United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 - Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------
For the Quarter Ended Commission file number
June 30, 1998 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 (973) 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 $100. 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 dates. Yes X No
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, 2,870,000 shares at August 1, 1998
<PAGE>
Richton International Corporation
FORM 10-Q
INDEX
- --------------------------------------------------------------------------------
PAGE
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements:
Consolidated Statements of Operations
for the six months ended June 30, 1998
and June 30, 1997 3
Consolidated Balance Sheets at June 30,
1998 and December 31, 1997 4
Consolidated Statements of Cash Flow for
the six months ended June 30, 1998 and
June 30, 1997 5
Notes to Consolidated Financial
Statements 6
Item 2. - Management's Discussion and
Analysis of Results of Operation and
Financial Condition 10
PART II OTHER INFORMATION 11
2
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
'CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Six months ended
June 30 June 30
------------------------------ ---------------------------
1998 1997 1998 1997
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 50,274,000 35,932,000 $67,229,000 $50,013,000
Cost of Sales 36,173,000 25,488,000 48,815,000 35,877,000
------------ ---------- ----------- -----------
Gross Profit 14,101,000 10,444,000 18,414,000 14,136,000
Selling, general & administrative
expenses 8,733,000 6,635,000 14,750,000 11,893,000
Interest (income) (145,000) (105,000) (315,000) (252,000
Interest expense 533,000 506,000 954,000 867,000
------------ ---------- ----------- -----------
Income before Taxes 4,980,000 3,408,000 3,025,000 1,628,000
Provision for income taxes 1,979,000 1,339,000 1,208,000 630,000
------------ ---------- ----------- -----------
Net Income $ 3,001,000 $ 2,069,000 $ 1,817,000 $ 998,000
Net Income Per share: $ 1.03 $ 0.70 $ 0.62 $ 0.34
============ =========== =========== ===========
Basic earnings per common share: $ 0.89 $ 0.63 $ 0.53 $ 0.31
============ =========== =========== ===========
Diluted earnings per common share:
Average Common and Common Equivalent
Shares outstanding
Basic- 2,919,000 2,948,000 2,946,000 2,948,000
============ =========== =========== ===========
Diluted- 3,383,000 3,267,000 3,408,000 3,267,000
</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)
June 30 December 31
Assets 1998 1997
---- ----
Current assets:
Cash and Cash Equivalents $ 942,000 $ 474,000
Notes and Accounts Receivable, net
of allowance for doubtful accounts
of $690,000 in 1998 and $700,000 in 1997 32,718,000 16,292,000
Inventories 23,019,000 16,190,000
Prepaid Expenses and Other Current Assets 960,000 602,000
Deferred Taxes 493,000 493,000
------------ ------------
Total Current Assets 58,132,000 34,051,000
Property, Plant and Equipment, 2,794,000 2,633,000
Less: 'Allowance for Depreciation
and Amortization (1,150,000) (1,038,000)
------------ ------------
1,644,000 1,595,000
Other Assets: Deferred taxes 502,000 716,000
Goodwill 3,845,000 4,011,000
Other Intangibles 1,326,000 1,217,000
------------ ------------
Total Assets $ 65,449,000 $ 41,590,000
============ ============
Liabilities & Stockholder's Equity
Current Liabilities:
Current Portion of Long Term Debt $ 1,773,000 $ 1,773,000
Notes Payable 26,034,000 15,135,000
Accounts Payable,Trade 16,295,000 5,204,000
Accrued Liabilities 3,742,000 2,228,000
Deferred Income 2,191,000 2,339,000
------------ ------------
Total Current Liabilities 50,035,000 26,679,000
Noncurrent Liabilities
Long Term Senior Debt 4,825,000 5,000,000
Subordinated Debt 2,033,000 2,364,000
Less: Current Portion of
Long-term Debt (1,773,000) (1,773,000)
5,085,000 5,591,000
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 3,116,692 shares at
March 31, 1998 and 3,086,692
shares at December 31, 1997 311,000 309,000
Additional Paid-in Capital 17,700,000 17,654,000
Retained Earnings (6,411,000) (8,228,000)
Treasury Stock (1,271,000) (415,000)
------------ ------------
Total Shareholders' Equity 10,329,000 9,320,000
Total Liabilities and Shareholders' Equity $ 65,449,000 $ 41,590,000
============ ============
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)
Six months ended June 30
------------------------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net Income $ 1,817,000 $ 999,000
Reconciliation of net cash provided
by (used by )operating activities:
Depreciation and amortization of assets 112,000 126,000
Amortization of Intangibles 538,000 255,000
Deferred Income (148,000) 188,000
Other working capital items, assets (22,921,000) (18,711,000)
Other working capital items, liabilities 12,605,000 7,463,000
Decrease (increase) in deferred taxes 214,000 55,000
Decrease (increase) in other assets (81,000) 197,000
------------ ------------
Net Cash provided by (Used by)
Operating Activities (7,864,000) (9,428,000)
INVESTING ACTIVITIES
Capital expenditures (56,000) (68,000)
Cash (paid) for businesses acquired,net (1,172,000) --
Exercise of Stock Options 48,000 --
Repurchase of common Stock (856,000) (7,000)
------------ ------------
Net cash used by investing
