<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 54-1194161
- ------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3877 FAIRFAX RIDGE ROAD, FAIRFAX, VIRGINIA 22030-7448
- ------------------------------------------ ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 383-8000
-------------------------
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 OCTOBER 27, 1999
- ----------------- -------------------------------
COMMON STOCK 8,878,855
<PAGE> 2
BTG, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Interim Balance Sheets, September 30, 1999 (unaudited)
and March 31, 1999 3
Consolidated Interim Statements of Operations for the three
months ended September 30, 1999 and 1998 and the six
months ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Interim Statements of Cash Flows for the six
months ended September 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Interim Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-13
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
</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,
1999 1999
------------------ ---------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Receivables, net............................................................... $ 61,460 $ 53,281
Inventory, net................................................................. 105 378
Prepaid expenses............................................................... 2,621 2,786
Other.......................................................................... 4,678 4,846
--------------- ---------------
Total current assets........................................................ $ 68,864 $ 61,291
--------------- ---------------
Property and equipment, net...................................................... 7,131 5,202
Goodwill, net.................................................................... 14,861 15,211
Other intangible assets, net..................................................... - 48
Restricted investments........................................................... 6,429 6,429
Other ........................................................................... 2,277 2,196
--------------- ---------------
$ 99,562 $ 90,377
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................................... $ 425 $ 1,700
Accounts payable............................................................... 21,664 18,203
Accrued expenses............................................................... 12,747 11,050
Other.......................................................................... 3,222 3,443
--------------- ---------------
Total current liabilities.................................................. $ 38,058 $ 34,396
Line of credit................................................................... 21,903 17,666
Other liabilities................................................................ 1,715 2,304
--------------- ---------------
Total liabilities........................................................... $ 61,676 $ 54,366
--------------- ---------------
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; 8,862,635
and 8,852,205 shares issued and outstanding at September 30, 1999
and March 31, 1999, respectively.............................................. 55,054 54,860
Accumulated deficit............................................................ (16,504) (18,534)
Treasury stock, at cost, 104,200 and 53,000 shares at September 30, 1999 ......
and March 31, 1999 respectively............................................... (664) (315)
--------------- ---------------
Total shareholders' equity.................................................. $ 37,886 $ 36,011
--------------- ---------------
$ 99,562 $ 90,377
=============== ===============
</TABLE>
See notes to consolidated interim financial statements (unaudited).
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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,
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue.................................... $ 49,810 $ 43,880 $ 98,365 $ 83,573
Product sales....................................... 14,101 43,803 31,882 88,190
--------------- --------------- --------------- ---------------
63,911 87,683 130,247 171,763
Direct costs:
Contract costs...................................... 32,629 28,925 64,148 54,576
Cost of product sales............................... 13,529 42,294 30,826 84,973
--------------- --------------- --------------- ---------------
46,158 71,219 94,974 139,549
Indirect, general and administrative expenses......... 15,041 14,826 30,250 29,545
Amortization expense.................................. 174 180 348 353
--------------- --------------- --------------- ---------------
61,373 86,225 125,572 169,447
Operating income...................................... 2,538 1,458 4,675 2,316
Interest expense...................................... (448) (836) (877) (2,518)
Equity in earnings of unconsolidated affiliate........ - 24 - 24
Gain (loss) on sale of investments.................... - (404) - 647
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations
before income taxes................................ 2,090 242 3,798 469
Income tax expense.................................... 909 97 1,652 187
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations.............. 1,181 145 2,146 282
Loss from discontinued operations,
net of income taxes................................ (116) (52) (116) (107)
--------------- --------------- --------------- ---------------
Net income ........................................... $ 1,065 $ 93 $ 2,030 $ 175
=============== =============== =============== ===============
Basic earnings per share:
Income from continuing operations..................... $ 0.13 $ 0.02 $ 0.24 $ 0.03
Loss from discontinued operations..................... (0.01) (0.01) (0.01) (0.01)
--------------- --------------- --------------- ---------------
Net income.......................................... $ 0.12 $ 0.01 $ 0.23 $ 0.02
=============== =============== =============== ==============
Diluted earnings per share:
Income from continuing operations..................... $ 0.13 $ 0.02 $ 0.24 $ 0.03
Loss from discontinued operations..................... (0.01) (0.01) (0.01) (0.01)
--------------- --------------- --------------- ---------------
Net income ........................................... $ 0.12 $ 0.01 $ 0.23 $ 0.02
=============== =============== =============== ==============
Weighted average shares outstanding (used in
the calculation of basic per share results)........ 8,836 8,803 8,839 8,741
=============== =============== =============== ==============
Weighted average shares outstanding (used in
the calculation of diluted per share results)...... 9,062 8,819 8,966 8,790
=============== =============== =============== ==============
</TABLE>
See notes to consolidated interim financial statements (unaudited).
