the
increase in the credit facility to $15 million from the $12 million facility
initially granted, reduction of one percent in the interest rate to the bank's
prime rate (8.5% as of December 31, 1995) on the outstanding balance, extension
of the facility to March 1998, and an increase in the maximum amounts which may
be advanced, as defined. The Agreement is secured by a lien on all assets of
Century in addition to the Company's guarantee. All obligations due the seller
or related parties and amounts advanced by the Company to Century are
subordinated to the Agreement. Certain covenants, some of which are financial in
nature, must be maintained. In addition, the Agreement imposes certain
restrictions on the distributions of funds from Century to the Company.
F-8
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-Term Debt:
The Company has the following long-term debt as of December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Senior term note payable to a bank, secured by accounts receivable, inventory,
fixtures and equipment, interest at prime (8.5% as of December 31, 1995),
payable in quarterly installments of $200,000, final payment due April 27, 1998 $4,400,000 $2,060,000
Installments payable to former owner of Century, unsecured and
subordinated to the bank debt, payable in quarterly installments
of $50,000 commencing January 1995, final payment due
September 30, 2001 ............................................................. 868,000 1,173,000
Note payable to related party, unsecured and subordinated to bank debt, interest
at 9%, payable in semi-annual installments of $118,125 commencing April 1996,
final payment due October 31, 2000--Net of Discount (A) ........................ 1,095,000 1,067,000
Note payable to former owner of Century, unsecured and subordinated to
the bank debt, interest at 8% due June 30, 1996 ................................ 100,000 300,000
Notes payable to former owner of Century and unrelated third-
party, unsecured and subordinated to the bank debt, interest at
9%, payable in monthly installments of approximately $10,800,
due October 1997 ............................................................... 234,000 362,000
Note payable to related party, unsecured and subordinated to the term note
payable to bank, interest at 10%, payable in 10 installments of $100,000 on
October 15th and May 15th with final payment due April 2000 (B) ................ 1,000,000 --
Note payable to seller's of CBE Technologies, Inc. unsecured and
subordinated to the all bank debt, interest at 9% payable in 10
installments of $100,000 on October 15th and May 15th, final
payment due May 2000 ........................................................... 1,000,000 --
Other ............................................................................ 457,000 --
---------- ----------
9,154,000 4,962,000
Less--Current Portion ............................................................ 2,004,000 1,128,000
---------- ----------
$7,150,000 $3,834,000
========== ==========
</TABLE>
(A): The Company issued 236,250 warrants to acquire 236,250 shares of the
common stock of Richton at $1 3/8 per share in connection with this loan. The
warrants were valued at $143,000.
(B): The Company issued 100,000 warrants to acquire 100,000 shares of
Richton's common stock at $3.00 per share--the fair market value at the time of
issuance.
The scheduled future maturities of long-term debt at December 31, 1995, are
as follows:
1996 ............................. $2,004,000
1997 ............................. 1,841,000
1998 ............................. 3,736,000
1999 ............................. 942,000
2000 ............................. 631,000
----------
$9,154,000
==========
F-9
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Retirement Plans:
The Company's Richton employees are covered by a noncontributory, defined
benefit plan (the "Retirement Plan") sponsored by the Company. Effective,
January 1, 1995 the Plan has been frozen and the accrual of benefits thereunder
has ceased. The Company subsequently decided, effective December 31, 1995 to
terminate the Plan. In respect of this event the Company's obligations was
determined based upon the interest rates and mortality assumptions applicable in
calculating benefit liabilities on a termination basis.
The Benefits are payable under the Retirement Plan based on total
compensation paid. Eligibility occurs after one-year of service and attainment
of age 21, and 100% vesting occurs after 5 years of service. The amount of the
annual retirement benefit is 65% of the final five-year average salary reduced
by 2% of the maximum offset base as established by the Internal Revenue Service.
The Retirement Plan provides that in order to receive full benefits a
participant must complete 15 years of service and attain the age of 62 ("normal
retirement age"), the age from which the required fifteen years for receipt of
full benefits is measured. In addition, the Retirement Plan allows plan benefits
to be paid as a lump sum to retirement participants, or as a death benefit to
the spouses or other beneficiaries of participants who are employed on or after
age 50. Contributions to the Retirement Plan are made periodically as required
by the actuary. The funds assets are held by fiduciaries and invested in both
Guaranteed Investment Contracts and government bonds.
