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 ACTS OF 1934
----------
For the Quarter Ended Commission file number
June 30, 1999 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.)
767 5th Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (212) 751-1445
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, 2,950,000 shares at August 2,1999
<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 six months ended June 30, 1999
and June 30, 1998 3
Consolidated Balance Sheets at June 30,1999
and December 31, 1998 4
Consolidated Statements of Cash Flow for
the six months ended June 30, 1999 and
June 30, 1998 5
Notes to Consolidated Financial
Statements 6
Item 2. - Management's Discussion and
Analysis of Results of Operation and
Financial Condition 8
PART II OTHER INFORMATION - None
2
<PAGE>
<TABLE>
<CAPTION>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months ended Six Months Ended
------------------ ----------------
JUNE 30
-------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $75,182,000 $50,274,000 $104,567,000 $67,229,000
Cost of Sales 52,884,000 36,173,000 74,693,000 48,815,000
----------- ----------- ------------ -----------
Gross Profit 22,298,000 14,101,000 29,874,000 18,414,000
Selling, general & administrative
expenses 14,222,000 8,733,000 23,714,000 14,750,000
----------- ----------- ------------ -----------
Income from Operations 8,076,000 5,368,000 6,160,000 3,664,000
Interest income 222,000 144,900 442,000 314,900
Interest expense 871,000 535,000 1,497,000 956,000
----------- ----------- ------------ -----------
Income before provision for
income taxes 7,427,000 4,978,000 5,105,000 3,023,000
Provision for income taxes 2,853,000 1,979,000 1,973,000 1,208,000
----------- ----------- ------------ -----------
Net Income $ 4,574,000 $ 2,999,000 $ 3,132,000 $ 1,815,000
=========== =========== ============ ===========
Net Income per common share:
Basic $ 1.52 $ 1.03 $ 1.07 $ 0.62
=========== =========== ============ ===========
Diluted $ 1.34 $ 0.89 $ 0.95 $ 0.53
=========== =========== ============ ===========
Weighted Average Common and Common Equivalent
Shares outstanding
Basic 3,001,000 2,919,000 2,923,000 2,946,000
=========== =========== ============ ===========
Diluted 3,402,000 3,383,000 3,302,000 3,408,000
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
3
<PAGE>
<TABLE>
<CAPTION>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------------
June 30 December 31
Assets 1999 1998
------ ------- -----------
<S> <C> <C>
Current assets:
Cash and Cash Equivalents $ 1,433,000 $ 995,000
Notes and Accounts Receivable, net of allowance for
doubtful accounts of $1,550,000 in 1999 and $1,150,000 in 1998 47,625,000 24,486,000
Inventories, net 33,078,000 20,419,000
Prepaid Expenses and Other Current Assets 978,000 736,000
Deferred Taxes 844,000 844,000
----------- ------------
Total Current Assets 83,958,000 47,480,000
Property, Plant and Equipment, 4,894,000 3,566,000
Less: Allowance for Depreciation and Amortization (2,281,000) (1,411,000)
----------- -----------
2,613,000 2,155,000
Other Assets:
Deferred taxes 1,209,000 1,001,000
Goodwill 6,616,000 4,515,000
Other Intangibles 3,389,000 2,342,000
----------- -----------
TOTAL ASSETS $97,785,000 $57,493,000
=========== ===========
Liabilities & Stockholder's Equity
----------------------------------
Current Liabilities:
Current Portion of Long Term Debt $ 2,430,000 $ 1,832,000
Notes Payable 38,308,000 25,960,000
Accounts Payable,Trade 24,796,000 5,999,000
Accrued Liabilities 6,560,000 4,769,000
Deferred Income 3,395,000 2,385,000
----------- -----------
Total Current Liabilities 75,489,000 40,945,000
Noncurrent Liabilities
Long Term Senior Debt 7,500,000 4,475,000
Subordinated Debt 1,895,000 1,996,000
Less: Current Portion of Long-term Debt (2,430,000) (1,832,000)
----------- -----------
6,965,000 4,639,000
Stockholders' Equity
Preferred Stock,$1.00 par value; authorized 500,000 shares; none issued
Common Stock,$.10 par value; authorized 327,000 322,000
6,000,000 shares; issued 3,266,692 shares at June 30, 1999 and
3,216,692 shares at December 31, 1998
Additional Paid-in Capital 18,118,000 18,013,000
Retained Earnings (1,564,000) (4,696,000)
Treasury Stock (1,430,000) (1,430,000)
Translation adjustment (130,000)
Deferred Stock Compensation (120,000) (170,000)
----------- -----------
15,331,000 11,909,000
Total Stockholders' Equity
