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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 SEPTEMBER 30, 1998
[ ] 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 Identification No.)
incorporation or organization)
3877 FAIRFAX RIDGE ROAD, FAIRFAX, VIRGINIA 22030-7448
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(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 383-8000
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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 NOVEMBER 13, 1998
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COMMON STOCK 8,791,357
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BTG, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Interim Balance Sheets, September 30, 1998 (unaudited)
and March 31, 1998 3
Consolidated Interim Statements of Operations for the three
months ended September 30, 1998 and 1997 and the six
months ended September 30, 1998 and 1997 (unaudited) 4
Consolidated Interim Statements of Cash Flows for the six
months ended September 30, 1998 and 1997 (unaudited) 5
Notes to Consolidated Interim Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
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ASSETS (unaudited)
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Current assets:
Investments, at fair value................................................................. $ 4,566 $ 22,286
Receivables, net........................................................................... 65,105 135,050
Inventory, net............................................................................. 1,586 2,214
Prepaid expenses........................................................................... 3,990 3,338
Income tax receivable...................................................................... 1,501 10,348
Other...................................................................................... 5,053 9,128
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Total current assets..................................................................... $ 81,801 $ 182,364
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Property and equipment, net.................................................................. 4,129 4,508
Goodwill, net................................................................................ 8,681 8,860
Other intangible assets, net................................................................. 469 874
Investment in unconsolidated affiliate....................................................... 9,396 14,813
Other ....................................................................................... 976 1,020
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$ 105,452 $ 212,439
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt....................................................... $ -- $ 15,000
Current maturities of line of credit....................................................... -- 31,417
Accounts payable........................................................................... 20,286 74,573
Accrued expenses........................................................................... 14,798 13,483
Deferred revenue........................................................................... 583 803
Other...................................................................................... 2,044 3,276
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Total current liabilities.............................................................. $ 37,711 $ 138,552
Line of credit, excluding current maturities................................................. 30,742 38,835
Other liabilities............................................................................ 1,969 1,992
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Total liabilities........................................................................ $ 70,422 $ 179,379
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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, 20,000,000 shares authorized; 8,844,352
and 8,634,451 shares issued and outstanding at September 30, 1998
and March 31, 1998, respectively.......................................................... 54,561 53,384
Accumulated deficit........................................................................ (20,355) (20,530)
Treasury stock, at cost, 4,700 and 50,057 shares at September 30, 1998.....................
and March 31, 1998 respectively........................................................... (32) (527)
Unrealized gains on investments, net of related tax effects................................ 856 733
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Total shareholders' equity............................................................... $ 35,030 $ 33,060
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$ 105,452 $ 212,439
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</TABLE>
See notes to consolidated interim financial statements.
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -----------------------------
1998 1997 1998 1997
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Revenues:
Contract revenue............................................ $ 46,556 $ 41,447 $ 90,212 $ 74,760
Product sales............................................... 41,660 147,742 82,587 234,147
------------ ------------- ------------ ------------
88,216 189,189 172,799 308,907
Direct costs:
Contract costs.............................................. 31,277 27,474 60,570 48,663
Cost of product sales....................................... 40,414 137,391 79,892 213,418
------------ ------------- ------------ ------------
71,691 164,865 140,462 262,081
Indirect, general and administrative
expenses.................................................... 14,778 24,023 29,530 43,284
Amortization and other operating costs, net................... 365 586 640 952
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86,834 189,474 170,632 306,317
Operating income (loss)....................................... 1,382 (285) 2,167 2,590
Interest expense.............................................. (840) (2,081) (2,533) (3,648)
Equity in earnings of unconsolidated affiliate................ 24 72 24 258
Gain (loss) on sale of investments............................ (404) -- 647 --
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Income (loss) from continuing operations
before income taxes........................................ 162 (2,294) 305 (800)
Income tax expense (benefit).................................. 69 (824) 130 (199)
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Income (loss) from continuing operations...................... 93 (1,470) 175 (601)
Loss from discontinued operations,
net of income taxes........................................ -- (865) -- (1,499)
------------ -------------- ------------ -------------
Net income (loss)............................................. $ 93 $ (2,335) $ 175 $ (2,100)
============ ============== ============ =============
Basic earnings per share:
Income from continuing operations............................. $ 0.01 $ (0.17) $ 0.02 $ (0.07)
Loss from discontinued operations............................. -- (0.10) -- (0.18)
------------ ------------- ------------ -------------
Net income (loss)............................................. $ 0.01 $ (0.27) $ 0.02 $ (0.25)
============ =========== ============ =============
Diluted earnings per share:
Income from continuing operations............................. $ 0.01 $ (0.17) $ 0.02 $ (0.07)
Loss from discontinued operations............................. -- (0.10) -- (0.18)
------------ ------------- ------------ -------------
Net income (loss)............................................. $ 0.01 $ (0.27) $ 0.02 $ (0.25)
============ =========== ============ =============
Weighted average shares outstanding (used in
the calculation of basic per share results)................ 8,803 8,525 8,741 8,501
============ ============= ============ ==============
Weighted average shares outstanding (used in
the calculation of diluted per share results).............. 8,819 8,525 8,790 8,501
============ ============= ============ =============
</TABLE>
See notes to consolidated interim financial statements.
