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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended June 30, 2009
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OR
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 000-22839
GLOBECOMM SYSTEMS
INC.
(exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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11-3225567
(I.R.S. Employer
Identification No.)
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45 Oser Avenue,
Hauppauge, NY
(Address of principal executive offices)
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11788
(Zip Code)
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Registrants telephone number, including area code:
(631) 231-9800
Securities registered pursuant to Section 12(b) of the
Act:
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Name of each exchange
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Title of each class
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on which registered
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Common Stock, $0.001 par value
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Nasdaq Global Market
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Securities registered pursuant to Section 12(g) of the
Act: None
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No x
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 o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer x
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2
of the
Act). Yes o No x
Based on the closing sale price on the Nasdaq Global Market on
December 31, 2008, the last business day of the
registrants most recently completed second fiscal quarter,
the aggregate market value of the registrants common
stock, $0.001 par value per share (the Common
Stock) held by non-affiliates of the registrant on such
date was approximately $108.2 million. For purposes of this
calculation, only executives and directors are deemed to be
affiliates of the registrant.
As of September 10, 2009, there were 20,881,456 shares
of the registrants Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement of Globecomm Systems Inc. relative to the
2009 Annual Meeting of Stockholders to be held on
November 19, 2009, is incorporated by reference into
Part III of this Annual Report on
Form 10-K.
PART I
Overview
Globecomm Systems Inc., or Globecomm, is a leading global
provider of satellite-based communications infrastructure
solutions and services. Our goal is to provide our customers
with a comprehensive suite of design, engineering, installation
and integration solutions, managed network services and
lifecycle support services, by employing our expertise in
emerging satellite-based communication technologies. We are
concentrating on selected vertical markets in which we can
capture significant visibility or market share. By offering both
infrastructure solutions and services, we provide our customers
with a complete
end-to-end
solution for their satellite-based communications requirements.
We believe our integrated approach of combining in-house design
and engineering expertise with world-class teleport and network
operating centers is a competitive advantage and enables us to
meet our customers needs in a timely and cost-effective
manner.
Globally, telecommunications networks are moving rapidly toward
Internet protocol-based networks and services based on the lower
cost of implementation and the flexibility these networks offer.
Satellite-based communications complement this trend as many of
the regions in the world lack the next generation
terrestrial networks required to accommodate the rapid and
reliable transmission of the vast amounts of information
underlying the growth in traffic. Even in a well connected area
of the globe, satellite communications offer a diverse network
path in support of disaster recovery and network augmentation.
We tailor our services to meet customer needs by offering
standardized services for various communication applications.
Our standardized services may be sold separately or may be used
as building blocks as a part of a custom-engineered solution. We
also leverage our expertise in satellite communications,
Internet protocol, communications networks and information
technology in designing our custom-engineered solutions.
As a network service provider we offer next
generation network solutions to communication service
providers, commercial enterprises, broadcasters, content
providers and governments and government-related entities around
the world. We combine satellite and terrestrial communications
networks to provide customers high-speed access services to the
United States Internet backbone, their corporate headquarters or
government offices, as well as the public switched telephone
network. We are a licensed international voice carrier and have
bilateral agreements with a number of international
telecommunication operators for the origination and termination
of voice traffic. We currently have customers for which we are
providing such network services in the United States, Europe,
South America, Africa, the Middle East and Asia.
We were incorporated in Delaware in August 1994. Our Globecomm
Systems division provides our infrastructure solutions. Our
services are principally provided by our wholly-owned
subsidiaries, Globecomm Network Services Corp.
(GNSC), a Delaware corporation, and Globecomm
Services Maryland LLC (GSM), a Delaware limited
liability company. In July 2008, we formed Cachendo LLC,
(Cachendo) a wholly-owned Delaware limited liability
company, to operate our professional engineering services
business. In fiscal 2009, we added two companies to our services
business through the acquisition of B.V. Mach 6 (Mach
6), a Netherlands company headquartered near Amsterdam,
and Telaurus Communications LLC (Telaurus), a
Delaware limited liability company, based in New Jersey.
Mach 6, acquired in March 2009, is a service provider and
teleport operator experienced in multiple vertical markets such
as the maritime sector, government customers and satellite
service providers. Mach 6 employs approximately
30 employees and has a high percentage of recurring service
revenues in the government and maritime marketplace. The
acquisition of Mach 6 provides us with further entry into the
growing maritime market and adds further penetration into
government markets, which we currently serve. Telaurus, acquired
in June 2009, is a service provider concentrated in the maritime
sector and provides us with a much higher visibility and revenue
base in this market. Telaurus employs approximately
28 employees and has recurring service revenues in the
maritime marketplace.
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Growth
Strategy
Our primary focus is to aggressively establish our reputation as
the premier global provider of satellite/terrestrial hybrid IP
networking services for mission critical applications by
capitalizing on our deep technological knowledge, high quality
services and loyal customer base. We have an ongoing focused
effort to identify and develop select research and development
projects and private network components into marketable
shared-service platforms. We have key specific initiatives,
including military-related programs, business opportunities in
Afghanistan and our continued expansion in two key vertical
segments: maritime telecommunications and cellular providers. We
will also continue to mature our global platform as we integrate
Mach 6 and Telaurus and expand the reach of our managed network
services offerings.
We expect to continue to execute our service strategy, which
leverages the expertise of the entire organization, by moving
into the customized managed network solutions market and
creating targeted offerings for market verticals including
wireless, government, broadcast and enterprise customers. As the
natural cycle of technology advancement and the continued
convergence of communications applications to Internet protocol
continue, we remain excited about the new addressable market
opportunities this will create.
Our strong service platform foundation allows us to continue to
develop additional value-added solutions sets for our core
customers. We have begun to focus on increasing market share
through vertical markets with the creation of value-added
service solutions in emerging market niches and with pro-active
marketing and sales. We have supplemented our organic growth
with an aggressive growth pursuit through acquisitions. With
recent successful completion of the Mach 6 and Telaurus
acquisitions we have broadened our solutions offerings, enhanced
our position within the markets that we currently service and
positioned ourselves to penetrate new markets. We believe that
the satellite services market is fragmented and that there are,
and will be, additional acquisition opportunities that may meet
our acquisition criteria. We plan to continue to employ a
selective and disciplined approach when evaluating acquisition
opportunities.
One of the vertical markets we are pursuing is the maritime
marketplace as evident by our two recent acquisitions. Like many
industries, the maritime marketplace relies to an increasing
extent on information technology, aided by communications as a
means of improving productivity, safety and working conditions
for personnel (an important factor in crew retention). Voice and
data communication for ocean going maritime users provide
reliable and cost effective transmission of both mission
critical and casual communications. The overall market for these
services is large and growing despite the current downturn in
global trade, and we believe this segment provides a global
opportunity in excess of 50,000 vessels. The maritime
business model is scalable based on the fact that the network
infrastructure and customer care costs rise very gradually as
the business grows, and our software maintenance costs will
remain relatively flat. Combined, these effects produce
operating leverage that offers us enhanced upside potential. Our
technology is also applicable to many terrestrial mobile
satellite communication users.
Solutions
Offerings
We operate through two business segments. Our infrastructure
solutions segment, through Globecomm Systems Inc., is engaged in
the design, assembly and installation of ground segment systems
and networks, which includes both our pre-engineered systems and
our custom systems design and integration product lines. Our
services segment, through GNSC, GSM, Cachendo, Mach 6 and
Telaurus provides satellite communication services capabilities,
which include our Access, Hosted and Lifecycle Support service
lines.
Infrastructure
Solutions Overview
Our infrastructure solutions consist of the design, engineering
and installation of ground segment systems and networks, which
are deployed in communications networks that include a satellite
component. We combine our expert engineering and design
capabilities with
state-of-the-art
technologies and products to provide solutions for building and
maintaining satellite earth stations, uplink centers, broadcast
centers
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and Internet protocol-based, or IP, communication networks. In
the case of complex
IP-based
networks, our infrastructure solutions support a wide range of
network applications and facilitate quadruple play
services, comprised of video, data, voice and wireless
communications.
In order to provide our infrastructure solutions we assign a
project team to each of our customer contracts. Each team is led
by a project engineer who is responsible for execution of the
project. This includes engineering and design, assembly and
testing, installation and customer acceptance. A project may
include engineers, integration specialists, buyer-planners and
an operations team. Our standard satellite ground segment
systems are manufactured using a standard modular production
process. Typically, long-term projects require significant
customer-specific engineering, drafting and design efforts. Once
the system is designed, the integration specialist works with
the buyer-planner and the operations team to assure a smooth
transfer from the engineering phase to the integration phase.
The integration phase consists mainly of integrating the
purchased equipment, components and subsystems into a complete
functioning system. Assembly, integration and test operations
are conducted on both an automated and manual basis.
We maintain facilities for complete in-plant testing of all our
systems before delivery in order to assure all performance
specifications will be met during installation at the
customers site. We employ formal total quality management
programs and other training programs, and have been certified by
the International Organization of Standards quality
certification process for ISO 9001, a standard that enumerates
specific requirements an organization must follow in order to
assure consistent quality in the supply of products and
services. The certification process qualifies us for access to
virtually all domestic and international projects, and we
believe that this represents a competitive advantage.
Pre-Engineered
Systems
A key component of our infrastructure solutions is our product
line of pre-engineered fixed and mobile/transportable satellite
terminals and network management systems, which are marketed
under the
Summittm
and
Explorertm
brands. Summit satellite terminals have antenna apertures
ranging from sub meter to 21 meters in diameter using
pre-engineered building blocks that assure high reliability and
rapid response. Explorer satellite terminals have antenna
apertures ranging from sub meter to 3 meters in diameter using
highly integrated electronics in order to provide ease of
operation, low cost, light weight and small size. These products
utilize highly integrated electronics to assure high reliability
and rapid response and to provide ease of operation in a low
cost, small and lightweight format.
