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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NO. 0-19394
GTSI CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1248422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3901 STONECROFT BOULEVARD
(Address and zip code of principal executive offices)
703-502-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Class Shares Outstanding at August 1, 2000
- --------------------------------- ----------------------------------
Common Stock, $0.005 par value 9,307,180
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GTSI CORP.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS PAGE
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COVER PAGE..................................................................................1
TABLE OF CONTENTS...........................................................................2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS -
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999...................................3
Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 2000 and 1999..............4
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999...............................5
Notes to Consolidated Financial Statements................................6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............15
PART II - OTHER INFORMATION................................................................16
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES.................................................................................17
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GTSI CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
--------------------- ----------------------
(Unaudited) (Audited)
Current Assets:
Cash $ 28 $ 149
Accounts Receivable, net 98,265 125,179
Merchandise Inventories 35,154 41,483
Net deferred taxes and other 11,259 6,057
--------------------- ----------------------
Total current assets 144,706 172,868
Property and equipment, net 12,955 12,627
Net deferred taxes and other 864 838
--------------------- ----------------------
Total assets 158,525 186,333
===================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - $ 9,479
Current portion of long-term debt 500 500
Accounts payable 83,409 103,871
Accrued liabilities 17,796 14,668
--------------------- ----------------------
Total current liabilities 101,705 128,518
Long-term debt, less current maturities 1,000 1,500
Other liabilities 3,611 3,119
--------------------- ----------------------
Total liabilities 106,316 133,137
--------------------- ----------------------
Commitments and contingencies
Stockholders' equity
Preferred Stock - $0.25 par value; 680,850 shares authorized;
none issued or outstanding - -
Common Stock - $0.005 par value; 20,000,000 share authorized
9,806,084 issued and 9,320,224 outstanding at June 30,
2000; and 9,806,084 issued and 9,235,043 outstanding at
December 31, 1999 49 49
Capital in excess of par value 43,496 43,687
Retained earnings 11,014 12,316
Treasury Stock, 485,140 shares at June 30, 2000; and
571,041 shares at December 31, 1999, at cost (2,350) (2,856)
--------------------- ----------------------
Total stockholders' equity 52,209 53,196
===================== ======================
Total liabilities and stockholders' equity $ 158,525 $ 186,333
===================== ======================
The accompanying notes are an integral part of these
consolidated financial statements.
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GTSI CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- --------------------------------
2000 1999 2000 1999
--------------- ------------------- -------------- ------------------
Sales $ 136,613 $ 148,760 $ 265,875 $ 274,309
Cost of Sales 124,515 136,514 243,998 251,991
--------------- ------------------- -------------- ------------------
Gross Margin 12,098 12,246 21,877 22,318
Operating expenses 11,978 12,345 24,071 24,875
--------------- ------------------- -------------- ------------------
Income (loss) from operations 119 (99) (2,194) (2,557)
Interest (income) expense, net (154) (168) (893) (733)
--------------- ------------------- -------------- ------------------
Income (loss) before taxes 273 69 (1,301) (1,824)
Income tax benefit - - - -
--------------- ------------------- -------------- ------------------
Net income (loss) $ 273 $ 69 $ (1,301) $ (1,824)
=============== =================== ============== ==================
Basic net income (loss) per share 0.03 0.01 (0.14) (0.20)
=============== =================== ============== ==================
Diluted net income (loss) per share
0.03 0.01 (0.14) (0.20)
=============== =================== ============== ==================
Basis weighted average shares outstanding 9,336 9,200 9,308 9,332
=============== =================== ============== ==================
Diluted weighted average shares outstanding 9,351 9,859 9,308 9,332
=============== =================== ============== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
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GTSI CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
SIX MONTHS ENDED
JUNE 30,
--------------------------------------------
2000 1999
--------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,301) $ (1,824)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 1,905 1,787
Accounts receivable 26,914 1,551
Merchandise inventories 6,330 8,722
Other assets (5,227) 834
Accounts payable (20,462) 10,308
Other liabilities 3,619 (327)
--------------------------------------------
Net cash provided by operating activities 11,778 21,051
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of property and equipment (2,233) (2,244)
Net proceeds from BTG transaction 132
--------------------------------------------
Net cash used in investing activities (2,233) (2,112)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of bank notes, net (9,480) (14,889)
Payments of long term debt, net (500) -
Proceeds from exercises of stock options and warrants 314 42
--------------------------------------------
Net cash used in financing activities (9,666) (14,847)
--------------------------------------------
Net (decrease) increase in cash (121) 4,092
Cash at beginning of period 149 39
--------------------------------------------
Cash at end of period $ 28 $ 4,131
============================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 811 $ 397
Income taxes
- -
The Company entered into a transaction with BTG on February 10, 1999,
resulting in the following non-cash activities:
Treasry stock acquired (600,000 shares at $4.9375 per share $ - $ 2,963
Option received from BTG to repurchase 1.3 million shares of
GTSI common stock...................................................... - 1944
Reduction in net receivables from BTG....................................... - (1,737)
Note payable to BTG......................................................... - (2,000)
(1170)
Assumption of contract warranty liabilities................................. -
The accompanying notes are an integral part of these
consolidated financial statements.
