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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 JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBER: 0-25094
BTG, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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:
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CLASS OUTSTANDING AT AUGUST 4, 1999
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COMMON STOCK 8,865,281
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BTG, INC.
INDEX TO FORM 10-Q
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PAGE
NUMBER
PART I. FINANCIAL INFORMATION ------------
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Item 1. Financial Statements
Consolidated Interim Balance Sheets, June 30, 1999 (unaudited)
and March 31, 1999 3
Consolidated Interim Statements of Operations for the three
months ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Interim Statements of Cash Flows for the
three months ended June 30, 1999 and 1998 (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 14
Item 6. Exhibits and Reports on Form 8-K 14-15
SIGNATURES 16
EXHIBIT INDEX 17
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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)
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JUNE 30, MARCH 31,
1999 1999
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ASSETS (unaudited)
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Current assets:
Receivables, net..................................................... $ 63,843 $ 53,281
Inventory, net....................................................... 431 378
Prepaid expenses..................................................... 3,128 2,786
Deferred income taxes................................................ 3,360 3,360
Other................................................................ 1,522 1,486
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Total current assets............................................... $ 72,284 $ 61,291
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Property and equipment, net............................................ 6,018 5,202
Goodwill, net.......................................................... 15,035 15,211
Investments in unconsolidated affiliates............................... 6,429 6,429
Deferred income taxes.................................................. 462 462
Other.................................................................. 1,775 1,782
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$ 102,003 $ 90,377
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................................. $ 1,700 $ 1,700
Accounts payable..................................................... 23,491 18,203
Accrued expenses..................................................... 11,820 11,050
Other................................................................ 3,535 3,443
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Total current liabilities.......................................... $ 40,546 $ 34,396
Line of credit, excluding current maturities........................... 22,334 17,666
Other liabilities...................................................... 2,284 2,304
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Total liabilities.................................................... $ 65,164 $ 54,366
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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; 8,821,467
and 8,852,205 shares issued and outstanding at June 30, 1999
and March 31, 1999, respectively................................... 54,952 54,860
Accumulated deficit.................................................. (17,569) (18,534)
Treasury stock, at cost, 88,000 and 53,000 shares outstanding at
June 30, 1999 and March 31, 1999, respectively .................... (544) (315)
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Total shareholders' equity........................................... $ 36,839 $ 36,011
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$ 102,003 $ 90,377
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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)
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THREE MONTHS ENDED
JUNE 30,
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1999 1998
Revenue: -------- -----------
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Contract revenue................................ $ 48,564 $ 39,693
Product sales................................... 17,781 44,386
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66,345 84,079
Direct costs:
Contract costs.................................. 31,528 25,652
Cost of product sales........................... 17,297 42,677
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48,825 68,329
Indirect, general and administrative
expenses........................................ 15,209 14,719
Amortization expense............................. 174 173
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64,208 83,221
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Operating income................................. 2,137 858
Interest expense, net............................ (429) (1,682)
Gain on sale of investments...................... -- 1,051
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Income from continuing operations before
income taxes................................... 1,708 227
Provision for income taxes....................... 743 90
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Income from continuing operations................ 965 137
Loss from discontinued operations, net of income
taxes.......................................... -- (55)
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Net income....................................... $ 965 $ 82
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Basic earnings (loss) per share:
Income from continuing operations.............. $ 0.11 $ 0.02
Loss from discontinued operations.............. -- (0.01)
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Net income..................................... $ 0.11 $ 0.01
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Diluted earnings (loss) per share:
Income from continuing operations.............. $ 0.11 $ 0.02
Loss from discontinued operations.............. -- (0.01)
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Net income..................................... $ 0.11 $ 0.01
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Weighted average shares outstanding (used in the
calculation of basic per share results)......... 8,840 8,679
============ ===========
