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, 1999
----------------------
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.
--------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 06-1154321
------------------------------- ------------------
(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
--------------
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 .
----- -----
As of July 26, 1999, 9,939,347 shares of the registrant's common stock, par
value $.001 per share, were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
(A) Consolidated Balance Sheets - June 30, 1999 (Unaudited) and December 31,
1998
(B) Consolidated Statements of Operations (Unaudited) - quarter ended June 30,
1999 and quarter ended June 30, 1998
(C) Consolidated Statements of Operations (Unaudited) - six months ended June
30, 1999 and six months ended June 30, 1998
(D) Consolidated Statements of Cash Flows (Unaudited) - six months ended June
30, 1999 and six months ended June 30, 1998
(E) Notes to Consolidated Financial Statements (Unaudited)
2
BUTLER INTERNATIONAL, INC.
--------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------
(in thousands except share data)
June 30, December 31,
1999 1998
------------- -----------
(Unaudited)
ASSETS
- ------
Current assets:
Cash $ 883 $ 910
Accounts receivable, net 70,114 65,349
Inventories 461 441
Other current assets 7,015 6,193
--------- ---------
Total current assets 78,473 72,893
Property and equipment, net 17,766 16,527
Other assets and deferred charges 3,839 2,711
Excess cost over net assets of
businesses acquired, net 60,538 57,981
--------- ---------
Total assets $ 160,616 $ 150,112
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 28,408 $ 30,163
Current portion of long-term debt 7,525 5,895
--------- ---------
Total current liabilities 35,933 36,058
--------- ---------
Revolving credit facility 32,480 27,251
Other long-term debt 27,594 27,684
Other long-term liabilities 4,108 3,920
Stockholders' equity:
Preferred stock: par value $.001 per share,
authorized 15,000,000: Series B 7% Cumulative
Convertible, authorized 12,750,000; issued
4,626,489 in 1999 and 4,521,846 in 1998
(Aggregate liquidation preference $4,626
in 1999 and $4,522 in 1998) 5 3
Common stock: par value $.001 per share,
authorized 125,000,000; issued 9,939,347
at June 30, 1999 and 9,759,062 at
December 31, 1998 10 7
Additional paid-in capital 95,627 95,244
Accumulated deficit (34,934) (39,922)
Accumulated other comprehensive income (207) (133)
--------- ---------
Total stockholders' equity 60,501 55,199
--------- ---------
Total liabilities and stockholders' equity $ 160,616 $ 150,112
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
BUTLER INTERNATIONAL, INC.
--------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands except per share data)
(Unaudited)
Quarter Ended June 30,
----------------------
1999 1998
------ ------
Net sales $ 106,664 $ 112,948
Cost of sales 82,350 91,986
--------- ---------
Gross margin 24,314 20,962
Depreciation and amortization 1,294 1,011
Selling, general and administrative expenses 16,521 14,994
--------- ---------
Operating income 6,499 4,957
Interest expense (1,054) (1,070)
--------- ---------
Income before income taxes 5,445 3,887
Income taxes 2,069 1,178
--------- ---------
Net income $ 3,376 $ 2,709
========= =========
Net income per share:
Basic $ .33 $ .28
Diluted $ .29 $ .23
Average number of common shares and dilutive
common share equivalents outstanding:
Basic 9,939 9,671
Diluted 11,804 11,709
The accompanying notes are an integral part of these consolidated financial
statements.
4
BUTLER INTERNATIONAL, INC.
--------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands except per share data)
(Unaudited)
Six Months Ended June 30,
-------------------------
1999 1998
------ ------
Net sales $ 212,542 $ 219,671
Cost of sales 166,193 180,501
--------- ---------
Gross margin 46,349 39,170
Depreciation and amortization 2,537 1,832
Selling, general and administrative expenses 33,432 29,625
--------- ---------
Operating income 10,380 7,713
Interest expense (2,167) (2,063)
--------- ---------
Income before income taxes 8,213 5,650
Income taxes 3,121 1,712
--------- ---------
Net income $ 5,092 $ 3,938
========= =========
Net income per share:
Basic $ .50 $ .40
Diluted $ .43 $ .34
Average number of common shares and dilutive
common share equivalents outstanding:
Basic 9,877 9,653
Diluted 11,799 11,662
The accompanying notes are an integral part of these consolidated financial
statements.
