0000930661-95-000241.txt : 19950811 0000930661-95-000241.hdr.sgml : 19950811 ACCESSION NUMBER: 0000930661-95-000241 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUFFTON CORP CENTRAL INDEX KEY: 0000351220 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 751732794 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09822 FILM NUMBER: 95560412 BUSINESS ADDRESS: STREET 1: 226 BAILEY AVE STE 101 CITY: FORT WORTH STATE: TX ZIP: 76107 BUSINESS PHONE: 8173324761 MAIL ADDRESS: STREET 1: 226 BAILEY AVE STE 101 CITY: FORT WORTH STATE: TX ZIP: 76107 FORMER COMPANY: FORMER CONFORMED NAME: BUFFTON OIL & GAS INC DATE OF NAME CHANGE: 19830405 10-Q 1 FORM 10-Q 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 ------------ -------------- 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 June 30, 1995 ---------------------------- -------------------------------- Common stock, $.05 par value 5,585,378 BUFFTON CORPORATION ------------------- Index -----
Page ---- 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
2 PART I - FINANCIAL INFORMATION Item 1. - Financial Statements BUFFTON CORPORATION ------------------- Consolidated Condensed Balance Sheets -------------------------------------
June 30, September 30, 1995 1994 ----------- ------------- (Unaudited) (In thousands) 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 ------- ------- 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 ------- ------- $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 ------- ------- 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 ------- ------- Total stockholders' equity.......................... 13,620 15,257 ------- ------- $16,817 $25,070 ======= =======
See accompanying notes to unaudited Consolidated Condensed Financial Statements. 3 BUFFTON CORPORATION ------------------- Consolidated Condensed Statements of Income (Unaudited) ------------------------------------------------------
Three Months Ended June 30, ---------------- 1995 1994 ------ ------ (In thousands, except per share amounts) 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 ------ ------ Total costs and expenses............................ 4,639 5,165 ------ ------ 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 - ------ ------ Net income............................................ $ 618 $ 141 ====== ====== Income per average common share: Continuing operations................................ $ .05 $ .01 Discontinued operation............................... .07 .02 ------ ------ Net income........................................... $ .12 $ .03 ====== ====== Weighted average common shares outstanding 5,520 5,278 ====== ======
The accompanying notes are an integral part of these financial statements. 4 BUFFTON CORPORATION ------------------- Consolidated Condensed Statements of Operations (Unaudited) ----------------------------------------------------------
Nine Months Ended June 30, ---------------- 1995 1994 ------ ------ (In thousands, except per share amounts) Net revenues...................................... $14,200 $25,619 Gain on sale of assets............................ - 1,050 ------- ------- 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 ------- ------- Total costs and expenses........................ 13,257 24,602 ------- ------- Income from continuing operations before income taxes..................................... 943 2,067 Income tax provision.............................. 302 263 ------- ------- 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) - ------- ------- Loss from discontinued operation................. (2,740) (47) ------- ------- 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 ======= =======
The accompanying notes are an integral part of these financial statements. 5 BUFFTON CORPORATION ------------------- Consolidated Condensed Statements of Cash Flow (Unaudited) ----------------------------------------------------------
Ended June 30, Nine Months ----------------- 1995 1994 ------ ------- (In thousands) 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 ------- ------- 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) ------- ------- Net cash used in financing activities................ (3,329) (4,492) ------- ------- Net increase (decrease) in cash...................... (525) 2,513 Cash at beginning of period.......................... 3,196 450 ------- ------- Cash at end of period................................ $ 2,671 $ 2,963 ======= =======
Supplemental Disclosures of Cash Flow Information ------------------------------------------------- Supplemental schedule of cash payments:
Nine Months Ended June 30, ------------------ 1995 1994 ----- ----- (In thousands) Cash paid for: Interest.................................. $ 99 $ 735 Income taxes.............................. 52 16
See accompanying notes to unaudited Consolidated Condensed Financial Statements. 6 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:
June 30, September 30, 1995 1994 -------- ------------- (In thousands) Raw materials $ 781 $1,741 Work in process 438 282 Finished goods 232 2,021 ------ ------ $1,451 $4,044 ====== ======
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 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 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 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 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 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 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 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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1995 OCT-01-1994 JUN-30-1995 2,671 0 3,027 (99) 1,451 7,594 5,472 (2,004) 16,817 3,197 0 279 0 0 13,341 16,817 14,200 14,200 4,341 13,257 0 0 99 943 302 641 (2,740) 0 0 (2,099) (.39) 0