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................................... $ 2,030 $ 175
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss on discontinued operations................................................. 116 107
Depreciation and amortization................................................... 1,137 1,244
Deferred income taxes........................................................... -- (94)
Reserves for accounts receivable and inventory.................................. 245 100
Loss on sale or disposal of property and equipment.............................. 86 --
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............................................. (8,364) 69,846
(Increase) decrease in inventory............................................... (38) 628
(Increase) decrease in income taxes receivable................................. 32 8,848
(Increase) decrease in prepaid expenses and other current assets............... 301 3,516
(Increase) decrease in other assets............................................ (81) 44
Increase (decrease) in accounts payable........................................ 3,461 (54,287)
Increase (decrease) in accrued expenses........................................ 1,697 1,315
Increase (decrease) in other liabilities....................................... (503) (1,428)
--------------- ---------------
Net cash provided by (used in) operating activities of
continuing operations................................................ 119 29,343
Net cash provided by (used in) discontinued operations...................... 135 (107)
--------------- ---------------
Net cash provided by (used in) operating activities............ $ 254 $ 29,236
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment............................................. (3,009) (319)
Proceeds from sale of investments............................................... -- 23,970
--------------- ---------------
Net cash provided by (used in) investing activities............. $ (3,009) $ 23,651
--------------- ---------------
Cash flows from financing activities:
Net advances (repayments) under line of credit.................................. 4,237 (39,510)
Principal payments on long-term debt and capital lease obligations.............. (1,327) (15,049)
Proceeds from the issuance of common stock...................................... 194 1,704
Purchase of treasury stock...................................................... (349) (32)
--------------- ---------------
Net cash provided by (used in) financing activities............ $ 2,755 $ (15,887)
--------------- ---------------
Increase (decrease) in unrestricted cash and equivalents.......................... -- --
Unrestricted cash and equivalents, beginning of period............................ -- --
--------------- ---------------
Unrestricted cash and equivalents, end of period.................................. $ -- $ --
=============== ===============
</TABLE>
See notes to consolidated interim financial statements (unaudited).
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<PAGE> 6
BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 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 six-month period ended
September 30, 1999, are not necessarily indicative of the results to be expected
for the full fiscal year ending March 31, 2000.
2. 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 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 three-month and six-month
periods ended September 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 periods ended September 30, 1999.
3. 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 six-month period ended
September 30, 1999, approximately $2.3 million 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.
4. 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
SECTION ENTITLED "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 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"). During fiscal 1998 and prior years, 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. To the extent the Company continues to
have product sales, such product sales are typically 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.
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<PAGE> 8
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 which was contingent on the achievement of certain
stock market thresholds 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:
<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, 1999 30, 1999
--------------------- ----------------- COMPARED TO COMPARED TO
THREE MONTHS SIX MONTHS
ENDED SEPT. ENDED SEPT.
1999 1998 1999 1998 30, 1998 30, 1998
---- ---- ---- ---- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Contract revenue.................... 77.9% 50.0% 75.5% 48.7% 13.5% 17.7%
Product sales....................... 22.1 50.0 24.5 51.3 (67.8) (63.8)
Total revenue.................... 100.0 100.0 100.0 100.0 (27.1) (24.2)
Direct costs:
Contract costs (as a % of
contract revenue)................ 65.5 65.9 65.2 65.3 12.8 17.5
Cost of product sales (as a %
of product sales)................ 95.9 96.6 96.7 96.7 (68.0) (63.7)
Total direct costs (as a %
of total revenue)............. 72.2 81.2 72.9 81.2 (35.2) (31.9)
Indirect, general and administrative
expenses............................ 23.5 16.9 23.2 17.2 1.5 2.4
Amortization expense................... 0.3 0.2 0.3 0.2 (3.3) (1.4)
Operating income....................... 4.0 1.7 3.6 1.4 74.1 101.9
Interest expense....................... 0.7 1.0 0.7 1.5 (46.4) (65.2)
Equity in earnings of affiliate ....... -- 0.0 -- 0.0 (A) (A)
Gain (loss) on sale of investments..... -- (0.4) -- 0.4 (A) (A)
Income from continuing operations
before income taxes................. 3.3 0.3 2.9 0.3 763.6 709.8
Income tax expense..................... 1.4 0.1 1.3 0.1 840.1 783.7
Income from continuing operations...... 1.9 0.2 1.6 0.2 712.7 660.8
Loss from discontinued operations, net. (0.2) (0.1) (0.1) (0.1) 121.8 8.4
Net income............................. 1.7 0.1 1.5 0.1 1,045.2 1,060.0
</TABLE>
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(A) There was no expense or income in the comparison period.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1998
During the three months ended September 30, 1999, there was a net decrease
in revenue of $23.8 million, or 27.1%, from the three months ended September 30,
1998. Contract revenue increased $5.9 million and was offset by a decrease of
$29.7 million attributable to product sales. The decrease in product sales was
primarily due to the sale to Government Technology Services, Inc. ("GTSI") of
substantially all of the Product Reselling Business (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
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<PAGE> 9
BTG's Product Reselling Business in a prior year which were subcontracted to
GTSI as part of the GTSI Transaction (the "Royalty Contracts"). During fiscal
1999, the Company entered into an agreement to novate these contracts to GTSI.