Our pre-engineered systems also include a line of AxxSys network
management systems designed for management and control of
satellite-terrestrial networks and include flexible interface
devices that can be configured to communicate with satellite
communications equipment and networking equipment from various
manufacturers. The following details our products in this
category:
SummitTM
Modular Building Block Earth Station MBB
2001.®
This satellite terminal provides
point-to-point
high-capacity data links and hubs for satellite networks.
Generally, all electronics are housed in an indoor equipment
enclosure.
SummitTM
Commercial Terminal CTF
2001.® This
family of satellite terminals encompasses a range of general
purpose, medium-capacity satellite terminals, and is principally
used by corporate, common carrier and government networks.
Generally, all radio frequency electronics are housed in
weatherproof enclosures mounted on the antenna. The satellite
modem is housed in an indoor equipment enclosure.
SummitTM
Compact Earth Station CES
2001.® We
designed this family of digital satellite terminals to be used
principally to provide limited capacity to areas with limited or
no telecommunications infrastructure. These satellite terminals
integrate radio frequency and satellite modem components into
one antenna mounted package.
Auto-Explorer Fly-Away Satellite
Terminals. We designed this family of
fly-away satellite terminals for ease of operation by
non-satellite personnel by incorporating automatic satellite
acquisition technology. These satellite terminals include an
integrated electronics package designed to incorporate the radio
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frequency, monitor and control and satellite modem components
into an outdoor mounted package. This family of satellite
terminals is designed for use in military tactical environments
and is tested and qualified for the appropriate military
environmental standards.
Explorer MIL-COTS HMMWV Transportable Satellite
Terminals. We designed this family of
militarized transportable satellite terminals primarily for
United States and international government customers. This
transportable system group is comprised of transportable earth
stations designed to be quickly deployed and operated anywhere
in the world in military tactical environments. The latest model
is a HMMWV (High-Mobility Multipurpose Wheeled Vehicle) mounted
satellite terminal that incorporates the latest commercial off
the shelf, or COTS, satellite equipment technology that meet the
stringent requirements of military tactical operations.
AxxSys®
Network Management Systems. We designed this
family of computer-based network management systems to monitor
and control satellite communication equipment and satellite
terminal networks. AxxSys-based network management systems
provide status reporting locally or remotely and provide the
ability to manage distributed satellite communications networks
on a global basis. We introduced AxxSys Orion in fiscal 2007
which monitors and controls all of the terrestrial elements of a
satellite communications network. This includes the ability to
manage other network elements, such as, routers, microwave,
fiber and wireless subsystems. Deployed over an
industry-standard IP network, it is capable of monitoring and
controlling from dozens to thousands of devices. We are
currently focusing on continuing the development of AxxSys
network management systems. Network management systems are key
to simplifying operations and maintenance of satellite-based
networks and, therefore, add value to the systems and networks
we integrate.
SpyGlass Carrier Monitoring
Systems.®
We designed this family of computer-based carrier monitoring
tools for service providers who need to monitor and manage their
transmissions to ensure service reliability and availability.
Our
SpyGlass®
family of carrier monitoring tools integrates with the AxxSys
network management system to provide ease of operation.
Systems
Design and Integration
We design, integrate, install, test and commission facilities
and complex networks to meet the needs of our customers. Our
custom systems design and integration services are largely
focused on requirements for satellite earth stations, uplink
centers, broadcast centers and next generation
IP-based
networks. This segment of our business is based on our core
engineering expertise in satellite earth stations and network
design, broadcast engineering, IP network engineering and
network management system design.
An illustrative example of our system design and integration
solution is our ongoing project for Alaskas leading
integrated communications carrier, General Communications, Inc.,
or GCI. We have engineered an all-IP rural cellular network in
one of the most challenging environments on earth. Although the
cellular network uses satellite communications to backhaul the
cellular traffic, the network uses a distributed switching
architecture that keeps cellular base stations online even
through network outages.
GCI set out to create a level playing field for its customers,
whether they live in the states coastal cities or deep in
its rugged interior. It was a striking vision: a single
high-capacity,
IP-based
network serving all of GCIs subscribers and capable of
supporting the advanced data and video technology emerging from
the laboratories of industry leaders like Ericsson and Nokia.
Given the geography of Alaska, the network had to be cellular
rather than wireline, and the cellular base stations would have
to link via satellite. GCI specified a 250-site network serving
200 rural villages with many of these sites only accessible for
six months of the year due to freezing temperatures and heavy
snowfall. Bringing electricity to them and ensuring that the
equipment could stay powered and warm in the event of an outage
were major issues.
Given the engineering challenges presented within an IP
architecture, GCI selected us, based on the unique match between
these challenges and our skill set. As an engineering-centric
company, GCI was comfortable being on the leading edge of
available network element technologies. We won the business, in
part, because we proposed a base station technology, which
performs all signal processing in software rather
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than hardware. This allows system upgrades from
additional traffic channels to new wireless
standards to be made via software download instead
of a site visit. That is not a small matter when the base
stations may be separated by hundreds of miles of frozen
wilderness. We also proposed all-IP software-based switching.
These combined systems had to interface with GCIs Ericsson
GSM switch in Anchorage.
Work began in early 2007 and by the end of that year, the pilot
sites were undergoing testing. By March of 2008, we had deployed
and begun operating a pilot network, and also started up our
ISO-9001 production line to manufacture the base station
systems. By December 2008, we had 70 sites up and running and
GCI officially launched rural service. Until the full 250-site
network is completed in 2011, we will provide remote monitoring
from our network operations center in Hauppauge, New York. This
lets GCI identify bottlenecks and track growth patterns and
helps GCI predict what licenses, software modifications and
antenna upgrades may be needed in the coming months. The
cellular network demand has significantly exceeded GCIs
original plan and will allow us to continue to support and
expand their network as demand continues to grow.
Services
Solution Overview
We work to continually evolve our service platforms to meet the
communication needs of our customers. Our customer base has
grown as our service and customer support have proven the value
of outsourced services. We seek to meet the managed network
requirements of our customers in a wide range of vertical
markets. Our strategy includes offering flexible service-based
solutions with fixed monthly pricing in order to make it easy
for our customers to support an outsourcing decision.
We own two teleport facilities, our Kenneth A. Miller
International Teleport, located in Hauppauge, New York, and our
GSM facility located in Laurel, Maryland. These teleports are
used to transmit and receive signals from satellites positioned
to serve customers in Latin America, the United States, Canada,
Europe, the Middle East and Africa. Our teleports are designed
to meet stringent requirements for high-speed data
communications and leverage redundant critical systems and
uninterruptible power supplies with
back-up
power generation to ensure high reliability and availability.
We also lease teleport services in Los Angeles, Hong Kong, the
United Kingdom, the Netherlands and Poland to transmit and
receive signals via satellite to other areas of the world. We
lease satellite transponder capacity to meet the bandwidth needs
of our customers and leverage multiple, redundant, high-capacity
fiber connections to provide reliable Internet data and voice
traffic to locations in New York City where it interconnects
with telecommunications service providers and the United States
Internet backbone.
We have built and staff a centralized global network operation
center, or NOC, at our Hauppauge, New York, facility to provide
our global services. The NOC operates twenty-four hours per day,
seven days per week, or 24/7, to monitor customer networks,
provide help desk services, respond to customer inquiries and
initiate new services. The NOC provides on a 24/7 basis
technology specific engineers to assist our customers with
trouble shooting and problem resolution. We utilize our
internally developed AxxSys Orion network management systems to
monitor and control satellite communication equipment and
satellite terminal networks at our NOC. At our GSM facility in
Laurel, Maryland and our Mach 6 facility in the Netherlands, we
have regional data centers that provide 24/7 localized technical
support to our customers.
Our service-based offerings are continuously being fine-tuned
partly through customer-funded programs and partly through
internally funded programs. Our goal is to create high value
customized solutions for our customers that are based on
standardized building blocks, or service lines. The following
service lines are the focal point of our evolving strategy.
Access
Service Line
Our core service line, Access, supports transport and
connectivity for video, voice and data services globally. The
Access service line consists of specific products to address
this diverse marketplace. The Access business is currently the
largest component of the services revenue mix. The recent
acquisition of
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Mach 6, along with the integration of GSM, has expanded the
Access business. Access services are driven by leveraging our
core service communication infrastructure to create the standard
product sets within our Access service line. As part of our
expansion, we look to maximize utilization and drive growth with
the Access product set described below.
Access Plus. The Access Plus product
utilizes a combination of terrestrial connectivity, satellite
bandwidth, our teleports, along with a variety of remote very
small aperture terminal, or VSATs, or a network of
VSATs, to provide end to end connectivity. Our VSAT hub at
the Kenneth A. Miller International Teleport coupled with the
extension of our Multi-Protocol Label Switching, or MPLS,
backbone to various teleports globally, provides us with global
VSAT coverage and the flexibility to provide a wide range of
services. This particular product encompasses fundamental
satellite technologies, including:
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Single Channel per Carrier (SCPC)
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Multiple Channel per Carrier (MCPC)
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Time Division Multiple Access (iDirect)
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Deterministic SCPC (Vipersat)
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Access Video Backhaul. This product,
based upon Access Plus, is specifically developed for video
centric delivery. The primary technology enabling this service
is the Digital Video Broadcast standard (DVB/DVB-S2). Our Access
Video Backhaul product leverages the core service elements with
a greater concentration on maximizing video throughput while
ensuring the highest service availability into potentially
residential-grade reception systems or to cable head ends. The
current evolution of
IP-centric
video delivery will continue to shape new technologies in this
arena. The current adoption of H.264 and MPEG-4 technologies has
been slow, though they continue to gain ground. As the industry
evolves, we will continue to position the Access Video Backhaul
product within the market to offer the greatest amount of value
to the end user. Specifically, we look to retain the current
platform in place and continue to offer services with only
gradual adaptation of new technology to ensure a broad market
access until end-users haves widely adopted the new technology.
