-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T/pRMYqncyx5q2X2t357EcOpmkTgmj0g8wRacoQowG3DYKIaKJS2rMSLuSPyitF0 k1BKWapzua0s6Io/XWiefA== 0001005477-00-004061.txt : 20000516 0001005477-00-004061.hdr.sgml : 20000516 ACCESSION NUMBER: 0001005477-00-004061 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOVERNMENT TECHNOLOGY SERVICES INC CENTRAL INDEX KEY: 0000850483 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 541248422 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19394 FILM NUMBER: 634656 BUSINESS ADDRESS: STREET 1: 3901 STONECROFT BLVD CITY: CHANTILLY STATE: VA ZIP: 20151-0808 BUSINESS PHONE: 703-502-2000 MAIL ADDRESS: STREET 1: 4100 LAFAYETTE CTR DRIVE CITY: CHANTILLY STATE: VA ZIP: 22021-0808 10-Q 1 FORM 10-Q ================================================================================ 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 MARCH 31, 2000 Commission File No. 0-19394 GOVERNMENT TECHNOLOGY SERVICES, INC. (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 May 1, 2000 - ------------------------------ --------------------------------- Common Stock, $0.005 par value 9,346,543 ================================================================================ GOVERNMENT TECHNOLOGY SERVICES, INC. Quarterly Report on Form 10-Q for the Period Ended March 31, 2000 Table of Contents Page - ----------------- ---- COVER PAGE....................................................................1 TABLE OF CONTENTS.............................................................2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999.......................3 Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999.................4 Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999.................5 Notes to Consolidated Financial Statements.....................6 ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................7 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....13 PART II - OTHER INFORMATION..................................................13 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...................................................................14 -2- GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data) March 31, December 31, 2000 1999 ------------ ------------ ASSETS Current assets: Cash $ 110 $ 149 Accounts receivable, net 102,501 125,179 Merchandise inventories 35,122 41,483 Other current assets 21,597 6,057 ------------ ------------ Total current assets 159,330 172,868 Property and equipment, net 13,195 12,627 Other assets 838 838 ------------ ------------ Total assets $ 173,363 $ 186,333 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks $ 22,576 $ 9,479 Note payable, current 500 500 Accounts payable 79,788 103,871 Accrued warranty liabilities 9,226 9,135 Accrued liabilities 4,858 5,533 ------------ ------------ Total current liabilities 116,948 128,518 Notes payable, net of current portion 1,000 1,500 Other liabilities 3,376 3,119 ------------ ------------ Total liabilities 121,324 133,137 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 shares authorized 9,806,084 issued and 9,346,543 outstanding at March 31, 2000; and 20,000,000 shares authorized, 9,806,084 issued and 9,235,043 outstanding at December 31, 1999 49 49 Capital in excess of par value 43,546 43,687 Retained earnings 10,742 12,316 Treasury stock, 459,541 shares at March 31, 2000 and 571,041 shares at December 31, 1999, at cost (2,298) (2,856) ------------ ------------ Total stockholders' equity 52,039 53,196 ------------ ------------ Total liabilities and stockholders' equity $ 173,363 $ 186,333 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -3- GOVERNMENT TECHNOLOGY SERVICES, INC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, ---------------------- (In thousands, except per share data) 2000 1999 --------- --------- Sales $ 129,262 $ 125,549 Cost of sales 119,482 115,477 --------- --------- Gross margin 9,780 10,072 Operating expenses 12,094 12,530 --------- --------- Income (loss) from operations (2,314) (2,458) --------- --------- Interest and financing income (1,072) (718) Interest expense 332 153 --------- --------- Interest (income) expense, net (740) (565) --------- --------- Loss before income taxes (1,574) (1,893) Income tax provision -- -- --------- --------- Net loss $ (1,574) $ (1,893) ========= ========= Basic and diluted net loss per share $ (0.17) $ (0.20) ========= ========= Basic and diluted weighted average shares outstanding 9,281 9,466 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. -4- GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended March 31, (In thousands) 2000 1999 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,574) $ (1,893) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 924 1,012 (Decrease) increase in cash due to changes in assets and liabilities: Accounts receivable 22,678 22,241 Merchandise inventories 6,361 8,092 Other assets (15,540) (8,779) Accounts payable (24,083) (5,662) Accrued liabilities and warranty reserves (584) 1,086 Other liabilities 257 21 -------- -------- Net cash (used in ) provided by operating activities: (11,561) 16,118 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Cost of property and equipment (1,492) (1,196) Payments from BTG settlement -- 132 -------- -------- Net cash used in investing activities: (1,492) (1,064) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (Payments of) bank notes, net 13,097 (14,889) Payments of note payable (500) -- Proceeds from exercises of stock options 417 -- -------- -------- Net cash provided by (used in) financing activities: 13,014 (14,889) -------- -------- Net (decrease) increase in cash (39) 165 Cash at beginning of period 149 39 -------- -------- Cash at end of period $ 110 $ 204 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 528 $ 339 Income taxes $ -- $ -- 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 -- 1944 Reduction in net receivables from BTG -- (1,737) Note payable to BTG -- (2,000) Assumption of contract warranty liabilities -- (1170)