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GTSI CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements of GTSI
Corp. ("GTSI" or the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and, therefore,
omit or condense certain footnotes and other information normally included in
financial statements prepared in accordance with generally accepted accounting
principles. This report should be read in conjunction with the audited
financials for the year ended December 31, 1999 and the accompanying Notes to
the Financial Statements, contained in the Company's 1999 Annual Report on Form
10-K. In the opinion of Management, all adjustments, consisting primarily of
normal recurring adjustments, necessary for a fair presentation of interim
period results have been made. The interim results reflected in the consolidated
financial statements are not necessarily indicative of results expected for the
full year, or future periods.
Certain amounts from prior years have been reclassified to conform to the
current year financial statement presentation.
New Accounting Pronouncements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company will be required to adopt the guidance in SAB No. 101 no later than the
fourth quarter of fiscal year 2000, with the guidance being effective January 1,
2000. The SEC staff may issue additional guidance later this fiscal year, which
may change the Company's interpretation of SAB No. 101. The Company is currently
assessing, and has not yet determined, the impact of SAB No. 101 on its
financial statements.
2. NOTES PAYABLE TO BANKS
On May 2, 1996, the Company executed a three-year credit facility with a
bank (the "Principal Lender") for $40.0 million and a one-year credit facility
with the other lenders for an additional $55.0 million (collectively, the
"Credit Facility"). Additionally, on June 27, 1996, the Company executed a
separate $10.0 million facility with the Principal Lender for inventory
financing of vendor products (the "Wholesale Financing Facility").
On July 28, 1997, the Company and its banks executed the Second Amended
and Restated Business Credit and Security Agreement (the "Credit Agreement") to
modify some of the terms and conditions, as well as the amounts available under
the Credit Facility and the Wholesale Financing Facility. These modifications
included the revision of the Credit Facility's term to one year with a one year
automatic renewal.
On, March 31, 1999, the Second Amended and Restated Business Credit
Agreement of July 28, 1997 was amended to make the Tangible Net Worth
requirement for the Company an amount no less than $40 million at all times
beginning the calendar quarter ending March 31, 1999 and each calendar quarter
thereafter. All other material terms of the Credit Agreement remained the same.
On, November 24, 1999, the Company and its banks executed separate
amendments, effective December 1, 1999, for the continuation of the Credit
Agreement through November 30, 2000 with an automatic one year renewal, and
adjusting, among other things, the seasonality of the amount available under the
Credit Facility. The limit of the Credit Facility is $50 million during the
period July 1 through January 31. During the period February 1 through April 30,
the total amount available under the Credit Facility is limited to $30 million.
During the period May 1 though June 30, the total amount available under the
Credit Facility is $20 million. In addition, the interest rate under the Credit
Facility is a rate of the London Interbank Offered Rate (LIBOR) plus
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1.75%. The Wholesale Financing Facility was also amended effective December 1,
1999 to $50.0 million throughout the fiscal year.
Borrowing is limited to 85% of eligible accounts receivable. The Credit
Facility is secured by substantially all of the operating assets of the Company.
Current obligations are first funded and then all cash receipts are
automatically applied to reduce outstanding borrowings. The Credit Facility also
contains certain covenants that include restrictions on the payment of dividends
and the repurchase of the Company's Common Stock, as well as provisions
specifying compliance with certain quarterly and annual financial statistical
ratios. At June 30, 2000, the Company was in compliance with all financial
covenants set forth in the credit facility.
The Company anticipates that it will continue to rely primarily on
operating cash flow, bank loans and vendor credit to finance its operating cash
needs. The Company believes that such funds should be sufficient to satisfy the
Company's near term anticipated cash requirements for operations. Nonetheless,
the Company may seek additional sources of capital, including permanent
financing over a longer term at fixed rates, to finance its working capital
requirements. The Company believes that such capital sources will be available
to it on acceptable terms, if needed.
