SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13
or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 001-12335
FOR THE QUARTER ENDED MARCH 31, 2002
BUTLER MANUFACTURING COMPANY
Incorporated in the State of Delaware
1540 Genessee Street
Post Office Box 419917
Kansas City, Missouri 64102
Phone: (816) 968-3000
I.R.S. Employer Identification Number: 44-0188420
Shares of common stock outstanding at
MARCH 31, 2002: 6,296,228
The name, address and fiscal year of the Registrant have not changed
since the last report.
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,
and (2) has been subject to such filing requirements for the past 30 days.
INDEX
Page Number
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements
(1) Consolidated Financial Statements (unaudited):
Consolidated Statements of Operations for the Three Months
Ended March 31, 2002 and 2001. 3
Consolidated Statements of Comprehensive Income (Loss) for the Three
Months Ended March 31, 2002 and 2001. 4
Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001. 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2002 and 2001. 6
(2) Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk. 12
PART II. - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibits 19 2002 1st Quarter Shareholder's Letter 15
2
BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2002 and 2001
(unaudited)
($000's omitted except for per share data)
2002 2001
----------- -----------
Net sales $ 182,852 $ 194,859
Cost of sales 160,733 170,094
----------- -----------
Gross profit 22,119 24,765
Selling, general and administrative expenses 27,837 28,187
----------- -----------
Operating loss (5,718) (3,422)
Other income (expense), net (70) 486
----------- -----------
Loss before interest and taxes (5,788) (2,936)
Interest expense 1,958 1,479
----------- -----------
Pretax loss (7,746) (4,415)
Income tax benefit 2,378 1,612
----------- -----------
Net loss $ (5,368) $ (2,803)
=========== ===========
Basic loss per common share $ (0.85) $ (0.45)
=========== ===========
Diluted loss per common share $ (0.85) $ (0.45)
=========== ===========
Basic weighted average number of shares 6,290,239 6,273,626
Diluted weighted average number of shares 6,290,239 6,273,626
See Accompanying Notes to Consolidated Financial Statements.
3
BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2002 and 2001
(unaudited)
($000's omitted)
2002 2001
------- -------
Net loss $(5,368) $(2,803)
Other comprehensive income (loss):
Foreign currency translation and hedging activity 244 (707)
------- -------
Comprehensive loss $(5,124) $(3,510)
======= =======
See Accompanying Notes to Consolidated Financial Statements.
4
BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
($000's omitted)
2002 2001
--------- ---------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 45,263 $ 52,569
Receivables, net 94,791 109,522
Inventories:
Raw materials 19,692 20,132
Work in process 12,048 13,692
Finished goods 31,407 32,100
LIFO reserve (8,599) (8,489)
--------- ---------
Total inventory 54,548 57,435
Real estate developments in progress 23,975 23,966
Net current deferred tax assets 16,635 16,636
Other current assets 9,400 14,939
--------- ---------
Total current assets 244,612 275,067
Investments and other assets 52,340 48,741
Assets held for sale 3,684 3,684
Property, plant and equipment, at cost 298,077 302,360
Less accumulated depreciation (157,064) (159,090)
--------- ---------
Net property, plant and equipment 141,013 143,270
--------- ---------
$ 441,649 $ 470,762
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,995 $ 2,100
Current maturities of long-term debt 5,562 5,617
Accounts payable 55,881 70,362
Dividends payable 1,134 1,131
Accrued liabilities 89,993 98,237
Taxes on income 5,248 8,659
--------- ---------
Total current liabilities 159,813 186,106
Net noncurrent deferred tax liabilities 3,683 3,683
Other noncurrent liabilities 21,493 18,254
Long-term debt, less current maturities 98,041 98,244
Shareholders' equity:
Common stock, no par value, authorized 20,000,000
shares, issued 9,088,200 shares, at stated value,
outstanding 6,296,228 in 2002 and 6,280,783 in 2001 12,623 12,623
Foreign currency translation, hedging activity, and minimum
pension liability (6,547) (6,791)
Retained earnings 217,136 223,594
--------- ---------
223,212 229,426
Less cost of common stock in treasury, 2,791,972 shares
in 2002 and 2,807,417 shares in 2001 64,593 64,951
--------- ---------
Total shareholders' equity 158,619 164,475
--------- ---------
$ 441,649 $ 470,762
========= =========
See Accompanying Notes to Consolidated Financial Statements.
