SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------------------
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
-------------------------------------
For the Quarter Ended Commission file number
September 30, 1997 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 2,947,892 shares at September 30,1997
<PAGE>
Richton International Corporation
FORM 10-Q
INDEX
- --------------------------------------------------------------------------------
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements:
Consolidated Statements of Operations for
the three and nine months ended September
30, 1997 and September 30,
1996 3
Consolidated Balance Sheets at
September 30, 1997 and December 31,
1996 4
Consolidated Statements of Cash Flow
for the nine months ended September 30,
1997 and September 30, 1996 5
Notes to Consolidated Financial
Statements 6
Item 2. - Management's Discussion and
Analysis of Results of Operation and
Financial Condition 9
PART II OTHER INFORMATION 10
2
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months ended Nine months ended
September 30 September 30
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 35,145,000 $ 32,660,000 $ 85,158,000 $ 71,014,000
Cost of Sales 25,002,000 22,946,000 60,879,000 50,082,000
------------ ------------ ------------ ------------
Gross Profit 10,143,000 9,714,000 24,279,000 20,932,000
Selling, general & administrative
expenses 7,347,000 7,326,000 19,240,000 16,417,000
Interest (income) (157,000) (108,000) (409,000) (292,000)
Interest expense 567,000 667,000 1,434,000 1,389,000
------------ ------------ ------------ ------------
Income before Taxes 2,386,000 1,829,000 4,014,000 3,418,000
Provision for income taxes 1,016,000 722,000 1,645,000 1,323,000
------------ ------------ ------------ ------------
Net Income $ 1,370,000 1,107,000 2,369,000 2,095,000
============ ============ ============ ============
Net Income Per share: $ 0.41 $ 0.34 $ 0.71 $ 0.65
============ ============ ============ ============
Average Common and Common Equivalent
Shares outstanding 3,321,000 3,247,000 3,319,000 3,247,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these Consolidated Financial Statements
3
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
Assets 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and Cash Equivalents $ 2,558,000 $ $ 372,000
Notes and Accounts Receivable, net of allowance for
doubtful accounts of $700,000 25,373,000 13,004,000
Inventories 14,967,000 9,550,000
Prepaid Expenses and Other Current Assets 695,000 467,000
Deferred Taxes 568,000 568,000
------------ ------------
Total Current Assets 44,161,000 23,961,000
Property, Plant and Equipment, 2,342,000 2,287,000
Less: Allowance for Depreciation and Amortization (917,000) (747,000)
------------ ------------
1,425,000 1,540,000
Other Assets: Deferred taxes 1,116,000 2,224,000
Goodwill 3,009,000 4,050,000
Other 359,000 599,000
------------ ------------
Total Assets $ 50,070,000 $'32,374,000
============ ============
Liabilities & Stockholder's Equity
Current Liabilities:
Current Portion of Long Term Debt $ 1,760,000 $ 1,879,000
Notes Payable 19,484,000 7,947,000
Accounts Payable,Trade 8,162,000 3,978,000
Accrued Liabilities 2,738,000 2,387,000
Deferred Income 2,850,000 2,160,000
------------ ------------
Total Current Liabilities 34,994,000 18,351,000
Noncurrent Liabilities
Long Term Senior Debt 5,000,000 5,200,000
Subordinated Debt 2,436,000 3,665,000
Less: Current Portion of Long-term Debt (1,760,000) (1,879,000)
------------ ------------
5,676,000 6,986,000
Stockholders' Equity
Preferred Shares,$1.00 par value; authorized
500,000 shares; none issued
Common Shares,$.10 par value; authorized
6,000,000 shares; issued 3,087,000 shares at
September 30 1997 and December 31, 1996 309,000 309,000
Additional Paid-in Capital 17,655,000 17,661,000
Retained Earnings (8,149,000) (10,518,000)
Treasury Stock (415,000) (415,000)
------------ ------------
Total Shareholders' Equity 9,400,000 7,037,000
Total Liabilities and Shareholders' Equity $ 50,070,000 $ 32,374,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.
