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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 SEPTEMBER 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
CHANTILLY, VA 20151-1010
(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:
<TABLE>
<S> <C>
Class Shares Outstanding at November 1, 2000
---------------------------------------- ---------------------------------------------
Common Stock, $0.005 par value 7,903,432
</TABLE>
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GTSI CORP.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
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
September 30, 2000 and December 31, 1999.....................................3
Consolidated Condensed Statements of Operations for the
Three Months and Nine Months Ended September 30, 2000 and 1999...............4
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999................................5
Notes to Consolidated Condensed Financial Statements............................6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................................9
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. OTHER INFORMATION
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES....................................................................................17
</TABLE>
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GTSI CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash $ 85 $ 149
Accounts receivable, net 148,720 125,179
Merchandise inventories 55,401 41,483
Other current assets 12,195 6,057
------------------- -------------------
Total current assets 216,401 172,868
Property and equipment, net 17,305 12,627
Other assets 864 838
------------------- -------------------
Total assets $ 234,570 $ 186,333
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable to bank $ - $ 9,479
Current portion of note payable 500 500
Accounts payable 151,688 103,871
Accrued warranty liabilities 8,585 9,135
Other accrued expenses 10,909 5,533
------------------- -------------------
Total current liabilities 171,682 128,518
Note payable, less current maturities 1,000 1,500
Other liabilities 4,336 3,119
------------------- -------------------
Total liabilities 177,018 133,137
------------------- -------------------
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 9,203,432 outstanding at September 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 16,673 12,316
Treasury Stock, 602,652 shares at September 30, 2000; and
571,041 shares at December 31, 1999, at cost (2,666) (2,856)
------------------- -------------------
Total stockholders' equity 57,552 53,196
------------------- -------------------
Total liabilities and stockholders' equity $ 234,570 $ 186,333
=================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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GTSI CORP.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------
2000 1999 2000 1999
----------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 206,426 $ 194,494 $ 472,301 $ 468,803
Cost of sales 188,078 181,002 432,075 432,994
------- ---------- ----------- -----------
Gross margin 18,348 13,492 40,226 35,809
Operating expenses 13,740 11,102 37,811 35,977
------- ---------- ----------- -----------
Income (loss) from operations 4,608 2,390 2,415 (168)
Interest income, net (1,049) (358) (1,942) (1,091)
------- ---------- ----------- -----------
Income before taxes 5,657 2,748 4,357 923
Income tax provision - - - -
------- ---------- ----------- -----------
Net income $ 5,657 $ 2,748 $ 4,357 $ 923
======= ========== =========== ===========
Basic net income per share $ 0.61 $ 0.30 $ 0.47 $ 0.10
======= ========== =========== ===========
Diluted net income per share $ 0.61 $ 0.30 $ 0.46 $ 0.10
======= ========== =========== ===========
Basic weighted average shares outstanding 9,256 9,211 9,290 9,291
======= ========== =========== ===========
Diluted weighted average shares outstanding 9,305 9,308 9,490 9,406
======= ========== =========== ===========
</TABLE>
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)
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<CAPTION>
Nine Months Ended
September 30,
-----------------------
(In thousands, except share data) 2000 1999
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,357 $ 923
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,886 2,627
Accounts receivable (23,541) (28,426)
Merchandise inventories (13,918) (16,005)
Other assets (6,163) 96
Accounts payable 47,817 57,781
Other liabilities 6,043 861
------- -------
Net cash provided by operating activities 17,481 17,857
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of property and equipment (3,235) (3,125)
Cost of leased assets (4,330) -
Net proceeds from BTG transaction - 132
------- -------
Net cash used in investing activities (7,565) (2,993)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of bank notes, net (9,479) (14,889)
Payment of note payable (500) -
Proceeds from exercises of stock options and warrants 531 42
Payments of stock repurchase (532) -
------- -------
Net cash used in financing activities (9,980) (14,847)
------- -------
Net (decrease) increase in cash (64) 17
Cash at beginning of period 149 39
------- -------
Cash at end of period $ 85 $ 56
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 840 431
Income taxes - -
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
The company entered into a transaction with BTG on February 10,
1999, resulting in the following non-cash activities:
Treasury 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 - 1,944
Reduction in net receivables from BTG - (1,737)
Note payable to BTG - (2,000)
Assumption of contract warranty liabilities - (1,170)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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GTSI CORP.
NOTES TO CONSOLIDATED CONDENSED 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.
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 is 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 Company is
currently assessing, and has not yet determined, the impact of SAB No. 101 on
its financial statements. Based on its preliminary assessment, the Company does
not believe that the adoption of SAB No. 101 will have a material impact on its
annually reported revenues or its results of operations. However, the adoption
of SAB No 101 may materially impact the timing of revenue and gross margin
recognition between the Company's fiscal quarters within an annual period based
on its shipping and acceptance terms.
