UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-14951
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BUTLER INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 06-1154321
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Summit Avenue, Montvale, New Jersey 07645
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 573-8000
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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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As of August 12, 1996, 6,174,997 shares of the registrant's common stock, par
value $.001 per share, were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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(A) Consolidated Balance Sheets - June 30, 1996 (Unaudited) and December 31,
1995
(B) Consolidated Statements of Operations (Unaudited) - quarter ended June 30,
1996 and quarter ended June 30, 1995
(C) Consolidated Statements of Operations (Unaudited) - six months ended June
30, 1996 and six months ended June 30, 1995
(D) Consolidated Statements of Cash Flows (Unaudited) - six months ended June
30, 1996 and six months ended June 30, 1995
(D) Notes to Consolidated Financial Statements (Unaudited)
2
BUTLER INTERNATIONAL, INC.
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CONSOLIDATED BALANCE SHEETS
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(in thousands except share data)
June 30, December 31,
1996 1995
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(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,278 $ 1,097
Accounts receivable, net 66,339 66,020
Other current assets 3,081 3,345
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Total current assets 70,698 70,462
Property and equipment, net 14,707 15,168
Other assets and deferred charges 1,019 654
Excess cost over net assets of
business acquired, net 24,029 24,288
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Total assets $110,453 $110,572
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 26,580 $ 27,012
Current portion of long-term debt 9,946 9,347
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Total current liabilities 36,526 36,359
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Long-term debt 37,572 40,480
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Other long-term liabilities 3,723 3,677
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Stockholders' equity:
Preferred stock, par value $.001 per share,
authorized 5,000,000: Series B Cumulative Convertible,
authorized 3,500,000; issued 2,537,480 at June 30, 1996
and 2,451,898 at December 31, 1995 (Aggregate liquidation
preference $2,537,480 at June 30, 1996 and $2,451,898
at December 31, 1995) 3 2
Common stock, par value $.001 per share, authorized
83,333,333; issued and outstanding 6,174,997 at
June 30, 1996 and 5,993,783 at December 31, 1995 6 6
Additional paid-in capital 93,709 92,882
Accumulated deficit (60,985) (62,727)
Cumulative foreign currency translation adjustment (101) (107)
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Total stockholders' equity 32,632 30,056
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Total liabilities and stockholders' equity $110,453 $110,572
======== ========
The accompanying notes are an integral part of these financial statements.
3
BUTLER INTERNATIONAL, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(in thousands except share and per share data)
(Unaudited)
Quarter Ended June 30,
----------------------
1996 1995
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Net sales $ 105,379 $ 110,514
Cost of sales 90,025 94,224
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Gross margin 15,354 16,290
Depreciation and amortization 816 684
Selling, general and administrative expenses 11,806 12,488
Non recurring charges - 205
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Income before other income (expense)
and income taxes 2,732 2,913
Other income (expense):
Interest and other 158 126
Interest expense (1,397) (1,576)
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Income before income taxes 1,493 1,463
Income taxes 177 296
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Net income $ 1,316 $ 1,167
========== ==========
Net income per share:
Primary $.20 $.18
Assuming full-dilution $.18 $.17
Average number of common shares and dilutive
common share equivalents outstanding:
Primary 6,429,090 6,260,215
Assuming full-dilution 7,164,788 6,940,639
The accompanying notes are an integral part of these financial statements.
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BUTLER INTERNATIONAL, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(in thousands except share and per share data)
(Unaudited)
Six Months Ended June 30,
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1996 1995
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Net sales $ 206,050 $ 226,808
Cost of sales 176,808 195,682
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Gross margin 29,242 31,126
Depreciation and amortization 1,632 1,322
Selling, general and administrative expenses 23,025 24,695
Non recurring charges - 330
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Income before other income (expense)
and income taxes 4,585 4,779
Other income (expense):
Interest and other 350 274
Interest expense (2,835) (2,997)
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Income before income taxes 2,100 2,056
Income taxes 272 438
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Net income $ 1,828 $ 1,618
========== ==========
Net income per share:
Primary $.28 $.25
Assuming full-dilution $.26 $.23
Average number of common shares and dilutive
common share equivalents outstanding:
Primary 6,295,055 6,244,825
Assuming full-dilution 7,118,297 6,915,352
The accompanying notes are an integral part of these financial statements.
