Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

14. Commitments and Contingencies

Product Warranties

GTSI offers extended warranties on certain products that are generally covered for three or five years beyond the warranty provided by the manufacturer. Products under extended warranty require repair or replacement of defective parts at no cost to the customer. The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its extended warranty contracts. The following table summarizes the activity related to product warranty liabilities for the periods presented (in thousands):

	Nine Months Ended
	September 30,
	2011			2010
Accrued warranties at beginning of period	$	229		$	215
Charges made against warranty liabilities		—			(15	)
Adjustments to warranty reserves		(59	)		(1	)
Accruals for additional warranties sold		14			16
Accrued warranties at end of period	$	184		$	215

Maintenance Warranties

Revenue and cost of sales from extended warranty contracts is recorded as deferred revenue and deferred costs, respectively, and subsequently recognized over the term of the contract. The following table summarizes the activity related to the deferred warranty revenue for the periods presented (in thousands):

	Nine Months Ended
	September 30,
	2011			2010
Deferred warranty revenue at beginning of period	$	1,883		$	798
Deferred warranty revenue recognized		(1,521	)		(1,212	)
Revenue deferred for additional warranties sold		577			3,118
Deferred warranty revenue at end of period	$	939		$	2,704

Letters of Credit

The Company provided a letter of credit in the amount of $2.4 million as of September 30, 2011 and December 31, 2010 for its office space lease signed in December 2007.

As of September 30, 2011 and December 31, 2010, the Company had an outstanding letter of credit in the amount of $7.8 million and $2.7 million, respectively, to guaranty the performance of the Company’s obligations under customer contracts.

Employment Agreements

At September 30, 2011, GTSI has change in control agreements with nine executives and key employees and severance agreements with six executives. These arrangements provide for payments of as much as 15 months of total target compensation and continuation of benefits upon the occurrence of specified events. As of September 30, 2011, no accruals have been recorded for these agreements.

Contingencies

On October 1, 2010, GTSI received notice from the U.S. Small Business Administration (“SBA”) that GTSI was temporarily suspended from any future Federal government contracting based on alleged evidence of the commission of fraud or a criminal offense in connection with GTSI obtaining, attempting to obtain and performing certain subcontracts with small businesses in 2007 and a lack of business integrity or business honesty that seriously or directly affected the responsibility of GTSI as a government contractor. On October 19, 2010, the SBA lifted its temporary federal contract suspension on GTSI pursuant to an administrative agreement with GTSI (the “SBA Agreement”). As a result, GTSI is engaged in its business with most of its existing clients and pursuing new Federal government contracts, subject to the SBA Agreement.

Pursuant to the SBA Agreement, GTSI agreed that it will not obtain or attempt to obtain any new Federal government contract, subcontract or any business that is intended to benefit small businesses, including task orders and options on existing contracts. This includes benefits involving small businesses serving as prime contractors, joint ventures with small businesses and participation in the SBA’s mentor-protégé program. As also required by the SBA Agreement, GTSI has retained, a SBA-approved monitor to report regularly to the SBA on GTSI’s compliance with the SBA Agreement and applicable Federal government contracting laws and regulations. The SBA Agreement will terminate on the earlier of (a) October 19, 2013, (b) the 90th day after the SBA’s Office of Inspector General’s notification of the completion of its continuing investigation of GTSI, or (c) the notification date of any proposed debarment of GTSI by the SBA.

In connection with the SBA Agreement, GTSI accepted the voluntary resignations of its chief executive officer and general counsel and suspended three other employees, who subsequently resigned. GTSI has conducted a review of its business ethics program that covers all employees and created a position and designated an employee as GTSI’s ethics officer, who is responsible for managing GTSI’s business ethics program. At least once each year, GTSI conducts an internal audit of its business practices, procedures, policies and internal controls for compliance with the SBA Agreement, GTSI’s code of business ethics and the special requirements regarding government contracting and reports the results of such audit to the SBA and the monitor.

The U.S. Attorney’s Office is reviewing the same subject matter that led to the SBA’s temporary suspension of GTSI from Federal government contracting and the resulting SBA Agreement. GTSI has provided information in response to that inquiry.

GTSI will continue to cooperate with the continuing investigations of its conduct as a subcontractor for certain small businesses. The continuing investigations of GTSI by the Federal government may result in administrative, civil or criminal penalties, including a recommendation that may adversely affect or terminate GTSI’s ability to serve as a government contractor.

Legal Proceedings

In addition to the matters discussed above, we have, in the normal course of business, certain claims, including legal proceedings, against us and against other parties. We believe the resolution of these other claims that we have in the normal course of our business will not have a material adverse effect on our results of operations or financial position. However, the results of any legal proceedings cannot be predicted with certainty. Further, from time-to-time, agencies of the Federal government, including the SBA and the U.S. Attorney’s Office as discussed above, investigate whether our operations are being conducted in accordance with applicable regulatory requirements. Federal government investigations of us, whether relating to government contracts or conducted for other reasons, may result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or may lead to suspension or debarment from future Federal government contracting. Federal government investigations often take years to complete.