The Emerging Issues Task Force (EITF) has issued EITF Issue No. 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent." Consistent
with the requirements under SAB No. 101, EITF No. 99-19 provides guidance
regarding whether a company should report revenue based on (a) the gross amount
billed to a customer because it has earned revenue from the sale of the goods or
services or (b) the net amount retained (that is, the amount billed to a
customer less the amount paid to a supplier) because it has earned a commission
or fee. The Company is currently assessing, and has not yet determined, the
impact of EITF No. 99-19 on its financial statements. The Company is required
to adopt the guidance in EITF No. 99-19 no later than the fourth quarter of
fiscal year 2000. The impact, if any, of adopting the guidance in EITF No.
99-19, would require comparative financial statements for all prior periods
to be reclassified.
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 September 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 Third 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 Third 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.
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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 September 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 September 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.
5. SUBSEQUENT EVENT
In October 2000, the Company repurchased 1.3 million shares of its common stock
for $4.25 per share from BTG, Inc.
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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 product configuration and network
integration services, including 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 workstation and minicomputer products through its competitive
pricing, broad product selection and procurement expertise. The Company provides
its vendors with a cost effective 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 government-wide
acquisition contracts (GWACs), such as 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, pro-active marketing skills, and
customer knowledge to educate customers and to sell products, that both meet
customers' requirements and provide an attractive financial return to the
Company.
The Company executes a broad range of marketing activities including
shows, events, print advertising, direct mail, print collateral, public
realtions, executive contact, outbound telemarketing e-mail, and web
advertising. The Company then facilitates the resulting sales with a broad
range of customer-centric contract vehicles, pre-sales engineers, field sales,
inside sales, and web-based transactions. The Company has invested heavily in
building a sophisticated web site that enables the user to choose between
multiple contracts for optimal price, terms, and conditions.
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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.
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE
-----------------------
PERCENTAGE OF SALES THREE NINE
--------------------------------------- -----------------------
MONTHS MONTHS
THREE NINE ENDED ENDED
MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, SEPTEMBER 30, 1999 TO 1999 TO
2000 1999 2000 1999 2000 2000
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<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 6.1% 0.7%
Cost of sales 91.1% 93.1% 91.5% 92.4% 3.9% -0.2%
-------- -------- -------- --------
Gross margin 8.9% 6.9% 8.5% 7.6% 36.0% 12.3%
-------- -------- -------- --------
Operating expenses:
Selling, general, and 6.2% 5.3% 7.4% 7.1% 22.9% 4.2%
administrative
Depreciation and amortization 0.5% 0.4% 0.6% 0.5% 11.3% 13.0%
-------- -------- -------- --------
Total operating expenses 6.7% 5.7% 8.0% 7.6% 23.8% 5.1%
-------- -------- -------- --------
Income from operations 2.2% 1.2% 0.5% 0.0% 92.8% 1537.5%
Interest income, net -0.5% -0.2% -0.4% -0.2% 193.0% 78.0%
-------- -------- -------- --------
Income before taxes 2.7% 1.4% 0.9% 0.2% 105.9% 372.0%
Income tax provision 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
-------- -------- -------- --------
Net income 2.7% 1.4% 0.9% 0.2% 105.9% 372.0%
======== ======== ======== ========
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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:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------------------------------- --------------------------------------------------------
2000 1999 2000 1999
--------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GSA Schedules $ 74,381 36.0% $ 83,396 42.9% $ 171,103 36.2% $ 188,060 40.1%
IDIQ Contracts 100,461 48.7% 83,723 43.0% 226,675 48.0% 217,629 46.4%
Open Market 22,916 11.1% 22,580 11.6% 50,867 10.8% 52,515 11.2%
Other Contracts 8,668 4.2% 4,795 2.5% 23,656 5.0% 10,599 2.3%
--------------------------- --------------------------- --------------------------- ---------------------------
Total $ 206,426 100.0% $ 194,494 100.0% $ 472,301 100.0% $ 468,803 100.0%
=========================== =========================== =========================== ===========================
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1999
Sales. Sales consist of revenues from product shipments and services
rendered net of allowances for customer returns and credits. Revenues for the
third quarter 2000 were $206.4 million, compared to $194.5 million in the third
quarter of 1999, or an increase of 6.1%.
Gross Margin. Gross margin is sales less cost of goods sold, which
includes product 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 mix of
customer's use of available contract vehicle and the mix of product sold. Gross
margin in the current quarter increased by 2.0 percentage points to 8.9%,
compared to a gross margin of 6.9% in the third quarter of 1999. The increase
in gross margin percentage is primarily due to an increase in contract gross
margin, but better warranty experience, lower software license sales, which
typically have a lower sales margin, lower inventory obsolescence costs,
including net costs associated with customer returns, and lower freight charges
also contributed to the increase compared to the same quarter in 1999.
