<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-25094
BTG, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 54-1194161
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1945 OLD GALLOWS ROAD, VIENNA, VIRGINIA 22182
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 556-6518
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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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT JANUARY 31, 1997
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COMMON STOCK 8,414,451
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BTG, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, December 31, 1996 and
March 31, 1996 3
Consolidated Statements of Operations for the three
months ended December 31, 1996 and 1995 and the
nine months ended December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
nine months ended December 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13-14
SIGNATURES 15
EXHIBIT INDEX 16
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS 17
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
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ASSETS (unaudited)
<S> <C> <C>
Current assets:
Restricted cash and equivalents ..................................... $ -- $ 47
Investments, at fair value .......................................... -- 250
Receivables, net .................................................... 108,411 69,146
Inventory, net ...................................................... 21,797 9,421
Prepaid expenses .................................................... 12,457 5,163
Other ............................................................... 664 466
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Total current assets .............................................. $ 143,329 $ 84,493
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Property and equipment, net ......................................... 3,222 3,579
Goodwill, net ....................................................... 16,485 17,140
Other intangible assets, net ........................................ 3,156 3,119
Other ............................................................... 1,615 1,129
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$ 167,807 $109,460
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................................ 220 230
Accounts payable .................................................... 37,067 24,120
Accrued expenses .................................................... 11,753 7,516
Deferred income ..................................................... 790 1,534
Income taxes:
Currently payable ................................................. -- 1,310
Deferred .......................................................... -- 26
Other ............................................................... 256 1,808
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Total current liabilities ........................................ $ 50,086 $ 36,544
Line of credit ...................................................... 36,675 30,453
Long-term debt, excluding current maturities ........................ 14,429 14,341
Deferred income taxes ............................................... 214 248
Other liabilities ................................................... 221 129
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Total liabilities ................................................. $ 101,625 $ 81,715
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Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding .............................................. $ $
Common stock, no par value, 10,000,000 shares authorized; 8,396,960
and 6,128,102 shares issued and outstanding at December 31, 1996
and March 31, 1996, respectively ................................... 51,535 17,915
Retained earnings ................................................... 15,174 10,422
Treasury stock, at cost, 50,057 shares .............................. (527) (527)
Unrealized losses on investments, net of related tax effects ........ -- (65)
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Total shareholders' equity ........................................ $ 66,182 $ 27,745
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$ 167,807 $109,460
========== ========
</TABLE>
See notes to consolidated financial statements.
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues:
Contract revenue ............................. $ 29,587 $ 16,496 $ 79,091 $ 45,052
Product sales ................................ 89,869 46,991 230,932 108,754
--------- --------- --------- ---------
119,456 63,487 310,023 153,806
Direct costs:
Contract costs ............................... 18,479 8,821 48,552 23,196
Cost of product sales ........................ 79,869 41,507 203,201 94,650
--------- --------- --------- ---------
98,348 50,328 251,753 117,846
Indirect, general and administrative
expenses ..................................... 15,770 11,441 45,207 29,133
Amortization and other operating costs, net .. 400 317 1,349 901
--------- --------- --------- ---------
114,518 62,086 298,309 147,880
Operating income ............................. 4,938 1,401 11,714 5,926
Interest expense ............................. (1,736) (939) (4,645) (2,090)
Equity in earnings of affiliate .............. 365 135 1,425 135
--------- --------- --------- ---------
Income before income taxes ................... 3,567 597 8,494 3,971
Provision for income taxes ................... 1,566 309 3,742 1,717
--------- --------- --------- ---------
Net income ................................... $ 2,001 $ 288 $ 4,752 $ 2,254
