<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ---
Act of 1934
For the quarterly period ended March 31, 1995 or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to _____________
Commission file number 1-9822
BUFFTON CORPORATION
----------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-1732794
- ------------------------------- --------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
226 Bailey Avenue, Suite 101, Fort Worth, Texas 76107
-----------------------------------------------------
(Address and zip code of principal executive offices)
(817) 332-4761
----------------------------------------------
(Registrant's Telephone Number, Including Area Code)
_________________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
______
Report)
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 ___
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding at:
Class March 31, 1995
- ---------------------------- --------------------------------
Common stock, $.05 par value 5,458,022
<PAGE>
BUFFTON CORPORATION
-------------------
Index
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information............................................. 3
Item 1 - Financial Statements.............................................. 3
Consolidated Condensed Balance Sheets March 31, 1995 (Unaudited)
and September 30, 1994................................................... 3
Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended March 31, 1995 and 1994............................... 4
Consolidated Condensed Statements of Operations (Unaudited)
Six Months Ended March 31, 1995 and 1994................................. 5
Consolidated Condensed Statements of Cash Flow (Unaudited)
Six Months Ended March 31, 1995 and 1994................................. 6
Supplemental Disclosures of Cash Flow Information (Unaudited).............. 6
Notes to Consolidated Condensed Financial Statements (Unaudited)........... 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 12
Part II - Other Information................................................ 17
Signatures................................................................. 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BUFFTON CORPORATION
Consolidated Condensed Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
--------- -------------
(Unaudited)
(In thousands)
<S> <C> <C>
Assets
------
Current assets:
Cash..................................................... $ 3,308 $ 3,196
Accounts and note receivable, net of allowance for
doubtful accounts of $87,000 and $150,000,
respectively........................................... 3,068 3,541
Inventories.............................................. 1,351 4,044
Prepaid and other current assets......................... 345 344
------- -------
Total current assets................................... 8,072 11,125
Property, plant and equipment, at cost:
Land, building and improvements.......................... 3,902 6,097
Machinery, equipment and tooling......................... 1,412 8,442
Less: Accumulated depreciation and amortization......... (1,901) (6,457)
------- -------
Net property, plant and equipment...................... 3,413 8,082
Patents, net of accumulated amortization of
$1,257,000 and $1,206,000, respectively.................. 1,718 1,818
Goodwill, net of amortization of $485,000 and
$302,000................................................. 3,625 3,811
Other assets, net......................................... 100 234
------- -------
$16,928 $25,070
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt........................ $ 1,136 $ 518
Accounts payable......................................... 985 1,610
Accrued liabilities...................................... 1,536 1,594
Income tax payable....................................... 241 254
------- -------
Total current liabilities.............................. 3,898 3,976
Long-term debt............................................ - 5,507
Deferred income taxes..................................... 223 330
Stockholders' equity:
Preferred stock $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding........... - -
Common stock $.05 par value; 30,000,000 shares
authorized; outstanding shares and 5,458,022 and
5,278,022, respectively................................ 273 264
Additional paid-in capital............................... 12,278 12,020
Retained earnings........................................ 256 2,973
------- -------
Total stockholders' equity............................. 12,807 15,257
------- -------
$16,928 $25,070
======= =======
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial
Statements.