5
BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2002 and 2001
(unaudited)
($000's omitted)
2002 2001
-------- --------
Cash flows from operating activities:
Net loss $ (5,368) $ (2,803)
Adjustments to reconcile net earnings provided by and used in operating
activities:
Depreciation and amortization 4,533 4,094
Equity earnings (loss) of joint ventures 15 (12)
Change in asset and liabilities:
Receivables 14,731 24,054
Inventories 2,887 1,166
Real estate developments in progress (9) 10,564
Other current assets and liabilities (20,406) (33,382)
Other noncurrent operating assets and liabilities 614 421
-------- --------
Net cash provided (used) by operating activities (3,003) 4,102
Cash flows from investing activities:
Capital expenditures (1,602) (6,456)
Capital expenditures - software (2,314) (634)
Other, net 694 1,097
-------- --------
Net cash used by investing activities (3,222) (5,993)
Cash flows from financing activities:
Payment of dividends (1,130) (1,064)
Proceeds from issuance of long-term debt - 145
Repayment of long-term debt (203) (456)
Net change in short-term debt (160) 4,316
Issuance of treasury stock 360 605
Purchase of treasury stock (2) (19)
-------- --------
Net cash provided (used) by financing activities (1,135) 3,527
Effect of exchange rate changes 54 (707)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,306) 929
Cash and cash equivalents at beginning of year 52,569 16,855
-------- --------
Cash and cash equivalents at March 31 $ 45,263 $ 17,784
======== ========
See Accompanying Notes to Consolidated Financial Statements.
6
BUTLER MANUFACTURING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the accounting policies described in the consolidated
financial statements and related notes included in Butler Manufacturing
Company's 2001 Form 10-K. It is suggested that those consolidated statements be
read in conjunction with this report. The year-end financial statements
presented were derived from the company's audited financial statements. In the
opinion of management, the accompanying consolidated financial statements
reflect all adjustments necessary for a fair presentation of the financial
position of Butler Manufacturing Company and the results of its operations.
NOTE 2 - GOODWILL
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS No.
141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142),
effective for fiscal years beginning after December 15, 2001. These Statements
eliminated the pooling-of-interests method of accounting for business
combinations and the systematic amortization of goodwill. SFAS No. 141 applies
to all business combinations with a closing date after June 30, 2001, of which
the Company had no such activity. At the beginning of fiscal 2002, the company
adopted SFAS No. 142. Under the new standard, purchased goodwill is no longer
amortized over its useful life, but will be subject to annual impairment tests.
Therefore, the company did not incur any goodwill amortization expense during
the first quarter of 2002. Goodwill amortization expense recorded in the first
quarter of 2001 was less than $.1 million, or an after tax effect of less than
$.01 per share. As of January 1, 2002 the company tested its Architectural
Products business segment using an estimate of fair value rather than an
undiscounted cash flow approach performed under prior accounting standards. It
was determined that its fair value exceeded its carrying value and no impairment
was recognized. The company has elected to perform an annual test for goodwill
impairment in the third quarter.
NOTE 3 - BUSINESS SEGMENTS
The company groups its operations into five business segments: North American
Building Systems, International Building Systems, Architectural Products,
Construction Services, and Real Estate.
The North American Building Systems segment includes the North American metal
buildings and the wood buildings businesses. These business units supply steel
and wood frame pre-engineered building systems for a wide variety of commercial,
community, industrial, and agricultural applications.
The International Buildings Systems segment includes the company's Asian metal
buildings business and European metal buildings business which is being sold .
These businesses supply pre-engineered metal buildings for commercial,
community, industrial, and agricultural applications primarily for the Chinese
and European markets.
The Architectural Products segment includes the operations of the Vistawall
Group. The group's businesses design, manufacture, and market architectural
aluminum systems for nonresidential construction, including curtain wall,
storefront systems, windows, doors, skylights, and roof accessories.
The Construction Services segment provides comprehensive design and construction
planning, execution, and management services for major purchasers of
construction. Projects are usually executed in conjunction with the dealer
representatives of other Butler divisions.
The Real Estate segment provides real estate build-to-suit-to-lease development
services in cooperation with Butler dealers.
The accounting policies for the segments are the same as those described in the
summary of significant accounting policies as included in the company's 2001
form 10-K. Butler Manufacturing Company's reportable segments are strategic
business units that offer products and services for different markets. They are
managed separately because each business requires different technology and
expertise.