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $97,785,000 $57,493,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE>
<TABLE>
<CAPTION>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30
------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income
Reconciliation of net income to net cash provided by (used in)operating activities: $ 3,132,000 $ 1,817,000
Depreciation and amortization 824,000 684,000
Changes in operating assets and Liabilities:
Deferred Income 149,000 (148,000)
Other working capital items, assets (31,819,000) (22,921,000)
Other working capital items, liabilities 19,256,000 12,605,000
Deferred taxes (208,000) 214,000
Other assets (401,000) (115,000)
----------- -----------
Net cash provided by (used in) operating activities (9,067,000) (7,864,000)
INVESTING ACTIVITIES
Capital expenditures (480,000) (56,000)
Cash paid for acquisitions, net of cash acquired (3,630,000) (1,172,000)
----------- -----------
Net cash used in investing activities (4,110,000) (1,228,000)
FINANCING ACTIVITIES
Proceeds from Long-Term Debt 3,200,000 --
Repayment of Subordinated Debt (921,000) (331,000)
Exercise of Stock options 110,000 48,000
Repurchase of Shares (856,000)
Proceeds from Line of Credit 11,264,000 10,873,000
Repayment of Long-Term Debt (175,000)
----------- -----------
Net cash provided by financing activities 13,478,000 9,734,000
Effect of exchange rate on cash balances 137,000 --
----------- -----------
Increase (Decrease) in cash and cash equivalents 438,000 642,000
Cash and cash equivalents, beginning of period 995,000 474,000
----------- -----------
Cash and cash equivalents, end of period $ 1,433,000 $ 1,116,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,278,000 $ 891,000
=========== ===========
Cash paid for income taxes $ 1,277,000 $ 1,161,000
=========== ===========
</TABLE>
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, 1998. 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.
This report may contain 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 expectations of the Company
or its management. Should one or more of those uncertainties or risks
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.
1. Description of Business:
Richton International Corporation ("Richton") is a holding company with three
principal subsidiaries, Century Supply Corp. ("Century"), CBE Technologies Inc
("CBE"), and Creative Business Concepts, Inc ("CBC")) collectively the
"Company". Century is a leading full-service wholesale distributor of sprinkler
irrigation systems, outdoor lighting and decorative fountain equipment. Branches
serve customers in 33 states mostly in the eastern United States 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 all of the leading original equipment manufacturers (OEM) in
the irrigation systems field. CBE Technologies, Inc. ("CBE") is headquartered in
Boston, Massachusetts with offices located in New York, and Portland, Maine.
CBC, Inc is located in Irvine, California. CBE and CBC are Systems Integrators
providing network consulting, design, and installation; network management and
related support; technical services outsourcing; comprehensive hardware
maintenance; and equipment sales. CBE and CBC's technical certifications
include; Novell Platinum reseller, Microsoft Channel partner, Banyan
Enterprise/Network dealer, Novell authorized Training Center, and a Novell
Authorized Service Center.
6
<PAGE>
2.Acquisitions:
On February 25, 1999, the Company acquired 100% of the common stock of Creative
Business Concepts (CBC) of Irvine, California, a leading computer networking
integrator, for cash of $2.2 million, plus a future payment based upon profit
improvement recorded during 1999 and 2000 over a base period. The Costa Mesa
office of Richton's CBE subsidiary will be consolidated with CBC. The
acquisition will be accounted for as a purchase. The company recorded a charge
to goodwill of approximately $1.7 million on this acquisition. Pro Forma
Statements is not presented because such information is immaterial.
During 1999, Century acquired five distributor operations in four different
markets: Michigan, New York (Long Island), Oregon, and Kentucky for an aggregate
purchase price of $3.6 million. The acquisitions were made in cash and notes and
were financed by its working capital line. As a result of these acquisitions,
the Company recorded $1.5 million in Goodwill and Intangible assets.