Access Voice Termination is also based upon the
Access Plus product and is specifically designed for voice
trunking services. We are licensed by the FCC to deliver high
quality, toll-based termination of voice calls while leveraging
high compression and highly reliable connectivity between the
Globecomm network and the voice origination network. This
differentiates us from many low cost providers. In addition, we
often take advantage of utilizing pre-existing links, which
allows us to position the Access Voice Termination product as
extremely competitive along side high value voice over IP
providers while delivering a superior service in terms of
features (Caller ID, signaling pass through, etc.) and overall
quality.
Access Bandwidth. Satellite bandwidth
is one of the largest elements of our cost of doing business,
but it is also an asset which we utilize as a source of revenue.
After combining resources with our recent acquisitions, we lease
over 1 GHz of total satellite bandwidth across the globe
for different frequencies, coverage areas and polarizations.
Given the size of our increased demand, we are able to leverage
our increased buying power in the satellite provider market, and
are often capable of procuring bandwidth at very competitive
rates. Accordingly, we leverage our current inventory of
capacity or resell our providers capacity. We continually
attempt to optimize and consolidate bandwidth to ensure
attractive margins while being cost-competitive compared to our
competitors and competing mediums. This service is a derivative
of our base Access line and affords us the ability to provide
long term satellite bandwidth resale opportunities with minimal
overall risk.
Access Maritime. Our new Maritime
Access product, which is technically similar to our Access Plus
line, provides vessel operators with traditional IP services,
including;
e-mail,
Internet, video streaming, virtual private network and voice
over IP applications. Access Maritime incorporates Inmarsat and
Iridium services to provide a full feature set of solutions to
the maritime market. We will look to
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capitalize on the convergence of Geo-stationary satellite,
Inmarsat, and Iridium technologies to provide a single
ubiquitous service to the maritime market that will help drive
higher IP throughput at a lower cost to the vessel operator.
Access Hardware. In connection with
providing our Access products, we often need to furnish the
remote hardware to complete the circuit. Access Hardware
products range from VSAT terminals to
IP-centric
routing hardware and co-location hardware. Frequently, our
Access Hardware products are shipped, installed and maintained
globally. The ability to offer a complete solution through the
Access Hardware product line thus enables the delivery of our
services on a global level. Our Access Hardware product line
provides us with the opportunity to offer lifecycle support
services for this equipment.
Overall, our Access Service line continues to offer us the
ability to grow our business. In addition to the growth that is
offered through this line, the Access Plus products, when
considered with our customers drive to outsource their entire
network, is one of the prime mechanisms that has driven our
Lifecycle Support service line as a separate yet integral suite
of services.
Hosted
Service Line
This Hosted service platform supports switching services through
a full featured hosted mobile switching center for GSM/UMTS and
CDMA/EVDO technologies. The Hosted service line consists of
specific products to address the mobile marketplace and is a
relatively new and emerging component of our services revenue
mix. This particular product is driven by leveraging our core
service elements, including:
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Our GSM-UMTS/HSPA Switching/Core Platform.
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Our CDMA-EVDO Switching/Core Platform.
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Domestic and international connectivity for voice, data and
internet by leveraging our core network.
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Our network of Tier 1 IP terrestrial providers at our
teleport locations and the interconnectivity between our
teleport facilities.
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Our large pool of diverse satellite bandwidth coverage,
frequencies and providers.
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Our centralized NOC.
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Hosted Cellular allows our customers the ability
to outsource their switching services through a full-featured
hosted mobile switching center for GSM/UMTS and CDMA/EVDO
technologies. The target customer base include hundreds of small
to mid-size cellular operators in North America, emerging
cellular operators globally and large international operators
extending their coverage
and/or
meeting Universal Services Obligations.
The hosted value proposition is focused on:
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Creating alternative, cost-effective solutions to establish
and/or grow
cellular networks while delivering a compelling return on
investment with lower capital requirements and operating
expenses. In some cases, the hosted model represents the only
viable financial model.
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Providing a cost effective solution to introduce new services
and technologies to an existing network (2G to 3G migration,
SMS, MMS, etc.)
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Providing an affordable solution to deliver cellular services to
un-served areas while meeting government imposed Universal
Services Obligations.
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Providing an accepted and trusted source where
large, established cellular operators are comfortable that its
roaming customers will interoperate with our hosted customers
and are paid under their respective roaming agreements.
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We house our mobile switching center in our Kenneth A. Miller
International Teleport. The switching systems are part of a
complete central office facility that provides all the systems
and services required to support a cellular operator. Our
satellite solution incorporates mobile signaling but keeps voice
traffic off the satellite, which minimizes operational cost and
optimizes quality of service for local calling, and allows
remote geographic areas to join the GSM network with a small
investment in base stations and VSATs.
Our recent purchase of an Ericsson GSM/UMTS Switching Core
(Core) will position us to expand this business. The
Core will provide a full featured hosted GSM/UMTS (2G/3G)
platform to scale the hosted business in North America and
internationally with the ability to migrate to LTE (4G) in the
future.
Hosted Video minimizes customer capital and
operating expenditures. A key differentiator for us in providing
high quality networked service is the ability to leverage our
facility in Hauppauge, New York, allowing for outstanding
satellite and terrestrial connectivity. This product includes
both the hardware for hosting the services and the software
platforms for customers to securely publish, process and
distribute their content. This solution also allows viewers to
interact with the content and provides stakeholders with
valuable viewership reporting. Our capabilities for our Hosted
Video product include:
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Publishing Platform for hosting of Video On Demand content.
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Media Processing infrastructure for the transcoding of live and
on-demand content for viewing across hybrid networks and for
viewing on televisions, computers and mobile devices.
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Security Platforms to ensure secure content delivery and digital
rights management across diverse networks.
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Streaming Media Platform for delivery across hybrid network
topologies.
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Interactive Platform allowing viewers to interact with live
presenters and on-demand content.
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Administrative Platform providing customers with back office
control and reporting.
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Lifecycle
Support Service Line
Our Lifecycle Support service line includes installation,
network monitoring, help desk, maintenance and professional
engineering services. We are able to offer these lifecycle
support products by leveraging our facilities infrastructure,
including our teleports, our NOC and our data centers, as well
as our personnel and network of skilled technicians. We have
global maintenance partners that provide us access to skilled
technicians worldwide. We provide the following products on
either a stand-alone basis, or bundled with infrastructure
solutions or other service lines:
Network Monitoring and Help Desk solutions provide
24/7 monitoring of satellite and terrestrial network systems and
networks. Status and alarm monitoring coupled with our help desk
services provide our customers with the ability to outsource
monitoring of their networks. We provide customers with network
trouble shooting and problem resolution support with escalation
to technical resources personnel to address problems requiring
detailed technical knowledge of equipment, systems
and/or
networking. We utilize a remedy-based trouble ticket system to
track problems through conclusion. Customized reports are issued
by our help desk to meet our customers requirements.
Installation and Maintenance solutions provide
installation and maintenance services of satellite and
terrestrial infrastructure at customer locations anywhere in the
world. We have an established worldwide network of field
technicians to provide
on-site
services for customer networks. These technicians, consisting of
both employees and contractors, enable us to provide
cost-effective, quick-response services for installation and
required maintenance.
Professional Engineering solutions provide
engineering expertise and hands-on support for co-located
equipment and engineering and design support for proposal
creation and network architecture design. We also provide
professional engineering services for customers who need our
engineering specialists
9
and program managers to complement their internal staff. Our
professional engineering services are primarily provided by
Cachendo. Cachendo acts as a trusted advisor to our government
and commercial clients by providing
end-to-end
technology consulting.
Our Lifecycle Support products are composed of four distinct
phases: design, installation, maintenance and improvement. This
approach orchestrates the alignment of business and technical
requirements at every phase.
Design During this phase, we work with
our customers to develop a comprehensive detailed design that
meets their current business and technical requirements and
incorporates specifications to support availability,
reliability, security, scalability and performance. Custom
solutions are created to meet the customers unique
requirements to enable integration with their existing network
infrastructure. A variety of plans are developed during the
design phase to guide activities such as configuring and testing
connectivity, deploying and commissioning the proposed system,
migrating network services, demonstrating network functionality
and validating network operation.
Installation Our global network of
field technicians provide
on-site,
cost-effective, quick-response services for installation and
required maintenance. Technicians are certified based on their
skills. We have amassed a database of technicians that support
network operations ranging from a simple VSAT to a complex
hybrid network with IP networking responsibility across the
globe.
Maintenance Our full-service
maintenance package provides customers with complete coverage in
an economical, convenient and timely manner, all for a fixed
monthly fee per location. With the full-service maintenance
approach, Globecomm assumes all responsibility for the network,
including stocking a spares pool and restoring downlink systems
to working order. Our maintenance service process involves
remote troubleshooting at our NOC, followed up by an overnight
shipment of a replacement item to the site in question. The
field installation crew would also be dispatched and arrive on
location at the time when the spare item has been received.
