-----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, TRGaVTMKqvg5MBXeR3qoZNGBJOLKq3m46A2ZMlWjHUHukoc5tFOlzjF70Wo9S4xE NC5Jetxn8P8zaGLd5Mcl1A== 0001133884-01-500333.txt : 20010516 0001133884-01-500333.hdr.sgml : 20010516 ACCESSION NUMBER: 0001133884-01-500333 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GTSI CORP 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: 1639837 BUSINESS ADDRESS: STREET 1: 3901 STONECROFT BLVD CITY: CHANTILLY STATE: VA ZIP: 20151-0808 BUSINESS PHONE: 703-502-2000 MAIL ADDRESS: STREET 1: 3901 STONECROFT BLVD CITY: CHANTILLY STATE: VA ZIP: 20151-1010 10-Q 1 g10q-24611.txt 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, 2001 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: Class Shares Outstanding at May 1, 2001 - ------------------------------------- ------------------------------------- Common Stock, $0.005 par value 8,110,481 ================================================================================ GTSI CORP. AND SUBSIDIARY Quarterly Report on Form 10-Q for the Period Ended March 31, 2001 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, 2001 and December 31, 2000.....................3 Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2001 and 2000...............4 Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000...............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..14 PART II - OTHER INFORMATION...................................................15 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....................................................................16 -2- GTSI CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited)
MARCH 31, DECEMBER 31, (In thousands, except share data) 2001 2000 ---------------------------------- ASSETS Current assets: Cash $ 40 $ 79 Accounts receivable, net 93,145 137,181 Merchandise inventories 36,341 53,570 Other current assets 23,749 18,269 ---------------------------------- Total current assets 153,275 209,099 Property and equipment, net 12,067 12,830 Other assets 6,040 5,136 ---------------------------------- Total assets $ 171,382 $ 227,065 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks $ - $ 11,925 Note payable, current 1,000 500 Accounts payable 94,383 134,071 Accrued liabilities 8,711 10,249 Accrued warranty liabilities 7,263 8,695 ---------------------------------- Total current liabilities 111,357 165,440 Notes payable, net of current portion - 1,000 Other liabilities 2,149 2,145 ---------------------------------- Total liabilities 113,506 168,585 ---------------------------------- Stockholders' equity Prefered Stock - $0.25 par value, 680,850 shares authorized; none issued or outstanding at March 31, 2001 and March 31, 2000 - - Common stock - $0.005 par value 20,000,000 shares authorized 9,806,084 issued and 8,110,481 outstanding at March 31, 2001; and 20,000,000 shares authorized, 9,806,084 issued and 7,956,272 outstanding at December 31, 2000 49 49 Capital in excess of par value 43,418 43,484 Retained earnings 21,742 22,933 Treasury stock, 1,695,603 shares at March 31, 2001 and 1,849,812 shares at December 31, 2000, at cost (7,333) (7,986) ---------------------------------- Total stockholders' equity 57,876 58,480 ---------------------------------- Total liabilities and stockholders' equity $ 171,382 $ 227,065 ================================== The accompanying notes are an integral part of these consolidated financial statements.
-3- GTSI CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, (In thousands, except per share data) 2001 2000 ---------------------------------------- Sales $ 149,288 $ 121,133 Cost of sales 136,523 111,964 ------------------ --------------------- Gross margin 12,765 9,169 Operating expenses 15,358 12,094 ------------------ --------------------- Loss from operations (2,593) (2,925) ------------------ --------------------- Interest and financing income (906) (1,071) Interest expense 251 332 ------------------ --------------------- Interest income, net (655) (739) ------------------ --------------------- Loss before income taxes and cumulative effect of SAB No. 101 adoption (1,938) (2,186) Income tax benefit (747) - ------------------ --------------------- Net loss before cumulative effect of SAB No. 101 adoption (1,191) (2,186) Cumulative effect of SAB No. 101 adoption - (467) ------------------ --------------------- Net loss $ (1,191) $ (2,653) ================== ===================== Basic and diluted net loss per share before cumulative effect of SAB No. 101 adoption $ (0.15) $ (0.24) ================== ===================== Basic and diluted net loss per share $ (0.15) $ (0.29) ================== ===================== Basic and diluted weighted shares outstanding 8,042 9,281 ================== ===================== The accompanying notes are an integral part of these consolidated financial statements.
-4- GTSI CORP. AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31, (In thousands) 2001 2000 --------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,191) $ (2,653) Adjustments to reconcile net loss to net cash provided by (used in) operating activities 13,282 (8,909) --------------------------------------------- Net cash provided by (used in) operating activities 12,091 (11,562) --------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Cost of property and equipment (291) (1,491) --------------------------------------------- Net cash used in investing activities (291) (1,491) --------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: (Payments of) proceeds from bank notes, net (11,926) 13,097 Payments of note payable (500) (500) Proceeds from exercises of stock options 587 417 --------------------------------------------- Net cash (used in) provided by financing activities (11,839) 13,014 --------------------------------------------- Net decrease in cash (39) (39) Cash at beginning of period 79 149 --------------------------------------------- Cash at end of period $ 40 $ 110 ============================================= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 458 $ 528 Income taxes $ 2,200 $ - The accompanying notes are an integral part of these consolidated financial statements.