3. Statement of Cash Flows:
The components of other working capital items included in the Consolidated
Statements of Cash Flows are as follows:
Six Months Ended June 30,
1998 1999
Receivables $(20,123,000) $(16,239,000)
Inventories (11,628,000) (6,324,000)
Prepaid Expenses (68,000) (358,000)
Increase in Working Capital Items, Assets $ 31,819,000 $ 22,921,000
============ ============
Accounts Payable $ 18,048,000 $ 11,091,000
Accrued Liabilities 1,208,000 1,514,000
------------ ------------
Increase Working Capital Items, Liabilities $ 19,256,000 $ 12,605,000
------------ ------------
4. Financing Arrangements:
The Company negotiated a new five year revolving line of credit and Term Loan
agreement with PNC Business Credit amounting to $67.5 million. The agreement
provides for a $60 million revolving line of credit (increased from $40 million)
and a $7.5 million senior term debt - an increase of $3.2 million from the
existing balances. The additional proceeds from the Term loan were used to
finance the acquisition of CBC.(See Note 3) and to restructure the CBE working
capital line. The revolving line of credit carries a interest rate based upon
LIBOR plus 250 basis points if Richton's leverage ratio is in excess of 2.5
times trailing twelve month EBITDA or LIBOR plus 225 basis points if the
leverage ratio is below that level. (the Company has the option to borrow at
prime which at June 30, 1999 was 7.75%). At
7
<PAGE>
June 30, 1999, essentially all the borrowings under the line of credit were at
7.5% (LIBOR plus 250). The outstanding balance on the line of credit at June 30,
1999 and December 31, 1998 was $38.3 million and $26.0 million, respectively.
This financing agreement contains various covenants that among other things
require the Company to maintain certain financial ratios.
5. Long-Term Debt:
The Company has the following long-term debt as of June 30 and December 31,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Term note payable to a bank, secured by accounts receivable, inventory,
furniture and equipment, interest at LIBOR plus 300 basis or prime plus 50 basis
points (8.25% as of June 30, 1999), payable in monthly installments
of $125,000, final payment due June 30, 2004 (A) $7,500,000 $4,475,000
Other, including $951,000 in 1999, due business owners whose assets
and businesses were acquired in 1999. 1,895,000 1,996,000
---------- ----------
9,395,000 6,471,000
Less: Current Portion (2,430,000) (1,832,000)
---------- ----------
$6,965,000 $4,639,000
========== ==========
</TABLE>
(A): Based upon excess Cash Flow, as determined, an additional $1.0 million
maximum could be repaid each year.
6. Net Income Per Share:
Net income per common share was calculated on the basis of 3,302,000, and
3,408,000, weighted average common and common equivalent shares outstanding in
the six month periods ending June 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Net Income
Income Shares Per share
------ ------ ---------
For the six months ended June 30, 1998
--------------------------------------
<S> <C> <C> <C>
Basic $1,815,000 2,946,000 $.62
Effect of dilutive options and warrants -- 462,000 --
Diluted $1,815,000 3,408,000 $.53
For the six months ended June 30, 1999
---------------------------------------
Basic $3,132,000 2,923,000 $1.07
Effect of dilutive options and warrants -- 379,000 --
Diluted $3,132,000 3,302,000 $.95
</TABLE>
Basic net income per common share was computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
periods. Diluted net income per common share included the effect of options and
warrants computed under the treasury stock method.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations- for the Second Quarter and Six Months ended June 30, 1999
Sales and net income for the three months ended June 30, 1999 were $75.2 million
and $4.6 million or $1.34 per share - diluted, respectively. For the three
months ended June 30, 1998 sales and net income were $50.3 million and $3.0
million, or $.89 per share,-diluted respectively. Sales and net income for the
six months ended June 30, 1999 were $104.6 million and $3.1 million, or $.95 per
share - diluted, respectively. For the six months ended June 30, 1998 sales and
net income were $67.2 million and $1.8 million or $.53 per share - diluted,
respectively.
Gross profit for the three and six months were $22.3 million and $29.9 million,
respectively. For the three and six months ended June 30, 1998 gross profit was
$ 14.1 million and $18.4 million, respectively. The higher gross profit as a
percentage of sales in both the three and six months periods when compared to
the corresponding periods in 1998 is due principally to a more favorable
geographic and product and service mix.
Century's business has been positively affected by a record breaking
construction industry and overall favorable weather conditions in its market
area. There are now one hundred and fourteen Century branches and newly
opened locations have become profitable. CBE has experienced improved sales and
operations, as well as a better mix of service activities during 1999 as
compared to the same period in 1998. A large share of Richton's sales are
seasonal, and the second quarter traditionally is the Company's best.
Selling, general and administrative expenses for the three and six months ended
June 30, 1999 were $14.2 million and $23.7 million, respectively. For the three
and six months ended June 30, 1998 selling general and administrative expenses
were $8.7 million and $14.8 million respectively. The higher level of expenses
in the current year is due to the higher number of operating branches - now 114
as compared with 75 last year, and the inclusion of CBC which was acquired
effective January 1, 1999.
Interest, expense, net, for the three and six months ended June 30, 1999 were
$.6 million and $1.1 million, respectively. For the three and six months ended
June 30, 1998 interest expense, net, was $.4 million and $.6 million,
respectively. The higher interest cost is principally due to the higher levels
of working capital required relating to the higher level of sales in the current
periods.