========= ========= ========= =========
Earnings per common and common
equivalent share ............................. $ 0.28 $ 0.05 $ 0.72 $ 0.36
========= ========= ========= =========
Weighted average shares of common stock
and common stock equivalents ................. 7,201 6,259 6,627 6,215
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1995
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Cash flows from operating activities:
Net income ......................................................... $ 4,752 $ 2,254
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ...................................... 2,659 1,121
Deferred income taxes .............................................. (60) 13
Reserves for accounts receivable and inventory ..................... 369 179
Loss on sale of property and equipment ............................. 40 39
Gain on sale of investments ........................................ (1) --
Changes in assets and liabilities, net of the effects from purchases
of subsidiaries:
(Increase) decrease in restricted cash ............................ 47 (16)
(Increase) decrease in receivables ................................ (39,503) (15,425)
(Increase) decrease in inventory .................................. (12,507) (796)
(Increase) decrease in prepaid expenses ........................... (7,294) 2,230
(Increase) decrease in other assets ............................... (109) (86)
Increase (decrease) in accounts payable ........................... 12,947 7,932
Increase (decrease) in accrued expenses ........................... 4,237 2,014
Increase (decrease) in other liabilities .......................... (2,251) (1,353)
Increase (decrease) in income taxes currently payable ............. (1,310) 255
--------- ---------
Net cash used in operating activities ....................... $ (37,984) $ (1,639)
--------- ---------
Cash flows from investing activities:
Purchases of investments ........................................... (275) (362)
Purchase of note receivable ........................................ (300) --
Proceeds from sale of investments .................................. 363 --
Purchases of property and equipment ................................ (668) (645)
Purchases of subsidiaries, net of acquired cash .................... -- (13,238)
Capitalized product development costs .............................. (726) --
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Net cash used in investing activities ....................... $ (1,606) $ (14,245)
--------- ---------
Cash flows from financing activities:
Net advances under lines of credit ................................. 6,222 16,881
Principal payments on long-term debt ............................... (99) (1,415)
Payment of debt issue costs ........................................ (153) --
Proceeds from the issuance of common stock, net of issuance costs .. 33,620 370
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Net cash provided by financing activities ................... $ 39,590 $ 15,836
--------- ---------
Effect of exchange rate changes on cash ..................... $ -- $ 71
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Increase in unrestricted cash and equivalents ...................... -- 23
Unrestricted cash and equivalents, beginning of period ............. -- 1,236
--------- ---------
Unrestricted cash and equivalents, end of period ................... $ -- $ 1,259
========= =========
</TABLE>
See notes to consolidated financial statements.
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BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been
prepared by BTG, Inc. and Subsidiaries (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC")
and include, in the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of interim
period results. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The Company believes, however, that its disclosures are adequate to make the
information presented not misleading. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report to Stockholders for the
fiscal year ended March 31, 1996. The results of operations for the nine-month
period ended December 31, 1996, are not necessarily indicative of the results
to be expected for the full fiscal year ending March 31, 1997.
2. COMMON STOCK OFFERING
In November 1996, the Company completed the offering of 2,190,000 shares
of its common stock at a price of $16.25 per share. After underwriting
discounts, commissions and other issuance costs, net proceeds to the Company
from the offering were approximately $33.1 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
BTG, Inc. (the "Company") is an information technology company providing
complete solutions to a broad range of the complex systems and product needs of
the United States Government and its agencies and departments (the
"Government") and other commercial and state and local government clients. The
Company's operations are conducted by its three strategic business units:
Systems Engineering and Integration and Network Systems, the revenues of
which constitute the Company's contract revenues, and Technology Systems,
the revenues of which constitute the Company's product sales. The Company's
common stock is quoted on the NASDAQ National Market under the symbol "BTGI".
The Company's revenues are derived from both contract activities and
product sales. Contract revenue is typically less seasonal than product sales
but fluctuates month-to-month based on contract delivery schedules. Contract
revenue is typically characterized by lower direct costs than product sales,
yet generally requires a higher relative level of infrastructure support.