The Other classification represents unallocated corporate expenses and
unallocated assets, including corporate offices, deferred taxes, pension
accounts, interest expense, and intersegment eliminations.
7
Three Months
NET SALES Ended March 31,
(Thousands of dollars) 2002 2001
--------------------------------------------------------------------------------
North American Building Systems $ 78,487 $ 91,073
International Building Systems 21,592 15,804
Architectural Products 51,581 58,271
Construction Services 37,750 18,233
Real Estate 0 15,953
Other (6,558) (4,475)
----------------------------
$ 182,852 $ 194,859
============================
Net sales represent revenues from sales to affiliated and unaffiliated customers
before elimination of intersegment sales, which is included in Other.
Intersegment eliminations are primarily sales between North American Building
Systems and Architectural Products segments to the International Building
Systems and Construction Services segments.
Three Months
PRETAX EARNINGS (LOSSES) Ended March 31,
(Thousands of dollars) 2002 2001
--------------------------------------------------------------------------------
North American Building Systems $ (4,252) $ (4,644)
International Building Systems (29) (649)
Architectural Products 909 3,581
Construction Services 777 396
Real Estate 555 1,492
Other (5,706) (4,591)
----------------------------
$ (7,746) $ (4,415)
============================
TOTAL ASSETS March 31, December 31,
(Thousands of dollars) 2002 2001
--------------------------------------------------------------------------------
North American Building Systems $ 130,346 $ 140,488
International Building Systems 66,001 59,900
Architectural Products 107,310 115,879
Construction Services 24,800 21,069
Real Estate 28,884 44,112
Other 84,308 34,558
----------------------------
$ 441,649 $ 416,006
============================
Total assets represent assets used by each business segment. Other represents
cash and cash equivalents, assets held for sale, corporate equipment, and
miscellaneous other assets which are not related to a specific business segment.
In prior periods the North American Building Systems and International Building
Systems segments were reported as a single segment. Because of reorganization
and management changes, two segments were formed.
NOTE 4 - RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
In December 2001, the Company's board of directors approved the disposition of
its European metal buildings business. As a result, the Company recorded a $3.8
million pretax charge in connection with this decision. In addition, the Company
recorded a $4.3 million pretax charge for the impairment of certain assets.
During 2001, $1.7 million of the restructuring reserve was utilized and in the
first quarter of 2002, $.2 million was utilized for severance and other employee
separation costs. At March 31, 2002, $1.9 million remains in the restructuring
reserve. The sale is expected to close in the second quarter.
8
NOTE 5 - INDEBTEDNESS
In June 2001, the company entered into a $50 million bank credit facility and
issued $50 million of senior unsecured notes pursuant to a note agreement,
allowing domestic bank borrowings to be reduced to zero.
Interest on advances under the new credit facility are based on either (a) the
higher of the federal funds rate plus .50% or the prime rate, which is payable
quarterly, or (b) LIBOR, which is payable at the end of periods ranging from one
to six months. The credit agreement provides for a commitment fee on unused
advances ranging from .20% to .30%. Commitments under the credit facility expire
on June 30, 2004, at which time any outstanding advances are payable. The
agreement contains certain operating covenants, including restrictions on liens,
investments, acquisitions, asset sales and mergers. The agreement also requires
the company to maintain a capitalization ratio, as defined, of .5 to 1, a fixed
charge coverage ratio, as defined, of 1.7 to 1, and a leverage ratio, as
defined, of 3.25 to 1, through June 30, 2002 and 3.0 to 1 thereafter.