Weighted average shares outstanding (used in the
calculation of diluted per share results)....... 8,846 8,743
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</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)
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THREE MONTHS ENDED
JUNE 30,
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1999 1998
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Cash flows from operating activities:
Net income...................................................................... $ 965 $ 82
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss on discontinued operations................................................ -- 55
Depreciation and amortization.................................................. 654 632
Reserves for accounts receivable and inventory 90 30
Deferred income taxes.......................................................... -- 102
Gain on sale of investments.................................................... -- (1,051)
Changes in assets and liabilities, net of the effects from purchases
of subsidiaries:
(Increase) decrease in receivables............................................ (10,622) 59,110
(Increase) decrease in inventory.............................................. (83) 227
(Increase) decrease in prepaids and other..................................... (482) 5,199
(Increase) decrease in other assets........................................... (5) 718
Increase (decrease) in accounts payable....................................... 5,288 (37,177)
Increase (decrease) in accrued expenses....................................... 770 (1,849)
Increase (decrease) in other liabilities...................................... 101 (753)
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Net cash provided by (used in) operating activities of
continuing operations.................................................. $ (3,324) 25,325
Net cash used in discontinued operations.................................... -- (55)
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Net cash provided by (used in) operating activities.................... $ (3,324) $ 25,270
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Cash flows from investing activities:
Purchases of property and equipment............................................ (1,177) (145)
Proceeds from sale of investments.............................................. -- 18,906
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Net cash provided by (used in) investing activities.................... $ (1,177) $ 18,761
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Cash flows from financing activities:
Net advances (repayments) under line of credit................................. 4,668 (30,431)
Principal payments on long-term debt and capital lease obligations............. (30) (15,029)
Purchases of treasury stock.................................................... (229) --
Proceeds from the issuance of common stock..................................... 92 1,429
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Net cash provided by (used in) financing activities....................... $ 4,501 $ (44,031)
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Increase (decrease) in unrestricted cash and equivalents........................ -- --
Unrestricted cash and equivalents, beginning of period.......................... -- --
------------ -------------
Unrestricted cash and equivalents, end of period................................ $ -- $ --
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</TABLE>
See notes to consolidated interim financial statements.
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BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 1999
(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, 1999. The results of operations for the
three-month period ended June 30, 1999, are not necessarily indicative of the
results to be expected for the full fiscal year ending March 31, 2000.
2. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("Statement 130") during its fiscal 1999.
Statement 130 established 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 period ended June 30, 1999, the
Company had no other comprehensive income. The Company had other comprehensive
income resulting from unrealized holding gains on available-for-sale
investments for the three-month period ended June 30, 1998 as follows (in
thousands):
Net income . . . . . . . . . . . . . . . . . . $ 82
Other comprehensive income:
Unrealized gains on investments, net of income
taxes of $445 . . . . . . . . . . . . . . . . 722
-----------
Comprehensive income . . . . . . . . . . . . . $ 804
===========
3. SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("Statement
131") during its fiscal 1999. Statement 131 established new procedures and
requirements for the (i) determination of business segments, (ii) presentation
and disclosure of segment information, and (iii) disclosure of selected segment
information within interim consolidated financial statements. Business
segments, as defined in Statement 131, are components of an enterprise for
which separate financial information is available and is evaluated regularly by
the Company in deciding how to allocate resources and in assessing performance.
The financial information
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is required to be reported on the basis that it is used internally for
evaluating the segment performance. Under Statement 131, the Company had two
reportable segments in its prior fiscal year. The segment which resulted from
the Company's product reselling division, however, had no operating activity in
the fiscal quarter ended June 30, 1999 and, due to the divestiture of this
division in February 1998, the Company anticipates no future operating
activity. Accordingly, there are no interim period disclosure requirements
relevant to the financial reporting period ended June 30, 1999.
4. PROPERTY AND EQUIPMENT
In March 1999, the Company began implementing an enterprise-wide
financial information system. External direct costs of materials and services
and payroll-related costs of employees working on development of the software
system portion of the project are being capitalized. During the three-month
period ended June 30, 1999, approximately $870,000 of costs associated with the
acquisition and development of the system have been capitalized. Once the
system is made available for its intended use, the related capitalized costs
will be amortized over the estimated useful life of the asset. Training costs
and costs to reengineer business processes are being expensed as incurred.
