<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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)
<TABLE>
<S> <C>
VIRGINIA 54-1194161
- ----------------------------------------------- ----------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
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
---------------------
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 FEBRUARY 7, 2000
- ----------------------------- ------------------------------------------
COMMON STOCK 8,994,632
<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, December 31,
1999 (unaudited) and March 31, 1999 3
Consolidated Interim Statements of Operations for the
three months ended December 31, 1999 and 1998 and
the nine months ended December 31, 1999 and 1998 (unaudited) 4
Consolidated Interim Statements of Cash Flows for the nine
months ended December 31, 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 7-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13-14
SIGNATURES 15
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
--------------- ---------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Receivables, net.................................................................... $ 65,742 $ 53,281
Inventory, net...................................................................... 153 378
Prepaid expenses.................................................................... 1,595 2,786
Other............................................................................... 4,675 4,846
--------------- ---------------
Total current assets............................................................. $ 72,165 $ 61,291
--------------- ---------------
Property and equipment, net........................................................... 8,620 5,202
Goodwill, net......................................................................... 14,687 15,211
Restricted investments................................................................ 6,429 6,429
Notes receivable...................................................................... 1,750 1,500
Other ................................................................................ 878 744
--------------- ---------------
$ 104,529 $ 90,377
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................................................ $ -- $ 1,700
Accounts payable.................................................................... 14,939 18,203
Accrued expenses.................................................................... 13,337 11,050
Income taxes currently payable...................................................... 1,287 309
Other............................................................................... 4,267 3,134
--------------- ---------------
Total current liabilities....................................................... $ 33,830 $ 34,396
Line of credit........................................................................ 31,066 17,666
Other liabilities..................................................................... 1,147 2,304
--------------- ---------------
Total liabilities................................................................ $ 66,043 $ 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; 8,837,487
and 8,852,205 shares issued and outstanding at December 31, 1999 and
March 31, 1999, respectively, net of reacquired shares held in treasury............ 55,166 54,860
Accumulated deficit................................................................. (15,370) (18,534)
Treasury stock, at cost, 196,100 and 53,000 shares at December 31, 1999
and March 31, 1999 respectively.................................................... (1,310) (315)
--------------- ---------------
Total shareholders' equity....................................................... $ 38,486 $ 36,011
--------------- ---------------
$ 104,529 $ 90,377
=============== ===============
</TABLE>
See notes to consolidated interim financial statements (unaudited).
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<PAGE> 4
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue ............................. $ 48,248 $ 40,513 $ 146,613 $ 124,086
Product sales ................................ 11,100 43,518 42,982 131,708
--------- --------- --------- ---------
59,348 84,031 189,595 255,794
Direct costs:
Contract costs ............................... 31,682 25,931 95,830 80,507
Cost of product sales ........................ 10,261 42,233 41,087 127,206
--------- --------- --------- ---------
41,943 68,164 136,917 207,713
Indirect, general and administrative expenses .. 14,750 13,060 45,000 42,605
Amortization expense ........................... 177 145 525 498
Restructuring charges .......................... -- 1,532 -- 1,532
--------- --------- --------- ---------
56,870 82,901 182,442 252,348
Operating income ............................... 2,478 1,130 7,153 3,446
Interest expense, net .......................... (471) (787) (1,348) (3,305)
Gain on sales of investments, net .............. -- 640 -- 1,287
Unusual charge ................................. -- (1,201) -- (1,201)
Other expenses ................................. -- (179) -- (155)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes ......................... 2,007 (397) 5,805 72
Income tax expense (benefit) ................... 873 (177) 2,525 10
--------- --------- --------- ---------
Income (loss) from continuing operations ....... 1,134 (220) 3,280 62
Loss from discontinued operations,
net of income taxes ......................... -- (48) (116) (155)
--------- --------- --------- ---------
Net income (loss) .............................. $ 1,134 $ (268) $ 3,164 $ (93)
========= ========= ========= =========
Basic earnings (loss) per share:
Income (loss) from continuing operations ....... $ 0.13 $ (0.02) $ 0.36 $ 0.01
Loss from discontinued operations .............. -- (0.01) -- (0.02)
--------- --------- --------- ---------
Net income (loss) .............................. $ 0.13 $ (0.03) $ 0.36 $ (0.01)
========= ========= ========= =========
Diluted earnings (loss) per share:
Income (loss) from continuing operations ....... $ 0.13 $ (0.02) $ 0.35 $ 0.01
Loss from discontinued operations .............. -- (0.01) -- (0.02)
--------- --------- --------- ---------
Net income (loss) .............................. $ 0.13 $ (0.03) $ 0.35 $ (0.01)
========= ========= ========= =========
Weighted average shares outstanding (used in
the calculation of basic per share results) . 8,839 8,796 8,839 8,760
========= ========= ========= =========
Weighted average shares outstanding (used in
the calculation of diluted per share results) 9,029 8,796 8,982 8,760
========= ========= ========= =========
</TABLE>
See notes to consolidated interim financial statements (unaudited).
