<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, 2000
[ ] 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 NOVEMBER 6, 2000
COMMON STOCK 9,037,526
<PAGE> 2
BTG, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Interim Balance Sheets, September 30, 2000 (unaudited)
and March 31, 2000 3
Consolidated Interim Statements of Operations for the three
months ended September 30, 2000 and 1999 and the six months
ended September 30, 2000 and 1999 (unaudited) 4
Consolidated Interim Statements of Cash Flows for the
six months ended September 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Interim Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
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<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>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- ----------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Investments, at fair value ................................................... $ 68 $ --
Receivables, net ............................................................. 63,773 69,352
Inventory, net ............................................................... 533 507
Prepaid expenses and other ................................................... 2,890 3,528
--------- ---------
Total current assets ....................................................... $ 67,264 $ 73,387
--------- ---------
Property and equipment, net .................................................... 9,107 9,043
Goodwill, net .................................................................. 23,771 14,551
Restricted investments ......................................................... 6,429 6,429
Notes receivable ............................................................... 1,000 1,000
Other .......................................................................... 794 2,972
--------- ---------
$ 108,365 $ 107,382
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ......................................... $ 3,200 $ --
Accounts payable ............................................................. 15,662 21,342
Accrued expenses ............................................................. 10,856 12,840
Other ........................................................................ 3,168 1,644
--------- ---------
Total current liabilities ................................................. $ 32,886 $ 35,826
--------- ---------
Line of credit ................................................................. 29,046 30,466
Long-term debt, excluding current maturities ................................... 2,418 --
Other .......................................................................... 783 877
--------- ---------
Total liabilities .......................................................... $ 65,133 $ 67,169
--------- ---------
Shareholders' equity:
Preferred stock:
No par value, 982,500 shares authorized; no shares issued or outstanding ... $ -- $ --
$0.01 par value, 17,500 shares authorized; no shares issued or outstanding . -- --
Common stock, no par value, 20,000,000 shares authorized; 9,036,557 and
8,985,812 shares issued and outstanding at September 30, 2000
and March 31, 2000, respectively ............................................ 54,681 54,308
Accumulated deficit .......................................................... (11,390) (14,095)
Unrealized holding losses on investments, net of income taxes ................ (59) --
--------- ---------
Total shareholders' equity .................................................. $ 43,232 $ 40,213
--------- ---------
$ 108,365 $ 107,382
========= =========
</TABLE>
See notes to consolidated interim financial statements.
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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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ----------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue ............................. $ 52,485 $ 50,568 $ 110,433 $ 101,137
Product sales ................................ 2,268 13,343 4,243 29,110
--------- --------- --------- ---------
54,753 63,911 114,676 130,247
Direct costs:
Contract costs ............................... 33,555 33,328 72,124 66,696
Cost of product sales ........................ 2,014 12,830 3,943 28,278
--------- --------- --------- ---------
35,569 46,158 76,067 94,974
Indirect, general and administrative expenses .. 15,768 15,041 31,552 30,250
Amortization expense ........................... 296 174 551 348
--------- --------- --------- ---------
Total operating expenses ....................... 51,633 61,373 108,170 125,572
Operating income ............................... 3,120 2,538 6,506 4,675
Interest expense, net .......................... 929 448 1,751 877
Loss on conversion of investment ............... -- -- 50 --
--------- --------- --------- ---------
Income from continuing operations before
income taxes ................................ 2,191 2,090 4,705 3,798
Income tax expense ............................. 931 909 2,000 1,652
--------- --------- --------- ---------
Income from continuing operations .............. 1,260 1,181 2,705 2,146
Loss from discontinued operations,
net of income taxes ......................... -- 116 -- 116
--------- --------- --------- ---------
Net income ..................................... $ 1,260 $ 1,065 $ 2,705 $ 2,030
========= ========= ========= =========
Basic earnings per share:
Income from continuing operations .............. $ 0.14 $ 0.13 $ 0.30 $ 0.24
Loss from discontinued operations .............. -- (0.01) -- (0.01)
--------- --------- --------- ---------
Net income .................................... $ 0.14 $ 0.12 $ 0.30 $ 0.23
========= ========= ========= =========
Diluted earnings per share:
Income from continuing operations .............. $ 0.14 $ 0.13 $ 0.30 $ 0.24
Loss from discontinued operations .............. -- (0.01) -- (0.01)
--------- --------- --------- ---------
Net income ..................................... $ 0.14 $ 0.12 $ 0.30 $ 0.23
========= ========= ========= =========
Weighted average shares outstanding (used in
the calculation of basic per share results) . 9,005 8,836 8,997 8,839
========= ========= ========= =========
Weighted average shares outstanding (used in
the calculation of diluted per share results) 9,129 9,062 9,119 8,966
========= ========= ========= =========
</TABLE>
See notes to consolidated interim financial statements.
