-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2Yz7626OACo0tfbc7PgBKX5lxCmIqk7JY7sRZ2nTG2swiy/48CprOBY49cFXE6L s2fkgkC7Y0bSNoOIzme1BA== 0000950130-98-005498.txt : 19981116 0000950130-98-005498.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950130-98-005498 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUTLER INTERNATIONAL INC /MD/ CENTRAL INDEX KEY: 0000786765 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 061154321 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14951 FILM NUMBER: 98747942 BUSINESS ADDRESS: STREET 1: 110 SUMMIT AVE CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2015738000 MAIL ADDRESS: STREET 1: 110 SUMMIT AVENUE STREET 2: 110 SUMMIT AVENUE CITY: MONTVALE STATE: NJ ZIP: 07645 FORMER COMPANY: FORMER CONFORMED NAME: NORTH AMERICAN VENTURES INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------------------- OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) 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 November 11, 1998, 6,443,543 shares of the registrant's common stock, par value $.001 per share, were outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. --------------------- (A) Consolidated Balance Sheets - September 30, 1998 (Unaudited) and December 31, 1997 (B) Consolidated Statements of Operations (Unaudited) - quarter ended September 30, 1998 and quarter ended September 30, 1997 (C) Consolidated Statements of Operations (Unaudited) - Nine months ended September 30, 1998 and nine months ended September 30, 1997 (D) Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 1998 and nine months ended September 30, 1997 (E) Notes to Consolidated Financial Statements (Unaudited) 2 BUTLER INTERNATIONAL, INC. -------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- (in thousands except share data)
September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) ASSETS - ------ Current assets: Cash $ 910 $ 914 Accounts receivable, net 69,387 54,827 Inventories 1,599 2,196 Other current assets 6,802 4,687 ----------- ---------- Total current assets 78,698 62,624 Property and equipment, net 16,193 15,613 Other assets and deferred charges 2,551 1,907 Excess cost over net assets of businesses acquired, net 58,295 24,572 ----------- ---------- Total assets $ 155,737 $ 104,716 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable and accrued liabilities $ 32,637 $ 28,153 Current portion of long-term debt 5,275 920 ----------- ---------- Total current liabilities 37,912 29,073 ----------- ---------- Revolving credit facility 33,329 20,985 Other long-term debt 28,851 6,517 Other long-term liabilities 3,675 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 2,911,818 in 1998 and 2,814,133 in 1997 (Aggregate liquidation preference $2,912 in 1998 and $2,814 in 1997) 3 3 Common stock: par value $.001 per share, authorized 83,333,333; issued 6,443,543 at September 30, 1998 and 6,380,023 at December 31, 1997 6 6 Additional paid-in capital 94,948 94,710 Accumulated deficit (42,868) (49,566) Cumulative foreign currency translation adjustment (119) (64) ----------- ---------- Total stockholders' equity 51,970 45,089 ----------- ---------- Total liabilities and stockholders' equity $ 155,737 $ 104,716 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 BUTLER INTERNATIONAL, INC. -------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (in thousands except per share data) (Unaudited)
Quarter Ended September 30, --------------------------- 1998 1997 ---- ---- Net sales $ 112,755 $ 106,465 Cost of sales 90,111 89,287 ---------- ---------- Gross margin 22,644 17,178 Depreciation and amortization 1,188 752 Selling, general and administrative expenses 15,993 13,030 ---------- ---------- Operating income 5,463 3,396 Interest expense (1,307) (1,070) ---------- ---------- Income before income taxes 4,156 2,326 Income taxes 1,247 228 ---------- ---------- Net income $ 2,909 $ 2,098 ========== ========== Net income per share: Basic $ .44 $ .32 Diluted $ .37 $ .28 Average number of common shares and dilutive common share equivalents outstanding: Basic 6,444 6,322 Diluted 7,809 7,569
The accompanying notes are an integral part of these consolidated financial statements. 4 BUTLER INTERNATIONAL, INC. -------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (in thousands except per share data) (Unaudited)
Nine Months Ended September 30, ------------------------------- 1998 1997 ---- ---- Net sales $ 332,426 $ 319,581 Cost of sales 270,612 270,262 ---------- ---------- Gross margin 61,814 49,319 Depreciation and amortization 3,020 2,091 Selling, general and administrative expenses 45,618 38,553 ---------- ---------- Operating income 13,176 8,675 Interest expense (3,370) (3,389) ---------- ---------- Income before income taxes 9,806 5,286 Income taxes 2,959 544 ---------- ---------- Net income $ 6,847 $ 4,742 ========== ========== Net income per share: Basic $ 1.04 $ .74 Diluted $ .88 $ .63 Average number of common shares and dilutive common share equivalents outstanding: Basic 6,436 6,212 Diluted 7,800 7,535
