ITEM 1. BUSINESS
BACKGROUND
BTG is an information systems and technical services company. BTG provides complete solutions to a broad range of the complex systems needs of the United States Government and its agencies and departments (the "Government") and other commercial and state and local government customers. Since BTG was founded in 1982, we have been providing highly sophisticated software-based solutions to our customers, especially those in the Government defense intelligence community.
BTG's headquarters and executive offices are located at 3877 Fairfax Ridge Road, Fairfax, Virginia 22030-7448, and our telephone number is (703) 383-8000.
COMPANY OPERATIONS
The Company's services and solutions are focused on four principal areas:
- Systems Analysis and Consulting -- We help our clients formulate their business strategies for using information technology. We provide technical support to customers that include the U.S. Department of Defense ("DoD"), U.S. Department of Education ("DoEd"), and the Okaloosa County, Florida Board of Education.
- Solutions Development -- Our engineers provide systems engineering services that include software and applications development, web-enabled solutions development, and knowledge engineering and management support. Our customers for these services include: the U.S. Navy, U.S. Air Force, U.S. Marine Corps, Defense Advanced Research Projects Agency, Federal Aviation Administration ("FAA"), Bell Atlantic, and the Educational Testing Service.
- Systems Integration -- We provide customers with software and hardware systems integration, network design and architecture assistance. Our customers include the Office of Naval Intelligence and the National Science Foundation.
- Operations and Support -- We provide clients with a full complement of operational support services, including enterprise support services, network support and administration, helpdesk call center support, and integrated logistical support. Our customers include the U.S. Army Communications and Electronics Command, the U.S. Securities and Exchange Commission ("SEC"), DoEd, and the FAA.
Prior to fiscal 1999, we operated a division that was responsible for reselling computer hardware and software products (the "Product Reselling Business"), principally to the Government. In February 1998, we entered into an asset purchase agreement with Government Technology Services, Inc. ("GTSI") under which we completed the sale to GTSI of substantially all of the operating assets, contracts and customer orders of the Product Reselling Business (the "GTSI Transaction"). Additionally, during fiscal 2000, the last two product reselling contracts held by the Company were terminated.
As a result of exiting the product reselling business, we do not expect to have any significant product revenues in the future. In fact, during fiscal 1999 and 2000, the amount of revenues from the sale of products decreased by over 68% each year. During fiscal years 2000 and 1999, BTG's revenues were $249.0 million and $316.4 million, respectively. BTG's net income from continuing operations increased from $2.8 million in fiscal 1999 to $4.6 million in fiscal 2000. Through acquisitions, internal growth of our services business, and
successful contract awards, we have increased our participation as a significant provider of information technology systems and solutions to the Government and other commercial and state and local government customers.
BTG provides engineering and technical services, including web-based systems and solutions, to government and commercial customers. BTG's web-based services and solutions enable us to meet the diverse systems needs of our customers. In response to the growth in Internet commerce, BTG is increasingly providing critical information and network security and e-commerce solutions to our customers. These offerings include secure data transmission, data encryption, intrusion detection, and Public Key Infrastructure ("PKI") and smart card applications. We consider our key competencies to include:
- Information and network security
- Electronic commerce
- Technology in schools
- Geographic information systems
- Microsoft(R) services and solutions
- Modeling, simulation, and training
- Integrated logistics support
- Enterprise support services and systems management
- Remedy(R) services and solutions
CUSTOMERS AND CUSTOMER SUPPORT
A substantial portion of our revenues comes from contracts with various agencies of the Government, including all four armed forces, the Defense Intelligence Agency, the General Services Administration, the National Security Agency, and many of the civilian Government agencies such as the FAA and the Departments of Education, Commerce, and Justice. In addition, we have performed projects for, or supplied computer hardware, software and integrated systems to, a number of commercial customers, as well as several state and local governments. As of March 31, 2000, BTG was providing services under 352 active Government contracts.
In fiscal 2000 and 1999, approximately 83% and 92% respectively, of our revenues came from Government contracts. The following table sets forth our estimates of the sources of our revenues in the last two fiscal years:
BTG offers our customers a full range of support services for the systems we develop, and strives to understand thoroughly the environment of the end user of our systems. Our employees work directly with customers throughout each project. This is our way of ensuring that the solutions we provide satisfy our customers' needs. Of major importance to BTG is timely implementation and rapid assistance. BTG provides rapid support and backup, by telephone hotline and in person, for systems in use throughout the world. Our revenues are highly dependent on the Government's demand for the services we offer. Changes in the structure, composition and/or buying patterns of the Government could affect our future operations.
COMPETITIVE FACTORS
We believe that we have successfully functioned in the Government information technology market since our inception. This market is generally characterized by significant barriers to entry, including highly structured procurement rules and procedures and relatively long sales cycles (often several years). In addition, many contracts in the defense and intelligence areas require that employees have high-level security clearances. BTG believes the following factors enable us to compete effectively in the Government as well as the commercial and state and local government arenas.
- Teaming Agreements -- An important factor in BTG's ability to maintain our competitive stance is our ability to enter into teaming relationships, in which BTG may be either a prime contractor or subcontractor. The Company maintains teaming relationships with major Government contractors, including General Dynamics, Raytheon, Litton, and Lockheed Martin Corporation. These arrangements enable us to bid on and participate in a greater number of increasingly large and complex procurement projects. Teaming relationships have enabled BTG to secure several Government contracts during the past several years.
- Strategic Partnerships -- BTG has entered into a number of strategic alliances with software companies including Microsoft, Remedy, and Spyrus, an Internet security company.
- Security Clearances -- Many of BTG's Government contracts require us to maintain facility security clearances complying with DoD requirements, including Secured Compartmented Information Facilities for the performance of classified work under our contracts. It is costly and time consuming to obtain necessary certifications for this type of space. As of March 31, 2000, approximately 44% of the Company's employees possessed secret or top secret security clearances, which are required for the performance of certain of our contracts. No Company contract has ever been terminated for security reasons.
- Diversified Customer Relationships -- BTG provides services to a diverse group of customers. Sixty-two percent of BTG's fiscal year 2000 revenues were from defense and intelligence agencies, 21% were from federal civilian, and 17% were from commercial and state and local government customers.
CONTRACT BACKLOG
BTG's total contract backlog is only a portion of total contract capacity (i.e. the maximum amount that the Government could purchase under its contracts with us) and represents management's estimate of the aggregate revenues that will be earned by us over the life of all of our contracts, including option periods. Because many of our contracts are multi-year contracts and contracts with option years, total contract backlog represents revenues expected to be realized over a number of years into the future. The Company's estimated total contract backlog as of March 31, 2000 and 1999 was $462 million and $589 million, respectively. The reduction in backlog from 1999 to 2000 was a result of discontinuing the last two product reselling IDIQ contracts during the fourth quarter of fiscal 2000. During 1999, we began to differentiate among the following four types of backlog which together constitute total backlog:
- Negotiated Backlog is the total value of all negotiated and authorized contract work remaining to be performed on existing contracts, plus the work that has been negotiated but not yet authorized. The value of unexercised contract options are excluded from negotiated backlog. We had $99.0 million of negotiated backlog as of March 31, 2000.
- Funded Backlog is negotiated and authorized backlog for which the customer has secured funding and has indicated that funding is available to us for billing. We had $158.7 million of funded backlog as of March 31, 2000.
- Options Backlog is the total value of contract options that have been negotiated but for which the customer has not authorized work to begin. We had $33.3 million of options backlog as of March 31, 2000.
- IDIQ Backlog is the estimated total value of revenue expected to be realized over the remaining life of an existing IDIQ contract. The management of BTG estimates this amount and periodically adjusts the estimate upward or downward based upon actual experience under the applicable IDIQ contract. We had $171.4 million of IDIQ backlog as of March 31, 2000.
The preceding information regarding contract backlog and future revenues to be derived therefrom is forward-looking and is subject to certain risks and uncertainties including, but not limited to, the inherent difficulty of predicting future contract potential, a dependence on the continued funding of Government programs and contract procurements, and the risk of contract termination.