Customer Service Lifecycle Support services
would not be complete without customer care and improvement.
Customer service is an integral part of our general business
model, though it is most visible in our lifecycle support
service. From the point of view of the engineering effort in the
overall sales process, customer service plays an important role
in our ability to generate future business.
Sales and
Marketing
We continually evaluate our sales and marketing efforts as we
expand our product and service offerings. We approach the
marketplace from both a market and a product perspective. We
market our products and services to a diverse group of
communications service providers, government and government
related entities (U.S. and foreign), commercial
enterprises, broadcasters and other media and content providers.
We have structured our sales and marketing approach to respond
effectively to the opportunities in these markets.
Our corporate sales offices sell and market our products and
services in the United States and internationally in specific
vertical markets within the government and commercial markets.
Our specific government vertical markets are currently:
Afghanistan, Department of Defense, domestic and international
intelligence agencies and civilian and diplomatic markets. The
commercial sales offices focus mainly on broadcast,
wireless/cellular service providers, enterprise and maritime
customers.
One of our goals is to brand the Globecomm name as an
end-to-end
managed network service provider. As we continue to expand our
reach into new markets, we must expand our name brand
recognition to these markets as well. This will include updating
marketing material. This material is aimed both at potential
customers and to help support the effort of continued training
of the personnel in our corporate sales offices. Ensuring that
each person understands the breadth of our capabilities is vital
to ensuring that we maximize the potential business from each of
our existing and new customers.
10
Our regional business teams sell and market our products and
services in concert with the corporate sales offices. Business
teams are located in Hauppauge, New York, the GSM and Cachendo
teams are located in Laurel, Maryland, the Mach 6 team is
located in the Netherlands and the Telaurus team is located in
Cedar Falls, New Jersey. The teams focus on targeted trade
shows, demos and consultants teamed with company-wide events and
marketing. We believe that this focused effort, along with the
development of the corporate sales offices to pro-actively
market our offerings to specific market segments, will lead to
increased market share across all business units.
These regional business teams are responsible for orders in the
regions
and/or
markets to which they are assigned, as well as for the delivery
of our products and services and for account management of our
existing customers. Currently, we have regional business teams
responsible for the Americas, the Asia Pacific region and the
Eastern Atlantic Region (Africa, the Middle East and Europe). We
also have a business team dedicated to the government
marketplace, as well as a GSM service team which is focused
largely on the U.S. government marketplace. In addition, we
have expert teams who are focused on leveraging our know-how in
IP networking, broadcast technology, pre-engineered systems,
network management systems and network services to provide added
value to our products, services and solutions. Globecomm held
its First Annual Technology Forum in its 2009 fiscal year. This
Forum highlights the knowledge of the Globecomm expert teams and
an expanded forum will be hosted in the current fiscal year.
These business and expert teams work together with the corporate
sales offices to identify, develop and maintain customer
relationships through local sales representatives, sales
executives and account managers. Together, they develop close
and continuing relationships with our customers. Our local sales
representatives provide a local presence in their regions and
identify prospective customers for our sales executives. Our
account managers may also function as project engineers for
network integration and service initiation programs for their
accounts. We believe this account management focus provides
continuity and loyalty between our customers and us. We also
believe that our approach fosters long-term relationships that
lead to follow-on work and referrals to new customers. These
accounts also provide us with a market for the new products and
services that we develop. In addition, we obtain sales leads
through referrals from industry suppliers.
We use direct mailings, print advertising to targeted markets
and trade publications to enhance awareness and acquire leads
for our direct and indirect sales teams. We create brand
awareness by participating in industry trade shows sponsored by
organizations like the International Telecommunications Union,
the National Association of Broadcasters, Armed Forces
Communications and Electronics Association, Communication Media
Management Association and other industry associations.
Globecomm plans to participate in multiple corporate-sponsored
tradeshows over the next year, including SATCON, IBC, NAB,
SATELLITE 2010 and several GOVERNMENT and TELCO shows. We also
provide marketing information on our web site and conduct joint
marketing programs with sales representatives in various regions
to reach new customers.
We continue to expand and enhance our sales and marketing
organization. We plan to consolidate the efforts of the
Mach 6 and Telaurus sales and marketing personnel, rebrand
our corporate image and set up a two tiered sales force to form
a stronger sales organization and prepare us for organic growth.
The first tier of the sales force will be dedicated to pursuing
and growing our business in specific vertical markets and the
second tier, within the business units, will have dedicated
personnel to directly address the business unit efforts and work
toward achieving the business units plan.
Competition
In the satellite infrastructure solutions market, we believe
that our ability to compete successfully is based primarily on
our reputation and the ability to provide a solution that meets
the customers requirements, including competitive pricing,
performance, on-time delivery, reliability and customer support.
11
In the communications services market, we believe that our
ability to compete successfully is based primarily on our
reputation and providing prompt delivery and initiation of
service, competitive pricing, consistent and reliable
connections and high-quality customer support.
Our primary competitors in the infrastructure solutions market
generally fall into two groups: (1) system integrators such
as Thales, Data Path and SED Systems and (2) equipment
manufacturers who also provide integrated systems, such as
General Dynamics, SATCOM Technologies, Viasat, Alcatel and ND
Satcom AG.
In the
end-to-end
satellite-based enterprise solutions and broadcast services
markets, we compete with other satellite communication companies
who provide similar services, such as Ascent Media, Globecast
and Convergent Media Systems. In addition, in managed network
services we may compete with other communications services
providers such as Segovia, and satellite owners like SES
Americom, Intelsat and Verizon. We anticipate that our
competitors may develop or acquire services that provide
functionality that is similar to that provided by our services
and that those services may be offered at significantly lower
prices or bundled with other services.
Current and potential participants in the markets in which we
compete have established or may establish cooperative
relationships among themselves or with third parties. These
cooperative relationships may increase the ability of their
products and services to address the needs of our current and
prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge that will
enable them to acquire significant market share rapidly. We
believe that increased competition is likely to result in price
reductions, reduced gross profit margins and loss of market
share, any of which would have a material adverse effect on our
business, results of operations and financial condition.
Acquisitions
On February 27, 2009, we acquired B.V. Mach 6, a Dutch
Corporation (Mach 6). Mach 6 is a service provider
and teleport operator, which serves multiple vertical markets
such as the maritime sector and government and satellite service
providers. Mach 6 has approximately 30 employees and
recurring service revenues in the government and maritime
marketplaces. The acquisition of Mach 6 provides us with further
entry into the growing maritime market and adds further
penetration into government markets which we are currently
serving. Mach 6 operates in the services segment of our
business. Mach 6 was acquired for a purchase price of
$5.7 million in cash. The sellers can also receive up to
300,000 shares of our common stock, subject to an earn-out
based on certain net income milestones, which must be achieved
within twelve months of the acquisition date.
On May 29, 2009, we acquired the entire business operations
of Telaurus Communications LLC (Telaurus). Telaurus
is a service provider concentrated in the maritime sector and
satellite service providers. Telaurus has approximately
28 employees and has recurring service revenues in the
maritime marketplace. The acquisition of Telaurus provides us
with further entry into the growing maritime market which we are
currently serving. Telaurus operates in the services segment of
our business. Telaurus was acquired for a cash purchase price of
$6.1 million. The seller also is entitled to receive up to
335,000 shares of the Companys common stock and up to
1,000,000 warrants to purchase shares of our common stock, at an
exercise price of $10 per share subject to an earn-out based
upon the acquired business achieving certain earnings milestones
within twelve months following the closing.
Customers
We have established a diversified base of customers in a variety
of industries. Our customers include communications service
providers, government and government related entities
(U.S. and foreign), commercial enterprises, broadcasters
and other media and content providers. We typically rely upon a
small number of customers for a large portion of our revenues.
We derived 12% of our revenues in the year ended June 30,
2009 from a U.S. Government agency. We expect that in the
near term a significant portion of our revenues will continue to
be derived from a limited number of customers (the identity of
whom may vary from year to year) as we seek to expand our
business and customer base.
12
Backlog
At June 30, 2009, our backlog was approximately
$153.9 million compared to approximately
$146.8 million at June 30, 2008. We record an order in
backlog when we receive a firm contract or purchase order, which
identifies product quantities, sales price, service dates and
delivery dates. Backlog represents the amount of unrecorded
revenue on undelivered orders and services to be provided and a
percentage of revenues from sales of products that have been
shipped where installation has not been completed and final
acceptance has not been received from the customer. Our backlog
at any given time is not necessarily indicative of future period
revenues. A substantial portion of our backlog is comprised of
large orders, the cancellation of any of which could have a
material adverse effect on our operating results. For example,
at June 30, 2009, $92.4 million, or approximately
60.1%, of our backlog represented contracts with five customers.
We cannot assure you that these contracts or any others in our
backlog will not be cancelled, delayed or revised. See the
section entitled Risk Factors.
Product
Design, Assembly and Testing
We assign a project team to each of our customer contracts. Each
team is led by a project engineer who is responsible for
execution of the project. This includes engineering and design,
assembly and testing, installation and customer acceptance. A
project may include engineers, integration specialists,
buyer-planners and an operations team. Our standard satellite
ground segment systems are manufactured using a standard modular
production process. Typically, long-term projects require
significant customer-specific engineering, drafting and design
efforts. Once the system is designed, the integration specialist
works with the buyer-planner and the operations team to assure a
smooth transfer from the engineering phase to the integration
phase. The integration phase consists mainly of integrating the
purchased equipment, components and subsystems into a complete
functioning system. Assembly, integration and test operations
are conducted on both an automated and manual basis.