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<PAGE> 5
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................... $ 3,164 $ (93)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Loss on discontinued operations ....................................... 116 155
Depreciation and amortization ......................................... 1,643 1,758
Deferred income taxes ................................................. -- (380)
Reserves for accounts receivable and inventory ........................ 357 1,479
Loss on sale or disposal of property and equipment .................... 84 --
Gain on sale of investments ........................................... -- (1,287)
Unusual charge ........................................................ -- 1,706
Equity in earnings of unconsolidated affiliate ........................ -- (24)
Changes in assets and liabilities, net of the effects from purchases of
subsidiaries:
(Increase) decrease in receivables ................................... (12,728) 68,134
(Increase) decrease in inventory ..................................... (116) 1,012
(Increase) decrease in income taxes receivable ....................... 12 8,994
(Increase) decrease in prepaid expenses and other current assets ..... 1,350 3,397
(Increase) decrease in other assets .................................. (182) 346
Increase (decrease) in accounts payable .............................. (3,264) (57,196)
Increase (decrease) in accrued expenses .............................. 2,287 (1,219)
Increase (decrease) in other liabilities ............................. 1,035 (1,702)
-------- --------
Net cash provided by (used in) operating activities of
continuing operations ...................................... (6,242) 25,080
Net cash provided by (used in) discontinued operations ............ 135 (274)
-------- --------
Net cash provided by (used in) operating activities .. $ (6,107) $ 24,806
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ................................... (4,573) (466)
Purchases of notes receivable ......................................... (250) --
Proceeds from sale of investments ..................................... -- 26,108
-------- --------
Net cash provided by (used in) investing activities ... $ (4,823) $ 25,642
-------- --------
Cash flows from financing activities:
Net advances (repayments) under line of credit ........................ 13,400 (36,871)
Principal payments on long-term debt and capital lease obligations .... (1,781) (15,070)
Proceeds from the issuance of common stock ............................ 306 1,807
Purchase of treasury stock ............................................ (995) (314)
-------- --------
Net cash provided by (used in) financing activities .. $ 10,930 $(50,448)
-------- --------
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
DECEMBER 31, 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 nine-month period ended
December 31, 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 nine-month
periods ended December 31, 1999. Accordingly, there are no interim period
disclosure requirements relevant to the financial reporting periods ended
December 31, 1999. Due to the divestiture of this product reselling division in
February 1998, the Company anticipates that there will be no future operating
activity in this reportable segment.
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 have been capitalized. Training costs and costs to
reengineer business processes have been expensed as incurred. During the
nine-month period ended December 31, 1999, approximately $4 million of costs
associated with the acquisition and development of the system have been
capitalized. The development of the system was completed during the three-month
period ended December 31, 1999 and the system was placed into operation.
Accordingly, the Company began amortizing the associated capitalized costs over
the estimated useful life of the asset, ten years.
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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<PAGE> 7
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
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 NINE MONTHS
THREE MONTHS ENDED NINE MONTHS ENDED ENDED DEC. ENDED DEC.
DECEMBER 31, DECEMBER 31, 31, 1999 31, 1999
--------------------- ------------------- COMPARED TO COMPARED TO
THREE MONTHS NINE MONTHS
ENDED DEC. ENDED DEC.