Year-to-year increases in contract revenue have generally resulted from
increases in volume, driven by additional work requirements under Government
contracts, rather than price increases, which are generally limited to
escalation factors of 3-4% on direct labor costs. Product sales tend to be
seasonal, with the Company's second and third fiscal quarters typically
accounting for the greatest proportion of revenues each year. Product sales
are characterized by higher direct costs than contract revenue; however,
indirect expenses associated with product sales are generally lower in
comparison. Year-to-year increases in product sales have generally been driven
by higher volumes as opposed to price increases, because hardware and software
product prices tend to decline over time as the technology ages and some
segments of the Company's products business are subject to intense price
competition.
In October 1995, the Company acquired Concept Automation, Inc. of America
("CAI"), which was primarily involved in the integration, sale and maintenance
of electronic data processing equipment and related support services,
principally to civilian agencies of the Government. Effective April 1, 1996,
the Company integrated CAI's operations with those of both its Technology
Systems and Integration and Network Systems business units.
The Company's operations during the three and nine month periods ended
December 31, 1995, were significantly adversely impacted by the Government's
budget impasse which occurred during the three months ended December 31, 1995
and which resulted in a partial shutdown of the Government for several weeks
during such period.
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RESULTS OF OPERATIONS
The following table presents for the periods indicated: (i) the
percentage of revenues represented by certain income and expense items and (ii)
the percentage period-to-period increase in such items:
<TABLE>
<CAPTION>
% PERIOD-TO-PERIOD
PERCENTAGE OF REVENUE INCREASE OF DOLLARS
--------- ------------------------ --------- -------------------------
THREE MONTHS NINE MONTHS
THREE MONTHS ENDED NINE MONTHS ENDED ENDED DEC. ENDED DEC.
DECEMBER 31, DECEMBER 31, 31, 1996 31, 1996
---------------------- ---------------------- COMPARED TO COMPARED TO
THREE MONTHS NINE MONTHS
ENDED DEC. ENDED DEC.
1996 1995 1996 1995 31, 1995 31, 1995
--------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Contract revenue ........................ 24.8% 26.0% 25.5% 29.3% 79.4% 75.6%
Product sales ........................... 75.2 74.0 74.5 70.7 91.2 112.3
Total revenue ........................ 100.0 100.0 100.0 100.0 88.2 101.6
Direct costs:
Contract costs (as a % of
contract revenue) .................... 62.5 53.5 61.4 51.5 109.5 109.3
Cost of product sales (as a %
of product sales) .................... 88.9 88.3 88.0 87.0 92.4 114.7
Total direct costs (as a %
of total revenue) ................. 82.3 79.3 81.2 76.6 95.4 113.6
Indirect, general and administrative
expenses ................................ 13.2 18.0 14.6 18.9 37.8 55.2
Amortization and other operating costs, net .3 .5 .4 .6 26.2 49.7
Operating income .......................... 4.1 2.2 3.8 3.9 252.5 97.7
Interest expense .......................... 1.5 1.5 1.5 1.4 84.9 122.2
Equity in earnings of affiliate ........... .3 .2 .5 .1 170.4 955.6
Income before income taxes ................ 3.0 .9 2.7 2.6 497.5 113.9
Provision for income taxes ................ 1.3 .5 1.2 1.1 406.8 117.9
Net income ................................ 1.7 .4 1.5 1.5 594.8 110.8
</TABLE>
Three Months Ended December 31, 1996 Compared With Three Months Ended December
31, 1995
Revenues for the three months ended December 31, 1996 increased by $56.0
million, or 88.2%, from the three months ended December 31, 1995. Of this
increase, $13.1 million was attributable to contract revenue, and $42.9 million
was attributable to product sales. The increase in contract revenue in the
three months ended December 31, 1996 was primarily due to $1.1 million of
revenue recognized under contracts acquired in connection with the acquisition
of CAI in October 1995, $5.6 million of revenue recognized under the Company's
Integration for Command, Control, Communications, Computers and Intelligence
("IC4I") contract which was awarded to the Company in November 1995, a $2.0
million contract sale of certain Internet browser products, $1.8 million of
revenue from a variety of commercial services contracts, and an aggregate $2.6
million in net increases under a variety of other contracts. The increase in
product sales was primarily due to approximately $15.8 million of revenue
generated under a variety of sales vehicles acquired in connection with the
acquisition of CAI, $28.8 million resulting from sales under the Company's
electronic computer store contract with the National Institutes of Health
("NIH"), and an increase of $8.6 million in orders fulfilled under the Systems
Acquisition Support Services ("SASS") contract. These increases were offset by
a decrease of approximately $5.0 million in sales from purchase contracts under
the Company's Basic Ordering Agreement with the North Atlantic Treaty
Organization ("NATO BOA"), $2.2 million in decreased sales under General
Services Administration ("GSA") Schedule contracts, either directly from the
Company's GSA Schedule contracts or from sales to other prime contractors with
GSA Schedule contracts, and $3.1 million in net decreased revenues under a
variety of other sales vehicles. In the three months ended December 31, 1996,
approximately 90.7% of the Company's revenues were derived from contracts or
subcontracts with and product sales to the Government, as compared with 90.4%
in the three months ended December 31, 1995.