In the three months ended September 30, 1999, approximately 90.4% of the
Company's revenue was derived from contracts or subcontracts with and product
sales to the Government, as compared with 93.6% for the three months ended
September 30, 1998.
Direct costs, expressed as a percentage of total revenue, decreased from
81.2% for the three months ended September 30, 1998 to 72.2% for the three
months ended September 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 decreased slightly from 65.9%
in the three months ended September 30, 1998 to 65.5% in the three months ended
September 30, 1999. Cost of product sales as a percentage of product sales also
decreased slightly from 96.6% in the three months ended September 30, 1998 to
95.9% in the three months ended September 30, 1999. Included in cost of product
sales for the three months ended September 30, 1999 was a $325,000 addition to
the Company's reserve for anticipated warranty costs. This warranty reserve is
related to computer hardware products sold by the Company's product reselling
division 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 September 30,1999 increased $215,000, or 1.5%, from the
same period in 1998. This increase was due primarily to incremental expenses
associated with the acquisition of STAC. Expressed as a percentage of total
revenues, indirect, general and administrative expenses increased for the three
months ended September 30, 1999 to 23.5% from 16.9% in the three months ended
September 30, 1998, principally due to the decreased proportion of total revenue
derived from product sales. As a percentage of contract revenues, these costs
decreased during the three months ended September 30, 1999 from 33.8% to 30.2%
when compared to the three months ended September 30, 1998.
Amortization expense during the three months ended September 30, 1999,
which includes the amortization of goodwill and other intangible assets,
remained fairly consistent with the amount reported in the comparable period of
the prior year.
Interest expense for the three months ended September 30, 1999 decreased by
$388,000 or 46.4%, from the comparable period of the prior year. This decrease
was due to a 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 a result of the
GTSI Transaction, 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 September 30,
1999, from 40.1% in the comparable period of the prior year.
The Company recognized a loss of $116,000, net of income taxes, during the
three-month period ended September 30, 1999 from the final disposal of the
Company's retail computer store outlet.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH SIX MONTHS ENDED SEPTEMBER 30,
1998
During the six months ended September 30, 1999, the Company experienced a
net decrease in revenues of $41.5 million, or 24.2%, as compared with the six
months ended September 30, 1998. A contract revenue increase of $14.8 million
was offset by a decrease of $56.3 million attributable to product sales.
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<PAGE> 10
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, 1999, approximately 92.7% of the Company's revenues
were derived from contracts or subcontracts with and product sales to the
Government, as compared with 94.3% for the six months ended September 30, 1998.
Direct costs, expressed as a percentage of total revenues, decreased from
81.2% for the six months ended September 30, 1998 to 72.9% for the six months
ended September 30, 1999. Contract costs as a percentage of contract revenue
were virtually unchanged at 65.3% in the six months ended September 30, 1998
versus 65.2% in the six months ended September 30, 1999. Cost of product sales
as a percentage of product sales also were constant, increasing slightly from
96.4% in the six months ended September 30, 1998 to 96.7% in the six months
ended September 30, 1999 due. Included in cost of product sales for the six
months ended September 30, 1999 was a $778,000 addition to the Company's reserve
for anticipated warranty costs. This warranty reserve is related to computer
hardware products sold by the Company's product reselling division prior to the
GTSI Transaction.
Indirect, general and administrative expenses for the six months ended
September 30, 1999 increased by $705,000, or 2.4%, from the same period in 1998.
This increase was primarily due to incremental expenses associated with the
acquisition of STAC. Expressed as a percentage of total revenues, indirect,
general and administrative expenses increased for the six months ended September
30, 1999 to 23.2% from 17.2% in the six months ended September 30, 1998. This
increase is principally due to the decreased proportion of total revenue derived
from product sales. As a percentage of contract revenues, these costs decreased
during the six months ended September 30, 1999 from 35.4% to 30.8% when compared
to the three months ended September 30, 1998.
