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, 1996
[ ] 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)
1945 OLD GALLOWS ROAD, VIENNA, VIRGINIA 22182
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 556-6518
-------------------------------------
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 31, 1996
- ----------------------------------- ----------------------------------------------
COMMON STOCK 6,185,555
2
BTG, INC.
INDEX TO FORM 10-Q
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 1996 and
March 31, 1996 3
Consolidated Statements of Operations for the three
months ended September 30, 1996 and 1995 and the
six months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
six months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 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 13-14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, MARCH 31,
1996 1996
------------ ---------------
ASSETS (unaudited)
Current assets:
Restricted cash and equivalents . . . . . . . . . . . . . . . . . . . . . $ -- $ 47
Investments, at fair value . . . . . . . . . . . . . . . . . . . . . . . 306 250
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,324 69,146
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,636 9,421
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,789 5,163
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778 466
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 142,833 $ 84,493
---------- ----------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 3,374 3,579
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,703 17,140
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . 2,893 3,119
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,832 1,129
---------- ----------
$ 167,635 $ 109,460
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . 220 230
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,583 24,120
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,739 7,516
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055 1,534
Income taxes:
Currently payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 757 1,310
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 1,808
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . $ 71,479 $ 36,544
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,506 30,453
Long-term debt, excluding current maturities . . . . . . . . . . . . . . . 14,405 14,341
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 248
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 129
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136,796 $ 81,715
---------- ----------
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Common stock, no par value, 10,000,000 shares authorized; 6,173,782
and 6,128,102 shares issued and outstanding at September 30, 1996
and March 31, 1996, respectively. . . . . . . . . . . . . . . . . . . . . 18,224 17,915
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,173 10,422
Treasury stock, at cost, 50,057 shares . . . . . . . . . . . . . . . . . (527) (527)
Unrealized losses on investments, net of related tax effects . . . . . . (31) (65)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 30,839 $ 27,745
---------- ----------
$ 167,635 $ 109,460
========== ==========
See notes to consolidated financial statements.
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- --------------------------------
1996 1995 1996 1995
------------ ----------- ----------- ------------
Revenues:
Contract revenue . . . . . . . . . . . . . . . $ 28,975 $ 14,083 $ 49,504 $ 28,556
Product sales . . . . . . . . . . . . . . . . . 86,150 36,647 141,063 61,763
------------ ----------- ----------- ------------
115,125 50,730 190,567 90,319
Direct costs:
Contract costs . . . . . . . . . . . . . . . . 19,125 6,805 30,073 14,375
Cost of product sales . . . . . . . . . . . . . 75,553 32,080 123,332 53,143
------------ ----------- ----------- ------------
94,678 38,885 153,405 67,518
Indirect, general and administrative
expenses . . . . . . . . . . . . . . . . . . . 15,366 8,665 29,437 17,692
Amortization and other operating costs, net . . . 501 373 949 584
------------ ----------- ---------- ------------
110,545 47,923 183,791 85,794
Operating income . . . . . . . . . . . . . . . . 4,580 2,807 6,776 4,525
Interest expense . . . . . . . . . . . . . . . . (1,643) (598) (2,909) (1,151)
Equity in earnings of affiliate . . . . . . . . . 663 -- 1,060 --
------------ ----------- ----------- ------------
Income before income taxes . . . . . . . . . . . 3,600 2,209 4,927 3,374
Provision for income taxes . . . . . . . . . . . 1,606 914 2,176 1,408
------------ ----------- ----------- ------------
Net income . . . . . . . . . . . . . . . . . . . $ 1,994 $ 1,295 $ 2,751 $ 1,966
============ =========== =========== ============
Earnings per common and common
equivalent share . . . . . . . . . . . . . . . $ 0.31 $ 0.21 $ 0.43 $ 0.32
============ =========== ========== ============
Weighted average shares of common stock
and common stock equivalents . . . . . . . . . 6,418 6,208 6,371 6,196
============ =========== =========== ============
See notes to consolidated financial statements.