3
<PAGE>
BUFFTON CORPORATION
Consolidated Condensed Statements of Operations (Unaudited)
----------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------
1995 1994
-------- ----------
(In thousands, except per
share amounts)
<S> <C> <C>
Net revenues............................................ $ 5,053 $ 10,322
Gain on sale of assets.................................. - 1,050
------- --------
5,053 11,372
Costs and expenses:
Cost of goods sold (exclusive of depreciation)......... 1,530 6,235
Selling, general and administrative.................... 2,822 3,177
Depreciation and amortization.......................... 231 363
Interest............................................... 35 119
------- --------
Total costs and expenses............................. 4,618 9,894
Income from continuing operations before
income taxes........................................... 435 1,478
Income tax provision.................................... 122 75
------- --------
Income from continuing operations....................... 313 1,403
Discontinued operation:
Loss from operations, net of income tax benefit
of $25,000............................................ - (24)
------- --------
Net income.............................................. $ 313 $ 1,379
======= =======
Income (loss) per average common share:
Continuing operations.................................. $ .06 $ .27
Discontinued operation................................. - (.01)
------- -------
Net income............................................. $ .06 $ .26
======= =======
Weighted average common shares outstanding 5,430 5,245
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BUFFTON CORPORATION
Consolidated Condensed Statements of Operations (Unaudited)
-----------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended March 31,
-------------------------
1995 1994
-------- ----------
(In thousands, except per
share amounts)
<S> <C> <C>
Net revenues............................................. $ 9,168 $ 20,343
Gain on sale of assets................................... - 1,050
------- --------
9,168 21,393
Costs and expenses:
Cost of goods sold (exclusive of depreciation).......... 2,804 13,188
Selling, general and administrative..................... 5,260 5,332
Depreciation and amortization........................... 482 684
Interest................................................ 72 233
------- --------
Total costs and expenses.............................. 8,618 19,437
------- --------
Income from continuing operations before
income taxes............................................ 550 1,956
Income tax provision..................................... 165 217
------- --------
Income from continuing operations........................ 385 1,739
Discontinued operation:
Loss from operations, net of income tax benefit
of $107,000 and $66,000, respectively.................. (199) (123)
Loss on disposal, net of income tax benefit
of $165,000............................................ (2,903) -
------- -------
Loss from discontinued operation........................ (3,102) (123)
------- --------
Net income (loss)........................................ $(2,717) $ 1,616
======= =======
Income (loss) per average common share:
Continuing operations................................... $ .07 $ .35
Discontinued operation.................................. (.58) (.02)
------- -------
Net income (loss)....................................... $ (.51) $ .33
======= =======
Weighted average common shares outstanding 5,354 4,961
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BUFFTON CORPORATION
Consolidated Condensed Statements of Cash Flow (Unaudited)
----------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended March 31,
-----------------------
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Net cash used in operating activities...................... $ (288) $(2,150)
Cash flows from investing activities:
Additions to property, plant and equipment................ (536) (473)
Construction in progress, primarily tooling............... (204) (418)
Additions to other assets................................. (23) (476)
Proceeds from sale of operating assets.................... 3,750 9,277
------- -------
Net cash provided by investing activities.................. 2,987 7,910
Cash flows from financing activities:
Additions to long-term debt............................... - 2,133
Repayments of long-term debt.............................. (2,587) (5,447)
------- -------
Net cash used in financing activities...................... (2,587) (3,314)
------- -------
Net increase in cash....................................... 112 2,446
Cash at beginning of period................................ 3,196 450
------- -------
Cash at end of period...................................... $ 3,308 $ 2,896
======= =======
</TABLE>
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Supplemental schedule of cash payments:
<TABLE>
<CAPTION>
Six Months
Ended March 31,
-------------------
1995 1994
------ ------
(In thousands)
<S> <C> <C>
Cash paid for:
Interest........................... $ 72 $ 532
Income taxes....................... 12 16
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
6
<PAGE>
BUFFTON CORPORATION
Notes to Consolidated Condensed Financial Statements (Unaudited)
----------------------------------------------------------------
Note A
- ------
In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
Buffton Corporation (the Company), as of March 31, 1995, and the results of its
operations and its cash flows for the three and six month periods ended March
31, 1995 and 1994.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1994 Buffton Corporation Annual Report
on Form 10-K.
Note B
- ------
The results of operations for the three and six month periods ended March
31, 1995 are not necessarily indicative of the results to be expected for the
full year.
Note C
- ------
Net income (loss) per share has been computed on the basis of the weighted
average number of common shares outstanding.