The senior notes bear interest, payable semi-annually on June 30 and December
30, at the effective rate of 7.91% per annum. Principal of the senior notes is
payable in annual installments of $4.55 million on December 30th of each year,
commencing December 30, 2006, with the final installment due on December 30,
2016. The Note Agreement contains certain operating covenants, including
restrictions on liens, additional indebtedness and asset sales, and requires the
company to maintain adjusted consolidated net worth, as defined, of $125 million
plus the cumulative sum of 50% of consolidated net income for each fiscal
quarter after March 31, 2001 and a fixed charge coverage ratio, as defined, of
1.5 to 1.0.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales were $183 million for the first quarter 2002 compared with $195
million in 2001, 6% lower than a year ago. Lower sales were due to a weaker
nonresidential construction market compared with a year ago. An increase in
International Building Systems and Construction Services segments sales were not
enough to offset lower sales in the North American Building Systems,
Architectural Products and Real Estate segment sales. Sales in the North
American Building Systems segment declined 14% due to lower non-residential
building sales and lower order rates caused by a weaker U.S. economy, while
sales in the Architectural Building Systems group were 11% lower than a year ago
due to a weaker U.S. economy and resultant declining office and retail
construction opportunities. The International Building Systems segment reported
a strong quarter due to increased China metal building sales. Sales were $22
million in this segment, up 37% from a year ago. The company's European metal
buildings business accounted for $3 million of the International Building
Systems segment sales during the first quarter 2002. The company reported at
year-end its intent to withdraw from the European market with the announced sale
of its European metal buildings business to the Lindab AB Group headquartered in
Sweden. Construction Services segment sales were $38 million in the first
quarter of 2002 compared with $18 million for the same period a year ago, as the
segment entered the 2002 quarter with a higher backlog of projects to execute.
The Real Estate segment did not close any project sales in first quarter 2002,
compared with $16 million closed a year ago. The revenues of the Construction
Services and Real Estate segments are primarily project related. Quarterly
comparisons of revenue are not as meaningful as in the company's more
manufacturing oriented businesses.
Gross profits declined 11% in the first quarter 2002 to $22 million. The decline
in gross profits was due to lower sales and more competitive pricing in a
sluggish nonresidential construction market.
Selling, general and administrative expenses of $28 million for the first
quarter 2001 were slightly lower than a year ago. The decline in selling,
general and administrative expenses was due to lower business activity and
tighter controls over expenses, evident by management's decision to temporarily
idle select manufacturing capacity. Interest expense was $2 million up from $1.5
million due primarily to greater capitalized interest on the headquarters
project in 2001, and a higher average interest rate in 2002 than the first
quarter 2001.
The pretax loss for the quarter ended March 31, 2001 was $7.7 million, compared
with a loss of $4.4 million, a year ago, and the effective tax rate for the
quarter was lower due to a lower effective tax rate on China sales. The net loss
for the first quarter 2002 was $5.4 compared with a $2.8 million loss a year
ago.
LIQUIDITY AND CAPITAL RESOURCES
Since December 2001, cash and cash equivalents decreased $7 million to $45
million due to a decline in cash flows from operations, investing, and financing
activities. Components of working capital declined during the quarter due to
lower sales. Receivables declined in most segments due as did inventory and
related payables due to lower sales during the quarter. Investments and other
assets increased during the first quarter 2002 due primarily to development of a
scalable enterprise system in the Buildings Systems business. Cash from
investing activities was used primarily for capital expenditures. Capital
expenditures were $1.6 million at March 31, 2002, lower than a year ago when the
company's world headquarters project was under construction. Capital
expenditures were incurred primarily in the North American Building Systems, the
International Buildings Systems and the Architectural Products segments. Cash
from financing activities was used for payment of dividends.
During 2001 the company entered into a $50 million bank credit facility to fund
future working capital requirements, and signed a $50 million private placement
agreement. The company's foreign operations maintain separate lines of credit
with local banks of approximately $6 million, with $2 million utilized at
current exchange rates at March 31, 2002. For the three months ended March 31,
2002, there were no domestic short-term borrowings. Borrowings averaged $34.6
million for the quarter ended March 31, 2001. Management believes the company's
operating cash flow, cash balances, along with the bank credit lines, are
sufficient to meet future foreseen liquidity requirements.
Cash paid for interest was $1.2 million in the first quarter 2002, while a cash
refund of $4.2 million was received for the disposition of the European
business. Cash paid for interest and taxes was $1.7 million and $1.3 million,
respectively, for the same period a year ago.
During the first quarters of 2002 and 2001, treasury stock purchases were
minimal compared with the prior year, and dividends were $1 million each. Total
backlog at March 31, 2002 was $290 million down 2% from a year ago. Higher
margin product backlog was approximately 10% lower, while construction backlog
increased 39% as compared to the same period a year ago.
10
MARKET PRICE RISK
The company's principal exposure to market risk is from changes in commodity
prices, interest rates, and currency exchange rates. To limit exposure and to
manage volatility related to these risks, the company enters into select
commodity and currency hedging transactions, as well as forward purchasing
arrangements. The company does not use financial instruments for trading
purposes.