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Direct costs, expressed as a percentage of total revenue, increased from
79.3% in the three months ended December 31, 1995 to 82.3% in the three months
ended December 31, 1996, reflecting the increased proportion of total revenues
derived from product sales, which typically have higher direct costs than do
revenues generated from service contracts. Contract costs as a percentage of
contract revenue increased from 53.5% in the three months ended December 31,
1995 to 62.5% in the three months ended December 31, 1996, primarily as a
result of revenues generated from the IC4I contract, the nature of which
requires higher levels of material purchases and/or subcontractor involvement
than does BTG's historical contract base, which has a more labor intensive,
higher gross margin profile. Contract costs include labor costs, subcontract
costs, material costs and other costs directly related to contract revenue.
Cost of product sales as a percentage of product sales increased from 88.3% in
the three months ended December 31, 1995 to 88.9% in the three months ended
December 31, 1996. This increase is reflective of the different mix of
hardware and software products sold during the three months ended December 31,
1996 as compared with the comparable period of the prior year.
Indirect, general and administrative expenses include the costs of
indirect labor, fringe benefits, overhead, sales and administration, bid and
proposal, and research and development. Indirect, general and administrative
expenses for the three months ended December 31, 1996 increased by $4.3
million, or 37.8%, from the same period in 1995. The increase was due
primarily to an increase in the overall volume of business as compared to the
comparable period of the prior year, as well as from costs associated with the
Company's investment in its newly-formed subsidiary, Community Networks, Inc.
("CNI"). Expressed as a percentage of total revenues, indirect, general and
administrative expenses decreased for the three months ended December 31, 1996
to 13.2% from 18.0% in the three months ended December 31, 1995. This decrease
is reflective of both the significant growth in revenue generated from product
sales, which typically requires less infrastructure support than does contract
revenue, the inclusion of the IC4I contract, which requires a relatively lower
level of indirect costs to support its revenues, and certain non-recurring
indirect costs incurred during the three months ended December 31, 1995 which
resulted from the partial shutdown of the Government during that period.
Amortization and other operating costs, which include both amortization
expense associated with goodwill and other intangible assets and other
operating expenses which are non-reimbursable under Government contracts,
increased by $83,000 in the three months ended December 31, 1996 as compared
with the comparable period of the prior year. This increase is principally
attributable to the additional amortization expense associated with goodwill
and other intangible assets created as a result of subsidiary acquisitions.
Interest expense for the three months ended December 31, 1996 increased by
$797,000, or 84.9%, from the comparable period of the prior year. This
increase was due in large part to the significant growth in revenue during the
three months ended December 31, 1996 as compared with the comparable period of
the prior year, which resulted in higher receivable, inventory and prepaid
expense balances, thereby resulting in higher levels of required financing
under the Company's line of credit. In addition, higher interest costs were
incurred during the three months ended December 31, 1996 due to the higher
interest rate associated with the senior subordinated notes issued by the
Company in February 1996.
