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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 MARCH 31, 1998
--------------------
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
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(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
----- -----
As of May 5, 1998, 6,443,542 shares of the registrant's common stock, par value
$.001 per share, were outstanding.
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PART I - FINANCIAL INFORMATIONN
Item 1. FINANCIAL STATEMENTS.
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(A) Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December
31, 1997
(B) Consolidated Statements of Operations (Unaudited) - quarter ended March
31, 1998 and quarter ended March 31, 1997
(C) Consolidated Statements of Cash Flows (Unaudited) - three months ended
March 31, 1998 and three months ended March 31, 1997
(D) Notes to Consolidated Financial Statements (Unaudited)
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BUTLER INTERNATIONAL, INC.
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CONSOLIDATED BALANCE SHEETS
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(in thousands except share data)
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash $ 631 $ 914
Accounts receivable, net 61,338 54,827
Inventories 1,628 2,196
Other current assets 4,833 4,687
--------- ---------
Total current assets 68,430 62,624
Property and equipment, net 16,096 15,613
Other assets and deferred charges 2,073 1,907
Excess cost over net assets of
businesses acquired, net 29,562 24,572
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Total assets $ 116,161 $ 104,716
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 36,728 $ 28,153
Current portion of long-term debt 1,292 920
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Total current liabilities 38,020 29,073
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Revolving credit facility 17,949 20,985
Other long-term debt 10,505 6,517
Other long-term liabilities 3,303 3,052
Stockholders' equity:
Preferred stock: par value $.001 per share,
authorized 5,000,000: Series B 7% Cumulative
Convertible, authorized 3,500,000; issued
2,814,133 at March 31, 1998 and December
31, 1997 (Aggregate liquidation preference
$2,814 at March 31, 1998 and December 31, 1997) 3 3
Common stock: par value $.001 per share,
authorized 83,333,333; issued 6,442,543
at March 31, 1998 and 6,380,023 at
December 31, 1997 6 6
Additional paid-in capital 94,790 94,710
Accumulated deficit (48,386) (49,566)
Cumulative foreign currency translation
adjustment (29) (64)
--------- ---------
Total stockholders' equity 46,384 45,089
--------- ---------
Total liabilities and stockholders' equity $ 116,161 $ 104,716
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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BUTLER INTERNATIONAL, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands except per share data)
(Unaudited)
QUARTER ENDED MARCH 31,
-----------------------
1998 1997
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Net sales $ 106,723 $ 104,697
Cost of sales 88,515 89,113
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Gross margin 18,208 15,584
Depreciation and amortization 821 671
Selling, general and administrative expenses 14,664 12,715
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Operating income 2,723 2,198
Other income (expense):
Interest and other income 33 (52)
Interest expense (993) (1,201)
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Income before income taxes 1,763 945
Income taxes 534 104
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Net income $ 1,229 $ 841
========= =========
Net income per share:
Basic $ .18 $ .13
Diluted $ .16 $ .11
Average number of common shares and dilutive
common share equivalents
outstanding:
Basic 6,422 6,155
Diluted 7,726 7,444
The accompanying notes are an integral part of these consolidated financial
statements.
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BUTLER INTERNATIONAL, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(in thousands)
(Unaudited)
QUARTER ENDED MARCH 31,
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,229 $ 841
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and excess purchase
price amortization 822 671
Amortization of deferred financing 11 71
Foreign currency translation 35 (91)
(Increase) decrease in assets,
increase (decrease) in liabilities:
Accounts receivable (6,511) (5,677)
Inventories 568 (82)
Other current assets (146) (48)
Other assets (177) (114)
Current liabilities 8,530 10,873
Other long-term liabilities 251 (2,914)
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Net cash provided by operating activities 4,612 3,530
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - net (980) 20
Cost of businesses acquired (5,315) (185)
Expenses paid in conjunction with
discontinued operations (4) (44)
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Net cash used in investing activities (6,299) (209)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
financing agreements 1,323 (2,728)
Net proceeds from the issuance of
common stock 81 84
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Net cash provided by (used in)
financing activities 1,404 (2,644)
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Net (decrease) increase in cash (283) 677
Cash at beginning of period 914 229
-------- --------
Cash at end of period $ 631 $ 906
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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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 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 March 31, 1998 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, 1997.