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
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1998 1997
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Cash flows from operating activities:
Net income (loss)................................................................................. $ 175 $ (2,100)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Loss on discontinued operations................................................................. -- 1,499
Depreciation and amortization................................................................... 1,244 2,230
Deferred income taxes........................................................................... (94) --
Reserves for accounts receivable and inventory.................................................. 100 1,167
Loss on sale or disposal of property and equipment.............................................. -- 76
Gain on sale of investments..................................................................... (647) --
Equity in earnings of unconsolidated affiliate.................................................. (24) --
Changes in assets and liabilities, net of the effects from purchases of
subsidiaries:
(Increase) decrease in receivables............................................................. 69,846 (63,493)
(Increase) decrease in inventory............................................................... 628 (25,473)
(Increase) decrease in income taxes receivable................................................. 8,848 --
(Increase) decrease in prepaid expenses and other current assets............................... 3,516 (2,864)
(Increase) decrease in other assets............................................................ 44 653
Increase (decrease) in accounts payable........................................................ (54,287) 71,988
Increase (decrease) in accrued expenses........................................................ 1,315 5,295
Increase (decrease) in other liabilities....................................................... (1,428) (639)
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Net cash provided by (used in) operating activities of
continuing operations.................................................................. 29,236 (11,661)
Net cash used in discontinued operations.................................................... -- (2,339)
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Net cash provided by (used in) operating activities............................ $ 29,236 $ (14,000)
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Cash flows from investing activities:
Purchases of property and equipment............................................................. (319) (1,334)
Proceeds from sale of investments............................................................... 23,970 --
Purchases of subsidiaries, net of cash acquired................................................. -- (10,129)
Product development costs....................................................................... -- (690)
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Net cash provided by (used in) investing activities............................. $ 23,651 $ (12,153)
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Cash flows from financing activities:
Net advances (repayments) under line of credit.................................................. (39,510) 26,416
Principal payments on long-term debt and capital lease obligations.............................. (15,049) (899)
Payment of debt issue costs..................................................................... -- (100)
Proceeds from the issuance of common stock...................................................... 1,704 736
Purchase of treasury stock...................................................................... (32) --
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Net cash provided by (used in) financing activities............................. $ (52,887) $ 26,153
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Increase (decrease) in unrestricted cash and equivalents.......................................... -- --
Unrestricted cash and equivalents, beginning of period............................................ -- --
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Unrestricted cash and equivalents, end of period.................................................. $ -- $ --
=========== ===========
</TABLE>
See notes to consolidated interim financial statements.
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BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been
prepared by BTG, Inc. and Subsidiaries ("BTG" or 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 Shareholders for the
fiscal year ended March 31, 1998. The results of operations for the six-month
period ended September 30, 1998, are not necessarily indicative of the results
to be expected for the full fiscal year ending March 31, 1999.
2. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"). Statement 130 establishes standards for reporting and
presenting comprehensive income and its components in consolidated financial
statements. Comprehensive income is defined as net income plus the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. For the three-month and
six-month periods ended September 30, 1998, the Company had other comprehensive
income resulting from unrealized holding gains on available-for-sale
investments. The Company did not have other comprehensive income for the
three-month and six-month periods ended September 30, 1997. Comprehensive income
for the three-month and six-month periods ended September 30, 1998, was as
follows (in thousands):
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
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Net income $ 93 $ 175
Other comprehensive income:
Unrealized gains on investments, net of
income taxes of $12 and $457, respectively 20 742
-- ---
Comprehensive income $113 $ 917
==== =====
</TABLE>
3. INVESTMENT IN UNCONSOLIDATED AFFILIATE
In May 1998, the Company's preferred stock investment in Government
Technology Services, Inc. ("GTSI") was converted into 3.0 million shares of
GTSI's common stock. At such time, the Company began to account for this
investment using the equity method of accounting. In July 1998, the Company sold
a substantial portion of this investment and, accordingly, began accounting for
the remaining investment at cost.
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4. SHAREHOLDERS' EQUITY
In September 1998, the Company's Board of Directors approved the adoption
of a share repurchase plan. Under the share repurchase plan, the Company is
authorized to purchase, from time to time, up to 500,000 shares of its common
stock through both open market and negotiated purchase prices. During the three
months ended September 30, 1998, 4,700 shares of common stock were purchased by
the Company under the plan.
In addition, in September 1998, the Company's Board of Directors approved
the adoption of a shareholder rights plan in order to protect its shareholders
from potential inequitable takeover tactics and to preserve the future value of
the Company.
5. LINE OF CREDIT
On November 9, 1998, the Company amended its working capital credit
facility to provide for, among other things, an extension of the maturity date
of the facility to August 31, 2002. The amended credit facility provides for
borrowings up to $50.0 million based on specified percentages of eligible
accounts receivable. Interest on outstanding borrowings under the amended
agreement is provided for at a rate equal to, at the Company's option, either
the lender's prime rate or LIBOR plus a percentage ranging from 2.25% to 3.25%,
depending on the Company's leverage ratio. The LIBOR rate option is not
available to the Company during the period in which the lenders have extended
overadvance funding to the Company. The amended credit facility also requires
the Company to comply with certain financial covenants. At September 30, 1998,
the Company was in compliance with all financial covenants under the agreement.
6. RECLASSIFICATIONS
Certain amounts in the prior period's interim financial statements have
been reclassified to conform to the fiscal 1999 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
BTG, Inc. ("BTG" or the "Company") is an information systems and
technical services 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"), state and local governments and
commercial clients. The Company provides systems development, integration,
engineering and network design, implementation and security expertise services.
In addition, in prior fiscal years, the Company was significantly involved in
the reselling of computer hardware and software. The Company's common stock is
quoted on the NASDAQ National Market under the symbol "BTGI".
On February 12, 1998, BTG and Government Technology Services, Inc.
("GTSI") completed the sale from BTG to GTSI of substantially all of the BTG
operating division responsible for reselling computer hardware, software and
integrated systems to the federal government (the "GTSI Transaction").
On June 12, 1997, the Company acquired Nations, Inc. ("Nations"), which
is primarily involved in software engineering, modeling and simulation, program
management support services, systems engineering, and integrated logistics
support services, principally to the Government.
In August 1996, the Company formed Community Networks, Inc. ("CNI") to be
a total solutions provider to broadband network owners entering the Internet
access market. CNI's offerings were designed to allow network operators to sell
enhanced Internet services to residential consumers and businesses. During
fiscal 1998, it became evident to the Company that the subscriber base was not
growing as rapidly as was initially anticipated. As a result, the Company made a
decision to discontinue the operations of CNI rather than continue its
investment in this new venture. Accordingly, the fiscal 1998 operating results
of CNI have been segregated from BTG's continuing operations and reported as a
separate line item on the consolidated interim statement of operations.
