<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 June 30, 1995 or
Transition report pursuant to Section 13 or 15(d) of the Securities
---
Exchange Act of 1934
For the transition period from to
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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
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(Address and zip code of principal executive offices)
(817) 332-4761
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(Registrant's Telephone Number, Including Area Code)
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(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
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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
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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 June 30, 1995
---------------------------- --------------------------------
Common stock, $.05 par value 5,585,378
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BUFFTON CORPORATION
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Index
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information............................................ 3
Item 1 - Financial Statements............................................. 3
Consolidated Condensed Balance Sheets June 30, 1995 (Unaudited)
and September 30, 1994.................................................. 3
Consolidated Condensed Statements of Income (Unaudited)
Three Months Ended June 30, 1995 and 1994............................... 4
Consolidated Condensed Statements of Operations (Unaudited)
Nine Months Ended June 30, 1995 and 1994................................ 5
Consolidated Condensed Statements of Cash Flow (Unaudited)
Nine Months Ended June 30, 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............................................... 18
Signatures................................................................ 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BUFFTON CORPORATION
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Consolidated Condensed Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
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(Unaudited)
(In thousands)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents............................ $ 2,671 $ 3,196
Accounts receivable, net of allowance for doubtful
accounts of $99,000 and $150,000, respectively.... 2,928 3,541
Inventories.......................................... 1,451 4,044
Prepaid and other current assets..................... 544 344
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Total current assets.............................. 7,594 11,125
Property, plant and equipment, at cost:
Land, building and improvements...................... 4,112 6,097
Machinery, equipment and tooling..................... 1,360 8,442
Less: Accumulated depreciation and amortization..... (2,004) (6,457)
------- -------
Net property, plant and equipment.................. 3,468 8,082
Patents, net of accumulated amortization of
$1,307,000 and $1,206,000, respectively............ 1,668 1,818
Goodwill, net of amortization of $576,000 and
$302,000........................................... 3,583 3,811
Other assets, net..................................... 504 234
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$16,817 $25,070
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt.................... $ 509 $ 518
Accounts payable..................................... 1,010 1,610
Accrued liabilities.................................. 1,462 1,594
Income tax payable................................... 216 254
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Total current liabilities........................... 3,197 3,976
Long-term debt........................................ - 5,507
Deferred income taxes................................. - 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 5,585,378 and
5,278,022, respectively........................... 279 264
Additional paid-in capital........................... 12,467 12,020
Retained earnings.................................... 874 2,973
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Total stockholders' equity.......................... 13,620 15,257
------- -------
$16,817 $25,070
======= =======
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial
Statements.
3
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BUFFTON CORPORATION
-------------------
Consolidated Condensed Statements of Income (Unaudited)
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<TABLE>
<CAPTION>
Three Months
Ended June 30,
----------------
1995 1994
------ ------
(In thousands, except
per share amounts)
<S> <C> <C>
Net revenues.......................................... $5,032 $5,276
Costs and expenses:
Cost of goods sold (exclusive of depreciation)....... 1,535 2,573
Selling, general and administrative.................. 2,834 2,253
Depreciation and amortization........................ 243 295
Interest............................................. 27 44
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Total costs and expenses............................ 4,639 5,165
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Income from continuing operations before
income taxes......................................... 393 111
Income tax provision.................................. 137 45
------ ------
Income from continuing operations..................... 256 66
Discontinued operation:
Income from operations, net of income tax provision
of $40,000.......................................... - 75
Utilization of income tax benefit related to
loss on disposal.................................... 362 -
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Net income............................................ $ 618 $ 141
====== ======
Income per average common share:
Continuing operations................................ $ .05 $ .01
Discontinued operation............................... .07 .02
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Net income........................................... $ .12 $ .03
====== ======
Weighted average common shares outstanding 5,520 5,278
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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BUFFTON CORPORATION
-------------------
Consolidated Condensed Statements of Operations (Unaudited)
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<TABLE>
<CAPTION>
Nine Months
Ended June 30,
----------------
1995 1994
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(In thousands, except
per share amounts)
<S> <C> <C>
Net revenues...................................... $14,200 $25,619
Gain on sale of assets............................ - 1,050
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14,200 26,669
Costs and expenses:
Cost of goods sold (exclusive of depreciation)... 4,341 15,761
Selling, general and administrative.............. 8,092 7,585
Depreciation and amortization.................... 725 979
Interest......................................... 99 277