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<PAGE> 5
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 2,705 $ 2,030
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss on discontinued operations ..................................... -- 116
Depreciation and amortization ....................................... 1,363 1,137
Reserves for accounts receivable and inventory ...................... (112) 245
Loss on disposals of property and equipment ......................... 16 86
Loss on conversion of investment .................................... 50 --
Changes in assets and liabilities, net of the effects from purchases of
subsidiaries:
(Increase) decrease in receivables .................................. 10,536 (8,364)
(Increase) decrease in inventory .................................... (45) (38)
(Increase) decrease in prepaid expenses and other ................... 638 333
(Increase) decrease in other assets ................................. 2,094 (81)
Increase (decrease) in accounts payable ............................. (6,076) 3,461
Increase (decrease) in accrued expenses ............................. (2,788) 1,697
Increase (decrease) in other liabilities ............................ 1,531 (503)
-------- --------
Net cash provided by (used in) operating activities of
continuing operations ....................................... 9,912 119
Net cash provided by (used in) discontinued operations ........... -- 135
Net cash provided by (used in) operating activities .... $ 9,912 $ 254
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ................................. (425) (3,009)
Purchase of subsidiary, net of cash acquired ........................ (13,930) --
Proceeds from conversion of investment .............................. 30 --
-------- --------
Net cash provided by (used in) investing activities .......... $(14,325) $ (3,009)
-------- --------
Cash flows from financing activities:
Net advances (repayments) under the line of credit .................. (1,420) 4,237
Proceeds from the issuance of long-term debt ........................ 8,000 --
Principal payments on long-term debt ................................ (2,440) (1,327)
Payment of debt issue costs ......................................... (100) --
Purchases of treasury stock ......................................... -- (349)
Proceeds from the issuance of common stock .......................... 373 194
-------- --------
Net cash provided by (used in) financing activities .......... $ 4,413 $ 2,755
-------- --------
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.
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<PAGE> 6
BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
BTG, Inc. and Subsidiaries ("we" or the "Company") have prepared the
consolidated interim financial statements included herein without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). These financial statements include, in the opinion of our 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. We believe, however, that our disclosures are adequate to
make the information presented not misleading. These consolidated interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in our Annual Report to
Shareholders for the fiscal year ended March 31, 2000. The results of operations
for the six-month period ended September 30, 2000, are not necessarily
indicative of the results to be expected for the full fiscal year ending March
31, 2001.
2. REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The guidelines in SAB No. 101
must be adopted by the fourth quarter of 2000. We are in the process of
evaluating the potential impact of SAB No. 101 on our financial position and
results of operations.
3. COMPREHENSIVE INCOME
We adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("Statement 130") during fiscal 1999. Statement
130 established standards for reporting and presenting comprehensive income and
its components in consolidated financial statements. Comprehensive income is
defined as net income plus the change in equity of a business enterprise during
a period from transactions and other events and circumstances from nonowner
sources. We had other comprehensive income resulting from unrealized holding
gains on available-for-sale investments as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income ........................ $ 1,260 $ 1,065 $ 2,705 $ 2,030
Unrealized loss on investments,
net of income taxes,.......... (36) -- (59) --
------- ------- ------- -------
Comprehensive income .............. $ 1,224 $ 1,065 $ 2,646 $ 2,030
======= ======= ======= =======
</TABLE>
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<PAGE> 7
4. BUSINESS COMBINATION
On April 19, 2000, we purchased substantially all of the net assets of
the enterprise network solutions division, of SSDS Inc. of Colorado, for
approximately $13.9 million, exclusive of our closing costs. We accounted for
this acquisition using the purchase method of accounting and, accordingly, the
division's results of operations have been included in the Company's
consolidated statements of operations since the date of the acquisition. The
purchase price was allocated to net tangible and identifiable intangible assets
and liabilities based on preliminary estimates of their fair value as of the
date of acquisition. The excess of purchase price over the estimated fair value
of net tangible and identifiable intangible assets and liabilities acquired of
approximately $9.8 million was allocated to goodwill and is being amortized on a
straight-line basis over the expected period of benefit, 20 years. The final
allocation of the purchase price will be determined during the subsequent fiscal
year when preliminary analyses and other estimates are final. This business
combination does not have a material effect on pro forma operations.
