<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X ) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 26, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
------------- --------------
Commission file number : 000-23457
ENTEX INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3715291
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
6 International Drive, Rye Brook, N.Y. 10573-1058
(914) 935-3600
(Address, including zip code and telephone number, including area code, of
principal executive offices)
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 and Exchange Act of 1934
during the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days:
YES ( X ) NO ( )
The number of outstanding shares of the Registrant's Common Stock, par value
$.0001 per share, was 32,481,244 (excluding 82,500 treasury shares) on December
26, 1999.
As filed with the Securities and Exchange Commission on February 9, 2000
----------------------------------------------------------------------------
<PAGE> 2
ENTEX INFORMATION SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
Page Numbers
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 26, 1999 and June 27, 1999 2
Consolidated Statements of Operations
for the Three and Six Months Ended December 26, 1999
and December 27, 1998 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended December 26, 1999
and December 27, 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE> 3
ENTEX INFORMATION SERVICES, INC.
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Unaudited
Dec 26, June 27,
1999 1999
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $4,492 $12,546
Trade receivables (net of allowance for doubtful accounts
of $3,869 and $4,905, respectively) 78,674 142,533
Vendor receivables (net of allowance of $1,612 and $4,013,
respectively) 0 5,066
Inventory 13,430 13,939
Other current assets 12,215 10,214
---------- ----------
Total current assets 108,811 184,298
Property, plant and equipment, net 31,426 33,699
Goodwill (net of accumulated amortization
of $3,808 and $3,311, respectively) 10,364 10,860
Other assets, net 3,797 4,898
---------- ----------
Total assets $154,398 $233,755
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $28,313 $49,842
Accrued liabilities 47,097 57,935
Obligations related to discontinued operations 3,732 12,421
Obligations related to restructuring 1,822 4,933
Notes payable and current installments of long-term debt 75,495 104,049
---------- ----------
Total current liabilities 156,459 229,180
---------- ----------
Long-term debt 125,500 124,252
Other long-term liabilities 126 294
---------- ----------
Total long-term liabilities 125,626 124,546
---------- ----------
Total liabilities 282,085 353,726
========== ==========
Stockholders' equity (deficit):
Preferred stock, 2 million shares authorized;
no shares issued or outstanding -- --
Common stock, $.0001 par value; 100 million shares
authorized, 32,481,244 and 32,437,070 shares issued and 3 3
outstanding, respectively
Additional paid-in capital 19,727 19,594
Retained earnings (deficit) (147,326) (139,485)
Treasury stock, shares at cost (2) (2)
Accumulated other comprehensive income (89) (81)
---------- ----------
Total stockholders' equity (deficit) (127,687) (119,971)
========== ==========
Total Liabilities & Stockholders' Equity (deficit) $154,398 $233,755
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
<PAGE> 4
ENTEX INFORMATION SERVICES, INC.
Consolidated Statements of Operations
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
------------------------- ---------------------------
Dec 26, Dec 27, Dec 26, Dec 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $112,389 $121,141 $235,986 $234,990
Costs and expenses:
Cost of services provided 88,051 90,563 181,747 173,656
Inventory charges -- 1,000 -- 1,000
Selling, general and administrative expenses 29,304 39,725 57,001 80,373
Restructuring costs -- 2,000 -- 2,000
Unusual charges -- 1,300 -- 1,300
--------- --------- --------- ---------
Loss from operations (4,966) (13,447) (2,762) (23,339)
Interest expense, net 6,470 9,015 12,108 18,710
Other income -- (575) (1,235) (575)
--------- --------- --------- ---------
Loss before income taxes (11,436) (21,887) (13,635) (41,474)
Provision for income taxes 2 1 6 2
--------- --------- --------- ---------
Loss from continuing operations (11,438) (21,888) (13,641) (41,476)
Discontinued operations:
Income (loss) from operations (net of income tax
expense) 3,000 (12,909) 5,800 (7,121)
--------- --------- --------- ---------
Net loss $ (8,438) $(34,797) $(7,841) $(48,597)
========= ========= ========= =========
Common share data:
Basic and diluted earnings (loss) per common
share:
Continuing operations $ (0.35) $ (0.67) $ (0.42) $ (1.28)
Discontinued operations 0.09 (0.40) 0.18 (0.22)
--------- --------- --------- ---------
Net loss $ (0.26) $ (1.07) $ (0.24) $ (1.50)
========= ========= ========= =========
Basic and diluted weighted average number
of shares of common stock outstanding 32,476,006 32,428,243 32,464,317 32,409,532
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE> 5
ENTEX INFORMATION SERVICES, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
-----------------------------------
December 26, December 27,
1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities $22,851 $19,300
Cash flows from investing activities:
Capital expenditures (3,281) (11,493)
------- --------
Net cash used in investing activities (3,281) (11,493)
------- --------
Cash flows from financing activities:
Proceeds from borrowings 2,849 147,719
Change in cash overdraft 2,998 1,581
Proceeds from sale of common stock, net 133 -
Payments on notes payable and long-term debt (33,604) (151,737)
--------- ----------
Net cash used in financing activities (27,624) (2,437)
--------- ----------
Increase (decrease) in cash equivalents (8,054) 5,370
Cash and cash equivalents at beginning of period 12,546 14,265
--------- ----------
Cash and cash equivalents at end of period $ 4,492 $19,635
========= ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest payments $10,558 $12,849
========= ==========
Tax payments $ 3 $ 817
========= ==========
Equipment purchases through direct financing $ 2,175 $ --
========= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE> 6
ENTEX INFORMATION SERVICES, INC.
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements
included herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion
of management of the Company, the condensed consolidated
financial statements include all adjustments, which consist only
of normal recurring accruals, necessary to present fairly the
financial information for such periods. These condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 27, 1999.
Cash equivalents include short-term, highly liquid investments
with a maturity of three months or less from the date of
acquisition.
Reclassifications of prior-year data have been made, where
appropriate, to conform to the current year presentation.
The results of operations for the three and six months ended
December 26, 1999 are not necessarily indicative of the results
to be expected for the fiscal year ending June 25, 2000.
2. COMPREHENSIVE INCOME
Effective for the quarter ended September 27, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). Comprehensive
income includes both net income and other comprehensive income.
Included in other comprehensive income are foreign currency
translation gains (losses). In accordance with the disclosure
requirements of FAS 130, comprehensive loss for the three and six
months ended December 26, 1999 and December 27, 1998 was $8,446
and $7,849, and $34,795 and $48,566 respectively. Other
comprehensive income (loss) for the three and six months ended
December 26, 1999 and December 27, 1998 was $(8) and $(8), and $2
and $31 respectively.
3. OBLIGATIONS RELATED TO DISCONTINUED OPERATIONS
On May 10, 1999, the Company sold certain assets (inventory, land
and building, and fixed assets) of its TAS Division to Compucom.
The transaction was structured as an asset sale for cash. After
giving effect to the proceeds of $137.4 million received by the
Company for the transaction, and after accounting for the
goodwill, inventories and fixed assets and deal-related expenses,
the transaction resulted in a loss for ENTEX.
The remaining obligations related to discontinued operations of
$3.7 million at December 26, 1999 and $12.4 million at June 27,
1999, respectively, relate to remaining severance payments ($1.5
million and $6.3 million), future lease obligations ($1.0 million
and $1.3 million), transition costs ($0 and $1.3 million) and
allowance for uncollectible trade and vendor receivables ($1.2
million and $3.5 million), and are classified as current
liabilities in the consolidated balance sheet.
Page 5
<PAGE> 7
ENTEX INFORMATION SERVICES, INC.
Notes to Condensed Consolidated Financial Statements
4. OBLIGATIONS RELATED TO RESTRUCTURING CHARGES
In November 1998, the Company's Board of Directors authorized
management actions that resulted in the reorganization of ENTEX's
business to create two operating units: a TAS Division and a
Services Division. The reorganization was intended to reduce
costs and increase operational focus to respond to new market
dynamics.