1999 1998 1999 1998 31, 1998 31, 1998
------- ------- -------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Contract revenue....................... 81.3% 48.2% 77.3% 48.5% 19.1% 18.2%
Product sales.......................... 18.7 51.8 22.7 51.5 (74.5) (67.4)
Total revenue....................... 100.0 100.0 100.0 100.0 (29.4) (25.9)
Direct costs:
Contract costs (as a % of
contract revenue)................... 65.7 64.0 65.4 64.9 22.2 19.0
Cost of product sales (as a %
of product sales)................... 92.4 97.0 95.6 96.6 (75.7) (67.7)
Total direct costs (as a %
of total revenue)................ 70.7 81.1 72.2 81.2 (38.5) (34.1)
Indirect, general and administrative
expenses............................... 24.9 15.5 23.7 16.7 12.9 5.6
Amortization expense...................... 0.3 0.2 0.3 0.2 22.1 5.4
Restructuring charges..................... -- 1.8 -- 0.6 (B) (B)
Operating income....................... 4.2 1.3 3.8 1.3 119.3 107.6
Interest expense.......................... 0.8 0.9 0.7 1.3 (40.2) (59.2)
Gain on sales of investments, net......... -- 0.8 -- 0.5 (B) (B)
Unusual charge............................ -- 1.4 -- 0.5 (B) (B)
Other expenses............................ -- 0.2 -- 0.1 (B) (B)
Income/loss from continuing
operations before income taxes...... 3.4 0.5 3.1 (A) 605.5 (C)
Income tax expense/benefit................ 1.5 0.2 1.3 (A) 593.2 (C)
Income/loss from continuing
operations.......................... 1.9 0.3 1.7 (A) 615.5 (C)
Loss from discontinued operations, net.... -- 0.1 0.1 (A) (B) (25.2)
Net income/loss........................ 1.9 0.3 1.7 (A) 523.1 (C)
</TABLE>
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(A) This percentage is less than 0.05%.
(B) There was no expense or income for this item in the comparison period.
(C) The percentage year-to-year increase is in excess of 1000%.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1998
During the three months ended December 31, 1999, there was a net decrease
in revenue of $24.7 million, or 29.4%, from the three months ended December 31,
1998. Contract revenue increased $7.7 million and was offset by a decrease of
$32.4 million attributable to product sales. The increase in contract revenue
was due to the award of new contracts and to revenue generated from contracts
acquired in connection with the acquisition of STAC, Inc. ("STAC") in January
1999. The decrease in product sales was primarily due to the sale, in February
1998, 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 December 31, 1998 was $30.7 million of
revenue resulting from certain contracts awarded to BTG's Product Reselling
Business in a prior year which were subcontracted to GTSI as part of the GTSI
Transaction (the "Royalty Contracts"). In February 1999, the Company entered
into an agreement to novate these contracts to GTSI. In the three months ended
December 31, 1999, approximately 91.4% of the Company's revenue was derived from
contracts or subcontracts with and product sales to the Government, as compared
with 92.9% for the three months ended December 31, 1998.
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<PAGE> 9
Direct costs, expressed as a percentage of total revenue, decreased from
81.1% for the three months ended December 31, 1998 to 70.7% for the three months
ended December 31, 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 64.0%
in the three months ended December 31, 1998 to 65.7% in the three months ended
December 31, 1999. Cost of product sales as a percentage of product sales
decreased from 97.0% in the three months ended December 31, 1998 to 92.4% in the
three months ended December 31, 1999 principally as the result of the product
sales revenue recognized from the Royalty Contracts in the three months ended
December 31, 1998. BTG received a fee of approximately 1% on sales made under
the Royalty Contracts.
Indirect, general and administrative expenses include the costs of
indirect labor, fringe benefits, overhead, sales and administration, bid and
proposal, and research and development. Indirect, general and administrative
expenses for the three months ended December 31, 1999 increased $1.7 million, or
12.9%, from the same period in 1998. This increase was due, in large part, to
the additional indirect expenses associated with STAC's operations. Expressed as
a percentage of total revenues, indirect, general and administrative expenses
increased for the three months ended December 31, 1999 to 24.9% from 15.5% in
the three months ended December 31, 1998, principally due to the decreased
proportion of total revenue derived from product sales. Indirect, general and
administrative expenses, when compared to the three months ended September 30,
1999, decreased by approximately $290,000 during the three months ended December
31, 1999. As a percentage of contract revenue, these costs decreased during the
three months ended December 31, 1999 from 32.2% to 30.6% when compared to the
three months ended December 31, 1998.