The provision for Federal, State and foreign income taxes as a percentage of
pre-tax income is approximately the same as last year.
As a result of the foregoing, the net income for the three and six months period
ended June 30, 1999 was $4.6 million or $1.34 per share-diluted, and $3.1
million or $.95
9
<PAGE>
per share-diluted, respectively. This compares favorably with the three and six
months net income for the same periods last year of $3.0 million or $.89 per
share-diluted and $1.8 million or $.53 per share-diluted, respectively.
10
<PAGE>
Financial Condition:
The Company's principal source of funding is through its working capital line of
credit. As was noted above, (see Note # 5), the Company, in May of this year,
completed a new five year borrowing agreement with a syndication of banks that
increased the maximum capacity of it's line of credit to $60 million (from $40
million) and increased the Term Loan by approximately $3 million to $7.5
million. This agreement will provide the Company with greater flexibility as the
Company continues to grow.
During the first half of 1999, the net cash used in operations was $9.1 million
compared to $7.9 million during the first half of last year. This increase is
principally due to higher working capital associated with more than a 50%
increase in sales, partially offset by higher net income and depreciation and
amortization charges. In addition, the Company invested $3.6 million to acquire
new businesses and spent $.5 million in capital expenditures. During the first
half of 1998 the Company invested $1.2 million on acquisitions and $.1 million
on capital expenditures. The increase in the funds used in operations was funded
by an increase in the line of credit and the increase in the investing
activities was funded by the increase in the term loan.
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 its growth, there is no assurance, given the high degree of leverage, the
upward trend of interest rates, the seasonality of its principal business and
the related higher fixed charges incumbent with more branches, that it can
continue to do so in the future.
Year 2000
The year 2000 issue exists because many computer systems and applications,
including those imbedded in equipment and facilities, use two digit rather than
four digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data which
includes it, potentially causing data miscalculations or inaccuracies or
operational malfunctions of failures.
Each of the Company's operating subsidiaries uses systems software acquired from
an established software vendor. In each case the vendor has indicated that the
software being supplied is year 2000 compliant. In the case of Century, their
operating computer environment uses a proxy for a date rather than the actual
date - thus there is no double zero situation to deal with that would be subject
to misinterpretations or miscalculation.
CBE has received a "Y2K Compliance Certificate" from American Micro Innovations,
Inc. the vendor of their general ledger systems and its supporting modules.
Despite the assurance, the Company is tested these systems during this 2nd
quarter of 1999 and have determined that it's systems are 2000 compliant. CBE
has also embarked on a program of replacing those personal computers that are
not 2000 complaint. As of June 30, 1999 this process is more than 50% complete.
11
<PAGE>
Both Century and CBE communicate with their suppliers through EDI. Century,
however, does not receive its third party data directly into its operating
systems but rather it converts such data before it is internally processed,
avoiding the opportunity for contamination of their system. It has however
implemented a testing process with it's major vendors that has to date been
satisfactory. Century expects to complete this process by the end of the third
quarter. CBE recently tested their EDI transmission with several of their
largest vendors and found the systems compliant. Century, CBE and CBC are
continuing to work with their suppliers, however should any supplier or vendor
be unable to achieve year 2000 compliance by September 30, 1999, the Company
intends to switch to other suppliers that are able to provide year 2000
compliance. The Company does not expect to incur any material additional cost to
achieve year 2000 compliance.
The Company's ability however to be completely compliant is of course dependant
upon the ability of its vendors, suppliers, bankers and other fiduciaries to
also be compliant. In addition, the Company can not guarantee that third parties
and telephone and other interchange carriers, will convert their critical
systems and processes in a timely manner. Failure or delay by any of these
parties could disrupt the Company's businesses. The Company has established a
supplier compliance program to minimize such risks.
SIGNATURES
Pursuant to the requirements of the Securities and 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 13, 1999
New York, New York
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,433
<SECURITIES> 0
<RECEIVABLES> 49,175
<ALLOWANCES> 1,550
<INVENTORY> 33,078
<CURRENT-ASSETS> 83,958
<PP&E> 4,894
<DEPRECIATION> 2,281
<TOTAL-ASSETS> 97,785
<CURRENT-LIABILITIES> 75,489
<BONDS> 6,965
0
0
<COMMON> 327
<OTHER-SE> 15,004
<TOTAL-LIABILITY-AND-EQUITY> 97,785
<SALES> 104,567
<TOTAL-REVENUES> 104,567
<CGS> 74,693
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,055
<INCOME-PRETAX> 5,105
<INCOME-TAX> 1,973
<INCOME-CONTINUING> 3,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,132
<EPS-BASIC> 1.07
<EPS-DILUTED> 0.95
</TABLE>