5
BUTLER INTERNATIONAL, INC.
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1999 1998
------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,092 $ 3,938
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and excess purchase
price amortization 2,537 1,831
Amortization of deferred financing 77 24
Foreign currency translation (74) 36
(Increase) decrease in assets,
increase (decrease) in liabilities:
Accounts receivable (4,765) (10,690)
Inventories (20) 496
Other current assets (822) 23
Other assets (1,205) (328)
Current liabilities (1,859) 8,976
Other long-term liabilities 188 532
-------- --------
Net cash (used in) provided by
operating activities (851) 4,838
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - net (2,653) (1,589)
Cost of businesses acquired (3,680) (16,941)
Other -- (14)
-------- --------
Net cash used in investing activities (6,333) (18,544)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreements 6,769 13,266
Net proceeds from the issuance of
common stock 388 141
-------- --------
Net cash provided by financing activities 7,157 13,407
-------- --------
Net decrease in cash (27) (299)
Cash at beginning of period 910 914
-------- --------
Cash at end of period $ 883 $ 615
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
BUTLER INTERNATIONAL, INC.
--------------------------
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 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 June 30, 1999, 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, 1998.
NOTE 2 - EARNINGS PER SHARE:
The following table presents the computation of basic and diluted earnings per
common share as required by SFAS No. 128 (in thousands, except per share data).
Quarter ended June 30, Six months ended June 30,
---------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Basic Earnings per Share:
- -------------------------
Income available to common
Shareholders $ 3,324 $ 2,660 $ 4,988 $ 3,840
------- ------- ------- -------
Weighted average common shares
outstanding 9,939 9,671 9,877 9,653
------- ------- ------- -------
Basic earnings per common share $ .33 $ .28 $ .50 $ .40
======= ======= ======= =======
Diluted Earnings per Share:
- ---------------------------
Income available to common
Shareholders assuming conversion
of preferred stock $ 3,376 $ 2,709 $ 5,092 $ 3,938
------- ------- ------- -------
Weighted average common shares
outstanding 9,939 9,671 9,877 9,653
Common stock equivalents 576 834 633 806
Assumed conversion of preferred
stock 1,289 1,204 1,289 1,203
------- ------- ------- -------
Total weighted average common
shares 11,804 11,709 11,799 11,662
------- ------- ------- -------
Diluted earnings per common share $ .29 $ .23 $ .43 $ .34
======= ======= ======= =======
NOTE 3 - COMMON STOCK:
During the first six months of 1999, the Company issued 187,500 shares of common
stock upon the exercise of common stock options and retired 7,215 shares of
common stock.
7
NOTE 4 - STOCK SPLIT:
At the Annual Meeting of Shareholders held on May 6, 1999, the Company's Board
of Directors declared a three-for-two stock split in the form of a 50% stock
dividend on all classes of stock. The dividend was distributed on June 1, 1999,
to shareholders of record at the close of business on May 16, 1999, and has been
reflected in the financial statements and accompanying notes. Prior year
earnings per share amounts have been restated for the stock split.
NOTE 5 - SEGMENTS:
The Company's services are provided through four ISO 9002 certified business
segments: Technology Solutions, Telecom Services, Fleet Services and the
Technical Group. The Company primarily operates in the United States. The
Technical Group does include results from its United Kingdom ("UK") subsidiary.
