##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-19394
 GTSI CORP.
  Delaware
    
    54-1248422(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2553 Dulles View Drive, Suite 100, Herndon, VA
    
    20171-5219(Address of principal executive offices)
    
    (Zip Code)
 703-502-2000
 
 Yes þ No o
 o o
 
 Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




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##### 



GTSI Corp.
Form 10-Q for the Quarter Ended March 31, 2009
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets as of March 31, 2009 and
December 31, 2008
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2009 and 2008
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2009 and 2008
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,547
    
    
    $
    Accounts receivable, net
    
    
    145,121
    
    
    
    190,740Inventory
    
    
    20,896
    
    
    
    13,491Deferred costs
    
    
    6,056
    
    
    
    7,849Other current assets
    
    
    11,515
    
    
    
    7,807Total current assets
    
    
    192,135
    
    
    
    219,887Depreciable assets, net
    
    
    13,045
    
    
    
    13,664Long-term receivables and other assets
    
    
    44,907
    
    
    
    14,078Total assets
    
    $
    250,087
    
    
    $
    247,629LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Borrowings under credit facility
    
    $
    
    
    
    $
    22,387Accounts payable
    
    
    111,229
    
    
    
    103,553Financed lease debt, current portion
    
    
    3,019
    
    
    
    6,538Accrued liabilities
    
    
    20,861
    
    
    
    17,857Deferred revenue
    
    
    1,774
    
    
    
    2,079Total current liablilites
    
    
    136,883
    
    
    
    152,414Long-term financed lease debt
    
    
    682
    
    
    
    2,530Other liabilities
    
    
    25,848
    
    
    
    2,571Total liabilities
    
    
    163,413
    
    
    
    157,515Commitments
and contingencies (See Note 9)Stockholders equityPreferred stock  $0.25 par value, 680,850
shares authorized; none issued or outstanding
    
    $
    
    
    
    $
    Common stock  $0.005 par value, 20,000,000
shares authorized; 10,130,842 issued and
9,914,370 outstanding at March 31, 2009; and
10,140,757 issued and 9,866,662 outstanding at
December 31, 2008
    
    
    50
    
    
    
    50Capital in excess of par value
    
    
    51,157
    
    
    
    50,722Retained earnings
    
    
    35,588
    
    
    
    39,469Treasury stock, 19,182 shares at March 31,
2009 and 16,176 shares at December 31, 2008,
at cost
    
    
    (121
    )
    
    
    (127
    )Total stockholders equity
    
    
    86,674
    
    
    
    90,114Total liabilities and stockholders equity
    
    $
    250,087
    
    
    $
    247,629
   1




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##### Table of Contents



GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months EndedMarch 31,2009
    
    
    2008SALESProduct
    
    $
    127,719
    
    
    $
    127,567Service
    
    
    14,274
    
    
    
    11,912Financing
    
    
    2,079
    
    
    
    3,311144,072
    
    
    
    142,790COST OF SALESProduct
    
    
    118,800
    
    
    
    114,820Service
    
    
    9,284
    
    
    
    5,717Financing
    
    
    325
    
    
    
    847128,409
    
    
    
    121,384GROSS MARGIN
    
    
    15,663
    
    
    
    21,406SELLING, GENERAL & ADMINISTRATIVE EXPENSES
    
    
    22,863
    
    
    
    25,871LOSS FROM OPERATIONS
    
    
    (7,200
    )
    
    
    (4,465
    )INTEREST AND OTHER INCOME (EXPENSE), NETInterest and other income
    
    
    67
    
    
    
    130Equity income from affiliates
    
    
    825
    
    
    
    405Interest expense
    
    
    (563
    )
    
    
    (1,182
    )Interest and other income (expense), net
    
    
    329
    
    
    
    (647
    )LOSS BEFORE INCOME TAXES
    
    
    (6,871
    )
    
    
    (5,112
    )INCOME TAX BENEFIT
    
    
    2,991
    
    
    
    48NET LOSS
    
    $
    (3,880
    )
    
    $
    (5,064
    )LOSS PER SHAREBasic
    
    $
    (0.39
    )
    
    $
    (0.52
    )Diluted
    
    $
    (0.39
    )
    
    $
    (0.52
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,864
    
    
    
    9,692Diluted
    
    
    9,864
    
    
    