5. LONG-TERM DEBT
On April 19, 2000, we issued two term notes totaling $8.0 million to
each of the two financial institutions that lend to us under our line of credit
facility. The principal under these notes is due in 30 equal installments
beginning on May 1, 2000. Additionally, a quarterly payment is required to
reduce the principal balance in excess of an established threshold. The notes
bear interest at our principal lender's prime rate. We used the proceeds from
the term notes to finance the SSDS business combination. The principal under
these notes was paid in full during October 2000 from proceeds received from the
sale of our restricted investments.
6. RESTRICTED INVESTMENTS
On October 23, 2000, we sold 1.3 million shares of GTSI Corp. common
stock to GTSI for $4.25 per share. As a result of this transaction, we will
recognize a $906,000 non-operating loss in our third quarter results. Our
investment in GTSI Corp. represents all of the restricted investments included
in the accompanying consolidated interim balance sheets.
7. RECLASSIFICATION
Certain amounts in the prior period's interim financial statements have
been reclassified to conform to the fiscal 2001 presentation.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE MATTERS DISCUSSED IN THIS FORM 10-Q INCLUDE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS OR UNCERTAINTIES. WHILE FORWARD-LOOKING STATEMENTS
ARE SOMETIMES PRESENTED WITH NUMERICAL SPECIFICITY, THEY ARE BASED ON VARIOUS
ASSUMPTIONS MADE BY MANAGEMENT REGARDING FUTURE CIRCUMSTANCES OVER MANY OF WHICH
THE COMPANY HAS LITTLE OR NO CONTROL. FORWARD-LOOKING STATEMENTS MAY BE
IDENTIFIED BY WORDS INCLUDING "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
SIMILAR EXPRESSIONS. THE COMPANY CAUTIONS READERS THAT FORWARD-LOOKING
STATEMENTS, INCLUDING WITHOUT LIMITATION, THOSE RELATING TO THE COMPANY'S FUTURE
BUSINESS PROSPECTS, REVENUES, WORKING CAPITAL, LIQUIDITY, AND INCOME, ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT WOULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM FORWARD-LOOKING
STATEMENTS INCLUDE THE CONCENTRATION OF THE COMPANY'S REVENUES FROM GOVERNMENT
CLIENTS, RISKS INVOLVED IN CONTRACTING WITH THE GOVERNMENT, DIFFICULTIES THE
COMPANY MAY HAVE IN ATTRACTING, RETAINING AND MANAGING PROFESSIONAL AND
ADMINISTRATIVE STAFF, FLUCTUATIONS IN QUARTERLY RESULTS, RISKS RELATED TO
ACQUISITIONS, RISKS RELATED TO COMPETITION AND THE COMPANY'S ABILITY TO CONTINUE
TO WIN AND PERFORM EFFICIENTLY ON GOVERNMENT CONTRACTS, AND OTHER RISKS AND
FACTORS IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S REPORTS FILED WITH THE
SEC, INCLUDING THOSE IDENTIFIED UNDER THE CAPTION "RISK FACTORS" IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (SEC FILE NO. 333-16899) WHICH
HEREBY IS INCORPORATED BY REFERENCE. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR
PROJECTED.
GENERAL
BTG is an information systems and technical services company. For
nearly two decades, we have developed and provided solutions to the complex
systems needs of the United States Government and its agencies and departments
("the Government") as well as to other commercial and state and local government
customers. Our current services and solutions are focused on four principal
areas: systems analysis and engineering services, solutions development, systems
integration, and computer-based operations and enterprise support.
Since BTG's founding, we have provided highly sophisticated
software-based solutions to our customers, especially to those in the Government
defense intelligence community. More recently, we have seen that the skills we
have developed in working with Government agencies are increasingly useful for
commercial and state and local government customers and, in this regard, we have
seen that a larger percentage of our revenues has come from these customers. We
believe that our key competencies include our skills in the areas of (i)
information and network security, (ii) electronic commerce, (iii) technology in
schools, (iv) geographic information systems, (v) Microsoft and Remedy services
and solutions, (vi) modeling, simulation and training, (vii) integrated
logistics support, and (viii) enterprise support services and systems
management.