5. RECLASSIFICATION
Certain amounts in the prior period's interim financial statements have
been reclassified to conform to the fiscal 2000 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE MATTERS DISCUSSED IN THIS FORM 10-Q INCLUDE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS OR UNCERTAINTIES. WHILE FORWARD-LOOKING STATEMENTS ARE
SOMETIMES PRESENTED WITH NUMERICAL SPECIFICITY, THEY ARE BASED ON VARIOUS
ASSUMPTIONS MADE BY MANAGEMENT REGARDING FUTURE CIRCUMSTANCES OVER MANY OF
WHICH THE COMPANY HAS LITTLE OR NO CONTROL. FORWARD-LOOKING STATEMENTS MAY BE
IDENTIFIED BY WORDS INCLUDING "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
SIMILAR EXPRESSIONS. THE COMPANY CAUTIONS READERS THAT FORWARD-LOOKING
STATEMENTS, INCLUDING WITHOUT LIMITATION, THOSE RELATING TO THE COMPANY'S
FUTURE BUSINESS PROSPECTS, REVENUES, WORKING CAPITAL, LIQUIDITY, AND INCOME,
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT WOULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM FORWARD-LOOKING
STATEMENTS INCLUDE THE CONCENTRATION OF THE COMPANY'S REVENUES FROM GOVERNMENT
CLIENTS, RISKS INVOLVED IN CONTRACTING WITH THE GOVERNMENT, DIFFICULTIES THE
COMPANY MAY HAVE IN ATTRACTING, RETAINING AND MANAGING PROFESSIONAL AND
ADMINISTRATIVE STAFF, FLUCTUATIONS IN QUARTERLY RESULTS, RISKS RELATED TO
ACQUISITIONS, RISKS RELATED TO COMPETITION AND THE COMPANY'S ABILITY TO
CONTINUE TO WIN AND PERFORM EFFICIENTLY ON GOVERNMENT CONTRACTS, AND OTHER
RISKS AND FACTORS IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S REPORTS FILED
WITH THE SEC, INCLUDING THOSE IDENTIFIED UNDER THE CAPTION "RISK FACTORS" IN
THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (SEC FILE NO. 333-16899) WHICH
HEREBY IS INCORPORATED BY REFERENCE. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR
PROJECTED.
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 needs of the United States Government and its agencies and departments
(the "Government") and other commercial and state and local government
customers. Currently, the Company provides systems development, integration,
engineering and network design, implementation and security information
services (the "Systems Business"). Prior to fiscal 1999, the Company operated a
division which was responsible for reselling computer hardware and software
products (the "Product Reselling Business"), principally to the Government.
The Company's revenue has historically been 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. Product sales tend to be seasonal,
with the Company's second and third fiscal quarters typically accounting for
the greatest proportion of revenue 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. 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.
On January 26, 1999, BTG completed the acquisition of STAC, Inc. ("STAC")
an analysis and software development company headquartered in Fairfax,
Virginia. The Company purchased all of the common stock of STAC for
approximately $6.4 million, $1.5 million of
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which was contingent on certain stock market indices which were subsequently
satisfied. The Company has accounted for this acquisition using the purchase
method of accounting, and accordingly, the results of operations of STAC have
been included in the Company's consolidated statement of operations since the
date of the acquisition.