Net sales from the UK operation were $5.1 million for the second quarter of 1999
and $10.1 million for the six months ended June 30, 1999, as compared to $3.8
million and $7.4 million for the same periods in 1998. Operating profits from
the UK subsidiary were $275,000 for the second quarter of 1999 and $536,000 for
the six months ended June 30, 1999, versus $143,000 and $281,000 for the same
periods in 1998. The following table presents sales and operating profits by
segment (in thousands):
NET SALES: Quarter Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Technology Solutions $ 29,238 $ 22,031 $ 59,539 $ 37,270
Telecom Services 27,245 18,708 49,701 35,999
Fleet Services 11,186 17,945 22,387 37,058
Technical Group 38,995 54,264 80,915 109,344
--------- --------- --------- ----------
Consolidated Sales $ 106,664 $ 112,948 $ 212,542 $ 219,671
========= ========= ========= =========
OPERATING PROFITS: 1999 1998 1999 1998
---------- ---------- ---------- ----------
Technology Solutions $ 2,244 $ 2,651 $ 4,434 $ 4,022
Telecom Services 5,261 3,241 8,887 5,897
Fleet Services 955 788 1,488 1,658
Technical Group 2,933 3,108 5,919 6,283
Unallocated amounts (4,894) (4,831) (10,348) (10,147)
--------- -------- --------- ---------
Consolidated Profits $ 6,499 $ 4,957 $ 10,380 $ 7,713
========= ========= ========= =========
NOTE 6 - COMPREHENSIVE INCOME:
Comprehensive income is defined as the total change in stockholders' equity
during a period, other than from transactions with shareholders. For the
Company, comprehensive income is comprised of net income and the net change in
cumulative foreign currency translation adjustments, which was a decrease of
$32,000, and $74,000 for the quarter and six months ended June 30, 1999,
respectively, and an increase of $1,000 and $36,000, for the quarter and six
months ended June 30, 1998. Total comprehensive income was $3,344,000 and
$5,018,000 for the three and six months ended June 30, 1999, compared to
$2,710,000 and $3,974,000 for the three and six months ended June 30, 1998.
NOTE 7 - CONTINGENCIES:
The Company and its subsidiaries are parties to various legal proceedings and
claims incidental to its normal business operations for which no material
liability is expected beyond that which is recorded. While the ultimate
resolution of these matters is not known, management does not expect that the
resolution of such matters will have a material adverse effect on the Company's
financial statements and results of operations.
8
NOTE 8 - RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In June of 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities". This
standard shall be effective for all fiscal quarters for all fiscal years
beginning after June 15, 2000. The company is currently evaluating the impact,
if any, of this standard on its financial reporting.
9
Item 2. Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
-------------------
RESULTS OF OPERATIONS
- ---------------------
Net income for the second quarter of 1999 increased by 25% to $3.4 million, up
from $2.7 million reported in the second quarter of 1998. Diluted earnings per
share were $.29 in 1999, compared with $.23 in the 1998 second quarter,
reflecting an increase of 26%. Revenues for the second quarter of 1999 were
$106.7 million, compared to $112.9 million recorded in the same period of 1998.
A substantial volume increase in the Telecom Services business was responsible
for the quarter-on-quarter growth in earnings. This increase, as well as margin
growth in the Fleet Services group were partially offset by lower profits in the
Technical Group and Technology Solutions businesses. The decrease in the
Technical Group was due to reduced volume, partially offset by higher margins.
The lower profits in the Technology Solutions operation was primarily due to
costs incurred to establish several solution-oriented practice groups. These
technology practice groups are expected to be a source of future profits and are
anticipated to become profitable in the third quarter of 1999. Revenue growth
provided by the Telecom Services and Technology Solutions divisions continued to
improve business mix and resulted in an increase in gross margins to 22.8% in
the 1999 second quarter, up from 18.6% for the same period in 1998.
Revenues in the 1999 second quarter were $106.7 million, down from the $112.9
million recorded in the same period of 1998. The Company's Telecom Services and
Technology Solutions businesses reported increases of 46% and 33%, respectively.
This growth, which amounted to nearly $16 million, was offset by decreases of
$15 million in the Technical Group and $7 million in the Fleet Services
business. The decrease in the Technical Group was in line with the Company's
strategy of transforming its business mix towards its high-end service
offerings. The reduction in Fleet Services revenue was directly related to the
previously announced restructuring of a major contract during the third quarter
of 1998, however, Fleet Services' profit for the second quarter of 1999
increased by 21% over the same period in the prior year.
