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
March 31, 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, 2,977,000 shares at April 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 three months ended March 31,
1998 and March 31, 1997 3
Consolidated Balance Sheets at
March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flow
for the three months ended March 31, 1998
and March 31, 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)
- --------------------------------------------------------------------------------
Three Months ended March 31
------------------------------
1998 1997
------------ ------------
Net Sales $ 16,955,000 $ 14,081,000
Cost of Sales 12,642,000 10,389,000
------------ ------------
Gross Profit 4,313,000 3,692,000
Selling, general & administrative
expenses 6,017,000 5,258,000
Interest (income) (170,000) (147,000)
0
Interest expense 421,000 361,000
------------ ------------
Income before Taxes (1,955,000) (1,780,000)
Provision for income taxes (771,000) (709,000)
------------ ------------
Net Income (1,184,000) (1,071,000)
============ ============
Net Income Per share:
Basic earnings per common share: $ (0.40) $ (0.36)
============ ============
Diluted earnings per common share: $ (0.35) (0.33)
============ ============
Average Common and Common Equivalent
Shares outstanding
Basic- 2,978,000 2,949,000
============ ============
Diluted- 3,361,000 3,279,000
============ ============
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)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 December 31
Assets 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and Cash Equivalents $ 88,000 $ 474,000
Notes and Accounts Receivable, net of allowance for
doubtful accounts of $690,000 in 1998 and 1997 17,563,000 16,292,000
Inventories 20,474,000 16,190,000
Prepaid Expenses and Other Current Assets 355,000 602,000
Deferred Taxes 493,000 493,000
------------ ------------
Total Current Assets 38,973,000 34,051,000
Property, Plant and Equipment, 2,636,000 2,633,000
Less: 'Allowance for Depreciation and Amortization (1,057,000) (1,038,000)
------------ ------------
1,579,000 1,595,000
Other Assets: Deferred taxes 771,000 716,000
Goodwill 3,916,000 4,011,000
Other Intangibles 1,255,000 1,217,000
------------ ------------
Total Assets $ 46,494,000 $ 41,590,000
============ ============
Liabilities & Stockholder's Equity
Current Liabilities:
Current Portion of Long Term Debt $ 1,773,000 $ 1,773,000
Notes Payable 18,305,000 15,135,000
Accounts Payable,Trade 9,928,000 5,204,000
Accrued Liabilities 676,000 2,228,000
Deferred Income 2,264,000 2,339,000
------------ ------------
Total Current Liabilities 32,946,000 26,679,000
Noncurrent Liabilities
Long Term Senior Debt 4,825,000 5,000,000
Subordinated Debt 2,313,000 2,364,000
Less: Current Portion of Long-term Debt (1,773,000) (1,773,000)
5,365,000 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, 311,000 309,000
1998 and 3,086,692 shares at December 31, 1997
Additional Paid-in Capital 17,699,000 17,654,000
Retained Earnings (9,413,000) (8,228,000)
Treasury Stock (415,000) (415,000)
------------ ------------
Total Shareholders' Equity 8,182,000 9,320,000
Total Liabilities and Shareholders' Equity $ 46,493,000 $ 41,590,000
============ ============
</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>
Three months ended March 31
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $(1,184,000) $(1,071,000)
Reconciliation of net cash provided by
(used by)operating activities:
Depreciation and amortization of assets 19,000 64,000
Amortization of Intangibles 227,000 206,000
Deferred Income (75,000) 500,000
Other working capital items, assets (5,311,000) (6,421,000)
Other working capital items, liabilities 3,172,000 5,848,000
Decrease (increase) in deferred taxes (55,000) (467,000)
Decrease (increase) in other assets (170,000) (193,000)
----------- -----------
Net Cash provided by (Used by) Operating Activities (3,377,000) (1,534,000)
INVESTING ACTIVITIES
Capital expenditures (3,000) (32,000)
Cash (paid) for businesses acquired,net 45,000 --
Exercise of Stock Options 2,000 --
----------- -----------
Net cash used by investing activities 44,000 (32,000)
FINANCING ACTIVITIES
Increase (Decrease) of Long-Term Debt (175,000) --
Repayment of Subordinated Debt (51,000) (87,000)
Repayment of Long-term Debt -- --
Repurchase of Odd-Lot Shares -- --
Increase in Line of Credit 3,170,000 1,473,000
----------- -----------
Net cash provided by financing activities 2,944,000 1,386,000
----------- -----------
Increase (Decrease) in cash and cash equivalents (389,000) (180,000)
Cash and cash equivalents, beginning of period 474,000 372,000
----------- -----------
Cash and cash equivalents, end of period $ 85,000 $ 192,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period for interest $ 319,188 $ 231,000
=========== ===========
Cash payments during the period for income taxes $ 80,000 $ 50,000
=========== ===========
</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, 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 ("Richtony") 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 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, 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 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 Amortization 12/31/95 12/31/96
Period Balance Additions Reductions Balance
<S> <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 Amortization 12/31/96 12/31/97
Period Balance Additions Reductions Balance
<S> <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
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
relatedintangibles 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 Three Months Ended
March 31
--------------------------
1998 1997
Receivables $(1,274,000) (77,000)
Inventories (4,284,000) (6,363,000)
Prepaid Expenses (247,000) 77,000
----------- -----------
Increase in Working Capital Items, Assets $(5,311,000) $(6,421,000)
=========== ===========
Accounts Payable 4,724,000 6,625,000
Accrued Expenses (1,552,000) (784,000)
Increase Working Capital Items, Liabilities $ 3,172,000 $ 6,841,000
=========== ===========
4. Bank Borrowing:
As was reported earlier, the Company completed a renegotiation of it's
senior debt and revolving line of credit financing. The revised agreement
(a) lowered the rate of interest charged on the line of credit to LIBOR
plus 175 basis points rather than prime less an eighth, (b) transferred
the principal obligor from Century to Richton, (c) to increase the amount
of unsecured financiing to nearly $8 million and (d) release the pledge of
commong stock of Century, which had previously been held as security for
the bank loans. The term loan will continue to amortize at the rate of
$.18 million per quarter. In addition, certain financial covenants and
distribution restrictions were also modified or curtailed completely.