COMPETITION
In seeking to provide a broad range of services and products that address the complete information technology needs of our customers, we participate, to varying degrees, in multiple segments of the information technology market, including markets for systems engineering, development and integration services. Within each segment, we compete against different firms of varying sizes, with different specializations and skills. Each of the market segments in which we operate is competitive. The number and size of competitors vary among operating groups and within the individual divisions of each group. Frequently, the number and identity of competitors vary even from program to program within a given business area. Many of our competitors are significantly larger and have greater financial resources than us. Some of these competitors are part of large, diversified companies that have access to the financial resources of their parent companies.
We believe that the principal competitive factors in providing information systems and technical services are management capability, technical understanding, customer satisfaction, past contract performance, personnel qualifications (including security clearances) and price. During our recent history, we have been very successful in securing the exercise of contract option years in our services business. We believe this to be attributable to the strength of our past contract performance and our competitive prices. Further, our senior management team has an extensive number of years of industry-specific technical and managerial experience. As a result, we believe we are able to compete favorably on each of the principal competitive factors within the services business.
Government contracts are periodically subjected to the competitive bidding process, and we have generally been successful in retaining our incumbent business. In addition, a significant number of the opportunities we pursue are large dollar value procurements. In such cases, in order to enhance our ability to compete, we will often form teams or joint ventures with one or more firms possessing complementary technical skills, which firms may be our competitors in other procurements.
CERTAIN REGULATORY MATTERS
The nature of our business subjects us to various regulatory restrictions and limitations, including those set forth below.
- Government Contract Audits and Investigations -- Government contractors are commonly subject to various audits and investigations by Government agencies. Among the agencies that oversee or enforce contract performance are the Defense Contract Audit Agency ("DCAA"), the Inspectors General of the various departments, the Defense Criminal Investigative Service, the General Accounting Office and the Department of Justice. These audits and investigations involve a review of a contractor's performance on its contracts, as well as its pricing practices, costs and compliance with applicable laws, regulations and standards. The DCAA generally audits cost-reimbursable contracts to verify that costs have been properly charged to the Government. Final audits by the DCAA have been completed for BTG's fiscal years through 1997. BTG has not experienced any material adverse effects as a result of these completed audits. Management does not expect the completion of future audits on open years 1998 through 2000 to have a material adverse effect on BTG's consolidated financial position.
- Export Regulations -- United States law and regulations issued by various agencies of the Government, including but not limited to the Departments of Commerce, Treasury and State, restrict and
regulate the export of technology as well as goods and commodities provided by United States businesses to foreign entities and controlled foreign subsidiaries and affiliates. BTG is subject to certain of these regulations with respect to technology developed by the Company which is sold to non-U.S. customers.
EMPLOYEES
As of March 31, 2000, there were 1,448 employees: 1,314 technical/managerial staff, 114 administrative staff and 20 persons in sales and marketing. We believe that we are competitive in hiring and retaining qualified personnel. We emphasize both technical and leadership training as well as assisting our employees in career development.
We have a values-based culture and emphasize integrity, teamwork, and customer focus and satisfaction. We require all of our employees to complete training in, and to certify that they understand and will adhere to, BTG's standards of conduct as described in our written code of ethics.
None of the Company's employees is represented by a labor union. BTG considers our relations with our employees to be good and has not experienced any significant labor problems.
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the executive and other significant officers of BTG.
Edward H. Bersoff has served as BTG's President, Chief Executive Officer, and Chairman of the Board of Directors since the Company's founding in 1982. From 1975 until 1982, he was employed by CTEC, Inc. ("CTEC"), a provider of systems integration services, serving first as Vice President, then Executive Vice President, and later as President. Previously, he was employed by Logicon, Inc., a provider of advanced technology systems and services to national security, civil and industrial clients, and the National Aeronautics and Space Administration in Cambridge, Massachusetts. Dr. Bersoff has over 30 years of experience in intelligence system development, software, quality assurance, configuration management, corporate management, and management of software product design, development, implementation and maintenance. Dr. Bersoff serves as a director of Phillips Publishing International, Inc., a publishing firm, and Transcrypt International, a telecommunications company. He is the husband of Marilynn D. Bersoff.
Paul G. Leslie joined BTG in May 1999 as Executive Vice President and Chief Operating Officer. Mr. Leslie was previously Vice President and Deputy General Manager of Federal Information Technology at TRW, Inc. which he joined in 1998 through the acquisition of BDM International, Inc. ("BDM"). At BDM, he was Senior Vice President and General Manager of Systems Development and Integration for four years.
Prior to that, he served as Senior Program Manager of the Commercial Systems Group of Universal Systems, Inc. and as Technical Director of Systems Engineering Development for EDS, Inc.
Todd A. Stottlemyer joined BTG in May 1998 as Senior Vice President and Director of Corporate Development and has served as Chief Financial and Administrative Officer since December 1998 and as an Executive Vice President since May 1999. Mr. Stottlemyer was previously Corporate Vice President for BDM, where for 12 years he was involved in corporate strategy and business planning, and most recently was responsible for shareholder relations, mergers and acquisitions, public affairs, media relations and government affairs. Mr. Stottlemyer currently serves on the board of directors of WETA and the Fairfax County Chamber of Commerce, as well as a Commissioner of the Fairfax County Economic Development Authority. Mr. Stottlemyer was appointed by the Governor of Virginia to be the Vice-Chairman of the Blue Ribbon Commission on Information Technology. At BTG, he is responsible for finance, investor relations, media relations and government affairs, as well as the Company's legal, information systems and purchasing departments.
Randall C. Fuerst has served as Senior Vice President and Director of BTG's business incubator where he has been leading BTG's development of e-commerce solutions and services since October 1999. Mr. Fuerst has been with BTG since 1982 and has served in a variety of positions, including Senior Vice President and General Manager of Company operations. He has over 20 years of experience in complex systems development, integration and world-wide systems support. Previously, Mr. Fuerst worked at CTEC, where he was manager of fielded systems support.
Linda E. Hill has served as a Vice President of BTG since 1995 and is currently Senior Vice President and Chief Human Development Officer. Previously, she was a Senior Vice President within the Company's operating unit, where she was responsible for new business opportunities. Ms. Hill has been with BTG since 1985 and has served in a variety of positions, including Director of Advanced Programs and Deputy General Manager of the Systems Engineering Group, where she oversaw strategic planning, development of new business opportunities, and organizational planning of the business unit. She has over 19 years of computer- based systems experience, including world-wide systems integration, systems development, and program management of large-scale projects for the defense intelligence community.
Alan W. Jackson has served as Senior Vice President for Business Development at BTG since January 1999. Previously, beginning in April 1997, Mr. Jackson had been the President and CEO of STAC, Inc., an employee-owned company specializing in high-level analysis and technical services for the intelligence community. BTG acquired STAC in 1999. From 1995 to 1997, he was Vice President of the Systems Engineering Division of TASC, Inc. Prior to joining TASC he was a Vice President at Alandeo Limited and at the Melpar Division of E-Systems, Inc. where, over an 18-year period he held increasingly more responsible positions in business development, software and hardware design and development, systems engineering, manufacturing and general management, serving both domestic and international customers.
John Littley III has served as Senior Vice President and Chief Information Officer of BTG, managing core systems development and overseeing the network operations and applications support for the Company's automated systems since December 1998. From 1994 to 1998 he served as Vice President and then Senior Vice President of Corporate Development, in charge of developing new business opportunities. He served as Director of Corporate Development from September 1993 to April 1994. Between 1991 and 1993 he was Vice President of Corporate Development for SEA, Inc., a computer engineering firm. Mr. Littley originally joined the Company in 1982. Between 1982 and 1991, he served in a variety of positions, including Director of Advanced Programs, Director of Engineering Services, and Director of Systems Development.
Robert J. Osterloh has served as Senior Vice President and General Manager of BTG's Defense and Intelligence Systems business unit since April 1, 2000. The unit's operations include battlespace awareness, infrastructure and information assurance, intrusion detection, database development and management, data correlation and fusion, war gaming, and exercise support. Mr. Osterloh joined BTG in 1994 after retiring from the U.S. Air Force, where he served as Commander of both the Air Force Information Warfare Center and the Electronic Warfare Center. Mr. Osterloh attended the National War College and the Air Command and Staff College during his Air Force service.
Leslie A. Rose has served as Senior Vice President and General Manager of BTG's Applied Engineering Solutions business unit since April 1, 2000. Headquartered in Niceville, Florida, this business unit serves U.S. defense and civilian agencies as well as customers in the private sector. Mr. Rose came to BTG with the Company's 1995 acquisition of Delta Research Corporation, where he served as its president. He joined Delta in 1990 after 20 years in the U.S. Army where he served in the Corps of Engineers.