As a result, a restructuring charge of $14 million ($12 million
for discontinued operations and $2 million for continuing
operations) was recorded during the second fiscal quarter ended
December 27, 1998. The restructuring charge included $7 million
to cover costs related to involuntary severance benefits in
connection with a workforce reduction affecting approximately 450
employees, all of whom left the Company at March 28, 1999. In
addition, the restructuring charge included $7 million in
connection with branch office consolidations, facilities
reductions and other costs. As of June 27, 1999, $9.1 million of
costs had been charged against the reserve. During the six months
ended December 26, 1999, $3.1 million of costs were additionally
charged against the reserve.
The remaining liability of $1.8 million at December 26, 1999 and
$4.9 million at June 27, 1999, respectively, primarily relates to
future lease obligations, net of estimates of sublease income
($1.7 and $4.2 million) and remaining severance payments ($.1
million and $.7 million), and is classified as current
liabilities in the consolidated balance sheet.
5. SUBSEQUENT EVENT
On January 24, 2000, the Company's Board of Directors authorized
management actions that will result in the reorganization of
ENTEX's business to create a more streamlined organization which
will make the Company more competitive, increase the sales
efforts and return the business to profitability.
Page 6
<PAGE> 8
ENTEX INFORMATION SERVICES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ENTEX, a company engaged in principally one line of business, is a leading
provider of distributed computing management solutions to meet the support
requirements of Fortune 1000 companies and other large enterprises for their
local-area networks, wide-area networks, and end-users. ENTEX provides a single
source of service for its customers' personal computer ("PC") and server
platforms including system design, operations support and change management.
This section contains trend analysis and other forward-looking statements based
on current expectations. Actual results may differ materially due to a number of
factors. Reference is made to the Company's Annual Report on Form 10-K for a
further discussion of certain business factors.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net revenues represented by the
items in the Company's statements of operation for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
December 26, December 27, December 26, December 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Cost of services provided 78.3 74.8 77.0 73.9
Inventory charges -- 0.8 -- 0.4
Selling, general and administrative
expenses 26.1 32.8 24.2 34.2
Restructuring costs -- 1.7 -- 0.9
Unusual items -- 1.1 -- 0.6
------ ------ ------ ------
Loss from operations (4.4) (11.2) (1.2) (9.9)
Interest expense, net 5.8 7.4 5.1 8.0
Other income -- (0.5) (0.5) (0.2)
-------- -------- -------- --------
Loss from continuing
operations before income taxes (10.2) (18.1) (5.8) (17.7)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Loss from continuing
operations (10.2) (18.1) (5.8) (17.7)
Discontinued operations 2.7 (10.6) 2.5 (3.0)
-------- -------- -------- --------
Net loss (7.5)% (28.7)% (3.3)% (20.7)%
========= ========= ========= =========
</TABLE>
Page 7
<PAGE> 9
ENTEX INFORMATION SERVICES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
THREE MONTHS ENDED DECEMBER 26, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 27,
1998
Consolidated net loss for the three months ended December 26, 1999 was $8.4
million compared to consolidated net loss of $34.8 million in the three months
ended December 27, 1998. The results for the three months ended December 26,
1999 include income from discontinued operations of $3 million. Excluding this
income, the loss for the quarter ended December 26, 1999 would have been $11.4
million.The results for the three months ended December 27, 1998 include an
inventory charge, restructuring and non-recurring unusual items totaling $4.3
million and loss from discontinued operations of $12.9 million. Excluding these,
the net loss for the quarter ended December 27, 1998 would have been $17.6
million. The improved results are primarily driven by cost reductions in
selling, general and administrative expenses.
Revenues: Revenues were $112.4 million for the three months ended December
26, 1999 as compared to $121.1 million for the three months ended December 27,
1998, a decrease of $8.7 million or 7.2%. The decline reflects softness in
consulting services as customers deferred non mandatory projects as a result of
concerns regarding Y2K.
Gross margin: Gross margin was 21.7% or $24.3 million for the current
quarter as compared to 25.2% or $30.6 million for the three months ended
December 27, 1998. The decline is principally driven by revenue shortfall in
higher margin consulting services as well as the classification of direct
overhead costs for servicing large customers in cost of services provided in
1999 which costs were classified in SG&A in 1998.