The accompanying notes are an integral part of these consolidated financial statements. 5 BUTLER INTERNATIONAL, INC. -------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (in thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------- 1998 1997 ----- ----- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,847 $ 4,742 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and excess purchase price amortization 3,021 2,091 Amortization of deferred financing 37 115 Foreign currency translation (55) (106) (Increase) decrease in assets, increase (decrease) in liabilities: Accounts receivable (14,560) (1,265) Inventories 597 88 Other current assets (2,115) (636) Other assets (681) (484) Current liabilities 4,466 9,123 Other long-term liabilities 623 (2,897) -------- -------- Net cash (used in) provided by operating activities (1,820) 10,771 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures - net (2,339) (1,549) Cost of businesses acquired (34,985) (2,515) Expenses paid in conjunction with discontinued operations (34) (70) -------- -------- Net cash used in investing activities (37,358) (4,134) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) under financing agreements 39,033 (7,015) Net proceeds from the issuance of common stock 141 680 -------- -------- Net cash provided by (used in) financing activities 39,174 (6,335) -------- -------- Net (decrease) increase in cash (4) 302 Cash at beginning of period 914 229 -------- -------- Cash at end of period $ 910 $ 531 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 6 BUTLER INTERNATIONAL, INC. -------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Unaudited) NOTE 1 - PRESENTATION: The consolidated financial statements include the accounts of Butler International, Inc. ("the Company") and its wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated. Certain amounts from prior period consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform with the current period presentation. The accompanying financial statements are unaudited, but, in the opinion of management, reflect all adjustments, which include normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows at September 30, 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 per share data).
Quarter ended Sept. 30, Nine months ended Sept. 30, ----------------------- --------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Basic Earnings per Share: - ------------------------ Income available to common Shareholders $2,858 $2,050 $6,698 $4,603 ------ ------ ------ ------ Weighted average common shares outstanding 6,444 6,322 6,436 6,212 ------ ------ ------ ------ Basic earnings per common share $ .44 $ .32 $ 1.04 $ .74 ====== ====== ====== ====== Diluted Earnings per Share: - -------------------------- Income available to common Shareholders assuming conversion of preferred stock $2,909 $2,098 $6,847 $4,742 ------ ------ ------ ------ Weighted average common shares outstanding 6,444 6,322 6,436 6,212 Common stock equivalents 535 472 534 548 Assumed conversion of preferred stock 830 775 830 775 ------ ------ ------ ------ Total weighted average common shares 7,809 7,569 7,800 7,535 ------ ------ ------ ------ Diluted earnings per common share $ .37 $ .28 $ .88 $ .63 ====== ====== ====== ======
NOTE 3 - COMMON STOCK: During the first nine months of 1998, the Company issued 65,666 shares of common stock upon the exercise of common stock options and warrants and retired 2,146 shares of common stock. 7 NOTE 4 - CONTINGENCIES: In August 1998, the Company exercised its option to settle its litigation with CIGNA Property and Casualty Insurance Company for $1.5 million plus interest of $255,000. The settlement had no impact on current year operating results. 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 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. On June 2, 1998, the Company's Telecommunication Services operation acquired WCC Telephone Services, Inc. ("WCC") a California based telecommunications services company. WCC specializes in central office services for customers such as Pacific Bell and Northern Telecom. It currently generates annual sales of approximately $2 million. This business will be blended with the existing Butler Telecom business in Southern California. The purchase price includes $1.9 million paid in cash ($1.5 million drawn down on the acquisition line and $0.4 million charged to the revolving credit facility), plus a contingent payout based on the earnings of WCC for the next year. Also, on June 2, 1998, the Company's Technology Solutions operation acquired certain assets of the Reston, VA branch operations of Automated Concepts, Inc. This business currently has annual sales volume of approximately $3 million. Its customer base includes MCI, Amtrak and Bell Atlantic. Employees and consultants of this operations will be merged with the existing Butler office in McLean, VA. The purchase price was $550,000 of which $440,000 was drawn down on the acquisition line and $110,000 was charged to the revolving credit facility. On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a Chicago area IT services business. The transaction will be recorded using the purchase method of accounting. The purchase price was $10.3 million ($8.2 charged to the acquisition line and $2.1 charged against the revolving credit facility). DPI has provided a variety of IT support services to a wide range of customers in the Chicago 8 marketplace for the past