Note D
- ------
Inventories are as follows:
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
---------- ------------
(In thousands)
<S> <C> <C>
Raw materials $ 717 $ 1,741
Work in process 402 282
Finished goods 232 2,021
--------- -----------
$ 1,351 $ 4,044
========= ===========
</TABLE>
Note E
- ------
Effective January 1, 1994, the Company entered into an agreement with ECA
to acquire the New Orleans operations of ECA in exchange for the Company's note
receivable from and equity interest in ECA approximating $2,641,000 as well as
600,000 shares of its common stock
7
<PAGE>
and $159,000 in cash. The market value of the 600,000 shares was $824,000 at the
date of the acquisition. The agreement provided for the transfer of 235,000
shares of the 600,000 shares of the Company's common stock to be issued to the
owners and certain creditors of ECA and its subsidiaries.
The assets acquired consisted of cash, inventory, leasehold interests and
improvements, sound, light, video and bar equipment and certain other assets,
including prepaids. Liabilities assumed by a subsidiary of the Company consisted
of trade accounts payable and other accrued liabilities in ordinary course of
business and debt of approximately $815,000 outstanding at January 1, 1994. At
March 31, 1995, substantially all of the debt was paid.
In addition to the above described transactions with ECA, the Company had
a note receivable from ECA at January 1, 1994 aggregating $400,000 and advances
of $320,000. The Company also had an option to purchase the stock of American
Food Classics, Inc. (AFC) from ECA at the greater of fair market value, to be
determined by an independent appraisal, or $300,000. The Company exercised its
option January 1, 1994 and exchanged its note receivable from and advances to
ECA for the stock of AFC. The note receivable and advances approximated the fair
market value of the AFC stock at the date of exchange.
The 1994 acquisitions were accounted for under purchase accounting and the
results of operations were consolidated beginning with the effective dates.
Excess of purchase price over fair value of net tangible assets acquired was
$4,113,000 at effective date of the acquisitions and is included in Goodwill on
the Consolidated Balance Sheet. Unaudited pro forma results of operations for
the six months ended March 31, 1994 as if the acquisitions had occurred at the
beginning of the period, are as follows (In thousands, except per share
amounts):
<TABLE>
<S> <C>
Revenues $21,806
Income from continuing operations 1,720
Income from continuing operations
per average common share $ .35
</TABLE>
The New Orleans operations and AFC are collectively referred to as the
"Hospitality Division".
Effective February 28, 1994, Contex Electronics, Inc., a subsidiary of the
Company, sold all of the operating assets and liabilities of MoldCon and Tri-
Tec, two of its wholly owned subsidiaries. The sales price for the assets was
$9,277,000 in cash plus the assumption of certain liabilities by the buyer. The
net proceeds from the disposition were used to reduce bank debt approximately
$5,000,000 and for short-term investments.
The assets sold consisted primarily of trade accounts receivable,
inventory, machinery, equipment and furniture and fixtures. Liabilities assumed
by the Buyer consisted of trade accounts payable and other accrued liabilities
in the ordinary course of business. The assets and liabilities related to the
manufacture of molded internal and external cable assemblies and internal wiring
harnesses.
8
<PAGE>
After deducting applicable selling expenses, the Company reported a pretax
gain of $1,050,000 on the sale during the quarter ended March 31, 1994. The
results of operations, relative to the businesses sold, for the five months, are
included in the Company's Consolidated Condensed Statements of Operations for
the six months ended March 31, 1994. Revenue and operating profit was
$10,243,000 and $146,000, respectively, for the five month period.
