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
March 31, 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 Name of Exchange
Section 12(b)of the Exchange Act: 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 $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 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 April 15,2000
<PAGE>
Richton International Corporation
FORM 10-Q
INDEX
- --------------------------------------------------------------------------------
PAGE
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements:
Consolidated Statements of Income
for the three months ended March
31, 2000 and March 31, 1999 (unaudited) 3
Consolidated Balance Sheets at March 31, 2000
(unaudited) and December 31, 1999 4
Consolidated Statements of Cash Flow for
the three months ended March 31, 2000 and
March 31, 1999 (unaudited) 5
Notes to Consolidated Financial
Statements (unaudited) 6
Item 2. - Management's Discussion and
Analysis of Financial Condition and
Results of Operation 10
PART II OTHER INFORMATION - None
Item 4. - Submission of Matters to a Vote of
Stockholders 11
2
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
------------------
March 31,
----------
2000 1999
---- ----
Net Sales $43,369,000 $29,385,000
Cost of Sales 32,912,000 21,809,000
----------- -----------
Gross Profit 10,457,000 7,576,000
Selling, General & Administrative
Expenses 11,815,000 9,492,000
----------- -----------
Loss from Operations (1,358,000) (1,916,000)
Interest Income 342,000 220,000
Interest Expense 836,000 626,000
----------- -----------
Loss before Benefit for
Income Taxes (1,852,000) (2,322,000)
Benefit for Income Tax (696,000) (880,000)
----------- -----------
Net Loss $(1,156,000) $(1,442,000)
=========== ===========
Net Loss Per Common Share
Basic $ (0.38) $ (0.49)
=========== ===========
Diluted $ (0.34) $ (0.43)
=========== ===========
Weighted Average Common and
Common Equivalent Shares Outstanding
Basic 3,006,000 2,951,000
=========== ===========
Diluted 3,404,000 3,355,000
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 36,000 $ 1,071,000
Notes and Accounts Receivable, net of
allowance for doubtful accounts of $2,213,000
in 2000 and $2,264,000 in 1999 35,510,000 33,312,000
Inventories, Net 32,989,000 24,012,000
Prepaid Expenses and Other Current Assets 1,287,000 1,413,000
Deferred Taxes 1,300,000 1,389,000
----------- -----------
Total Current Assets $71,122,000 $61,197,000
Property, Plant and Equipment 5,292,000 4,908,000
Less: Allowance for Depreciation and Amortization (2,038,000) (2,018,000)
----------- -----------
3,254,000 2,890,000
Other Assets:
Deferred Taxes 866,000 869,000
Goodwill 7,734,000 7,793,000
Other Intangibles 2,149,000 2,301,000
Other 317,000 342,000
TOTAL ASSETS $85,442,000 $75,392,000
=========== ===========
Liabilities & Stockholder's Equity
----------------------------------
Current Liabilities:
Current Portion of Long Term Debt $ 2,888,000 $ 3,252,000
Notes Payable 32,235,000 29,008,000
Accounts Payable, Trade 21,226,000 10,056,000
Accrued Liabilities 3,916,000 6,346,000
Deferred Income 2,727,000 2,704,000
----------- -----------
Total Current Liabilities 62,992,000 51,366,000
Noncurrent Liabilities
Long Term Senior Debt 4,684,000 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 3,326,692 shares at March 31, 2000
and 3,303,692 shares at December 31, 1999 334,000 331,000
Additional Paid-in Capital 18,492,000 18,430,000
Retained Earnings 1,303,000 2,459,000
Treasury Stock (2,103,000) (1,925,000)
Cumulative Transaction Adjustment 0 11,000
Unearned Compensation (260,000) (300,000)
----------- -----------
Total Stockholders' Equity 17,766,000 19,006,000
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $85,442,000 $75,392,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (1,156,000) $(1,442,000)
Reconciliation of net income to net cash provided by (used in)
Operating activities:
Depreciation and Amortization 533,000 368,000
Amortization of Unearned Income 40,000
Deferred Taxes 92,000 (407,000)
Changes in Operating Assets and Liabilities
Net of Effects from Acquisitions:
Deferred Income 23,000 392,000
Other Working Capital Items, Assets (11,124,000) (2,861,000)
Other Working Capital Items, Liabilities 8,740,000 (752,000)
Other Assets (17,000) 41,000
------------ -----------
Net Cash Provided by (used in)
Operating Activities (2,869,000) (4,661,000)
INVESTING ACTIVITIES
Capital Expenditures (570,000) (435,000)
Cash Paid for Acquisitions, Net of Cash Acquired (3,067,000)
------------ -----------