The accompanying notes are an integral part of these consolidated financial statements. -5- GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited, consolidated financial statements of Government Technology Services, Inc. ("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. Earnings per share. Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share," which requires dual presentation of basic and diluted earnings per share on the face of the income statement for all periods presented. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that subsequently share in the earnings of the entity. Options to purchase common stock for the three months ended March 31, 2000 and 1999, respectively, were not included in the computation of earnings per share due to their anti-dilutive effect. New Accounting Pronouncements. In June 1997, the Financial Accounting Standards Board issued SFAS 130, "Reporting Comprehensive Income," and SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 130 establishes standards for the reporting and display of comprehensive income and its components, and SFAS 131 establishes new standards for public companies to report information about their operating segments, products and services, geographic areas and major customers. SFAS 130 is effective for financial statements issued for fiscal years beginning after December 31, 1997. Accordingly, effective January 1, 1998, the Company adopted SFAS 130 and in accordance therewith, the Company's Comprehensive Income equals reported "Net Income (Loss)." SFAS 131 is effective for financial statements issued for fiscal years beginning after December 15, 1997; the Company has determined that through March 31, 2000, it operated as one business segment as defined by SFAS 131. In addition, the Company aggregates and reports revenues from products, which have similar economic characteristics in their nature, production, and distribution process. The primary customer of the Company is the federal Government, which under SFAS 131 is considered a single customer. -6- 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 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 March 31, 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- -7- 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. 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 Government Technology Services, Inc. ("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 -8- 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. 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 Percentage of Sales Change ---------------------------- ------------ Three months ended Three months March 31, ended ---------------------------- March 31, 2000 1999 1999 to 2000 ---------------------------- ------------ Sales 100.0% 100.0% 3.0% Cost of sales 92.4 92.0 3.5 ------------- ------------- Gross margin 7.6 8.0 (2.9) ------------- ------------- Operating expenses: Selling, general, and administrative 8.7 9.2 (3.5) Depreciation and amortization 0.7 0.8 -- ------------- ------------- Total operating expenses 9.4 10.0 (3.5) ------------- ------------- Income (loss) from operations (1.8) (2.0) 5.9 Interest (income) expense, net (0.6) (0.5) 31.0 ------------- ------------- Income (loss) before taxes (1.2) (1.5) 16.9 Income tax benefit -- -- -- ------------- ------------- Net income (loss) (1.2)% (1.5)% 16.9% ============= =============
-9- 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 March 31, 2000 1999 ---------------------- ---------------------- GSA Schedules $ 44,966 34.8% $ 43,645 34.8% IDIQ Contracts 62,164 48.1% 64,818 51.6% Open Market 13,380 10.4% 14,955 11.9% Other Contracts 8,752 6.7% 2,131 1.7% ---------------------- ---------------------- Total $129,262 100.0% $125,549 100.0% ====================== ======================
Three Months Ended March 31, 2000 Compared With the Three Months Ended March 31, 1999 Sales. Sales consist of revenues from product shipments and services rendered net of allowances for customer returns and credits. In the first quarter of 2000, sales increased $3.7 million, or 3.0%, from the same period in 1999. This increase was the net resulting from an increase in sales under GSA Schedules and Other Contracts of $1.3 million and $6.6 million, respectively, offset by decreased sales under IDIQ Contracts and Open Market sales of $2.6 million and $1.6 million, respectively. The backlog of orders at March 31, 2000 was approximately $46.5 million, down $5.6 million, or 10.7%, compared to the $52.1 million backlog at March 31, 1999. The backlog represents orders received for which product has yet to ship. The Other Contracts sales increase of $6.6 million, or 311.0%, in the first quarter of 2000 was primarily due to a $3.5 million increase in sales of Panasonic equipment through strategic relationships with prime contractors and increased State and Local contract sales of $1.4 million. Sales under IDIQ contracts for the quarter ended March 31, 2000 decreased $2.6 million, or 4.0%. This decrease was primarily a result of a $12.4 million decrease in sales under the STAMIS contract, compared to the same period last year, which included Government purchases to implement a non-recurring contract implentaion, and decreased sales under the State Department contract of $5.0 million due to State Department budget reductions occurring in the first quarter of 2000 compared to the same period last year. This decrease was primarily offset by increased sales on the new Ruggedized Portables contract of $4.9 million and increased sales under the SEWP contract of $9.5 million. Gross Margin. Gross margin is sales less cost of goods sold, which includes the cost of product sold, freight, warranty maintenance cost and certain other overhead expenses related to the cost of acquiring products. Gross margin percentages vary over time and change significantly depending on the contract vehicle and products involved. The Company's overall gross margin percentages are dependent on the mix and timing of products sold and customer's use of available contract vehicles. During the first quarter of 2000, gross margin decreased by approximately $292,000 or 2.9%. Gross margin as a percentage of sales decreased to 7.6% from 8.0% in the first quarter of 1999. The decrease in gross margin is partially attributable to a shift in the mix of contracts being used by customers to purchase products and services coupled with the Government's cautious procurement practice in the first quarter of 2000 due, we believe, to the uncertainties related to Y2K. Additionally, several large -10- contracts won throughout last year are still in start-up phases and they are not yet producing the revenue or the gross margins that typically are achieved as such contracts mature. In addition, competition has continued to put pressure on the Company's margins. 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 selling, general and administrative expenses for the three months ended March 31, 2000 decreased $436,000, or 3.5%, from the same period in 1999. The reduction in operating expense is primarily the net result of an increase in compensation costs offset by a reduction in other net operating expenses. Expressed as a percentage of total sales, total selling, general and administrative expenses decreased to 8.7% from 9.2%, reflecting the Company's ability to utilize existing facilities and personnel more effectively. Interest and Financing Income. The $354,000, or 49%, increase in interest and financing income in the first quarter of 2000, as compared to the same period in 1999, was due primarily to the Company's increased utilization of prompt payment discounts and interest income from late customer payments. Interest Expense. The $179,000, or 117%, increase in interest expense in the first quarter of 2000, as compared to the same period in 1999, was due primarily to the Company's increased utilization of the line of credit to finance a seasonal reduction in accounts payable and in increase in other assets. Income Tax. No tax benefit was recognized with respect the Company's operating income in the first three 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 -11- buying patterns of the Government, either alone or in combination with competitive conditions or other factors, could adversely affect future results. Liquidity and Capital Resources During the first three months of 2000, the Company's operating activities used $11.6 million of cash, compared to the $16.1 million of cash 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 a timing reduction in accounts payable. Investing activities used cash of approximately $1.5 million during the three months ended March 31, 2000 compared to $1.1 million for the same period in 1999 reflecting continued investment in the Company's customer relationship management initiatives. During the three months ended March 31, 2000, the Company's financing activities provided cash of approximately $13.0 million, primarily related to increased borrowings under the Company's credit facilities and a payment against a note payable. At March 31, 2000 the Company had approximately $10.8 million available for borrowing under its credit facility. On May 2, 1996, the Company executed a three-year credit facility (the "Credit Facility") with a bank (the "Principal Lender"). Additionally, on June 27, 1996, the Company executed a separate facility with the Principal Lender for inventory financing of vendor products (the "Wholesale Financing Facility"). These facilities have been amended periodically to modify some of the terms and conditions as well as the amounts available under the Credit Facility and the Wholesale Financing Facility 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 March 31, 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. -12- "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. 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 - Inapplicable. ITEM 5. OTHER INFORMATION - Inapplicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 11 Computation of Earnings Per Share. 27 Financial Data Schedule. (b) Reports on Form 8-K: None. -13- 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: May 15, 2000 Government Technology Services, Inc. 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 -14- EX-27 2 FDS
5 1,000 3-MOS DEC-31-2000 MAR-31-2000 110 0 104,858 (2,377) 35,122 159,330 25,513 (12,319) 173,363 116,948 0 0 0 49 51,989 173,363 129,262 129,262 119,482 119,482 11,970 123 (739) (1,574) 0 0 0 0 0 (1,574) (0.17) (0.17)
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