4
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended September 30
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,369,000 $ 2,095,000
Reconciliation of net cash used by operating activities:
Depreciation and amortization of assets 170,000 228,000
Amortization of Goodwill 1,180,000 1,229,000
Deferred Income 690,000 58,020
Other working capital items, assets (18,014,000) (13,162,736)
Other working capital items, liabilities 4,535,000 1,868,192
Decrease in deferred taxes 1,108,000 1,782,000
Decrease in other assets 101,000 33,378
------------ ------------
Net cash used by operating activities (7,861,000) (5,869,146)
INVESTING ACTIVITIES
Capital expenditures (55,000) (101,657)
Acquisition of 1,555 odd-lot shares (6,000) --
Cash paid for businesses acquired,net -- (594,763)
------------ ------------
Net cash used by investing activities (61,000) (696,420)
FINANCING ACTIVITIES
Increase (Decrease) of Long-Term Debt (200,000) 1,016,000
Decrease in Subordinated Debt (1,079,000) (1,197,574)
Reduction in Installment obligation (150,000) (150,000)
Increase in Line of Credit 11,537,000 6,719,140
------------ ------------
Net cash provided by financing activities 10,108,000 6,387,566
------------ ------------
Decrease in cash and cash equivalents 2,186,000 (178,000)
Cash and cash equivalents, beginning of period 372,000 467,000
------------ ------------
Cash and cash equivalents, end of period $ 2,558,000 $ 289,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period for interest $ 1,041,000 $ 1,023,000
Cash payments during the period for income taxes $ 215,000 $ 261,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated 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 Richton International Corporation (the "Company") without
audit, pursuant to the requirements of Form 10- Q. All adjustments, including
those of a normal recurring nature which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented
have been made. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
requirements. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
consolidated financial statements and related notes be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. 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 16 states and Ontario,
Canada. Irrigation products have historically been sold by manufacturers
primarily through wholesale distributors and Century currently is a major
distributor for three of the leading original equipment manufacturers (OEM)
of turf irrigation equipment in the United States.
CBE Technologies, Inc. ("CBE") headquartered in Boston, Massachusetts with
satellite offices in New York, Los Angeles and Portland, Maine is a systems
integrator providing network consulting, design, and installation;
networking management and related support; technical service outsourcing;
comprehensive hardware maintenance; and equipment sales. CBE's technical
certification include; Novell Platinum reseller, Microsoft Channel partner,
Banyan Enterprise/Network dealer, Novell authorized Training Center, as
well as a Novell Authorized Service Center.
2. Summary of Significant Accounting Policies:
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of Richton and
6
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
all wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
As of August 31, 1993 the Richton acquired 100% of the issued and
outstanding shares of Century Supply Corp. On March 30, 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 values inventory at the lower of cost or market
using the first-in first-out ("FIFO") method of accounting.
Property and Equipment - Property and equipment are recorded at cost and
are depreciated over the estimated useful lives of the assets using both
the straight line and accelerated methods, normally 5 years. For leasehold
improvements, the period covered is the respective lease period - 2 to 10
years.
Goodwill - Goodwill is amortized on a straight-line basis over periods of 5
- 15 years as follows:
12/31/96 Amortization
Business Line Amount Period
------------- -------- ------------
Typewriter Maintenance $ 390,000 5 years
Computer Maintenance 3,300,000 15 years
Irrigation 360,000 5 years
----------
$4,050,000
----------
7
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Long-Lived Assets - During 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long Lived Assets" ("SFAS 121"). SFAS 121 requires, among
other things, that an entity review its long-lived assets and certain
related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
As a result, the Company, continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful
life of long-lives assets, including goodwill, may not be recoverable. The
acquisition of CBE (See Note 3) resulted in goodwill of approximately $6.0
million which was based on CBE's two major lines of business - computer
maintenance and network installation services and typewriter services.
