<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.txt
<DESCRIPTION>FORM 10-Q 06/30/2001
<TEXT>
<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 June 30, 2001
-----------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to _______________________
Commission file number 0-14951
-----------------------------
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)
(201) 573-8000
-------------------------------------------------------------
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report.)
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 August 2, 2001, 9,422,258 shares of the registrant's common stock, par
value $0.001 per share, were outstanding and 672,817 shares were in treasury.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements.
---------------------
Index to Financial Statements Page
----------------------------- ----
<S> <C>
Consolidated Balance Sheets at June 30, 2001(unaudited) and December 31, 2000................ F-1
Consolidated Statements of Operations for the six-month periods ended
June 30, 2001 and 2000 (unaudited).................................................. F-2
Consolidated Statements of Operations for the three-month periods ended
June 30, 2001 and 2000 (unaudited).................................................. F-3
Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 2001 and 2000 (unaudited).................................................. F-4
Notes to Consolidated Financial Statements................................................... F-5 - F-8
</TABLE>
2
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition.
-------------------
RESULTS OF OPERATIONS
Butler International, Inc. (the "Company") recorded a net loss of $4.5
million or $.49 per share for the quarter ended June 30, 2001, as compared to
net income of $2.1 million or $0.19 per diluted share for the same period in
2000. The net loss for the quarter included restructuring and other charges of
$4.4 million and a loss in BlueStorm, the Company's enterprise network
consulting business, of $1.3million. Revenues in the period were $98.3 million,
a 7% reduction from the $106.2 million recorded in the second quarter of 2000.
The $4.4 million restructuring charges included severance related costs,
the elimination of redundant facilities and equipment expenses spanning the
Company's lines of business, as well as excess finance charges incurred mainly
due to the BlueStorm losses. The majority of the restructuring charges were
attributable to the downsizing of the BlueStorm operation. As a result of these
actions, management expects the Company's results to be substantially improved
in the third quarter. Since April, the Company has eliminated more than $20
million of annualized costs.
The Company also announced that the BlueStorm company would no longer
operate as a separate subsidiary. Beginning with the third quarter, the on-going
operation will be known as Butler Telecom Network Services, and will be made
part of the Company's Telecommunications service offerings. Due to the
significance of the cost reductions and other restructuring actions taken in the
second quarter , the former BlueStorm operation is expected to become profitable
in the second half of 2001. In addition, the integration of network services
into our Telecom services operation will enable the Company to both retain and
benefit from the relationships established by BlueStorm since its inception.
Exclusive of the restructuring costs and BlueStorm losses, the Company's
net income was $0.3 million compared with $1.8 million in the 2000 second
quarter. Reduced margins in the Telecom services business and a substantial
reduction in demand for Technology staffing services were primarily responsible
for the year-on-year earnings decrease. Despite the decreased margins, the
Telecom services operation remained solidly profitable with an operating income
of $4.8 million, reflecting an operating margin of 14%. The decline in the
Technology Solutions business reflects an overall decrease for demand in IT
staffing. However, the Company's IT solutions business grew by 58%, while its
operating loss was narrowed by 74% to $300,000 as compared to over $1 million in
the prior year quarter. Notably, the IT solutions business was profitable in the
month of June. The Technical Group operating income decreased slightly due
mostly to a 1% decrease in volume, offset partially by higher margins. The Fleet
Service business unit recorded increased operating income by nearly $400,000 as
a result of improved margins and lower overhead.
The revenue decrease was due to sharp reductions in IT staffing as well as
reduced demand in BlueStorm. The balance of the Company's operations reported
sales similar to last year's quarter, down by less than 1%. Of particular note,
solutions oriented work increased by 4% over last year to $55 million, while
staffing revenues declined by 18% to $43 million. Solutions sales represent 57%
of the Company's total revenue.
For the six months ended June 30, 2001, the Company recorded a net loss of
$6.5 million or $0.71 per share, compared with net income of $3.9 million or
$0.34 per diluted shared for the same period in 2000. Exclusive of the
restructuring charges and BlueStorm losses, which combined, totaled $8.6
million, the Company earned $0.1 million, net of taxes for the six month period.
Contributing to the year-on-year decrease in profits were reduced margins in the
Telecom operations and significantly reduced activity in the IT staffing area.
Revenues for the period were $199.5 million compared with $203.6 million in
2000. The revenue decrease was caused primarily by reduced IT staffing activity
offset partially by increased sales in the Telecom services operation.
In July 2001, the Financial Accounting Standards Board issued two new
pronouncements: SFAS No. 141,"Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 141 prohibits the use of the
pooling-of-interests method for business combinations initiated after June 30,
2001 and also requires all business combinations that are completed after June
30, 2001 to be accounted for by the purchase method. The Company is required to
implement SFAS No. 141 on July 1, 2001 and it has not determined the impact, if
any, that this statement will have on its consolidated financial position or
results of operations. SFAS No. 142 requires that upon adoption, amortization of
goodwill will cease and instead, the carrying value of goodwill will be
evaluated for impairment on an annual basis. Identifiable intangible assets will
continue to be amortized over their useful lives and reviewed for impairment.