3. PROPERTIES
The Company's executive offices are located in an approximately
100,500-square foot facility in Chantilly, Virginia under a lease expiring in
November 2009, with one five-year option. GTSI's warehousing and distribution
operations are also located in Chantilly, Virginia in a separate 200,000-square
foot facility under a lease expiring in December 2006. The Company also has a
branch sales office occupying 139 square meters in Mannheim, Germany. The
Company also subleases a 20,000 square foot distribution center in Chattanooga,
Tennessee under a sublease, which expires on March 31, 2001.
4. COMMITMENTS AND CONTINGENCIES
The Company is occasionally a defendant in litigation incidental to its
business. The Company believes that none of such litigation currently pending
against it, individually or in the aggregate, will have a material adverse
effect on the Company's financial condition or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the Consolidated
Financial Statements and Notes thereto included elsewhere in this Report, as
well as the Company's consolidated financial statements and notes thereto
incorporated into its Annual Report on Form 10-K for the year ended December 31,
1999. Historical results and percentage relationships among any amounts in the
Consolidated Financial Statements are not necessarily indicative of trends in
operating results for any future period.
OVERVIEW
GTSI Corp. ("GTSI" or the "Company") is a leading business to Government
marketer (B2G) of microcomputer and Unix workstation hardware, software and
networking products to the Federal government market. The Company currently
offers access to over 150,000 information technology products from more than
2,100 manufacturers. GTSI also performs network integration services, including
configuring, installing and maintaining microcomputers in local area networks.
The Company sells to virtually all departments and agencies of the Government,
many state governments and several hundred systems integrators and prime
contractors that sell to the government market. GTSI offers its customers a
convenient and cost-effective centralized source for microcomputer and
workstation products through its competitive pricing, broad product selection
and procurement expertise. The Company provides its vendors with a low-cost
marketing and distribution channel to the millions of end users comprising the
government market, while virtually insulating these vendors from most of the
complex government procurement rules and regulations.
Changes in sales throughout the Company's history have been attributable
to increased or decreased unit sales, to expansion of the Company's product
offerings (e.g., peripherals, microcomputers and networking and workstation
products, from 1985 through 1992); to the addition of new vendors (e.g., IBM,
Sun, Panasonic, Apple and Nexar, from 1988 through 1996, and Cisco in 1998); and
to the addition, renewal or expiration of sales contract vehicles (e.g., the
addition of the SEWP II Contract, the NIH ECS-II Contract, the TDA-1 Contract,
the STAMIS Contract and the PC-3 Contract, from 1997 through 1999, and the
expiration of the Companion Contract in 1995 and Desktop IV systems ordering in
1996). The Company's financial results have fluctuated seasonally, and may
continue to do so in the future, because of the Government's buying patterns
which have historically favorably impacted the last two calendar quarters and
adversely affected the first two calendar quarters.
The Company's primary strategy is to focus on its core GSA Schedule and
IDIQ business, and to compete aggressively on bids in order to win as many
contract vehicles as possible under the various purchasing programs available to
it in the government market. With these contract vehicles in place, it is then
possible for the Company to use its significant product base and marketing
knowledge to sell products, which both meet customers' requirements and provide
an attractive financial return to the Company.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that selected items within the statement of operations bear to sales
and the annual percentage changes in the dollar amounts of such items.