We maintain facilities for complete in-plant testing of all our
systems before delivery in order to assure all performance
specifications will be met during installation at the
customers site. We employ formal total quality management
programs and other training programs, and have been certified by
the International Organization of Standards quality
certification process for ISO 9001, a standard that enumerates
specific requirements an organization must follow in order to
assure consistent quality in the supply of products and
services. The certification process qualifies us for access to
virtually all domestic and international projects, and we
believe that this represents a competitive advantage.
Research
and Development
We have developed internal research and development resources in
Internet protocol networks, content delivery networks, broadcast
systems, network management systems and pre-engineered systems.
The costs of developing new technologies are funded by our
investments and by development funded by specific customer
program requirements. This approach provides us with a
cost-effective means to develop new technology, while minimizing
our direct research and development expenditures. Furthermore,
we believe that our research and development capabilities allow
us to offer added value in developing solutions for our
customers, while at the same time we maintain the opportunity to
develop products through our strategic supplier relationships.
Our internal research and development efforts generally focus on
the development of products and services not available from
other suppliers to the industry. Current efforts are focused on
continued development of our software-based distributed core
network to support our wireless hosted switch service offering
for our service provider customers, development of multimedia
broadcast data center solutions for direct to home, TV to mobile
devices and IPTV applications and enhancements to pre-engineered
AxxSys network management systems for all our earth terminal and
network customers and pre-engineered Explorer satellite systems
for our government customers. For the years ended June 30,
2009, 2008 and 2007, we have incurred approximately
$2.4 million, $1.9 million, and $1.5 million,
respectively, in internal research and development expenses.
13
Competition
In the satellite infrastructure solutions market, we believe
that our ability to compete successfully is based primarily on
our reputation and the ability to provide a solution that meets
the customers requirements, including competitive pricing,
performance, on-time delivery, reliability and customer support.
In the communications services market, we believe that our
ability to compete successfully is based primarily on our
reputation and providing prompt delivery and initiation of
service, competitive pricing, consistent and reliable
connections and high-quality customer support.
Our primary competitors in the infrastructure solutions market
generally fall into two groups: (1) system integrators such
as Thales, Data Path and SED Systems and (2) equipment
manufacturers who also provide integrated systems, such as
General Dynamics, SATCOM Technologies, Viasat, Alcatel and ND
Satcom AG.
In the
end-to-end
satellite-based enterprise solutions and broadcast services
markets, we compete with other satellite communication companies
who provide similar services, such as Ascent Media, Globecast
and Convergent Media Systems. In addition, in managed network
services we may compete with other communications services
providers such as Segovia, and satellite owners like SES
Americom, Intelsat and Verizon. We anticipate that our
competitors may develop or acquire services that provide
functionality that is similar to that provided by our services
and that those services may be offered at significantly lower
prices or bundled with other services.
Current and potential participants in the markets in which we
compete have established or may establish cooperative
relationships among themselves or with third parties. These
cooperative relationships may increase the ability of their
products and services to address the needs of our current and
prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge that will
enable them to acquire significant market share rapidly. We
believe that increased competition is likely to result in price
reductions, reduced gross profit margins and loss of market
share, any of which would have a material adverse effect on our
business, results of operations and financial condition.
Intellectual
Property
We rely heavily on the technological and creative skills of our
personnel, new product developments, computer programs and
designs, frequent product enhancements, reliable product support
and proprietary technological expertise in maintaining our
competitive position. We have secured patent protection on some
of our products, and have secured trademarks and service marks
to protect some of our products and services.
We currently have been granted six patents in the United States,
one for remote access to the Internet using satellites, another
for satellite communication with automatic frequency control,
another for a monitor and control system for satellite
communications networks and the like, another for implementing
facsimile and data communications using Internet protocols, and
two for a dish antenna kit including alignment tool. We have one
other patent pending in the United States for a distributed
satellite-based cellular network. We currently have one Patent
Cooperation Treaty patent application pending for implementing
facsimile and data communications using Internet protocols. We
also intend to seek additional patents on our technology, if
appropriate. We have received trademark registration for
Globecomm and GSI in the United States and Russia, and for
Globecomm Systems Inc. in the European Community, Russia, and
the Peoples Republic of China. We have also received
trademark registrations in the United States for MBB2001, CTF
2001, CES 2001 and AxxSys, which relate to our pre-engineered
systems; for SkyBorne, relating to our broadcasting services;
for se@comm and other marks relating to our maritime services;
for the GSI logo; and for various other marks related to our
products and services. We have other trademarks and service
marks pending and intend to seek registration of other
trademarks and service marks in the future.
14
Government
Regulations
Operations
and Use of Satellites
We are subject to various federal laws and regulations, which
may have negative effects on our business. We operate Federal
Communications Commission, or FCC, licensed teleports in
Hauppauge, New York, and Laurel, Maryland, subject to the
Communications Act of 1934, as amended, or the FCC Act, and the
rules and regulations of the FCC. Pursuant to the FCC Act and
FCC rules and regulations, we have obtained or applied for, and
are required to maintain radio transmission licenses from the
FCC for both domestic and foreign operations of our teleports.
We have also obtained and maintain authorization issued under
Section 214 of the FCC Act to act as a telecommunications
carrier, which authorization also extends to GNSC, and have
applied for similar authorization for Telaurus. We have also
obtained a license from Agentschap Telecom, the licensing
authority in The Netherlands, for the teleport operated by Mach
6 in The Netherlands. These licenses should be renewed in the
normal course as long as we remain in compliance with applicable
rules and regulations relating to the licenses. However, we
cannot guarantee that additional licenses will be granted when
our existing licenses expire, nor can we assure you that the
applicable regulatory agencies will not adopt new or modified
technical requirements that will require us to incur
expenditures to modify or upgrade our equipment as a condition
of retaining our licenses.
We are also required to comply with FCC regulations regarding
the exposure of humans to radio frequency radiation from our
teleports. These regulations, as well as local land use
regulations, restrict our freedom to choose where to locate our
teleports.
The licenses and authorizations held by Globecomm for the
licensed teleport in Hauppauge, New York, extend to GNSC
and GNSC currently provides services in accordance with the
requirements of the Globecomm licenses and authorizations. GNSC
and GSM may in the future seek to obtain licenses
and/or
authorizations to provide services in their own names; however,
we cannot guarantee that such additional licenses and
authorizations will be granted by the FCC.
Common
Carrier Regulation
We currently provide services to our customers on a private
carrier and on a common carrier basis. Our operations as a
common carrier require us to comply with the FCCs
requirements for common carriers. These requirements include,
but are not limited to, providing our rates and service terms,
being forbidden from unjust and unreasonable discrimination
among customers, notifying the FCC before discontinuing service
and complying with FCC equal employment opportunity regulations
and reporting requirements.
We do not currently provide telecommunications services between
points in the same state and so are exempt from state regulation
of our services. However, we could become subject to state
telecommunications regulations if we do provide intrastate
telecommunications services.
Foreign
Ownership
The FCC Act and FCC regulations impose restrictions on foreign
ownership of our teleports. These requirements generally forbid
more than 20% ownership or control of an FCC licensee by
non-United States
citizens and more than 25% ownership of a licensees parent
by
non-United
States citizens. The FCC may authorize foreign ownership in the
licensees parent in excess of these percentages. Under
current policies, the FCC has granted these authorizations where
the applicant does not control monopoly or bottleneck facilities
and the foreign owners are citizens of countries that are
members of the World Trade Organization or provide equivalent
competitive opportunities to United States citizens.
We may, in the future, be required to seek FCC approval if
foreign ownership of our stock exceeds the thresholds mentioned
above. Failure to comply with these policies could result in an
order to divest the offending foreign ownership, fines, denial
of license renewal
and/or
license revocation proceedings against the licensee by the FCC.
We have no knowledge of any present foreign ownership which
would result in a violation of the FCC rules and regulations.
15
Some of our U.S. government contracts also impose
restrictions on foreign ownership of our Company. These
contracts require that we identify whenever a foreign person has
5% or greater ownership or control of our Company and take steps
to mitigate the control and influence such foreign persons have
on our business. If we are not able to effectively mitigate such
control or influence, we may lose our eligibility for those
U.S. government contracts where foreign ownership or
controlling interest of the contractor is a factor in contractor
selection.
Foreign
Regulations
Regulatory schemes in countries in which we may seek to provide
our satellite-delivered services may impose impediments on our
operations. Some countries in which we operate or intend to
operate have telecommunications laws and regulations that do not
currently contemplate technical advances in telecommunications
technology like Internet/intranet transmission by satellite. We
cannot assure you that the present regulatory environment in any
of those countries will not be changed in a manner which may
have a material adverse impact on our business. Either we or our
local sales representatives typically must obtain authorization
for each country in which we provide our satellite-delivered
services. Although we believe that we or our local sales
representatives will be able to obtain the requisite licenses
and approvals from the countries in which we intend to provide
products and services, the regulatory schemes in each country
are different, and thus there may be instances of noncompliance
of which we are not aware. Although we believe these regulatory
schemes will not prevent us from pursuing our business plan, we
cannot assure you that our licenses and approvals are or will
remain sufficient in the view of foreign regulatory authorities.
In addition, we cannot assure you that necessary licenses and
approvals will be granted on a timely basis, or at all, in all
jurisdictions in which we wish to offer our products and
services or that the applicable restrictions will not be unduly
burdensome.