The Company's revenues are derived from both contract activities and
product sales. Contract revenue is typically less seasonal than product sales
but fluctuates monthly 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. Yearly 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% to 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. Higher volumes as opposed to price increases have
generally driven yearly increases in product sales. The Company's operating
performance is affected by both the number and type of contracts held, the
timing of the installation or delivery of the Company's services and products,
and the relative margins of the services performed or products sold. In general,
the Company recognizes its highest margins on its most specialized systems
engineering and software development projects and lower margins on sales of
commercial off-the-shelf products, whose sales tend to have lower services
components and a more competitive after-contract award environment. The
Company's product sales have been significantly reduced as a result of the GTSI
Transaction.
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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 (decrease) in such items:
<TABLE>
<CAPTION>
% PERIOD-TO-PERIOD
PERCENTAGE OF REVENUE INCREASE (DECREASE) OF DOLLARS
----------------------------------------- --------------------------------
THREE MONTHS SIX MONTHS
THREE MONTHS ENDED SIX MONTHS ENDED ENDED SEPT. ENDED SEPT.
SEPTEMBER 30, SEPTEMBER 30, 30, 1998 30, 1998
----------------- ---------------- COMPARED TO COMPARED TO
THREE MONTHS SIX MONTHS
ENDED SEPT. ENDED SEPT.
1998 1997 1998 1997 30, 1997 30, 1997
---- ---- ---- ---- ---------------- ------------
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Revenue:
Contract revenue......................... 52.8% 21.9% 52.2% 24.2% 12.3% 20.7%
Product sales............................ 47.2 78.1 47.8 75.8 (71.8) (64.7)
Total revenue......................... 100.0 100.0 100.0 100.0 (53.4) (44.1)
Direct costs:
Contract costs (as a % of
contract revenue)..................... 67.2 66.3 67.1 65.1 13.8 24.5
Cost of product sales (as a %
of product sales)..................... 97.0 93.0 96.7 91.1 (70.6) (62.6)
Total direct costs (as a %
of total revenue)................... 81.3 87.1 81.3 84.9 (56.5) (46.4)
Indirect, general and administrative
expenses................................. 16.7 12.7 17.0 14.0 (38.5) (31.8)
Amortization and other operating costs, net 0.4 0.3 0.4 0.2 (37.7) (7.8)
Operating income (loss)..................... 1.6 (0.1) 1.3 0.9 (584.9) (23.9)
Interest expense............................ 0.9 1.1 1.5 1.2 (59.6) (30.6)
Equity in earnings of affiliate ............ 0.0 0.0 0.0 0.0 (66.7) --
Gain on sale of investments................. (0.5) 0.0 0.4 0.0 -- --
Income (loss) from continuing operations
before income taxes...................... 0.2 (1.2) 0.2 (0.3) (107.1) (138.1)
Income tax expense (benefit)................ (0.1) 0.4 (0.1) 0.1 (108.4) (165.3)
Income (loss) from continuing operations.... 0.1 (0.8) 0.1 (0.2) (106.3) (129.1)
Loss from discontinued operations, net of tax 0.0 (0.4) 0.0 (0.5) (100.0) (100.0)
Net income (loss)........................... 0.1 (1.2) 0.1 (0.7) (104.0) (108.3)
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997
The three months ended September 30, 1998 realized a net decrease in
revenues of $101.0 million, or 53.4%, from the three months ended September 30,
1997. A contract revenue increase of $5.1 million was offset by a decrease of
$106.1 million attributable to product sales. The increase in contract revenue
during the three months ended September 30, 1998 was primarily due to an
increase of $3.7 million of revenue recognized under contracts acquired in
connection with the acquisition of Nations, offset by a decrease of $3.5 million
under the Company's Integration for Command, Control, Communications, Computers
and Intelligence ("IC4I") contract and a net increase of $4.9 million under a
variety of other contracts. The decrease in product sales was primarily due to
the GTSI Transaction. Included in product sales during the three months ended
September 30, 1998 was $28.6 million of revenue resulting from certain contracts
awarded to BTG's product reselling business unit in a prior year which were
subcontracted to GTSI as part of the GTSI Transaction (the "Royalty Contracts").
Pursuant to an agreement entered into as part of the GTSI Transaction, GTSI
assumed substantially all of the future performance requirements of the Royalty
Contracts and BTG receives a fee of 1% or 2% on total product sales made under
such contracts. The Company anticipates a significant reduction in revenues
derived from the Royalty Contracts over the next six to twelve months as the
contractual periods of performance expire. In the three months ended September
30, 1998, approximately 93.6% of the Company's revenues were derived from
contracts or subcontracts with and product sales to the Government, as compared
with 92.2% for the three months ended September 30, 1997.
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Direct costs, expressed as a percentage of total revenue, decreased from
87.1% for the three months ended September 30, 1997 to 81.3% for the three
months ended September 30, 1998. Contract costs include labor costs, subcontract
costs, material costs and other costs directly related to contract revenue.
Contract costs as a percentage of contract revenue increased from 66.3% in the
three months ended September 30, 1997 to 67.2% in the three months ended
September 30, 1998. This increase was, in large part, the result of increased
revenue generated under the contracts acquired in connection with the
acquisition of Nations, which contracts require higher levels of material and
other direct costs than does BTG's historical contract base. Cost of product
sales as a percentage of product sales increased from 93.0% in the three months
ended September 30, 1997 to 97.0% in the three months ended September 30, 1998
due primarily to product sales recognized from the Royalty Contracts for which
gross margins of 1% to 2% are earned.
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 September 30, 1998 decreased by $9.2
million, or 38.5%, from the same period in 1997. This decrease was due primarily
to the GTSI Transaction which resulted in a reduction in the number of Company
employees, space requirements, and other related indirect costs. Expressed as a
percentage of total revenues, indirect, general and administrative expenses
increased for the three months ended September 30, 1998 to 16.7% from 12.7% in
the three months ended September 30, 1997. This increase is primarily due to the
significant reduction in the amount of revenue resulted from product sales,
which typically requires a lower relative level of infrastructure support than
does revenue derived from contract activity. When compared to the three months
ended June 30, 1998, the ratio of indirect, general and administrative expenses
to total revenues decreased from the 17.3% reported in that period.
Amortization and other operating costs, which include the amortization of
goodwill and other intangible assets as well as other operating expenses that
are non-reimbursable under Government contracts, decreased by $221,000 in the
three months ended September 30, 1998 as compared with the same period of the
prior year. This decrease was primarily the result of a formal restructuring of
the Company's operations which occurred in the prior fiscal year and which
resulted in the write-off of goodwill and certain other intangible assets which
had become impaired.