Marilynn D. Bersoff served as Senior Vice President and Secretary of BTG from 1993 to 1999 and is currently Corporate Secretary. She also served as Secretary of BTG from 1982 to 1987 and as Secretary and Treasurer from 1987 to 1993. She was employed by CTEC from 1978 to 1982 and by a data transmission company prior to CTEC. As Corporate Secretary, Ms. Bersoff works with the Company's Board of Directors and is responsible for maintenance of the corporate records. Ms. Bersoff has over 22 years of experience in administration, management and technical support. She is the wife of Edward H. Bersoff.
ITEM 2.
ITEM 2. PROPERTIES
BTG leases all of the offices and facilities used in connection with our operations, which comprise approximately 414,000 square feet at various sites located in 12 states. The following table sets forth information relating to the significant offices and facilities currently leased by the Company:
- --------------- (1) This property is held under two leases.
(2) This property is held under four leases.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We occasionally become a defendant in litigation incidental to our business. We believe that none of such litigation currently pending against us, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of BTG shareholders during the fourth quarter of the fiscal year ended March 31, 2000.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
BTG's common stock is publicly traded on the Nasdaq National Market under the symbol "BTGI". The stock has been publicly traded since December 1994. The high and low sale prices per share of common stock for each quarter of fiscal 2000 and 1999 are as follows:
BTG has never paid cash dividends and is currently prohibited from doing so under its line of credit facility. It is the present policy of the Company to retain earnings to finance the growth and development of its business and, therefore, the Company does not anticipate paying cash dividends on its common stock in the foreseeable future.
BTG has authorized 20,000,000 shares of common stock and 1,000,000 shares of preferred stock. At March 31, 2000, 8,985,812 shares of common stock were outstanding. No preferred shares have been issued. BTG had approximately 269 shareholders of record on March 31, 2000.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended March 31, 2000, are derived from the consolidated financial statements of BTG, Inc. and our subsidiaries. The fiscal year 2000 financial statements were audited by the independent certified public accounting firm of Deloitte & Touche LLP. The financial statements for the fiscal years 1996 through 1999 were audited by the independent certified public accounting firm of KPMG LLP. The consolidated financial statements as of March 31, 2000 and 1999, and for each of the years in the three-year period ended March 31, 2000, and the report thereon, are included in Item 8. "Financial Statements and Supplementary Data."
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operation section includes 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 we have little or no control. Forward-looking statements may be identified by words including "anticipate," "believe," "estimate," "expect" and similar expressions. We caution readers that forward-looking statements, including without limitation, those relating to 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 our revenues from the U.S. Government and its agencies and departments (the "Government"), risks involved in contracting with the Government, difficulties we may have in attracting, retaining and managing professional and administrative staff, fluctuations in quarterly results, risks related to acquisitions, risks related to competition and our ability to continue to win and perform efficiently on Government contracts, and other risks and factors identified from time to time in the reports we file with the U.S. Securities and Exchange Commission (SEC), including those identified under the caption "Risk Factors" in our registration statement on Form S-1 (SEC File No. 333-16899.) 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.
NATURE OF OUR BUSINESS
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 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 been derived from this customer set. 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 1,600 employees with approximately 1,500 technical and professional degrees and certifications. Due to the secure nature of much of the work that we do in the Government defense and intelligence markets, many 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, Federal Express, and NCR, 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.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the percentage of revenues represented by major items of income and expense included in the Consolidated Statements of Operations and (ii) the percentage period-to-period change in such items.
- --------------- (A) There was no expense for this item in a comparison year
REVENUES
Historically, we have earned our revenues from both contract activities and product sales. Contract revenue, earned from our services and solutions business, is typically less seasonal than product sales, but fluctuates from 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 (i) increases in volume, driven by additional work requirements under existing contracts, (ii) new contract awards, and (iii) focused acquisitions. Our 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.
In 1997, we identified what we believed to be a dramatic change in the federal product reselling market. The Government's product purchasing strategy shifted its focus to contract vehicles such as General Services Administration Schedules, which heavily weigh lowest price as opposed to best value. As profit margins in the product reselling business began to shrink during fiscal 1998, we realized that only the largest product resellers could generate the volume of sales required to compensate for the decreasing product margins. Accordingly, on February 12, 1998, we entered into an asset purchase agreement with Government Technology Services, Inc. ("GTSI"), a large reseller of computer products in the Government market. Under this agreement, we sold to GTSI (i) certain assets, principally inventory and property and equipment and (ii) certain reselling contracts and related outstanding customer orders associated with our computer hardware and software reselling operating division (the "GTSI Transaction"). Additionally, during fiscal 2000, we terminated our last two product reselling contracts and, as a result, we expect no significant product revenues in the future.
Total revenue for both fiscal 2000 and 1999 decreased from their respective prior fiscal years. In fiscal 2000, our revenues decreased by $67.4 million, or 21.3%, from fiscal 1999, and our revenues for fiscal 1999 decreased by $270.3 million, or 46.1%, from fiscal 1998. These decreases were principally due to our strategic shift out of the high-volume, low-margin product reselling business, which resulted in both the GTSI Transaction and the subsequent termination of two remaining product reselling contracts. Offsetting the reductions in our product sales were increased revenues in our services and solutions business. Fiscal 2000 contract revenue increased $30.7 million, or 17.7%, from fiscal 1999 and an additional $39.2 million, or 29.2%, over fiscal 1998. The increase from 1999 to 2000 is primarily due to additional contract wins and extensions from contracts in our existing operating units and from revenue recognized under contracts acquired in connection with our acquisition of STAC, Inc. ("STAC") in January 1999. Much of the revenue growth experienced by our existing operating units came from state and local government and commercial customers. This resulted in a larger percentage of our revenues being derived from these customers, 17% in fiscal 2000 and 8% in fiscal 1999.
The increase in our contract revenue from 1998 to 1999 of $39.2 million, or 29.2%, was primarily due to a net increase in work performed at several civilian Government agencies, revenue recognized under contracts acquired in connection with the acquisition of Nations, Inc. in June 1997, and from revenue generated by new contracts of BTG's Delta Research division.
Our product sales have decreased from fiscal 1999 to fiscal 2000 by $98.1 million, or 68.7%. There was a $309.5 million, or 68.4%, decrease in product sales from fiscal 1998 to fiscal 1999. Included in our fiscal 1999 product sales revenue was $93.6 million generated as a result of certain contracts awarded to BTG's product reselling business unit in a prior year, which were subcontracted to GTSI as part of the GTSI Transaction (the "Royalty Contracts"). Pursuant to an agreement entered into as part of the GTSI Transaction, GTSI assumed substantially all of the future performance requirements of the Royalty Contracts under a subcontractor agreement and BTG received a fee of 1% or 2% on total product sales made under such contracts. In the last quarter of fiscal 1999, we entered into a separate agreement with GTSI and will receive no future revenue from such contracts.
DIRECT COSTS
Our direct costs, expressed as a percentage of total revenues, decreased to 71.0% in fiscal 2000, down from 79.4% in fiscal 1999 and 86.0% in fiscal 1998. This is indicative of the decreased proportion of our total revenues derived from product sales, which typically have higher direct costs than do revenues generated from services contracts.
Contract costs include the costs of labor, subcontractors, materials, and other costs directly related to the generation of contract revenue. Contract costs as a percentage of contract revenue were consistent in fiscal 2000, 1999 and 1998 at 65.6%, 65.3% and 62.2%, respectively.
As a percentage of product sales, our cost of product sales in fiscal 2000 was 95.7%, 96.6% in fiscal 1999, and 93.1% in fiscal 1998. The increase in the cost of product sales in fiscal 1999 was primarily due to the 1-2% margin earned from the Royalty Contracts in that fiscal year, which resulted in a lower gross margin on our product sales. With no product sales from the Royalty Contracts in fiscal 2000, we would have expected a
higher gross profit margin on product sales than that which was experienced. The lower-than-anticipated gross margin is principally due to a $1.0 million addition to the Company's reserve for anticipated warranty costs, which is included in cost of product sales for fiscal 2000. This warranty reserve is related to computer hardware products sold by BTG's product reselling division prior to the GTSI Transaction.