We have an experienced management team and over 1,500 employees. Due to
the secure nature of much of the work that we do in the Government defense and
intelligence markets, over 50% of our employees have received Secret or Top
Secret security clearances from the Government. Our customers include the four
U.S. armed forces, many of the U.S. intelligence and civilian agencies, a
variety of commercial entities including Bell Atlantic, NCR, JP Morgan, and
Petsmart, and a number of state and local governments in Colorado, Florida,
North Carolina and Oklahoma. We are headquartered in Fairfax, Virginia and have
employees in over 93 locations worldwide.
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<PAGE> 9
On April 19, 2000, we completed the acquisition of the enterprise
network solutions division of SSDS Inc. of Colorado. We purchased substantially
all of the net assets of the SSDS division for approximately $13.9 million. We
have accounted for this acquisition using the purchase method of accounting, and
accordingly, the results of operations of the SSDS division 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, 2000 30, 2000
COMPARED TO COMPARED TO
THREE MONTHS SIX MONTHS
ENDED SEPT. ENDED SEPT.
2000 1999 2000 1999 30, 1999 30, 1999
---- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Contract revenue .................. 95.9% 79.1% 96.3% 77.7% 3.8% 9.2%
Product sales ..................... 4.1 20.9 3.7 22.3 (83.0) (85.4)
Total revenue ................... 100.0 100.0 100.0 100.0 (14.3) (12.0)
Direct costs:
Contract costs (as a % of
contract revenue) ............... 63.9 65.9 65.3 65.9 0.7 8.1
Cost of product sales (as a %
of product sales) ............... 88.8 96.2 92.9 97.1 (84.3) (86.1)
Total direct costs (as a %
of total revenue) ............. 65.0 72.2 66.3 72.9 (22.9) (19.9)
Indirect, general and administrative
expenses .......................... 28.8 23.5 27.5 23.2 4.8 4.3
Amortization expense ................. 0.5 0.3 0.5 0.3 70.1 58.3
Operating income ..................... 5.7 4.0 5.7 3.6 22.9 39.2
Interest expense ..................... 1.7 0.7 1.5 0.7 107.4 99.7
Loss on conversion of investments .... -- -- 0.1 -- -- (A)
Income from continuing operations
before income taxes ............... 4.0 3.3 4.1 2.9 4.8 23.9
Income tax expense ................... 1.7 1.4 1.7 1.3 2.4 21.1
Income from continuing operations .... 2.3 1.9 2.4 1.6 6.7 26.0
Loss from discontinued operations, net -- (0.2) -- (0.1) (100.0) (100.0)
Net income ........................... 2.3 1.7 2.4 1.5 18.3 33.3
</TABLE>
(A) There was no expense or income in the comparison year.
Three Months Ended September 30, 2000 Compared With Three Months Ended September
30, 1999
REVENUES
During the three months ended September 30, 2000, we had a net decrease
in revenue of $9.2 million, or 14.3%, from the three months ended September 30,
1999. Contract revenue increased $1.9 million, or 3.8%, from the comparable
period of the prior year, while product sales decreased $11.1 million, or 83.0%,
from the same period of the prior year. The increase in our contract revenue was
due to revenue generated by new contracts associated with the SSDS business
combination offset by a net decrease in our services and solutions business. The
net decrease in our services and solutions business is attributable to the end
of an enterprise support services contract with a Federal Civilian agency. The
decrease in our product sales was principally due to management's decision to
significantly reduce our sales and marketing efforts under our remaining product
reselling contracts.
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<PAGE> 10
DIRECT COSTS
Direct costs, expressed as a percentage of total revenue, decreased
from 72.2% for the three months ended September 30, 1999 to 65.0% for the three
months ended September 30, 2000, 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 remained consistent at 63.9%
in the three months ended September 30, 2000 compared to 65.9% in the three
months ended September 30, 1999. Cost of product sales as a percentage of
product sales decreased from 96.2% in the three months ended September 30, 1999
to 88.8% in the three months ended September 30, 2000. This is attributable, in
large part, to a $325,000 increase to the Company's reserve for anticipated
warranty costs which was recognized in the three months ended September 30,
1999. This warranty reserve is related to computer hardware products sold
several years ago by the Company's now divested product reselling business unit.
In addition, the higher product gross margins experienced in the three months
ended September 30, 2000 also result from management's decision during the
previous fiscal year to significantly reduce its sales and marketing efforts
under its remaining product reselling contracts. Currently, we only sell
products to our customers when there is a strategic reason to do so and when we
can sell these products at acceptable gross margins.