Equity in earnings of affiliate was $365,000 during the three months ended
December 31, 1996 and resulted from the Company's interest in an unincorporated
joint venture. The joint venture entity, which is with an unrelated company,
was created for the purpose of performing under a specific contract and was
acquired by the Company in connection with its acquisition of CAI.
The Company's effective tax rate decreased from 51.8% for the three months
ended December 31, 1995 to 43.9% for the three months ended December 31, 1996.
The effective tax rate for the three months ended December 31, 1995 was
unusually high due to the significantly lower than anticipated pre-tax income
level, resulting primarily from the Government shutdown during
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that period, coupled with the increased non-deductible amortization expenses
resulting from the acquisition of CAI.
Net income for the three months ended December 31, 1996 increased by $1.7
million, or 594.8%, from the three months ended December 31, 1995, due to the
reasons discussed above.
Nine Months Ended December 31, 1996 Compared With Nine Months Ended December
31, 1995
Revenues for the nine months ended December 31, 1996 increased by $156.2
million, or 101.6%, from the nine months ended December 31, 1995. Of this
increase, $34.0 million was attributable to contract revenue, and $122.2
million was attributable to product sales. The increase in contract revenue in
the nine months ended December 31, 1996 was primarily due to $11.4 million of
revenue recognized under contracts acquired in connection with the acquisition
of CAI, $13.6 million of revenue recognized under the Company's IC4I contract,
$2.2 million of revenue resulting from a new contract with the Federal Aviation
Administration, a $2.0 million contract sale of certain Internet browser
products, and an aggregate $4.8 million in net increases under a variety of
other contracts. The increase in product sales was primarily due to $58.1
million of revenue generated under a variety of sales vehicles acquired in
connection with the acquisition of CAI; $75.8 million of revenue resulting from
sales under the Company's electronic computer store contract with the NIH; $9.6
million in increased sales under GSA Schedule contracts, either directly from
the Company's GSA Schedule contracts or from sales to other prime contractors
with GSA Schedule contracts; and an increase of $7.6 million in orders
fulfilled under the SASS contract. These increases were offset by a decrease of
approximately $28.3 million in sales from purchase contracts under the
Company's NATO BOA; and $0.6 million in net decreased revenues under a variety
of other sales vehicles. In the nine months ended December 31, 1996,
approximately 90.0% of the Company's revenues were derived from contracts or
subcontracts with and product sales to the Government, as compared with 91.5%
in the nine months ended December 31, 1995.
Direct costs, expressed as a percentage of total revenue, increased from
76.6% in the nine months ended December 31, 1995 to 81.2% in the nine months
ended December 31, 1996, reflecting the increased proportion of total revenues
derived from product sales, which typically have higher direct costs than do
revenues generated from service contracts. Contract costs as a percentage of
contract revenue increased from 51.5% in the nine months ended December 31,
1995 to 61.4% in the nine months ended December 31, 1996, primarily as a result
of revenues generated from the IC4I contract and from contracts acquired in
connection with the acquisition of CAI. Both the IC4I contract and the
contracts acquired from the acquisition of CAI require higher levels of
material purchases and/or subcontractor involvement than does BTG's historical
contract base, which has a more labor intensive, higher gross margin profile.
Contract costs include labor costs, subcontract costs, material costs and other
costs directly related to contract revenue. Cost of product sales as a
percentage of product sales increased from 87.0% in the nine months ended
December 31, 1995 to 88.0% in the nine months ended December 31, 1996. This
reflects the different mix of hardware and software products sold during the
nine months ended December 31, 1996 as compared to the comparable period of the
prior year.
