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
September 30, 2000 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
Section 12 (b) of the Exchange Act: Name of Exchange on which Registered:
Common Stock, par value $.10 American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Series A Preferred Stock, par value $1.00 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 days. 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, 3,018,000 shares at October 15,2000
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Richton International Corporation
FORM 10-Q
INDEX
--------------------------------------------------------------------------------
PAGE
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements:
Consolidated Statements of Income for the three and nine months
ended Sept. 30, 2000 and Sept. 30, 1999(unaudited) 3
Consolidated Balance Sheets at Sept. 30, 2000
(unaudited) and December 31, 1999 4
Consolidated Statements of Cash Flows for
the nine months ended Sept. 30, 2000 and
Sept. 30, 1999 (unaudited) 5
Notes to Consolidated Financial
Statements (unaudited) 6
Item 2. - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10
PART II OTHER INFORMATION - None
2
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RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $75,138,000 $ 65,748,000 $212,189,000 $170,315,000
Cost of Sales 53,838,000 46,391,000 154,655,000 121,084,000
----------- ------------ ------------ ------------
Gross Profit 21,300,000 19,357,000 57,534,000 49,231,000
Selling, General & Administrative
Expenses 14,413,000 13,132,000 41,787,000 36,846,000
----------- ------------ ------------ ------------
Income from Operations 6,887,000 6,225,000 15,747,000 12,385,000
Interest Income 310,000 291,000 996,000 733,000
Interest Expense 1,154,000 938,000 3,130,000 2,435,000
----------- ------------ ------------ ------------
Income before Provision for
Income Taxes 6,043,000 5,578,000 13,613,000 10,683,000
Provision for Income Tax 2,262,000 2,160,000 5,229,000 4,133,000
----------- ------------ ------------ ------------
Net Income $ 3,781,000 $ 3,418,000 $ 8,384,000 $ 6,550,000
=========== ============ ============ ============
Net Income Per Common Share
Basic $ 1.26 $ 1.13 $ 2.78 $ 2.17
=========== ============ ============ ============
Diluted $ 1.11 $ 1.00 $ 2.47 $ 1.95
=========== ============ ============ ============
Weighted Average Common and
Common Equivalent Shares Outstanding
Basic 3,012,000 3,021,000 3,011,000 3,021,000
----------- ------------ ------------ ------------
Diluted 3,403,000 3,434,000 3,392,000 3,357,000
----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
Sept. 30 December 31
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 4,000 $ 1,071,000
Notes and Accounts Receivable, net of
allowance for doubtful accounts of $2,910,000
in 2000 and $2,264,000 in 1999 53,480,000 33,312,000
Inventories, Net 37,928,000 24,012,000
Prepaid Expenses and Other Current Assets 1,811,000 1,413,000
Deferred Taxes 1,058,000 1,389,000
------------ -----------
Total Current Assets 94,281,000 61,197,000
Property, Plant and Equipment 6,462,000 4,908,000
Less: Accumulated Depreciation and Amortization (2,941,000) (2,018,000)
------------ -----------
3,521,000 2,890,000
Other Assets:
Deferred Taxes 866,000 869,000
Goodwill 7,473,000 7,793,000
Other Intangibles 2,232,000 2,301,000
Other 312,000 342,000
------------ -----------
TOTAL ASSETS $108,685,000 $75,392,000
============ ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long Term Senior Debt $ 2,923,000 $ 3,252,000
Notes Payable 45,586,000 29,008,000
Accounts Payable, Trade 18,532,000 10,056,000
Accrued Liabilities 8,343,000 6,346,000
Deferred Income 2,787,000 2,704,000
------------ -----------
Total Current Liabilities 78,171,000 51,366,000
Noncurrent Liabilities
Long Term Senior Debt 3,313,000 5,020,000
Stockholders' Equity
Preferred Stock, $1.00 par value; authorized
500,000 shares; none issued
Common Stock, $.10 par value; authorized
6,000,000 shares; issued 3,336,692 shares
at Sept. 30, 2000 and 3,303,692 shares at
December 31, 1999 339,000 331,000
Additional Paid-in Capital 18,520,000 18,430,000
Retained Earnings 10,843,000 2,459,000
Treasury Stock (2,249,000) (1,925,000)
Cumulative Translation Adjustment (10,000) 11,000
Unearned Compensation (242,000) (300,000)
------------ -----------
Total Stockholders' Equity 27,201,000 19,006,000
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $108,685,000 $75,392,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
4
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RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 8,384,000 $ 6,550,000
Reconciliation of net income to net cash provided by (used in)
Operating activities:
Depreciation and Amortization 1,675,000 1,280,000
Deferred Taxes 334,000 (208,000)
Amortization of Unearned Compensation 58,000 50,000