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Total costs and expenses........................ 13,257 24,602
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Income from continuing operations before
income taxes..................................... 943 2,067
Income tax provision.............................. 302 263
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Income from continuing operations................. 641 1,804
Discontinued operation:
Loss from operations, net of income tax benefit
of $107,000 and $26,000, respectively........... (199) (47)
Loss on disposal, net of income tax benefit
of $527,000..................................... (2,541) -
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Loss from discontinued operation................. (2,740) (47)
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Net income (loss)................................. $(2,099) $ 1,757
======= =======
Income (loss) per average common share:
Continuing operations............................ $.12 .36
Discontinued operation........................... (.51) (.01)
------- -------
Net income (loss)................................ $ (39) $ .35
======= =======
Weighted average common shares outstanding 5,409 5,067
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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BUFFTON CORPORATION
-------------------
Consolidated Condensed Statements of Cash Flow (Unaudited)
----------------------------------------------------------
<TABLE>
<CAPTION>
Ended June 30,
Nine Months
-----------------
1995 1994
------ -------
(In thousands)
<S> <C> <C>
Net cash provided by (used in) operating activities.. $ 379 $(1,357)
Cash flows from investing activities:
Additions to property, plant and equipment......... (694) (586)
Construction in progress, primarily tooling........ (204) (536)
Liquidation of machinery and equipment............. - 207
Additions to other assets.......................... (427) -
Proceeds from sale of operating assets............. 3,750 9,277
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Net cash provided by investing activities............ 2,425 8,362
Cash flows from financing activities:
Additions to long-term debt........................ - 600
Repayments of long-term debt....................... (3,329) (5,092)
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Net cash used in financing activities................ (3,329) (4,492)
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Net increase (decrease) in cash...................... (525) 2,513
Cash at beginning of period.......................... 3,196 450
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Cash at end of period................................ $ 2,671 $ 2,963
======= =======
</TABLE>
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Supplemental schedule of cash payments:
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
------------------
1995 1994
----- -----
(In thousands)
<S> <C> <C>
Cash paid for:
Interest.................................. $ 99 $ 735
Income taxes.............................. 52 16
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
6
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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 June 30, 1995, and the results of
its operations and its cash flows for the three and nine month periods ended
June 30, 1995 and 1994.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the 1995 Buffton Corporation Annual
Report on Form 10-K.
Note B
------
The results of operations for the nine month period ended June 30,
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>
June 30, September 30,
1995 1994
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(In thousands)
<S> <C> <C>
Raw materials $ 781 $1,741
Work in process 438 282
Finished goods 232 2,021
------ ------
$1,451 $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
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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 June 30, 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 nine months ended June 30, 1994 as if the acquisitions
had occurred at the beginning of the period, are as follows (In thousands,
except per share amounts):
Revenues $27,082
Income from continuing operations 1,775
Income from continuing operations
per average common share $ .35
The New Orleans operations and AFC are collectively referred to as the
"BFX Hospitality Group".
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 in 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 nine months
ended June 30, 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 $2,541,000, net of income tax benefit,
during the Company's current fiscal year. 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's environmental consultants
submitted an outline for an alternative remedy to the EPA on April 12, 1995
which might expedite the completion of the remedial action required at the
site. The EPA agreed to consider an alternative remedy in its letter to the
Company's environmental consultants dated April 17, 1995. On June 8, 1995,
the Company's environmental consultants submitted to the EPA a Remedial
Design Work Plan Addendum (RDWPA) outlining additional work to be performed
in order to arrive at an alternative remedy. On July 27, 1995, the EPA
responded with comments on the RDWPA. Presently, the Company's environmental
consultants are preparing a response to the EPA's comments.
Note G
------
As a result of the settlement of certain legal actions, the Company's
consolidated income before income taxes for the nine months ended June 30,
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 June 30, 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 June 30, 1995, the debt owed to the Company's
lender was $499,000. The Company had approximately $1,383,000 of borrowing
availability at June 30, 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 June 30, 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 nine months ended June 30, 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 (BFX Hospitality
Group).
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 $2,541,000, net of income tax benefit, during its current
fiscal year. 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 nine month periods
decreased 5% and 45% respectively, compared to 1994. The reason for the
decline was the February 1994 sale of MoldCon and Tri-Tec and the June 1994
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 and nine month periods increased 13% and 6%, respectively, as a
result of a wider range of
12
<PAGE>
products and continued strong demand for its existing products. BFX Hospitality
Group revenues increased 51% during the 1995 nine month period compared to 1994
as a result of inclusion in the Company's consolidated operations for all nine
months in 1995 and a strong Mardi Gras festival in New Orleans. These revenues
were down slightly during the 1995 three month period. The BFX Hospitality Group
was included in the Company's consolidated operations effective January 1, 1994.