Interest expense for the three months ended September 30, 1998 decreased
by $1.2 million, or 59.6%, from the comparable period of the prior year. This
decrease was due to a significantly lower average balance outstanding under the
Company's line of credit facility and to the repayment in April 1998 of the
Company's long-term debt obligations. Cash used to reduce outstanding debt was
primarily generated from the collection of outstanding receivables and from
proceeds made available from the sales of investments.
Equity in the earnings of unconsolidated affiliate in the three months
ended September 30, 1997 resulted from the Company's interest in an
unincorporated joint venture. The joint venture entity, which is with an
unrelated company, was formed for the purpose of performing under a specific
contract which ended on March 31, 1998. During the three months ended June 30,
1998, the Company acquired a common stock interest in GTSI for which the equity
method of accounting was used. BTG's share of the earnings reported by GTSI of
$24,000 for the three months ended June 30, 1998 was recognized by BTG in its
fiscal quarter ended September 30, 1998. During the three months ended September
30, 1998, BTG sold a substantial portion of its interest in GTSI and will no
longer report its investment in GTSI under the equity method.
Income tax expense, as a percentage of income from continuing operations
before income taxes was 42.6% in the three months ended September 30, 1998;
however, due to the pre-tax loss experienced by the Company during the three
months ended September 30, 1997, there was an income tax benefit, which as a
percentage of the loss from continuing operations before income taxes, was 35.9%
for the three-month period.
Net income for the three months ended September 30, 1998 increased by
$2.4 million from the three months ended September 30, 1997, due to the reasons
discussed above.
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SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH SIX MONTHS ENDED SEPTEMBER 30,
1997
The Company realized a net decrease in revenues of $136.1 million, or
44.1%, for the six months ended September 30, 1998, as compared with the six
months ended September 30, 1997. A contract revenue increase of $15.5 million
was offset by a decrease of $151.6 million attributable to product sales. The
increase in contract revenue during the six months ended September 30, 1998 was
primarily due to an increase of $14.3 million of revenue recognized under
contracts acquired in connection with the acquisition of Nations, offset by a
decrease of $7.5 million under the Company's IC4I contract and a net increase of
$8.4 million under a variety of other contracts. The decrease in product sales
was primarily due to the GTSI Transaction. Included in product sales during the
six months ended September 30, 1998 was $62.7 million of revenue resulting from
the Royalty Contracts. In the six months ended September 30, 1998, approximately
94.3% of the Company's revenues were derived from contracts or subcontracts with
and product sales to the Government, as compared with 90.3% for the six months
ended September 30, 1997.
Direct costs, expressed as a percentage of total revenues, decreased from
84.9% for the six months ended September 30, 1997 to 81.3% for the six months
ended September 30, 1998. Contract costs as a percentage of contract revenue
increased from 65.1% in the six months ended September 30, 1997 to 67.1% in the
six months ended September 30, 1998. This increase was, in large part, the
result of increased revenue generated under contracts acquired in connection
with the acquisition of Nations, which contracts require higher levels of
material and other direct costs than does BTG's historical contract base. Cost
of product sales as a percentage of product sales increased from 91.1% in the
six months ended September 30, 1997 to 96.7% in the six months ended September
30, 1998 due primarily to product sales recognized from the Royalty Contracts
for which gross margins of 1% to 2% are earned.
Indirect, general and administrative expenses for the six months ended
September 30, 1998 decreased by $13.8 million, or 31.8%, from the same period in
1997. This decrease was due primarily to the GTSI Transaction which resulted in
a reduction in the number of Company employees, space requirements, and other
related indirect costs. Expressed as a percentage of total revenues, indirect,
general and administrative expenses increased for the six months ended September
30, 1998 to 17.1% from 14.0% in the six months ended September 30, 1997. This
increase is primarily due to the significant reduction in the amount of revenue
resulted from product sales, which typically requires a lower relative level of
infrastructure support than does revenue derived from contract activity.
Amortization and other operating costs decreased by $312,000 in the six
months ended September 30, 1998 as compared with the same period of the prior
year. This decrease was primarily the result of a formal restructuring of the
Company's operations which occurred in the prior fiscal year and which resulted
in the write-off of goodwill and certain other intangible assets which had
become impaired.
Interest expense for the six months ended September 30, 1998 decreased by
$1.1 million, or 30.6%, from the comparable period of the prior year. This
decrease was due to a significantly lower average balance outstanding under the
Company's line of credit facility and to the repayment in April 1998 of the
Company's long-term debt obligations. Cash used to reduce outstanding debt was
primarily generated from the collection of outstanding receivables and from
proceeds made available from the sales of investments.
Equity in the earnings of unconsolidated affiliate in the six months
ended September 30, 1997 resulted from the Company's interest in an
unincorporated joint venture as described above. Also as described above, during
the six months ended September 30, 1998, the Company acquired a common stock
interest in GTSI for which the equity method of accounting was used and BTG
recognized $24,000 as its share of earnings reported by GTSI. During the six
months ended September 30, 1998, BTG sold a substantial portion of its interest
in GTSI and will no longer report its investment in GTSI under the equity
method.
- 11 -
<PAGE> 12
Income tax expense, as a percentage of income from continuing operations
before income taxes was 42.6% in the six months ended September 30, 1998;
however, due to the pre-tax loss experienced by the Company during the six
months ended September 30, 1997, there was an income tax benefit, which as a
percentage of the loss from continuing operations before income taxes, was 24.9%
for the six-month period.
Net income for the six months ended September 30, 1998 increased by $2.3 million
from the six months ended September 30, 1997, due to the reasons discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of approximately $29.2 million was provided by operating
activities during the six months ended September 30, 1998. This largely resulted
from the collection of outstanding receivables generated by the Company's
product reselling business unit. Due to the GTSI Transaction, the Company's
product sales revenue was significantly less than amounts recognized in the
comparable period of the prior year. A significant portion of the cash received
from the collection of outstanding receivables was used to reduce accounts
payable.