Changes in Operating Assets and Liabilities
Net of Effects from Acquisitions:
Deferred Income 83,000 70,000
Other Working Capital Items, Assets (33,375,000) (29,285,000)
Other Working Capital Items, Liabilities 10,463,000 9,501,000
Other Assets 132,000 167,000
------------ ------------
Net Cash (Used In)
Operating Activities (12,246,000) (11,875,000)
INVESTING ACTIVITIES
Capital Expenditures (992,000) (756,000)
Cash Paid for Acquisitions, Net of Cash Acquired (1,320,000) (3,766,000)
------------ ------------
Net Cash (Used In) Investing Activities (2,312,000) (4,522,000)
FINANCING ACTIVITIES
Proceeds from Long Term Senior Debt -- 3,200,000
Repayment of Subordinated Debt (1,013,000) (1,046,000)
Proceeds from Line of Credit 16,376,000 13,635,000
Repayment of Long Term Senior Debt (1,625,000) (550,000)
Exercise of Stock Options 98,000 110,000
Repurchase of Shares (324,000) -0-
------------ ------------
Net Cash Provided by Financing Activities 13,513,000 15,349,000
Effect of Exchange Rate on Cash Balances (21000) 137,000
------------ ------------
(Decrease) Increase in Cash and Cash Equivalents (1,067,000) (911,000)
Cash and Cash Equivalents, Beginning of Period 1,071,000 995,000
------------ ------------
Cash and Cash Equivalents, End of Period $ 4,000 $ 84,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid for Interest $ 3,089,000 $ 2,599,000
============ ============
Cash Paid for Income Taxes $ 4,385,000 $ 3,067,000
============ ============
</TABLE>
5
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RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 in the United States 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, 1999. 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. As a result of this seasonality, the highest quarterly
sales, and profits historically occur in the second and third quarters and the
lowest sales and profits occur in the first and fourth quarters.
Correspondingly, the working capital and bank borrowing amounts, which are
highest during the second and third quarters, negatively impact financial ratios
when comparing nine month results to prior year end results. Historically, the
Company reduces its working capital and borrowing amounts during the fourth
quarter favorably impacting financial ratios and comparable analysis.
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 diversified service company
with three operating 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 35 states mostly in the eastern
half of 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 is headquartered in Boston, Massachusetts, with offices located in
New York and Portland, Maine. CBE is a systems integrator providing network
consulting, design, and installation; network management and related support;
technical services outsourcing; comprehensive hardware maintenance; and
equipment sales. CBE's technical certifications include Novell Platinum
distributor, Microsoft Channel partner, Banyan Enterprise/Network dealer, Novell
authorized Training Center and a Novell Authorized Service Center. CBC is
headquartered in Irvine, California and provides essentially the same services
to West Coast customers that CBE provides on the East Coast.
6
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2. Acquisitions:
The Company acquired a small irrigation distributor in Texas during the
third quarter.
3. Statements of Cash Flows:
The components of other working capital items and their effects in the
Consolidated Statements of Cash Flows are as follows:
(unaudited)
Nine Months Ended Sept. 30,
2000 1999
---- ----
Receivables $(19,486,000) $(20,701,000)
Inventories (13,498,000) (7,895,000)
Prepaid Expenses (391,000) (689,000)
------------ ------------
Increase in Working Capital Items, Assets $(33,375,000) $(29,285,000)
============ ============
Accounts Payable $ 8,476,000 $ 7,164,000
Accrued Liabilities 1,988,000 2,337,000
------------ ------------
Increase in Working Capital Items, Liabilities $ 10,463,000 $ 9,501,000
============ ============
4. Debt and Financing
During the nine months ended September 30, 2000 the company's revolving line of
credit increased by $16.6 million to $45.6 million. This higher borrowing
supported the $22.9 million net increase in Working Capital (noted above) over
the same nine month period. During the same period last year the revolving line
increased by $14.3 million to $40.3 million. This increase supported a $19.7
million net increase in Working Capital (noted above). At September 30, 2000,
the interest rate on the Revolving Credit was 8.8%, or LIBOR plus 225 basis
points. The interest rate on the Term Loan was LIBOR plus 275 basis points (9.4%
as of September 30, 2000).
In March 2000, the bank syndication group approved several modifications to the
Company's Revolving Credit, Term Loan and Security Agreement (the "Agreement").