Amortization expense, which includes the amortization of goodwill and
other intangible assets, increased $32,000 during the three months ended
December 31, 1999 as compared with the comparable period of the prior year. This
slight increase was due to additional goodwill recorded in connection with the
acquisition of STAC offset by the expiration of the amortization periods for
certain other intangible assets.
Interest expense for the three months ended December 31, 1999 decreased by
$316,000 or 40.2%, 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, was 43.5% in the three months ended December 31, 1999. Due
to the pre-tax loss experienced by the Company in the three months ended
December 31, 1998, the Company experienced an income tax benefit, which as a
percentage of the loss from continuing operations before income taxes, was
44.6%.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH NINE MONTHS ENDED DECEMBER 31,
1998
During the nine months ended December 31, 1999, the Company experienced a
net decrease in revenues of $66.2 million, or 25.9%, as compared with the nine
months ended December 31, 1998. A contract revenue increase of $22.5 million was
offset by a decrease of $88.7 million in product sales. The decrease in product
sales was primarily due to the GTSI Transaction. Included in product sales
during the nine months ended December 31, 1998 was $93.6 million of revenue
resulting from the Royalty Contracts. In the nine months ended December 31,
1999, approximately 92.5% of the Company's revenues were derived from contracts
or subcontracts with and product sales to the Government, as compared with 93.1%
for the nine months ended December 31, 1998.
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<PAGE> 10
Direct costs, expressed as a percentage of total revenues, decreased from
81.2% for the nine months ended December 31, 1998 to 72.2% for the nine months
ended December 31, 1999. Contract costs as a percentage of contract revenue
increased slightly to 65.4% in the nine months ended December 31, 1999 from
64.9% in the nine months ended December 31, 1998. Cost of product sales as a
percentage of product sales decreased slightly from 96.6% in the nine months
ended December 31, 1998 to 95.6% in the nine months ended December 31, 1999. The
increase in gross margins from product sales is attributable to the significant
amount of revenue derived from the Royalty Contracts in the fiscal 1999 period
for which BTG earned gross margins of approximately 1% offset by additional
product warranty costs recorded during the fiscal 2000 period. Included in cost
of product sales for the nine months ended December 31, 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 nine months ended
December 31, 1999 increased by $2.4 million, or 5.6%, from the same period in
1998. This increase was due, in large part, to the additional indirect expenses
associated with STAC's operations. Expressed as a percentage of total revenues,
indirect, general and administrative expenses increased for the nine months
ended December 31, 1999 to 23.7% from 16.7% in the nine months ended December
31, 1998. This increase is principally due to the decreased proportion of total
revenue derived from product sales. As a percentage of contract revenue, these
costs decreased during the nine months ended December 31, 1999 from 34.3% to
30.7% when compared to the nine months ended December 31, 1998.
Amortization expense was relatively unchanged when comparing the nine
months ended December 31, 1999 to the same period for 1998.
Interest expense for the nine months ended December 31, 1999 decreased by
$2.0 million, or 59.2%, from the comparable period of the prior year. This
decrease was due to a significantly lower average balance outstanding under the
Company's working capital 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. In
addition, the decrease to the Company's interest costs during the nine months
ended December 31, 1998, as compared to the same period of 1998, was offset by
the financing costs associated with debt issued in connection with the
acquisition of STAC.
Income tax expense, as a percentage of income from continuing operations
before income taxes, was 43.5% in the nine months ended December 31, 1999. The
Company's effective tax rate is dependent on a variety of factors including
statutory income tax rates established by regulatory authorities and certain of
the Company's expenses which are not deductible for tax return purposes. The
effective tax rate of the Company for the nine months ended December 31, 1999
differs from applicable statutory tax rates principally as the result of
non-deductible amortization expense.
The Company recognized a loss of $116,000, net of income taxes, during the
nine months ended December 31, 1999 from the final disposal of the Company's
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.
- 10 -
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $6.1 million was used in operating activities during the nine
months ended December 31, 1999. This largely resulted from an increase in
outstanding receivables of $12.7 million and a net decrease of $1.0 million in
accounts payable and accrued expenses, offset by net income of $3.2 million,
depreciation and amortization of $1.6 million, and a decrease in prepaid
expenses and other current assets of $1.4 million.