The Company is required to implement SFAS No. 142 on January 1, 2002 and it has
not determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations.
3
<PAGE>
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 provided by operating activities was $8.0 million for the six-month period
ended June 30, 2001, an increase of $9.2 million over the same period in 2000.
The Company's credit agreement with General Electric Capital Corporation
("GECC"), as amended, provides for a revolving credit facility for loans up to
$60.9 million, including $9.0 million for letters of credit and an additional
acquisition facility for up to $24.1 million. Availability under the revolving
credit facility is based upon the amount of eligible receivables. During the
second quarter of 2001, GECC granted the Company the ability to borrow in excess
of the formula used to calculate the maximum allowable of eligible receivables,
in support of the Company's efforts to substantially reduce its operating costs.
The interest rate on the revolving credit facility at the end of the second
quarter of 2001 was 200 basis points above the 30-day commercial paper rate, or
5.94%. 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, 2001, was 6.44%. Interest on borrowings in excess of formula was prime
plus 200 basis points. 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, as amended.
As of June 30, 2001, $52.7 million was outstanding under the credit
facility, with an additional $2.7 million used to collateralize letters of
credit. Proceeds from the credit facility are used to finance internal business
growth, working capital, capital expenditures, and from time to time
acquisitions and the Company's stock repurchase program. The credit facility
excludes the U.K. operation, which has its own (pound)1.5 million facility. As
of June 30, 2001, (pound)773,488 was outstanding under the U.K. facility. The
acquisition line of credit, as amended, provides the Company with up to $24.1
million to finance its acquisition program. As of June 30, 2001, $22.7 million
was outstanding on the acquisition line.
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 $350,000 loan that is repayable based on a 4
year schedule. In 1997, 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 $350,000 loans,
respectively. The Company receives payments based upon the one month Libor plus
175 basis points.
The Company is currently engaged in discussions with GECC to restructure
the existing credit facility to provide additional liquidity to finance
operations. Additionally, the Company is pursuing a refinancing of the mortgage
on its corporate office facility. The Company expects to close each during the
third quarter of 2001.
The Company believes that the combination of its operating cash flow and
the restructuring of its credit facilities will provide sufficient liquidity for
at least the next twelve months.
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.
----------------------------------------------------------
The Company is exposed to market risk primarily from changes in interest
rates, and to a lesser extent, changes in foreign currency rates.
The Company has a credit agreement with GECC which, as amended, provides a
revolving credit facility for loans up to $60.9 million, including $9.0 million
for letters of credit, and an acquisition facility for up to $24.1 million. The
interest rates in effect at June 30, 2001 were 5.94% and 6.44% on the revolving
credit and acquisition facilities, respectively. The average interest rates
during the first half of 2001 were 7.08% and 7.58% on the revolving credit
facility and acquisition facility, respectively. Interest reductions are
available based upon the Company achieving certain financial results.
From time-to-time the Company will use derivative instruments to limit its
exposure to fluctuating interest rates. It is not the Company's policy to use
these transactions for speculation purposes. The Company takes advantage of cash
flow hedging activities through the use of interest rate swaps.
4
<PAGE>
In 1997, the Company entered into interest rate swap arrangements 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 $350,000 loans, respectively. The
Company receives payments based upon the one month Libor plus 175 basis points.
In 2000, the net gain from the exchange of interest rate payments was
approximately $1,800 and was included in interest expense. If the interest rate
swap agreement was terminated as of June 30, 2001, the Company would owe its
lender an additional $215,000.
The Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, on January 1, 2001. Through June 30, 2001, the Company has
recorded a $153,000 (net of tax benefit of $62,000) charge to other
comprehensive income, which includes a $75,000 (net of tax benefit of $30,000)
charge as a cumulative transition adjustment.
The Company's international operations are directed from offices in the
United Kingdom. International operations accounted for approximately 3.2% of the
Company's sales for the six months ended June 30, 2001, principally from the
United Kingdom. In the first half of 2001, changes in foreign currency rates had
an immaterial impact on sales and earnings per share.
5
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None
Item 2. Changes in Securities.
---------------------
None
Item 3. Defaults Upon Senior Securites.
------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Stockholders held on May 10, 2001, a quorum,
consisting of approximately 93.4% 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 - Thomas F. Comeau was elected as a Second Class
Director. Edward M. Kopko, Frederick H. Kopko, Jr. and Nikhil S. Nagaswami
continue to serve as directors. John F. Hegarty retired from full service
following the meeting but has agreed to continue as a Director Emeritus and
serve as an advisor to the Board. Proposal #2 - To amend and restate the 1992
Employee Stock Plans. Proposal #3 - To amend and restate the 1992 Stock Option
Plan for Non-Employee Directors.