These changes included lowering the cost of the unused fee by 25 basis points to
1/8% and provided a lower borrowing rate, (25 basis points), if the Company's
leverage ratio is below 2.0 times trailing twelve months EBITDA.-as defined. In
addition, the Agreement increased the annual limits on capital expenditures,
leases, and common stock repurchases. CBC was added to the Agreement in June,
2000. Prior to that time, CBC's receivables were financed through Duetsche
Financial Services ("DFS"). DFS will continue to provide floor planning under
$1.5 million irrevocable letters of credit issued by PNC for each of the
technology companies.
7
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5. Net Income Per Share:
Net income per common share was calculated as follows:
<TABLE>
<CAPTION>
Net Income
Income Shares Per Share
------ ------ ---------
For the nine months ended September 30, 2000
--------------------------------------------
(unaudited)
<S> <C> <C> <C>
Basic $8,384,000 3,011,000 $2.78
Effect of dilutive options and warrants -- 381,000 --
Diluted $8,384,000 3,392,000 $2.47
Net Income
Income Shares Per Share
------ ------ ---------
For the three months ended September 30, 2000
---------------------------------------------
(unaudited)
Basic $3,781,000 3,012,000 $1.26
Effect of dilutive options and warrants -- 391,000 --
Diluted $3,781,000 3,403,000 $1.11
Net Income
Income Shares Per Share
------ ------ ---------
For the nine months ended September 30, 1999
--------------------------------------------
(unaudited)
Basic $6,550,000 3,021,000 $2.17
Effect of dilutive options and warrants -- 336,000 --
Diluted $6,550,000 3,357,000 $1.95
Net Income
Income Shares Per Share
------ ------ ---------
For the three months ended Septembe 30, 1999
--------------------------------------------
(unaudited)
Basic $3,418,000 3,021,000 $1.13
Effect of dilutive options and warrants -- 413,000 --
Diluted $3,418,000 3,434,000 $1.00
</TABLE>
8
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6. Segment Data:
The Company operates in two industry segments: wholesale distribution and
computer and networking services. See Note 1 for description of businesses.
There are no inter-segment sales and all sales occur in North America. Income
(loss) from operations by industry segment consists of net sales less related
costs and expenses. In computing income (loss) from operations by segment, cost
of borrowed funds for working capital have been included. Corporate includes the
general and corporate expenses and interest incurred to acquire the two
businesses. Corporate operating expenses directly related to industry segments,
if any, have been allocated to those segments. Amortization of goodwill is
considered segment related and accordingly charged to the related industry
segment. Identifiable assets by industry segment are those assets that are used
in each industry segment. General corporate assets consist primarily of cash,
deferred taxes, and corporate property.
A summary of the Company's segment information is as follows:
Wholesale Computer
Distribution Services Corporate Total
------------ -------- --------- -----
September 30, 2000
Net Sales $168.3 $43.9 -0- $212.2
====== ===== === ======
Pre-Tax Income (Loss) 12.8 1.3 (.5) 13.6
Identifiable Assets 84.0 16.6 8.1 108.7
September 30, 1999
Net Sales $142.0 $28.3 -0- $170.3
====== ===== === ======
Pre-tax Income (Loss) 10.7 1.3 (1.1) 10.7
Identifiable Assets 77.0 10.1 6.2 93.3
9
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Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations - for the Three and Nine Months ended September 30, 2000
Sales and net income for the three months ended September 30, 2000 were $75.1
million and $3.78 million, respectively or $1.11 per share diluted. For the
three months ended September 30, 1999, sales and net income were $65.7 million
and $3.42 million, respectively or $1.00 per share. As has been previously
stated, the quarterly sales and profits are not representative of the other
quarters of the year due to seasonality of the company's principal business.
Sales and net income for the nine months ended September 30, 2000 were $212.2
million and $8.38 million, respectively or $2.47 per share diluted. For the nine
months ended September 30, 1999, sales and net income were $170.3 million and
$6.55 million, respectively or $1.95 per share.
Although Century's sales and profits for the third quarter and nine months were
higher, approximately 6% and 12% above year earlier amounts, respectively they
were unfavorable affected by the cool and wet weather in the upper Mid-West and
Northeast. However, those shortfalls were more than offset by the continuing
opening of additional branches including some in areas not before covered, as
well as, the robust growth in the Southeast where there was more favorable
weather.
The Technology Group reported increased revenues - up 68% and 55%, respectively
- over the same three and nine months last year. However, operating profits as
compared to the same periods in 1999 were about the same. The higher revenue is
due principally to the acquisition of CAI in October 1999. The lower profit
margins are attributed to product mix of increase in product sales without the
corresponding increase in service business.