    9,692
   2




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GTSI CORP.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months EndedMarch 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,880
    )
    
    $
    (5,064
    )Adjustments to reconcile net loss to net cash
provided by operating activities:
    
    
    35,185
    
    
    
    32,912Net cash provided by operating activities
    
    
    31,305
    
    
    
    27,848CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of depreciable assets
    
    
    (347
    )
    
    
    (581
    )Net cash used in investing activities
    
    
    (347
    )
    
    
    (581
    )CASH FLOWS FROM FINANCING ACTIVITES:Payments on Credit Facility
    
    
    (22,387
    )
    
    
    (18,031
    )Payment of Term Loan
    
    
    
    
    
    
    (10,000
    )Common Stock Purchases
    
    
    (127
    )
    
    
    (212
    )Proceeds from equity transactions
    
    
    103
    
    
    
    147Net cash used in financing activities
    
    
    (22,411
    )
    
    
    (28,096
    )NET INCREASE (DECREASE) IN CASH
    
    
    8,547
    
    
    
    (829
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    
    
    
    
    829CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    8,547
    
    
    $
    
   3




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GTSI CORP.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
    2. New Accounting Pronouncements
 Business Combinations
 Noncontrolling
Interests in Consolidated Financial Statements An Amendment of ARB No. 51
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 3. Stock-Based Compensation
 Stock Incentive Plans
   4




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Stock Options
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateShares
    
    
    Average
    
    
    Contractual
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    Term
    
    
    (in thousands)Outstanding at January 1, 2009
    
    
    1,648
    
    
    $
    8.05Granted
    
    
    
    
    
    
    Exercised
    
    
    (15
    )
    
    
    3.88Forfeited
    
    
    (15
    )
    
    
    6.73Expired
    
    
    (36
    )
    
    
    9.41Outstanding at March 31, 2009
    
    
    1,582
    
    
    $
    8.07
    
    
    
    3.15
    
    
    $
    47Exercisable at March 31, 2009
    
    
    1,084
    
    
    $
    8.51
    
    
    
    2.65
    
    
    $
    47
  Restricted Shares
   WeightedAverageShares
    
    
    Grant-Date(in thousands)
    
    
    Fair ValueNonvested at January 1, 2009
    
    
    290
    
    
    $
    10.83Granted
    
    
    11
    
    
    
    5.32Vested
    
    
    (61
    )
    
    
    11.25Forfeited
    
    
    (17
    )
    
    
    10.12Nonvested at March 31, 2009
    
    
    223
    
    
    $
    10.49
  5




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##### Table of Contents



Stock Appreciation Rights (SARs)
  WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateShares
    
    
    Average
    
    
    Contractual
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    Term
    
    
    (in thousands)Outstanding at January 1, 2009
    
    
    758
    
    
    $
    9.60Granted
    
    
    8
    
    
    
    9.60Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (26
    )
    
    
    9.60Expired
    
    
    (12
    )
    
    
    9.60Outstanding at March 31, 2009
    
    
    728
    
    
    $
    9.60
    
    
    
    4.84
    
    
    $
    Exercisable at March 31, 2009
    
    
    283
    
    
    $
    9.60
    
    
    
    4.56
    
    
    $
    
  Unrecognized Compensation
  4. Lease and Other Receivables
    March 31, 2009
    
    
    December 31, 2008Future minimum lease payments receivable
    
    $
    7,174
    
    
    $
    14,921Unguaranteed residual values
    
    
    1,172
    
    
    
    3,458Unearned income
    
    
    (1,051
    )
    
    
    (1,164
    )$
    7,295
    
    
    $
    17,215
  6




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##### Table of Contents



March 31, 2009
    
    
    December 31, 2008Future minimum payments receivable
    
    $
    49,040
    
    
    $
    14,802Unearned income
    
    
    (3,745
    )
    
    
    (1,479
    )$
    45,295
    
    
    $
    13,323
 5. Transferred Receivables and Financed Lease Debt
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
  6. Credit Facility and Term Loan
      7. Loss Per Share
   7




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Three Months EndedMarch 31,2009
    
    
    2008Basic loss per shareNet loss
    
    $
    (3,880
    )
    
    $
    (5,064
    )Weighted average shares outstanding
    
    
    9,864
    
    
    
    9,692Basic loss per share
    
    $
    (0.39
    )
    
