GTSI to restate earnings

Government integrator GTSI plans to revise the financial statements included in its 10-K forms for 2004 and 2005.

GTSI President and Chief Executive Officer Jim Leto made the announcement today and called the company’s new procedures and second-quarter results “the beginnings of a remarkable turnaround of a truly great company.”

GTSI had a very strong second quarter that was busy and successful, Leto said. Although the company did not show a profit, as expected, he said GTSI won several large contracts and its earnings had improved considerably from the second quarter of 2005 and the first quarter of 2006.

After a period of internal turmoil and falling revenues, the company last year began to transition from primarily a government reseller to a services supplier.

Leto said he and the company’s controller, Joe Ragan, were looking into the “material weaknesses” found in the 10-Ks, most of which, Leto added, were attributed to an understaffed accounting department. He said the personnel situation has been corrected.

The company is also examining how it manages its books, looking for a more expeditious way to report earnings, Leto said. “Part of that analysis resulted in this restatement,” he said.

GTSI often leases information technology solutions to government customers and then sells the leases to third parties, he said. In some cases, the company has the option to repurchase the leases.

Leases that are repurchased have to be amortized over the life of the contract as leased interest income, he said.

“It’s part of an esoteric set of [accounting] rules,” Leto said. "As a result, GTSI has $10.2 million in leased interest income that now has to be amortized over 2004, 2005, 2006 and 2007.”

He said 136 lease contracts must be analyzed. The precise figures for the restatement won’t be known for several weeks.

As a result of these accounting errors, the company’s consolidated 10-K statements for 2004 and 2005, the associated auditors’ reports on file with the Securities and Exchange Commission, and Form 10-Q for the first quarter of 2006 should no longer be relied on, according to a company statement.

GTSI will suspend the reporting of monthly results for sales, backlogs and bookings until the restatements are completed, the company stated.

In addition, GTSI said it anticipates not meeting the Nasdaq listing requirements for timely filing, which means it could be delisted.