BUTLER INTERNATIONAL INC /MD/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004

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 incorporation or organization)		(I.R.S. Employer Identification No.)


	110 Summit Avenue, Montvale, New Jersey 07645
	(Address of principal executive offices and zip code)

	(201) 573-8000
	(Registrant's telephone number, including area code)

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 Q No £

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes £ No Q

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Class	Shares Outstanding November 1, 2004
Common stock, $0.001 par value	11,416,791

	BUTLER INTERNATIONAL, INC.
	Form 10-Q for Period Ended September 30, 2004
	TABLE OF CONTENTS

		Page No.
	PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets
	at September 30, 2004 (unaudited) and December 31, 2003	3

	Condensed Consolidated Statements of Operations
	for the three-month periods ended September 30, 2004 and 2003 (unaudited)	4

	Consolidated Statements of Operations
	for the nine-month periods ended September 30, 2004 and 2003 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows
	for the nine-month periods ended September 30, 2004 and 2003 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	17


	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18

Item 3.	Defaults Upon Senior Securities	18

Item 4.	Submission of Matters to a Vote of Security Holders	18

Item 5.	Other Information	18

Item 6.	Exhibits	19

Signatures		20

Exhibit Index		21

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

BUTLER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share data)

	As of
	September 30,	December 31,
	2004	2003
	(unaudited)
ASSETS
Current assets:
Cash	$ 1,192	$ 489
Accounts receivable, net	43,342	31,474
Inventories	86	80
Other current assets	8,662	9,678
Total current assets	53,282	41,721

Property and equipment, net	11,540	11,917
Other assets	10,193	10,929
Goodwill	33,999	33,999

Total assets	$ 109,014	$ 98,566

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$ 19,692	$ 20,175
Current portion of long-term debt	4,076	4,071
Total current liabilities	23,768	24,246

Revolving credit facility	27,049	16,953
Other long-term debt	35,786	37,345
Other long-term liabilities	2,903	2,945
Commitments and contingencies (see note 6)

Stockholders' equity:
Series B 7% Cumulative Convertible Preferred Stock: par value $0.001
per share, authorized 15,000,000, issued 5,780,312 in 2004 and 5,736,488
in 2003; Liquidation preference $5,780 in 2004 and $5,736 in 2003	6	6
Common stock: par value $0.001 per share, authorized
125,000,000; issued 11,332,264 in 2004 and 11,307,264 in 2003;
outstanding 11,316,791 in 2004 and 11,291,791 in 2003	11	11
Additional paid-in capital	98,527	98,423
Receivables from stockholders	(5,785)	(5,906)
Accumulated deficit	(72,561)	(74,770)
Accumulated other comprehensive loss	(601)	(598)
Sub-total	19,597	17,166
Less - Treasury stock 15,473 shares in 2004 and 2003	(89)	(89)
Total stockholders' equity	19,508	17,077

Total liabilities and stockholders' equity	$ 109,014	$ 98,566


The accompanying notes are an integral part of these condensed consolidated financial statements.




BUTLER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)

	For the Three-Month Period
	Ended September 30,
	2004	2003
	(unaudited)	(unaudited)

Net sales	$ 65,106	$ 53,695
Cost of sales	53,894	44,369
Gross margin	11,212	9,326

Depreciation and amortization	493	543
Selling, general and administrative expenses	7,985	7,902
Restructuring and other charges	-	8
Operating income	2,734	873

Interest expense	(1,125)	(1,207)
Income/(loss) from continuing operations before income tax	1,609	(334)

Income tax expense/(benefit)	310	(764)

Income from continuing operations	1,299	430

Income from discontinued operations, net of tax	-	189

Net income	$ 1,299	$ 619

Earnings per share of common stock:
Basic:
Continuing operations	$ 0.12	$ 0.03
Discontinued operations	-	0.02
	$ 0.12	$ 0.05
Assuming dilution:
Continuing operations	$ 0.10	$ 0.03
Discontinued operations	-	0.02
	$ 0.10	$ 0.05

Average number of common shares and
common share equivalents outstanding:
Basic	10,243	10,168
Assuming dilution	13,049	10,182








The accompanying notes are an integral part of these condensed consolidated financial statements.