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,751 $ 1,966
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 1,752 743
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) 68
Reserves for accounts receivable and inventory . . . . . . . . . . . . . . . 1,223 123
Loss on sale of property and equipment . . . . . . . . . . . . . . . . . . . 11 8
Changes in assets and liabilities, net of the effects from purchases
of subsidiaries:
(Increase) decrease in restricted cash . . . . . . . . . . . . . . . . . . . 47 --
(Increase) decrease in receivables . . . . . . . . . . . . . . . . . . . . . (40,946) (14,792)
(Increase) decrease in inventory . . . . . . . . . . . . . . . . . . . . . . (13,670) (3,399)
(Increase) decrease in prepaids and other . . . . . . . . . . . . . . . . . (4,938) 2,107
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . (203) (99)
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . 34,463 6,054
Increase (decrease) in accrued expenses . . . . . . . . . . . . . . . . . . 2,223 132
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . (1,122) (247)
Increase (decrease) in income taxes currently payable . . . . . . . . . . . (553) 907
----------- ---------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . $ (19,022) $ (6,429)
----------- ---------
Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . (200) --
Purchase of note receivable . . . . . . . . . . . . . . . . . . . . . . . . . (300) --
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . (442) (317)
Capitalized product development costs . . . . . . . . . . . . . . . . . . . . (297) --
----------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . $ (1,239) $ (317)
----------- ---------
Cash flows from financing activities:
Net advances under lines of credit . . . . . . . . . . . . . . . . . . . . . 20,053 7,903
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . (73) (679)
Payment of debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . (28) --
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . 309 352
----------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . $ 20,261 $ 7,576
----------- ---------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . $ -- $ 88
----------- ---------
Increase (decrease) in unrestricted cash and equivalents . . . . . . . . . . . -- 918
Unrestricted cash and equivalents, beginning of period . . . . . . . . . . . . -- 1,236
----------- ---------
Unrestricted cash and equivalents, end of period . . . . . . . . . . . . . . . $ -- $ 2,154
=========== =========
See notes to consolidated financial statements.
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BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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 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, 1996. The results of operations for the six-month
period ended September 30, 1996, are not necessarily indicative of the results
to be expected for the full fiscal year ending March 31, 1997.
2. COMMON STOCK OFFERING
On October 24, 1996, the Company filed a registration statement with
the SEC for the purpose of registering 2,012,500 shares of common stock for
sale to the public.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
BTG, Inc. and subsidiaries (the "Company") is an information
technology company providing complete solutions to a broad range of the complex
systems and product needs of the United States Government and its agencies and
departments (the "Government") and other commercial and state and local
government clients. The Company's operations are conducted by its three
strategic business units: Systems Engineering and Integration and Network
Systems, the revenues of which constitute the Company's contract revenues, and
Technology Systems, the revenues of which constitute the Company's product
sales. The Company's common stock is quoted on the NASDAQ National Market
under the symbol "BTGI".
The Company's revenues are 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 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, rather than price increases, which are generally limited to
escalation factors of 3-4% on direct labor costs. Product sales tend to be
seasonal, with the Company's second and third fiscal quarters typically
accounting for the greatest proportion of revenues each year. Product sales
are characterized by higher direct costs than contract revenue; however,
indirect expenses associated with product sales are generally lower in
comparison. Year-to-year increases in product sales have generally been driven
by higher volumes as opposed to price increases, because hardware and software
product prices tend to decline over time as the technology ages and some
segments of the Company's products business are subject to intense price
competition.
In October 1995, the Company acquired Concept Automation, Inc. of
America ("CAI"), which was primarily involved in the integration, sale and
maintenance of electronic data processing equipment and related support
services, principally to civilian agencies of the Government. Effective April
1, 1996, the Company integrated CAI's operations with those of both its
Technology Systems and Integration and Network Systems business units.
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RESULTS OF OPERATIONS
The following table presents for the periods indicated: (i) the
percentage of revenues represented by certain income and expense items and (ii)
the percentage period-to-period increase in such items:
% PERIOD-TO-PERIOD
PERCENTAGE OF REVENUE INCREASE OF DOLLARS
---------------------------------------- ----------------------------------------
THREE MONTHS SIX MONTHS
THREE MONTHS ENDED SIX MONTHS ENDED ENDED SEPT. ENDED SEPT.
SEPTEMBER 30, SEPTEMBER 30, 30, 1996 30, 1996
------------------- ----------------- COMPARED TO COMPARED TO
THREE MONTHS SIX MONTHS
ENDED SEPT. ENDED SEPT.