PERCENTAGE
CHANGE
--------------------------
PERCENTAGE OF SALES THREE SIX
------------------------------------------------
MONTHS MONTHS
THREE SIX ENDED ENDED
MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30,
JUNE 30, JUNE 30, 1999 TO 1999 TO
2000 1999 2000 1999 2000 2000
------------------------ ----------------------- --------------------------
Sales 100.0% 100.0% 100.0% 100.0% (8.2%) (3.1)
Cost of sales 91.1 91.8 91.8 91.9 (8.8) (3.2)
----------- ------------ ----------- -----------
Gross margin 8.9 8.2 8.2 8.1 (1.2) (2.0)
----------- ------------ ----------- -----------
Operating expenses:
Selling, general, and
administrative 8.1 7.8 8.3 8.4 (4.9) (4.0)
Depreciation and amortization 0.7 0.5 0.7 0.7 2.6 6.6
----------- ------------ ----------- -----------
Total operating expenses 8.8 8.3 9.0 9.1 (3.0) (3.2)
----------- ------------ ----------- -----------
Income (loss) from operations 0.1 (0.1) (0.8) (1.0) 220.4 14.2
Interest (income) expense, net (0.1) (0.1) (0.3) (0.3) (8.6) 21.8
----------- ------------ ----------- -----------
Income (loss) before taxes 0.2 (0.0) (0.5) (0.7) 298.6 28.7
Income tax benefit - - - -
----------- ------------ ----------- -----------
Net income (loss) 0.2 (0.0) (0.5) (0.7) 298.6 28.7
=========== ============ =========== ===========
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The following table sets forth, for the periods indicated, the
approximate sales by category, along with the related percentages of total
sales:
Three months ended June 30, Six months ended June 30,
------------------------------------------------ ------------------------------------------------
2000 1999 2000 1999
----------------------- ----------------------- ----------------------- -----------------------
GSA Schedules $ 51,754 37.9% $ 61,223 41.2% $ 96,721 36.4% $ 104,868 38.2%
IDIQ Contracts 64,051 46.9% 68,883 46.3% 126,214 47.5% 133,700 48.7%
Open Market 14,571 10.7% 14,981 10.1% 27,951 10.5% 29,936 10.9%
Other Contracts 6,237 4.5% 3,673 2.4% 14,989 5.6% 5,805 2.2%
----------------------- ----------------------- ----------------------- -----------------------
Total 136,613 100.0% 148,760 100.0% 265,875 100.0% 274,309 100.0%
======================= ======================= ======================= =======================
THREE MONTHS ENDED JUNE 30, 2000 COMPARED
WITH THE THREE MONTHS ENDED JUNE 30, 1999
Sales. Sales consist of revenues from product shipments and services
rendered net of allowances for customer returns and credits. Revenues for the
quarter were $136.6 million, compared to $148.8 million in the second quarter of
1999. Revenues decreased primarily as a result of delayed purchases of
enterprise software in several large agency accounts.
Gross Margin. Gross margin is sales less cost of goods sold, which
includes product purchase cost, freight, warranty maintenance cost and certain
other overhead expenses related to the cost of acquiring products. Gross margin
percentages vary over time and may change significantly depending on the
contract vehicle and the mix of product sold. Gross margin in the current
quarter increased by 0.7 percentage points to 8.9%, compared to a gross margin
of 8.2% in the second quarter of 1999. The increase in gross margin percentage
is in part due to lower inventory obsolescence charges, as a result of better
inventory management and lower customer returns. In addition, freight charges
and warranty expenses were lower this quarter versus the second quarter of 1999.
Freight charges were lower due primarily to a change in the mix of sales among
contract vehicles, and warranty expense was favorable due primarily to better
warranty experience.
Operating Expenses. Total operating expenses for the three months ended
June 30, 2000 decreased $367,000, or 3.0%, from the same period in 1999. The
reduction in operating expense is primarily the net result of a decrease in
compensation costs offset by a net increase in other operating expense,
including an increase in depreciation expense. Expressed as a percentage of
total sales, total operating expenses increased to 8.8% from 8.3% in the prior
period. Since operating expenses decreased from the same period in 1999, the
increase as a percentage of sales is due to the reduced level of sales in the
quarter compared with the same period a year ago.
Interest Expense. The $14,000 decrease in net interest income in the
second quarter of 2000 was comparable to the same period in 1999 due primarily
to the Company's continued utilization of prompt payment discounts.
Income Tax. No income tax expense was recorded in the second quarter
since the Company has a net loss on a year-to-date basis. Also, no tax benefit
was recognized with respect the Company's loss in the first six months of 2000
as the Company determined that certain net deferred assets did not satisfy the
recognition criteria set forth in the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
SIX MONTHS ENDED JUNE 30, 2000 COMPARED
WITH THE SIX MONTHS ENDED JUNE 30, 1999
Sales. In the six month period ended June 30, 2000, revenues were $265.9
million, compared to $274.3 million in the same period in 1999. The 3.1% decline
in revenue was primarily due to a combination of delayed purchases of enterprise
software in several large agency accounts in the current quarter and by slower
sales related to the Y2K concerns by customers in the first quarter of 2000.
Gross Margin. During the first six months of 2000, gross margin dollars
decreased by approximately $441,000 or 2.0%, from the same period in 1999.
However, gross margin as a percentage of sales increased by one tenth of a
percentage point to 8.2% from 8.1% in the same period of 1999. The reduction in
gross margin dollars is primarily attributable to a lower volume in the current
period versus the same period in 1999. The change in gross margin percentages
can be impacted by a variety of factors and is not necessarily indicative of
gross margin percentages to be earned in future periods.