Commodity Price Exposure: The company's primary commodities are steel, aluminum,
and wood. Steel is the company's largest purchased commodity. Although steel
prices are relatively stable the company enters into forward steel purchase
arrangements in its metal buildings business for periods of less than one years
duration to protect against potential price increases. To the extent there are
increases in the company's steel costs, they are generally recaptured in the
company's product sales prices. During periods of falling prices the company
reserves the right to purchase steel from other competitive suppliers. During
the latter half of the 2002 first quarter, steel prices rose sharply, partly due
to recent tariffs imposed by the U.S. Government on certain imported steel
products. These increases directly impacted the company's U.S. metal buildings
business. Recent investments and increased operating efficiencies in company
operations have helped to dampen the impact of the increase, nevertheless, in
April, 2002, the company's U.S. metal buildings business announced a price
increase on most of its products to partially mitigate the impact of rising
steel prices.
The company's wood frame building business enters into forward purchase
arrangements for commercial grade lumber for periods of less than one year's
duration. Lumber costs are generally more volatile than steel costs. To offset
increases in lumber costs, the company adjusts product prices accordingly.
Aluminum hedge contracts of less than one year duration are purchased to hedge
the engineered products backlog of the Vistawall group against potential losses
caused by increases in aluminum costs. This product line is sensitive to
material cost movements due to the longer lead times from project quoting to
manufacture. Gains or losses recorded on hedge contracts are offset against the
actual aluminum costs charged to cost of sales when contracts are settled. At
March 31, 2002 the fair value of open aluminum contracts recorded in its
cumulative other comprehensive income was less than $.1 million pretax. Mark to
market gains on the company's Canadian currency exchange contracts were recorded
in earnings and were less than $.1 million pretax at March 31, 2002. At March
31, 2002 a 10% change in both aluminum and Canadian currency contracts was
immaterial.
Interest Rates: The majority of the company's long-term debt carries a fixed
interest rate, which limits the company's exposure to increases in market rates.
However, interest rate changes impacts the fair market value of such debt. As of
March 31, 2002, holding other variables constant, including levels of
indebtedness, a one percentage point increase in interest rates would result in
approximately a $5 million change in the fair value of the company's fixed rate
debt.
Foreign Currency Fluctuation: The majority of the company's business is
transacted in U.S. dollars, therefore limiting the company's exposure to foreign
currency fluctuations. Where the company has foreign-based operations, the local
currency has been adopted as the functional currency. As such, the company has
both transaction and translation foreign exchange exposure in those operations.
Due to relative cost and limited availability, the company does not hedge its
foreign net asset exposure. At March 31, 2002 the company's net asset investment
in foreign operations was $26 million. The company does hedge its short-term
foreign currency transaction exposures related to metal building sales in
Canada. Forward exchange contracts are purchased to cover a portion of the
exposure.
FORWARD LOOKING INFORMATION
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which may include statements
concerning projection of revenues, income or loss, capital expenditures, capital
structure, or other financial items, statements regarding the plans and
objectives of management for future operations, statements of future economic
performance, statements of the assumptions underlying or relating to any of the
forgoing statements, and other statements which are other than statements of
historical fact. These statements appear in a number of places in this report
and include statements regarding the intent, belief, or current expectations of
the company and its management with respect to (i) the cost and timing of the
completion of new or expanded facilities, (ii) the company's competitive
position, (iii) the supply and price of materials used by the company, (iv) the
demand and price for the company's products and services, or (v) other trends
affecting the company's financial condition or results of operations, including
changes in manufacturing capacity utilization and corporate cash flow in both
domestic and international markets. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially as a
result of these various factors.
For additional comments, refer to the April 15, 2002, letter to shareholders,
which is attached as exhibit 19.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no material changes to the disclosure made in the Annual Report on
Form 10-K for the year ended December 31, 2001 regarding this matter. See
discussion about market risk under Item 2. Management Discussion and Analysis on
page 10 above.
12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(19) April 15, 2002 Letter to Shareholders.
(b) Reports on Form 8-K
The company has not filed any reports on Form 8-K during the quarter
ended March 31, 2002.
13
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 MANUFACTURING COMPANY
May 14, 2002 /s/ Larry C. Miller
-------------- ------------------------------
Date Larry C. Miller
Vice President - Finance,
and Chief Financial Officer
May 14, 2002 /s/ John W. Huey
-------------- ------------------------------
Date John W. Huey
Vice President, General Counsel
and Secretary
14