-5- GTSI CORP. AND SUBSIDIARY 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, 2000 and the accompanying Notes to the Financial Statements, contained in the Company's 2000 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 the application of generally accepted accounting principles to revenue recognition issues in financial statements. SAB No. 101 clarifies the appropriate timing of revenue recognition when products are shipped to customers. The impact to the Company of the adoption of SAB No. 101 is to generally defer the recognition of revenue from two to seven days as compared to the Company's previous method. During the fourth quarter of 2000, the Company adopted the provisions of SAB No. 101 retroactive to January 1, 2000. The Company implemented the guidance set forth in SAB No. 101 by recording a charge to income of $467,000 representing the cumulative effect of adopting SAB No. 101 on January 1, 2000. 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 the income statement presentation of revenue based on either (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. During the fourth quarter of 2000, and on a retroactive basis for all periods presented, the financial statements were reclassified to reflect the provisions of EITF No. 99-19. Adoption of EITF No. 99-19 had no impact on our reported gross margin or net income, but merely resulted in the reduction of previously reported sales and cost of sales for our resold software maintenance agreements of approximately $1.0 million for the quarter ended March 31, 2000. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires the Company to record derivatives on the balance sheet as assets or liabilities measured at fair value. SFAS No. 133 is effective as of January 1, 2001. The adoption of SFAS No. 133 had no effect on the Company's financial statements. 2. NOTES PAYABLE TO BANKS On May 2, 1996, the Company executed a three-year credit facility with a bank (the "Principal Lender") for $40.0 million and a one-year credit facility with the other lenders (collectively, the "Lenders") -6- 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 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. On November 17, 2000, the Company and its banks executed an amendment, effective December 1, 2000, for the continuation of the Credit Agreement with a 90-day written termination notice upon receipt by either party and, among other things, increased the Company's Stock Repurchase authorization from third-party stockholders to $6.1 million, up from $5.25 million in the previous Amendment. All other material terms of the Credit Agreement remained the same. 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, 2001, the Company was in compliance with all financial covenants set forth in the Credit Facility. 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 leases a 20,000 square foot distribution center in Chattanooga, Tennessee under a one-year renewable option, exercised and effective April 1, 2001. -7- 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, 2000. 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 250,000 information technology products from more than 1,300 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 or expiration of sales contract vehicles (e.g., the addition of the SEWP II Contract, the NIH ECS-II Contract, the TDA-1 Contract and STAMIS Contract, 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 business strategy is to continue to focus on higher-end product-based solutions, to broaden its product offering, to remain a low-cost, reliable provider of commodity products. The Company also focuses on bringing new technologies to government customers. -8- 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, 2001 2000 2001 TO 2000 ----------------------------------------------- ---------------------- Sales 100.0% 100.0% 23.2% Cost of sales 91.4 92.4 21.9% ---------------------- ---------------------- Gross margin 8.6 7.6 39.2% ---------------------- ---------------------- Operating expenses: Selling, general, and administrative 9.6 9.3 28.1% Depreciation and amortization 0.7 0.7 14.1% ---------------------- ---------------------- Total operating expenses 10.3 10.0 27.0% ---------------------- ---------------------- Loss from operations (1.7) (2.4) -11.4% Interest income, net (0.4) (0.6) -11.4% ---------------------- ---------------------- Loss before taxes and cumulative effect of SAB (1.3) (1.8) -11.3% No. 101 adoption Income tax benefit (0.5) 0.0 - ---------------------- ---------------------- Net loss before cumulative effect of SAB No. (0.8) (1.8) -45.5% 101 adoption Cumulative effect of SAB No. 101 adoption 0.00 (0.4) 100.0% ---------------------- ---------------------- Net loss (0.8) (2.2) -55.1%
-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, 2001 2000 --------------------- ---------------------- GSA Schedules $ 25,858 17.3% $ 40,417 33.4% IDIQ Contracts 91,967 61.6% 58,332 48.2% Open Market 22,983 15.4% 13,380 11.0% Other Contracts 8,480 5.7% 9,004 7.4% --------------------- ---------------------- Total $149,288 100.0% $121,133 100.0% ===================== ====================== Three Months Ended March 31, 2001 Compared With the Three Months Ended March 31, 2000 Sales. Sales consist of revenues from product shipments and services rendered net of allowances for customer returns and credits. Revenues for the first quarter of 2001 were $149.3 million, compared to $121.1 million in the first quarter of 2000, or an increase of 23.2%. 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 1.0 percentage points to 8.6%, compared to a gross margin of 7.6% in the first quarter of 2000. The increase in gross margin percentage is primarily due to an increase in contract gross margins. Operating Expenses. Total operating expenses for the three months ended March 31, 2001 increased $3.3 million, or 27.0%, from the same period in 2000. The increase in operating expenses primarily resulted from increased personnel costs to support an increased emphasis on sales. Expressed as a percentage of total sales, total operating expenses increased to 10.3% from 10.0% in the prior period. Interest Expense. Net interest income in the third quarter of 2001 decreased to $655,000 compared to $739,000 in the same period in 2000 due primarily to a decrease in prompt payment discounts relating to strategic inventory purchases. Income Tax. The Company recorded a tax benefit of $747,000 for the first quarter of 2001 based on the effective rate of approximately 39%. No income tax benefit was recognized in the first quarter 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." -10- Effect