FOR WITHHELD
----- --------
Proposal #1 13,275,371 1,005,155
FOR AGAINST ABSTAIN
----- ------- -------
Proposal #2 11,685,445 2,560,162 34,919
Proposal #3 11,402,029 2,845,635 32,862
Item 5. Other Information.
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibit list and exhibits attached.
(b) Reports on Form 8-K.
None.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 14, 2001 BUTLER INTERNATIONAL, INC.
--------------------------------------
(Registrant)
By: /s/ Edward M. Kopko
--------------------------------------
Edward M. Kopko
Chairman of the Board of Directors
and Chief Executive Officer
By: /s/ Michael C. Hellriegel
--------------------------------------
Michael C. Hellriegel
Senior Vice President
and Chief Financial Officer
7
<PAGE>
BUTLER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
As of
---------------------------
June 30, December 31,
2001 2000
--------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,574 $ 2,031
Accounts receivable, net 66,282 80,384
Inventories 423 479
Other current assets 13,167 8,633
--------- ----------
Total current assets 86,446 91,527
Property and equipment, net 22,282 22,720
Other assets 4,348 4,091
Excess cost over net assets of businesses
acquired, net 61,272 62,468
--------- ----------
Total assets $ 174,348 $ 180,806
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 29,728 $ 29,295
Current portion of long-term debt 6,284 6,062
--------- ----------
Total current liabilities 36,012 35,357
--------- ----------
Revolving credit facility 52,667 50,763
Other long-term debt 23,005 25,548
Other long-term liabilities 4,745 4,421
Commitments and contingencies
Stockholders' equity:
Preferred stock: par value $.001 per share, authorized 15,000,000;
issued 5,370,534 in 2001 and 5,188,922 in 2000 shares of Series B 7%
Cumulative Convertible (Aggregate liquidation
preference $5,371 in 2001 and $5,189 in 2000) 5 5
Common stock: par value $.001 per share, authorized
125,000,000; issued 10,095,075 in 2001 and 2000;
outstanding 9,422,258 in 2001 and 9,419,435 in 2000 10 10
Additional paid-in capital 96,467 96,285
Accumulated deficit (31,797) (25,084)
Accumulated other comprehensive loss (826) (527)
--------- ----------
Sub-total 63,859 70,689
--------- ----------
Less - Treasury stock 672,817 shares in 2001
and 675,640 shares in 2000 (5,940) (5,972)
--------- ----------
Total stockholders' equity 57,919 64,717
--------- ----------
Total liabilities and stockholders' equity $ 174,348 $ 180,806
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-1
<PAGE>
BUTLER INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
For the Six Month Period
Ended June 30,
--------------------------------
2001 2000
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Net sales $ 199,484 $ 203,648
Cost of sales 160,102 158,978
---------- ----------
Gross margin 39,382 44,670
Depreciation and amortization 3,673 3,089
Selling, general and administrative expenses 37,253 32,696
Restructuring and other charges 4,440 -
---------- ----------
Operating (loss)/income (5,984) 8,885
Interest expense (3,213) (2,919)
---------- ----------
(Loss)/income before income taxes (9,197) 5,966
Income tax (benefit)/expense (2,665) 2,100
---------- ----------
Net (loss)/income $ (6,532) $ 3,866
========== ==========
Net (loss)/income per share:
Basic $ (0.71) $ 0.39
Diluted $ (0.71) $ 0.34
Average number of common shares and dilutive
common share equivalents outstanding
Basic 9,421 9,419
Diluted 9,421 11,304
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-2
<PAGE>
BUTLER INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
<TABLE>
<CAPTION>
For the Three Month Period
Ended June 30,
----------------------------
2001 2000
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Net sales $ 98,344 $ 106,173
Cost of sales 78,056 82,584
---------- ----------
Gross margin 20,288 23,589
Depreciation and amortization 1,805 1,578
Selling, general and administrative expenses 18,160 17,224
Restructuring and other charges 4,440 -
---------- ----------
Operating (loss)/income (4,117) 4,787
Interest expense (1,488) (1,560)
---------- ----------
(Loss)/income before income taxes (5,605) 3,227
Income tax (benefit)/expense (1,104) 1,136
---------- ----------
Net (loss)/income $ (4,501) $ 2,091
========== ==========
Net (loss)/income per share:
Basic $ (0.49) $ 0.21
Diluted $ (0.49) $ 0.19
Average number of common shares and dilutive
common share equivalents outstanding
Basic 9,422 9,388
Diluted 9,422 11,219
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BUTLER INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six Month Period
Ended June 30,
---------------------------------
2001 2000
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $ (6,532) $ 3,866
Adjustments to reconcile net (loss)/income to net
cash provided by (used in) operating activities:
Depreciation and excess purchase price amortization 3,673 3,089
Amortization of deferred financing and
employee stock purchase plan loans 106 63
Restructuring and other charges 66 -
Provision for bad debt 779 (538)
Provision for deferred taxes 457 (452)
(Increase) decrease in assets, increase (decrease) in liabilities:
Accounts receivable 13,323 (2,629)
Inventories 56 (36)
Other current assets (4,445) 269
Other assets (438) (442)
Current liabilities 614 (4,456)
Other long term liabilities 324 45
---------- ----------
Net cash provided by (used in) operating activities 7,983 (1,221)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,098) (3,384)
Cost of businesses acquired (7) (523)
---------- ----------
Net cash used in investing activities (2,105) (3,907)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility 1,904 9,055
Proceeds under U.K. credit facility 222 -
Financing fees paid (652) -
Repayment of long term debt (2,758) (3,456)
Net proceeds from the exercise of
common stock options - 20
Issuance (repurchase) of treasury stock 33 (1,239)
---------- ----------
Net cash (used in ) provided by financing activities (1,251) 4,380
---------- ----------
Foreign currency translation (84) 143
Net increase (decrease) in cash 4,543 (605)
Cash at beginning of period 2,031 1,067
---------- ----------
Cash at end of period $ 6,574 $ 462
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BUTLER INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2001, 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, 2000.