eleven years. Its offerings include contract programming, software consulting, IT staffing and Year 2000 project work. DPI currently generates approximately $10 million in annual revenues through its staff of 80 consultants. On August 5, 1998, the Company completed the acquisition of ISL International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ. The transaction will be recorded using the purchase method of accounting. The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn down on acquisition line and $1.5 charged to the revolving credit facility), plus a multi-year contingent payout based on the future earnings of ISL. ISL has provided services to a wide range of companies in the metropolitan New York area since 1978. It currently generates approximately $20 million in annual revenues through a staff of approximately 150 consultants. In connection with these 1998 acquisitions, the Company acquired substantially all of the operating assets and assumed certain liabilities of the acquired businesses. Excess cost over net assets of businesses acquired has been recorded as goodwill and is being amortized over forty years. Sales included in the Company's financial statements from the businesses acquired for the third quarter and nine months ended September 30, 1998 were $15.2 million and $23.6 million, respectively. 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. As required by SFAS 131, the Company will begin reporting under the standard in the 1998 annual report. The Company adopted SFAS 130 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 a decrease of $91,000 and $36,000 for the quarters ended September 30, 1998 and 1997, respectively and a decrease of $55,000 and $106,000 for the nine months ended September 30, 1998 and 1997, respectively. Total comprehensive income was $2,818,000 and $2,062,000 for the three months ended September 30, 1998 and 1997, respectively, and $6,792,000 and $4,636,000 for the nine months ended September 30, 1998 and 1997, respectively. 9 Item 2. Management's Discussion and Analysis of Results of Operations and ----------------------------------------------------------------- Financial Condition - ------------------- RESULTS OF OPERATIONS - --------------------- Net income for the third quarter of 1998 increased by 39% to $2.9 million, up from $2.1 million reported in the third quarter of 1997. Pre-tax earnings increased by 79% to $4.2 million, compared to $2.3 recorded in the 1997 quarter. Diluted earnings per share were $.37 in 1998, compared with $.28 in the 1997 third quarter, reflecting an increase of 32%. Revenues for the 1998 quarter increased by 6% to $112.8 million, compared with $106.5 million recorded in the third quarter of 1997. Improved business mix and increased volume were the driving forces of the increased earnings. Gross margins in the third quarter of 1998 were 20.1% versus 16.1% last year. Significant growth in the Technology Solutions operation contributed strongly to the quarter-on-quarter improvement, due to the higher margins of this business. The Company also benefited from improved margins in its Telecommunications Services and Fleet Services operations. The revenue growth in the quarter was achieved in the Company's high margin Technology Solutions unit, whose sales grew by 174%. This growth was the result of increased volume provided by recent acquisitions, as well as strong internal growth. The Company's lower margin Contract Technical Services ("CTS") operation decreased as had been expected, with revenues declining by 21% from last year. Revenues of the Fleet Services unit also declined due to the restructuring of a significant customer contract, which did not impact profitability. For the nine months ended September 30, 1998, net income increased by 44% to $6.8 million from $4.7 million in 1997, while pre-tax income rose by 86% to $9.8 million from $5.3 million in 1997. Diluted earnings per share for the period were $.88, a 40% increase over the $.63 recorded in the first nine months of 1997. This improvement was primarily due to higher margins and increased volume. Gross margins in the 1998 period were 18.6% compared with 15.4% in the comparable period in 1997. Revenues for the year to date period ended September 30, 1998 were $332.4 million, up from the $319.6 million recorded in the same period of 1997. Significant growth in the Company's Technology Solutions business, partially from acquisitions, was largely offset by a 16% decrease in the lower margin CTS operation. As part of the Company's initiative to expand its higher margin businesses, the following acquisitions were completed in 1998. 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. 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. 