1996 1995 1996 1995 30, 1995 30, 1995
---- ---- ---- ---- -------------------- ---------------
Revenue:
Contract revenue . . . . . . 25.2% 27.8% 26.0% 31.6% 105.7% 73.4%
Product sales . . . . . . . 74 .8 72.2 74.0 68.4 135.1 128.4
Total revenue . . . . . . 100 .0 100.0 100.0 100.0 126.9 111.0
Direct costs:
Contract costs (as a % of
contract revenue) . . . . 66.0 48.3 60.7 50.3 181.0 109.2
Cost of product sales (as a %
of product sales) . . . . 87.7 87.5 87.4 86.0 135.5 132.1
Total direct costs (as a %
of total revenue) . . . 82.2 76.7 80.5 74.8 143.5 127.2
Indirect, general and
administrative expenses . . 13.3 17.1 15.4 19.6 77.3 66.4
Amortization and other
operating costs, net . . . .4 .7 .5 .6 34.3 62.5
Operating income . . . . . . . 4 .0 5.5 3.6 5.0 63.2 49.7
Interest expense . . . . . . . 1 .4 1.2 1.5 1.3 174.7 152.7
Equity in earnings of
affiliate . . . . . . . . . . .6 --- .6 --- 100.0 100.0
Income before income taxes . . 3 .1 4.4 2.6 3.7 63.0 46.0
Provision for income taxes . . 1 .4 1.8 1.2 1.5 75.7 54.5
Net income . . . . . . . . . . 1 .7 2.6 1.4 2.2 54.0 39.9
Three Months Ended September 30, 1996 Compared With Three Months Ended
September 30, 1995
Revenues for the three months ended September 30, 1996 increased by
$64.4 million, or 126.9%, from the three months ended September 30, 1995. Of
this increase, $14.9 million was attributable to contract revenue, and $49.5
million was attributable to product sales. The increase in contract revenue in
the three months ended September 30, 1996 was primarily due to $4.2 million of
revenue recognized under contracts acquired in connection with the acquisition
of CAI in October 1995; $7.8 million of revenue recognized under the Company's
Integration for Command, Control, Communications, Computers and Intelligence
("IC4I") contract which was awarded to the Company in November 1995; and an
aggregate $2.9 million in net increases under a variety of other contracts. The
increase in product sales was primarily due to approximately $27.3 million of
revenue generated under a variety of sales vehicles acquired in connection with
the acquisition of CAI; $34.2 million of revenue resulting from sales under the
Company's National Institutes of Health ("NIH") electronic computer store
contract vehicle; and $5.2 million in increased sales under General Services
Administration ("GSA") Schedule contracts, either directly from the Company's
GSA Schedule contracts or from sales to other prime contractors with GSA
Schedule contracts. These increases were offset by a decrease of approximately
$11.3 million in sales from purchase contracts under the Company's Basic
Ordering Agreement with the North Atlantic Treaty Organization ("NATO BOA") and
a decrease of approximately $2.0 million in orders fulfilled under the Systems
Acquisition Support Services ("SASS") contract; and $3.9 million in net
decreased revenues under a variety of other sales vehicles. In the three months
ended September 30, 1996, approximately 90.5% of the Company's revenues were
derived from contracts or subcontracts with and product sales to the
Government, as compared with 88.4% in the three months ended September 30,
1995.
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Direct costs, expressed as a percentage of total revenue, increased
from 76.7% in the three months ended September 30, 1995 to 82.2% in the three
months ended September 30, 1996, reflecting the increased proportion of total
revenues derived from product sales, which typically have higher direct costs
than do revenues generated from service contracts. Contract costs as a
percentage of contract revenue increased from 48.3% in the three months ended
September 30, 1995 to 66.0% in the three months ended September 30, 1996,
primarily as a result of revenues generated from the IC4I contract and from
contracts acquired in connection with the acquisition of CAI. Both the IC4I
contract and the contracts acquired from the acquisition of CAI require higher
levels of material purchases and/or subcontractor involvement than does BTG's
historical contract base, which has a more labor intensive, higher gross margin
profile. Contract costs include labor costs, subcontract costs, material costs
and other costs directly related to contract revenue. Cost of product sales as
a percentage of product sales remained relatively constant from 87.5% in the
three months ended September 30, 1995 to 87.7% in the three months ended
September 30, 1996.
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, 1996 increased by $6.7
million, or 77.3%, from the same period in 1995. The increase was due
primarily to indirect expenses incurred by CAI, which were not included in the
three months ended September 30, 1995 since CAI was not acquired until October
1995, as well as from an increase in the overall volume of business as compared
to the comparable period of the prior year. Expressed as a percentage of total
revenues, indirect, general and administrative expenses decreased for the three
months ended September 30, 1996 to 13.3% from 17.1% in the three months ended
September 30, 1995. This decrease is reflective of both the significant growth
in revenue generated from product sales, which typically requires less
infrastructure support than does contract revenue, and the acquisition of CAI,
which has historically required a relatively lower level of indirect costs to
support its revenues.