NOTE 2 - EARNINGS PER SHARE:
As required, in the fourth quarter of 1997, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". The standard specifies the computation, presentation and disclosure
requirements for 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 share data).
QUARTER ENDED MARCH 31,
-----------------------
1998 1997
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BASIC EARNINGS PER SHARE:
- -------------------------
Income available to common shareholders $1,180 $ 795
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Weighted average common shares outstanding 6,422 6,155
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Basic earnings per common share $ .18 $ .13
====== ======
DILUTED EARNINGS PER SHARE:
- ---------------------------
Income available to common shareholders
assuming conversion of preferred stock $1,229 $ 841
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Weighted average common shares outstanding 6,422 6,155
Common stock equivalents 503 540
Assumed conversion of preferred stock 802 749
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Total weighted average common shares 7,726 7,444
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Diluted earnings per common share $ .16 $ .11
====== ======
NOTE 3 - COMMON STOCK:
During the first quarter of 1998, the Company issued 64,666 shares of common
stock upon the exercise of common stock options and purchase warrants and
retired 2,146 shares of common stock.
NOTE 4 - 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
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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.
NOTE 5 - ACQUISITIONS:
On March 3, 1998, the Company acquired the operations of Argos Adriatic
Corporation ("Argos"), a Silicon Valley information technology ("IT") company
headquartered in Fremont, CA. The purchase price includes $5.1 million paid in
cash ($4.1 million charged against the Company's acquisition line and $1.0
million against the revolving credit facility), plus a contingent payout to be
paid over three years based on the future earnings of Argos in excess of certain
annual thresholds. Argos provides a variety of IT support services to a wide
range of clients in Northern California, and generates approximately $10 million
in annual revenues. Argos currently has a staff of approximately 90 full-time
employees. Argos' President and its Chief Operating Officer will continue to
manage the business.
On April 1, 1998, the Company acquired the operations of Norwood Computer
Services, Inc. ("Norwood") an IT services company headquartered in Hicksville,
NY. The purchase price includes $8.4 million paid in cash ($6.7 million drawn
down on the acquisition line and $1.7 charged to the revolving credit facility),
plus a contingent payout to be paid over three years based on the future
earnings of Norwood in excess of certain annual thresholds. Norwood has been
serving a wide range of mid-sized and Fortune 500 companies in the New York
metropolitan area since 1978 and currently generates approximately $17 million
in annual revenues through a staff of approximately 120 consultants. This
acquisition is not included in the financial statements as of March 31, 1998.
Pro forma results for the Company, assuming the above acquisitions had been made
at the beginning of each period presented, would not be materially different
from the results reported.
NOTE 6 - RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In June of 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income", which requires comprehensive income to be
included in the financial statements for fiscal years beginning December 15,
1997 and SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information", which 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 has adopted both
standards in 1998. Comprehensive income is defined as total change in
stockholders equity during the 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 adjustment, which
was an increase of $35,000 and a decrease of $91,000 for the quarters ended
March 31, 1998 and 1997, respectively. Total comprehensive income for the three
months ended March 31, 1998 and 1997 was $1,264,000 and $750,000, respectively.
As required by SFAS 131, the Company will begin reporting under the standard in
the 1998 annual report.
7
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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
- ---------------------
Net income for the first quarter of 1998 increased by 46% to $1.2 million, up
from $841,000 reported in the first quarter of 1997. Diluted earnings per share
were $.16 in 1998, compared with $.11 in the 1997 first quarter. Revenues for
the 1998 quarter were $106.7 million, compared with $104.7 million recorded in
the first quarter of 1997.
Improved business mix and decreased interest expense were the driving forces of
the increased earnings. Gross margins in the first quarter of 1998 were 17.1%
versus 14.9% last year. Continued growth of the Technology Solutions,
Telecommunications Services and Fleet Services operations contributed strongly
to the quarter-on-quarter improvement of gross margins due to the relatively
higher margins of these businesses. The decrease in interest cost was
principally due to reduced borrowings under the revolving credit facility
throughout the quarter.