By approval of the Company's Board of Directors in December 1994, in a
transaction effective January 1, 1995, the Company sold the operations of Flo
Control, Inc. (Flo Control) headquartered in Burbank, California. The purchaser
of these operations was Russell J. Sarno, President of Flo Control and a board
member of the Company. Mr. Sarno purchased virtually all of the assets of Flo
Control for $3,100,000 in cash and assumed $800,000 of Flo Control's
liabilities. As a condition of the sale, Mr. Sarno agreed to purchase Flo
Control's 95% ownership interest in the Florida Realty Joint Venture for
$150,000 in cash. In connection with these transactions, Flo Control's secondary
containment product line was sold to Mr. Pat Hopkins for a $500,000 note. As a
result of the above transactions, the Company recognized a loss on disposal of
$2,903,000, net of income tax benefit, in its first quarter ended December 31,
1994. The sale of Flo Control was accounted for as a discontinued operation.
Approximately $2.6 million of the cash proceeds from the sale were used to
pay off the Company's outstanding debt of Flo Control. As a result of the sale
of Flo Control's 95% interest in the Florida Realty Joint Venture, the $2.3
million debt of the Florida Realty Joint Venture, previously consolidated in the
Company's Balance Sheet, was eliminated as well as the monthly expense of the
Flo Control lease.
The assets sold consisted primarily of trade accounts receivable,
inventory, machinery, equipment and furniture and fixtures. Liabilities assumed
by the buyer consisted of trade accounts payable and other accrued liabilities
in the ordinary course of business. The assets and liabilities related to the
manufacture of polyvinyl chloride pipe fittings.
Note F
- ------
During March 1992, the United States Environmental Protection Agency
(EPA), issued a Record of Decision (ROD) with respect to the Company's Superfund
Site in Vestal, New York. An Administrative Order for Remedial Design and
Remedial Action was issued in October 1, 1992. The ROD requires the Company to
construct a water treatment facility at the site and to pump contaminated ground
water from bedrock and overburden extraction wells for 15 to 30 years until
remediation goals are met. In December 1992, the Company's environmental
consultants prepared and submitted a Remedial Design Work Plan (RDWP) to the
EPA. During February 1994, the Company received comments from the EPA with
respect to the RDWP and the Company's environmental consultants submitted their
response. The EPA approved the RDWP in October 1994. On November 14, 1994,
engineering field work began in order to ascertain the engineering design of the
treatment plant. The capital costs of $300,000 to $400,000 to implement the
remedy selected are expected to be incurred over a two year period and include
engineering field work, design and construction of the treatment plant. These
costs
9
<PAGE>
will be capitalized when incurred because the treatment plant will prevent
further environmental contamination with respect to the contaminated ground
water being pumped from the extraction wells and improve the property compared
with its condition when acquired by the Company. The Company intends to comply
with the ROD and pump the contaminated ground water through the treatment plant
as required. Presently, LCP National Pipe is leasing the Company's Vestal, New
York facility where it manufactures PVC pipe. Under the terms of the lease, LCP
will operate and maintain the extraction wells on the site in a manner which
complies with environmental requirements. At such time as the treatment plant is
installed, the Company anticipates that operations and ongoing maintenance will
be performed by outside personnel and consultants. Operations and ongoing
maintenance costs consist of labor, sampling and laboratory testing, power
costs, filters, reports and general repair. The EPA included in the ROD an
annual estimate for operating and maintenance costs totaling $242,000. This
estimate covers remediation over a 15 year period and long-term monitoring over
a 30 year period. The Company's environmental consultants believe the EPA's
estimate of $242,000 per year for operating and maintenance cost is high because
the EPA's cost estimate fails to utilize existing on-site labor and computerized
monitoring systems. In addition, the extraction well pumps are presently being
operated by the existing tenant on the property and no incremental power will be
required for the treatment plant. As a result, the Company's environmental
consultants believe a more realistic annual cost estimate to operate and
maintain the facility to be $70,000 to $100,000 of which less than $15,000 per
year represents monitoring and sampling costs.
In an effort to create greater market value for the Vestal, New York
industrial real estate site, the Company intends to submit a plan to the EPA
which might expedite the completion of the remedial action required at that
site.
Note G
- ------
As a result of the settlement of certain legal actions, the Company's
consolidated income before income taxes for the six months ended March 31, 1994
reflects a net credit of $217,000.
The Company is a party to various legal actions which are in the aggregate
immaterial, and due to the nature of the Company's business, it could be a party
in other legal or administrative proceedings arising in the ordinary course of
business. While occasional adverse settlements or resolutions may occur and
negatively impact earnings in the year of settlement, it is the opinion of
management that their ultimate resolution will not have a material adverse
effect on the Company's financial position.