For the six months ended June 30, 1999, net income increased by 29%, to $5.1
million, from the $3.9 million recorded in the first half of 1998. Diluted
earnings per share for the period were $.43, a 26% increase above the $.34
recorded in the first six months of 1998. This increase was primarily due to
higher operating margins that were influenced by improved business mix. Gross
margins in the 1999 period were 21.8%, compared with 17.8% in the same period of
1998. Revenues for the year to date period ended June 30, 1999, were $212.5
million, down from the $219.7 million recorded in the same period of 1998. The
Company's Telecom Services and Technology Solutions businesses grew by 38% and
60%, respectively, totaling $36 million. This increase however was more than
offset by a $28 million decrease in the lower margin Technical Group, as well as
a $15 million reduction in the Fleet Services division.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are generated from operations and
borrowings under its revolving credit facility and acquisition line of credit.
Cash used in operating activities was $851,000 for the six months ended June 30,
1999, a decrease of $5.7 million from 1998. The decrease is primarily due to an
increase in unbilled revenue, which is reflected in accounts receivable, and a
reduction in accounts payable. As of June 30, 1999, $32.5 million was
outstanding under the credit facility, with an additional $5.5 million used to
collateralize letters of credit. As of June 30, 1999, $27.6 million was
outstanding on the acquisition line. Proceeds from the credit facility are used
by the Company to finance its internal business growth, working capital, capital
expenditures and acquisitions.
The Company's credit agreement with General Electric Capital Corporation
("GECC") provides for a revolving credit facility for loans up to $50.0 million,
including $9.0 million for letters of credit and an additional acquisition
facility for up to
10
$35.0 million. The interest rate on the revolving credit facility at the end of
the second quarter of 1999 was 115 basis points above the 30-day commercial
paper rate, or 6.0%. Interest reductions are available based upon the Company
achieving certain financial results. The acquisition facility bears interest at
250 basis points above the 30 day commercial paper rate. The interest rate in
effect on June 30, 1999, was 7.35%. The Company has guaranteed all obligations
incurred or created under the credit agreement. The Company is in compliance
with the required affirmative and financial covenants.
The GECC credit facility excludes the U.K operation, which has its own
(Pounds)1.5 million facility. As of June 30, 1999, (Pounds)686,000 was
outstanding under the U.K. facility.
The Company has a seven year mortgage for its corporate office facility. The
mortgage consists of a $6.4 million loan that is repayable based upon a 15 year
amortization schedule and a $375,000 loan that is repayable based on a 4 year
schedule. The variable interest rate on these loans is one month Libor plus 225
basis points. The Company entered into an interest rate swap agreement with its
mortgage holder. The Company makes monthly interest payments at the fixed rates
of 8.1% and 7.92% on the $6.4 million and $375,000 loans, respectively. The
fixed rates were decreased from 8.6% and 8.42%, retroactive to January 1, 1999.
The Company receives payments based upon the one month Libor plus 225 basis
points. The net gain or loss from the exchange of interest rate payments is
included in interest expense.
The Company believes that its operating cash flow and credit facilities will
provide sufficient liquidity for at least the next twelve months.
The Company does not have any off balance sheet financial instruments or
derivatives subject to significant market risk.
YEAR 2000 COMPLIANCE
- --------------------
Description:
At midnight on December 31, 1999, certain computer systems may not be able to
distinguish the Year 2000 from the Year 1900. This is because computer software
has, until recently, been written utilizing two digits rather than four to
express years. This programming flaw may debilitate computer systems worldwide,
because date-sensitive applications may recognize the Year 2000 as 1900, or not
at all. This may cause miscalculations or system failures. This situation has
become known as the Y2K problem, or the Millennium Bug.
Compliance:
The Company has established a Y2K Oversight Committee to ensure compliance of
all systems.