Subsequent to the acquisition of CBE, the typewriter contract maintenance
business experienced a decline in revenues and it was determined that
expected future cash flows (undiscounted and without interest charges)
would be less than the carrying amount of the goodwill allocated to the
typewriter maintenance business. Based on discounted estimated future cash
flows, the Company, recorded a write-down of Goodwill in the amount of $1.0
million in 1995 and based on further decrease in that business, an
additional charge of $.8 million in the third calendar quarter of 1996, and
during the current quarter wrote off the remaining goodwill amount
attributed to the typewriter business. These write offs were included in
selling, general and administrative expenses in the consolidated statement
of operations for the respective periods involved.
Deferred Income - Deferred income represents income received from customers
related to service contracts that extended for specified period of time,
less than one year. Income is recognized proportionally over the life of
the contract.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,"Accounting for Income
Taxes" (SFAS No. 109). This statement requires the Company to recognize
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and the tax basis of assets and liabilities.
8
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting for Stock Based Compensation - The Company has elected to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of grant over
the amount the employee must pay to acquire the stock in the accompanying
Statement of Income. As supplemental information, the Company has provided
pro forma disclosure of the fair value at the date of grant of stock
options granted during 1995 and 1996 in Note 10, of the Notes to
Consolidated Financial Statements for the year ended December 31, 1996
included in the 1996 Form 10K, in accordance with the requirement of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (AFAS 123).
3. Acquisitions:
In August 1993, 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 -
reflecting the likely ability to utilize Richton's net operating loss carry
forward, which benefit will be amortized as earnings are realized. (See
Note 4) The operating results of Century are included in the Company's
consolidated results of operations from the effective date of acquisition,
August 31, 1993.
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 plus assumption of certain liabilities.
The $5 million was financed by bank borrowings of $3.0 million, a $1.0
million unsecured promissory note to the former owners and a $1 million
unsecured note to the Chairman of Richton. The note to the Chairman was
subject to a fairness opinion of an independent advisor chosen by Richton's
Board of Directors.
9
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Income Taxes:
At December 31, 1996, the Company has deferred tax assets of approximately
$2.8 million.
At December 31, 1996, the Company has available approximately $4.1 of net
operating loss carry forwards, expiring in varying amounts between 2004 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. Based on prior utilization and estimates of future
taxable income, the Company expects that the remaining net operating loss
carry forward will be utilized. As a result, no valuation allowance has
been provided. For the years ended December 31, 1996 and 1995, and 1994
$4,014,000, $3,158,000 and $3,392,000, of net operating loss carry forwards
have been utilized to offset taxable income.
5. Statement of Cash Flows:
The components of other working capital items included in the Consolidated
Statement of Cash Flows are as follows:
For Nine Months Ended
September 30
-----------------------------------------
1997 1996
(in thousands)
-----------------------------------------
Receivables $(12,369) $( 9,971)
Inventories ( 5,417) ( 3,003)
Prepaid Expenses ( 228) ( 189)
------------------- -------------------
Increase in Working
Capital Assets $ (18,014) $ (13,163)
========= =========
Accounts Payable 4,184 2,457
Accrued Expenses 351 ( 589)
Increase Working
Capital Liabilities $ 4,535 $ 1,868
========= =========
6. Earnings (Losses) per Common Share and Common Share Equivalent:
Earnings per common share equivalent were calculated on the basis of
3,321,000, weighted average common shares including 373,000 of equivalent
shares, for the three and nine month periods ended September 30, 1997.
Earnings per common share
10
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equivalent for the three and nine months ended September 30, 1996 were
calculated on the basis of 3,247,000, weighted average common shares
including 298,000 of equivalent shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
- --------------------------------------------------------------------------------
Results of Operations
Richton International Corporation ("RHT") reported sales and net income for
the three months ended September 30, 1997 of $35.1 million and $1.37
million or $.41 per share, respectively. For the three months ended
September 30, 1996 sales and net income were $32.7 million and $1.11
million or $.34 per share, respectively.