10
<PAGE>
Note H
- ------
During January 1995, in conjunction with the sale of Flo Control, the
Company paid approximately $2,600,000 of the cash proceeds to its lender to pay
off Flo Control's debt which included the term loan. The financing agreement
with its lender was amended to reduce the commitment to $2,000,000. Principal
debt borrowed under the commitment is due and payable on or before March 3,
1996, unless the commitment is extended. The loan provides for interest to be
paid monthly at a floating rate of 2 1/2% over the established prime rate (11
1/2% at March 31, 1995). Access to the revolving line of credit is based upon
various formulas relating to accounts receivable and inventories. The credit
commitment is secured by all of the assets of Current Technology, Inc., the
$500,000 note from Patrick Hopkins and the guaranty of the Company. At March 31,
1995, the debt owed to the Company's lender was $1,062,000. The Company had
approximately $700,000 of borrowing availability at March 31, 1995.
11
<PAGE>
BUFFTON CORPORATION
-------------------
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL INFORMATION
At March 31, 1995, the Company consists of operations in two principal
segments, electronic products and food and beverage. During the year ended
September 30, 1994 and the six months ended March 31, 1995, the Company entered
into acquisition and disposition transactions as follows:
Effective January 1, 1994, the Company acquired the New Orleans
entertainment operation and the stock of AFC from ECA (Hospitality Division).
Effective February 28, 1994, Contex sold all of the operating assets and
liabilities of MoldCon and Tri-Tec.
By approval of the Company's Board of Directors in December 1994, in a
transaction effective January 1, 1995, the Company sold the operations of Flo
Control, headquartered in Burbank, California. The purchaser of these operations
was Russell J. Sarno, President of Flo Control and a board member of the
Company. Mr. Sarno purchased virtually all of the assets of Flo Control for
$3,100,000 in cash and assumed $800,000 of Flo Control's liabilities. As a
condition of the sale, Mr. Sarno agreed to purchase Flo Control's 95% ownership
interest in the Florida Realty Joint Venture for $150,000 in cash. In connection
with these transactions, Flo Control's secondary containment product line was
sold to Mr. Pat Hopkins for a $500,000 note. As a result of the above
transactions, the Company recognized a loss on disposal of $2,903,000, net of
income tax benefit, in its first quarter ended December 31, 1994. The sale of
Flo Control was accounted for as a discontinued operation.
The cash proceeds from the sale were used to reduce the Company's
outstanding debt with its lender. As a result of the sale of Flo Control's 95%
interest in the Florida Realty Joint Venture, the $2.3 million debt of the
Florida Realty Joint Venture, previously consolidated in the Company's Balance
Sheet, was eliminated as well as the monthly expense of the Flo Control lease.
RESULTS OF OPERATIONS
Consolidated net revenues in the 1995 three and six month periods
decreased 51% and 55% respectively, compared to 1994. The principal reason for
the decline was the February 1994 sale of MoldCon and Tri-Tec and the June
shutdown of the Electro-Mech plant in Vestal, New York. The Company's power
surge suppressor manufacturing operation is the only remaining business included
in the Company's electronic products segment. Its revenues for the 1995 three
12
<PAGE>
and six month periods increased 13% and 3%, respectively, as a result of
continued strong demand for its products. Hospitality Division revenues
increased 10% during the 1995 three month period compared to 1994 as a result of
a strong Mardi Gras festival in New Orleans. The Division was included in the
Company's consolidated operations effective January 1, 1994.