activities (2,036,000) (75,000)
FINANCING ACTIVITIES
Increase (Decrease) of Long-Term Debt (175,000) (200,000)
Repayment of Subordinated Debt (331,000) (947,000)
Repayment of Long-term Debt -- (100,000)
Reduction in Installment obligation -- --
Increase in Line of Credit 10,874,000 10,407,000
------------ ------------
Net cash provided by financing
activities 10,368,000 9,160,000
------------ ------------
Increase (Decrease) in cash and
cash equivalents 468,000 (343,000)
Cash and cash equivalents,
beginning of period 474,000 372,000
------------ ------------
Cash and cash equivalents,
end of period $ 942,000 $ 29,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash payments during the
period for interest $ 891,000 $ 600,000
Cash payments during the
period for income taxes $ 161,000 $ 177,000
============ ============
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 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, 1997. 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 ("Richton") is a holding company with
two principal subsidiaries, Century Supply Corp. ("Century") and CBE
Technologies Inc. ("CBE"), collectively the "Company". Century is a
leading full-service wholesale distributor of sprinkler irrigation
systems, outdoor lighting and decorative fountain equipment. Branches are
in 19 states largely in the Eastern half of The United Stated and in
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 four leading original
equipment manufacturers (OEM) in the irrigation systems field.
CBE Technologies, Inc. ("CBE") headquartered in Boston, Massachusetts with
satellite offices in New York, Costa Mesa 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
certifications 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 all wholly-owned
subsidiarieses. 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 Richton
acquired CBE.
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.
6
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Goodwill and other Intangibles - Goodwill is amortized on a straight-line basis
over periods of 5 - 15 years as follows:
<TABLE>
<CAPTION>
Amortization 12/31/95 12/31/96
Amortization Period Balance Additions Reductions Balance
- -------------- ------------ --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Goodwill
Typewriter Maintenance 5 years 1,700,000 1,310,000 390,000
Computer Maintenance 15 years 3,360,000 167,000 227,000 3,300,000
Irrigation 5 - 15 years 141,000 240,000 21,000 360,000
--------- --------- ---------- ---------
5,201,000 407,000 1,558,000 4,050,000
<CAPTION>
Amortization 12/31/96 12/31/97
Amortization Period Balance Additions Reductions Balance
- -------------- ------------ --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Goodwill
Typewriter Maintenance 5 years 390,000 -- 390,000 --
Computer Maintenance 15 years 3,300,000 -- 344,000 2,956,000
Irrigation 5 - 15 years 360,000 733,000 38,000 1,055,000
--------- --------- ---------- ---------
4,050,000 733,000 772,000 4,011,000
<S> <C> <C> <C> <C> <C>
Other Intangibles
Irrigation 1 - 5 years 361,000 908,000 154,000 1,115,000
Computer Maintenance 1 - 5 years 133,000 -- 133,000 --
--------- --------- ---------- ---------
494,000 908,000 287,000 1,115,000
</TABLE>
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. Since the acquisition of CBE, the typewriter contract
maintenance business has experienced a continual 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
decline of that business, an additional charge of $.8 million in the third
calendar quarter of 1996,which is 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 extend for specified period of
time, less than one year. Income is recognized proportionally over the
life of the contract.
7
<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 No. 109). This statement requires the Company to recognize
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement carrying amounts and the tax basis of assets and
liabilities.
Accounting for Stock Based Compensation - The 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 1997 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. Statement of Cash Flows:
The components of other working capital items included in the Consolidated
Statement of Cash Flows are as follows:
For Six Months Ended
June 30
------------------------------------
1998 1997
Receivables $(16,239,000) $(11,399,000)
Inventories (6,324,000) (7,073,000)
Prepaid Expenses and other (358,000) (239,000)
------------ ------------
Increase in Working Capital
Items, Assets $(22,921,000) $(18,711,000)
============ ============
Accounts Payable 11,091,000 7,866,000
Accrued Expenses 1,514,000 (403,000)
Increase Working Capital ------------ ------------
Items, Liabilities $ 12,605,000 $ 7,463,000
============ ============
4. Bank Borrowing:
In July, 1998, due to its increase in sales and to acquisitions of new
branches, Century requested and received authorization from its bank to
increase its line of credit to $30 million from $25 million. As has been
noted before, Century's working capital needs expand during the second and
early third quarters of each year. This year is no exception. During the
remaining months historically receivable balances are liquidated,
releasing substandard amounts of cash that may be used to reduce short -
term borrowing.
