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 SEPTEMBER 30, 1997
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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 November 9, 1997, 6,374,923 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 - September 30, 1997 (Unaudited) and December
31, 1996
(B) Consolidated Statements of Operations (Unaudited) - quarter ended September
30, 1997 and quarter ended September 30, 1996
(C) Consolidated Statements of Operations (Unaudited) - nine months ended
September 30, 1997 and nine months ended September 30, 1996
(D) Consolidated Statements of Cash Flows (Unaudited) - nine months ended
September 30, 1997 and nine months ended September 30, 1996
(E) 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)
September 30, December 31,
1997 1996
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(Unaudited)
ASSETS
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Current assets:
Cash $ 531 $ 229
Accounts receivable, net 57,536 56,271
Inventories 2,204 2,292
Other current assets 2,796 2,160
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Total current assets 63,067 60,952
Property and equipment, net 13,665 13,347
Other assets and deferred charges 1,507 1,138
Excess cost over net assets of
businesses acquired, net 25,399 23,743
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Total assets $ 103,638 $ 99,180
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 30,247 $21,145
Current portion of long-term debt 649 7,766
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Total current liabilities 30,896 28,911
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Revolving credit facility 24,949 31,342
Other long-term debt 6,495 0
Other long-term liabilities 451 3,348
Stockholders' equity:
Preferred stock, par value $.001 per share,
authorized 5,000,000: Series B 7% Cumulative
Convertible, authorized 3,500,000; issued
2,718,214 at Sept. 30, 1997 and 2,627,025 at
December 31, 1996 (Aggregate liquidation
preference $2,718,214 at Sept. 30, 1997 and
$2,627,025 at December 31, 1996) 3 3
Common stock, par value $.001 per share,
authorized 83,333,333; issued and
outstanding 6,374,923 at Sept. 30, 1997
and 6,144,168 at December 31, 1996 6 6
Additional paid-in capital 94,444 93,673
Accumulated deficit (53,509) (58,112)
Cumulative foreign currency translation
adjustment (97) 9
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Total stockholders' equity 40,847 35,579
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Total liabilities and stockholders' equity $103,638 $99,180
======== ========
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 per share data)
(Unaudited)
Quarter Ended September 30,
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1997 1996
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Net sales $106,465 $103,054
Cost of sales 89,287 87,733
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Gross margin 17,178 15,321
Depreciation and amortization 752 693
Selling, general and administrative expenses 13,170 11,991
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Operating income 3,256 2,637
Other income (expense):
Interest and other income 140 283
Interest expense (1,070) (1,333)
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Income before income taxes 2,326 1,587
Income taxes 228 108
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Net income $ 2,098 $ 1,479
======== ========
Net income per share:
Primary $.30 $.22
Assuming full-dilution $.28 $.20
Average number of common shares and dilutive
common share equivalents outstanding:
Primary 6,800 6,516
Assuming full-dilution 7,626 7,308
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 per share data)
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1997 1996
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Net sales $319,581 $309,104
Cost of sales 270,262 264,541
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Gross margin 49,319 44,563
Depreciation and amortization 2,091 2,325
Selling, general and administrative expenses 38,744 35,016
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Operating income 8,484 7,222
Other income (expense):
Interest and other income 191 633
Interest expense (3,389) (4,168)
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Income before income taxes 5,286 3,687
Income taxes 544 380
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Net income $ 4,742 $ 3,307
======== ========
Net income per share:
Primary $.69 $.50
Assuming full-dilution $.63 $.46
Average number of common shares and dilutive
common share equivalents outstanding:
Primary 6,644 6,339
Assuming full-dilution 7,516 7,256
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)
Nine Months Ended September 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,742 $ 3,307
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and excess purchase
price amortization 2,091 2,325
Amortization of deferred financing 115 605
Foreign currency translation (106) 18
(Increase) decrease in assets,
increase (decrease) in liabilities:
Accounts receivable (1,265) 6,377
Inventories 88 (47)
Other current assets (636) 579
Other assets (484) (917)
Current liabilities 9,123 (2,916)
Other long-term liabilities (2,897) 47
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Net cash provided by operating activities 10,771 9,378
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - net (1,549) 145
Cost of businesses acquired (2,515) (382)
Expenses paid in conjunction with
discontinued operations (70) (80)
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Net cash used in investing activities (4,134) (317)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under financing
agreements (7,015) (9,601)
Net proceeds from the issuance of
common stock 680 742
Payments on headquarters building debt - (22)
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Net cash used in financing activities (6,335) (8,881)
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Net increase in cash 302 180
Cash at beginning of period 229 1,097
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Cash at end of period $ 531 $ 1,277
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The accompanying notes are an integral part of these financial statements.
6
BUTLER INTERNATIONAL, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(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 the 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 September 30, 1997 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, 1996.