Consolidated total costs and expenses during the 1995 three and six month
period decreased 53% and 56%, respectively, compared to 1994 The decline in
total costs was primarily a result of the 1994 sale and shutdown of three cable
assembly plants. Consolidated costs of sales decreased 75% and 79% during 1995
three and six month periods versus 1994. As a percent of related revenue, these
costs were 30% during the 1995 three month period versus 60% a year earlier. The
cost ratio in the 1995 six month period compared to 1994 was not materially
different from the three month period. The improvement in the consolidated gross
profit ratio was due to the sale and shutdown of the cable assembly plants and
inclusion of the higher margin food and beverage operations, as well as improved
margins in the Company's power surge suppressor operation. Electronic products
cost of sales decreased 82% in the 1995 three month period compared to 1994. The
1995 six month period reflects a similar decrease. These costs as a percent of
revenue were 35% in the 1995 periods compared to 69% in the 1994 periods. The
reduction of these costs during 1995 resulted from the transactions previously
discussed. Cost of sales related to the Hospitality Division increased 12% in
the 1995 three month period. This increase was primarily revenue related.
Consolidated selling, general and administrative expenses decreased 11%
during the 1995 three month period versus 1994. The six month period for 1995
was relatively unchanged from 1994. The decrease in selling, general and
administrative expense during the 1995 three month period was the result of
reasons previously discussed. These expenses associated with the Hospitality
Division declined 7% during the 1995 three month period due to the closing of
one operation during 1994.
The decline in interest expense during 1995 compared to 1994 was a result
of the sales of MoldCon, Tri-Tec and Flo Control and the shutdown of the
Company's Vestal, New York Plant and related reduction in long-term debt.
During the three months ended March 31, 1995, the Company reported
consolidated income from continuing operations before income taxes of $435,000
versus $1,478,000 in 1994. The 1994 three month period included a $1,050,000
gain on the sale of MoldCon and Tri-Tec. The Company's power surge suppressor
manufacturing operation reported a 55% increase in operating profit in the 1995
three month period compared to 1994. This operation's 1995 six month period was
up 43% over 1994. The increase in the power surge operations demonstrated
continued strong demand for its products. The Company's food and beverage
segment reported operating profit of $258,000 in the 1995 three month period
compared to $20,000 in 1994. This significant improvement resulted from a strong
Mardi Gras festival in New Orleans as well as the shutdown of one of the
Division's operations in 1994. The Company's consolidated income from continuing
operations before income taxes was $550,000 in the 1995 six month period
compared to $906,000 (excluding $1,050,000 gain on sale of assets) in 1994.
After adjusting 1994 income for the operating profit of businesses sold and
shutdown in 1994 (approximately $380,000) and a
13
<PAGE>
nonrecurring net credit associated with settlement of litigation (approximately
$217,000), the Company's ongoing 1994 operating profit was approximately
$309,000. This significant improvement in 1995 resulted from improved operations
in both of the Company's business segments for reasons previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
During March 1992, the United States Environmental Protection Agency
(EPA), issued a Record of Decision (ROD) with respect to the Company's Superfund
Site in Vestal, New York. An Administrative Order for Remedial Design and
Remedial Action was issued in October 1, 1992. The ROD requires the Company to
construct a water treatment facility at the site and to pump contaminated ground
water from bedrock and overburden extraction wells for 15 to 30 years until
remediation goals are met. In December 1992, the Company's environmental
consultants prepared and submitted a Remedial Design Work Plan (RDWP) to the
EPA. During February 1994, the Company received comments from the EPA with
respect to the RDWP and the Company's environmental consultants submitted their
response. The EPA approved the RDWP in October 1994. On November 14, 1994,
engineering field work began in order to ascertain the engineering design of the
treatment plant. The capital costs of $300,000 to $400,000 to implement the
remedy selected are expected to be incurred over a two year period and include
engineering field work, design and construction of the treatment plant. These
costs will be capitalized when incurred because the treatment plant will prevent
further environmental contamination with respect to the contaminated ground
water being pumped from the extraction wells and improve the property compared
with its condition when acquired by the Company. The Company intends to comply
with the ROD and pump the contaminated ground water through the treatment plant
as required. Presently, LCP National Pipe is leasing the Company's Vestal, New
York facility where it manufactures PVC pipe. Under the terms of the lease, LCP
will operate and maintain the extraction wells on the site in a manner which
complies with environmental requirements. At such time as the treatment plant is
installed, the Company anticipates that operations and ongoing maintenance will
be performed by outside personnel and consultants. Operations and ongoing
maintenance costs consist of labor, sampling and laboratory testing, power
costs, filters, reports and general repair. The EPA included in the ROD an
annual estimate for operating and maintenance costs totaling $242,000. This
estimate covers remediation over a 15 year period and long-term monitoring over
a 30 year period. The Company's environmental consultants believe the EPA's
estimate of $242,000 per year for operating and maintenance cost is high because
the EPA's cost estimate fails to utilize existing on-site labor and computerized
monitoring systems. In addition, the extraction well pumps are presently being
operated by the existing tenant on the property and no incremental power will be
required for the treatment plant. As a result, the Company's environmental
consultants believe a more realistic annual cost estimate to operate and
maintain the facility to be $70,000 to $100,000 of which less than $15,000 per
year represents monitoring and sampling costs.