Investing activities provided cash of approximately $23.7 million during
the six months ended September 30, 1998. This was primarily due to the sale of
common stock owned in Cisco Systems, Inc., which was acquired as a result of
BTG's investment in WheelGroup Corporation.
During the six months ended September 30, 1998, the Company's financing
activities used cash of approximately $52.9 million. This resulted from $39.5
million in repayments of outstanding borrowings under the Company's revolving
line of credit facility and $15.0 million used to retire outstanding promissory
notes payable. In addition, the Company received proceeds of $1.7 million from
sales of common stock under both a private placement to the Company's directors
and certain employee benefit plans.
As of September 30, 1998, working capital was $44.1 million, compared to
$43.8 million at March 31, 1998. At September 30, 1998, the Company had
approximately $3.6 million available for borrowing under its revolving line of
credit facility, which amount includes $3.0 million in overadvance funding
extended to the Company by the lenders.
On November 9, 1998, the Company amended its working capital credit
facility to provide for, among other things, an extension of the maturity date
of the facility to August 31, 2002. The amended credit facility provides for
borrowings up to $50.0 million based on specified percentages of eligible
accounts receivable. Interest on outstanding borrowings under the amended
agreement is provided for at a rate equal to, at the Company's option, either
the lender's prime rate or LIBOR plus a percentage ranging from 2.25% to 3.25%,
depending on the Company's leverage ratio. The LIBOR rate option is not
available to the Company during the period in which the lenders have extended
overadvance funding to the Company. The amended credit facility also requires
the Company to comply with certain financial covenants. At September 30, 1998,
the Company was in compliance with all financial covenants under the agreement.
YEAR 2000 COMPLIANCE
The "Year 2000" (or "Y2K") problem results from the fact that many computer
programs currently in use were not designed to process dates for years beyond
1999. A similar problem affects embedded systems in non-computer equipment.
Systems that do not properly recognize date-related information could, among
other things, fail to operate, operate incorrectly, or fail to exchange data
properly with other systems. This could result in major system failures and the
disruption of business operations. Assessments of the global impact of this
problem vary, and it is therefore not possible to predict what the impact on the
Company may be. In particular, the Company cannot estimate the extent to which
other parties with whom it exchanges data will use only Y2K compliant computer
programs, the extent of compatibility between such systems and the Company's, or
the
- 12 -
<PAGE> 13
likelihood or effect of any disruption of supply or delivery of goods and
services due to Year 2000 problems. In such events, the Company would, as a
contingency, seek to shift its sources of supply or delivery to those entities
not affected by such problems. Given the overall uncertainty, the Company is
continuing its planning and analysis to address the Year 2000 problem.
The Company has established a Year 2000 Committee to conduct this analysis, to
lead the Company's efforts to achieve Y2K compliance, and to advise senior
management on risks and solutions. The Committee has initiated a number of
assessments, gathered information, conducted tests, and prepared preliminary
plans to address the Year 2000 problem. The Company expects this process to
continue throughout calendar 1998 and to be completed in calendar 1999. The
Company expects to complete remediation of critical internal systems by July
1999. However, there can be no assurances that corrective action will be
completed before any Year 2000 problems occur, or that costs will not be greater
than anticipated. The Year 2000 problem also may cause customers to divert
toward remediation, funds that otherwise would have been directed toward
purchasing Company products and services. To the extent the Company is not the
provider of that remediation, this would affect the Company's revenues.
The Company has reviewed its internal operations, including the physical plant,
computer programs, and other systems on which its operations rely. Based on this
assessment, an action plan has been developed. It includes obtaining supplier
certifications, obtaining and installing vendor-provided software upgrades, and
replacing affected systems when necessary. Specifically, the financial system
currently utilized by the Company is not Y2K compliant and the Company plans to
upgrade it to a Y2K compliant system that will also have enhanced functionality.
This upgrade is planned for installation in December 1998 with testing to be
completed prior to April 1999. The cost of this upgrade is included in the
normal, annual maintenance expenses for the system. Other corporate systems are
under evaluation to determine appropriate courses of action. To date, the
Company has incurred approximately $50,000 for Year 2000 remediation, out of a
total information technology budget of $5.2 million for fiscal 1999. The Company
expects to incur an additional $100,000 for Year 2000 remediation during the
remainder of fiscal 1999.
The Company believes there is a risk that other parties with whom it deals may
be relying on systems that could experience Year 2000 problems. This includes
the Company's largest customer, the federal government, whose Year 2000
remediation efforts are known to be underway. Based on information currently
available, the Company does not believe it will be materially and adversely
affected by the Year 2000 problems of its federal or other customers, except to
the extent the federal government reduces funding on contracts awarded to the
Company, in order to fund Year 2000 remediation.
The Company also has begun taking steps to assure itself that the financial
institutions, utilities, and service providers with whom it deals will not
experience Year 2000 problems that would materially and adversely affect the
Company. In addition, the Company has begun obtaining commitments from suppliers
of products for resale that such products will be Y2K compliant.
Although the Company believes that essential operations and services will not be
so affected, any failures or delays could disrupt the Company's business and
cause it to incur substantial expense. Should Y2K noncompliance by the
government or any other customer disrupt the Company's receipt of payments, the
Company would expect to increase its short-term borrowing, which could have a
material adverse effect on the Company in terms of increased interest costs.
The Company has undertaken an assessment of the extent to which products it has
developed or resold are Y2K compliant. The Company is aware that the
distribution of non-Y2K compliant products could give rise to customer claims
against the Company. The Company cannot estimate the outcome of such claims or
their effect on the Company, but believes that most such claims, unless based on
contractual commitments, would be without merit.