2. EARNINGS PER SHARE:
The following table presents the computation of basis and diluted earnings
per common share as required by Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share (in thousands, except per share data).
<TABLE>
<CAPTION>
For the Three-Month For the Six-Month
Period Ended June 30, Period Ended June 30,
2001 2000 2001 2000
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net (loss)/income $ (4,501) $ 2,091 $ (6,532) $ 3,866
Preferred dividends (91) (85) (182) (170)
-------- ------- -------- --------
(Loss)/income available to
common shareholders (4,592) 2,006 (6,714) 3,696
-------- ------- -------- --------
Weighted average common
shares outstanding 9,422 9,388 9,421 9,419
-------- ------- -------- --------
Basic (loss)/earnings per common share $ (0.49) $ 0.21 $ (0.71) $ 0.39
======== ======= ======== ========
Diluted Earnings per Share:
Net (loss)/income $ (4,501) $ 2,091 $ (6,532) $ 3,866
Preferred dividends (91) - (182) -
-------- ------- -------- --------
(Loss)/income available to common
shareholders assuming conversion (4,592) 2,091 (6,714) 3,866
-------- ------- -------- --------
Weighted average common
shares outstanding 9,422 9,388 9,421 9,419
Common stock equivalents - 450 - 504
Assumed conversion of preferred stock - 1,381 - 1,381
-------- ------- -------- --------
Total weighted average
common shares 9,422 11,219 9,421 11,304
-------- ------- -------- --------
Diluted (loss)/earnings per common shares $ (0.49) $ 0.19 $ (0.71) $ 0.34
======== ======= ======== ========
</TABLE>
F-5
<PAGE>
BUTLER INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Basic earnings/(loss) per common share is calculated by dividing net
income/(loss), adjusted for preferred stock dividends, by the weighted
average number of common shares outstanding during the period. Diluted
earnings/(loss) per share is calculated by dividing net income/(loss) by
the sum of the weighted average number of common shares that would have
been outstanding if potentially dilutive securities or common stock
equivalents had been issued. As a result of the net loss reported for the
three and six-month periods ended June 30, 2001, approximately 232,000
potential common shares have been excluded from the calculations of diluted
earnings/(loss) per share because their effect would be anti-dilutive. In
addition, 1,148,500 options and warrants, where the exercise price was
greater than the average market price of the common shares for the three
and six-month periods ending June 30, 2001, were excluded from the
computation of diluted loss per share.
3. SEGMENTS:
The Company's services are provided through five business segments: Telecom
Services, the Technical Group, Technology Solutions, Fleet Services and
BlueStorm. Sales and operating profits in thousands by segment were:
<TABLE>
<CAPTION>
For the Three-Month For the Six-Month
Period Ended June 30, Period Ended June 30,
2001 2000 2001 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales:
Telecom Services $ 32,892 $ 32,393 $ 65,788 $ 57,646
Technical Group 36,631 37,447 73,363 73,391
Technology Solutions 16,749 23,097 35,150 47,264
Fleet Services 11,292 11,197 22,529 21,988
BlueStorm 780 2,039 2,654 3,359
-------- -------- -------- --------
Consolidated Total $ 98,344 $106,173 $199,484 $203,648
======== ======== ======== ========
Operating Profits:
Telecom Services $ 4,763 $ 6,821 $ 9,196 $ 11,224
Technical Group 2,717 3,026 5,411 5,782
Technology Solutions (31) 648 (231) 1,912
Fleet Services 516 191 919 937
BlueStorm (1,259) 264 (4,310) 411
Restructuring and other charges (4,440) (4,440)
Unallocated amounts (6,383) (6,163) (12,529) (11,381)
-------- -------- -------- --------
Consolidated Total $ (4,117) $ 4,787 $ (5,984) $ 8,885
======== ======== ======== ========
</TABLE>
The Company primarily operates in the United States. The Technical Group
operations include the results of its United Kingdom ("UK") subsidiary.