    $
    (0.52
    )Diluted loss per share:Net loss
    
    $
    (3,880
    )
    
    $
    (5,064
    )Weighted average shares outstanding
    
    
    9,864
    
    
    
    9,692Incremental shares attributable to the assumed
exercise of outstanding stock options
    
    
    N/A
    
    
    
    N/AWeighted average shares and equivalents
    
    
    9,864
    
    
    
    9,692Diluted loss per share
    
    $
    (0.39
    )
    
    $
    (0.52
    )
 8. Income Taxes
     8




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9. Commitments and Contingencies
 Product Warranties
  Three Months EndedMarch 31,2009
    
    
    2008Accrued warranties at beginning of period
    
    $
    155
    
    
    $
    283Charges made against warranty liabilities
    
    
    (2
    )
    
    
    (15
    )Adjustments to warranty reserves
    
    
    (3
    )
    
    
    (128
    )Accruals for additional warranties sold
    
    
    8
    
    
    
    48Accrued warranties at end of period
    
    $
    158
    
    
    $
    188
  Three Months EndedMarch 31,2009
    
    
    2008Deferred warranty revenue at beginning of period
    
    $
    221
    
    
    $
    130Deferred warranty revenue recognized
    
    
    (104
    )
    
    
    (26
    )Revenue deferred for additional warranties sold
    
    
    55
    
    
    
    27Deferred warranty revenue at end of period
    
    $
    172
    
    
    $
    131
 Letters of Credit
   Employment Agreements
  Contingencies
   9




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10. Related Party Transactions
  Three Months EndedMarch 31,2009
    
    
    2008Beginning Balance at January 1
    
    $
    5,261
    
    
    $
    2,875Equity Earnings
    
    
    825
    
    
    
    405Distributions
    
    
    (1,134
    )
    
    
    (786
    )Ending Balance at March 31
    
    $
    4,952
    
    
    $
    2,494
   Three Months EndedMarch 31,2009
    
    
    2008Revenues
    
    $
    70,723
    
    
    $
    47,717Gross margin
    
    $
    6,877
    
    
    $
    4,746Net income
    
    $
    2,167
    
    
    $
    1,096
 11. Subsequent Events
     10




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Item 2.

    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Disclosure Regarding Forward-Looking Statements
  
    
    Our reliance on a small number of large transactions for significant portions of our
sales and gross margins
 
    
    Our ability to shift our business model from a reseller of products to a high-end
solutions provider
 
    
    Any issue that compromises our relationship with agencies of the Federal government
would cause serious harm to our business
 
    
    Changes in Federal government fiscal spending
    
    Our ability to meet the covenants under our Credit Facility in future periods
    
    Negativity to our business due to the current global economic and credit conditions
    
    Possible infrastructure failures
    
    Any material weaknesses in our internal control over financial reporting
    
    Possible net losses, if we fail to align costs with our sales levels
    
    Our quarterly sales and cash flows are volatile, which makes our future financial
results difficult to forecast
    
    Unsatisfactory performance by third parties with which we work could hurt our
reputation, operating results and competitiveness
    
    Our qualifications as a small business for certain new contract awards
    
    Our ability to integrate any potential future acquisitions, strategic investments or
mergers
  Overview
   11




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
    
    Total sales increased $1.3 million.
    
    Gross margin decreased $5.7 million.
    
    Selling, General & Administrative expenses decreased $3.0 million.
    
    Loss before income taxes increased $1.8 million.
    
    Cash provided by operations increased $3.5 million.
 Critical Accounting Estimates and Policies
   12




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Historical Results of Operations
  Three Months EndedMarch 31,2009
    
    
    2008Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    89.1
    %
    
    
    85.0
    %Gross margin
    
    
    10.9
    %
    
    
    15.0
    %Selling, general, and administrative expenses
    
    
    15.9
    %
    
    
    18.1
    %Loss from operations
    
    
    (5.0
    )%
    
    
    (3.1
    )%Interest and other income (expense), net
    
    
    0.2
    %
    
    
    (0.5
    )%Loss before taxes
    
    
    (4.8
    )%
    
    
    (3.6
    )%Income tax benefit
    
    
    2.1
    %
    
    
    0.0
    %Net loss
    
    
    (2.7
    )%
    
    
    (3.6
    )%
  Three Months EndedMarch 31,Sales by Type
    
    2009
    
    
    2008Hardware
    
    $
    78.4
    
    
    