NOTE 2 - CREDIT FACILITY:
On November 13, 1997, the Company amended and restated its Credit Facility with
General Electric Capital Corporation ("GECC") to include an acquisition facility
(in addition to the original facility). The Credit Facility provides the Company
with up to $50.0 million in loans, including $9.0 million for letters of credit.
The interest rate in effect at the end of the third quarter 1997 was 230 basis
points above the 30 day commercial paper rate. Additional interest reductions
are available based upon the Company achieving certain financial results. The
interest rate in effect on September 30, 1997, was 7.86%, and the average rate
since January 1, 1997, was 7.98%. The Company has guaranteed all obligations
incurred or created under the Credit Facility. The Company is required to comply
with certain affirmative and financial covenants. The Company is in compliance
with the aforementioned covenants as amended. The acquisition facility is for up
to $15 million and bears interest at 300 basis points above the 30 day
commercial paper rate.
NOTE 3 - COMMON STOCK:
During the first nine months of 1997, the Company issued 230,755 shares of
common stock upon the exercise of common stock options and purchase warrants.
NOTE 4 - EARNINGS PER SHARE:
Primary earnings per share are determined by dividing net income (after
deducting preferred stock dividends of $48,000 and $139,189 for the quarter and
nine months ended September 30, 1997 and $44,775 and $130,357 for the quarter
and nine months ended September 30, 1996) 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.
The Company will adopt the Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") in the fourth quarter of 1997, as required.
The Company will continue to apply APB Opinion No. 15 until the adoption of SFAS
128. The pro forma earnings per share ("EPS") computed under the provisions of
SFAS 128 for the quarter and nine months ended September 30, 1997 are as
follows: Basic EPS
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of $.32 and $.74, respectively, and diluted EPS of $.28 and $.63, respectively.
Pro forma basic and diluted EPS for the quarter and nine months ended September
30, 1996 were as follows: Basic EPS of $.23 and $.52, respectively and diluted
EPS of $.20 and $.46, respectively.
NOTE 5 - CONTINGENCIES:
The Company and its subsidiaries are parties to various legal proceedings and
claims incidental to its normal business operations for which material
liability, beyond that which is recorded, is remote except for the following
matter. In 1995, the Company filed a complaint against CIGNA Property and
Casualty Insurance Company 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. 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 $7.6 million. On April 18, 1997, CIGNA drew down on
three letters of credit, posted by the Company, in the aggregate amount of $2.9
million. There was no impact on current year operating results. These letters
of credit had been posted as collateral for estimated retrospective premiums.
On July 29, 1997, the Company entered into an agreement with CIGNA which, in the
absence of a settlement, will result in the respective parties undertaking
binding arbitration in late 1998. The parties further agreed to grant the
Company an option to settle this matter in lieu of arbitration.
NOTE 6 - MORTGAGE NOTE:
On November 12, 1997, the Company closed on a new 7 year mortgage loan for its
corporate office facility. The loan, which totals $6.75 million, bears interest
at 8.6%. $6.4 million of the mortgage is repayable based upon a 15 year
amortization schedule, while the remaining $350,000 is based upon a 4 year
schedule. This facility replaces the previous $6.75 million mortgage which had
borne interest at 10%.
NOTE 7 - ACQUISITION:
On August 11, 1997, the Company acquired Corporate Information Systems, Inc.
("CIS"), a Chicago based information technology ("IT") company with offices in
Chicago and Phoenix. CIS has provided IT support services to its clients for
the last 15 years, and currently generates approximately $6 million in annual
sales. Their service offerings in technology include staffing projects (e.g.,
Year 2000 compliance conversion and software programming) and management
consulting. They cover a wide range of industries with current emphasis on
insurance and banking. CIS has doubled in size in the past three years due to
quality performance at national accounts. CIS's founder and President will
remain with the Company in a management capacity. The acquisition was not
material to the financial results of the Company.
NOTE 8 - RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In June of 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 130, "Reporting
Comprehensive Income", which requires a statement of comprehensive income to be
included in the financial statements for fiscal years beginning December 15,
1997. The Company is in the process of reviewing this statement and will
include the required information with financial statements beginning with the
first quarter of 1998.
8
Also in June of 1997, the FASB issued SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS 131 requires disclosures of
certain information about operating segments and about products and services,
the geographic areas in which a company operates, and their major customers.
The Company is presently in the process of evaluating the effect this new
standard will have on disclosures in the Company's financial statements and the
required information will be reflected in the year ended December 31, 1998
financial statements.
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Item 2. Management's Discussion and Analysis of Results of Operations and
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Financial Condition
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RESULTS OF OPERATIONS
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The third quarter of 1997 net income increased by 42% to $2.1 million, or $.30
per share, up from the $1.5 million, or $.22 per share, reported in the third
quarter of 1996. On a year-to-date basis, net income was $4.7 million, or $.69
per share, compared to $3.3 million, or $.50 per share reported for the
comparable period last year.