Investing activities used cash of approximately $4.8 million during the
nine months ended December 31, 1999, $4.6 million 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
have been capitalized. During the nine-month period ended December 31, 1999,
approximately $4.0 million of costs associated with the acquisition and
development of the system have been capitalized. The development of the system
was completed during the three-month period ended December 31, 1999 and the
system was placed into operation.
During the nine months ended December 31, 1999, the Company's financing
activities provided cash of approximately $10.9 million. This resulted primarily
from $13.4 million of additional borrowings under the Company's revolving line
of credit offset by $1.8 million used to reduce outstanding promissory notes
payable and $1.0 million used in the purchase of treasury stock. In addition,
the Company received proceeds of $306,000 from the issuance of common stock
under certain employee benefit plans.
As of December 31, 1999, working capital was $38.3 million, compared to
$26.9 million at March 31, 1999. At December 31, 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 rolled 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 system failures and the
disruption of business operations. During the two-year period prior to December
31, 1999, the Company established a Year 2000 Committee to analyze the potential
impact of this issue to the Company's systems, to lead the Company's efforts to
achieve Y2K compliance, and to advise senior management on the related risks and
solutions. The Committee completed a number of assessments, gathered relevant
information, conducted system tests, and followed through on plans to address
the Year 2000 problem. While the Company has experienced no negative effects
attributable to the Y2K problem subsequent to December 31, 1999 to either its
internal systems, to systems that it developed for customers, or as a result of
the Year 2000 remediation efforts of other parties with whom it deals,
- 11 -
<PAGE> 12
management expects to continue its monitoring and analysis of the Y2K matter
into the first quarter of calendar 2000.
While the risks associated with the Y2K problem appear to have been
greatly diminished, there can be no assurances 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. Management
of the Company, however, does not believe that a material adverse effect from
the Y2K problem is likely.
- 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
three-month period ended December 31, 1999.
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)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
- 13 -
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - CONTINUED
B. REPORTS ON FORM 8-K
December 23, 1999 BTG reported that its Board of Directors
authorized an amendment to the outstanding
shareholder rights agreement which increased the
shareholder ownership threshold for Heartland
Advisors, Inc. to 1,950,000 shares of Company
common stock in order to permit Heartland to make
open market purchases of additional shares without
being deemed an "Acquiring Person" under the terms
of the shareholder rights agreement.
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 2000
/s/ Todd A. Stottlemyer
----------------------------------------
Todd A. Stottlemyer
Duly Authorized Signatory and
Chief Financial and Administrative Officer
- 15 -
<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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- ------------------------
1999 1998 1999 1998
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 1,134 $ (220) $ 3,280 $ 62
=========== ============ =========== ==========
Weighted average common stock shares
outstanding during the period (used in
the calculation of basic per share results) 8,839 8,796 8,839 8,760
Dilutive effect of common stock options and
common stock purchase warrants 190 -- 143 --
----------- ------------ ----------- ----------
Weighted average common stock and potentially
dilutive securities outstanding during the period
(used in the calculation of diluted per share
results) 9,029 8,796 8,982 8,760
=========== ============ =========== ==========
Basic earnings (loss) per share from
continuing operations $ 0.13 $ (0.02) $ 0.36 $ 0.01
=========== ============ =========== ==========
Diluted earnings (loss) per share from
continuing operations $ 0.13 $ (0.02) $ 0.35 $ 0.01
=========== ============ =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 67,274
<ALLOWANCES> (1,532)
<INVENTORY> 153
<CURRENT-ASSETS> 72,165
<PP&E> 17,363
<DEPRECIATION> (8,743)
<TOTAL-ASSETS> 104,529
<CURRENT-LIABILITIES> 33,830
<BONDS> 31,066
0
0
<COMMON> 53,856
<OTHER-SE> (15,370)
<TOTAL-LIABILITY-AND-EQUITY> 104,529
<SALES> 59,348
<TOTAL-REVENUES> 59,348
<CGS> 41,943
<TOTAL-COSTS> 41,943
<OTHER-EXPENSES> 14,815
<LOSS-PROVISION> 112
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> 2,007
<INCOME-TAX> 873
<INCOME-CONTINUING> 1,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,134
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