The following tables set forth the plans funded status and amounts
recognized in the Company's balance sheet at December 31, 1995 and 1994 are as
follows:
End Beginning
of Year of Year
--------- ---------
Qualified Plan:
Projected Benefit Obligation ............. $(956,000) $(910,000)
Plan Assets .............................. 314,000 270,000
--------- ---------
Unfunded Status .......................... (642,000) (640,000)
Unrecognized prior service cost
Unrecognized net obligation (net asset)
from transition ........................ (6,000) (7,000)
Unrecognized net (gain) loss subsequent
to transition .......................... 156,000 210,000
Minimum Liability ........................ (150,000) (203,000)
--------- ---------
Accrued pension plan obligation .......... $(642,000) $(640,000)
========= =========
The above tables assume a settlement rate of 6.25%, an expected long-term
investment yield of 7.75% and an average remaining service period of 10 years as
of December 31, 1995. Plan assets have been valued at fair value and the
unrecognized net asset or obligation existing at transition to F.A.S. No. 87 is
being amortized on a straight-line basis over the average remaining service
period. The accrued pension obligation is included in accrued liabilities.
The net pension cost for the above plan for the years ended December 31,
1995 and 1994 include the following components:
Year ended December 31
----------------------------
1995 1994
--------- ---------
Qualified Plan:
Service Cost ............................. $ 45,000
Interest on projected benefit obligations 55,000 52,000
Actual return on plan assets ............. (55,000) (3,000)
Amortization of plan changes ............. 55,000 21,000
Amortization of net asset at transition .. (1,000)
--------- ---------
$ 55,000 $ 114,000
========= =========
Century has a Tax Deferred Savings Plan under Section 401(k) (the "Century
Plan") of the Internal Revenue Code. The Century Plan allows employees to defer
up to 15% of eligible compensation on a pre-tax basis through contributions to
the Century Plan. In line with the provisions of the Century Plan, Century has
elected to contribute, for every dollar the employee contributes, 50% of the
employee's amount, up to 4% of eligible compensation. Century may also make
discretionary contributions. The charge to income for employer contributions to
the Century Plan was approximately $182,000 for the year ended December 31, 1995
of which $100,000 represents Century's discretionary contribution.
F-10
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stock Options:
In July 1990, the Company adopted the 1990 Long-Term Incentive Plan (the
"Plan") for use in connection with the issuance of nonqualified and incentive
stock options, restricted stock grants and limited stock appreciation rights to
key employees (including officers) and consultants who render significant
services to the Company and its subsidiaries. A total of 275,000 shares of
Common Stock was reserved for issuance under the Plan.
Outstanding stock options are exercisable from six months to five years
after the date of the grant and expire no later than ten years from date of
grant. Options are granted at a price determined by the Board of Directors but
in no case less than the market price at the date of grant and such price may
not be modified subsequently. No option may be granted under the Option Plan
after June 11, 1998.
All of the outstanding stock options are incentive stock options with
expirations dates ranging from the year 1998 to 2003.
Changes is stock options during 1995 and 1994 were as follows:
Number of Price per
Options Share
------- --------------
Outstanding--April 30, 1993 ............. 125,000 $1.44 to $2.13
Issued .............................. -- --
Cancelled ........................... -- --
Exercised ........................... -- --
------- --------------
Outstanding--December 31, 1993 .......... 125,000 $1.44 to $2.13
Issued .............................. 85,000 $2.00 to $2.20
Cancelled ........................... -- --
Exercised ........................... -- --
------- --------------
Outstanding--December 31, 1994 .......... 210,000 $1.44 to $2.20
Issued .............................. 60,000 $3.00 to $3.30
Cancelled ........................... -- --
Exercised ........................... -- --
------- --------------
Outstanding--December 31, 1995 .......... 270,000 $1.44 to $3.30
======= ==============
Exercisable--December 31, 1995 .......... 210,000 $1.44 to $2.20
======= ==============
The Company has issued warrants to purchase 336,250 shares of Common Stock
in connection with several debt agreements (see Note 7).