INDIRECT, GENERAL AND ADMINISTRATIVE EXPENSES
Indirect, general and administrative expenses include the costs of
indirect labor, fringe benefits, overhead, sales and administration, bid and
proposal preparation, and research and development. Indirect, general and
administrative expenses for the three months ended September 30, 2000 increased
by $727,000, or 4.8%, from the same period in 1999 principally due to the
increased contract revenue activities. As a percentage of contract revenue,
these costs remained consistent in the three months ended September 30, 2000,
30%, compared to the three months ended September 30, 1999, 29.7%.
AMORTIZATION EXPENSE
Our amortization expense, which results from the amortization of
goodwill, increased by $122,000 in the three months ended September 30, 2000 as
compared with the comparable period of the prior year. This was due to the
additional goodwill associated with the SSDS business combination.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 2000
increased by $481,000 from the comparable period of the prior year. This
increase was principally due to the additional debt obtained to finance the SSDS
business combination as well as from higher debt levels associated with
financing a larger amount of receivables.
PROVISION FOR INCOME TAXES
Income tax expense, as a percentage of income before income taxes,
decreased to 42.5% in the three months ended September 30, 2000, from 43.5% in
the comparable period of the prior year. The lower effective tax rate in the
three months ended September 30, 2000 is largely attributable to a reduction in
the Company's non-deductible goodwill amortization expense as a percentage of
pre-tax income.
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<PAGE> 11
Six Months Ended September 30, 2000 Compared With Six Months Ended September 30,
1999
REVENUES
During the six months ended September 30, 2000, we had a net decrease
in revenue of $15.6 million, or 12.0%, from the six months ended September 30,
1999. Contract revenue increased $9.3 million, or 9.2%, from the comparable
period of the prior year, while product sales decreased $24.9 million, or 85.4%,
from the same period of the prior year. The increase in our contract revenue was
due to increases in our services and solutions business and revenue generated by
new contracts associated with the SSDS business combination. The decrease in our
product sales was principally due to management's decision to significantly
reduce our sales and marketing efforts under our remaining product reselling
contracts.
DIRECT COSTS
Direct costs, expressed as a percentage of total revenue, decreased
from 72.9% for the six months ended September 30, 1999 to 66.3% for the six
months ended September 30, 2000, primarily due to the higher percentage of
contract-related business. Contract costs as a percentage of contract revenue
remained consistent at 65.3% in the six months ended September 30, 2000 compared
to 65.9% in the six months ended September 30, 1999. Cost of product sales as a
percentage of product sales decreased from 97.1% in the six months ended
September 30, 1999 to 92.9% in the six months ended September 30, 2000. This is
attributable, in large part, to a $325,000 increase to the Company's reserve for
anticipated warranty costs which was recognized in the three months ended
September 30, 1999. This warranty reserve is related to computer hardware
products sold several years ago by the Company's now divested product reselling
business unit. In addition, the higher product gross margins experienced in the
six months ended September 30, 2000 also result from management's decision
during the previous fiscal year to significantly reduce its sales and marketing
efforts under its remaining product reselling contracts. Currently, we only sell
products to our customers when there is a strategic reason to do so and when we
can sell these products at acceptable gross margins.
INDIRECT, GENERAL AND ADMINISTRATIVE EXPENSES
Indirect, general and administrative expenses for the six months ended
September 30, 2000 increased by $1.3 million, or 4.3%, from the same period in
1999 principally due to the increased contract revenue activities. As a
percentage of contract revenue, indirect, general and administrative expenses
actually decreased from 29.9% in the six months ended September 30, 1999 to
28.6% in the six months ended September 30, 2000. This was primarily due to the
level of fixed components within our indirect, general, and administrative
expenses.
AMORTIZATION EXPENSE
Our amortization expense, which results from the amortization of
goodwill, increased by $203,000 in the six months ended September 30, 2000 as
compared with the comparable period of the prior year. This was due to the
additional goodwill associated with the SSDS business combination.
INTEREST EXPENSE
Interest expense for the six months ended September 30, 2000 increased
by $874,000 from the comparable period of the prior year. This increase was
principally due to the additional debt obtained to finance the SSDS business
combination as well as from higher debt levels associated with financing a
larger amount of receivables.
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<PAGE> 12
PROVISION FOR INCOME TAXES
Income tax expense, as a percentage of income before income taxes,
decreased to 42.5% in the six months ended September 30, 2000, from 43.5% in the
comparable period of the prior year. The lower effective tax rate in the six
months ended September 30, 2000 is largely attributable to a reduction in the
Company's non-deductible goodwill amortization expense as a percentage of
pre-tax income.
