SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
------------------------------------
For the Quarter Ended Commission file number
March 31, 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
Section 12 (b) of the Act: Registered:
Common Stock, par value $.10 American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports,) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.10 2,949,447 shares at March 31, 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 months ended
March 31, 1997 and March 31, 1996 3
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flow
for the three months ended March 31,1997
and March 31, 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
Three Months ended March 31
------------------------------
1997 1996
------------ ------------
Net Sales $ 14,081,000 $ 10,449,000
Cost of Sales 10,389,000 7,600,000
------------ ------------
Gross Profit 3,692,000 2,849,000
Selling, general & administrative
expenses 5,258,000 3,994,000
Interest (income) (147,000) (87,000)
Interest expense 361,000 315,000
------------ ------------
Loss before Taxes (1,780,000) (1,373,000)
Provision for income taxes (709,000) (501,000)
------------ ------------
Net Loss $ (1,071,000) $ (872,000)
============ ============
Net Loss Per share: $ (0.33) $ (0.27)
============ ============
Average Common and Common Equivalent
Shares outstanding 3,279,000 3,185,000
============ ============
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)
- --------------------------------------------------------------------------------
March 31 December 31
Assets 1997 1996
------------ ------------
Current assets:
Cash and Cash Equivalents $ 192,000 372,000
Notes and Accounts Receivable, net of
allowance for doubtful accounts of $700,000 13,081,000 13,004,000
Inventories 15,913,000 9,550,000
Prepaid Expenses and Other Current Assets 448,000 467,000
Deferred Taxes 568,000 568,000
------------ ------------
Total Current Assets 30,202,000 23,961,000
Property, Plant and Equipment, 2,319,000 2,287,000
Less: 'Allowance for Depreciation
and Amortization (811,000) (747,000)
------------ ------------
1,508,000 1,540,000
Other Assets: Deferred taxes 2,691,000 2,224,000
Goodwill 4,106,000 4,050,000
Other 530,000 599,000
------------ ------------
Total Assets $ 39,037,000 32,374,000
============ ============
Liabilities & Stockholder's Equity
Current Liabilities:
Current Portion of Long Term Debt $ 1,901,000 1,879,000
Notes Payable 9,420,000 7,947,000
Accounts Payable,Trade 10,603,000 3,978,000
Accrued Liabilities 1,603,000 2,387,000
Deferred Income 2,667,000 2,160,000
------------ ------------
Total Current Liabilities 26,194,000 18,351,000
Noncurrent Liabilities
Long Term Senior Debt 5,000,000 5,200,000
Subordinated Debt 3,778,000 3,665,000
Less: Current Portion of Long-term Debt (1,901,000) (1,879,000)
------------ ------------
6,877,000 6,986,000
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 March 31, 309,000 309,000
1997 and December 31, 1996
Additional Paid-in Capital 17,661,000 17,661,000
Retained Earnings (11,589,000) (10,518,000)
Treasury Stock (415,000) (415,000)
------------ ------------
Total Shareholders' Equity 5,966,000 7,037,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 39,037,000 32,374,000
============ ============
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)
Three Months ended March 31
---------------------------
1997 1996
----------- -----------
OPERATING ACTIVITIES
Net Income $(1,071,000) $ (872,000)
Reconciliation of net cash provided by
(used by )operating activities:
Depreciation and amortization of assets 64,000 63,000
Amortization of Goodwill 132,000 150,000
Deferred Income 507,000 5,000
Other working capital items, assets (6,421,000) (4,486,000)
Other working capital items, liabilities 5,841,000 4,205,000
Decrease (increase) in deferred taxes (467,000) (443,000)
Decrease (increase) in other assets (119,000) 61,000
Deferred Income
----------- -----------
Net cash provided by (used by)
operating activities (1,534,000) (1,317,000)
INVESTING ACTIVITIES
Capital expenditures (32,000) (24,000)
Cash (paid) or received for businesses
acquired,net -- (438,000)
----------- -----------
Net cash used by investing activities (32,000) (462,000)
FINANCING ACTIVITIES
Increase (Decrease) of Long-Term Debt 0 (184,000)
Increase(Decrease) in Subordinated Debt (94,000) (240,000)
Increase(decrease) in Line of Credit 1,480,000 1,792,000
----------- -----------
Net cash used by financing activities 1,386,000 1,368,000
Effect of exchange rate on cash balances
----------- -----------
Decrease in cash and cash equivalents (180,000) (411,000)