5
BUTLER INTERNATIONAL, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(in thousands)
(Unaudited)
Six Months Ended June 30,
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1996 1995
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,828 $ 1,618
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and excess purchase price amortization 1,632 1,322
Amortization of deferred financing
and employee stock purchase
plan loans 378 292
Foreign currency translation 6 (127)
(Increase) decrease in assets,
increase (decrease) in liabilities:
Accounts receivable (319) (17,804)
Other current assets 264 (677)
Other assets (743) 86
Current liabilities (405) 7,156
Other long-term liabilities 46 (383)
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Net cash provided by (used in) operating activities 2,687 (8,517)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - net (648) (2,445)
Cost of business acquired (264) (290)
Expenses paid in conjunction with
discontinued operations (27) (81)
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Net cash used in investing activities (939) (2,816)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under financing
agreements (2,287) 10,488
Net proceeds from the issuance of
common stock 742 106
Net payments in conjunction with
headquarters building purchase (22) (73)
Repurchase common stock - (126)
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Net cash (used in) provided by financing activities (1,567) 10,395
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Net increase (decrease) in cash and
cash equivalents 181 (938)
Cash and cash equivalents,
beginning of period 1,097 2,285
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Cash and cash equivalents,
end of period $ 1,278 $ 1,347
======= ========
The accompanying notes are an integral part of these financial statements.
6
BUTLER INTERNATIONAL, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 1 - PRESENTATION:
The consolidated financial statements include the accounts of Butler
International, Inc. ("the Company") and its wholly-owned subsidiaries.
Significant intercompany balances and transactions have been eliminated.
Certain amounts from prior period consolidated financial statements have been
reclassified in the accompanying consolidated financial statements to conform
with current period presentation.
The accompanying financial statements are unaudited, but, in the opinion of
management, reflect all adjustments, which include normal recurring accruals,
necessary to present fairly the financial position, results of operations and
cash flows at June 30, 1996 and for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting principles
have been condensed or omitted. Accordingly, this report should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1995. The results of operations for the three and six months ended
June 30, 1996 are not necessarily indicative of operating results for the full
year.
NOTE 2 - CREDIT FACILITY:
In May 1994, certain of the Company's US and Canadian operating subsidiaries
entered into a three-year Credit Facility with General Electric Capital
Corporation ("GECC"). This agreement was extended to July 1, 1997. The Credit
Facility provides the Company with up to $50.0 million in loans including $6.0
million for letters of credit. The sum of the aggregate amount of loans
outstanding under the Credit Facility plus the aggregate amount available for
letters of credit may not exceed the lessor of (i) $50.0 million or (ii) an
amount equal to 85% of eligible receivables plus 75% of eligible pending
receivables (which percentages are subject to adjustment from time to time by
the Company's principal lender - GECC). The interest rate chargeable to the
Company is fixed at the beginning of each month based upon the 30 day commercial
paper rate in effect at the close of the last business day of each month, plus
three hundred basis points. The interest rate in effect on June 30, 1996 was
8.4%, and the average rate since January 1, 1996 was 8.5%. The Company has
guaranteed all obligations incurred or created under the Credit Facility. The
termination date of the Credit Facility is the earlier of (i) July 1, 1997, or
(ii) thirty days prior to the maturity date of the mortgage note on the
Company's corporate office complex (or any extension, renewal or refinancing of
such indebtedness). The Company is also required to comply with certain
affirmative and financial covenants. The Company is in compliance with the
aforementioned covenants, as amended. In the case of one or more events of
default, GECC may take either or both of the following actions: (a) terminate
the Credit Facility, and (b) declare the Credit Facility then outstanding and
the term note to be due and payable. Although there are lenders which
management feels could provide such a loan on comparable terms, a change in
lenders could adversely affect the Company's operating results.
NOTE 3 - COMMON STOCK:
In the six months ended June 30, 1996, the Company issued 181,214 shares of
common stock upon the exercise of common stock options and warrants.
NOTE 4 - PREFERRED STOCK:
On June 30, 1996, $85,582 of dividends in kind were paid to holders of Series B
Preferred Stock.