Net Cash used in Investing Activities (570,000) (3,502,000)
FINANCING ACTIVITIES
Proceeds from Long-Term Debt -- --
Repayment of Subordinated Debt (337,000) (527,000)
Proceeds from Line of Credit 3,238,000 8,264,000
Repayment of Long-Term Debt (375,000) (175,000)
Exercise of Stock Options 65,000 --
Repurchase of Shares (178,000) --
------------ -----------
Net Cash Provided by Financing Activities 2,413,000 7,562,000
Effect of Exchange Rate on Cash Balances (11,000) 28,000
------------ -----------
Increase (Decrease) in Cash and Cash Equivalents (1,037,000) (573,000)
Cash and Cash Equivalents, Beginning of Period 1,071,000 995,000
------------ -----------
Cash and Cash Equivalents, End of Period $ 36,000 $ 422,000
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid for Interest $ 823,000 $ 668,000
============ ===========
Cash Paid for Income Taxes $ 1,359,000 $ 1,026,000
============ ===========
</TABLE>
5
<PAGE>
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.
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 33 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
reseller, 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 does on the East Coast.
6
<PAGE>
2. Acquisitions:
The Company made no material acquisitions during the quarter ending March
31, 2000.
3. Statement of Cash Flows:
The components of other working capital items and their effects in the
Consolidated Statements of Cash Flows are as follows:
(unaudited)
Three Months Ended March 31,
2000 1999
---- ----
Receivables $ (2,273,000) $ 2,040,000
Inventories (8,977,000) (4,769,000)
Prepaid Expenses 126,000 (132,000)
------------- -------------
Increase in Working Capital Items, Assets $(11,124,000) $ (2,861,000)
============= =============
Accounts Payable $ 11,170,000 $ 2,736,000
Accrued Liabilities (2,430,000) (3,488,000)
------------- -------------
Increase Working Capital Items, Liabilities $ 8,740,000 $ (752,000)
============= =============
4. Debt and Financing
During the quarter ended March 31, 2000 the Company increased it's short term
borrowing by $3.2 million to $32.2 million and reduced its Term and Subordinated
debt by $.7 million to $7.6 million. The Company's leverage ratio declined
sufficiently to lower its applicable loan interest rate by 25 basis points. At
March 31, 2000, the interest rate on the Revolving Credit was 8.4%, or LIBOR
plus 225 basis points. The interest rate on the Term Loan was LIBOR plus 275
points (8.9% as of March 31, 2000)
In March, 2000 the bank syndication group approved several modifications to the
Company's Revolving Credit, Term Loan and Security Agreement. These improvements
included lowering the cost of the unused fee by 25 basis points to 1/8% and
increasing the annual limits on capital expenditures, leases, and common stock
repurchases.
7
<PAGE>
5. Net Income Per Share:
Net income per common share was calculated as follows:
<TABLE>
<CAPTION>
Net Income
Income Shares Per Share
------ ------ ---------
For the three months ended March 31, 2000
-----------------------------------------
(unaudited)
<S> <C> <C> <C>
Basic $(1,156,000) 3,006,000 $(.38)
Effect of dilutive options and warrants -- 398,000 --
Diluted $(1,156,000) 3,404,000 $(.34)
</TABLE>
Net Income
<TABLE>
<CAPTION>
Income Shares Per Share
------ ------ ---------
For the three months ended March 31,1999
----------------------------------------
(unaudited)
<S> <C> <C> <C>
Basic (1,442,000) 2,951,000 $(.49)
Effect of dilutive options and warrants -- 404,000 --
Diluted (1,442,000) 3,355,000 $(.43)
</TABLE>
8
<PAGE>
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
------------ -------- --------- -----
March 31, 2000
- ---------------
Net Sales $29.8 $13.6 -0- $43.4
====== ===== ==== ======
Pre-Tax Income (loss) (1.96) 0.27 (.16) (1.85)
Identifiable Assets 66.7 13.4 5.3 85.4
March 31, 1999
- --------------
Net Sales $20.3 $ 9.1 -0- $29.4
====== ===== ==== ======
Pre-tax Income (2.35) .15 (.12) (2.32)
Identifiable Assets 50.3 12.4 4.2 66.9
9
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations - for the First Quarter ended March 31, 2000
Sales and a net loss for the three months ended March 31, 2000 were $43.4
million and ($1.16) million, respectively. For the three months ended March 31,
1999 sales and net loss were $29.4 million and ($1.44) million, respectively. As
has been previously stated, the first quarter sales and profits are not
representative of the other quarters of the year due to seasonality of the
company's principal business.