of Inflation The Company believes that inflation has not had a material effect on its operations. However, if inflation increases in the future it could temporarily adversely affect the profitability of GTSI's sales under its Government fixed-price contracts, which generally preclude the Company from passing on inflation-related or other increases in product costs to Government customers during the term of a pre-existing contract. The Company mitigates this risk in part by often obtaining agreements from certain of its suppliers prohibiting them from increasing their prices to GTSI during fixed-price, term contracts. Seasonal Fluctuations and Other Factors The Company has historically experienced and expects to continue to experience significant seasonal fluctuations in its operations as a result of Government buying and funding patterns, which also impact the buying patterns of GTSI's prime contractor customers. These buying and funding patterns historically have had a significant positive effect on GTSI's bookings in the third quarter ending September 30 each year (the Government's fiscal year end), and consequently on sales and net income in the third and fourth quarters of each year. Quarterly financial results are also affected by the timing of the award of and shipments of products under government contracts, price competition in the microcomputer and workstation industries, the addition of personnel or other expenses in anticipation of sales growth, product line changes and expansions, and the timing and costs of changes in customer and product mix. In addition, customer order deferrals in anticipation of new product releases by leading microcomputer and workstation hardware and software manufacturers, delays in vendor shipments of new or existing products, a shift in sales mix to more complex requirements contracts with more complex service costs, and vendor delays in the processing of incentives and credits due GTSI, have occurred (all of which are also likely to occur in the future) and have adversely affected the Company's operating performance in particular periods. The seasonality and the unpredictability of the factors affecting such seasonality make GTSI's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. The Company's stock price could be adversely affected if any such financial results fail to meet the financial community's expectations. Additionally, legislation is periodically introduced in Congress that may change the Government's procurement practices. GTSI cannot predict whether any legislative or regulatory proposals will be adopted or, if adopted, the impact upon its operating results. Changes in the structure, composition and/or buying patterns of the Government, either alone or in combination with competitive conditions or other factors, could adversely affect future results. New Accounting Pronouncements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on the application of generally accepted accounting principles to revenue recognition issues in financial statements. SAB No. 101 clarifies the appropriate timing of revenue recognition when products are shipped to customers. The impact to the Company of the adoption of SAB No. 101 is to generally defer the recognition of revenue from two to seven days as compared to the Company's previous method. During the fourth quarter of 2000, the Company adopted the provisions of SAB No. 101 retroactive to January 1, 2000. The Company implemented the guidance set forth in SAB No. 101 by recording a charge to income of $467,000 representing the cumulative effect of adopting SAB No. 101 on January 1, 2000. 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 the income statement presentation of revenue based on either (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. During the fourth quarter of 2000, and on a retroactive basis for all -11- periods presented, the financial statements were reclassified to reflect the provisions of EITF No. 99-19. Adoption of EITF No. 99-19 had no impact on our reported gross margin or net income, but merely results in the reduction of previously reported sales and cost of sales for our resold software maintenance agreements of approximately $1.0 million for the quarter ended March 31, 2000. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires the Company to record derivatives on the balance sheet as assets or liabilities measured at fair value. SFAS No. 133 is effective as of January 1, 2001. The adoption of SFAS No. 133 had no effect on the Company's financial statements. Liquidity and Capital Resources During the first three months of 2001, the Company's operating activities provided $12.1 million of cash flow, compared to the $11.6 million of cash flow used in the same period in 2000. The increase in cash flow relates primarily to the Company's decreased inventory purchases and faster receivables collection in the first quarter of 2001 versus the same period in 2000 . Investing activities used cash of approximately $291,000 million during the three months ended March 31, 2001 compared to $1.5 million for the same period in 2000 reflecting the strategic timing of the investment in the Company's computers and software, including Customer Relationship Management initiatives. During the three months ended March 31, 2001, the Company's financing activities used cash of approximately $11.8 million, primarily related to increased borrowings under the Company's Credit Facilities and payment against a note payable. At March 31, 2001 the Company had approximately $26.8 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 (collectively, the "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 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 -12- 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. On November 17, 2000, the Company and its banks executed an amendment, effective December 1, 2000, for the continuation of the Credit Agreement with a 90-day written termination notice upon receipt by either party and, among other things, increased the Company's Stock Repurchase authorization from third-party stockholders to $6.1 million, up from $5.25 million in the previous Amendment. All other material terms of the Credit Agreement remained the same. 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, 2001, 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. -13- 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) Reports on Form 8-K: None. -14- 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, 2001 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 -15-
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