Gross profit for the three and nine months ended September 30, 2000 was $21.3
million or 28.3 % of sales and $57.5 million or 27.1% of sales, respectively.
For the three and nine months ended September 30, 1999 gross profit was $19.4
million or 29.4% of sales and $49.2 million or 28.9% of sales, respectively. The
lower gross profit as a percentage of sales for the periods ended September 30,
2000 when compared to the corresponding periods in 1999, is due principally to
geographic, product and service mix.
Selling, general and administrative expenses for the three and nine months ended
September 30, 2000 were $14.4 million and $41.8 million, respectively, compared
to $13.1 million and $36.8 million, respectively, for the three and nine months
ended Sept. 30, 1999. The higher level of expenses in the current year is due to
the higher number of operating branches at Century and the inclusion of CAI,
which was acquired in October, 1999.
Interest expense - net, for the three and nine months ended September 30, 2000
was $0.8 million and $2.1 million, respectively, compared to $0.6 million and
$1.7 million, respectively, for the three and nine months ended September 30,
1999. The higher interest cost is principally due to a higher interest rate and
higher levels of borrowing related to acquisitions made last year and to higher
working capital requirements.
The provision for Federal, State and foreign income taxes as a percentage of
pre-tax income for the nine month period ended Sept. 30, 2000, and 1999 were
38.4% and 38.7% respectively.
As a result of the foregoing, the net income for the three and nine months ended
September 30, 2000 was $3.78 million or $1.11 per share diluted and $8.38
million or $2.47 per share diluted, respectively, compared to $3.42 million or
$1.00 per share diluted and $6.55 million or $1.95 per share diluted,
respectively, for the three and nine months ended September 30, 1999.
10
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Financial Condition:
The Company's principal source of funding is through its Revolving line of
credit. During the nine months ended September 30, 2000 the Company's net cash
used in operations was $12.25 million. This amount was totally financed by the
Company's line of credit-net of repayments of term and subordinated borrowings,
which increased $13.5 million. The higher receivable and inventory balances at
September 30, 2000 compared to those balances at December 31, 1999 are due to
the higher sales during the respective quarters immediately preceding the end of
each period. Thus, the growth in these assets over the prior December 31 should
be viewed in perspective to the December 31 quarters sales. In both the
September 30, 2000 and September 30, 1999, the respective quarterly sales exceed
the December 31 quarters sales by 156% and 205 %, respectively. The measures of
the currency of account receivable and inventory is the day's sales outstanding
and inventory turnover, respectively. At September 30, 2000 days sales
outstanding improved over the comparable period last year. However, inventory
turnover is slightly lower as compared to last year. The lower inventory
turnover is due principally to Century taking advantage of vendor end of year
buying programs.
For the nine months ended September 30, 1999 the Company's net cash used in
operations was $11.9 million. Correspondingly, the company's net cash provided
by financing activities during this period was $15.3 million. The balance of
this funding, $3.4 million, was used to acquire other companies.
During the first half of 2000, the bank syndication group approved several
modifications to the Company's Revolving Credit, Term Loan and Security
Agreement.(the "Agreement") These changes included lowering the cost of the
unused fee by 25 basis points to 1/8% and providing a lower borrowing rate (25
basis points) if the Company's leverage ratio - as defined- is below 2.0. In
addition, the Agreement increased the annual limits on capital expenditures,
leases, and common stock repurchases. CBC, was added to the Agreement in June,
2000. Prior to that, CBC's receivables were financed through Duetsche Financial
Services ("DFS"). DFS, which also finances floor planning, for both CBC and CBE
will continue to provide floor planning under separate $1.5 irrevocable letters
of credit for each Company issued by P.N.C. in favor of DFS.
The Company has undertaken a stock repurchase program, authorizing the purchase
of up to $1 million of its shares. Such purchases will be made from time to time
on the open market. The program may be terminated at any time and thus there can
be no assurance that such program will be completed. Through September 30, 2000
the Company acquired 22,300 shares of its Common Stock for $324,000.
While the Company has continued to generate sufficient cash and gain sufficient
credit availability to liquidate its term and subordinated debt as it becomes
due, and maintain growth, there is no assurance, given the high degree of
leverage, the seasonality of its principal business and the strong construction
economy that has existed, that it can continue to do so in the future.
11
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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)
----------------------------------
Cornelius F. Griffin
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
DATE: November , 2000
New York, New York
12
