<PAGE>
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, 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
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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
--------------
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 10, 1999, 6,626,233 shares of the registrant's common stock, par value
$.001 per share, were outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
(A) Consolidated Balance Sheets - March 31, 1999 (Unaudited) and December 31,
1998
(B) Consolidated Statements of Operations (Unaudited) - quarter ended March 31,
1999 and quarter ended March 31, 1998
(C) Consolidated Statements of Cash Flows (Unaudited) - Three months ended
March 31, 1999 and three months ended March 31, 1998
(D) Notes to Consolidated Financial Statements (Unaudited)
2
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BUTLER INTERNATIONAL, INC.
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 503 $ 910
Accounts receivable, net 68,829 65,349
Inventories 469 441
Other current assets 6,846 6,193
-------------- -------------
Total current assets 76,647 72,893
Property and equipment, net 16,985 16,527
Other assets and deferred charges 3,691 2,711
Excess cost over net assets of
businesses acquired, net 58,722 57,981
-------------- -------------
Total assets $ 156,045 $ 150,112
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 32,530 $ 30,163
Current portion of long-term debt 5,221 5,895
-------------- -------------
Total current liabilities 37,751 36,058
-------------- -------------
Revolving credit facility 30,223 27,251
Other long-term debt 26,631 27,684
Other long-term liabilities 4,464 3,920
Stockholders' equity:
Preferred stock: par value $.001 per share,
authorized 5,000,000: Series B 7% Cumulative
Convertible, authorized 3,500,000; issued
3,014,564 at March 31, 1999 and December 31, 1998
(Aggregate liquidation preference $3,015
at March 31, 1999 and December 31, 1998) 3 3
Common stock: par value $.001 per share,
authorized 83,333,333; issued 6,626,233
at March 31, 1999 and 6,506,043 at
December 31, 1998 7 7
Additional paid-in capital 95,399 95,244
Accumulated deficit (38,258) (39,922)
Accumulated other comprehensive income (175) (133)
-------------- -------------
Total stockholders' equity 56,976 55,199
-------------- -------------
Total liabilities and stockholders' equity $ 156,045 $ 150,112
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BUTLER INTERNATIONAL, INC.
--------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(in thousands except per share data)
(Unaudited)
Quarter Ended March 31,
----------------------
1999 1998
-------- --------
Net sales $105,878 $106,723
Cost of sales 83,843 88,515
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Gross margin 22,035 18,208
Depreciation and amortization 1,243 821
Selling, general and administrative expenses 16,911 14,631
-------- --------
Operating income 3,881 2,756
Interest expense (1,113) (993)
-------- --------
Income before income taxes 2,768 1,763
Income taxes 1,052 534
-------- --------
Net income $ 1,716 $ 1,229
======== ========
Net income per share:
Basic $ .25 $ .18
Diluted $ .22 $ .16
Average number of common shares and dilutive
common share equivalents outstanding:
Basic 6,543 6,423
Diluted 7,862 7,743
The accompanying notes are an integral part of these consolidated financial
statements.
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BUTLER INTERNATIONAL, INC.
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(in thousands)
(Unaudited)
Three Months Ended March 31,
---------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,716 $ 1,229
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and excess purchase
price amortization 1,243 822
Amortization of deferred financing 38 11
Foreign currency translation (42) 35
(Increase) decrease in assets,
increase (decrease) in liabilities:
Accounts receivable (3,480) (6,511)
Inventories (28) 568
Other current assets (653) (146)
Other assets (1,018) (177)
Current liabilities 2,315 8,530
Other long-term liabilities 544 251
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Net cash provided by operating activities 635 4,612
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - net (1,154) (980)
Cost of businesses acquired (1,288) (5,315)
Expenses paid in conjunction with
discontinued operations - (4)
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Net cash used in investing activities (2,442) (6,299)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreements 1,245 1,323
Net proceeds from the issuance of
common stock 155 81
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Net cash provided by financing activities 1,400 1,404
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Net decrease in cash (407) (283)
Cash at beginning of period 910 914
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Cash at end of period $ 503 $ 631
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
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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 March 31, 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 March 31,
-----------------------
1999 1998
----------- ----------
Basic Earnings per Share:
- -------------------------
Income available to common
Shareholders $1,664 $1,180
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Weighted average common shares
outstanding 6,543 6,423
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Basic earnings per common share $ .25 $ .18
====== ======
Diluted Earnings per Share:
- ---------------------------
Income available to common
Shareholders assuming conversion
of preferred stock $1,716 $1,229
------ ------
Weighted average common shares
outstanding 6,543 6,423
Common stock equivalents 460 518
Assumed conversion of preferred
stock 859 802
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Total weighted average common
shares 7,862 7,743
------ ------
Diluted earnings per common share $ .22 $ .16
====== ======
NOTE 3 - COMMON STOCK:
During the first quarter of 1999, the Company issued 125,000 shares of common
stock upon the exercise of common stock options and retired 4,810 shares of
common stock.
6
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NOTE 4 - 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 $5.0 million and $3.6 million in the first
quarter of 1999 and 1998, respectively. Operating profits from the UK
subsidiary were $261,000 and $138,000 in the first quarter of 1999 and 1998,
respectively. The following table presents sales and operating profits by
segment for the first quarter of 1999 and 1998 (in thousands).