Regulation
of the Internet
Our Internet operations (other than the operation of a teleport)
are not currently subject to direct government regulation in the
United States or most other countries, and there are currently
few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing
popularity and use of the Internet it is possible that a number
of laws and regulations may be adopted at the local, national or
international levels with respect to the Internet, covering
issues like user privacy and expression, pricing of products and
services, taxation, advertising, intellectual property rights,
information security or the convergence of traditional
communication services with Internet communications.
We anticipate that a substantial portion of our Internet
operations will be carried out in countries which may impose
greater regulation of the content of information coming into
their country than that which is generally applicable in the
United States. Examples of this include privacy regulations in
Europe and content restrictions in countries, such as the
Peoples Republic of China. To the extent that we provide
content as a part of our Internet services, we will be subject
to laws regulating content. Moreover, the adoption of laws or
regulations may decrease the growth of the Internet, which could
in turn decrease the demand for our Internet services, or
increase our cost of doing business or otherwise negatively
affect our business. In addition, the applicability to the
Internet of existing laws governing issues including property
ownership, copyrights and other intellectual property issues,
taxation, libel and personal privacy is uncertain. The vast
majority of these laws were adopted prior to the advent of the
Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and
related technologies. Changes to these laws intended to address
these issues, including some recently proposed changes, could
create uncertainty in the marketplace. These changes could
reduce demand for our products and services or could increase
our cost of doing business as a result of costs of litigation or
increased product development costs.
Telecommunications
Taxation, Support Requirements and Access Charges
Telecommunications carriers providing domestic services in the
United States are required to contribute a portion of their
gross revenues for the support of universal telecommunications
services,
16
telecommunications relay services for the deaf
and/or other
regulatory fees. We are subject to some of these fees and we may
be subject to other fees or to new or increased taxes and
contribution requirements that could affect our profitability,
particularly if we are not able to pass them through to
customers for either competitive or regulatory reasons.
Broadband Internet access services provided by telephone
companies are currently classified as information services under
the Communications Act and therefore not considered a
telecommunications service subject to payment of access charges
to local telephone companies in the United States. Should this
situation change or other charges be imposed, the increased cost
to our customers who use telephone company provided facilities
to connect with our satellite facilities could discourage the
demand for our services. Likewise, the demand for our services
in other countries could be affected by the availability and
cost of local telephone or other telecommunications services
required to connect with our facilities in those countries.
Export
of Telecommunications Equipment
The sale of our products and services outside the United States
is subject to compliance with the regulations of the United
States Export Administration and, in certain instances, with
International Traffic in Arms regulations. The absence of
comparable restrictions on competitors in other countries may
adversely affect our competitive position. In addition, in order
to ship our products into or implement our services in some
countries, these products or services must satisfy the technical
requirements of the particular country. If we were unable to
comply with these requirements with respect to a significant
quantity of our products, our sales in those countries could be
restricted, which could have a material adverse effect on our
business, financial condition and results of operations.
Employees
As of June 30, 2009, we had 347 full-time employees,
including 166 in engineering and program management, 89 in the
manufacturing, operations support and network operations, 37 in
sales and marketing and 55 in management and administration. Our
employees are not covered by any collective bargaining
agreements. We believe that our relations with our employees are
good.
Financial
Information About Geographic Areas
Revenues from foreign sales as a percentage of total revenues
for each of the three years in the period ended June 30,
2009 are set forth in Note 14 of the Notes to Consolidated
Financial Statements.
Financial
Information About Business Segments
The sales and operating profits of each business segment and the
identifiable assets attributable to each business segment for
each of the three years in the period ended June 30, 2009
are set forth in Note 13 of the Notes to Consolidated
Financial Statements.
Available
information
We maintain an Internet website at www.globecommsystems.com
where our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
any amendments to these reports and all other SEC documents are
available without charge, as soon as reasonably practicable
following the time that they are filed with or furnished to the
SEC. Information contained on our website does not constitute a
part of this Annual Report on
Form 10-K.
17
Risks
Related to Our Business
Reductions
in telecommunications equipment and systems spending have
negatively affected our revenues and
profitability.
For several years prior to 2008, the U.S. and global
economies had been growing and our revenues and profits had
increased as our customers increased their spending on
telecommunications equipment and systems. However, recent
adverse conditions as a consequence of the worldwide financial
and economic crisis have negatively impacted the global economy
and nearly all businesses, including ours, are facing uncertain
economic environments. Our business has been negatively affected
in the past by uncertain economic environments both in the
overall market, and more specifically in the telecommunications
sector. As a result of the current global economic conditions,
our customers have reduced and may continue to reduce their
budgets for spending on telecommunications equipment and
systems. As a consequence, our current customers and other
prospective customers may postpone, reduce or even forego the
purchase of our products and systems which could adversely
affect our revenues and profitability. For the year ended
June 30, 2009 our infrastructure solutions segment in
particular was impacted by these factors. It is currently
difficult to assess whether or not future bookings will meet or
exceed the levels experienced in the recent past.
A
limited number of customer contracts account for a significant
portion of our revenues, and the inability to replace a key
customer contract or the failure of the customer to implement
its plans would adversely affect our results of operations,
business and financial condition.
We rely on a small number of customer contracts for a large
portion of our revenue. Specifically, we have agreements with
five customers to provide equipment and services, from which we
expect to generate a significant portion of our revenues. In the
year ended June 30, 2009, we derived 12% of our revenues
from a U.S. government agency. If our key customers are
unable to implement their business plans, the market for these
customers services declines, political or military
conditions make performance impossible or if all or any of the
major customers modifies or terminates its agreement or their
agreements with us, and we are unable to replace these
contracts, our results of operations, business and financial
condition would be materially harmed.
We
derive a substantial portion of our revenues from the government
marketplace, and a downturn in their marketplace would adversely
affect us.
In the year ended June 30, 2009, we derived 66% of our
consolidated revenues from the government marketplace. This
business tends to have higher gross margins than other markets
we serve. A future reduction in the proportion of our business
from the government marketplace would negatively impact our
results of operations.
There are a number of other risks associated with the government
marketplace, which include, purchasing decisions of agencies are
subject to political influence, contracts are subject to
cancellation if government funding becomes unavailable, and
unsuccessful bidders may challenge contracts we are awarded
which can lead to increased costs, delays and possible loss of
contracts. In particular, the current government involvement in
supporting various financial institutions and the mounting
government deficits will likely result in failures to fund
various government programs. A withdrawal of military forces
from areas of conflict following the change in Administration in
the United States could result in curtailed spending in military
programs in which we participate.
18
Risks
associated with operating in international markets, including
areas of conflict, could restrict our ability to expand globally
and harm our business and prospects.
We market and sell a substantial portion of our products and
services internationally. We anticipate that international sales
will continue to account for a significant portion of our total
revenues for the foreseeable future, including new revenues from
our Mach 6 and Telaurus acquisitons with a significant portion
of the international revenue coming from developing countries,
including countries in areas of conflict like Afghanistan. There
are a number of risks inherent in conducting our business
internationally, including:
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general political and economic instability in international
markets, including the hostilities in Iraq and Afghanistan,
could impede our ability to deliver our products and services to
customers and harm our results of operations;
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difficulties in collecting accounts receivable could adversely
affect our results of operations;
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changes in regulatory requirements could restrict our ability to
deliver services to our international customers, including the
addition of a country to the list of sanctioned countries under
the International Emergency Economic Powers Act or similar
legislation;
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export restrictions, tariffs, licenses and other trade barriers
could prevent us from adequately equipping our network
facilities;
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differing technology standards across countries may impede our
ability to integrate our products and services across
international borders;
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protectionist laws and business practices favoring local
competition may give unequal bargaining leverage to key vendors
in countries where competition is scarce, significantly
increasing our operating costs;
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increased expenses associated with marketing services in foreign
countries could affect our ability to compete;
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relying on local subcontractors for installation of our products
and services could adversely impact the quality of our products
and services;
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difficulties in staffing and managing foreign operations could
affect our ability to compete;
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complex foreign laws and treaties could affect our ability to
compete; and
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potentially adverse taxes could affect our results of operations.
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These and other risks could impede our ability to manage our
international operations effectively, limit the future growth of
our business, increase our costs and require significant
management attention.
We
derive a substantial portion of our revenues from fixed-price
projects, under which we assume greater financial risk if we
fail to accurately estimate the costs of the
projects.
We derive a substantial portion of our revenues from fixed-price
projects. We assume greater financial risks on a fixed-price
project than on a
time-and-expense
based project. If we miscalculate the resources or time we need
for these fixed-price projects, the costs of completing these
projects may exceed our original estimates, which would
negatively impact our financial condition and results of
operations.
Our
service revenue has increased as a percentage of total revenue
and if our service revenue decreases or margins decrease, our
results of operations will be
harmed.
GNSCs, GSMs, Cachendos, Mach 6s, and
Telauruss future revenues and results of operations are
dependent on the development of the market for their current and
future services. In fiscal 2009, services revenues increased to
48% of total revenues compared to 32% and 24% in fiscal 2008 and
2007, respectively. The service business tends to have higher
gross margins than our infrastructure solutions business. A
future
19
reduction in the proportion of our services business would
disproportionately impact our results of operations.
In the
event of a catastrophic loss affecting our operations in
Hauppauge, New York or Laurel, Maryland, our results of
operations would be harmed.
GNSCs revenues and results of operations are dependant on
the infrastructure of the network operations center and the
Kenneth A. Miller International Teleport at our headquarters in
Hauppauge, New York. Similarly, GSMs revenues and results
of operations are dependant on the infrastructure of the network
operations center and teleport at our Laurel, Maryland facility.