- 13 -
<PAGE> 14
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 six-month period ended September 30, 1998, the Company issued
shares of common stock that were not registered under the Securities Act of
1933 ("Unregistered Shares"). The Company issued 138,910 Unregistered
Shares to five members of the Board of Directors in a private placement on
June 4, 1998 at a price of $9.00 per share. In addition, the following
Unregistered Shares were issued pursuant to the BTG 1990 Incentive Stock
Option Plan: 13 employees exercised options to buy 5,318 Unregistered
Shares at $3.45 per share; and 1 employee exercised options to buy 8,334
Unregistered Shares at $3.79 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No defaults upon senior securities have taken place.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on August 5, 1998,
the following proposals were adopted by the margins indicated:
1. To elect three nominees for Director:
<TABLE>
<CAPTION>
For Withheld Authority
--- ------------------
<S> <C> <C>
Ronald L. Turner 7,526,795 34,186
Alan G. Merten 7,532,814 28,167
Earle C. Williams 7,532,814 28,167
</TABLE>
The following Directors continued their terms of office: Edward
H. Bersoff, Ruth M. Davis, Raymond T. Tate, Ronald L. Turner,
and Donald M. Wallach.
2. To ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending
March 31, 1999:
<TABLE>
<S> <C>
For 6,013,145
Against 1,543,639
Abstain 4,197
</TABLE>
- 14 -
<PAGE> 15
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 Amendment to the Amended and Restated Articles of Incorporation of
BTG, Inc. (incorporated by reference to BTG, Inc.'s Form 10-Q for
the quarter ended September 30, 1997).
3.2 Amended and Restated Articles of Incorporation of BTG, Inc.
(incorporated by reference to BTG, Inc.'s Form 10-Q for the
quarter ended September 30, 1997).
3.3 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 to Amended and Restated Business Loan and
Security Agreement, dated November 9, 1998 by and among BTG, Inc.
and its subsidiaries, NationsBank, N.A. and Fleet Capital
Corporation.
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1998.
- 15 -
<PAGE> 16
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: November 16, 1998 BTG, INC.
/s/ EDWARD H. BERSOFF
------------------------------
Edward H. Bersoff
Duly Authorized Signatory and
Acting Chief Financial Officer
- 16 -
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
3.1 Amendment to the Amended and Restated Articles of Incorporation of
BTG, Inc. (incorporated by reference to BTG, Inc.'s Form 10-Q for
the quarter ended September 30, 1997).
3.2 Amended and Restated Articles of Incorporation of BTG, Inc.
(incorporated by reference to BTG, Inc.'s Form 10-Q for the
quarter ended September 30, 1997).
3.3 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 to Amended and Restated Business Loan and
Security Agreement, dated November 9, 1998 by and among BTG, Inc.
and its subsidiaries and NationsBank, N.A.
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
</TABLE>
- 17 -
<PAGE> 1
THIRD MODIFICATION TO AMENDED AND RESTATED BUSINESS LOAN AND SECURITY AGREEMENT
THIS THIRD MODIFICATION TO AMENDED AND RESTATED BUSINESS LOAN AND
SECURITY AGREEMENT (this "Modification") is made as of the 9th day of November,
1998, by and among (i) NATIONSBANK, N.A., a national banking association
("NationsBank"), having an office at 8300 Greensboro Drive, Suite 550, McLean,
Virginia 22102; (ii) FLEET CAPITAL CORPORATION, a Rhode Island corporation
("Fleet"), having an office at 300 Galleria Parkway Northwest, Suite 800,
Atlanta, Georgia 30339; (iii) each other person or entity hereafter becoming a
"Lender" pursuant to the hereinafter defined Loan Agreement; (iv) NATIONSBANK,
N.A., a national banking association (acting in its capacity as Agent for the
Lenders), having an office at 8300 Greensboro Drive, Suite 550, McLean, Virginia
22102; (v) BTG, INC., a Virginia corporation; BTG TECHNOLOGY SYSTEMS, INC., a
Virginia corporation formerly known as BDS, Inc.; DELTA RESEARCH CORPORATION, a
Virginia corporation; CONCEPT AUTOMATION, INC. OF AMERICA, a Virginia
corporation; and NATIONS, INC., a New Jersey corporation (collectively, the
"Borrowers"); all having principal offices at 3877 Fairfax Ridge Road, 4B,
Fairfax, Virginia 22030-7448; and (vi) each other person or entity hereafter
executing a "Joinder Agreement" pursuant to the Loan Agreement. Capitalized
terms used but not defined herein shall have the meanings attributed to such
terms in the Loan Agreement.
W I T N E S S E T H T H A T:
WHEREAS, pursuant to the terms and conditions of that certain Amended
and Restated Business Loan and Security Agreement dated October 31, 1997 (as
heretofore amended and as the same may be hereafter amended or modified, the
"Loan Agreement"), by and among the Agent, Borrowers, Lenders and Crestar Bank
(acting in its capacity as a Lender), the Borrowers obtained a loan (the "Loan")
from the Lenders in the original aggregate maximum principal amount of One
Hundred Ten Million and No/100 Dollars ($110,000,000.00), which aggregate
maximum principal amount had been heretofore reduced to Sixty Million Dollars
($60,000,000), but continues to be evidenced by two (2) separate Replacement
Revolving Promissory Notes (as defined in Exhibit A), in the aggregate original
maximum principal amount of Ninety-five Million Dollars ($95,000,000), and which
Loan is secured by, among other things, certain collateral more fully described
in Article III, Section 1 of the Loan Agreement; and
WHEREAS, the Borrowers have requested an extension of the maturity
date of the Loan, a modification of the Borrowing Base and a modification of
certain financial covenants set forth in the Loan Agreement; and
WHEREAS, the Agent and Lenders have agreed to extend the maturity date
of the Loan, modify the Borrowing Base and modify certain financial covenants
set forth in the Loan Agreement, subject to the terms of this Modification,
provided that the Loan Agreement is further modified to reduce the Commitment
Amount and increase the
<PAGE> 2
Additional Libor Percentage applicable to amounts outstanding from time to time
on a LIBOR basis, as hereinafter provided.
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. The foregoing recitals are hereby incorporated herein by this
reference and made a part hereof, with the same force and effect as if fully set
forth herein.
2. The maturity date of the Loan shall be August 31, 2002, unless
sooner accelerated pursuant to the terms of the Loan Agreement, the Note or any
other Loan Document. Simultaneously with the Borrowers' execution and delivery
of this Modification, the Borrowers shall execute and deliver to the Agent, for
and on behalf of the Lenders (as applicable), an Allonge and First Modification
to Replacement Revolving Promissory Note No. 1 and an Allonge and First
Modification to Replacement Revolving Promissory Note No. 2, in form and
substance reasonably acceptable to the Lenders, evidencing the extension of the
maturity date.