In an effort to create greater market value for the Vestal, New York
industrial real estate site, the Company intends to submit a plan to the EPA
which might expedite the completion of the remedial action required at the site.
14
<PAGE>
During January 1995, in conjunction with the sale of Flo Control, the
Company paid approximately $2,600,000 of the cash proceeds to its lender to
reduce Flo Control's debt which included the payoff of the term loan. The
financing agreement with its lender was amended to reduce the commitment to
$2,000,000. Principal debt borrowed under the commitment is due and payable on
or before March 3, 1996, unless the commitment is extended. The loan provides
for interest to be paid monthly at a floating rate of 2 1/2% over the
established prime rate (11 1/2% at March 31, 1995). Access to the revolving line
of credit is based upon various formulas relating to accounts receivable and
inventories. The credit commitment is secured by all of the assets of Current
Technology, Inc., the $500,000 note from Patrick Hopkins and the guaranty of the
Company. At March 31, 1995, the debt owed to the Company's lender was
$1,062,000. The Company had approximately $700,000 of borrowing availability at
March 31, 1995.
Effective January 1, 1994, the Company entered into an agreement with
Entertainment Centers of America, Inc. (ECA) to acquire the New Orleans
operations of ECA in exchange for the Company's note receivable from and equity
interest in ECA approximating $2,641,000 as well as 600,000 shares of its common
stock and $159,000 in cash. The market value of the 600,000 shares was $824,000
at the date of the acquisition. The agreement provided for the transfer of
235,000 shares of the 600,000 shares of the Company's common stock to be issued
to the owners and certain creditors of ECA and its subsidiaries. The Purchase
and Sale Agreement also stipulated that the proceeds received from the sale of
the Company's stock by one noteholder would equal a minimum of $265,000 or the
Company would be required to deliver additional shares to make up such
deficiency between the sale proceeds and the stipulated minimum amount. No
deficiency occurred; therefore, the Company was not required to deliver
additional shares.
The assets acquired consisted of cash, inventory, leasehold interests and
improvements, sound, light, video and bar equipment and certain other assets,
including prepaids. Liabilities assumed by a subsidiary of the Company consisted
of trade accounts payable and other accrued liabilities in ordinary course of
business and debt of approximately $815,000 outstanding at January 1, 1994. At
March 31, 1995, substantially all of the debt was paid. The acquisition was
accounted for under purchase accounting and the results of operations were
consolidated beginning with the effective date.
In addition to the above described transactions with ECA, the Company had
a note receivable from ECA at January 1, 1994 aggregating $400,000 and advances
of $320,000. The Company also had an option to purchase the stock of American
Food Classics, Inc. (AFC) from ECA at the greater of fair market value, to be
determined by an independent appraisal, or $300,000. The Company exercised its
option January 1, 1994 and exchanged its note receivable from and advances to
ECA for the stock of AFC. The note receivable and advances approximated the fair
market value of the AFC stock at the date of exchange.