INDIRECT, GENERAL AND ADMINISTRATIVE EXPENSES
We include the costs of indirect labor, fringe benefits, overhead, sales and administration, bid and proposal, and research and development in our indirect, general and administrative expenses. These costs for fiscal 2000 increased by $4.4 million or 7.8%. This was primarily due to indirect costs associated with supporting the business acquired from our acquisition of STAC and from an increase in the overall volume of contract revenues. In 1999 our indirect, general and administrative costs decreased by $32.8 million, or 36.7%, from fiscal 1998. This decrease was due primarily to the GTSI Transaction which resulted in a reduction in the number of Company employees, space requirements, and other related indirect costs, and to the Company's increased emphasis on cost containment.
Expressed as a percentage of total revenues, indirect, general and administrative expenses increased in both fiscal 2000 and 1999 to 24.5% and 17.9%, respectively, up from 15.2% in fiscal 1998. This increase is principally reflective of the decreased proportion of total revenues derived from product sales, which typically have lower indirect, general and administrative expenses than do revenues generated from services contracts.
AMORTIZATION EXPENSE
Amortization expense, which includes the amortization of goodwill and other intangible assets, remained relatively consistent from fiscal 1999 to fiscal 2000 with only a $1,000 decrease in expense. Although we had an increase of $278,000 in fiscal 2000 associated with the STAC acquisition, this was offset by certain intangible assets that were fully amortized at the end of fiscal 1999 and, thus, had no expense in fiscal 2000.
Total amortization expense decreased by $987,000 in fiscal 1999 as compared with 1998 as a result of the write-off of certain intangible assets in late fiscal 1998 in connection with the restructuring of our operations and divestiture of the product reselling division.
PROVISION FOR EMPLOYEE SEVERANCE COSTS
In the fourth quarter of fiscal 2000, we reorganized our operational structure and instituted a new business unit model that aligns our business units by customer base and technical capability, flattens the operational management structure within our business units, and reduces overhead costs. As a result of this internal reorganization, we incurred $492,000 in non-recurring costs associated with the severance of certain employees. There were no comparable costs in fiscal 1999 or 1998.
RESTRUCTURING CHARGE
We recognized restructuring charges of $1.8 million during fiscal 1999. This resulted from an increase in the estimated restructuring costs accrued during fiscal 1998 as a result of the divestiture of our product reselling division. Specifically, the fiscal 1999 charges related to an additional write-off of certain assets of the product reselling division and additional facility costs associated with terminating leases for unused space previously occupied by the product reselling division.
The charges incurred in fiscal 1998 related to the restructuring plan approved by our Board of Directors, which was designed to refocus the Company on its core business and historical strengths in order to improve operating results. The $38.5 million of restructuring charges recorded in fiscal 1998 included $13.7 million associated with the write-down of goodwill recorded in connection with past acquisitions of certain product reselling companies, $9.9 million associated with the loss recorded on the sale and disposal of certain of the assets related to the GTSI Transaction, $5.8 million in estimated reserves for certain prepaid software licenses initially purchased for resale by the product reselling division, and $3.5 million in estimated reserves for future
facility and equipment lease commitments of the product reselling division. There were no comparable charges in fiscal 2000.
INTEREST EXPENSE
Over the last three years, the primary component of our interest expense has been associated with financing costs on borrowings under our revolving line of credit (the "Credit Facility"). In addition to this interest, we incurred financing costs associated with the issuance of several promissory notes which were entered into in order to finance certain of our acquisitions. Because we have significantly reduced the average balance outstanding under the Credit Facility and have repaid the promissory notes, our fiscal 2000 interest expense has shown a decrease over the last two years of $2.0 million, or 51.5%, from fiscal 1999 and $4.5 million, or 53.3%, from fiscal 1998. Cash used to reduce outstanding debt was primarily generated from the collection of outstanding receivables and from proceeds made available from sales of investments.
UNUSUAL CHARGES
We recognized an unusual charge of $1.2 million during fiscal 1999 as a result of a series of agreements we entered into with GTSI during February 1999 to settle a number of issues which arose subsequent to the GTSI Transaction. There were no comparable costs in either fiscal 2000 or fiscal 1998.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
Our equity in the earnings of unconsolidated affiliates during fiscal 1998 related to our interest in an unincorporated joint venture. We formed the joint venture entity with an unrelated company to perform under a specific Government contract. Because this contract ended on April 30, 1998, our fiscal 1999 income was substantially less than in 1998. There was no comparable income in fiscal 2000.
GAIN ON SALES OF INVESTMENTS, NET
We recognized a net gain on the sales of investments during fiscal 1999 of $3.5 million, which was down from the $20.2 million reported in fiscal 1998. The fiscal 1999 gain primarily resulted from the liquidation of the shares we held in Cisco Systems, Inc. ("Cisco"), which we acquired as a result of our ownership of the WheelGroup Corporation ("WGC"). In addition, we recognized a loss of $440,000 during fiscal 1999 from the liquidation of 1.1 million shares of common stock we held in GTSI. The entire investment gain in fiscal 1998 resulted from the purchase of our holdings in WGC by Cisco. There were no investment gains or losses in fiscal 2000.
OTHER NONOPERATING EXPENSES
Other nonoperating expenses decreased by approximately $2.3 million, or 92.7%, in fiscal 1999 from the comparable period of the prior year. The decrease was primarily due to approximately $2.5 million of merger-related costs, which were incurred in fiscal 1998 in connection with the termination of a planned acquisition. There were no nonoperating expenses in fiscal 2000.
INCOME TAX EXPENSE
Our effective tax rate was 43.8%, 36.2%, and a tax benefit of 22.2% during fiscal 2000, 1999, and 1998, respectively. In fiscal 1998, we recognized an income tax benefit due to the pre tax loss experienced by BTG. The effective income tax rate for fiscal 1998 was significantly and adversely affected by the write-down of goodwill recorded in connection with the divestiture of our product reselling business. The costs associated with such write-downs were not deductible for income tax return purposes. During fiscal 1999, we realized portions of the net operating losses generated by the product reselling division for which a valuation allowance had been established in fiscal 1998. As a result, the effective income tax rate for fiscal 1999 was lower than the 45.8% that would otherwise have been calculated.
The effective tax rate for fiscal 2000 was higher than the statutory Federal income tax rate of 35.0% due principally to our effective state income tax rate of 4.7% and to certain costs incurred during fiscal 2000 which were not deductible for income tax purposes, the largest component of which related to the amortization expense associated with acquired companies.
DISCONTINUED OPERATIONS
BTG recorded losses of $116,000 and $765,000 in fiscal 2000 and 1999, respectively, from the discontinuance of a nonstrategic retail computer store. This operation was completely disposed of during the second quarter of fiscal 2000. In addition, we recognized a $4.3 million loss in fiscal 1998 related to a subsidiary operating in the Internet access market which was shut down during that fiscal year. Both operations were owned and operated by BTG and no future losses associated with either operation are anticipated.
INFLATION
Approximately 15.8% and 35.3% of the Company's contract revenue for fiscal 2000 and 1999, respectively, were under cost-reimbursement type contracts, under which inflationary increases are borne by the customer. Although BTG performs on several multi-year, fixed-price and time-and-materials contracts, under which it bears the risk of inflationary pressures on its costs, to date we have not been materially adversely affected by inflation. In addition, our product sales generally have not been affected by inflation.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Working capital was $37.6 million and $26.9 million as of March 31, 2000 and 1999, respectively. The increase in working capital was primarily related to higher outstanding receivables at March 31, 2000, as compared to March 31, 1999, which were financed under the Credit Facility, a noncurrent liability. The higher accounts receivable balance outstanding at March 31, 2000, which resulted in days sales outstanding on this date of 102 days, was in large part the result of our implementation of an enterprise-wide financial accounting system during the latter half of fiscal 2000. This implementation slowed down our billings and collections process during our fiscal 2000 third and fourth quarters.
During fiscal 2000, our operating activities used cash of approximately $3.1 million. Our use of cash in operations was principally driven by the increase in our receivables of $16.5 million, offset by net income of $4.4 million, noncash expenses for depreciation and amortization of $2.3 million and deferred income taxes of $2.4 million, and increases in both accounts payable and accrued expenses totaling $3.6 million.