The increased earnings were driven by higher margins and lower interest expense.
Gross margins in the current quarter were 16.1%, up from 14.9% reported in the
third quarter of 1996. This improvement was fueled by the higher end Technology
Solutions and Telecommunications Services operations. Further providing
earnings leverage was an overall increase in hourly billing rates,
representative of the Company's focus on its higher end business. The decrease
in interest expense was principally due to decreased borrowings.
Revenues in the quarter were $106.5 million, up 3% from the $103.1 million
recorded in 1996. Growth in the current year quarter was attributable to a 19%
increase in the Company's Technology Solutions operation and a 10% increase in
the Telecommunications Services unit, which more than offset a 1% decrease in
the Contract Technical Services division. On a year-to-date basis, revenues
were $319.6 million, or 3% higher than that reported for the comparable period
in 1996.
As part of its initiative to expand its Technology Solutions business, the
Company acquired Corporate Information Systems, Inc. ("CIS"), a Chicago based
information technology ("IT") company with offices in Chicago and Phoenix. CIS
has provided IT support services to its clients for the last 15 years, and
currently generates approximately $6 million in annual sales. Their service
offerings in technology include staffing projects (e.g., Year 2000 compliance
conversion and software programming) and management consulting. They cover a
wide range of industries with current emphasis on insurance and banking. CIS
has doubled in size in the past three years due to quality performance at
national accounts. CIS's founder and President will remain with the Company in
a management capacity.
Information contained in this Management's Discussion and Analysis of Results of
Operations and Financial Condition, other than historical information, may be
considered forward-looking in nature, as such it is based upon certain
assumptions and is subject to various risks and uncertainties, which may not be
controllable by the Company. To the extent that these assumptions prove to be
incorrect, or should any of these risks or uncertainties materialize, the actual
results may vary materially from those which were anticipated.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's primary sources of funds are generated from operations and
borrowings under its Credit Facility. As of September 30, 1997, $24.9 million
was outstanding under the Credit Facility, and an additional $5.5 million was
used to collateralize letters of credit. Proceeds from the Credit Facility are
used by the Company to finance its internal business growth, working capital,
capital expenditures and acquisitions.
Continued earnings and 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 $24.9 million at September 30, 1997,
down from $33.0 million at September 30, 1996.
10
During the first nine months of 1997, the Company received net proceeds of
$1,050,681 from the exercise of 230,755 common stock options and purchase
warrants.
On Novenber 13, 1997, the Company amended and restated its Credit Facility with
General Electric Capital Corporation ("GECC") to include an acquisition facility
(in addition to the original facility). The Credit Facility provides the Company
with up to $50.0 million in loans, including $9.0 million for letters of credit.
The interest rate in effect at the end of the third quarter 1997 was 230 basis
points above the 30 day commercial paper rate. Additional interest reductions
are available based upon the Company achieving certain financial results. The
interest rate in effect on September 30, 1997, was 7.86%, and the average rate
since January 1, 1997, was 7.98%. The Company has guaranteed all obligations
incurred or created under the Credit Facility. The Company is required to comply
with certain affirmative and financial covenants. The Company is in compliance
with the aforementioned covenants as amended. The acquisition facility is for up
to $15 million and bears interest at 300 basis points above the 30 day
commercial paper rate.
On November 12, 1997, the Company closed on a new 7 year mortgage loan for its
corporate office facility. The loan, which totals $6.75 million, bears interest
at 8.6%. $6.4 million of the mortgage is repayable based upon a 15 year
amortization schedule, while the remaining $350,000 is based upon a 4 year
schedule. This facility replaces the previous $6.75 million mortgage which had
borne interest at 10%.
RECENT ACCOUNTING PRONOUNCEMENT
- -------------------------------
The Company will adopt the Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") in the fourth quarter of 1997, as required.
The Company will continue to apply APB Opinion No. 15 until the adoption of SFAS
128. The pro forma earnings per share ("EPS") computed under the provisions of
SFAS 128 for the quarter and nine months ended September 30, 1997 are as
follows: Basic EPS of $.32 and $.74, respectively, and diluted EPS of $.28 and
$.63, respectively. Pro forma basic and diluted EPS for the quarter and nine
months ended September 30, 1996 were as follows: Basic EPS of $.23 and $.52,
respectively and diluted EPS of $.20 and $.46, respectively.
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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 - None
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)
November 13, 1997 By: /s/ Edward M. Kopko
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Edward M. Kopko,
Chairman and Chief Executive
Officer
November 13, 1997 By: /s/ Michael C. Hellriegel
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Michael C. Hellriegel
Senior Vice President and Chief
Financial Officer
November 13, 1997 By: /s/ Warren F. Brecht
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Warren F. Brecht
Senior Vice President and
Secretary
13