3. The definitions of "Commitment Amount" and "Consolidated Fixed
Charges" set forth in the "Certain Definitions" section of the Loan Agreement
are hereby deleted in their entirety and the following substituted in lieu
thereof:
""COMMITMENT AMOUNT" shall mean Fifty Million and No/100
Dollars ($50,000,000.00).
"CONSOLIDATED FIXED CHARGES" shall mean, as of the date of the
particular determination, interest expenses, plus current
maturities of long term debt, plus current maturities of
capitalized leases, plus cash payments for taxes for the fiscal
quarter of the Borrowers most recently ended (excluding,
however, taxes paid on profits from the sale of Cisco Systems,
Inc. stock), calculated on a consolidated basis in accordance
with GAAP."
4. The following definitions of "Eligible Billed Foreign Accounts
Receivable" and "Maturity Date" are hereby added to the "Certain Definitions"
section of the Loan Agreement:
""ELIGIBLE BILLED FOREIGN ACCOUNTS RECEIVABLE" shall mean
Receivables which (i) represent amounts due and owing for
products actually delivered and accepted or work or services
2
<PAGE> 3
actually performed or rendered by or on behalf of any Borrower
pursuant to any contract or agreement now or hereafter entered
into by the particular Borrower and any unrelated and
unaffiliated non-domestic entity; (ii) have been properly
billed; (iii) arise in the ordinary course of the particular
Borrower's business; (iv) are due, owing and not subject to any
defense, set-off or counterclaim; and (v) are specifically
approved in writing in advance by the Agent.
"MATURITY DATE" shall mean the maturity date set forth in the
Notes."
5. Section 3(a) of Article I of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"(a) Maximum Advances. Notwithstanding any term or provision of
this Agreement or any other Loan Document to the contrary, it
is understood and agreed that in no event whatsoever shall the
Lenders be obligated to advance any amount or have Obligations
outstanding pursuant hereto which shall exceed the lesser of:
1. The Commitment Amount, or
2. The aggregate of (the "Maximum Borrowing Base"):
(i) ninety percent (90%) of the Borrowers' Eligible
Borrowing Base Receivables representing amounts due
and owing from the Government, which are
outstanding less than one hundred twenty-one (121)
days from the date of original invoice; plus
(ii) eighty-five percent (85%) of the Borrowers'
Eligible Borrowing Base Receivables representing
amounts due and owing from domestic account debtors
(other than the Government), which are outstanding
less than ninety-one (91) days from the date of
original invoice; plus
(iii) the lesser of (y) fifty percent (50%) of the
Borrower's Eligible Unbilled Costs; or (z) Ten
Million Dollars ($10,000,000); plus
3
<PAGE> 4
(iv) the lesser of (y) eighty percent (80%) of the
Borrower's Eligible Billed Foreign Accounts
Receivable; or (z) Three Million Dollars
($3,000,000.00).
All receivables included in the computation of the
Maximum Borrowing Base must be acceptable to the Agent
in all respects. Each request for an advance shall be
deemed a representation by the Borrowers that any
Eligible Borrowing Base Receivable, Eligible Unbilled
Cost and Eligible Billed Foreign Accounts Receivable on
which such request is based satisfies the foregoing
requirements."
6. The last sentence of Section 8 of Article I of the Loan
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
"Notwithstanding the foregoing, the Termination Fee
shall not be payable in connection with a permanent
reduction of the Commitment Amount, if such permanent
reduction is made (A) after the date which is
twenty-four (24) months after the date hereof, or (B) in
connection with (y) a contemporaneous bond offering,
provided that such bond offering (1) is consummated
prior to March 31, 1998, and (2) does not exceed One
Hundred Million Dollars ($100,000,000), in the
aggregate, or (z) a contemporaneous public stock
offering or public or private sale of BTG, any
Subsidiary or any of their respective collective assets
(with no new replacement indebtedness or debt
refinancing of any kind, directly or indirectly)."
7. The last sentence of Section 1 of Article II of the Loan
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
"No Letter of Credit shall be issued which, by its
terms, expires after the Maturity Date."
8. Section 15(a) of Article VI of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"(a) Tangible Net Worth. The Borrowers, on a
consolidated basis, will maintain at all times during
the following periods, Tangible Net Worth of not less
than the following amounts:
4
<PAGE> 5
<TABLE>
<CAPTION>
Periods Required Tangible Net Worth
<S> <C>
From September 30, 1998 through $21,500,000.00
December 30, 1998
From December 31, 1998 through March $23,750,000.00
30, 1999
From March 31, 1999 through the $23,750,000.00, plus 67% of
Maturity Date net income (as determined on
a consolidated basis in
accordance with GAAP at the
end of each fiscal quarter)
</TABLE>
For purposes of this Agreement, "Tangible Net Worth"
shall mean all capital stock, paid in capital and
retained earnings, less all treasury stock, amounts due
from officers, directors, stockholders and members of
their immediate families, amounts due from affiliates
(to the extent such amounts are part of the Borrowers'
consolidated net worth), investments in non-marketable
securities, notes receivable of affiliates (to the
extent that such amounts are part of the Borrowers'
consolidated net worth), leasehold improvements,
goodwill, non-competition agreements, capitalized
organization and development costs, capitalized
expenses, loan costs, patents, trademarks, copyrights,
franchises, licenses and other intangible assets."
9. Section 6 of Exhibit 7 to the Loan Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
"The term Additional Libor Percentage shall mean the
percentage which corresponds to the Borrowers' "Leverage
Ratio", as set forth below:
Additional
Leverage Ratio Libor Percentage
greater than or equal to 7.0 to 1.0 3.25%
5
<PAGE> 6
greater than or equal to 6.0 to 1.0,
but less than 7.0 to 1.0 3.00%
greater than or equal to 5.0 to 1.0,
but less than 6.0 to 1.0 2.75%
greater than or equal to 4.0 to 1.0,
but less than 5.0 to 1.0 2.50%
less than 4.0 to 1.0 2.25%
For purposes hereof the Borrowers' "Leverage Ratio"
shall mean the ratio of Borrowers' Funded Debt to
Consolidated EBITDA, as calculated in accordance with
Section 15(c) of Article VI of the Loan Agreement.