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:
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% PERIOD-TO-PERIOD
INCREASE (DECREASE)
PERCENTAGE OF REVENUE OF DOLLARS
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THREE MONTHS ENDED
JUNE 30, 1999
THREE MONTHS ENDED COMPARED TO
JUNE 30, THREE MONTHS ENDED
1999 1998 JUNE 30, 1998
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Revenue:
Contract revenue....................................... 73.2% 47.2% 22.3%
Product sales.......................................... 26.8 52.8 (59.9)
Total revenue......................................... 100.0 100.0 (21.1)
Direct costs:
Contract costs (as a % of contract revenue)............ 64.9 64.6 22.9
Cost of product sales (as a % of product sales)........ 97.3 96.2 (59.5)
Total direct costs (as a % of total revenues)......... 73.6 81.3 (28.5)
Indirect, general and administrative expenses........... 22.9 17.5 3.3
Amortization expense.................................... 0.3 0.2 0.6
Operating income........................................ 3.2 1.0 149.1
Interest expense, net................................... 0.6 2.0 (74.5)
Gain on sale of investments............................. -- 1.3 (A)
Income from continuing operations before income taxes... 2.6 0.3 652.4
Provision for income taxes.............................. 1.1 0.1 723.3
Income from continuing operations....................... 1.5 0.2 605.7
Loss from discontinued operations, net of income taxes.. -- 0.1 (A)
Net income.............................................. 1.5 0.1 1,076.8
</TABLE>
(A) There was no expense or income in the comparison year.
Three Months Ended June 30, 1999 Compared With Three Months Ended June 30, 1998
During the three months ended June 30, 1999, there was a net decrease in
revenue of $17.7 million, or 21.1%, from the three months ended June 30, 1998.
Contract revenue increased $8.9 million and was offset by a decrease of $26.6
million attributable to product sales. The increase in contract revenue during
the three months ended June 30, 1999 was primarily due to $5.4 million in
revenue generated by new contracts of the Company's Delta Research division and
$2.9 million of revenue recognized under contracts acquired in connection with
the acquisition of STAC. The decrease in product sales was primarily due to
the sale to Government Technology Services, Inc. ("GTSI") of substantially all
of BTG's product reselling operating division (the "GTSI Transaction").
Included in product sales during the three months ended June 30, 1998 was $34.1
million of revenue resulting from certain contracts awarded to BTG's product
reselling division in a prior year which were subcontracted to GTSI as part of
the GTSI Transaction. The Company entered into an agreement to novate these
contracts to GTSI during fiscal 1999. In the three months ended June 30, 1999,
approximately 94.4% of the Company's revenue was derived from contracts or
subcontracts with and product sales to the Government, as compared with 94.2%
for the three months ended June 30, 1998.
Direct costs, expressed as a percentage of total revenue, decreased from
81.3% for the three months ended June 30, 1998 to 73.6% for the three months
ended June 30, 1999, primarily due to the higher percentage of contract-related
business. 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 slightly from 64.6% in
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the three months ended June 30, 1998 to 64.9% in the three months ended June
30, 1999. Cost of product sales as a percentage of product sales increased from
96.2% in the three months ended June 30, 1998 to 97.3% in the three months
ended June 30, 1999, primarily due to higher than anticipated warranty costs
associated with products sold by the Company prior to the GTSI Transaction.
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 June 30, 1999 increased by $490,000, or
3.3%, from the same period in 1998. This increase was due primarily to
incremental expenses associated with the ongoing operations of the STAC
acquisition. Expressed as a percentage of total revenues, indirect, general and
administrative expenses increased for the three months ended June 30, 1999 to
22.9% from 17.5% in the three months ended June 30, 1998, principally due to
the decreased proportion of total revenue derived from product sales.
Amortization expense, which includes the amortization of goodwill and
other intangible assets, remained consistent in the three months ended June 30,
1999 as compared with the comparable period of the prior year.
Interest expense for the three months ended June 30, 1999 decreased by
$1.3 million, or 74.5%, 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. Cash used to reduce outstanding debt was
primarily generated from the collection of outstanding receivables. Principally
as the result of the divestiture of its product reselling division, the
Company's working capital requirements have been significantly reduced when
compared to the prior year.
Income tax expense, as a percentage of income from continuing operations
before income taxes, increased to 43.5% in the three months ended June 30,
1999, from 39.6% in the comparable period of the prior year.