A catastrophic event to either of these facilities or to the
infrastructure of the surrounding areas would result in
significant delays in restoring a majority of the services
capabilities. These capabilities permit us to offer an
integrated suite of products and services and the incapacity of
our communications infrastructure would negatively impact our
ability to sell our infrastructure solutions. This would result
in the loss of revenues and adversely affect our business,
results of operations and financial condition.
Our
markets are highly competitive and we have many established
competitors, and we may lose market share as a
result.
The markets in which we operate are highly competitive and this
competition could harm our ability to sell our products and
services on prices and terms favorable to us. Our primary
competitors in the infrastructure solutions market generally
fall into two groups: (1) system integrators, like Thales,
Data Path, and SED Systems, and (2) equipment manufacturers
who also provide integrated systems, like General Dynamics,
SATCOM Technologies, Viasat, Alcatel and ND Satcom AG.
In the
end-to-end
satellite-based enterprise solutions and broadcast services
markets, we compete with other satellite communication companies
who provide similar services, like Ascent Media, Globecast, and
Convergent Media Systems. In addition, in managed network
services we may compete with other communications service
providers like Segovia and satellite owners like SES Americom,
Intelsat and Verizon. We anticipate that our competitors may
develop or acquire services that provide functionality that is
similar to that provided by our services and that those services
may be offered at significantly lower prices or bundled with
other services. These competitors may have the financial
resources to withstand substantial price competition, may be in
a better position to endure difficult economic conditions in
international markets and may be able to respond more quickly
than we can to new or emerging technologies and changes in
customer requirements. Moreover, many of our competitors have
more extensive customer bases, broader customer relationships
and broader industry alliances than we do that they could use to
their advantage in competitive situations.
The markets in which we operate have limited barriers to entry,
and we expect that we will face additional competition from
existing competitors and new market entrants in the future.
Moreover, our current and potential competitors have established
or may establish strategic relationships among themselves or
with third parties to increase the ability of their products and
services to address the needs of our current and prospective
customers. The potential strategic relationships of existing and
new competitors may rapidly acquire significant market share,
which would harm our business and financial condition.
Future
acquisitions and strategic investments may divert our resources
and managements attention, results may fall short of
expectations and, as a result, our operating results may be
difficult to forecast and may be volatile.
We have made several recent acquisitions and intend to continue
pursuing acquisitions of investments in complementary
businesses, technologies and product lines as a key component of
our growth strategy. Any future acquisitions or investments may
result in the use of significant amounts of cash, potentially
20
dilutive issuances of equity securities, incurrence of debt and
amortization expenses or in-process research and development
charges related to intangibles assets. Acquisitions involve
numerous risks, including:
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failure of the acquisition or investment to meet the
expectations upon which we made a decision to proceed;
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difficulties in the integration of the operations, technologies,
products and personnel of an acquired business;
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diversion of managements attention from other business
concerns;
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Substantial transaction costs;
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increased expenses associated with the acquisition; and
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loss of key employees, customers or suppliers of any acquired
business.
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We cannot assure that any acquisition or strategic investments
will be successful and will not adversely affect our business,
results of operations or financial condition.
If our
products and services are not accepted in developing countries
with emerging markets, our revenues will be
impaired.
We anticipate that a substantial portion of the growth in the
demand for our products and services will come from customers in
developing countries due to a lack of basic communications
infrastructure in these countries. However, we cannot guarantee
an increase in the demand for our products and services in
developing countries or that customers in these countries will
accept our products and services at all. Our ability to
penetrate emerging markets in developing countries is dependent
upon various factors including:
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the speed at which communications infrastructure, including
terrestrial microwave, coaxial cable and fiber optic
communications systems, which compete with satellite-based
services, is built;
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the effectiveness of our local resellers and sales
representatives in marketing and selling our products and
services; and
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the acceptance of our products and services by customers.
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If our products and services are not accepted, or the market
potential we anticipate does not develop, our revenues will be
impaired.
Since
sales of satellite communications equipment are dependent on the
growth of communications networks, if market demand for these
networks does not increase from recent depressed levels, our
revenue and profitability are likely to decline.
We derive, and expect to continue to derive, a significant
amount of revenues from the sale of satellite infrastructure
solutions. If the long-term growth in demand for communications
networks does not increase from recent depressed levels, the
demand for our infrastructure solutions may decline or grow more
slowly than we expect. Further, increased competition among
satellite ground segment systems and network manufacturers has
increased pricing pressures. As a result, we may not be able to
grow our business, our revenues may decline from current levels
and our results of operations may be harmed. The demand for
communications networks and the products used in these networks
is affected by various factors, many of which are beyond our
control. For example, the uncertain general economic conditions
have affected the overall rate of capital spending by many of
our customers. Also, many companies have found it difficult to
raise capital to finish building their communications networks
and, therefore, have placed fewer orders. Past economic
slowdowns resulted in a softening of demand from our customers.
We cannot predict the extent to which demand will increase, nor
the timing of such demand.
21
We
depend upon certain key personnel and may not be able to retain
these employees. If we lose the services of these individuals or
cannot hire additional qualified personnel, our business will be
harmed.
Our success also depends to a substantial degree on our ability
to attract, motivate and retain highly-qualified personnel.
There is considerable competition for the services of
highly-qualified technical and engineering personnel. We may not
be able either to retain our current personnel or hire
additional qualified personnel if and when needed.
Our future performance depends on the continued service of our
key technical, managerial and marketing personnel; in
particular, David Hershberg, our Chairman and Chief Executive
Officer, and Keith Hall, our President and Chief Operating
Officer, are key to our success based upon their individual
knowledge of the markets in which we operate. The employment of
any of our key personnel could cease at any time.
Satellites
upon which we rely may malfunction or be damaged or
lost.
In the delivery of our services, we lease space segment from
various satellite transponder vendors. The damage or loss of any
of the satellites used by us, or the temporary or permanent
malfunction of any of the satellites upon which we rely, would
likely result in the interruption of our satellite-based
communications services. This interruption could have a material
adverse effect on our business, results of operations and
financial condition.
We
depend on our suppliers, some of which are our sole or a limited
source of supply, and the loss of these suppliers could
materially adversely affect our business, results of operations
and financial condition.
We currently obtain most of our critical components and services
from limited sources and generally do not maintain significant
inventories or have long-term or exclusive supply contracts with
our vendors. We have from time to time experienced delays in
receiving products from vendors due to lack of availability,
quality control or manufacturing problems, shortages of
materials or components or product design difficulties. We may
experience delays in the future and replacement services or
products may not be available when needed, or at all, or at
commercially reasonable rates or prices. If we were to change
some of our vendors, we would have to perform additional testing
procedures on the service or product supplied by the new
vendors, which would prevent or delay the availability of our
products and services. Furthermore, our costs could increase
significantly if we need to change vendors. If we do not receive
timely deliveries of quality products and services, or if there
are significant increases in the prices of these products or
services, it could have a material adverse effect on our
business, results of operations and financial condition.
Our
network may experience security breaches, which could disrupt
our services.
Our network infrastructure may be vulnerable to computer
viruses, break-ins, denial of service attacks and similar
disruptive problems caused by our customers or other Internet
users. Computer viruses, break-ins, denial of service attacks or
other problems caused by third parties could lead to
interruptions, delays or cessation in service to our customers.
There currently is no existing technology that provides absolute
security. We may face liability to customers for such security
breaches. Furthermore, these incidents could deter potential
customers and adversely affect existing customer relationships.
If the
satellite communications industry fails to continue to develop
or new technology makes it obsolete, our business and financial
condition will be harmed.
Our business is dependent on the continued success and
development of satellite communications technology, which
competes with terrestrial communications transport technologies
like terrestrial microwave, coaxial cable and fiber optic
communications systems. Fiber optic communications systems have
penetrated areas in which we have traditionally provided
services. If the satellite communications industry fails to
continue to develop, or if any technological development
significantly improves the cost or
22
efficiency of competing terrestrial systems relative to
satellite systems, then our business and financial condition
would be materially harmed.
We may
not be able to keep pace with technological changes, which would
make our products and services become non-competitive and
obsolete.
The telecommunications industry, including satellite-based
communications services, is characterized by rapidly changing
technologies, frequent new product and service introductions and
evolving industry standards. If we are unable, for technological
or other reasons, to develop and introduce new products and
services or enhancements to existing products and services in a
timely manner or in response to changing market conditions or
customer requirements, our products and services would become
non-competitive and obsolete, which would harm our business,
results of operations and financial condition.
Unauthorized
use of our intellectual property by third parties may damage our
business.
We regard our trademarks, trade secrets and other intellectual
property as beneficial to our success. Unauthorized use of our
intellectual property by third parties may damage our business.
We rely on trademark, trade secret and patent protection and
contracts, including confidentiality and license agreements with
our employees, customers, strategic collaborators, consultants
and others, to protect our intellectual property rights. Despite
our precautions, it may be possible for third parties to obtain
and use our intellectual property without our authorization.
We currently have been granted six patents, and have one patent
and one provisional patent application pending in the United
States. We currently have one Patent Cooperation Treaty patent
application pending. We also intend to seek further patents on
our technology, if appropriate. We cannot assure that patents
will be issued for any of our pending or future patent
applications or that any claims allowed from such applications
will be of sufficient scope, or be issued in all countries where
our products and services can be sold, to provide meaningful
protection or any commercial advantage to us. Also, our
competitors may be able to design around our patents. The laws
of some foreign countries in which our products and services are
or may be developed, manufactured or sold may not protect our
products and services or intellectual property rights to the
same extent as do the laws of the United States and thus make
the possibility of piracy of our technology and products and
services more likely.