Amortization expense was relatively unchanged when comparing the six months
ended September 30, 1999 to the same period for 1998.
Interest expense for the six months ended September 30, 1999 decreased by
$1.6 million, or 65.2%, 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 line of
credit borrowings was primarily generated from the collection of outstanding
receivables. Due to the GTSI Transaction, receivables which were generated by
the Company's Product Reselling Business were not replaced with new receivables
and, thus, the collection of these amounts resulted in a permanent decrease to
the Company's working capital needs.
Income tax expense, as a percentage of income from continuing operations
before income taxes, was 43.5% in the six months ended September 30, 1999, as
compared to 39.9% for the comparable period of the prior year.
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.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $254,000 was provided by operating activities during the six
months ended September 30, 1999. This largely resulted from an increase in
outstanding receivables of $8.4 million, offset by net income of $2.0 million,
depreciation and amortization of $1.1 million, and increases in accounts payable
and accrued expenses of $5.2 million, all of which are reflective of the
Company's increased contract revenue volumes.
Investing activities used cash of approximately $3.0 million during the six
months ended September 30, 1999, all of which related to the purchase of
property and equipment. This was principally attributable to the Company's
implementation of 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 six-month period ended September 30, 1999, approximately
$2.3 million of costs associated with the acquisition and development of the
system have been capitalized. The Company believes that the system will be fully
implemented and in use during the quarter ending December 31, 1999.
During the six months ended September 30, 1999, the Company's financing
activities provided cash of approximately $2.8 million. This resulted primarily
from $4.2 million in borrowings under the Company's revolving line of credit
facility offset by $1.3 million used to reduce outstanding promissory notes
payable and $349,000 used for the purchase of treasury stock. In addition, the
Company received proceeds of $194,000 from the issuance of common stock under
certain employee benefit plans.
As of September 30, 1999, working capital was $30.8 million, compared to
$26.9 million at March 31, 1999. At September 30, 1999, the Company had
approximately $11.0 million available for borrowing under its revolving line of
credit facility. The Company believes that funds available under its credit
facility will be sufficient to fund the Company's cash requirements for the next
12 months.
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.
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<PAGE> 12
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 and during fiscal
1999, 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 completed
remediation of all critical internal systems in 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 $261,000, out of a total
information technology budget of $6.2 million. This figure has been revised
downward from the previous quarterly estimate due to lower than anticipated
costs for server and desktop remediation. 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 be materially adversely affected
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 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
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<PAGE> 13
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
"workarounds" 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.
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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
At the Company's Annual Meeting of Shareholders held on September 9,
1999, the following proposals were adopted by the margins indicated:
1. To elect two nominees for Director:
For Withheld Authority
Ruth M. Davis 7,603,430 113,776
Raymond T. Tate 7,605,905 111,301
The following Directors continued their terms of office: Edward
H. Bersoff, Alan G. Merten, Ronald L. Turner, Donald M. Wallach,
and Earle C. Williams.
2. To approve amendments to the Directors Stock Option Plan to
increase the number of option shares issuable per year to each
eligible director to 2,500 and to increase the option price from
the fair market value of the stock on the date of the grant to
110% of such fair market value:
For 5,227,747
Against 722,355
Abstain 1,709,186
3. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending March
31, 2000:
For 7,701,103
Against 9,340
Abstain 6,763
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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 Amended and Restated Directors Stock Option Plan.
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
B. REPORTS ON FORM 8-K
August 4, 1999 BTG reported that KPMG LLP's appointment as
August 20, 1999 certifying accountants was terminated and
Deloitte & Touche LLP was engaged as certifying
accountants.
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<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 15, 1999
/s/ Todd A. Stottlemyer
------------------------------------------
Todd A. Stottlemyer
Duly Authorized Signatory and
Chief Financial and Administrative Officer
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<PAGE> 1
EXHIBIT 10.1
BTG, INC.
DIRECTORS STOCK OPTION PLAN
AMENDED AND RESTATED AS OF DECEMBER 17, 1998
BTG, INC., a Virginia corporation (the "Corporation"), sets forth herein
the terms of the Directors Stock Option Plan (the "Plan") as follows:
1. PURPOSE
1.1. The Plan is intended to attract and retain the best possible
members of the Board and to provide additional incentives to those directors to
promote the success of the Corporation. The Plan provides Eligible Directors an
opportunity to purchase shares of the Stock pursuant to Options. Options granted
under the Plan shall not constitute "incentive stock options" within the meaning
of Section 422 of the Code.