Amortization and other operating costs, which include both
amortization expense associated with goodwill and other intangible assets and
other operating expenses which are non-reimbursable under Government contracts,
increased by $128,000 in the three months ended September 30, 1996 as compared
with the comparable period of the prior year. This increase is primarily
attributable to the amortization expense associated with the goodwill and other
intangible assets created as a result of the acquisition of CAI in October
1995.
Interest expense for the three months ended September 30, 1996
increased by $1.1 million, or 174.7%, from the comparable period of the prior
year. This increase was due in large part to the significant growth in revenue
during the three months ended September 30, 1996 as compared with the
comparable period of the prior year, as well as the higher volume of product
orders projected for the quarterly period ending December 31, 1996, both of
which have resulted in higher receivable, inventory and prepaid expense
balances, thereby resulting in higher levels of required financing under the
Company's line of credit. In addition, higher interest costs were incurred
during the three months ended September 30, 1996 due to interest paid on
borrowings related to the Company's acquisition of CAI in October 1995.
Equity in earnings of affiliate was $663,000 during the three months
ended September 30, 1996, and resulted from the Company's interest in an
unincorporated joint venture. The joint venture entity, which is with an
unrelated company, was created for the purpose of performing under a specific
contract and was acquired by the Company in connection with its acquisition of
CAI.
The Company's effective tax rate increased from 41.4% for the three
months ended September 30, 1995 to 44.6% for the three months ended September
30, 1996. This increase is primarily attributable to the additional goodwill
and intangible asset amortization expense associated with the acquisition of
CAI, which is not deductible for income tax purposes.
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Net income for the three months ended September 30, 1996 increased by $699,000,
or 54.0%, from the three months ended September 30, 1995, due to the reasons
discussed above.
Six Months Ended September 30, 1996 Compared With Six Months Ended September
30, 1995
Revenues for the six months ended September 30, 1996 increased by
$100.2 million, or 111.0%, from the six months ended September 30, 1995. Of
this increase, $20.9 million was attributable to contract revenue, and $79.3
million was attributable to product sales. The increase in contract revenue in
the six months ended September 30, 1996 was primarily due to $10.3 million of
revenue recognized under contracts acquired in connection with the acquisition
of CAI; $7.9 million of revenue recognized under the Company's IC4I contract;
and an aggregate $2.7 million in net increases under a variety of other
contracts. The increase in product sales was primarily due to approximately
$44.4 million of revenue generated under a variety of sales vehicles acquired
in connection with the acquisition of CAI; $47.1 million of revenue resulting
from sales under the Company's electronic computer store contract with NIH;
$11.8 million in increased sales under GSA Schedule contracts, either directly
from the Company's GSA Schedule contracts or from sales to other prime
contractors with GSA Schedule contracts; and $200,000 in net increased revenues
under a variety of other sales vehicles. These increases were offset by a
decrease of approximately $23.3 million in sales from purchase contracts under
the Company's NATO BOA and a decrease of approximately $900,000 in orders
fulfilled under the SASS contract. In the six months ended September 30, 1996,
approximately 89.6% of the Company's revenues were derived from contracts or
subcontracts with and product sales to the Government, as compared with 89.4%
in the six months ended September 30, 1995.
Direct costs, expressed as a percentage of total revenue, increased
from 74.8% in the six months ended September 30, 1995 to 80.5% in the six
months ended September 30, 1996, reflecting the increased proportion of total
revenues derived from product sales, which typically have higher direct costs
than do revenues generated from service contracts. Contract costs as a
percentage of contract revenue increased from 50.3% in the six months ended
September 30, 1995 to 60.7% in the six months ended September 30, 1996,
primarily as a result of revenues generated from the IC4I contract and from
contracts acquired in connection with the acquisition of CAI. Both the IC4I
contract and the contracts acquired from the acquisition of CAI require higher
levels of material purchases and/or subcontractor involvement than does BTG's
historical contract base, which has a more labor intensive, higher gross margin
profile. Contract costs include labor costs, subcontract costs, material costs
and other costs directly related to contract revenue. Cost of product sales as
a percentage of product sales increased from 86.0% in the six months ended
September 30, 1995 to 87.4% in the six months ended September 30, 1996. This
reflects the different mix of products sold during the six months ended
September 30, 1996 as compared to the comparable period of the prior year.