NET SALES: Quarter Ended March 31,
1999 1998
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Technology Solutions $ 30,301 $ 15,238
Telecom Services 22,456 17,291
Fleet Services 11,201 19,113
Technical Group 41,920 55,081
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Consolidated Sales $105,878 $106,723
======== ========
OPERATING PROFITS: 1999 1998
-------- --------
Technology Solutions $ 2,190 $ 1,371
Telecom Services 3,626 2,656
Fleet Services 533 870
Technical Group 2,986 3,175
Unallocated amounts (5,454) (5,316)
-------- --------
Consolidated Profits $ 3,881 $ 2,756
======== ========
NOTE 5 - 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
$42,000 for the quarter ended March 31, 1999, and an increase of $35,000 for the
quarter ended March 31, 1998. Total comprehensive income was $1,674,000 and
$1,264,000 for the three months ended March 31, 1999 and 1998, respectively.
NOTE 6 - 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.
NOTE 7 - 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, 1999. The company is currently evaluating the impact,
if any, of this standard on its financial reporting.
7
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NOTE 8 - SUBSEQUENT EVENTS:
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 is to be distributed on June 1,
1999, to shareholders of record at the close of business on May 16, 1999. After
the distribution of the dividend, there will be 9,939,350 shares of common stock
outstanding and 4,521,846 shares of series B preferred stock outstanding. Also,
a proposal to increase the authorized shares of preferred stock from 5,000,000
to 10,000,000 was approved by the shareholders. The table below reflects the
pro forma weighted average shares outstanding and earnings per share assuming
the stock split:
Quarter Ended March 31,
-----------------------
1999 1998
------ ------
Net income per share:
Basic .17 .12
Diluted .15 .11
Average number of common shares and dilutive
common share equivalents outstanding:
Basic 9,814 9,634
Diluted 11,793 11,614
8
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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 1999 increased by 40% to $1.7 million, up
from $1.2 million reported in the first quarter of 1998. Pre-tax earnings
increased by 57% to $2.8 million, compared to $1.8 recorded in the 1998 quarter.
Diluted earnings per share were $.22 in 1999, compared with $.16 in the 1998
first quarter, reflecting an increase of 38%. Revenues for the first quarter of
1999 were $105.9 million, slightly below the $106.7 million recorded in the same
period of 1998.
Substantial profitability increases in both the Telecom Services and Technology
Solutions businesses were responsible for the quarter-on-quarter growth in
earnings. The ongoing improvement in business mix provided by the growth of
those divisions resulted in an increase in gross margins to 20.8% in the 1999
first quarter, up from 17.1% in the 1998 quarter. These increases more than
offset reduced profits in the Fleet Services and Technical Group, which were due
to expected reductions.
The Company's Technology Solutions and Telecom Services businesses reported
revenue increases of $15.1 million, or 99% and $5.2 million, or 30%,
respectively, above the first quarter of 1998. Acquisitions accounted for
approximately $13.6 million of the increase. This substantial growth however
was offset by a decrease of approximately $21 million in the Technical Group and
Fleet Services businesses. The decrease in the Technical Group was in line with
the Company's ongoing strategy of transforming its business mix towards its
high-end service offerings. The reduction in Fleet Services revenue was
directly related to the restructuring of a major contract later on in 1998.
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.
As of March 31, 1999, $30.2 million was outstanding under the credit facility,
with an additional $5.5 million used to collateralize letters of credit. As of
March 31, 1999, $24.5 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 $35.0 million. The interest rate on the revolving credit
facility at the end of the first quarter of 1999 was 125 basis points above the
30-day commercial paper rate, or 6.10%. 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 March 31, 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 March 31, 1999, (Pounds)563,000 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
9
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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.
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 expected to
be completed by the end of the second quarter of 1999. With regard to all other
computerized systems, the Company has nearly completed its Y2K compliance, and
is currently testing its ability to correctly identify and process the Year
2000. This process is expected to be complete by the end of the second quarter
of 1999. All desktop and laptop computers have been checked for Y2K readiness.
Any computers that are not compliant are being replaced. This process will be
completed in the second quarter of 1999. All PC operating systems have been
upgraded. All telecommunications and PBX systems have been evaluated and are
expected to be compliant in the second quarter of 1999. 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.
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 is approximately $137,000, of which $24,000 has been expensed
and $113,000 has been recorded to property and equipment. The estimated cost to
complete the PC upgrade is approximately $20,000. The cost to upgrade or
replace non-compliant telecommunication systems to date has been approximately
$35,000. The estimated cost to complete the telecommunication system upgrades
is approximately $55,000.
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
10
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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 by June 30, 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.
11
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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 list and exhibits attached
(b) Reports on Form 8-K - None
12
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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 13, 1999 By: /s/ Edward M. Kopko
--------------------------------
Edward M. Kopko
Chairman and Chief Executive
Officer
May 13, 1999 By: /s/ Michael C. Hellriegel
--------------------------------
Michael C. Hellriegel
Senior Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUTLER
INTERNATIONAL INC. FORM 10-Q FOR PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 503
<SECURITIES> 0
<RECEIVABLES> 72,255
<ALLOWANCES> 3,426
<INVENTORY> 469
<CURRENT-ASSETS> 76,647
<PP&E> 33,095
<DEPRECIATION> 16,110
<TOTAL-ASSETS> 156,045
<CURRENT-LIABILITIES> 37,751
<BONDS> 0
0
3
<COMMON> 7
<OTHER-SE> 56,966
<TOTAL-LIABILITY-AND-EQUITY> 156,045
<SALES> 105,878
<TOTAL-REVENUES> 105,878
<CGS> 83,843
<TOTAL-COSTS> 83,843
<OTHER-EXPENSES> 18,034
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 1,113
<INCOME-PRETAX> 2,768
<INCOME-TAX> 1,052
<INCOME-CONTINUING> 1,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,716
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.22
</TABLE>