1.2. The Plan is intended to constitute a "formula plan" and Eligible
Directors are intended to be "disinterested administrators" of other plans
maintained by the Corporation for purposes of Rule 16b-3 under the Exchange Act.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Stock Option Agreements), the following definitions shall apply:
2.1. "Additional Option" means any Option other than an Initial Option.
2.2. "Administrator" means the Chief Financial Officer of the
Corporation or such other person as is appointed by the Board to serve as
Administrator.
2.3. "Board" means the board of directors of the Corporation.
2.4. "Code" means the Internal Revenue Code of 1986, as amended.
2.5. "Commencement of Service" means the date of election of the
Eligible Director to his or her first term as a Director.
2.6. "Corporation" means BTG, Inc., a Virginia corporation.
2.7. "Effective Date" means the date of adoption of the Plan by the
Board.
2.8. "Eligible Director" means a member of the Board who is not an
officer or employee of the Corporation or any of its subsidiaries.
2.9. "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or hereafter amended.
2.10. "Exercise Price" means the Option Price multiplied by the number
of shares of Stock purchased pursuant to exercise of an Option.
2.11. "Expiration Date" means the tenth anniversary of the Grant Date
or, if earlier, the termination of the Option pursuant to Section 4.2(c) hereof.
2.12. "Fair Market Value" means the value of each share of Stock subject
to the Plan determined as follows: If on the Grant Date or other determination
date the Stock is listed on an established national or regional stock exchange,
is admitted to quotation on the National
<PAGE> 2
Association of Securities Dealers Automated Quotation System, or is publicly
traded on an established securities market, the Fair Market Value of the Stock
shall be the closing price of the Stock on such exchange or in such market (the
highest such closing price if there is more than one such exchange or market) on
the trading day immediately preceding the Grant Date or other determination date
(or, if there is no such reported closing price, the Fair Market Value shall be
the mean between the highest bid and lowest asked prices or between the high and
low sale prices on such trading day), or, if no sale of the Stock is reported
for such trading day, on the next preceding day on which any sale shall have
been reported. If the Stock is not listed on such an exchange, quoted on such
system or traded on such a market, Fair Market Value shall be determined by the
Administrator in good faith.
2.13. "Grant Date" means the date on which an Option grant takes effect
pursuant to Section 7 hereof.
2.14. "Initial Option" means an Option received by each Eligible
Director as of the Effective Date or thereafter as of an Eligible Director's
Commencement of Service.
2.15. "Option" means any option to purchase one or more shares of Stock
pursuant to the Plan, including both Initial Options and Additional Options.
2.16. "Optionee" means an Eligible Director who holds an Option.
2.17. "Option Period" means the period during which Options may be
exercised as defined in Section 9 hereof.
2.18. "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.19. "Securities Act" means the Securities Act of 1933, as now in
effect or as hereafter amended.
2.20. "Stock" means the Common Stock of the Corporation.
2.21. "Stock Option Agreement" means the written agreement evidencing
grant of an Option hereunder.
3. ADMINISTRATION
The Plan shall be administered by the Administrator. The Administrator's
responsibilities under the Plan shall be limited to taking all legal actions
necessary to document the Options provided herein, to maintain appropriate
records and reports regarding those Options, and to take all acts authorized or
required by the Plan.
4. STOCK SUBJECT TO THE PLAN
4.1. Options to purchase not more than 100,000 shares of the Stock may
be granted under the Plan. If any Option expires, terminates or is terminated or
cancelled for any reason before it is exercised in full, the shares of Stock
that were subject to the unexercised portion of the Option shall be available
for future Options granted under the Plan.
4.2(a). If the outstanding shares of Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable on capital stock, or other increase
or decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the Effective Date, the number and kinds of shares
for the purchase of which Options
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<PAGE> 3
may be granted under the Plan shall be adjusted proportionately and accordingly
by the Corporation. In addition, the number and kind of shares for which Options
are outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised portion
of the Option outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share.
4.2(b). Subject to Section 4.2(c) hereof, if the Corporation shall be
the surviving corporation in any reorganization, merger or consolidation of the
Corporation with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger or consolidation.
4.2(c). Upon the dissolution or liquidation of the Corporation, or upon
a merger, consolidation or reorganization of the Corporation with one or more
other corporations in which the Corporation is not the surviving corporation, or
upon a sale of substantially all of the assets of the Corporation to another
corporation, or upon any transaction (including, without limitation, a merger or
reorganization in which the Corporation is the surviving corporation) approved
by the Board which results in any person or entity owning 80 percent or more of
the combined voting power of all classes of stock of the Corporation, the Plan
and all Options outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan, the assumption of the Options theretofore granted, or
for the substitution for such Options of new options covering the stock of a
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares and exercise prices, in which
event the Plan (if applicable) and Options theretofore granted shall continue in
the manner and under the terms so provided. In the event of any such termination
of the Plan and Options, each individual holding an Option shall have the right
(subject to the limitations on exercise set forth in Section 9 below)
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Board in its sole discretion shall
determine and designate, to exercise such Option to the extent that such Option
was otherwise exercisable at the time such termination occurs. The Administrator
shall send written notice of an event that will result in such a termination to
all individuals who hold Options not later than the time at which the
Corporation gives notice thereof to its stockholders.