Determinations of the applicable Additional Libor
Percentage shall be made quarterly, on or before the
first (1st) day of each February, May, August and
November throughout the term of the Loan (the 1st day of
each such month being herein referred to as a
"Calculation Date"), based on the quarterly financial
statements submitted by the Borrowers for the
immediately preceding calendar quarter; it being
understood and agreed that if any such quarterly
financial statements are not submitted as required
hereunder, the applicable Additional Libor Percentage
for the ensuing Quarterly Period shall be three and
one-quarter percent (3.25%). The applicable Additional
Libor Percentage so determined shall be effective for
any Interest Period which commences on or after the
applicable Calculation Date, and such rate shall
continue to be the applicable Additional Libor
Percentage until the next Calculation Date (each such
period of effectiveness being herein referred to as a
"Quarterly Period"). Each Borrower expressly
acknowledges and agrees that nothing set forth in this
Section 6 of Exhibit 7 to the Loan Agreement shall
alter, amend or modify in any respect the Borrowers'
obligations to comply with each and all of the financial
covenants set forth in Section 15 of Article VI of the
Loan Agreement."
10. Simultaneously with the effectiveness of this Modification,
Exhibit 5 to the Loan Agreement shall be deleted in its entirety and Exhibit 5
attached to this Modification shall be substituted in lieu thereof.
6
<PAGE> 7
11. Notwithstanding anything contained in the Loan Agreement to the
contrary, the Libor Interest Election option shall not be available until and
unless Borrowers receive written notification from the Agent.
12. Each Borrower hereby acknowledges, agrees, represents and
warrants that, as of the date hereof (i) there are no set-offs or defenses
against the Notes, the Loan Agreement or any other Loan Document; (ii) except
as specifically amended hereby, all of the terms and conditions of the Notes,
the Loan Agreement and the other Loan Documents shall remain unmodified and in
full force and effect; (iii) the Notes, the Loan Agreement (as modified hereby)
and the other Loan Documents are hereby expressly approved, ratified and
confirmed; and (v) the execution, delivery and performance by each Borrower of
this Modification (a) is within its corporate powers, (b) has been duly
authorized by all necessary corporate action, and (c) does not require the
consent or approval of any other person or entity.
13. The Borrowers shall pay all of the Agent's costs and expenses
associated with this Modification and the transactions referenced herein or
contemplated hereby, including, without limitation, the Agent's reasonable
legal fees and expenses.
14. This Modification shall be governed by the laws of the
Commonwealth of Virginia and shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
15. This Modification may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
[remainder of page intentionally left blank - signature page follows]
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned have signed, sealed and delivered
this Modification on the day and year first above written.
<TABLE>
<S> <C>
BORROWERS:
----------
[Corporate Seal] BTG, INC.,
ATTEST: a Virginia corporation
By:/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
---------------------------------- ------------------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President and CEO
[Corporate Seal] BTG TECHNOLOGY SYSTEMS, INC.,
ATTEST: a Virginia corporation
By:/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
---------------------------------- ------------------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President
[Corporate Seal] DELTA RESEARCH CORPORATION,
ATTEST: a Virginia corporation
By:/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
---------------------------------- ------------------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] CONCEPT AUTOMATION, INC. OF
ATTEST: AMERICA, a Virginia corporation
By:/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
---------------------------------- ------------------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
</TABLE>
[signatures continue on the following page]
8
<PAGE> 9
<TABLE>
<S> <C>
Corporate Seal] NATIONS, INC.,
ATTEST: a New Jersey corporation
By:/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
---------------------------------- ------------------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President and CEO
AGENT:
NATIONSBANK, N.A., a
national banking association, acting in its
capacity as Agent
By: /s/ DOUGLAS T. BROWN
------------------------------
Name: Douglas T. Brown
Title: Vice President
LENDER(S):
NATIONSBANK, N.A., a
national banking association
By: /s/ DOUGLAS T. BROWN
------------------------------
Name: Douglas T. Brown
Title: Vice President
FLEET CAPITAL CORPORATION, a
Rhode Island corporation
By: /s/ STUART J. SOLOMON
------------------------------
Name: Stuart J. Solomon
Title: Senior Vice President
</TABLE>
9
<PAGE> 10
EXHIBIT A
For purposes of this Modification, "Replacement Revolving Promissory Notes"
shall have the meaning attributed to the term "Notes" in the Loan Agreement.
<PAGE> 1
EXHIBIT 11
BTG, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 93 $ (2,335) $ 175 $ (2,100)
======== ======== ======= ==========
Weighted average common stock shares
outstanding during the period (used in
the calculation of basic per share results) 8,803 8,525 8,741 8,501
Dilutive effect of common stock options and
common stock purchase warrants 16 -- 49 --
-------- -------- ------- ---------
Weighted average common stock and potentially
dilutive securities outstanding during the
period (used in the calculation of diluted
per share results) 8,819 8,525 8,790 8,501
======== ======== ======= =========
Basic earnings (loss) per share $ 0.01 $ (0.27) $ 0.02 $ (0.25)
======== ======== ======= ==========
Diluted earnings (loss) per share $ 0.01 $ (0.27) $ 0.02 $ (0.25)
======== ======== ======= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 4,566
<RECEIVABLES> 67,369
<ALLOWANCES> 2,264
<INVENTORY> 1,586
<CURRENT-ASSETS> 81,801
<PP&E> 11,302
<DEPRECIATION> 7,173
<TOTAL-ASSETS> 105,452
<CURRENT-LIABILITIES> 37,711
<BONDS> 30,742
0
0
<COMMON> 54,561
<OTHER-SE> (19,531)
<TOTAL-LIABILITY-AND-EQUITY> 105,452
<SALES> 41,660
<TOTAL-REVENUES> 88,216
<CGS> 40,414
<TOTAL-COSTS> 71,691
<OTHER-EXPENSES> 15,043
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 840
<INCOME-PRETAX> 162
<INCOME-TAX> 69
<INCOME-CONTINUING> 93
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