    54.5
    %
    
    $
    96.6
    
    
    
    67.7
    %Software
    
    
    49.3
    
    
    
    34.2
    %
    
    
    31.0
    
    
    
    21.7
    %Service
    
    
    14.3
    
    
    
    9.9
    %
    
    
    11.9
    
    
    
    8.3
    %Financing
    
    
    2.1
    
    
    
    1.4
    %
    
    
    3.3
    
    
    
    2.3
    %Total
    
    $
    144.1
    
    
    
    100.0
    %
    
    $
    142.8
    
    
    
    100.0
    %
 Three Months EndedMarch 31,Sales by Vendor (based on 2009 sales)
    
    2009
    
    
    2008Microsoft
    
    $
    37.8
    
    
    
    26.2
    %
    
    $
    18.4
    
    
    
    12.9
    %Cisco
    
    
    17.1
    
    
    
    11.9
    %
    
    
    21.0
    
    
    
    14.7
    %Dell
    
    
    12.7
    
    
    
    8.8
    %
    
    
    10.1
    
    
    
    7.1
    %HP
    
    
    12.3
    
    
    
    8.5
    %
    
    
    8.0
    
    
    
    5.6
    %IBM
    
    
    12.2
    
    
    
    8.5
    %
    
    
    0.5
    
    
    
    0.4
    %Others, net of reserves
and adjustments
    
    
    52.0
    
    
    
    36.1
    %
    
    
    84.8
    
    
    
    59.3
    %Total
    
    $
    144.1
    
    
    
    100.0
    %
    
    $
    142.8
    
    
    
    100.0
    %
 Three Months Ended March 31, 2009 Compared With the Three Months Ended March 31, 2008
 Sales
   13




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Gross Margin
     14




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Selling, General & Administrative Expenses (SG&A)
  Interest and Other Income, Net
  Income Taxes
   Seasonal Fluctuations
    15




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Liquidity and Capital Resources
 Cash flows for the three months ended March 31,
 Increase(in millions)
    
    2009
    
    
    2008
    
    
    (Decrease)Cash provided by operating activities
    
    $
    31.3
    
    
    $
    27.8
    
    
    $
    3.5Cash used in investing activities
    
    $
    (0.3
    )
    
    $
    (0.6
    )
    
    $
    (0.3
    )Cash used in financing activities
    
    $
    (22.4
    )
    
    $
    (28.1
    )
    
    $
    (5.7
    )
     Credit Facility and Term Loan
      16




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Liquidity
     Capital Requirements
  New Accounting Pronouncements
 Business Combinations
 Noncontrolling
Interests in Consolidated Financial Statements An Amendment of ARB No. 51
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
  17




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Item 3.

    Quantitative and Qualitative Disclosures About Market Risk
    
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   18




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Items to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
   19




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##### Table of Contents



SIGNATURES
  GTSI Corp.Date: May 7, 2009
    /s/ JAMES J. LETOJames J. LetoChief Executive OfficerDate: May 7, 2009
    /s/ PETER WHITFIELDPeter WhitfieldSenior Vice President and Chief Financial Officer  20




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EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Credit Agreement dated as of June 2, 2006 between GTSI Corp.,
SunTrust Bank and Bank of America (1)10.2
    
    
    First Amendment to Credit Agreement dated as of July 13, 2006
between GTSI Corp., SunTrust Bank and Bank of America (2)10.3
    
    
    Second Amendment to Credit Agreement dated as of November 30, 2006
between GTSI Corp., the Lenders, the other Borrower Parties, and
SunTrust Bank (3)10.4
    
    
    Third Amendment to Credit Agreement dated as of March 30, 2008
between GTSI Corp., the Lenders, the other Borrower Parties, and
SunTrust Bank (4)31.1
    
    
    Section 302 Certification of Chief Executive Officer (filed herewith)31.2
    
    
    Section 302 Certification of Chief Financial Officer (filed herewith)32
    
    
    Section 906 Certification of Chief Executive Officer and Chief
Financial Officer (filed herewith)
 
 (1)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated June 2, 2006.(2)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated July 13, 2006.(3)
    
    Incorporated by reference to the Registrants current report on Form 8-K dated December 5,
2006.(4)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
December 31, 2006.  21