In fiscal 1999, our focus on the collection of outstanding receivables from the divested product reselling division provided cash from operating activities of approximately $41.8 million. This was primarily reflective of a decrease in receivables of approximately $81.8 million as compared to March 31, 1998. The decrease in receivables was offset by a $56.9 million reduction in accounts payable, primarily associated with vendor obligations remaining from the product reselling division. In addition, $10.6 million was provided from the collection of income taxes receivable, which resulted from fiscal 1998 operating losses used to claim previously paid taxes.
INVESTING ACTIVITIES
We had net cash outflows of $7.6 million during fiscal 2000 as a result of our investing activities. We invested over $5.7 million in property and equipment of which approximately $4.6 million related to our implementation of an enterprise level financial accounting system. The implementation of this system, which was completed during fiscal 2000, required an extensive amount of our focus during that year. Of the $4.6 million of costs capitalized for the system, $600,000 related to internal labor costs of BTG personnel and another $187,000 related to capitalized interest costs.
In February 2000, we entered into a letter of intent to acquire substantially all of the assets of the enterprise network solutions division of SSDS, Inc. In connection with this acquisition, which was completed in April 2000, we were required to deposit $2.1 million into an escrow account during fiscal 2000.
In fiscal 1999, our net inflows from investing activities were approximately $23.6 million which primarily related to the $30.3 million in proceeds associated with the sale of Cisco stock, offset by $5.7 million used to purchase STAC in January 1999.
In fiscal 1998, our primary investing activities related to our acquisition of Nations, Inc. for approximately $10.2 million, $1.9 million used in the purchase of property and equipment, and the receipt of $7.2 million resulting from the GTSI Transaction.
FINANCING ACTIVITIES
During fiscal 2000, our financing activities provided a net amount of $10.7 million. This amount is principally reflective of $12.8 million in additional advances under our Credit Facility, offset by cash used to repay $1.8 million of other outstanding debt and cash used for the purchase of $1.0 million of treasury stock. In addition to the repayment of debt and the purchase of treasury stock, the Credit Facility advances were used for purchases of property and equipment, payments associated with business combinations and for the general working capital needs of our operations. In fiscal 1999, we used $53.2 million to reduce outstanding amounts under the Credit Facility and $19.1 million to retire outstanding long-term debt instruments.
In connection with the financing of the acquisition of STAC, the Company issued $5.4 million of notes in January 1999. Approximately $3.7 million of these notes were repaid during March 1999. During fiscal 1998, approximately $37.8 million was provided from financing activities primarily as a result of $38.3 million in net advances under the Credit Facility; $15.0 million in new promissory term notes; and $1.2 million in proceeds from the issuance of common stock under certain employee benefit plans. These financing sources were offset by $16.4 million in payments under both outstanding debt and capital lease arrangements. The $15.0 million in new promissory term notes was used to retire outstanding subordinated notes.
CREDIT FACILITY
The Credit Facility is a secured revolving credit facility consisting of two revolving promissory notes provided to BTG and its subsidiaries by Bank of America and Fleet Capital Corporation in the principal amount of up to $50.0 million. Under the amended agreement, the principal amount outstanding under the Credit Facility may not exceed the lesser of (i) $50.0 million or (ii) a defined borrowing base, which is a variable amount calculated by aggregating a specified set of the Company's accounts receivable and unbilled costs. Interest on revolving loan advances made under the Credit Facility is, at the option of the Company, either (i) the Bank of America prime rate, or (ii) LIBOR plus a percentage ranging from 2.25% to 3.25% depending on the Company's leverage ratio.
The Credit Facility is secured by substantially all of the assets of BTG and includes certain financial and other covenants that restrict, among other things, changes in capital structure, mergers, acquisitions, sales of assets, changes of operations, purchases and redemptions of stock, additional indebtedness, payment of dividends and other payments to shareholders, investments, capital expenditures, a net loss by BTG for any fiscal quarter, and certain other matters without the approval of the lenders. At March 31, 2000, BTG obtained a waiver from the lending financial institutions for non-compliance with the capital expenditures covenant. BTG was in compliance with all of the other financial covenants as of that date.
At March 31, 2000, BTG had available borrowings under the Credit Facility of $15.5 million. We believe that funds available under the Credit Facility will be sufficient to fund BTG's cash requirements for the next 12 months.
YEAR 2000 COMPLIANCE
The Year 2000 (or "Y2K") problem arises from the standard use in computer operating systems 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.
During the two-year period prior to March 31, 2000, we established a Year 2000 Committee to analyze the potential impact of this 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 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.
The Company incurred $212,000 in costs for our specific Year 2000 remediation efforts. These costs have been expensed as incurred. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that there are any disclosures required under this item with respect to market risk-sensitive instruments. Our obligations under the Credit Facility bear interest at rates indexed to current market rates.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS FISCAL YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEETS MARCH 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FISCAL YEARS ENDED MARCH 31, 2000, 1999, AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED MARCH 31, 2000, 1999, AND 1998 (IN THOUSANDS)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FISCAL YEARS ENDED MARCH 31, 2000, 1999, AND 1998 (IN THOUSANDS)
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
BTG, Inc. ("BTG" or the "Company") is an information systems and technical services company providing expertise to a broad range of the complex systems needs of its customers. The Company is an industry leader in providing systems analysis and engineering services, solutions development, systems integration, and computer-based operations and support.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of all majority-owned subsidiaries of the Company. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in unconsolidated affiliates owned more than 20 percent, but not in excess of 50 percent, are recorded on the equity method.
Revenue Recognition
The Company provides systems analysis and engineering services, solutions development, systems integration, and computer-based operations and support, primarily to the United States Government and its agencies and departments (the "Government"), on a contractual basis. Revenue on cost-plus-fee contracts is recognized to the extent of costs incurred plus a proportionate amount of fees earned. Revenue on time-and-material contracts is recognized to the extent of billable rates times hours delivered plus other direct costs incurred. Revenue on fixed-price contracts is recognized using the percentage-of-completion method based on costs incurred in relation to total estimated costs. Anticipated contract losses are recognized as soon as they become known and estimable.
Revenue that is contractually billable prior to performance or delivery is deferred until the work has been performed and/or the product has been delivered.
The Company also provides off-the-shelf hardware and software to the Government under a variety of contract vehicles and to commercial companies as a third-party distributor. Related revenue is recognized when products are shipped or when customers have accepted the products or services, depending on contractual terms. Estimated future costs of providing customer support under warranty obligations for products sold by the Company are recorded at the time of revenue recognition.
Cash and Equivalents
All highly liquid debt instruments with original maturities of three months or less are classified as cash equivalents.
Inventory
Inventory, net of an allowance for obsolescence, consists principally of purchased products held for resale and is valued at the lower of cost, determined on the average cost basis, or market value.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over their estimated useful lives, three to ten years, using the straight-line method. Leasehold improvements are amortized over the shorter of the terms of the related leases or their estimated useful lives using the straight-line method. Assets recorded under capital leases are amortized using the straight-line method over either the lease term or the estimated useful lives of the leased assets depending on the criteria used for lease capitalization.
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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. Implementation of the system was completed during fiscal 2000. Total capitalized costs associated with the acquisition and development of the system were approximately $5.8 million, of which $4.6 million were capitalized during fiscal 2000.
Goodwill
Goodwill, the excess of cost over the fair value of net tangible and identifiable intangible assets of acquired companies, is amortized over the expected periods of benefit, 15 to 30 years, on a straight-line basis.
The Company assesses the recoverability of its goodwill when impairment indicators are present by determining whether the balances can be recovered through the estimated, undiscounted future operating cash flows of the acquired operations. The amount of impairment, if any, is measured based on projected discounted future operating cash flows. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Research and Development Expenses
The Company expenses research and development costs as they are incurred.
Fair Value of Financial Instruments
The carrying value of the Company's receivables, payables, and revolving line of credit instruments approximates fair value since all such instruments are either short-term in nature or bear interest rates which are indexed to current market rates. Fair value for the Company's notes receivable and long-term debt is determined based on current rates offered for instruments with similar remaining maturities. At March 31, 2000 and 1999, the carrying value of the Company's notes receivable and long-term debt approximated fair value.