BUTLER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)

	For the Nine-Month Period
	Ended September 30,
	2004	2003
	(unaudited)	(unaudited)

Net sales	$ 186,073	$ 154,892
Cost of sales	154,172	127,552
Gross margin	31,901	27,340

Depreciation and amortization	1,440	2,118
Selling, general and administrative expenses	24,224	25,592
Restructuring and other charges	-	2,408
Legal settlements and related costs	-	2,908
Goodwill impairment	-	12,331
Operating income/(loss)	6,237	(18,017)

Interest expense	(3,159)	(3,675)
Income/(loss) from continuing operations before income tax	3,078	(21,692)

Income tax expense/(benefit)	692	(8,379)

Income/(loss) from continuing operations	2,386	(13,313)

Income/(loss) from discontinued operations, net of tax	125	(761)

Net income/(loss)	$ 2,511	$ (14,074)

Earnings/(loss) per share of common stock:
Basic:
Continuing operations	$ 0.20	$ (1.34)
Discontinued operations	0.01	(0.07)
	$ 0.21	$ (1.41)
Assuming dilution:
Continuing operations	$ 0.18	$ (1.34)
Discontinued operations	0.01	(0.07)
	$ 0.19	$ (1.41)

Average number of common shares and
common share equivalents outstanding:
Basic	10,227	10,168
Assuming dilution	13,033	10,168






The accompanying notes are an integral part of these condensed consolidated financial statements.




BUTLER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	For the Nine-Month Period
	Ended September 30,
	2004	2003
	(unaudited)	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$ 2,511	$ (14,074)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Income from discontinued operations, net of tax	(125)	(621)
Loss on disposal of discontinued operations, net of tax	-	1,382
Depreciation and amortization	1,440	2,118
Provision for doubtful accounts and notes	272	505
Provision for deferred taxes	845	(8,323)
Amortization of deferred financing charges	641	580
Loss/(gain) on sale of equipment	42	(20)
Non-cash restructuring and other charges	-	538
Goodwill impairment loss	-	12,331
Other changes that (used)/provided cash:
Accounts receivable	(12,140)	1,391
Inventories	(6)	24
Other current assets	154	606
Other assets	(112)	(174)
Current liabilities	(225)	2,865
Other long term liabilities	(42)	2,284
Net cash (used in)/provided by operating activities	(6,745)	1,412

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment	4	27
Capital expenditures	(1,109)	(447)
Divestiture of business	-	1,235
Net cash (used in)/provided by investing activities	(1,105)	815

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/(payments) under credit facility	10,096	(3,143)
Repayment of long term debt	(1,554)	(51)
Financing fees paid	(50)	(36)
Cash dividends on preferred shares	(157)	(157)
Repayment of director loans	96	-
Net cash provided by/(used in) financing activities	8,431	(3,387)

Effect of exchange rate changes on cash	(3)	(1)
Net cash provided by discontinued operations	125	1,141
Net increase/(decrease) in cash	703	(20)
Cash at beginning of period	489	1,106

Cash at end of period	$ 1,192	$ 1,086

The accompanying notes are an integral part of these condensed consolidated financial statements.

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)

1. BASIS OF PRESENTATION:

The accompanying unaudited condensed consolidated financial statements of Butler International, Inc. and subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring adjustments and accruals, as well as accounting changes considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements.

On May 30, 2003, the Company sold its United Kingdom based staffing operations ("UK Operations"). The UK Operations were part of the Company's Technical Group reporting segment. The UK Operations are accounted for as a discontinued operation under U.S. GAAP and therefore, the UK Operations' results of operations and cash flows have been removed from the Company's results of continuing operations and cash flows for all periods presented.

Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 due to seasonal and other factors. In order to maintain consistency and comparability between periods presented, certain prior period amounts have been reclassified to conform to the current period presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statement and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

2. DESCRIPTION OF BUSINESS AND SEGMENT INFORMATION:

The Company provides outsourcing, project management and technical staff augmentation services in technical, information technology, and telecommunications disciplines including: engineering design support primarily used for aerospace, defense and heavy equipment manufacturing, software quality assurance testing, software applications development and implementation, enterprise network design and implementation, and telecommunications network systems implementation. The Company also provides fleet maintenance and repair services to major ground fleet-holders nationwide. These services are provided through three ISO 9002 certified business segments: Technical Group, Information Technology Solutions, and Telecommunications Service ("Telecom Services").

The accounting policies of the business segments are the same as those described in the summary of significant accounting policies in Note 3. Intersegment sales are not significant. The operating results for the Technology Solutions segment included a goodwill impairment charge of approximatel