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NOTE 5 - EARNINGS PER SHARE:
Primary earnings per share are determined by dividing net earnings (after
deducting preferred stock dividends) by the weighted average number of common
shares outstanding and dilutive common stock equivalents. On a fully-diluted
basis, both earnings and shares outstanding are adjusted to assume the
conversion of convertible preferred stock.
NOTE 6 - CONTINGENCIES:
The Company and its subsidiaries are parties to various legal proceedings and
claims incidental to its normal business operations for which material losses,
beyond that which is recorded, is remote except for the following matter. In
June, 1995, the Company filed a complaint against CIGNA Property and Casualty
Insurance Company in the Court of Common Pleas of Philadelphia County,
Pennsylvania alleging negligence, breach of contract, breach of fiduciary duty,
and negligent misrepresentation arising out of CIGNA's and other defendants'
acts and omissions in the processing, handling and investigation of claims
against the Company under general liability and workmen's compensation insurance
contracts. On August 31, 1995, the defendants filed an answer, new matter and
counterclaim denying the Company's allegations, asserting certain affirmative
defenses, and alleging that the Company has failed to pay retrospective premiums
amounting to approximately $7.0 million. In the opinion of management, based on
the advice of counsel, all of the proceedings and claims in which the Company
and its subsidiaries are involved with can ultimately be defended. The Company
is defending itself vigorously against all such claims.
NOTE 7 - SUBSEQUENT EVENT:
On August 4, 1996, the Company sold its United Kingdom Telecommunications
operation. Proceeds from the sale will be sufficient to extinguish related
liabilities and cover the cost basis of assets sold. In the interim, excess
proceeds were used to pay down debt. Consequently, there will be no anticipated
charge necessary from the sale of this operation.
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Item 2. Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
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RESULTS OF OPERATIONS
- ---------------------
The second quarter of 1996 net income increased 13% to $1.3 million, or $.20 per
share, from the $1.2 million, or $.18 per share, reported in the second quarter
of 1995. On a year-to-date basis, net income improved 13% to $1.8 million, or
$.28 per share, from $1.6 million, or $.25 per share reported last year.
The results for the quarter reflect the strength of the Company's
Telecommunications Services, Technology Solutions and Fleet Services operations,
as they continue to drive the Company's improved performance. Additionally, the
margins in the Contract Technical Services division were again higher than that
of the prior quarter and the same quarter last year.
Gross margins increased to 14.6% in the second quarter from 13.8% reported in
the first quarter, reflecting the success of the Company's strategy of pursuing
an improved business mix. This increase occurred despite lower than average
margins in the United Kingdom ("UK") business. The year-to-date gross margin
for 1996 was 14.2%, compared with 13.7% for the same period in 1995. Selling,
general and administrative expenses were sharply lower than that of the prior
year, the direct result of the strategic management actions announced in late
1995.
The Company also benefited from reduced interest expense, reflecting the
significantly improved controls on, and management of, its receivable investment
which decreased by $14.6 million since June 1995.
The results of the UK Telecommunications group did not meet expectations and the
Company entered into an agreement to sell this operation. The Company finalized
this transaction on August 4, 1996, and will not incur a charge upon its
disposition. The Company will continue to support its international clientele
in its staffing business, both in the UK and its other international markets.
Net sales for the quarter were $105.4 million, reflecting a 5% decrease from the
$110.5 million recorded in the second quarter of 1995. For the six months,
sales were $206.1 million, down 9% from the $226.8 million recorded in the
comparable period last year. Noteworthy increases in the Telecommunications
Services, Fleet Services and Technology Solutions divisions were more than
offset by planned decreases in Contract Technical Services, the direct result of
the Company's strategy of shedding low margin business, reduced sales in the
Project Engineering Services division due to the completion of a major contract
early in the first quarter of 1996 and the UK operations because of the
curtailed volume in the utility and telecommunications areas.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are generated from operations and
borrowings under its Credit Facility. As of June 30, 1996, $37.6 million was
outstanding under the Credit Facility, and an additional $5.4 million was used
to collateralize letters of credit. Proceeds from the Credit Facility were used
by the Company to finance working capital, capital expenditures and other
business related expenses.