Indirect, general and administrative expenses include the costs of
indirect labor, fringe benefits, overhead, sales and administration, bid and
proposal, and research and development. Indirect, general and administrative
expenses for the nine months ended December 31, 1996 increased by $16.1
million, or 55.2%, from the same period in 1995. The increase was due
primarily to an increase in the overall volume of business as compared to the
comparable period of the prior year, as well as to indirect expenses incurred
by CAI, which was acquired in October 1995, and indirect expenses associated
with the Company's investment in its newly-formed subsidiary, CNI. Expressed
as a percentage of total revenues, indirect, general and administrative
expenses decreased for the nine months ended December 31, 1996 to 14.6% from
18.9% in the nine months ended December 31, 1995. This decrease reflects the
significant growth in revenue generated from product
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sales, which typically require less infrastructure support than does contract
revenue, the acquisition of CAI, which has historically required a relatively
lower level of indirect costs to support its revenues, the inclusion of the IC4I
contract, which requires minimal infrastructure support and did not generate
significant revenue in the nine months ended December 31, 1995, and certain
non-recurring indirect costs incurred during the nine months ended December 31,
1995 which resulted from the partial shutdown of the Government.
Amortization and other operating costs, which include amortization
expense associated with goodwill and other intangible assets and other operating
expenses which are non-reimbursable under Government contracts, increased by
$448,000, or 49.7%, for the nine months ended December 31, 1996 as compared with
the same period in the previous year. This increase is primarily attributable
to the amortization expense associated with the goodwill and other intangible
assets created as a result of the acquisition of CAI.
Interest expense for the nine months ended December 31, 1996 increased by
$2.6 million, or 122.2%, from the comparable period of the prior year. This
increase was due in large part to the significant growth in revenue during the
nine months ended December 31, 1996 as compared with the comparable period of
the prior year, which has resulted in higher receivable, inventory and prepaid
expense balances, thereby resulting in higher levels of required financing
under the Company's line of credit. In addition, higher interest costs were
incurred during the nine months ended December 31, 1996 due to interest paid on
borrowings related to the Company's acquisition of CAI, and the higher interest
rate associated with the senior subordinated notes issued by the Company in
February 1996.
Equity in earnings of affiliate, which are derived from the Company's
interest in an unincorporated joint venture, increased by $1.3 million during
the nine months ended December 31, 1996, as compared with the comparable period
of the prior year. The joint venture entity, which is with an unrelated
company, was created for the purpose of performing under a specific contract
and was acquired by the Company in connection with its acquisition of CAI. The
significant increase in income from the prior year is primarily attributable to
the fact that the Company acquired its interest in the joint venture entity in
October 1995.
The Company's effective tax rate increased from 43.2% for the nine months
ended December 31, 1995 to 44.1% for the nine months ended December 31, 1996.
This increase is primarily attributable to additional goodwill and intangible
asset amortization expense associated with the acquisition of CAI, which is not
deductible for income tax purposes.
Net income for the nine months ended December 31, 1996 increased by $2.5
million, or 110.8%, from the nine months ended December 31, 1995, due to the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of approximately $38.0 million was used in operating activities
during the nine months ended December 31, 1996. This net use of cash largely
resulted from a significant increase in accounts receivable, which was due to
the revenue growth experienced by the Company during the nine months ended
December 31, 1996 as compared with the comparable period of the prior year. In
addition, increases in both inventory and prepaid expenses contributed to the
net use of cash in the nine months ended December 31, 1996, offset by increases
in accounts payable and accrued expenses.
Investing activities used cash of approximately $1.6 million during the
nine months ended December 31, 1996. This was largely the result of a $200,000
investment made in WheelGroup Corporation ("WheelGroup"), which is primarily
involved in network security products and services; a $300,000 convertible note
purchased from WheelGroup; and $668,000 of cash invested in the purchase of
office and computer-related equipment for use in the performance of contracts
and for
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increased efficiency in the Company's administration. These activities were
offset by the receipt of $363,000 of proceeds resulting from the sale of
investments.