4.2(d). Adjustments under this Section 4.2 related to stock or
securities of the Corporation shall be made by the Administrator, whose
determination in that respect shall be final and conclusive. No fractional
shares of Stock or units of other securities shall be issued pursuant to any
such adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
4.2(e). The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
5. ELIGIBILITY
Eligibility under the Plan is limited to Eligible Directors.
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<PAGE> 4
6. OPTION PRICE
The Option Price of the Stock covered by each Option granted under the
Plan prior to December 17, 1998 shall be the Fair Market Value of such Stock on
the Grant Date. The Option Price of the Stock covered by each Option granted
under the Plan, on or after December 17, 1998, shall be 110% of the Fair Market
Value of such Stock on the Grant Date. The Option Price shall be subject to
adjustment as provided in Section 4.2 hereof.
7. NUMBER OF SHARES AND GRANT DATES
On the Effective Date, each Eligible Director then serving on the Board
shall be granted an Initial Option to purchase shares of Stock, the number of
shares of which will vary depending upon each Eligible Director's years of
service as a director of the Corporation as of the time of the Effective Date,
as follows: (1) more than seven years of service - 2,500 shares; (2) between
three and seven years of service - 2,000 shares; (3) between zero and three
years of service - 1,500 shares; and (4) no service - 1,000 shares. Prior to
December 17, 1998, each Eligible Director whose Commencement of Service is after
the Effective Date shall be granted an Initial Option to purchase 1,000 shares
of Stock as of the date of the Eligible Director's Commencement of Service. An
Eligible Director also shall be granted an Additional Option to purchase 1,000
shares of Stock on each anniversary of the Grant Date of the Initial Option if
the Eligible Director continues to be an Eligible Director on each of those
anniversary dates. (On or after December 17, 1998, the amount subject to grant
shall be amended as follows: each Eligible Director whose Commencement of
Service is on or after December 17, 1998 shall be granted an Initial Option to
purchase 2,500 shares of Stock as of the date of the Eligible Director's
Commencement of Service. Each Eligible Director also shall be granted an
Additional Option to purchase 2,500 shares of Stock on each anniversary of the
Grant Date of the Initial Option if the Eligible Director continues to be an
Eligible Director on each of those anniversary dates.)
8. VESTING OF OPTIONS
Subject to Section 9 hereof, the Options granted to each Eligible
Director shall be vested upon the Grant Date.
9. OPTION PERIOD
An Option shall be exercisable only during the Option Period. The Option
Period shall commence six months after the Grant Date and shall end at the close
of business on the Expiration Date; provided, however, that in no event shall
any Option Period commence prior to approval of the Plan by the Corporation's
stockholders. The Option granted to an Eligible Director will terminate on the
Expiration Date.
10. TIMING AND METHOD OF EXERCISE
Subject to Sections 8 and 9 hereof, an Optionee may, at any time,
exercise an Option with respect to all or any part of the shares of Stock then
subject to such Option by giving the Corporation written notice of exercise,
specifying the number of shares as to which the Option is being exercised. Such
notice shall be addressed to the Administrator at the Corporation's principal
office, and shall be effective when actually received (by personal delivery, fax
or other delivery) by the Administrator. Such notice shall be accompanied by an
amount equal to the Exercise Price of such shares, in the form of any one or
combination of the following: (a) cash or cash equivalents, or (b) shares of
Stock valued at Fair Market Value in accordance with the Plan; provided,
however, that the Board may in its discretion impose and set forth in the Option
Agreement pertaining to an Option such limitations or prohibitions on the use of
shares of Stock to exercise Options as it deems appropriate. Shares of Stock
acquired by the Optionee through exercise of an Option may be surrendered in
payment of the Exercise Price of Options; provided, however, that any Stock
surrendered in payment must have been (a) held by the
4
<PAGE> 5
Optionee for more than six months at the time of surrender, or (b) acquired
under an Option granted not less than six months prior to the time of surrender.