Sales from the UK operation were approximately $6.3 million and $7.6
million for the six-month period ended June 30, 2001and 2000, respectively,
and $3.1 million and $3.6 million for the three-month period ended June 30,
2001and 2000, respectively. Operating profits from the UK subsidiary were
approximately $195,000 and $450,000 for the six-month period ended June 30,
2001 and 2000, respectively and approximately $86,000 and $185,000 for the
three-month period ended June 30, 2001 and 2000, respectively.
The Company's assets are reviewed by management on a consolidated basis
because it is not meaningful to allocate assets to the various segments.
Unallocated amounts of operating profits consist of corporate expenses and
certain general and administrative expenses from field operations.
In July 2001, the Company announced that the BlueStorm company would no
longer operate as a separate subsidiary. Beginning with the third quarter,
the on-going operation will be known as Butler Telecom Network Services,
and will be made part of the Company's Telecom Service segment.
Accordingly, BlueStorm results will prospectively be included in the
Telecom Services segment and amounts will be presented on that basis
comparatively.
F-6
<PAGE>
BUTLER INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. COMPREHENSIVE INCOME:
Comprehensive income is defined as the total change in stockholders' equity
during a period, other than from transactions with shareholders. Total
comprehensive (loss)/income was ($4,496,000) and ($6,694,000) for the three
and six months ended June 30, 2001, compared to $2,273,000 and $4,009,000
for the three and six months ended June 30, 2000.
5. FINANCIAL INSTRUMENTS AND DERIVATIVES:
SFAS No. 133, as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (collectively, SFAS
No. 133), is effective for all fiscal quarters for all fiscal years
beginning after June 15, 2000. SFAS No. 133, as amended and interpreted
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. All derivatives, whether designated in hedging
relationships or not, will be required to be recorded on the balance sheet
at fair value. If the derivative is designated in a fair-value hedge, the
changes in the fair value of the derivative and the hedged item will be
recognized in earnings. If the derivative is designated in a cash-flow
hedge, changes in the fair value of the derivative will be recorded in
other comprehensive income ("OCI") and will be recognized in the income
statement when the hedged item affects earnings. SFAS No. 133 defines new
requirements for designation and documentation of hedging relationships as
well as ongoing effectiveness assessments in order to use hedge accounting.
For a derivative that does not qualify as a hedge, changes in the fair
value will be recognized in earnings.
The Company adopted SFAS No. 133 on January 1, 2001. Through June 30, 2001,
the Company has recorded a $153,000 (net of tax benefit of $62,000) charge
to OCI, which includes a $75,000 (net of tax benefit of $30,000) charge as
a cumulative transition adjustment. The Company will continue to monitor
the hedged effectiveness of its derivative instruments.
6. RESTRUCTURING AND OTHER CHARGES:
In April 2001, the Company announced a Company-wide cost reduction plan.
The Company recorded restructuring and other charges totaling $4.4 million
during the second quarter of 2001 associated with the cost reduction
program. This charge was for costs incurred to eliminate excess capacity,
reduce both staff and delivery personnel in all of the Company's business
units, the closing of certain unprofitable locations and the termination of
unprofitable contracts and activities. A total of 270 employees were
terminated in the quarter. The restructuring and other charges included
severance and employee related charges of $2.0 million, the elimination of
excess equipment which totaled $1.3 million, costs associated with closing
unprofitable locations of $356,000, excess financing charges of $540,000
caused primarily by the losses from BlueStorm, and $235,000 having to do
with the elimination of unprofitable activities. At June 30, 2001, the
remaining restructuring reserve was $1.8 million and it is included on the
balance sheet under accounts payable and accrued liabilities. Of the
remaining $1.8 million, approximately $400,000 is related to severance and
employee related charges, $1.1 million is related to the elimination of
redundant equipment and $285,000 is related to the closing of unprofitable
locations.
7. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In July 2001, the Financial Accounting Standards Board issued two new
pronouncements: SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 141 prohibits the use of
the pooling-of-interests method for business combinations initiated after
June 30, 2001 and also requires all business combinations that are
completed after June 30, 2001 to be accounted for by the purchase method.
The Company is required to implement SFAS No. 141 on July 1, 2001 and it
has not determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations. SFAS No. 142
requires that upon adoption, amortization of goodwill will cease and
instead, the carrying value of goodwill will be evaluated for impairment on
an annual basis. Identifiable intangible assets will continue to be
amortized over their useful lives and reviewed for impairment. The Company
is required to implement SFAS No. 142 on January 1, 2002 and it has not
determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations.
F-7
<PAGE>
BUTLER INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8. 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 which is recorded. While the ultimate
resolution 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.
F-8
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of the Registrant, as
amended, filed as Exhibit No. 3(a) to the
Registrant's Registration Statement on Form S-4,
Registration No. 33-10881 (the "S-4"), and hereby
incorporated by reference.
