June 3, 2005
M. Dendy Young
GTSI Corporation
3901 Stonecroft Blvd
Chantilly VA 20151-1010
Re: GTSI Corporation
Form 10-K for the fiscal year ending December 31, 2004
File No. 000-19394
Dear Mr. Young:
We have reviewed your response letter dated May 12, 2005 and
have the following comments. Where indicated, we think you should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K: For the year ended December 31, 2004
Item 1. Business
Business Strategy, page 4
Prior Comment No. 1
1. While we note your response to our prior comment 1, it does not
appear that you have any specific information supporting the
notion
that revenues may be doubled over the next three years. For
example,
most of the excerpts from your 10-K provided in support of this
statement merely discuss steps you have taken in the hope of
expanding your business and revenues without providing any true
support for the statement. Additionally, even where you have
quantified past increases in revenues, such as your disclosure
regarding an increase in sales from services, such increases
appear
to relate to portions of your business that comprise only a small
percentage of total revenues and/or increases that are not large
enough to support doubling your revenues over the next three
years.
Furthermore, while we note your statement that an increase from
your
current 1% of the government IT budget to just 2% would enable the
Company to reach its strategic revenue goal, it is unclear why you
believe you will double your percentage of the government IT
budget.
For example, it does not appear that you have entered into any new
government contracts. Please provide additional supplemental
support
for your strategic revenue goal or revise as appropriate.
2. As a follow-on to the comment above, we note from your Form 10-
Q
for the quarter ended March 31, 2005 that your total first quarter
revenue was "weaker than [you] expected," and actually declined by
$21.6 million compared to the three months ended March 31, 2004.
We
also note that you continue to disclose that you are "seeking to
double revenues to $2 billion." Tell us if you are currently on
track with the financial plan developed in 2004 to support your
revenue goal of $2 billion within three years and if you were on
track at the time you filed your 2004 10-K.
Notes to Consolidated Financial Statements
Note 7. Accounts Payable, page 41
Prior Comment No. 3
3. Help us understand the timing under which you derecognized the
liabilities associated with the obligations to which you refer in
your response, and explain how that timing was objectively
determined
in view of the statute of limitations. In this regard, please
specifically address each of the following:
* Clarify how the dates of each of the obligations correlate to
how
the statute of limitations operates.
* Clarify the period that the statute of limitations begins and
ends.
For example, does the statute of limitations begin when contracts
are
executed, when products/services are received, when invoices are
dated, when payment is due, etc.? Does the period end after 4
years,
6 years, etc.
* Provide us a schedule of dates and amounts associated with the
obligations showing the correlation to the period under the
statute
of limitations.
* Explain why you considered it appropriate to derecognize all
these
related liabilities during the third quarter of 2004.
* Provide us any additional information that will support the
timing
under which you derecognized these liabilities.
4. Provide a reasoned opinion of counsel stating that a court of
proper jurisdiction would find that the registrant can
successfully
avoid payment to the third party to whom the company was obligated
due to the statute of limitations, citing supporting case law.
5. Ask your independent auditors to provide an explanation for how
they applied the guidance in paragraph 16(b) of SFAS 140 to your
facts and circumstances in concluding that derecognition of these
liabilities in the third quarter of 2004 was appropriate.
Additionally, request your audit engagement team from E&Y to
consult
with representatives in their National office on this matter and
advise us of the name of that representative.
Prior Comment No. 5
6. The first part of our prior comment no. 5 regarding Selected
Financial Data was intended to refer to disclosures under Item 6
of
your Form 10-K (page 17) and not to your quarterly disclosures in
Note 16 to your audited financial statements. Accordingly, we
believe you should revise Selected Financial Data to briefly
describe
and/or cross reference to a discussion of the reversal of accounts
payable (both the derecognition of $10.1 million in aged accrued
payables and the reversal of $2.5 million of aged accrued
payables)
and the material effect that accounting had on the comparability
of
the information presented.
7. We continue to believe that you should expand the Overview
section
and/or include a discussion of net income and operating income in
MD&A to discuss the significant impact the reversal of accounts
payable (both the derecognition of $10.1 million in aged accrued
payables and the reversal of $2.5 million of aged accrued
payables)
had on your operating income and net income. In this regard, it
appears that the annual and quarterly trends in your operating
income
and net income would have been materially different had you not
derecognized/reversed these accounts payable in the respective
periods. Similar revisions in your discussion under the Gross
Margin
subheading of your MD&A should also be made to discuss the
reversal
of $2.5 million of aged accrued payables in addition to the
derecognition of $10.1 million in aged accrued payables.
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
You may contact Jason Niethamer at (202) 551-3855 or Lisa
Mitrovich, Assistant Chief Accountant, at (202) 551-3453 or me at
(202) 551-3730 if you have questions regarding these comments.
Very truly yours,
Craig Wilson
Senior Assistant Chief
Accountant
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GTSI Corporation
Form 10-K
June 3, 2005
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