Payment in full of the Exercise Price need not accompany the written notice of
exercise provided the notice directs that the Stock certificate or certificates
for the shares for which the Option is exercised be delivered to a licensed
broker acceptable to the Corporation as the agent for the individual exercising
the Option and, at the time such Stock certificate or certificates are
delivered, the broker tenders to the Corporation cash (or cash equivalents
acceptable to the Corporation) equal to the Exercise Price.
11. NO STOCKHOLDER RIGHTS UNDER OPTION
Neither an Optionee nor any person entitled to exercise an Optionee's
rights in the event of an Optionee's death shall have any of the rights of a
stockholder with respect to the shares of Stock subject to an Option except to
the extent the certificates for such shares shall have been issued upon the
exercise of the Option.
12. CONTINUATION OF SERVICE
Nothing in the Plan shall confer upon any person any right to continue
as a member of the Board or interfere in any way with the right of the
Corporation to terminate such relationship.
13. STOCK OPTION AGREEMENT
Each Option granted pursuant to the Plan shall be evidenced by a written
Stock Option Agreement notifying the Optionee of the grant and incorporating the
terms of the Plan. The Stock Option Agreement shall be executed by the
Corporation and the Optionee.
14. WITHHOLDING
The Corporation shall have the right to withhold, or require an Optionee
to remit to the Corporation, an amount sufficient to satisfy any applicable
federal, state or local withholding tax requirements imposed with respect to
exercise of Options. To the extent permissible under applicable tax, securities
and other laws, the Optionee may satisfy a tax withholding requirement by
directing the Corporation to apply shares of Stock to which the Optionee is
entitled as a result of the exercise of an Option to satisfy withholding
requirements under this Section 14.
15. NON-TRANSFERABILITY OF OPTIONS
Each Option granted pursuant to the Plan shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither the Option nor any right
thereunder shall be transferable by the Optionee by operation of law or
otherwise other than by will or the laws of descent and distribution, and shall
not be pledged or hypothecated (by operation of law or otherwise) or subject to
execution, attachment or similar processes.
16. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock pursuant
to Options granted under the Plan shall constitute general funds of the
Corporation.
17. ADOPTION, AMENDMENT, SUSPENSION AND TERMINATION
17.1. The Plan shall be effective as of the date of adoption by the
Board, subject to stockholders' approval of the Plan within one year of the
Effective Date by a majority of the votes cast at a duly held meeting of the
stockholders of the Corporation at which a quorum representing a majority of all
outstanding stock is present, either in person or by proxy, and voting on the
matter, or by written consent in accordance with applicable state law and the
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
of the
5
<PAGE> 6
Corporation and in a manner that satisfies the requirements of Rule 16b-3(b) of
the Exchange Act; provided, however, that upon approval of the Plan by the
stockholders of the Corporation, all Options granted under the Plan on or after
the Effective Date shall be fully effective as if the stockholders of the
Corporation had approved the Plan on the Effective Date. If the stockholders
fail to approve the Plan within one year of the Effective Date, any Options
granted hereunder shall be null, void and of no effect.
17.2. Subject to the limitation of Section 17.4 hereof, the Board may at
any time suspend or terminate the Plan, and may amend it from time to time in
such respects as the Board may deem advisable; provided, however, the Board
shall not amend the Plan in the following respects without the approval of
stockholders then sufficient to approve the Plan in the first instance:
(a) To materially increase the benefits provided under the Plan;
(b) To increase the maximum number of shares which may be granted;
(c) To change the designation or class of persons eligible to receive
Options under the Plan.
17.3. No Option may be granted during any suspension or after the
termination of the Plan, and no amendment, suspension or termination of the Plan
shall, without the Optionee's consent, alter or impair any rights or obligations
under any Stock Option Agreement previously entered into under the Plan. The
Plan shall terminate ten years after the Effective Date unless previously
terminated pursuant to Section 4.2 hereof or by the Board pursuant to this
Section 17.
17.4. Notwithstanding the provisions of Section 17.2 hereof, the Plan
shall not be amended more than once in any six-month period other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, or the rules promulgated thereunder.
18. SECURITIES LAWS
18.1. The Corporation shall not be required to sell or issue any shares
of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the individual exercising the Option or the
Corporation of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. Specifically in connection with the Securities Act, upon exercise
of any Option, unless a registration statement under the Securities Act is in
effect with respect to the shares of Stock covered by such Option, the
Corporation shall not be required to sell or issue such shares unless the
Administrator has received evidence satisfactory to the Administrator that the
holder of such Option may acquire such shares pursuant to an exemption from
registration under the Securities Act. Any determination in this connection by
the Administrator shall be final and conclusive. The Corporation may, but shall
in no event be obligated to, register any securities covered hereby pursuant to
the Securities Act. The Corporation shall not be obligated to take any
affirmative action in order to cause the exercise of an Option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable unless and until the shares
of Stock covered by such Option are registered or are subject to an available
exemption from registration, the exercise of such Option (under circumstances in
which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
18.2. The intent of the Plan is to qualify for the exemption provided by
Rule 16b-3 under the Exchange Act. To the extent any provision of the Plan does
not comply with the
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<PAGE> 7
requirements of Rule 16b-3, it shall be deemed inoperative and shall not affect
the validity of the Plan. In the event Rule 16b-3 is revised or replaced, the
Administrator may exercise discretion to modify the Plan in any respect
necessary to satisfy the requirements of the revised exemption or its
replacement.