3.2 By-laws of the Registrant, as amended, filed as
Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 (the "1997
10-K"), and hereby incorporated by reference.
4.1 Specimen Stock Certificate for the Registrant's
common stock, par value $.001 per share, filed as
Exhibit No. 4.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 33-2479 (the
"S-1"), and hereby incorporated by reference.
4.2 Specimen Stock Certificate representing the
Registrant's Series B 7% Cumulative Convertible
Preferred Stock, par value $.001 per share, filed as
Exhibit No. 4.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 (the
"1992 10-K"), and hereby incorporated by reference.
10.1* Incentive Stock Option Plan of the Registrant, as
amended, filed as Exhibit No. 10.1 to the 1990 10-K,
and hereby incorporated by reference.
10.2* Stock Option Plan of the Registrant, as amended,
filed as Exhibit No. 10.2 to the 1990 10-K, and
hereby incorporated by reference.
10.3* 1989 Directors Stock Option Plan of the Registrant,
dated November 1, 1988, as amended, filed as Exhibit
10.18 to the 1990 10-K, and hereby incorporated by
reference.
10.4* Stock Purchase Agreement, dated September 19, 1990,
between North American Ventures, Inc. and Edward M.
Kopko, filed as Exhibit 10.31 to the 1990 10-K, and
hereby incorporated by reference.
10.5* Plan Pledge Agreement, dated September 19, 1990,
between North American Ventures, Inc. and Edward M.
Kopko, filed as Exhibit No. 10.32 to the 1990 10-K,
and hereby incorporated by reference.
10.6* Plan Promissory Note, dated January 16, 1991,
executed by Edward M. Kopko, and made payable to the
order of North American Ventures, Inc. in the amount
of $445,000, filed as Exhibit No. 10.33 to the 1990
10-K, and hereby incorporated by reference.
10.7* Pledge Agreement, dated January 16, 1991, between
North American Ventures, Inc. and Edward M. Kopko,
filed as Exhibit No. 10.34 to the 1990 10-K, and
hereby incorporated by reference.
10.8* Promissory Note, dated January 16, 1991, executed by
Edward M. Kopko and made payable to the order of
North American Ventures, Inc. in the amount of
$154,999.40, filed as Exhibit No. 10.35 to the 1990
10-K, and hereby incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management contract.
<PAGE>
10.9* Form of Plan Pledge Agreement, dated September 19,
1990, between North American Ventures, Inc. and each
of John F. Hegarty, Hugh G. McBreen, and Frederick H.
Kopko, Jr. ("Outside Directors"), filed as Exhibit
No. 10.36 to the 1990 10-K, and hereby incorporated
by reference.
10.10* Form of Plan Promissory Note, dated September
19, 1990, each executed by an Outside Director and
each made payable to the order of North American
Ventures, Inc. in the amount of $185,000, filed as
Exhibit No. 10.37 to the 1990 10-K, and hereby
incorporated by reference.
10.11* Form of Stock Purchase Agreement, dated November 4,
1988, between North American Ventures, Inc. and each
of the Outside Directors, filed as Exhibit No. 10.38
to the 1990 10-K, and hereby incorporated by
reference.
10.12* Form of Pledge Agreement, dated January 16, 1991,
between North American Ventures, Inc. and each of the
Outside Directors, filed as Exhibit No. 10.39 to the
1990 10-K, and hereby incorporated by reference.
10.13* Form of Promissory Note, dated January 16, 1991,
executed by each of the Outside Directors and each
payable to the order of North American Ventures,
Inc., in the amount of $63,000, filed as Exhibit
10.40 to the 1990 10-K, and hereby incorporated by
reference.
10.14* Form of Pledge Agreement, dated January 16, 1991,
between North American Ventures, Inc. and each of the
Outside Directors, filed as Exhibit No. 10.41 to the
1990 10-K, and hereby incorporated by reference.
10.15* Form of Promissory Note, dated January 16, 1991,
executed by each of the Outside Directors and each
made payable to the order of North American Ventures,
Inc. in the amount of $54,000, filed as Exhibit No.
10.42 to the 1990 10-K, and hereby incorporated by
reference.
10.16* Form of Promissory Note, dated January 16, 1991,
executed by each of the Outside Directors and each
payable to the order of North American Ventures,
Inc., in the amount of $225,450, filed as Exhibit No.
10.43 to the 1990 10-K, and hereby incorporated by
reference.
10.17* Form of Pledge Agreement, dated January 16, 1991,
between North American Ventures, Inc. and each of the
Outside Directors, filed as Exhibit No. 10.44 to the
1990 10-K, and hereby incorporated by reference.
10.18* Form of Security Agreement, dated January 16, 1991,
between North American Ventures, Inc. and each of the
Outside Directors, filed as Exhibit No. 10.45 to the
1990 10-K, and hereby incorporated by reference.