The Company also invested cash of approximately $726,000 in the
development of software products designed for use by the Company's newly-formed
subsidiary, CNI. CNI was formed by the Company for the purpose of providing
local communities with high-speed Internet access, specialized intranets, and
electronic commerce capability. Certain of CNI's internally-developed software
products are currently in the beta test stage of development.
During the nine months ended December 31, 1996, the Company's financing
activities provided cash of approximately $39.6 million. Such amount is
principally reflective of both the $33.1 million in net proceeds resulting from
the Company's follow-on common stock offering and additional net borrowings of
$6.2 million under the Company's line of credit facility. As of December 31,
1996, working capital was $93.2 million, compared to $47.9 million at March 31,
1996. This increase is primarily due to the significant increase in the volume
of business during the nine months ended December 31, 1996, which resulted in
significantly higher accounts receivable balances. At December 31, 1996, the
Company had approximately $37.6 million available for borrowing under its line
of credit facility.
On October 1, 1996, the Company's line of credit facility was amended to
increase the ceiling for available borrowings to $85.0 million through March
31, 1997, and $65.0 million thereafter.
On October 31, 1996, the Company entered into an agreement with Deutsche
Financial Services Corporation ("DFS") under which it can borrow up to $15.0
million to finance inventory purchases. Borrowings under this inventory
financing facility are secured by all of the Company's inventory. The interest
rate and other finance charges on each advance under this facility are set by
mutual agreement of the parties based on the particular item of inventory being
financed, the availability of vendor discounts, prevailing economic conditions,
DFS' floor planning volume with the Company and its vendors, and certain other
economic factors. The lenders of both the line of credit facility and the
senior subordinated notes have approved this inventory financing facility,
subject to the condition that the maximum amount of outstanding debt under this
facility and the line of credit facility not exceed $90.0 million in the
aggregate. Outstanding advances to the Company at December 31, 1996 totaled
$186,000.
The Company believes that funds available under its line of credit and
inventory financing facilities will be sufficient to fund the Company's working
capital and capital expenditure needs for at least the next 12 months.
- 12 -
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
any subsidiary is a party or to which any of their property is subject,
other than ordinary routine litigation incidental to the business of the
Company or any subsidiary.
ITEM 2. CHANGES IN SECURITIES
During the three month period ended December 31, 1996, the Company
issued 17,248 shares of common stock that were not registered under the
Securities Act of 1933 ("Unregistered Shares"), pursuant to the BTG 1990
Incentive Stock Option Plan as follows: (i) 24 employees exercised
options to buy 12,459 Unregistered Shares at $3.00 per share; (ii) ten
employees exercised options to acquire 4,008 Unregistered Shares at
$3.25 per share; and (iii) five employees exercised options to acquire
781 Unregistered Shares at $3.45 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No defaults upon senior securities have taken place.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
period.
ITEM 5. OTHER INFORMATION
No information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
The following exhibits are either filed with this Report or are
incorporated herein by reference:
3.1 Amended and Restated Articles of Incorporation of BTG, Inc.
(incorporated by reference to exhibit 3.2 to BTG, Inc.'s
registration statement on Form S-1 (File No. 33-85854)).
3.2 Amended and Restated By-laws of BTG, Inc. (incorporated by
reference to exhibit 3.4 to BTG, Inc.'s registration statement on
Form S-1 (File No. 33-85854)).
4.3 Specimen certificate of share of Common Stock (incorporated
by reference to exhibit 4.3 to BTG, Inc.'s registration statement on
Form S-8 (File No. 33-97302)).
10.1 Third Modification, dated October 1, 1996, to Business Loan
and Security Agreement, dated as of November 28, 1995, by and among
BTG, Inc. and its subsidiaries and NationsBank, N.A. (incorporated
by reference to exhibit 10.1 to BTG, Inc.'s registration statement
on Form S-1 (File No. 333-14767)).
- 13 -
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - CONTINUED
10.2 Non-Employee Director Stock Purchase Plan (incorporated by
reference to exhibit 10.6 to BTG, Inc.'s registration statement on
Form S-1 (File No. 333-14767)).