19. INDEMNIFICATION
19.1. To the extent permitted by applicable law, the Administrator shall
be indemnified and held harmless by the Corporation against and from any and all
loss, cost, liability or expense that may be imposed upon or reasonably incurred
by the Administrator in connection with or resulting from any claim, action,
suit or proceeding to which the Administrator may be a party or in which the
Administrator may be involved by reason of any action taken or failure to act
under the Plan, and against and from any and all amounts paid by the
Administrator (with the Corporation's written approval) in the settlement
thereof, or paid by the Administrator in satisfaction of a judgment in any such
action, suit or proceeding except a judgment in favor of the Corporation;
subject, however, to the conditions that upon the institution of any claim,
action, suit or proceeding against the Administrator, the Administrator shall
give the Corporation an opportunity in writing, at its own expense, to handle
and defend the same before the Administrator undertakes to handle and defend it
on the Administrator's own behalf. The foregoing right of indemnification shall
not be exclusive of any other right to which such person may be entitled as a
matter of law or otherwise, or any power the Corporation may have to indemnify
the Administrator or hold the Administrator harmless.
19.2. The Administrator and each officer and employee of the Corporation
shall be fully justified in reasonably relying or acting upon any information
furnished in connection with the administration of the Plan by the Corporation
or any employee of the Corporation. In no event shall any person who is or shall
have been the Administrator, or an officer or employee of the Corporation, be
liable for any determination made or other action taken or any omission to act
in reliance upon any such information, or for any action (including furnishing
of information) taken or any failure to act, if in good faith.
20. GOVERNING LAW
The validity, interpretation and effect of the Plan, and the rights of
all persons hereunder, shall be governed by and determined in accordance with
the laws of Virginia, other than the choice of law rules thereof.
The Plan was duly adopted and approved by the Board on August 30, 1995,
and was duly approved by the stockholders of the Corporation on August 14, 1996.
/s/ Marilynn D. Bersoff
-----------------------
Marilynn D. Bersoff
Secretary
The amended Plan was duly adopted and approved by the Board on December
17, 1998, and was duly approved by the stockholders of the Corporation on
September 9, 1999.
/s/ Marilynn D. Bersoff
-----------------------
Marilynn D. Bersoff
Secretary
7
<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,
------------------------------------------------------------------------
1999 1998 1999 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income from continuing operations $ 1,181 $ 145 $ 2,146 $ 282
============= ============ ============ ============
Weighted average common stock shares
outstanding during the period (used in
the calculation of basic per share results) 8,836 8,803 8,839 8,741
Dilutive effect of common stock options and
common stock purchase warrants 226 16 127 49
------------- ------------ ------------ ------------
Weighted average common stock and potentially
dilutive securities outstanding during the
period (used in the calculation of diluted
per share results) 9,062 8,819 8,966 8,790
============= ============ ============ ============
Basic earnings per share $ 0.13 $ 0.02 $ 0.24 $ 0.03
============= ============ ============ ============
Diluted earnings per share $ 0.13 $ 0.02 $ 0.24 $ 0.03
============= ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 63,217
<ALLOWANCES> 1,757
<INVENTORY> 105
<CURRENT-ASSETS> 68,864
<PP&E> 15,559
<DEPRECIATION> 8,428
<TOTAL-ASSETS> 99,562
<CURRENT-LIABILITIES> 38,058
<BONDS> 22,328
0
0
<COMMON> 54,390
<OTHER-SE> (16,504)
<TOTAL-LIABILITY-AND-EQUITY> 99,562
<SALES> 63,911
<TOTAL-REVENUES> 63,911
<CGS> 46,158
<TOTAL-COSTS> 46,158
<OTHER-EXPENSES> 15,060
<LOSS-PROVISION> 155
<INTEREST-EXPENSE> 448
<INCOME-PRETAX> 2,090
<INCOME-TAX> 909
<INCOME-CONTINUING> 1,181
<DISCONTINUED> (116)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,065
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
</TABLE>