Consolidated total costs and expenses during the 1995 three and nine
month periods decreased 10% and 46%, respectively, compared to 1994. The
decline in total costs during the 1995 nine month period was primarily a
result of the 1994 sale and shutdown of three cable assembly plants as
previously discussed. Consolidated costs of sales decreased 40% and 72%
during 1995 three and nine month periods versus 1994. As a percent of
related revenue, these costs were 31% during the 1995 three month period
versus 49% a year earlier. The cost ratio in the 1995 nine month period was
31% compared to 62% in 1994. 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 13% in the 1995 three month
period compared to 1994. The 1995 nine month period reflects a 79% decrease.
These costs, as a percent of revenue, were 33% in the 1995 three month period
compared to 42% in the 1994 period. As a percent of revenue, these costs for
the 1995 nine month period were 34% compared to 66% in 1994. The reduction
of these costs during 1995 resulted from the transactions previously
discussed. Cost of sales related to the BFX Hospitality Group decreased 8%
in the 1995 three month period. This decrease was primarily revenue related.
Cost of sales in this operation increased 53% during the 1995 nine month
period primarily due to inclusion for all nine months of the current fiscal
year.
Consolidated selling, general and administrative expenses increased 26%
during the 1995 three month period versus 1994. These expenses for the nine
month period of 1995 increased 7% from 1994. Selling, general and
administrative expenses associated with the electronics segment increased 35%
during the 1995 three month period due primarily to increased revenue. These
expenses for the 1995 nine month period decreased 19% compared to 1994 for
reasons previously discussed. These expenses associated with the BFX
Hospitality Group declined 13% 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 June 30, 1995, the Company reported
consolidated income from continuing operations before income taxes of
$395,000 versus $111,000 in 1994. The Company's power surge suppressor
manufacturing operation reported a 37% increase in operating profit in the
1995 three month period compared to 1994. This operation's 1995 nine month
period was up 40% over 1994. The increase in the power surge suppressor
operation was a result of continued strong demand for its products and
related revenue increases. The Company's food and beverage segment reported
a slight loss in the 1995 three month period which was
13
<PAGE>
significantly smaller than in 1994. This significant improvement resulted from
the shutdown of one of the Group's unprofitable operations in 1994. During the
1995 nine month period, the food and beverage segment reported operating profit
of $264,000 compared to a loss of $156,000 in 1994. This improvement resulted
from a strong Mardi Gras festival in New Orleans as well as the shutdown of one
of the Group's unprofitable operations in 1994. The Company's consolidated
income from continuing operations before income taxes was $945,000 in the 1995
nine month period compared to $1,017,000 (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 nonrecurring
net credit associated with settlement of litigation (approximately $217,000),
the Company's ongoing 1994 operating profit was approximately $419,000. This
significant improvement in 1995 resulted from improved operations in both of the
Company's business segments for reasons previously discussed.
During the three months ended June 30, 1995, the Company increased its
estimate for utilization of income tax benefit relating to the loss on
disposal from the January 1, 1995 sale of Flo Control, Inc. The change in
estimate resulted in additional credit of $362,000 or $.07 per share which
reduced the loss from discontinued operation. The change in estimate
resulted from higher than anticipated earnings for the current fiscal year.
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,
14
<PAGE>
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's environmental consultants
submitted an outline for an alternative remedy to the EPA on April 12, 1995
which might expedite the completion of the remedial action required at the
site. The EPA agreed to consider an alternative remedy in its letter to the
Company's environmental consultants dated April 17, 1995. On June 8, 1995,
the Company's environmental consultants submitted to the EPA a Remedial
Design Work Plan Addendum (RDWPA) outlining additional work to be performed
in order to arrive at an alternative remedy. On July 27, 1995, the EPA
responded with comments on the RDWPA. Presently, the Company's environmental
consultants are preparing a response to the EPA's comments.
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 June 30, 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 June 30, 1995, the debt owed to the
Company's lender was $499,000. The Company had approximately $1,383,000 of
borrowing availability at June 30, 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.
15
<PAGE>
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 June 30, 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
"BFX Hospitality Group".
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 in 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 nine months
ended June 30, 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, 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
16
<PAGE>
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 $694,000 in property and equipment, including
additional land improvements and enhancements to existing property during the
nine months ended June 30, 1995.
17
<PAGE>
BUFFTON CORPORATION
-------------------
PART II - OTHER INFORMATION
---------------------------
Item 1. - Legal Proceedings
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
18
<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
August 10, 1995
---------------
By: /s/Robert Korman
------------------------
Vice President and
Chief Financial Officer
August 10, 1995
---------------
19
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<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
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