Sales and net income for the nine months ended September 30, 1997 were
$85.2 million and $2.37 million, or $.71 per share, respectively. For the
nine months ended September 30, 1996 sales and net income were $71 million
and $2.1 million or $.65 per share respectively.
The higher sales and profits for both the quarters and nine months are
principally due to the expanded number of branches and generally favorable
weather conditions at Century and to increased market penetration at CBE.
It is again stated that a large share of Richton's business is seasonal and
one quarters results cannot be used as a measure for other quarters. The
economic and new construction environment in the markets served by the
Company have been favorable. There is no assurance that these favorable
conditions will continue nor have as positive an impact on the Company's
business as it has had to date.
Gross profit as a percentage of sales decreased during this current nine
month period to 28.5% from 29.5% incurred during the same nine month period
last year. The lower margins in 1997 is due principally to an unfavorable
mix of products sold.
Operating expenses for the three and nine months ended September 30, 1997
were $7.35 million and $19.24 million, respectively. While the increase for
the nine months was $2.8 million over the same period last year the current
quarter expenses were only marginally higher - $20,000 - than the same
three month period last year. The increase is due principally to the costs
of opening twelve new locations at Century which for the most part have not
achieved profitability.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
- --------------------------------------------------------------------------------
Results of Operations - (continued)
CBE's new offices in Los Angeles and New York - opened during the last half
of 1996 - also contributed to higher cost in 1997. The typewriter business
continues to decline. As a result, the Company wrote-off the remaining
balance of the goodwill related to this business during this current
quarter. During this most recent quarter Richton terminated its defined
benefit retirement plan and completed the accrued pay out as detailed more
fully in the Annual Report on Form 10-K for the year ended December 31,
1996.
Net interest cost for the nine months ended September 30, 1997 were $1.0
million or approximately $.1 million lower than the same nine months last
year. The lower interest cost is principally due to lower level of
borrowing, and to slightly lower interest rates.
Liquidity and Capital Resources
Working Capital at September 30, 1997 was $9.2 million, a increase of $3.6
million from December 31, 1996. The increase is due in part to the $2.4
million of net income for the nine months period and to the decrease in
goodwill and deferred taxes of nearly $2.6 million, partially offset by a
reduction in long-term debt of approximately $1.4 million. During the
second quarter the Company, with the concurrence of the Bank, recognized
that $.5 million of the subordinated debt owed to the Company's Chairman
was no longer required by the bank. Thus, it was repaid in advance of it's
due date. This lowered the Company's overall interest rate paid on borrowed
funds.
As has been previously noted, the Company's working Capital assets
historically increased during the summer months. Correspondingly, the short
term borrowings also increased. During the remaining months of this year
receivables historically are liquidated, releasing substantial amounts of
cash that may be used to reduce short-term borrowings.
Though the Company has continued to generate sufficient cash to liquidate
its term and subordinated debt as it becomes due, and make acquisitions
necessary for it's growth, there is no assurance, given the high degree of
leverage, the seasonality of its principal business, and the decreasing
availability of the deferred tax benefit that it can continue to do so in
the future.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RICHTON INTERNATIONAL CORPORATION
(Registrant)
/s/ Cornelius F. Griffin
----------------------------
Cornelius F. Griffin
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 6, 1997
Madison, New Jersey
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,558
<SECURITIES> 0
<RECEIVABLES> 26,073
<ALLOWANCES> 700
<INVENTORY> 14,967
<CURRENT-ASSETS> 44,161
<PP&E> 2,342
<DEPRECIATION> 917
<TOTAL-ASSETS> 50,070
<CURRENT-LIABILITIES> 34,994
<BONDS> 0
0
0
<COMMON> 309
<OTHER-SE> 9,091
<TOTAL-LIABILITY-AND-EQUITY> 50,177
<SALES> 85,158
<TOTAL-REVENUES> 85,158
<CGS> 60,879
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,025
<INCOME-PRETAX> 4,014
<INCOME-TAX> 1,645
<INCOME-CONTINUING> 2,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,369
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