Revenue in the Company's higher margin Technology Solutions and
Telecommunications Services units grew at rates of 48% and 16%,
respectively, while revenues from the lower margin Contract Technical Services
business declined by an expected 11% from last year, resulting in an overall
revenue growth of 2%.
As part of the Company's initiative to expand its higher margin businesses, it
acquired two information technology ("IT") companies in the early part of 1998.
On March 3, 1998, the Company acquired the operations of Argos Adriatic
Corporation ("Argos"), a Silicon Valley IT company headquartered in Fremont, CA.
Argos provides a variety of IT support services to a wide range of clients in
Northern California, and generates approximately $10 million in annual revenues.
Its service offerings include software consulting, project management and
software related training. Argos' value to its customers is enhanced by its
expertise in the offshore recruiting of experienced IT professionals. Argos
currently has a staff of approximately 90 full-time employees.
On April 1, 1998, the Company acquired the operations of Norwood Computer
Services, Inc. ("Norwood") an IT services company headquartered in Hicksville,
NY. Norwood has been serving a wide range of mid-sized and Fortune 500 companies
in the New York metropolitan area since 1978 and currently generates
approximately $17 million in annual revenues through a staff of approximately
120 consultants. Its service offerings include IT staffing as well as software
and application consulting. The Company will now have four key branch locations
serving this market.
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
- -------------------------------
The Company's primary sources of funds are generated from operations and
borrowings under its Credit Facility. As of March 31, 1998, $17.9 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.
8
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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 $17.9 million at March 31, 1998,
down from $28.9 million at March 31, 1997.
The Company's revolving Credit facility with General Electric Capital
Corporation ("GECC") provides 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
first quarter of 1998 was 200 basis points above the 30 day commercial paper
rate. Interest reductions are available based upon the Company achieving certain
financial results. The interest rate in effect on March 31, 1998, was 7.53%. As
of March 31, 1998, $17.9 million was outstanding under the Credit Facility, and
an additional $5.5 million was used to collateralize letters of credit. 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.
In addition to the revolving Credit Facility, the Company has a $15.0 million
acquisition line of credit with GECC which bears interest at 300 basis points
above the 30 day commercial paper rate. The interest rate in effect on March 31,
1998, was 8.53%. The outstanding balance of the acquisition line at March 31,
1998, was $4.1 million. On April 1, 1998, an additional $6.7 million was drawn
down on the acquisition line for the Norwood acquisition (see Note 5).
Absent an acquisition requiring funds in excess of its existing acquisition line
of credit, the Company believes that its operating cash flow and credit
facilities will provide sufficient liquidity for at least the next twelve
months.
In November 1997, the Company closed on a 7 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 8.6% and 8.42% on the $6.4 million and $375,000
loans, respectively. 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.
9
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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
10
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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.
--------------------------
(Registrant)
May 12, 1998 By:/s/ EDWARD M. KOPKO
-------------------
Edward M. Kopko
Chairman and Chief Executive
Officer
May 12, 1998 By:/s/ MICHAEL C. HELLRIEGEL
-------------------------
Michael C. Hellriegel
Senior Vice President and Chief
Financial Officer
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BUTLER INTERNATIONSAL INC. FROM 10-Q FOR PERIOD ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 631
<SECURITIES> 0
<RECEIVABLES> 62,914
<ALLOWANCES> 1,576
<INVENTORY> 1,628
<CURRENT-ASSETS> 68,430
<PP&E> 29,855
<DEPRECIATION> 13,759
<TOTAL-ASSETS> 116,161
<CURRENT-LIABILITIES> 38,020
<BONDS> 0
0
3
<COMMON> 6
<OTHER-SE> 46,375
<TOTAL-LIABILITY-AND-EQUITY> 116,161
<SALES> 106,723
<TOTAL-REVENUES> 106,723
<CGS> 88,515
<TOTAL-COSTS> 88,515
<OTHER-EXPENSES> 15,313
<LOSS-PROVISION> 139
<INTEREST-EXPENSE> 993
<INCOME-PRETAX> 1,763
<INCOME-TAX> 534
<INCOME-CONTINUING> 1,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,229
<EPS-PRIMARY> .18
<EPS-DILUTED> .16
</TABLE>