Beginning in 1995, the Company began the strategic process of upgrading and
replacing all of its financial systems. The new systems are all Y2K-compliant,
server driven operating systems. The final phase of this project is currently
entering the parallel test stage and is expected to be completed during the
third quarter of 1999. With regard to all other computerized systems, the
Company has completed its Y2K readiness, and has successfully tested its
ability to correctly identify and process the Year 2000. All desktop and laptop
computers have been checked for Y2K readiness. Any computers that were not
compliant were replaced. All PC operating systems have been upgraded. All
telecommunications and PBX systems have been evaluated and are now Y2K
compliant. All building systems (e.g., elevators, HVAC) were also reviewed. The
majority of these systems are day-dependent, not date-dependent, so they should
not be impacted by Y2K. The Company has been contacting major clients and
vendors to evaluate their Y2K compliance plans and readiness, to determine
whether a Y2K event will have a significant impact on the Company.
11
Costs:
Due to the scheduled conversion of the Company's financial systems there are no
specific Y2K costs related to those areas. The cost incurred to date to upgrade
non-compliant PCs was approximately $137,000, of which $24,000 has been expensed
and $113,000 has been recorded to property and equipment. The cost to upgrade or
replace non-compliant telecommunication systems has been approximately $88,000.
Worst-Case Scenarios:
The following are worst-case scenarios that could have an impact on the Company
if they were to occur: The Company could be negatively impacted if several of
its larger clients were affected by either their inability to retain contract
employees supplied by the Company or by their inability to process payables
promptly. This may become a benefit to the Company because it has the ability to
provide Y2K solutions to the affected customers. The Company would incur
additional financing costs during any extended receivable period. The Company
could be adversely affected if financial institutions were unable to wire
payroll funds. Such an occurrence would require the Company to issue paper
checks which may not be well received by its contract employees.
Contingency Planning:
The Company has developed a contingency plan that would enable it to print
checks manually and mail them to all employees in the event of a bank problem.
Appropriate contingency plans are being developed to deal with potential client
or vendor Y2K events.
Summary:
Based on the activities reviewed above, the Company expects all internal systems
to be Y2K compliant in the third quarter of 1999. The Company does not believe
that the Y2K issues will have a material adverse effect on its financial
condition or results of operations. It is anticipated that the Y2K issue is not
substantial with respect to the Company's property and equipment, though the
Company is continuing to assess and modify computer systems, facilities and
business processes to provide for their continuing functionality.
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.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
See discussion on liquidity and capital resources in Item 2.
12
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 6, 1999, a quorum, consisting of approximately
90% 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 - Edward
M. Kopko was re-elected as a Fourth Class Director. John F. Hegarty,
Frederick H. Kopko, Jr., Hugh G. McBreen and Nikhil S. Nagaswami continue to
serve as directors. Proposal #2 - To increase the authorized number of
shares of Preferred Stock. Proposal #3 - To amend and restate the 1992
Employee Stock Plans. Proposal #4 - To approve the Performance Bonus Plan
for the President and Chief Executive Officer. Proposal #5 - To amend the
1992 Stock Option Plan for Non-Employee Directors.
FOR WITHHELD
---------- ----------
Proposal #1 8,372,065 327,768
FOR AGAINST ABSTAIN UNVOTED
---------- ---------- -------- ---------
Proposal #2 6,334,668 425,717 12,111 1,927,337
Proposal #3 7,458,617 1,229,056 12,160
Proposal #4 8,604,354 81,672 13,807
Proposal #5 7,720,573 965,995 13,265
5. Other Information - None
6. Exhibits and Reports on Form 8-K
(a) Exhibit list and exhibits attached
(b) Reports on Form 8-K - None
13
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.
--------------------------
(Registrant)
August 14, 1999 By: /s/ Edward M. Kopko
--------------------------------
Edward M. Kopko
Chairman and Chief Executive
Officer
August 14, 1999 By: /s/ Michael C. Hellriegel
--------------------------------
Michael C. Hellriegel
Senior Vice President and Chief
Financial Officer
14