Improved controls over the Company's investment in its accounts receivable
continue to yield results as reflected in the decrease in the borrowings under
its Credit Facility to $37.6 million at June 30, 1996 from $40.5 million at
December 31, 1995.
In May 1994, certain of the Company's US and Canadian operating subsidiaries
entered into a three-year Credit Facility with General Electric Capital
Corporation ("GECC"). This agreement was extended to July 1, 1997. The Credit
Facility provides the Company with up to $50.0 million in loans including $6.0
million for letters of credit. The sum of the aggregate amount of loans
outstanding under the Credit Facility plus the aggregate amount available for
letters of credit may not exceed the lessor of (i) $50.0 million or (ii) an
amount equal to 85% of eligible receivables plus 75% of eligible pending
receivables (which percentages are subject to adjustment from time to time by
the Company's principal lender - GECC). The interest rate chargeable to the
Company is fixed at the beginning of each month based upon the 30 day commercial
paper rate in effect at the close of the last business day of each month, plus
three hundred basis points. The interest rate in effect on June 30, 1996 was
8.4%, and the average rate
9
since January 1, 1996 was 8.5%. The Company has guaranteed all obligations
incurred or created under the Credit Facility. The Company is also required to
comply with certain affirmative and financial covenants. The Company is in
compliance with the aforementioned covenants, as amended. The termination date
of the Credit Facility is the earlier of (i) July 1, 1997, or (ii) thirty days
prior to the maturity date of the mortgage note, mentioned below, (or any
extension, renewal or refinancing of such indebtedness). In the case of one or
more events of default, GECC may take either or both of the following actions:
(a) terminate the Credit Facility, and (b) declare the Credit Facility then
outstanding and the term note to be due and payable. Although there are lenders
which management feels could provide such a loan on comparable terms, a change
in lenders could adversely affect the Company's operating results.
In 1993, Butler of New Jersey Realty Corp., a subsidiary of the Company,
acquired the Company's corporate office complex in Montvale, NJ for
approximately $9.4 million. This transaction was financed principally through
the assumption of an existing mortgage of $6.7 million, bearing interest at 10
7/8%, the issuance of a non-interest bearing note in the amount of $1.2 million
(which was fully paid in 1994), and the issuance of a second note in the amount
of $510,000 (the balance of which was $127,000 at June 30, 1996). The existing
mortgage note becomes due on October 31, 1996. The Company is currently in the
process of refinancing the mortgage which is expected to be completed by
September 1996. The mortgage balance is reflected in the current portion of
long-term debt.
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PART II - OTHER INFORMATION
Item
1. Legal Proceedings - None
2. Changes in Securities - None
3. Defaults Upon Senior Securities - None
4. Submission of Matters to a Vote of Security Holders - At the Annual
Meeting of Stockholders held on May 30, 1996, a quorum, consisting of
approximately 92% of the Company's common and preferred stock
outstanding and entitled to vote at the meeting, was present in person
or by proxy. At the meeting, the following proposals were approved by
the stockholders: Proposal #1 - John F. Hegarty was re-elected as
Second Class Director. Edward M. Kopko, Frederick H. Kopko, Jr., Hugh
G. McBreen and Nikhil S. Nagaswami continue to serve as directors.
Proposal #2 - To amend the 1992 Stock option Plan, 1992 Incentive Stock
Option Plan and the 1992 Stock Bonus Plan, and Proposal # 3 - To amend
the 1992 Stock Option Plan for Non-Employee Directors.
FOR WITHHELD
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Proposal #1 7,544,403 260,634
FOR AGAINST ABSTAIN
--------- -------- -------
Proposal #2 7,017,323 707,636 80,078
Proposal #3 6,877,699 866,709 60,629
5. Other Information - None
6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirement of 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.
BUTLER INTERNATIONAL, INC.
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(Registrant)
August 13, 1996 By: /s/ Edward M. Kopko
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Edward M. Kopko,
Chairman and Chief Executive
Officer
August 13, 1996 By: /s/ Michael C. Hellriegel
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Michael C. Hellriegel
Senior Vice President - Finance
and Treasurer
August 13, 1996 By: /s/ Warren F. Brecht
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Warren F. Brecht
Senior Vice President and
Secretary
12