Earnings Per Share
Basic earnings per share is computed by dividing net income for the year by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income for the year by the weighted average number of shares of common stock and potential dilutive securities outstanding during the year. Potential dilutive securities include all issued and outstanding options and warrants.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies as of the dates of the financial statements, and the reported
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
amounts of revenues and expenses during the reporting periods. The Company uses the most current and best available information in preparing its estimates. Significant estimates were used in the accompanying consolidated financial statements to account for the deferred tax asset valuation allowance, product warranty liability, and certain other reserves recorded in connection with the Company's restructuring charges in fiscal 1999 and 1998. Actual results may differ from those estimates.
Reclassification
Certain amounts in the prior years' financial statements have been reclassified to conform to the fiscal 2000 presentation. In particular, the Company has reclassified the revenue and direct costs of one of its contracts for both fiscal 1999 and fiscal 1998 from contract revenue and contract cost to product sales and cost of goods sold. This contract was initially awarded to BTG as a services contract, however, virtually all of the tasks that BTG has fulfilled have been product related. In fiscal 1999, the revenue and direct costs for this contract were $11.2 million and $10.2 million, respectively. In fiscal 1998, the revenue and direct costs for this contract were $23.1 million and $21.5 million, respectively.
3. RECEIVABLES
The components of receivables are as follows (in thousands):
The Company anticipates collecting substantially all receivables, except retainages, within one year.
4. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
6. INCOME TAXES
Total income tax expense (benefit) for the years ended March 31, 2000, 1999 and 1998 was allocated as follows (in thousands):
The provision (benefit) for income taxes attributable to income (loss) from continuing operations include the following (in thousands):
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Income tax expense (benefit) differs from the amount of income taxes determined by applying the U.S. Federal income tax statutory rates to income (loss) from continuing operations before income taxes and extraordinary items as follows:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2000 and 1999 are presented below (in thousands):
The valuation allowance for deferred tax assets as of April 1, 1998 was $550,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers taxes paid during the previous three years, the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and tax planning strategies which can be implemented by the Company in making this assessment. Based upon these factors, the Company has established a valuation allowance against that portion of the deferred tax assets for which management believes that ultimate realization cannot presently be assessed as "more likely than not." Operating losses incurred in fiscal 1998 were primarily the result of divested and discontinued operations for which no future losses are anticipated. Management believes that, based principally on the past earnings history of its ongoing operations and the scheduled reversal of significant deferred tax liabilities, the majority of its deferred tax assets at March 31, 2000 are more likely than not realizable.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. LINE OF CREDIT
In October 1997, the Company entered into a revolving line of credit facility (the "Credit Facility") with a syndicate of financial institutions which, as amended, currently provides for borrowings up to $50.0 million based on specified percentages of eligible accounts receivable (the "borrowing base"). The Credit Facility, which is secured by substantially all of the assets of the Company, requires BTG to comply with various financial covenants and restricts the Company from, among other things, paying dividends, changing its capital structure, or making acquisitions without the approval of the lenders. At March 31, 2000, the Company obtained a waiver from the lending financial institutions for non-compliance with the capital expenditure covenant. The Company was in compliance with all of the other financial covenants as of that date. At March 31, 1999, the Company was in compliance with all financial covenants under the Credit Facility. At March 31, 2000, the entire balance outstanding under the Credit Facility has been classified as a noncurrent liability in the accompanying consolidated balance sheet, as the Company anticipates that its borrowing base over the next fiscal year will provide for a minimum availability equal to or in excess of the amount outstanding on such date. The Credit Facility has a termination date of August 31, 2002.
In addition to a revolving loan, the Credit Facility includes a facility under which the Company can, subject to the approval of the lenders and the payment of certain fees, obtain letters of credit of up to a maximum of $5.0 million. At March 31, 2000 and 1999, there were no letters of credit outstanding under the facility. Costs incurred to obtain the Credit Facility have been capitalized and are being amortized over the term of the agreement.
At March 31, 2000, the balance outstanding under the Credit Facility was approximately $30.5 million and approximately $15.5 million was available for additional borrowing. At March 31, 1999, the balance outstanding under the Credit Facility was approximately $17.7 million and approximately $17.6 million was available for additional borrowing. Interest on outstanding borrowings under the amended agreement is provided at a rate equal to, at the Company's option, either the lender's prime rate or LIBOR plus a percentage ranging from 2.25% to 3.25%, depending on the Company's leverage ratio.
An analysis of activity under the Credit Facility is as follows (in thousands):
8. LONG-TERM DEBT
On January 26, 1999, the Company issued term promissory notes totaling $3.4 million to each of the two financial institutions that lend to the Company under the Credit Facility. Principal under the term promissory notes was due in four equal quarterly installments beginning on June 30, 1999, with interest also due quarterly at the lender's prime rate. The proceeds from the term promissory notes were used to finance the acquisition of STAC, Inc. In March 1999, the Company repaid $1.7 million of the notes. The remaining balance of $1.7 million was repaid during fiscal 2000.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
On February 24, 1998, the Company issued term promissory notes, each in the amount of $7.5 million, to the two financial institutions that lend to the Company under the Credit Facility. In April 1998, the Company repaid the term promissory notes with proceeds from the sale of investments. The funds initially received from the issuance of the term promissory notes were used for the early retirement of other outstanding notes payable. Total costs incurred by the Company in connection with such early retirement amounted to approximately $1.9 million, net of the related tax benefits, and are presented as an extraordinary item in the accompanying consolidated statements of operations.
Subsequent to March 31, 2000, the Company issued two term promissory notes totaling $8.0 million in order to provide financing for a business combination which was consummated in April 2000.
9. SHAREHOLDERS' EQUITY AND STOCK OPTIONS
Preferred Stock
The Company's Amended Articles of Incorporation authorize the Company to issue up to 1,000,000 shares of preferred stock, 982,500 of which have no par value and 17,500 of which have a par value of $0.01 per share. No preferred shares have been issued as of March 31, 2000.
Common Stock
The Company has one class of voting common stock, with no par value and 20,000,000 shares authorized for issuance.
In September 1998, the Company's Board of Directors approved the adoption of a share repurchase plan. Under the terms of the share repurchase plan, the Company is authorized to purchase, from time to time, up to 500,000 shares of its common stock through both open market and negotiated purchases. During fiscal 2000 and 1999, the Company purchased 143,100 and 53,000 shares, of common stock under the share repurchase plan for approximately $995,000 and $315,000, respectively.
At March 31, 1999, the Company had outstanding common stock purchase warrants (the "Warrants") which entitled the holder to purchase up to 317,478 shares of the Company's common stock at $4.79 per share. In January 2000, the holder of the Warrants exercised 100% of the Warrants in a cashless transaction. Under this transaction, the Company issued 153,959 shares of BTG common stock to the Warrant holder. At March 31, 2000, the Company has no additional Warrants outstanding.
Employee Stock Option Plan
The Company has adopted an employee stock option plan (the "Plan") which provides for grants of both qualified and nonqualified common stock options. As currently amended, the Plan permits the Company to issue up to 1,250,000 options at prices equal to or greater than the fair value of a company share on the date of grant. Options granted under the Plan expire upon the earlier of ten years from the date of grant or three months after the optionee's termination of employment with the Company. Subject to the approval of the Company's shareholders, the Board of Directors has increased the number of shares authorized to be issued under the Plan to 1,750,000.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Additional information with respect to all options granted under the Company's employee stock option plan is as follows:
Directors Stock Option Plan
The Company has a Directors Stock Option Plan (the "Directors Option Plan") which provides for the granting of a maximum of 100,000 nonqualified stock options to non-employee members of the Board of Directors. In September 1999, the shareholders of the Company approved an amendment to the Directors Option Plan under which the option price per share is equal to 110% of the fair market value of a company share on the date of grant. The term of each option is ten years and an option first becomes exercisable six months after the date of grant. Under the amended terms of the Directors Option Plan, each non-employee member of the Board of Directors will be granted 2,500 options on each anniversary date of the Director's service commencement date.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Additional information with respect to options granted under the Directors Option Plan is as follows:
Stock Purchase Plans
The Company's shareholders have adopted the following stock purchase plans: the Annual Leave Stock Plan (the "Annual Leave Plan") and the Employee Stock Purchase Plan (the "ESPP"). Under the Annual Leave Plan, eligible employees are permitted to exchange certain unused amounts of accrued annual leave for shares of common stock at the fair market value of the stock on the date of exchange. During fiscal 2000, 8,506 shares of common stock, valued at approximately $80,000, were issued under the Annual Leave Plan. During fiscal 1999, 13,264 shares of common stock, valued at approximately $75,000, were issued under the Annual Leave Plan. During fiscal 1998, 11,944 shares of common stock, valued at approximately $111,000 were issued under the Annual Leave Plan.