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 six months ended September 30, 1996 increased by $11.7
million, or 66.4%, from the same period in 1995. The increase was due
primarily to indirect expenses incurred by CAI, which were not included in the
six months ended September 30, 1995, as well as from an increase in the overall
volume of business as compared to the comparable period of the prior year.
Expressed as a percentage of total revenues, indirect, general and
administrative expenses decreased for the six months ended September 30, 1996
to 15.4% from 19.6% in the six months ended September 30, 1995. This decrease
reflects both the significant growth in revenue generated from product sales,
which typically requires less infrastructure support than does contract
revenue, and the acquisition of CAI, which has historically required a
relatively lower level of indirect costs to support its revenues.
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Amortization and other operating costs, which include amortization
expense associated with goodwill and other intangible assets and other
operating expenses which are non-reimbursable under Government contracts,
increased by $365,000, or 62.5%, for the six months ended September 30, 1996 as
compared with the same period in the previous year. This increase is primarily
attributable to the amortization expense associated with the goodwill and other
intangible assets created as a result of the acquisition of CAI.
Interest expense for the six months ended September 30, 1996 increased
by $1.8 million, or 152.7%, from the comparable period of the prior year. This
increase was due in large part to the significant growth in revenue during the
six months ended September 30, 1996 as compared with the comparable period of
the prior year, as well as the higher volume of product orders projected for
the quarterly period ending December 31, 1996, both of which have resulted in
higher receivable, inventory and prepaid expense balances, thereby resulting in
higher levels of required financing under the Company's line of credit. In
addition, higher interest costs were incurred during the six months ended
September 30, 1996 due to interest paid on borrowings related to the Company's
acquisition of CAI, and the higher interest rate associated with the senior
subordinated notes issued by the Company in February 1996.
Equity in earnings of affiliate was $1.1 million during the six months
ended September 30, 1996, and resulted from the Company's interest in an
unincorporated joint venture. The joint venture entity, which is with an
unrelated company, was created for the purpose of performing under a specific
contract and was acquired by the Company in connection with its acquisition of
CAI.
The Company's effective tax rate increased from 41.7% for the six
months ended September 30, 1995 to 44.2% for the six months ended September 30,
1996. This increase is primarily attributable to additional goodwill and
intangible asset amortization expense associated with the acquisition of CAI,
which is not deductible for income tax purposes.
Net income for the six months ended September 30, 1996 increased by
$785,000, or 39.9%, from the six months ended September 30, 1995, due to the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of approximately $19.0 million was used in operating
activities during the six months ended September 30, 1996. This net use of
cash largely resulted from a significant increase in accounts receivable, which
was due to the revenue growth experienced by the Company during the six months
ended September 30, 1996 as compared with the comparable period of the prior
year. In addition, increases in both inventory and prepaid expenses
contributed to the net use of cash in the six months ended September 30, 1996,
offset by increases in accounts payable and accrued expenses.
Investing activities used cash of approximately $1.2 million during
the six months ended September 30, 1996. This was largely the result of a
$200,000 investment made in WheelGroup Corporation ("WheelGroup"), which is
primarily involved in network security products and services, and a $300,000
convertible note purchased from WheelGroup. In addition, the Company invested
cash of approximately $442,000 in the purchase of office and computer-related
equipment for use in the performance of contracts and for increased efficiency
in the Company's administration.
The Company also invested cash of approximately $297,000 in the
development of software products designed for use by the Company's newly-formed
subsidiary, Community Networks, Inc. ("CNI"). CNI was formed by the Company
for the purpose of providing local communities with high-speed Internet access,
specialized intranets, and electronic commerce capability.
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12
During the six months ended September 30, 1996, the Company's
financing activities provided cash of approximately $20.3 million, resulting
primarily from $20.1 million in increased borrowings under the Company's
revolving line of credit used to fund working capital needs. As of September
30, 1996, working capital was $71.4 million, compared to $47.9 million at March
31, 1996. This increase is primarily due to the significant increase in the
volume of business during the six months ended September 30, 1996, which
resulted in significantly higher accounts receivable balances. At September
30, 1996, the Company had approximately $9.5 million available for borrowing
under its revolving line of credit facility. On October 1, 1996, the revolving
line of credit facility was amended to increase the ceiling for available
borrowings to $85.0 million through March 31, 1997 and $65.0 million
thereafter.
In October 1996, the Company entered into an agreement with a
financing organization to borrow up to $15.0 million to finance inventory
purchases. Borrowings under this credit facility are secured by all of the
Company's inventory. The lenders of both the revolving credit facility and the
senior subordinated notes have approved this inventory financing facility,
subject to the condition that the maximum amount of outstanding debt under this
facility and the revolving line of credit facility not exceed $90.0 million.