Operating Expenses. Total operating expenses for the three months ended
September 30, 2000 increased $2.6 million, or 23.8%, from the same period in
1999. The increase in operating expense is primarily the net result of a
increase in compensation costs related to an increase in the number of employees
over the third quarter of 1999. Expressed as a percentage of total sales, total
operating expenses increased to 6.7% from 5.7% in the prior period.
Interest Expense. Net interest income in the third quarter of 2000
increased $691,000 compared to the same period in 1999 due primarily to the
Company's continued utilization of prompt payment discounts.
Income Tax. No provision for income tax has been recognized with respect
the Company's income from operations for the third quarter of 2000 due to the
reversal of tax valuation allowance that fully offset the Company's current tax
expenses for the third quarter of 2000.
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NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Sales. In the nine month period ended September 30, 2000, revenues were
$472.3 million, compared to $468.8 million in the same period in 1999, or a 0.7%
increase. Revenue in the period was negatively affected by the inability of
certain vendors to ship products in a timely manner, purportedly due to parts
shortages. These delays contributed to a $32 million increase in the Company's
backlog of orders versus September 30, 1999.
Gross Margin. During the first nine months of 2000, gross margin dollars
increased by approximately $4.4 million or 12.3%, from the same period in 1999.
Gross margin as a percentage of sales increased by 0.9% to 8.5% from 7.6% in the
same period of 1999. The increase in gross margin dollars is primarily due to
better warranty experience, lower inventory obsolescence charges, including net
costs associated with customer returns.
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 nine months
of 2000 increased by $1.8 million, or 5.1%, from the same period in 1999. The
increase in operating expenses is primarily the net result of an increase in
compensation costs related to additional personnel relative to the same period
in 1999. Expressed as a percentage of total sales, total operating expenses
increased to 8.0% from 7.6% for the first nine months of 1999.
Interest Expense. The $851,000 increase in net interest income in the
first nine months of 2000 as compared to the same period in 1999 was due
primarily to the Company's increased utilization of prompt payment discounts.
Income Tax. No provision for income tax has been recognized with respect
the Company's income from operations for the first nine months of 2000 due to
the reversal of tax valuation allowance that fully offset the Company's current
tax expenses for the first nine months of 2000.
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
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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 is 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 Company is
currently assessing, and has not yet determined, the impact of SAB No. 101 on
its financial statements. Based on its preliminary assessment, the Company does
not believe that the adoption of SAB No. 101 will have a material impact on its
annually reported revenues or its results of operations. However, the adoption
of SAB No. 101 may materially impact the timing of revenue and gross margin
recognition between its fiscal quarters within an annual period based on its
shipping and acceptance terms.
The Emerging Issues Task Force (EITF) has issued EITF Issue No. 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent." Consistent
with the requirements under SAB No. 101, EITF No. 99-19 provides guidance
regarding whether a company should report revenue based on (a) the gross amount
billed to a customer because it has earned revenue from the sale of the goods or
services or (b) the net amount retained (that is, the amount billed to a
customer less the amount paid to a supplier) because it has earned a commission
or fee. The Company is currently assessing, and has not yet determined, the
impact of EITF No. 99-19 on its financial statements. The Company is required
to adopt the guidance in EITF No. 99-19 no later than the fourth quarter of
fiscal year 2000. The impact, if any, of adopting the guidance in EITF No.
99-19, would require comparative financial statements for all prior periods to
be reclassified.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2000, the Company's operating activities
provided $17.5 million of cash flow, compared to the $17.9 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 $7.6 million during the
nine months ended September 30, 2000 compared to $3.0 million for the same
period in 1999 reflecting continued investment in the Company's computers and
software, including Customer Relationship Management initiatives.
During the nine months ended September 30, 2000, the Company's financing
activities used cash of approximately $10 million, primarily related to
increased borrowings under the Company's Credit Facilities and payment against a
note payable. At September 30, 2000 the Company had approximately $50 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 September 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 Third 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
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<PAGE> 13
modifications included the revision of the Credit Facility's term to one year
with a one year automatic renewal.
On, March 31, 1999, the Third 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 September 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 September 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. OTHER INFORMATION - Inapplicable.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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: November 14, 2000
GTSI Corp.
By: /s/ DENDY YOUNG
------------------------------------------
Dendy Young
Chairman and Chief Executive Officer
By: /s/ ROBERT D. RUSSELL
------------------------------------------
Robert D. Russell
Senior Vice President and Chief Financial
Officer
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