Under the ESPP, eligible employees of the Company who elect to participate are permitted to purchase common stock of the Company, through payroll deductions or annual lump sum contributions, at a 15 percent discount to the lower of the fair market value of such stock at the beginning or ending date of the quarterly election period. The total number of shares of common stock that are issuable under the ESPP is limited to 400,000. A total of 68,327, 72,882, and 75,854 common stock shares were issued under the ESPP during fiscal 2000, 1999, and 1998, respectively. At March 31, 2000, 297,122 shares have been issued under the ESPP since its inception.
The Company's shareholders have also adopted the Non-Employee Director Stock Purchase Plan (the "Directors Purchase Plan"). Under the terms of the Directors Purchase Plan, non-employee members of the Board of Directors may elect to have their fees invested in BTG common stock at a price equal to the lower of 100% of the fair market value of a company share on the beginning or ending date of the election period. The election period is the 12-month period beginning on October 1 of each year. The maximum number of shares that may be issued under the Directors Purchase Plan is 100,000. During fiscal 2000, 19,169 shares of common stock, valued at approximately $126,000, were issued under the Directors Purchase Plan. During fiscal 1999, 18,961 shares of common stock, valued at approximately $128,000, were issued under the Directors Purchase Plan. During fiscal 1998, 6,068 shares of common stock valued at approximately $85,000, were issued under the Directors Purchase Plan. At March 31, 2000, 44,500 shares have been issued under the Directors Purchase Plan since its inception.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Profit Sharing Plan
The Company established a qualified 401(k) profit sharing plan in 1987 under which eligible employees may elect to defer a portion of their salary. At the discretion of the Board of Directors, the Company may contribute to the plan. The current contribution, as approved by the Board, is a matching contribution of an amount up to five percent of eligible employees' deferrals. Employees participating in the plan vest in the employer contribution over four years at 10%, 30%, 60%, and 100% cumulative per year, respectively.
Company contributions to the 401(k) plan were approximately $2.4 million, $1.6 million, and $2.0 million, in fiscal 2000, 1999 and 1998, respectively.
Disclosures Pursuant to Statement of Financial Accounting Standards No. 123
The Company applies Accounting Principles Board Opinion 25 and its related interpretations in accounting for its equity participation programs. No compensation cost has been recognized for its incentive stock option plans and its stock purchase plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of accounting under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated as follows (in thousands, except per share data):
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for option grants during the years ended March 31, 2000, 1999 and 1998, respectively:
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table summarizes information about fixed employee stock options outstanding at March 31, 2000:
The per share weighted-average fair value of stock options granted during fiscal 2000, 1999, and 1998 was $9.46, $3.99, and 7.22, respectively.
10. EARNINGS PER SHARE
The following table illustrates the calculation of basic and diluted earnings (loss) per share results for fiscal 2000, 1999 and 1998 (in thousands, except per share data):
Outstanding common stock options and common stock purchase warrants were not included in the calculation of diluted per share results for fiscal 1998, since the effect of which would result in antidilutive per share results given the Company's loss from continuing operations during that period.
11. RESTRUCTURING CHARGE
In fiscal 1998, the Company's Board of Directors approved a restructuring plan designed to refocus the Company on its core business and historical strengths in order to improve operating results. Pursuant to this plan, the Company consummated, in February 1998, the divestiture of substantially all of the BTG operating division (the "Division") responsible for the reselling of computer hardware and software products. In addition, the Company recorded a restructuring charge of approximately $38.5 million associated with such divestiture.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The major components of the initial restructuring charge were as follows (in thousands):
At March 31, 1998, the Company had outstanding accruals and reserves of approximately $14.6 million for restructuring costs established during fiscal 1998. During fiscal 1999, approximately $7.5 million of these accruals and reserves were utilized against the estimated impairment of retained Division assets, the reserve established for facility and operating lease commitments, accrued employee severance costs, and certain other accrued reserves. An additional charge of $1.8 million, related to an adjustment to the estimated impairment of retained Division assets and additional facility costs, was recorded during fiscal 1999. During fiscal 2000, an additional $8.3 million of these accruals and reserves were utilized against the estimated impairment of retained Division assets, the reserve established for facility and operating lease commitments, and certain other accrued reserves.
At March 31, 2000 and 1999, the Company had remaining restructuring accruals and reserves outstanding as follows (in thousands):
12. DISCONTINUED OPERATIONS
During the year ended March 31, 1999, the Company's Board of Directors approved a management plan to dispose of a retail computer store operated by the Company. In connection with this discontinued operation, the Company recorded losses during fiscal 1999 of approximately $717,000, net of the related income tax benefits. An additional charge of approximately $116,000, net of the related income tax benefits, was recorded during fiscal 2000 upon final sale and disposition of the operation.
During the year ended March 31, 1997, the Company formed a new subsidiary, Community Networks, Inc. ("CNI"), for the purpose of providing local communities with high-speed Internet access, specialized intranets, and electronic commerce capability on a subscriber fee-based model. The subscriber base did not grow as rapidly as was initially anticipated and the Company discontinued the operations of CNI during fiscal 1998. As a result, losses of approximately $4.2 million, net of the related income tax benefits, were recognized during fiscal 1998.
Net losses from the Company's discontinued operations have been segregated from continuing operations and reported as a separate line item on the consolidated statements of operations. Prior year reported results have been reclassified in order to provide for consistent presentation.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Operating results from the Company's discontinued operations are as follows (in thousands):
13. INVESTMENTS
WheelGroup Corporation
In May 1996, the Company entered into an agreement with WheelGroup Corporation ("WheelGroup") under which it (i) purchased 214,042 shares of the outstanding common stock of WheelGroup for $200,000; (ii) purchased a convertible note receivable from WheelGroup for $300,000; and (iii) committed to the purchase of certain distribution rights and consulting services from WheelGroup for approximately $1 million, payable in various installments over fiscal years 1997 and 1998. As the result of a significant investment in WheelGroup by a venture capital fund, BTG was given the option, in March 1997, to purchase an additional 28,146 shares of WheelGroup for $9.87 per share. As a result, $277,799 of amounts previously paid to WheelGroup under the distribution rights and consulting services agreement were used to purchase the additional 28,146 shares.
In March 1998, pursuant to a merger agreement entered into by WheelGroup and Cisco Systems, Inc. ("Cisco"), a publicly-traded technology company, the Company's ownership interests in WheelGroup were converted into approximately 326,000 common shares of Cisco. The shares of Cisco initially received by BTG were unregistered; however, in accordance with the merger agreement, were registered shortly after the merger was consummated. In connection with the sale of its WheelGroup interests, the Company recorded a gain in fiscal 1998 of approximately $20.2 million calculated using the fair market value of Cisco common stock on the date of closing of the merger. In fiscal 1999, the Company sold all of its Cisco shares for approximately $25.5 million and used the proceeds from these sales to retire outstanding debt. Gains of approximately $4.2 million were recognized during fiscal 1999 as a result of these sales.
Government Technology Services, Inc.
On February 12, 1998, BTG and Government Technology Services, Inc. ("GTSI") entered into an Asset Purchase Agreement (the "APA") under which BTG completed the sale to GTSI of (i) certain of the assets, principally inventory and property and equipment, and (ii) certain of the existing contracts and outstanding customer orders of the BTG operating division responsible for reselling computer hardware and software products. In addition, GTSI hired a significant number of the individuals previously employed by BTG in this division. As consideration for the sale, BTG initially received $8.0 million and 15,375 shares of a new series of preferred stock of GTSI, designated Series C 8% cumulative redeemable convertible preferred stock. Ten percent of the purchase price was placed in escrow for a one-year period to serve as security for the Company's indemnification for potential obligations under the acquisition agreement. Pursuant to the acquisition agreement, the preferred stock received by the Company converted into 3,000,000 shares of GTSI common stock once approved by the GTSI shareholders on May 12, 1998. In July 1998, the Company sold 1.1 million shares of its GTSI holdings for $5.0 million, resulting in a loss of approximately $440,000.