10 On June 2, 1998, the Company acquired WCC Telephone Services, Inc. ("WCC") a California based telecommunications services company. WCC specializes in central office services for customers such as Pacific Bell and Northern Telecom. It currently generates annual sales of approximately $2 million. This business will be blended with the existing Butler Telecom business in Southern California. Also on June 2, 1998, the Company's Technology Solutions operation acquired certain assets of the Reston, VA branch operations of Automated Concepts, Inc. This business currently has annual sales volume of approximately $3 million. Employees and consultants of this operation will be merged with the existing Butler office in McLean, VA. On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a Chicago area IT services business. DPI has provided a variety of IT support services to a wide range of customers in the Chicago marketplace for the past eleven years. Its offerings include contract programming, software consulting, IT staffing and Year 2000 project work. DPI currently generates approximately $10 million in annual revenues through its staff of 80 consultants. On August 5, 1998, the Company completed the acquisition of ISL International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ. The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn down on acquisition line and $1.5 charged to the revolving credit facility), plus a multi-year contingent payout based on the future earnings of ISL. ISL has provided services to a wide range of companies in the metropolitan New York area since 1978. It currently generates approximately $20 million in annual revenues through a staff of approximately 150 consultants. These acquisitions are expected to be accretive to earnings in 1998. The above transactions will be recorded using the purchase method of accounting. 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 September 30, 1998, $33.3 million was outstanding under the credit facility, with an additional $5.5 million used to collateralize letters of credit. The revolving credit facility was charged $6.7 million related to the funding of acquisitions. As of September 30, 1998, $26.2 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 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 third quarter of 1998 was 175 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 September 30, 1998, was 7.27%. As of September 30, 1998, $33.3 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. In addition to the revolving credit facility, the Company has a $35.0 million acquisition line of credit with GECC which currently bears interest at 250 basis points above the 30-day commercial paper rate. The interest rate in effect on September 30, 1998, was 8.02%. The outstanding balance of the acquisition line at September 30, 1998, was $26.2 million. The total cost of business acquired during the first nine months of 1998 was $33.6 million, of which $26.9 million was drawn against the acquisition line. 11 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. YEAR 2000 COMPLIANCE - -------------------- Description: At midnight on December 31, 1999, the vast majority of 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's 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. With regard to computerized systems, the Company has substantially 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 first quarter of 1999. All desktop and laptop computers have been, or are in the process of being checked for Y2K readiness. Any computers that are not compliant will be replaced before the end of the first quarter of 1999. All PC operating systems are being upgraded at least to Windows '95. All telecommunications and PBX systems are being evaluated and are expected to be compliant by the end of 1998. All building systems (e.g., elevators, HVAC) are also being 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 and the update to Windows 95, there are no specific Y2K costs related to those areas. The estimated cost to upgrade non-compliant PCs is expected to be approximately $210,000. The upgrade and replacement of non-compliant telecommunication systems is expected to be approximately $250,000. Worst-Case Scenarios: The following are worst-case scenarios that would have an impact on the Company if they were to occur: The Company could be impacted if several of the its larger clients were affected by either the amount of contract employees that they retain from the Company or by the ability to pay promptly. This may become a benefit to the 12 Company because it has the ability to provide Y2K solutions to the affected customers. The Company could incur additional financing costs during any extended receivable period. The Company could be adversely affected if financial institutions were unable to wire payroll funds, which could impact the Company retaining 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 March 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. 13 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 14 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) November 13, 1998 By: /s/ Edward M. Kopko --------------------------------------- Edward M. Kopko Chairman and Chief Executive Officer November 13, 1998 By: /s/ Michael C. Hellriegel --------------------------------------- Michael C. Hellriegel Senior Vice President and Chief Financial Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUTLER INTERNATIONAL, INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 910 0 71,145 1,758 1,599 78,698 31,037 14,844 155,737 37,912 0 0 3 6 51,961 155,737 332,426 332,426 270,612 270,612 48,129 509 3,370 9,806 2,959 6,847 0 0 0 6,847 1.04 .88
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