On October 24, 1996, the Company filed a registration statement with
the Securities and Exchange Commission for the purpose of registering 2,012,500
shares of common stock for sale to the public. Of this amount, 1,912,500
shares, including 242,500 shares associated with a 30-day over-allotment
granted to the Underwriters, represent new shares being offered by the Company.
The Company believes that funds available under its line of credit facility and
the net proceeds from its common stock offering will be sufficient to fund the
Company's working capital and capital expenditure requirements for the
foreseeable future.
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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
No changes in security holders' rights have taken place.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No defaults upon senior securities have taken place.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on August 14,
1996, the following proposals were adopted by the margins indicated:
1. To elect three nominees for Director:
For Withheld Authority
--- ------------------
Ruth M. Davis 5,725,984 23,153
Raymond T. Tate 5,727,549 21,593
Alan G. Merten 5,729,609 19,533
The following Directors continued their terms of office: Edward H.
Bersoff, James V. Kimsey, Ronald L. Turner, and Donald M. Wallach.
2. To approve the Company's Directors Stock Option Plan:
For 3,314,290
Against 280,774
Abstain 75,646
Broker Non-Votes 2,078,432
3. To approve amendments to the Company's Employee Stock Purchase
Plan:
For 3,561,309
Against 72,119
Abstain 16,340
Broker Non-Votes 2,099,374
4. To approve an amendment to the Company's Employee Stock Option
Plan:
For 3,410,345
Against 221,483
Abstain 17,940
Broker Non-Votes 2,099,374
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14
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS - CONTINUED
5. To ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending March 31,
1997:
For 5,733,982
Against 4,073
Abstain 11,087
Broker Non-Votes --
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 Amended and Restated Articles of Incorporation of BTG, Inc.
(incorporated by reference to exhibit 3.2 to BTG, Inc.'s
registration statement on Form S-1 (File No. 33-85854)).
3.2 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)).
4.3 Specimen certificate of share of Common Stock (incorporated by
reference to exhibit 4.3 to BTG, Inc.'s registration statement
on Form S-8 (File No. 33-97302)).
10.1 Third Modification, dated October 1, 1996, to Business Loan
and Security Agreement, dated as of November 28, 1995, by and
among BTG, Inc. and its subsidiaries and NationsBank, N.A.
(incorporated by reference to exhibit 10.1 to BTG, Inc.'s
registration statement on Form S-1 (File No. 333-14767)).
10.2 Non-Employee Director Stock Purchase Plan (incorporated by
reference to exhibit 10.6 to BTG, Inc.'s registration
statement on Form S-1 (File No. 333-14767)).
10.3 Amendment, dated October 1, 1996, to Note and Warrant Purchase
Agreement, dated February 16, 1996, between BTG, Inc. and
Nomura Holding America, Inc. (incorporated by reference to
exhibit 10.11 to BTG, Inc.'s registration statement on Form
S-1 (File No. 333-14767)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
B. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended
September 30, 1996.
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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: November 14, 1996 BTG, INC.
/s/ John M. Hughes
----------------------------
John M. Hughes
Duly Authorized Signatory and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Exhibit
- ---------- -------
3.1 Amended and Restated Articles of Incorporation of BTG, Inc.
(incorporated by reference to exhibit 3.2 to BTG, Inc.'s
registration statement on Form S-1 (File No. 33-85854)).
3.2 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)).
4.3 Specimen certificate of share of Common Stock (incorporated by
reference to exhibit 4.3 to BTG, Inc.'s registration statement
on Form S-8 (File No. 33-97302)).
10.1 Third Modification, dated October 1, 1996, to Business Loan
and Security Agreement, dated as of November 28, 1995, by and
among BTG, Inc. and its subsidiaries and NationsBank, N.A.
(incorporated by reference to exhibit 10.1 to BTG, Inc.'s
registration statement on Form S-1 (File No. 333-14767)).
10.2 Non-Employee Director Stock Purchase Plan (incorporated by
reference to exhibit 10.6 to BTG, Inc.'s registration
statement on Form S-1 (File No. 333-14767)).
10.3 Amendment, dated October 1, 1996, to Note and Warrant Purchase
Agreement, dated February 16, 1996, between BTG, Inc. and
Nomura Holding America, Inc. (incorporated by reference to
exhibit 10.11 to BTG, Inc.'s registration statement on Form
S-1 (File No. 333-14767)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
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