Selling, general and administrative expenses: Selling, general and
administrative expenses as a percentage of revenues decreased to 26.1% for the
quarter ended December 26, 1999 from 32.8% in the same period a year ago. For
the three months ended December 26, 1999, selling, general and administrative
expenses were $29.3 million as compared to $39.7 million for the quarter ended
December 27, 1998, a decrease of $10.4 million, primarily reflecting cost
reductions realized as a result of the reorganization announced in the second
quarter ended December 27, 1998 and classification of direct overhead costs of
servicing large customers to cost of services provided.
Loss from operations: Loss from operations was $5.0 million for the three
months ended December 26, 1999 as compared to a loss from operations of $13.4
million in the quarter ended December 27, 1998. Excluding the inventory charge
of $1 million, the restructuring charge of $2 million and the non-recurring
unusual charge of $1.3 million, the loss in the quarter ended December 27, 1998,
would have been $9.1 million.
Interest expense, net: Net interest expense decreased to $6.5 million for
the three months ended December 26, 1999 as compared to $9.0 million for the
three months ended December 27, 1998. The decrease is due to decreased working
capital needs as a result of the sale of the TAS Division, partially offset by
an increase in the IBM Credit Corporation ("IBMCC") borrowing rate.
Other income: Other income for the quarter ended December 27, 1998,
represents a $575,000 gain on the early retirement of debt with maturity of less
than one year.
Discontinued operations: Income from discontinued operations was $3.0
million for the three months ended December 26, 1999. This compares to loss from
discontinued operations of $12.9 million in the quarter ended December 27, 1998.
The income from discontinued operations of $3.0 million reflects better than
anticipated recovery on vendor receivables.
Net income (loss): As a result of the factors mentioned above, the net loss
for the three months ended December 26, 1999 was $8.4 million as compared to net
loss of $34.8 million for the three months ended December 27, 1998.
Page 8
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ENTEX INFORMATION SERVICES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
SIX MONTHS ENDED DECEMBER 26, 1999 COMPARED TO SIX MONTHS ENDED DECEMBER 27,
1998
Consolidated net loss for the six months ended December 26, 1999 was $7.8
million compared to consolidated net loss of $48.6 million in the six months
ended December 27, 1998. The results for the six months ended December 26, 1999
include income from discontinued operations of $5.8 million. Excluding this
income, the net loss for the six months ended December 26, 1999 would have been
$13.6 million. The results for the six months ended December 27, 1998 include an
inventory charge, restructuring charge and non-recurring unusual charge totaling
$4.3 million and loss from discontinued operations of $7.1 million, as
previously discussed. Excluding these, the net loss for the six months ended
December 27, 1998 would have been $37.2 million.
Revenues: Revenues were $236.0 million for the six months ended December
26, 1999 as compared to $235.0 million for the six months ended December 27,
1998, an increase of $1.0 million or 0.4%. Revenue increase in the first fiscal
quarter due to increased demand from existing customers and the addition of new
large accounts was offset by revenue decline in the second fiscal quarter in
consulting services as customers deferred non mandatory projects as a result of
concerns regarding Y2K.
Gross margin: Gross margin was 23.0% or $54.2 million for the six months as
compared to 26.1% or $61.3 million for the six months ended December 27, 1998.
The decline is principally due to classification of direct overhead costs for
servicing large customers in cost of services provided in 1999 which costs were
classified in SG&A in 1998.
Selling, general and administrative expenses: Selling, general and
administrative expenses as a percentage of revenues decreased to 24.2% for the
six months ended December 26, 1999 from 34.2% in the same period a year ago. For
the six months ended December 26, 1999, selling, general and administrative
expenses were $57.0 million as compared to $80.4 million for the six months
ended December 27, 1998, a decrease of $23.4 million, primarily reflecting cost
reductions realized as a result of the reorganization announced in the second
quarter ended December 27, 1998 and classification of direct overhead costs of
servicing large customers to cost of services provided.