10.19* 1990 Employee Stock Purchase Plan of the Registrant,
as amended, filed as Exhibit No. 10.46 to the 1990
10-K, and hereby incorporated by reference.
10.20* Employment Agreement, dated December 17, 1991,
among North American Ventures, Inc., Butler Service
Group, Inc., and Edward M. Kopko, filed as Exhibit
10.33 to the Registrant's
* Denotes compensatory plan, compensation arrangement, or management contract.
<PAGE>
Annual Report on Form 10-K for the year ended
December 29, 1991 (the "1991 10-K"), and hereby
incorporated by reference.
10.21* Stock Purchase Agreement, dated December 17, 1991,
between North American Ventures, Inc. and Edward M.
Kopko, filed as Exhibit No. 10.34 to the 1991 10-K,
and hereby incorporated by reference.
10.22* Plan Pledge Agreement, dated December 17, 1991,
between North American Ventures, Inc. and Edward M.
Kopko, filed as Exhibit No. 10.35 to the 1991 10-K
and hereby incorporated by reference.
10.23* Plan Promissory Note, dated December 17, 1991,
executed by Edward M. Kopko, and made payable to the
order of North American Ventures, Inc. in the amount
of $84,000, filed as Exhibit No. 10.36 to the 1991
10-K, and hereby incorporated by reference.
10.24* Form of Stock Purchase Agreement, dated December 17,
1991, between North American Ventures, Inc. and each
of the Outside Directors, filed as Exhibit 10.37 to
the 1991 10-K, and hereby incorporated by reference.
10.25* Form of Plan Pledge Agreement, dated December 17,
1991, between North American Ventures, Inc. and each
of the Outside Directors, filed as Exhibit 10.38 to
the 1991 10-K, and hereby incorporated by reference.
10.26* Form of Plan Promissory Note, dated December 17,
1991, each executed by an Outside Director, and each
made payable to the order of North American Ventures,
Inc., in the amount of $42,000, filed as Exhibit No.
10.39 to the 1991 10-K, and hereby incorporated by
reference.
10.27* 1992 Stock Option Plan, filed as Exhibit 10.40 to the
1992 10-K, and hereby incorporated by reference.
10.28* 1992 Incentive Stock Option Plan, filed as Exhibit
10.41 to the 1992 10-K, and hereby incorporated by
reference.
10.29* 1992 Stock Bonus Plan, filed as Exhibit No. 10.42 to
the 1992 10-K, and hereby incorporated by reference.
10.30* 1992 Stock Option Plan for Non-Employee Directors,
filed as Exhibit 10.43 to the 1992 10-K, and hereby
incorporated by reference.
10.31* Butler Service Group, Inc. Employee Stock Ownership
Plan and Trust Agreement, filed as Exhibit No. 19.2
to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1987 (the "1987 10-K"),
and hereby incorporated by reference.
10.32* Employment Agreement dated May 15, 1994 between
Butler Fleet Services, a division of Butler Services,
Inc., and James VonBampus, filed as Exhibit 10.44 to
the 1994 10-K, and hereby incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management contract.
<PAGE>
10.33* Employment Agreement dated April 18, 1995 between
Butler International, Inc., and Harley R. Ferguson,
filed as Exhibit 10.42 to the 1995 10-K, and hereby
incorporated by reference.
10.34* Form of Promissory Note dated May 3, 1995 in the
original principal amount of $142,500 executed by
Frederick H. Kopko, Jr. and Hugh G. McBreen, and made
payable to the order of Butler International, Inc.,
filed as Exhibit 10.43 to the 1995 10-K, and hereby
incorporated by reference.
10.35* Form Pledge Agreement dated May 3, 1995 between
Butler International, Inc. and each of Frederick H.
Kopko, Jr. and Hugh G. McBreen, filed as Exhibit
10.44 to the 1995 10-K, and hereby incorporated by
reference.
10.36 Amended and Restated Credit Agreement, dated November
7, 1997, between Butler Service Group, Inc. and
General Electric Capital Corporation, filed as
Exhibit 10.38 to the 1997 10-K, and hereby
incorporated by reference.
10.37 Credit Agreement, dated November 12, 1997, between
Butler of New Jersey Realty Corp. and Fleet Bank,
National Association, filed as Exhibit 10.39 to the
1997 10-K, and hereby incorporated by reference.
10.38(a) First Amendment Agreement, dated as of June 26, 1998
among Butler Service Group, Inc., Butler
International, Inc. and General Electric Corporation,
filed as Exhibit 10.38(a) to the 1999 10-K, and
hereby incorporated by reference.
10.38(b) Second Amendment Agreement, dated as of August 31,
1998, among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as Exhibit 10.38(b) to the 1999
10-K, and hereby incorporated by reference.
10.38(c) Third Amendment Agreement, dated as of May 27, 1999,
among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed Exhibit 10.38(c) to the 1999 10-K,
and hereby incorporated by reference.
10.38(d) Fourth Amendment Agreement, dated as of September 24,
1999, among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as Exhibit 10.38(d) to the 1999
10-K, and hereby incorporated by reference.