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, 2000, filed with the SEC on June 29, 2000. There have been no material
changes in the Company's market risk from that disclosed in the Company's 2000
Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Operating activities during the six months ended September 30, 2000
provided net cash of approximately $9.9 million. This largely resulted from a
$10.5 million decrease in receivables, which was due to improved collections of
our outstanding customer invoices. Additionally, we had net income of $2.7
million and a decrease in other noncurrent assets of $2.1 million that related
to the escrow associated with the SSDS business combination which was paid in
February 2000. These amounts were partially offset by decreases in both accounts
payable and accrued expenses, which together totaled $8.9 million.
INVESTING ACTIVITIES
Our investing activities used $14.3 million during the six months ended
September 30, 2000. This was primarily due to the payments made in connection
with the SSDS business combination in April 2000.
FINANCING ACTIVITIES
During the six months ended September 30, 2000, our financing
activities provided cash of approximately $4.4 million. This resulted primarily
from $8.0 million received under two notes payable issued to fund the SSDS
business combination.
As of September 30, 2000, working capital was $34.4 million, compared
to $37.6 million at March 31, 2000. At September 30, 2000, the Company had
approximately $8.2 million available for borrowing under its revolving line of
credit facility.
YEAR 2000 COMPLIANCE
Over two years ago, we established a Year 2000 Committee to analyze the
potential impact of the Year 2000 issue to our systems, to lead the efforts to
achieve Y2K compliance, and to advise senior management on the related risks and
solutions. Our company-wide effort included participation from the Board of
Directors and a dedicated information technology staff. As the result
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<PAGE> 13
of these efforts, we were able to remediate and test our critical information
technology systems in advance of December 31, 1999. Through the current date, we
have not had any material unresolved problems related to Year 2000, including
the changeover from December 31, 1999 to January 1, 2000, and the leap day,
February 29, 2000. In addition, none of our major suppliers have failed to meet
their obligations as a result of Year 2000 issues. We have not had any costs
associated with Year 2000 issues during the three-month period ended September
30, 2000. Currently, we do not expect to incur any additional expenses for Year
2000 remediation.
During the near term, we plan to continue to monitor our internal and
licensed information technology and non-information technology systems, as well
as those of the third parties with whom we conduct business, to ensure that any
latent Year 2000 issues that may arise are addressed promptly. Although we do
not anticipate significant future costs relating to our continuing Year 2000
compliance efforts, we cannot provide any assurance as to the magnitude of any
future costs until a more significant period of time has passed from the Year
2000 changeover.
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<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
any subsidiary is a party or to which any of their property is subject,
other than ordinary routine litigation incidental to the business of
the Company or any subsidiary.
ITEM 2. CHANGES IN SECURITIES
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 6,
2000, the following proposals were adopted by the margins indicated:
1. To elect two nominees for Director:
<TABLE>
<CAPTION>
For Withheld Authority Broker Non-votes
--- ------------------ ----------------
<S> <C> <C> <C>
Edward H. Bersoff 7,450,533 668,650 1,985,288
Donald M. Wallach 7,586,938 532,245 1,985,288
</TABLE>
The following Directors continued their terms of office: Ruth
M. Davis, Alan G. Merten, Raymond T. Tate, Ronald L. Turner,
and Earle C. Williams.
2. To approve an amendment to the 1995 Employee Stock Option Plan
to increase the number of option shares issuable per year from
1,250,000 to 1,750,000:
<TABLE>
<CAPTION>
<S> <C>
For 4,585,107
Against 1,525,568
Broker Non-Votes 1,985,288
Abstain 23,220
</TABLE>
3. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending
March 31, 2001:
<TABLE>
<CAPTION>
<S> <C>
For 8,097,412
Against 13,558
Broker Non-Votes 1,985,288
Abstain 8,213
</TABLE>
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<PAGE> 15
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
The following exhibits are either filed with this Report or are
incorporated herein by reference:
10.1 Calendar Year 2000 Amendment to the BTG, Inc. 1995 Employee
Stock Option Plan.*
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
* Management contract or compensatory plan or arrangement.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
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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 14, 2000 BTG, INC.
/s/ Todd A. Stottlemyer
-----------------------
Todd A. Stottlemyer
Duly Authorized Signatory and
Chief Financial and
Administrative Officer
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<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C>
10.1 Calendar Year 2000 Amendment to the BTG, Inc. 1995 Employee
Stock Option Plan.*
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
</TABLE>
* Management contract or compensatory plan or arrangement.
-17-