In February 1999, BTG and GTSI entered into a series of agreements in order to settle a number of issues which arose subsequent to the APA. Under the terms of the new agreements, BTG transferred to GTSI all of the cash portion of the escrow and 200,000 shares of the GTSI common stock being held in the escrow. In addition, BTG granted GTSI the option to purchase, at a per-share price of $5.25, the remaining GTSI
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
shares held by BTG. This option has a term of five years; however, BTG has the right to sell its shares to an unrelated third party with the consent of GTSI. Upon a sale of these shares during the option term to any party other than GTSI, the agreement obligates BTG to pay GTSI a per-share amount of $0.50. In addition, as part of the February 1999 agreements, BTG agreed to assign to GTSI responsibility for certain contracts awarded to BTG's product reselling division in a prior year. During fiscal 1999, approximately $93.6 million of product sales revenue was recognized by BTG from these contracts under which GTSI was used as the subcontractor. An unusual charge of approximately $1.2 million was recognized by the Company during fiscal 1999 as a result of these agreements.
Also in February 1999, BTG and GTSI entered into an agreement under which GTSI issued a note payable to BTG as consideration for the purchase by GTSI of 400,000 shares of the GTSI common stock held by BTG. These shares were sold at $5.00 per share. The note, which bears interest at an annual rate of 8.0%, is payable in three annual installments beginning on January 31, 2000. During fiscal 2000 and 1999, the Company recognized interest income of approximately $164,000 and $21,000, respectively from this note. In January 2000, the Company received payment for the first installment of this note, $500,000 of principal, plus accrued interest of approximately $156,000.
The 1.3 million shares of GTSI common stock held by BTG at March 31, 2000 and 1999 have been classified as restricted investments in the accompanying consolidated balance sheets. BTG's investment in GTSI at March 31, 2000 represents less than 20% of GTSI's outstanding shares and BTG does not have the ability to exercise significant influence over the operating or financial policies of GTSI. Accordingly, the Company carries this investment at cost.
14. BUSINESS COMBINATIONS
On January 26, 1999, BTG completed the acquisition of STAC, Inc. ("STAC") an analysis and software development company headquartered in Fairfax, Virginia. The Company purchased all of the common stock of STAC for approximately $6.4 million, $1.5 million of which was contingent on certain stock market indices which were subsequently satisfied. The Company accounted for this acquisition using the purchase method of accounting and accordingly, the results of operations of STAC have been included in the Company's consolidated 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 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 $6.8 million was allocated to goodwill and is being amortized on a straight-line basis over the expected period of benefit, 20 years. In addition, the Company entered into retention agreements with certain former employees of STAC which provide for an aggregate payment of up to $700,000 over a three-year period if the employees remain with BTG. This acquisition does not have a material effect on pro forma operations.
In June 1997, the Company acquired, for $10.0 million in cash, all of the outstanding capital stock of Nations, Inc. ("Nations"), a systems engineering and software development company headquartered in Tinton Falls, New Jersey. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the results of operations of Nations have been included in the Company's consolidated statements of operations since the date of acquisition, June 12, 1997. The excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired of approximately $6.9 million has been recorded as goodwill and is being amortized on a straight-line basis over the expected period of benefit, 30 years. In connection with the acquisition, the Company also entered into both non-compete and employment agreements with several members of Nations' senior management.
The following unaudited pro forma financial information presents the combined results of operations of the Company and Nations as if the acquisition had occurred as of the beginning of the fiscal year ended
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
March 31, 1998. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and Nations constituted a single entity during such periods.
In February 2000, the Company entered into a letter of intent to acquire substantially all of the assets of the enterprise network solutions division of SSDS, Inc. This division has approximately 160 employees who provide client-server and web-based network security, enterprise management, and custom software solutions to federal government, state and local government and commercial customers. Under the terms of this acquisition, which was finalized in April 2000, the Company purchased the assets of this entity for approximately $14.0 million.
15. COMMITMENTS AND CONTINGENCIES
Audit Review
Substantially all payments to the Company under cost-reimbursable Government contracts are provisional payments which are subject to adjustment upon audit by the Defense Contract Audit Agency or other regulatory agency. Audits through fiscal 1997 have been completed and final rates have been established. Audits for 1998 and subsequent years are not expected to result in a material adverse effect on the Company's consolidated financial position.
Litigation and Claims
The Company is a party to various legal actions and claims resulting from the normal course of business. Although the total amount of liability, if any, with respect to these matters cannot be ascertained, management of the Company believes that any resulting liability should not have a material effect on the Company's consolidated financial position or future results of operations.
Leases
The Company leases office space and equipment under certain operating lease agreements expiring at various dates through June 2012. Most leases include provisions for periodic rent escalations based on changes in various economic indices. Rent expense in fiscal 2000, 1999 and 1998 was $6.2 million, $6.3 million, and $8.9 million, respectively.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Future minimum lease payments on non-cancelable operating leases, including sublease commitments, were as follows on March 31, 2000 (in thousands):
16. SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow disclosures, not presented elsewhere in the consolidated footnotes, are as follows:
During fiscal 1999, the Company obtained approximately $814,000 of internal-use software through the conversion of amounts paid to a major software company in a prior year. The original payments were made as advanced royalties against future sales by BTG of certain products of the software company.
In connection with the Company's business combination in fiscal 1999, liabilities were assumed as follows (in thousands):
17. SEGMENT REPORTING
Under Statement 131, BTG had two reportable segments: the Systems Business and the Product Reselling Business. The Company provides systems development, integration, engineering and network design, and security expertise services under the Systems Business. Under the Product Reselling Business, the Company resells computer hardware and software. The accounting policies of these segments are the same as those described in the summary of significant accounting policies. In February 1998, pursuant to a restructuring plan approved by BTG's Board of Directors, the Company began to phase out its operating activities in the Product Reselling Business. Accordingly, there was no operating activity in the Product Reselling Business in fiscal 2000 and the Company does not anticipate any operating activity in the Product Reselling Business segment in future periods. In addition, the Company had no assets associated with the Product Reselling Business at March 31, 2000.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Selected financial data for the Company's operating segments is summarized as follows (in thousands):
A reconciliation of segment data to consolidated Company data is as follows (in thousands):
Approximately 83%, 92%, and 93% in fiscal 2000, 1999, and 1998, respectively, of the Company's revenues resulted from contracts or subcontracts with, and product sales to, the Government. The Company operates principally in the United States.
BTG, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for fiscal 2000 and 1999 are as follows (in thousands, except per share data). Quarterly revenues and operating income exclude the revenues and operating losses of businesses classified as discontinued operations:
Fiscal 2000:
Fiscal 1999:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding the members of the Board of Directors of BTG, please consult the sections entitled "Election of Directors" and "Compliance with Section 16 (a) of the Securities Exchange Act" in BTG's definitive proxy statement with respect to our annual meeting of shareholders to be held September 6, 2000 (the "Proxy Statement") to be filed within 120 days after the end of our fiscal year. That information is incorporated herein by reference. Information required to be supplied about the experience of the executive officers is provided in Item 1 of this report. See "Item 1. Business -- Executive Officers."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
For information regarding compensation of BTG's executive officers, please consult the section entitled "Executive Compensation" appearing in the Proxy Statement. That information is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information regarding ownership of BTG's stock, please consult the section entitled "Beneficial Ownership of Common Stock" appearing in the Proxy Statement. That information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding related party transactions, please consult the section entitled "Certain Relationships and Related Transactions" appearing in the Proxy Statement. That information is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statement Schedules. The following additional financial data should be read in conjunction with the Consolidated Financial Statements included in Item 8. Schedules other than those listed below have been omitted because they are inapplicable or are not required.
2. The following exhibits are either filed with this Report or are incorporated herein by reference:
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* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
(c) Exhibits to this Form 10-K are filed herewith, unless incorporated by reference.
(d) Schedules to this Form 10-K are filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of the 29th day of June, 2000.
BTG, INC. -------------------------------------- Registrant
By: /s/ EDWARD H. BERSOFF ------------------------------------ Edward H. Bersoff President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of June 29, 2000.
SCHEDULE VIII
BTG, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEARS ENDED MARCH 31, 2000, 1999, AND 1998 (IN THOUSANDS)