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
Per -Share
(Loss) Shares Amount
------------ --------- ----------
For the three months ended March 31, 1998
-----------------------------------------
Net Income ($1,184,000) 2,978,000 ($.40)
Options issued to Executives 142,000
Shares subject to exercise
of warrants 241,000
Income available to common
shareholders ($1,184,000) 3,361,000 ($.35)
For the three months ended March 31, 1998
-----------------------------------------
Net Income ($1,071,000) 2,949,000 ($.36)
Options issued to Executives 135,000
Shares subject to exercise
of warrants 195,000
Income available to common
shareholders ($1,071,000) 3,279,000 ($.33)
9
<PAGE>
Mangement's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATION - For the three months ended March 31, 1998.
1998 Compared with 1997
Sales for the three months ended March 31, 1998 were $17.0 million, an increase
of $2.9 million or approximately 20% over $14.1 million recorded in the same
three month period in 1997. This increase was attributed to both Century Supply
and CBE Technologies, Inc.
Gross profit for the three months ended March 31, 1998 was $4.3 million, an
increase of $.6 million or approximately 16.8% over $3.7 million recorded in the
same three months in 1997. This increase is due primarily to the higher sales
noted above. The gross profit percentage of sales declined during this most
recent quarter principally due to unfavorable product mix.
Selling, general and administration expenses for the three months ended March
31, 1998 increased $.76 million or 14.4% to $6.0 million from $5.3 million for
the same three month period ended March 31, 1997. The higher level of expense is
principally due to the increased number of operating branches at Century. During
the first quarter of 1998 Century was operating 75 branches as compared to 60
branches the same time last year.
The federal, state and foreign income tax credit for the three months ended
March 31, 1998 was $.8 million, a slight increase over the $.7 million recorded
for the same three month period last year.
Net loss for the three month period ended March 31, 1998 was $1.18 million, or
($.35 per share-diluted.) This compares with $1.07 million or ($.33 per
share-diluted) reported for the same three months period ended March 31, 1997.
The higher loss is principally attributed to the foregoing factors and to the
unfavorable weather conditions ("El Nino") through out the south east region
which during the first quarter of each year usually accounts for a majority
share of Century's business partially offset by profit improvement in CBE.
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 declined by approximately $1.37 million to $6.0
million at March 31, 1998 from that of $7.3 million at December 31, 1997. This
decline was attributed to the net loss of $1.18 million and to the repayment of
scheduled term and subordinated debt during the quarter ended March 31, 1998 of
approximately $.22 million. The decline in working capital is consistent with
prior history for the first quarter of each year.
As was stated earlier, the Company completed a renegotiation of it's senior debt
and revolving line of credit financing during the first quarter of 1998. The
revised agreement (a) lowered the rate of interest charged on the line of credit
to LIBOR plus 175 basis points rather than prime less an eighth, (b) reduced the
number of financial covenants required, (c) transferred the obligor from Century
to Richton, (d) increased the amount of unsecured financing to nearly $8 million
and released the pledge of common stock of Century, which has previously been
held as security for the bank loans.
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, that it can continue to do so in the
future.
The Annual Stockholders meeting was held previously announced on April 29, 1998
at the American Stock Exchange. At the meeting Mr. Thomas Hilb, and Mr. Peter
White were elected to serve as directors for a term expiring at the 2001 annual
meeting receiving 2,770,682 votes or 93% of the total available to vote. The
number of shares withheld were 47,201. At the same meeting, shareholders
confirmed the appointment of Arthur Andersen & Co. L.L.P. as independent
auditors for the calendar year ending December 31, 1998, receiving 2,777,182
votes or 93.3% of the total available to vote. The number of shares that voted
against confirmation or abstained from voting were 38,300 and 1,401
respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
----------------------------------
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 12, 1998
Madison, New Jersey
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 88
<SECURITIES> 0
<RECEIVABLES> 18,253
<ALLOWANCES> 690
<INVENTORY> 20,474
<CURRENT-ASSETS> 38,973
<PP&E> 2,636
<DEPRECIATION> 1,057
<TOTAL-ASSETS> 46,494
<CURRENT-LIABILITIES> 32,946
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 7,871
<TOTAL-LIABILITY-AND-EQUITY> 46,493
<SALES> 16,955
<TOTAL-REVENUES> 16,955
<CGS> 12,642
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,017
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251
<INCOME-PRETAX> (1,955)
<INCOME-TAX> (771)
<INCOME-CONTINUING> (1,184)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,184)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.35)
</TABLE>