Cash and cash equivalents, beginning of period 372,000 467,000
----------- -----------
Cash and cash equivalents, end of period $ 192,000 $ 56,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period for interest $ 231,000 $ 318,000
Cash payments during the period for
income taxes $ 50,000 $ 147,000
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 the Richton International Corporation (the "Company") without
audit, pursuant to the requirements of Form 10-Q. All adjustments, including
those of a normal recurring nature which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented
have been made. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
requirements. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
consolidated financial statements and related notes be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 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 the 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 the 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 Richton
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 is recorded at cost and is
depreciated over the estimated useful lives of the assets using both the
straight line and accelerated methods, normally 5 years. For leasehold
improvements, the period covered is the respective lease period - 2 to 10
years.
Goodwill - Goodwill is amortized on a straight-line basis over periods of 5
- 15 years as follows:
@ 12/31/96 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 deterioration of that business, an
additional charge of $.8 million in the third calendar quarter of 1996,
which was included in selling, general and administrative expenses in the
consolidated 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, 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 5) 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 Three Months Ended
March 31
-----------------------------------------------
1997 1996
(in thousands)
Receivables $( 77) $( 908)
Inventories (6,363) (3,662)
Prepaid Expenses 19 84
------------- -------
Increase in Working
Capital Assets $(6,421) $(4,486)
======== ========
Accounts Payable 6,625 4,763
Accrued Expenses ( 784) ( 558)
Increase Working
Capital Liabilities $ 5,841 $ 4,205
======= =======
6. Earnings (Losses) per Common Share and Common Share Equivalent:
Earnings per common share equivalent were calculated on the basis of
3,279,000, 3,185,000 weighted average common shares including 330,000 and
236,000 of equivalent shares, respectively, for the three month periods
ended March 31, 1997 and March 31, 1996 respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
Results of Operations
Richton International Corporation ("RHT") reported sales and net loss for
the three months ended March 31, 1997 of $14.1 million and $1.1 million or
($.33 per share,) respectively. For the three months ended March 31, 1996
sales and net loss were $10.4 million and $.87 million, or ($.27 per
share,) respectively.
The higher sales and losses in 1997 are due largely to the increased number
of Century branches, including eight recently opened in conjunction with
Shemin Nursery.
Gross profit as a percentage of sales decreased slightly this quarter to
26.2% from 27.3% incurred during the same quarter last year. The lower
margins in 1997 are due principally to a less favorable mix of products
sold.
Operating expenses for the three months ended March 31, 1997 were $5.3
million, and increase of approximately $1.3 million over the same period a
year earlier. This increase is due principally to the increased number of
branches at Century and to start-up cost being incurred by CBE in its Los
Angeles operation.
Liquidity and Capital Resources
Working Capital at March 31, 1997 was $4.0 million, a decrease of $1.6
million from December 1996. This decline in working capital is due in part
to increased deferred income of $.5 million, and the net loss of $1.1
million.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
Though the Company continued to generate sufficient cash to liquidate its
term debt as it become due and/or to pay for acquisitions of new branches
for both Century and CBE there is no assurance, given the high degree of
leverage and the seasonality of its principal business, that it can
continue to do so in the future.
SIGNATURES
----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RICHTON INTERNATIONAL CORPORATION
(Registrant)
/s/ Cornelius F. Griffin
----------------------------
Cornelius F. Griffin
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 7, 1997
Madison, New Jersey
12
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