The Company recognized a loss of $55,000, net of income tax benefits,
during the three-month period ended June 30, 1998 as a result of the
discontinuance of the non-strategic operations of a retail computer store
outlet.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is hereby incorporated by reference
to the Company's annual report on Form 10-K for the year ended March 31, 1999,
filed with the Securities and Exchange Commission on June 28, 1999. There have
been no material changes in the Company's market risk from that disclosed in
the Company's 1999 Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of approximately $3.3 million was used in operating activities
during the three months ended June 30, 1999. This largely resulted from a $10.6
million increase in outstanding receivables offset by a $6.1 million increase
in payables and accrued expenses, both of which are reflective of the Company's
increased business volume.
Investing activities used $1.2 million during the three months ended June
30, 1999. This was primarily due to the Company's ongoing development and
implementation of an enterprise-wide financial and project management software
system.
During the three months ended June 30, 1999, the Company's financing
activities provided cash of approximately $4.5 million. This resulted
primarily from $4.7 million in
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borrowings made under the Company's revolving line of credit facility offset by
$229,000 used for the purchase of treasury stock.
As of June 30, 1999, working capital was $31.7 million, compared to $26.9
million at March 31, 1999. At June 30, 1999, the Company had approximately
$13.1 million available for borrowing under its revolving line of credit
facility.
YEAR 2000 COMPLIANCE
The Year 2000 (or "Y2K") problem arises from the standard use of two digit
fields to hold the (four digit) year in a date. The scope of the Y2K problem
goes beyond simply "fixing" the calendar so that it rolls over correctly on
December 31, 1999. In many systems, the two-digit year field with the
characters "99" triggers special logic. This was a standard and accepted
practice for decades. The problem also includes leap year calculations,
specialized clock functions (i.e., Global Positioning System), and embedded
systems. Embedded systems can be looked at as computer chips or automated
devices involving software, microcode, firmware, and EPROM program code. These
automated devices typically perform their intended functions over long periods
of time without error, unless there is a physical defect in the code. Typical
systems that contain embedded software are fire suppression systems, security
systems, elevator control, lighting management systems, and telephone systems.
Virtually every item that uses electricity is a possible candidate for a Year
2000 problem.
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. 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 plans to address the Year 2000 problem. The Company expects this
process to continue throughout calendar 1999 and into the first quarter of
calendar 2000. 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 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 where necessary. Specifically, the
core financial system utilized by the Company was not Y2K compliant. During
December 1998, the system was upgraded to a Y2K compliant version. This upgrade
included vendor supplied applications, new versions of operating systems, and
new hardware. Full end-to-end system tests were conducted and discrepancies
corrected. It should be noted that the Company's fiscal 2000 began on April 1,
1999 and the upgraded accounting system has had no Y2K related problems. The
cost of this upgrade was included in the normal, annual maintenance expenses
for the system. Other corporate systems have been evaluated to determine
appropriate courses of action. Embedded systems (principally security systems)
have been examined and upgraded to Y2K compliant versions. The Company expects
to complete remediation of all critical internal systems by September 1999.
In the ordinary course of its business, the Company spends a portion of
its information technology budget on maintenance and upgrades to its corporate
information technology infrastructure. During fiscal 1999, the Company incurred
an additional $126,000 for specific Year 2000 remediation, out of a total
information technology budget of $5.2 million. These costs were expensed as
incurred. The estimate for Year 2000 remediation, in addition to ordinary
information technology expenses, for fiscal 2000 is $470,000, out of a total
information
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technology budget of $6.2 million. A portion of this amount will be used to
acquire capital equipment which would not otherwise have been purchased until a
future period.
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 Government, whose Year 2000
remediation efforts are known to be underway. Based on information currently
available, the Company does not believe it will suffer a materially adverse
affect by the Year 2000 problems of the Government or its other customers. It
should be noted that 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 borrowings, which could materially increase the
Company's interest expenses. In addition, there is a risk that customers will
reduce funding on contracts awarded to the Company in order to fund Year 2000
remediation. To the extent the Company is not the provider of that remediation,
this would affect the Company's revenues.