Revenues for Century and the Technology Group increased 46% and 48%,
respectively. Correspondingly, approximately 51% of this growth is attributed to
acquisitions and new branches. The remaining growth is due to a strong economy
and good weather.
Gross profit for the three months ended March 31, 2000 was $10.5 million. or
24.1 % of sales For the three months ended March 31, 1999 gross profit was $ 7.6
million or 25.8% of sales. The lower gross profit as a percentage of sales for
the three months ended March 31, 2000 when compared to the corresponding periods
in 1999, is due principally to a less favorable geographic and product and
service mix.
Selling, general and administrative expenses for the three months ended March
31, 2000 were $11.8 million compared to $9.5 million for the three months ended
March 31, 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 effective October , 1999.
Interest expense - net, for the three months ended March 31, 2000 was $.5
million compared to $.4 million for the three months ended March 31, 1999. The
higher interest cost is principally due to a higher interest rate and slightly
higher levels of borrowing related to higher working capital requirements.
The benefit for Federal, State and foreign income taxes as a percentage of
pre-tax loss is approximately the same as last year.
As a result of the foregoing, the net loss for the three months ended March 31,
2000 was $(1.16) million compared to $(1.44) million for the three months ended
March 31, 1999.
10
<PAGE>
Financial Condition:
The Company's principal source of funding is through its Revolving line of
credit. During the three months ended March 31, 2000 the Company's net cash used
in operations was $2.9 million compared to $4.7 million used in operations
during the three months ended March 31, 1999. Correspondingly, the company's net
cash provided by financing activities during the three months ended March 31,
2000 was $2.4 million compared to $7.6 million provided by financing activities
during the same period last year. The lower demand for financing during this
current quarter, when compared to the same period last year, is due to the
absence of acquisitions during this current quarter and to $1.8 million less
cash used in operations.
In March, 2000 the bank syndication group approved several modifications to the
Company's Revolving Credit, Term Loan and Security Agreement. These improvements
included lowering the cost of the unused fee by 25 basis points to 1/8% and
increasing the annual limits on capital expenditures, leases, and common stock
repurchases.
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. In March, 2000 the Company
acquired 12,300 shares of its Common Stock for $178,000
While 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
seasonality of its principal business and the strong construction economy that
has existed, that it can continue to do so in the future.
Part II
Section IV - Submission of Matters to a Vote of Stockholders:
At the annual shareholders meeting held on April 26, 2000, the shareholders, by
a vote of more than 93% of the shares entitled to vote, approved the election of
Messrs. Donald McMahon, Richard Barnitt and Stanley Liefer as directors, the
Long Term Incentive Plan and the appointment of Arthur Andersen & Co LLP as
auditors for the calendar year 2000.
11
<PAGE>
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: May 12, 2000
New York, New York
12
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 37,723
<ALLOWANCES> 2,213
<INVENTORY> 32,989
<CURRENT-ASSETS> 71,122
<PP&E> 5,292
<DEPRECIATION> 2,038
<TOTAL-ASSETS> 85,442
<CURRENT-LIABILITIES> 62,992
<BONDS> 4684
334
0
<COMMON> 0
<OTHER-SE> 17,432
<TOTAL-LIABILITY-AND-EQUITY> 85,442
<SALES> 43,369
<TOTAL-REVENUES> 43,369
<CGS> 32,912
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 494
<INCOME-PRETAX> (1,852)
<INCOME-TAX> (696)
<INCOME-CONTINUING> (1,156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,156)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.34)
</TABLE>