Operating Expenses. Total operating expenses for the first six months of
2000 decreased by $804,000, or 3.2%, from the same period in 1999. The
reduction in operating expenses is primarily the net result of an increase in
depreciation charges and a relative increase in reserves for bad debts, which
were more than offset by reductions in other net operating expenses. Expressed
as a percentage of total sales, total operating expenses remained approximately
the same as in the first six months of 1999 at 9.1%, reflecting the Company's
ability to match operating expenses with the reduced level of sales. The
ability to maintain the relationship of operating expenses to sales in the
current period is not indicative of the ability to maintain this relationship
in future periods.
Interest Expense. The $159,833 increase in net interest income in the
first six months of 2000 as compared to the same period in 1999 was due
primarily to the Company's increased utilization of prompt payment discounts in
the first quarter of 2000.
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Income Tax. No tax benefit was recognized with respect the Company's loss
in the first six months of 2000 as the Company determined that certain net
deferred assets did not satisfy the recognition criteria set forth in the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
SEASONAL FLUCTUATIONS AND OTHER FACTORS
The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its operations as a result of
Government buying and funding patterns, which also impact the buying patterns of
GTSI's prime contractor customers. These buying and funding patterns
historically have had a significant positive effect on GTSI's bookings in the
third quarter ending September 30 each year (the Government's fiscal year end),
and consequently on sales and net income in the third and fourth quarters of
each year. Quarterly financial results are also affected by the timing of the
award of and shipments of products under government contracts, price competition
in the microcomputer and workstation industries, the addition of personnel or
other expenses in anticipation of sales growth, product line changes and
expansions, and the timing and costs of changes in customer and product mix. In
addition, customer order deferrals in anticipation of new product releases by
leading microcomputer and workstation hardware and software manufacturers,
delays in vendor shipments of new or existing products, a shift in sales mix to
more complex requirements contracts with more complex service costs, and vendor
delays in the processing of incentives and credits due GTSI, have occurred (all
of which are also likely to occur in the future) and have adversely affected the
Company's operating performance in particular periods. The seasonality and the
unpredictability of the factors affecting such seasonality make GTSI's quarterly
and yearly financial results difficult to predict and subject to significant
fluctuation. The Company's stock price could be adversely affected if any such
financial results fail to meet the financial community's expectations.
Additionally, legislation is periodically introduced in Congress that may
change the Government's procurement practices. GTSI cannot predict whether any
legislative or regulatory proposals will be adopted or, if adopted, the impact
upon its operating results. Changes in the structure, composition and/or buying
patterns of the Government, either alone or in combination with competitive
conditions or other factors, could adversely affect future results.
New Accounting Pronouncements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company will be required to adopt the guidance in SAB No. 101 no later than the
fourth quarter of fiscal year 2000, with the guidance being effective January 1,
2000. The SEC staff may issue additional guidance later this fiscal year, which
may change the Company's interpretation of SAB No. 101. The Company is currently
assessing, and has not yet determined, the impact of SAB No. 101 on its
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2000, the Company's operating activities
provides $11.8 million of cash flow, compared to the $21.1 million of cash flow
provided for the same period in 1999. The decrease from year to year relates
primarily to the Company's use of strategic payments to generate favorable cash
discounts and also reflects the timing of payments made on accounts payable
balances outstanding at year end 1999.
Investing activities used cash of approximately $2.2 million during the
six months ended June 30, 2000 compared to $2.1 million for the same period in
1999 reflecting continued investment in the Company's Customer Relationship
Management initiatives.
During the six months ended June 30, 2000, the Company's financing
activities used cash of approximately $9.7 million, primarily related to
increased borrowings under the Company's Credit Facilities and payment against a
note payable. At June 30, 2000 the Company had approximately $20 million
available for borrowing under its credit facility.
On May 2, 1996, the Company executed a three-year credit facility with a
bank (the "Principal Lender") for $40.0 million and a one-year credit facility
with the other lenders for an additional $55.0 million (collectively, the
"Credit Facility"). Additionally, on June 27, 1996, the Company executed a
separate $10.0 million facility with the Principal Lender for inventory
financing of vendor products (the "Wholesale Financing Facility").
On July 28, 1997, the Company and its banks executed the Second Amended
and Restated Business Credit and Security Agreement (the "Credit Agreement") to
modify some of the terms and conditions, as well as
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the amounts available under the Credit Facility and the Wholesale Financing
Facility. These modifications included the revision of the Credit Facility's
term to one year with a one year automatic renewal.