8
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Earnings per Common Share and Common Share Equivalent:
Earnings per common share equivalent were calculated on the basis of the
Net Per-Share
Income Shares Amount
------ ------ ------
For the six months ended June 30, 1998
--------------------------------------
Net Income $1,817,000 2,946,000(1) $.62
Options issued to Executives 194,000
Shares subject to exercise of
warrants 268,000
Income available to common
shareholders $1,817,000 3,408,000 $.53
(1) Includes the acquisition of 107,000 shares of the Company's common
stock. The Company uses a trailing twelve month rolling average of shares
outstanding.
For the six months ended June 30, 1997
--------------------------------------
Net Income $998,000 2,948,000 $.34
Options issued to Executives 129,000
Shares subject to exercise of
warrants 190,000
Income available to common
shareholders $998,000 3,267,000 $.31
9
<PAGE>
Mangement's Discussion and Analysis of Results of Operations and Financial
Condition - (For the six months ended June 30, 1998).
RESULTS OF OPERATIONS
Sales for the six months ended June 30, 1998 were $67.3 million compared to
$50.0 million for the six months ended June 30, 1997. An increase of
approximately 35%.
Gross profit for the six months ended June 30, 1998 was $18.4 million compared
to $14.1 million for the same six month period in 1997. The 1998 increase over
the 1997 amount is due to the higher sales in 1998. The gross profit percentage
of sales for the latest six month period was 27.4% compared to 28.3% for the
same six months last year. The decline in gross profit percentage is principally
due to the mix of products sold .
Selling, general and administrative expenses for the six months ended June 30,
1998 increased 23.5% to $14.7 million compared to $11.9 million for the same six
month period in 1997. The higher level of expense is principally due to the
increased number of operating branches at Century. As of June 30, 1998 Century
has 82 branches compared to 57 at June 30, 1997.
The federal, state and foreign income tax provision for the six months ended
June 30, 1998 were $1.2 million or 40% of pre-tax profits. In 1997 the
comparable amount was $.6 million or 39% of pre-tax profits. The higher tax
provision was due to higher pre-tax profits and the higher percentage of taxes
to pre-tax profits is principally due to higher state tax provision relating to
the expansion into states with higher tax rates.
Net income for the six months ended June 30, 1998 were $1.8 million or $.53 per
diluted share compared to $1.0 million or $.31 per diluted share. The higher net
income is principally attributed to a robust construction industry in the
markets served by Century, and overall favorable weather conditions helped by El
Nino's impact on normal patterns. Locations which have recently been opened have
begun to be profitable. New areas continue to be tapped so that there are now
more than eighty branches. CBE has also contributed positively to both sales and
profits when compared to prior periods. A large share of Richton's sales are
seasonal, and the second quarter traditionally is the company's best.
This report contains forward-looking statements. The matters expressed in such
statements are subject to numerous uncertainties and risks including but not
limited to general economic and climatic conditions in the markets in which
Richton and its subsidiaries operate, fluctuation in demand for the products and
services offered by these subsidiaries, and current expections of the Company or
its management. Should one or more of those uncertanties or risk materialize, or
should the underlying assumptions prove incorrect, actual results may vary
materially from those described as forward-looking statements. The Company does
not intend to update those forward-looking statements.
FINANCIAL CONDITION
The company's working capital improved during the past six months to $8.1
million from $7.3 million at December 31, 1997. The Company's free cash flow for
the six months ended June 30, 1998 was $2.6 million compared to $1.3 million for
the same six month period in 1997. During the six month period ended June 30,
1998 the Company spent $1.2 million on acquisitions, acquired 107,000 shares of
it's common stock for $.86 million and repaid senior and subordinate debt of $.5
million. The company's increased working assets were completely funded by the
line of credit availability.
The Company continues to generate sufficient cash flow to liquidate its senior
and subordinated debt as it becomes due, and to make acquisitions. However,
there is no assurance given the seasonality of its principal business that it
can continue to do so in the future.
10
<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: August 10, 1998
Madison, New Jersey
11
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 942
<SECURITIES> 0
<RECEIVABLES> 33,408
<ALLOWANCES> 690
<INVENTORY> 23,019
<CURRENT-ASSETS> 58,132
<PP&E> 2,794
<DEPRECIATION> 1,150
<TOTAL-ASSETS> 65,449
<CURRENT-LIABILITIES> 50,035
<BONDS> 5085
0
0
<COMMON> 311
<OTHER-SE> 10,018
<TOTAL-LIABILITY-AND-EQUITY> 65,449
<SALES> 67,229
<TOTAL-REVENUES> 67,229
<CGS> 48,815
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 639
<INCOME-PRETAX> 3,025
<INCOME-TAX> 1,208
<INCOME-CONTINUING> 1,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,817
<EPS-PRIMARY> 0.62
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</TABLE>