10.38(e) Fifth Amendment Agreement, dated as of October 15,
1999, among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as Exhibit 10.38(e) to the 1999
10-2K, and hereby incorporated by reference.
10.38(f) Sixth Amendment Agreement, dated as of November 17,
1999, among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as Exhibit 10.38(f) to the 1999
10-K, and hereby incorporated by reference.
10.38(g) Seventh Amendment Agreement, dated as of July 14,
2000, among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as exhibit 10.38(g) to Form 10-Q
for the period ended September 30, 2000, and hereby
incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management contract.
<PAGE>
10.38(h) Eight Amendment Agreement, dated as of November 9,
2000, among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as exhibit 10.38(g) to Form 10-Q
for the period ended September 30, 2000, and hereby
incorporated by reference .
10.38(i) Ninth Amendment Agreement, dated as of March 27,
2001, among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as exhibit 10.38(i) to Form 10-Q
for the period ended March 31, 2001, and hereby
incorporated by reference.
10.38(j) Tenth Amendment Agreement, dated as of May 11, 2001,
among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed as exhibit 10.38(j) to Form 10-Q
for the period ended March 31, 2001, and hereby
incorporated by reference.
10.38(k) Eleventh Amendment Agreement, dated August 10, 2001,
among Butler Service Group, Inc., Butler
International, Inc. and General Electric Capital
Corporation, filed herewith as exhibit 10.38(k).
10.39* Form of Promissory Note dated January 28, 1998 in the
original amount of $168,278.74 executed by Hugh G.
McBreen and made payable to the order of Butler
International, Inc., filed as Exhibit 10.40 to the
1999 10-K, and hereby incorporated by reference.
10.40* Form Pledge Agreement dated January 28, 1998 between
Butler International, Inc. and Hugh G. McBreen, filed
as Exhibit 10.41 to the 1999 10-K, and hereby
incorporated by reference.
10.41 Stock Purchase Agreement, dated May 29, 1998, by and
among Butler Telecom, Inc., Tom Cannon, Ted Connolly,
Marianne A. Adams, and Jacqueline Anne Hirst, filed
as Exhibit 10.43 to Form 10-Q for the period ended
June 30, 1998, and hereby incorporated by reference.
10.42 Asset Purchase Agreement, dated July 26, 1998,
by and between Butler Telecom, Inc., ISL
International, Inc. and Mervyn Haft, filed as Exhibit
10.46 to Form 10-Q for the period ended June 30,
1998, and hereby incorporated by reference.
10.43* Form of Promissory Note dated October 13, 1998 in the
original amount of $181,000 executed by Frederick H.
Kopko, Jr. and made payable to Butler International,
Inc. filed as Exhibit 10.48 to the 1999 10-K, and
hereby incorporated by reference.
10.44* Form Pledge Agreement dated October 13, 1998 between
Butler International, Inc. and Frederick H. Kopko,
Jr., filed as Exhibit 10.49 to the 1998 10-K, and
hereby incorporated by reference.
10.45* Form of Promissory Note dated March 2, 1999 in the
original amount of $890,625 executed by Edward M.
Kopko and made payable to Butler International, Inc.
filed as Exhibit 10.50 to the 1999 10-K, and hereby
incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management contract.
<PAGE>
10.46* Form Pledge Agreement dated March 2, 1999 between
Butler International, Inc. and Edward M. Kopko, filed
as Exhibit 10.51 to the 1999 10-K, and hereby
incorporated by reference.
10.47* Form of Promissory Note dated March 2, 1999 in the
original amount of $822,441 executed by Edward M.
Kopko and made payable to Butler International, Inc.
filed as Exhibit 10.52 to the 1999 10-K, and hereby
incorporated by reference.
10.48* Form of Promissory Note dated September 12, 2000 in
the original amount of $367,000 executed by Edward M.
Kopko and made payable to Butler International, Inc.
filed as Exhibit 10.48 to the 2000 Form 10-K, and
hereby incorporated by reference.
10.49* Form Pledge Agreement dated September 12, 2000
between Butler International, Inc. and Edward M.
Kopko, filed as Exhibit 10.49 to the 2000 Form 10-K,
and hereby incorporated by reference.
10.50* Form of Promissory Note dated September 12, 2000 in
the original amount of $36,700 executed by R. Scott
Silver-Hill and made payable to Butler International,
Inc. filed as Exhibit 10.50 to the 2000 Form 10-K,
and hereby incorporated by reference.
10.51* Form Pledge Agreement dated September 12, 2000
between Butler International, Inc. and R. Scott
Silver-Hill, filed as Exhibit 10.51 to the 2000 Form
10-K, and hereby incorporated by reference.
10.52* BlueStorm, Inc. 2000 Stock Option Plan, filed as
Exhibit 10.52 to the 2000 Form 10-K, and hereby
incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management contract.
</TEXT>
</DOCUMENT>