10. Earnings (Losses) per Common Share and Common Share Equivalent:
Earnings (losses) per common share equivalent were calculated on the basis
of 3,161,000, 2,975,000 and 2,696,000 weighted average common and common
equivalent shares outstanding in the years ending December 31, 1995, 1994 and
1993, respectively.
11. Stockholders' Equity:
During 1995 and 1994 respectively, the Company issued 58,877 and 109,097
shares of the Common Stock, to its Chairman in lieu of compensation and interest
owed to him of $177,000 and $224,000, respectively. The number of shares issued
was determined based on the quoted market price of the shares at the time of
issuances.
F-11
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Long-term Leases and other Commitments:
The Company leases its corporate offices, distribution facilities and data
processing equipment under agreements which expire at varying dates through
2000. Minimum annual rental commitments at December 31, 1995, are as follows:
1996 ........................ $1,101,000
1997 ........................ 995,000
1998 ........................ 804,000
1999 ........................ 532,000
2000 ........................ 346,000
Thereafter .................. 14,000
----------
$3,792,000
==========
13. Shareholder Rights Plan:
On January 26, 1988, the Board of Directors of the Company declared a
dividend distribution of one Right for each outstanding share of Common Stock,
to stockholders of record at the close of business on February 5, 1988. Except
as set forth below, each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Preferred Stock, par value
$1.00 per share, at a price of $14.00 (the "Purchase Price"), subject to
adjustment. The Purchase Price shall be paid in cash. The Description and terms
of the Rights are set forth in the Rights Agreement (the "Rights Agreement")
between the Company and Midlantic National Bank as Rights Agent.
Initially, no separate Rights Certificate will be distributed. Until the
earlier to occur of (i) 20 business days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 30% or more
of the outstanding Common Stock or (ii) 20 business days following the
commencement of a tender offer or exchange offer if, upon consummation thereof,
such person or group would be the beneficial owner of 30% or more of such
outstanding Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any Common
Stock outstanding as of the Record Date, by the certificates representing such
Common Stock. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights will be mailed to holders of record of the
Common Stock as of the close of business on the Distributions Date and,
thereafter, such separate Rights Certificates alone will evidence the Rights. As
of December 31, 1995 no Rights have been issued.
F-12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RICHTO INTERNATIONAL CORPORATION
(Registrant)
/s/ FRED R. SULLIVAN
By ..............................
Fred R. Sullivan
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 18, 1996
/s/ CORNELIUS F. GRIFFIN
By ..............................
Cornelius F. Griffin
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ FRED R. SULLIVAN
................................ Director, Chairman of March 18, 1996
Fred R. Sullivan the Board, Chief
Executive Officer
/s/ CORNELIUS F. GRIFFIN
................................ Vice President and Chief March 18, 1996
Cornelius F. Griffin Financial Officer
/s/ NORMAN E. ALEXANDER
................................ Director March 18, 1996
Norman E. Alexander
................................ Director March , 1996
Philippe Gutzwiller
/s/ THOMAS J. HILB
................................ Director March 18, 1996
Thomas J. Hilb
/s/ STANLEY J. LEIFER
................................ Director March 18, 1996
Stanley J. Leifer
F-13
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 467,000
<SECURITIES> 0
<RECEIVABLES> 8,882,000
<ALLOWANCES> 590,000
<INVENTORY> 6,511,000
<CURRENT-ASSETS> 16,722,000
<PP&E> 1,419,000
<DEPRECIATION> 445,000
<TOTAL-ASSETS> 26,114,000
<CURRENT-LIABILITIES> 13,693,000
<BONDS> 0
0
0
<COMMON> 309,000
<OTHER-SE> 4,962,000
<TOTAL-LIABILITY-AND-EQUITY> 26,114,000
<SALES> 66,659,000
<TOTAL-REVENUES> 66,659,000
<CGS> 48,101,000
<TOTAL-COSTS> 15,092,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,092,000
<INCOME-PRETAX> 2,374,000
<INCOME-TAX> 1,009,000
<INCOME-CONTINUING> 1,365,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,365,000
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.00
</TABLE>