Loss from operations: Loss from operations was $2.8 million for the six
months ended December 26, 1999 as compared to a loss from operations of $23.3
million in the six months ended December 27, 1998. The loss in 1998 includes the
inventory, restructuring and unusual charges as previously discussed. Excluding
these items, the loss for the six months ended December 27, 1998 would have been
$19.0 million.
Interest expense, net: Net interest expense decreased to $12.1 million for
the six months ended December 26, 1999 as compared to $18.7 million for the six
months ended December 27, 1998. The decrease is due to decreased working capital
needs as a result of the sale of the TAS Division partially offset by higher
borrowing rates.
Other income: Other income for the six months ended December 26, 1999 and
December 27, 1998 represents a $1.2 million and $575,000 gain on the early
retirement of debt with maturity of less than one year.
Discontinued operations: Income from discontinued operations was $5.8
million for the six months ended December 26, 1999. This compares to loss from
discontinued operations of $7.1 million in the six months ended December 27,
1998. The income from discontinued operations of $5.8 million reflects better
than anticipated recovery on vendor receivables.
Page 9
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ENTEX INFORMATION SERVICES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net income (loss): As a result of the factors mentioned above, the net loss
for the six months ended December 26, 1999 was $7.8 million as compared to net
loss of $48.6 million for the six months ended December 27, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations principally with borrowings under a
working capital line of credit (the "IBM Working Capital Line of Credit") with
IBMCC. Cash provided by operating activities was $22.9 million for the six
months ended December 26, 1999 compared to $19.3 million for six months ended
December 27, 1998.
Cash provided by operations during the six months ended December 26, 1999
resulted primarily from changes in operating assets and liabilities, principally
receivables of the TAS Division.
Cash used in investing activities (capital expenditures) was $3.3 million
during the six months ended December 26, 1999 compared with $11.5 million during
the six months ended December 27, 1998.
Cash used in financing activities was $27.6 million during the six months
ended December 26, 1999 compared to $2.4 million during the six months ended
December 27, 1998. During the six months ended December 26, 1999, cash received
from the winddown of TAS Division receivables was used to pay down interest
bearing debt. During July 1998, the Company issued $100 million of 12 1/2%
Senior Subordinated Notes due 2006. The net proceeds were used to repay
outstanding indebtedness of the Company, resulting in an increase in working
capital of approximately $74 million.
As of December 26, 1999, the Company's primary source of liquidity
consisted of financing provided by IBMCC . The IBMCC Working Capital Line of
Credit is asset based, and provides for borrowings of up to $100 million subject
to available collateral. The interest bearing portion was $72.7 million as of
December 26, 1999. The amount of available borrowings and such line of credit
expire on July 31, 2001, and can be reduced or terminated by IBMCC upon 60 days'
prior notice. Amounts outstanding under the IBMCC Working Capital Line of Credit
bear interest at LIBOR plus 3.00% (8.6% at December 26, 1999). On December 21,
1999, the Company executed an amendment to the IBM Working Capital Line of
Credit to extend to March 31, 2000 its existing overadvance from its previously
scheduled termination date of December 21, 1999. The overadvance permits the
Company to borrow up to $20 million in excess of what would otherwise have been
allowed under the collateral formula in the IBM Working Capital Line of Credit.
The overadvance bears interest at LIBOR plus 5.5%, (11.1% at December 26,1999).
IBMCC also agreed to modifications of the financial covenants in the IBM Working
Capital Line of Credit requested by the Company. The Company is in negotiations
with IBMCC for an extension of such overadvance beyond March 31, 2000 if
required. Simultaneously with execution of the amendment of the IBM Working
Capital Line of Credit, the Company's principal stockholder, Mr. Dort A. Cameron
III, guaranteed up to $20 million of the Company's obligations to IBMCC, and
purchased from IBMCC an outstanding option to purchase from Mr. Cameron
1,851,850 shares of the Company's common stock. Mr. Cameron initially granted
this option to IBMCC in 1993. The purchase price for the option was $3 million
in cash, payable not later than March 31, 2000, and an additional amount equal
to the excess, if any, of 1,851,850 multiplied by the highest per-share price of
the Company's common stock obtained by Mr. Cameron or any of his affiliates
during the period ending one year after the execution of the option purchase
agreement over the initial $3 million amount. The additional amount, if any, is
payable upon the consummation of any subsequent transactions in which more than
50% of the Company's common stock is sold.