On, March 31, 1999, the Second Amended and Restated Business Credit
Agreement of July 28, 1997 was amended to make the Tangible Net Worth
requirement for the Company an amount no less than $40 million at all times
beginning the calendar quarter ending March 31, 1999 and each calendar quarter
thereafter. All other material terms of the Credit Agreement remained the same.
On, November 24, 1999, the Company and its banks executed separate
amendments, effective December 1, 1999, for the continuation of the Credit
Agreement through November 30, 2000 with an automatic one year renewal, and
adjusting, among other things, the seasonality of the amount available under the
Credit Facility. The limit of the Credit Facility is $50 million during the
period July 1 through January 31. During the period February 1 through April 30,
the total amount available under the Credit Facility is limited to $30 million.
During the period May 1 though June 30, the total amount available under the
Credit Facility is $20 million. In addition, the interest rate under the Credit
Facility is a rate of the London Interbank Offered Rate (LIBOR) plus 1.75%. The
Wholesale Financing Facility was also amended effective December 1, 1999 to
$50.0 million throughout the fiscal year.
Borrowing is limited to 85% of eligible accounts receivable. The Credit
Facility is secured by substantially all of the operating assets of the Company.
Current obligations are first funded and then all cash receipts are
automatically applied to reduce outstanding borrowings. The Credit Facility also
contains certain covenants that include restrictions on the payment of dividends
and the repurchase of the Company's Common Stock, as well as provisions
specifying compliance with certain quarterly and annual financial statistical
ratios. At June 30, 2000, the Company was in compliance with all financial
covenants set forth in the credit facility.
The Company anticipates that it will continue to rely primarily on
operating cash flow, bank loans and vendor credit to finance its operating cash
needs. The Company believes that such funds should be sufficient to satisfy the
Company's near term anticipated cash requirements for operations. Nonetheless,
the Company may seek additional sources of capital, including permanent
financing over a longer term at fixed rates, to finance its working capital
requirements. The Company believes that such capital sources will be available
to it on acceptable terms, if needed.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Form 10-Q, including certain documents incorporated herein by
reference, contains "forward-looking" statements that involve certain risks and
uncertainties. Actual results may differ materially from results express or
implied by such forward-looking statements, based on numerous factors. Such
factors include, but are not limited to, competition in the government markets,
buying patterns of the Company's customers, general economic and political
conditions, results of negotiations with the Company's lenders concerning a new
credit facility, changes in laws and government procurement regulations, and
other risks described in this Form 10-Q and in the Company's other SEC filings.
For these statements, the Company claims the protection of the safe harbor for
forward-looking statements under the Private Securities Litigation Reform Act of
1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is occasionally a defendant in litigation incidental to
its business. The Company believes that none of such litigation currently
pending against it, individually or in the aggregate, will have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - Inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on May 16,
2000 and reconvened on June 20, 2000.
(b) At said Annual Meeting, the Company's stockholders: (1) changed
the Company's name from Government Technology Services, Inc. to
GTSI Corp.; (2) amended the Company's Certificate of Incorporation
to create a classified board of directors and to change certain
stockholders rights; (3) elected six members to serve on the
Company's Board of Directors; and (4) amended the 1991 employee
stock purchase plan to extend its term to November 7, 2001 and
increased by 500,000 the number of shares issuable thereunder.
Votes
Votes Withheld or
For Against Abstentions
---------------- ---------------- -----------------
CHANGE OF COMPANY NAME: 7,281,137 13,832 17,930
Amendments to Certificate of 4,842,870 1,763,207 70,359
INCORPORATION:
(Broker non-vote: 636,463)
DIRECTORS:
Lee Johnson 7,037,719 275,180 -
Steven Kelman, Ph.D. 7,035,694 277,205 -
James J. Leto 7,040,214 272,685 -
Lawrence J. Schoenberg 7,033,419 279,480 -
John M. Toups 7,037,519 275,380 -
M. Dendy Young 7,039,336 273,910 -
Increase in 1991 Employee Stock 4,401,559 966,234 28,515
Purchase Plan:
(Broker non-vote: 1,916,551)
ITEM 5. OTHER INFORMATION - Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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10.47 Government Technology Services, Inc. 1991 Employee Stock
Purchase Plan, as amended.
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 15, 2000
GTSI CORP.
By: /s/ DENDY YOUNG
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Dendy Young
Chairman and Chief Executive Officer
By: /s/ ROBERT D. RUSSELL
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Robert D. Russell
Senior Vice President and Chief Financial Officer