10.3 Amendment, dated October 1, 1996, to Note and Warrant
Purchase Agreement, dated February 16, 1996, between BTG, Inc. and
Nomura Holding America, Inc. (incorporated by reference to exhibit
10.11 to BTG, Inc.'s registration statement on Form S-1 (File No.
333-14767)).
10.4 Agreement for Wholesale financing dated October 31, 1996 between
BTG, Inc. and Deutsche Financial Services Corporation (incorporated
by reference to exhibit 10.12 to BTG, Inc.'s registration statement
on Form S-1 (File No. 333-14767)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
B. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended December
31, 1996.
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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: February 13, 1997 BTG, INC.
/s/ John M. Hughes
-----------------------------
John M. Hughes
Duly Authorized Signatory and
Chief Financial Officer
- 15 -
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
3.1 Amended and Restated Articles of Incorporation of BTG, Inc.
(incorporated by reference to exhibit 3.2 to BTG, Inc.'s registration
statement on Form S-1 (File No. 33-85854)).
3.2 Amended and Restated By-laws of BTG, Inc. (incorporated by
reference to exhibit 3.4 to BTG, Inc.'s registration statement on Form
S-1 (File No. 33-85854)).
4.1 Specimen certificate of share of Common Stock (incorporated by
reference to exhibit 4.3 to BTG, Inc.'s registration statement on Form
S-8 (File No. 33-97302)).
10.1 Third Modification, dated October 1, 1996, to Business Loan and
Security Agreement, dated as of November 28, 1995, by and among BTG,
Inc. and its subsidiaries and NationsBank, N.A. (incorporated by
reference to exhibit 10.1 to BTG, Inc.'s registration statement on Form
S-1 (File No. 333-14767)).
10.2 Non-Employee Director Stock Purchase Plan (incorporated by
reference to exhibit 10.6 to BTG, Inc.'s registration statement on Form
S-1 (File No. 333-14767)).
10.3 Amendment, dated October 1, 1996, to Note and Warrant Purchase
Agreement, dated February 16, 1996, between BTG, Inc. and Nomura
Holding America, Inc. (incorporated by reference to exhibit 10.11 to
BTG, Inc.'s registration statement on Form S-1 (File No. 333-14767)).
10.4 Agreement for Wholesale Financing dated October 31, 1996 between
BTG, Inc. and Deutsche Financial Services Corporation (incorporated by
reference to exhibit 10.12 to BTG, Inc.'s registration statement on
Form S-1 (File No. 333-14767)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
- 16 -
<PAGE> 1
EXHIBIT 11
BTG, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $2,001 $ 288 $4,752 $2,254
====== ====== ====== ======
Weighted average common stock
shares outstanding during the
period 6,868 6,060 6,388 6,023
Dilutive effect of common stock
equivalents 333 199 239 192
------ ------ ------ ------
Weighted average shares of common
stock and common stock equivalents 7,201 6,259 6,627 6,215
====== ====== ====== ======
Earnings per common and common
equivalent share $ 0.28 $ 0.05 $ 0.72 $ 0.36
====== ====== ====== ======
</TABLE>
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 108411
<ALLOWANCES> 460
<INVENTORY> 21797
<CURRENT-ASSETS> 143329
<PP&E> 9657
<DEPRECIATION> 6435
<TOTAL-ASSETS> 167807
<CURRENT-LIABILITIES> 50086
<BONDS> 51104
0
0
<COMMON> 51535
<OTHER-SE> 14647
<TOTAL-LIABILITY-AND-EQUITY> 167807
<SALES> 230932
<TOTAL-REVENUES> 310023
<CGS> 203201
<TOTAL-COSTS> 251753
<OTHER-EXPENSES> 46556
<LOSS-PROVISION> 239
<INTEREST-EXPENSE> 4645
<INCOME-PRETAX> 8494
<INCOME-TAX> 3742
<INCOME-CONTINUING> 4752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4752
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