The New Orleans operations and AFC are collectively referred to as the
"Hospitality Division".
15
<PAGE>
Effective February 28, 1994, Contex Electronics, Inc., a subsidiary of the
Company, sold all of the operating assets and liabilities of MoldCon and Tri-
Tec, two of its wholly owned subsidiaries. The sales price for the assets was
$9,277,000 in cash plus the assumption of certain liabilities by the buyer. The
net proceeds from the disposition were used to reduce bank debt approximately
$5,000,000 and for short-term investments.
The assets sold consisted primarily of trade accounts receivable,
inventory, machinery, equipment and furniture and fixtures. Liabilities assumed
by the Buyer consisted of trade accounts payable and other accrued liabilities
in the ordinary course of business. The assets and liabilities related to the
manufacture of molded internal and external cable assemblies and internal wiring
harnesses.
After deducting applicable selling expenses, the Company reported a pretax
gain of $1,050,000 on the sale during the quarter ended March 31, 1994. The
results of operations, relative to the businesses sold are included in the
Company's statements of income for the three months ended December 31, 1993.
Revenue and operating profit was $5,538,000 and $224,000, respectively, for the
three month period ended December 31, 1993.
By approval of the Company's Board of Directors in December 1994, in a
transaction effective January 1, 1995, Flo Control sold substantially all of its
operating assets. The sales price for the assets was $3,100,000 in cash, plus
the assumption of $800,000 of liabilities. As a condition of the sale, the Buyer
was required to purchase for $150,000 in cash Flo Control's undivided ninety-
five percent (95%) joint venture interest in Florida Realty Joint Venture.
Additionally, Flo Control sold its secondary containment assets for a $500,000
note. The transaction was accounted for as a discontinued operation. Investment
in discontinued operation on the Consolidated Condensed Balance Sheet represents
sales proceeds of $3,750,000 reduced by bank debt and other liabilities of
approximately $3.2 million.
The assets sold consisted primarily of trade accounts receivable,
inventory, machinery, equipment and furniture and fixtures. Liabilities assumed
by the buyer consisted of trade accounts payable and other accrued liabilities
in the ordinary course of business. The assets and liabilities related to the
manufacture of polyvinyl chloride pipe fittings.
The Company anticipates, based upon a continuation of the operating
results of its last year and current fiscal quarter, that it will have
sufficient cash flow and borrowing availability to meet its ongoing operational
needs, as well as payments required under existing debt agreements.
The Company invested $536,000 in property and equipment, including
additional land improvements and enhancements to existing property during the
six months ended March 31, 1995.
16
<PAGE>
BUFFTON CORPORATION
-------------------
PART II - OTHER INFORMATION
---------------------------
Item 1. - Legal Proceedings
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Report dated January 20, 1995 reporting agreements to
sell the operating assets of Flo Control, the Florida
Real Estate Joint Venture interests owned by Flo Control
and the Secondary Containment Asset line of business of
Flo Control.
17
<PAGE>
BUFFTON CORPORATION
-------------------
SIGNATURES
----------
Pursuant to 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.
BUFFTON CORPORATION
(Registrant)
By: /s/Robert H. McLean
-----------------------
Chairman of the Board
and President
May 11, 1995
------------
By: /s/Robert Korman
-----------------------
Vice President and
Chief Financial Officer
May 11, 1995
------------
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,308
<SECURITIES> 0
<RECEIVABLES> 3,155
<ALLOWANCES> (87)
<INVENTORY> 1,351
<CURRENT-ASSETS> 8,072
<PP&E> 5,314
<DEPRECIATION> 1,901
<TOTAL-ASSETS> 16,928
<CURRENT-LIABILITIES> 3,898
<BONDS> 0
<COMMON> 273
0
0
<OTHER-SE> 12,278
<TOTAL-LIABILITY-AND-EQUITY> 16,928
<SALES> 5,053
<TOTAL-REVENUES> 5,053
<CGS> 1,530
<TOTAL-COSTS> 4,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 435
<INCOME-TAX> 122
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