The Company has taken 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 obtained 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 affected,
any failures or delays could disrupt the Company's business and cause it to
incur substantial expense.
The Company has undertaken an assessment of the extent to which products
it has developed and 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. With respect to BTG-branded products, which it stopped
manufacturing in 1998, the Company will provide, when and where appropriate,
BIOS upgrades and software utilities, to bring such products to a level of Year
2000 compliance, when possible. The Company cannot estimate the outcome of such
claims or their effect on the Company, but believes that most such claims, if
any, would be without merit.
There can be no assurances that the Company will not experience delay in,
or increased cost associated with, the implementation of its Year 2000
remediation plan, and the Company's inability to implement such plan could have
an adverse effect on future results of operations. In addition, there can be no
assurance that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in
the technology used in its internal systems, which are comprised of third party
software, third party hardware that contains embedded software, and the
Company's own branded-products. The most reasonably likely worst case scenarios
would include: (i) corruption of data contained in the Company's internal
information systems, (ii) hardware failure, (iii) the failure of infrastructure
services provided by government agencies and other third parties (e.g.,
providers of electricity, phone service, water transport, etc.), and (iv) the
inability of the Government or any other customer to make timely payments on
Company invoices. The Company is continuing to prepare its contingency
planning, which will include among other things, manual "work-arounds" for
software and hardware failures, as well as substitution of systems, if
necessary.
The statements above describing the Company's plans and objectives for
handling Year 2000 issues and the expected impact of the Year 2000 issue on the
Company are forward-looking statements. Those statements involve risks and
uncertainties that could cause actual results to differ materially from the
results discussed above. Factors that might cause such a difference include,
but are not limited to, delays in executing the plan outlined above and
increased or unforeseen costs associated with the implementation of the plan
and any necessary changes to the Company's systems
- 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
None
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
None
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)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
- 13 -
<PAGE> 14
B. REPORTS ON FORM 8-K
August 4, 1999 BTG reported that KPMG LLP's appointment
as certifying accountants was terminated
and Deloitte & Touche LLP was engaged as
certifying accountants
- 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: August 16, 1999 BTG, INC.
/s/ Todd A. Stottlemyer
-----------------------
Todd A. Stottlemyer
Duly Authorized Signatory and
Chief Financial and Administrative Officer
- 15 -
<PAGE> 16
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)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
</TABLE>
- 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 Ended
June 30,
----------------------------------
1999 1998
---- ----
<S> <C> <C>
Income from continuing operations $ 965 $ 137
========== =========
Weighted average common stock shares
outstanding during the period (used in
the calculation of basic per share results) 8,840 8,679
Dilutive effect of common stock options and
common stock purchase warrants 6 64
---------- ---------
Weighted average common stock and
potentially dilutive securities outstanding
during the period (used in the calculation
of diluted per share results) 8,846 8,743
========== =========
Basic earnings per share $ 0.11 $ 0.02
========== =========
Diluted earnings per share $ 0.11 $ 0.02
========== =========
</TABLE>
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 66,196
<ALLOWANCES> 2,353
<INVENTORY> 431
<CURRENT-ASSETS> 72,284
<PP&E> 14,871
<DEPRECIATION> 8,853
<TOTAL-ASSETS> 102,003
<CURRENT-LIABILITIES> 40,546
<BONDS> 24,034
0
0
<COMMON> 54,952
<OTHER-SE> (18,113)
<TOTAL-LIABILITY-AND-EQUITY> 102,003
<SALES> 66,345
<TOTAL-REVENUES> 66,345
<CGS> 48,825
<TOTAL-COSTS> 48,825
<OTHER-EXPENSES> 15,293
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 429
<INCOME-PRETAX> 1,708
<INCOME-TAX> 743
<INCOME-CONTINUING> 965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 965
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