Page 10
<PAGE> 12
ENTEX INFORMATION SERVICES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
If no such sale occurs within one-year period, the original option will be
reinstated with the aggregate exercise price increased by $3 million.
These transactions provide the Company with continued access to $20 million
in liquidity under the IBM Working Capital Line of Credit that otherwise would
have been unavailable and will enable the Company to support its ongoing
business and to fund its debt service obligations in the near term. The
continued availability of these working capital resources will also provide
additional time for the Company to complete the repositioning of its business to
one providing services only. The Company is in the process of pursuing various
alternatives to raise additional funds through public or private equity or debt
financing or from other sources to meet its liquidity needs. However, there can
be no assurance that the Company will be able to raise such additional funding.
The IBMCC Financing Agreement contains restrictive covenants with respect
to maintenance of minimum tangible net worth, current ratio and fixed charge
coverage. In addition, the IBMCC Financing Agreement prohibits the Company from
paying cash dividends on common stock. At December 26, 1999, the Company was in
compliance with such covenants.
At December 26, 1999, the Company had no material commitments other than
obligations under its credit facilities, term notes and operating lease
facilities.
YEAR 2000 UPDATE
Operations of the Company have not been impacted to date by any Year 2000
related issues. To mitigate any future risk the Company's Year 2000 Team will
remain intact through March 31, 2000 to respond to any issues that may arise.
Page 11
<PAGE> 13
ENTEX INFORMATION SERVICES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
The Company is exposed to interest rate risk primarily through
its asset based financing agreement. The Company utilizes these
borrowings to meet its working capital needs. As of December 26,
1999, the Company had borrowings of approximately $72.7 million
outstanding, which have a variable interest rate of 8.6%. Using a
yield to maturity analysis and assuming an increase in interest
rate on these borrowings of 25 basis points, future annual cash
flows would be effected by $.2 million. All other borrowings are
at fixed interest rates and therefore market interest rate
variability does not impact their future cash flows.
Currently, the Company does not enter into financial instruments
for trading or other speculative purposes or to manage interest
rate exposure.
Page 12
<PAGE> 14
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
(27) Financial Data Schedule.
(b) ENTEX filed reports on Form 8-K during the fiscal quarter
ended December 26, 1999. A 8-K related to Amendment No. 19 to
the Fourth Amended and Restated Agreement for Wholesale
Financing by and between the Company and IBM Credit
Corporation dated as of December 21, 1999 was filed on
January 6, 2000.
Page 13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENTEX Information Services, Inc.
--------------------------------
(Registrant)
February 9, 2000 Kenneth A. Ghazey
--------------------------------
Kenneth A. Ghazey
President
February 9, 2000 Shirley S. Mehta
--------------------------------
Shirley S. Mehta
Vice President and Controller
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> JUN-28-1999
<PERIOD-END> DEC-26-1999
<CASH> 4,492
<SECURITIES> 0
<RECEIVABLES> 82,543
<ALLOWANCES> 3,869
<INVENTORY> 13,430
<CURRENT-ASSETS> 108,811
<PP&E> 75,488
<DEPRECIATION> 40,698
<TOTAL-ASSETS> 154,398
<CURRENT-LIABILITIES> 156,459
<BONDS> 125,500
0
0
<COMMON> 3
<OTHER-SE> (127,690)
<TOTAL-LIABILITY-AND-EQUITY> 154,398
<SALES> 0
<TOTAL-REVENUES> 235,986
<CGS> 0
<TOTAL-COSTS> 181,747
<OTHER-EXPENSES> 57,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,108
<INCOME-PRETAX> (13,635)
<INCOME-TAX> 6
<INCOME-CONTINUING> (13,641)
<DISCONTINUED> 5,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,841)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