We have filed applications for trademark registration of
Globecomm and GSI in the United States and various other
countries, and have been granted registrations for some of these
terms in the United States, Europe and Russia. We have various
other trademarks and service marks registered or pending for
registration in the United States and in other countries and may
seek registration of other trademarks and service marks in the
future. We cannot assure that registrations will be granted from
any of our pending or future applications, or that any
registrations that are granted will prevent others from using
similar trademarks in connection with related goods and services.
Defending
against intellectual property infringement claims could be time
consuming and expensive, and if we are not successful, could
cause substantial expenses and disrupt our
business.
We cannot be sure that the products, services, technologies and
advertising we employ in our business do not or will not
infringe valid patents, trademarks, copyrights or other
intellectual property rights held by third parties. We may be
subject to legal proceedings and claims from time to time
relating to the intellectual property of others in the ordinary
course of our business. Prosecuting infringers and defending
against intellectual property infringement claims could be time
consuming and expensive, and regardless of whether we are or are
not successful, could cause substantial expenses and disrupt our
business. We may incur substantial expenses in defending against
these third party claims, regardless of their merit. Successful
infringement claims against us may result in substantial
monetary liability
and/or may
materially disrupt the conduct of, or necessitate the cessation
of, segments of our business.
23
Risks
Related to the Securities Markets and Ownership of Our Common
Stock
Our
stock price is volatile.
From July 1, 2008 through June 30, 2009, our stock
price ranged from a low of $3.96 per share to a high of $10.94
per share. The market price of our common stock, like that of
the securities of many telecommunications and high technology
industry companies, could be subject to significant fluctuations
and is likely to remain volatile based on many factors,
including the following:
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quarterly variations in operating results;
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announcements of new technology, products or services by us or
any of our competitors;
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changes in financial estimates or recommendations by securities
analysts;
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general market conditions; or
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domestic and international economic factors unrelated to our
performance.
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Additionally, numerous factors relating to our business may
cause fluctuations or declines in our stock price.
The stock markets in general and the markets for
telecommunications stocks in particular have experienced extreme
volatility that has often been unrelated to the operating
performance of particular companies. These broad market
fluctuations may adversely affect the trading price of our
common stock.
Because
our common stock is thinly traded, it may be difficult to sell
shares of our common stock into the markets without experiencing
significant price volatility.
Our common stock is currently traded on the Nasdaq Global
Market. Because of the relatively small number of shares that
are traded, it may be difficult for an investor to find a
purchaser for shares of our common stock without experiencing
significant price volatility. We cannot guarantee that an active
trading market will develop, that our common stock will have a
higher trading volume than it has historically had or that it
will maintain its current market price. This illiquidity could
have a material adverse effect on the market price of our stock.
A
third party could be prevented from acquiring shares of our
stock at a premium to the market price because of our
anti-takeover provisions.
Various provisions with respect to votes in the election of
directors, special meetings of stockholders, and advance notice
requirements for stockholder proposals and director nominations
of our amended and restated certificate of incorporation,
by-laws and Section 203 of the General Corporation Law of
the State of Delaware could make it more difficult for a third
party to acquire us, even if doing so might be beneficial to our
stockholders. In addition, we have entered into employment
agreements with our senior executives that have change of
control provisions that would add substantial costs to an
acquisition of us by a third party.
We
have not paid dividends in the past and do not expect to pay
dividends in the future, and any return on investment may be
limited to the value of our stock.
We have never paid cash dividends on our common stock and do not
anticipate paying cash dividends on our common stock in the
foreseeable future. The payment of dividends on our common stock
will depend on our future earnings, capital requirements,
financial condition, future prospects and other factors as the
board of directors might deem relevant. If we do not pay
dividends our stock may be less valuable because a return on
your investment will only occur if our stock price appreciates.
24
Risks
Related to Government Approvals
We are
subject to many government regulations, and failure to comply
with them will harm our business.
Operations
and Use of Satellites
We are subject to various federal and foreign laws and
regulations, which may have negative effects on our business. We
operate FCC licensed teleports in Hauppauge, New York, and
Laurel, Maryland subject to the Communications Act of 1934, as
amended, or the FCC Act, and the rules and regulations of the
FCC, and a teleport in Amsterdam, The Netherlands, subject to
the rules and regulations of the Dutch government. We cannot
guarantee that the FCC or the Dutch government will grant
renewals when our existing licenses expire, nor can there be any
assurance that the FCC or the Dutch government will not adopt
new or modified technical requirements that will require us to
incur expenditures to modify or upgrade our equipment as a
condition of retaining our licenses. We are also required to
comply with FCC regulations regarding the exposure of humans to
radio frequency radiation from our teleports. These regulations,
as well as local land use regulations, restrict our freedom to
choose where to locate our teleports. In addition, prior to a
third party acquisition of us, we would need to seek approval
from the FCC to transfer the radio transmission licenses we have
obtained to the third party upon the consummation of the
acquisition. However, we cannot assure that the FCC will permit
the transfer of these licenses. These approvals may make it more
difficult for a third party to acquire us.
Foreign
Regulations
Regulatory schemes in countries in which we may seek to provide
our satellite-delivered services may impose impediments on our
operations. Some countries in which we intend to operate have
telecommunications laws and regulations that do not currently
contemplate technical advances in telecommunications technology
like Internet/intranet transmission by satellite. We cannot
assure that the present regulatory environment in any of those
countries will not be changed in a manner that may have a
material adverse impact on our business. Either we or our local
partners typically must obtain authorization from each country
in which we provide our satellite-delivered services. The
regulatory schemes in each country are different, and thus there
may be instances of noncompliance of which we are not aware. We
cannot assure that our licenses and approvals are or will remain
sufficient in the view of foreign regulatory authorities, or
that necessary licenses and approvals will be granted on a
timely basis in all jurisdictions in which we wish to offer our
products and services or that restrictions applicable thereto
will not be unduly burdensome.
Regulation
of the Internet
Due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted at
the local, national or international levels with respect to the
Internet, covering issues including user privacy and expression,
pricing of products and services, taxation, advertising,
intellectual property rights, information security or the
convergence of traditional communication services with Internet
communications. It is anticipated that a substantial portion of
our Internet operations will be carried out in countries that
may impose greater regulation of the content of information
coming into the country than that which is generally applicable
in the United States, including but not limited to privacy
regulations in numerous European countries and content
restrictions in countries such as the Peoples Republic of
China. To the extent that we provide content as a part of our
Internet services, it will be subject to laws regulating
content. Moreover, the adoption of laws or regulations may
decrease the growth of the Internet, which could in turn
decrease the demand for our Internet services or increase our
cost of doing business or in some other manner have a material
adverse effect on our business, operating results and financial
condition. In addition, the applicability of existing laws
governing issues including property ownership, copyrights and
other intellectual property issues, taxation, libel, court
jurisdiction and personal privacy to the Internet is uncertain.
The vast majority of these laws were adopted prior to the advent
of the Internet and related technologies and, as a result, the
laws do not contemplate or address the unique issues
25
of the Internet and related technologies. Changes to these laws
intended to address these issues, including some recently
proposed changes, could create uncertainty in the marketplace
which could reduce demand for our products and services, could
increase our cost of doing business as a result of costs of
litigation or increased product development costs, or could in
some other manner have a material adverse effect on our
business, financial condition and results of operations.
Telecommunications
Taxation, Support Requirements, and Access Charges
Telecommunications carriers providing domestic services in the
United States are required to contribute a portion of their
gross revenues for the support of universal telecommunications
services, telecommunications relay services for the deaf,
and/or other
regulatory fees. We are subject to some of these fees, and we
may be subject to other fees or new or increased taxes and
contribution requirements that could affect our profitability,
particularly if we are not able to pass them through to
customers for either competitive or regulatory reasons.
Broadband Internet access services provided by telephone
companies are currently classified as Information Services under
the FCC Act and therefore not considered a telecommunications
service subject to payment of access charges to local telephone
companies in the United States. Should this situation change or
other charges be imposed, the increased cost to our customers
who use telephone-company provided facilities to connect with
our satellite facilities could discourage the demand for our
services. Likewise, the demand for our services in other
countries could be affected by the availability and cost of
local telephone or other telecommunications services required to
connect with our facilities in those countries.
Export
of Telecommunications Equipment
The sale of our infrastructure solutions outside the United
States is subject to compliance with the United States Export
Administration Regulations and, in certain circumstances, with
the International Traffic in Arms Regulations. The absence of
comparable restrictions on competitors in other countries may
adversely affect our competitive position. In addition, in order
to ship our products into and implement our services in some
countries, the products must satisfy the technical requirements
of that particular country. If we were unable to comply with
such requirements with respect to a significant quantity of our
products, our sales in those countries could be restricted,
which could have a material adverse effect on our business,
results of operations and financial condition.
Foreign
Ownership
We may, in the future, be required to seek FCC or other
government approval if foreign ownership of our stock exceeds
certain specified criteria. Failure to comply with these
policies could result in an order to divest the offending
foreign ownership, fines, denial of license renewal
and/or
license revocation proceedings against the licensee by the FCC,
or denial of certain contracts from other United States
government agencies.
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Item 1B.
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Unresolved
Staff Comments.
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None.
26
We own a facility containing approximately 122,000 square
feet of space on approximately seven acres located at 45 Oser
Avenue, Hauppauge, New York. This facility houses our principal
offices, teleport facility and production facilities, as well as
the offices and network operations center of GNSC. We also own a
facility containing approximately 20,000 square feet of
space on approximately three acres located in Laurel, Maryland,
which houses the teleport facility and network operations center
of GSM. We lease warehouse space in Hauppauge, New York and rent
office space in Laurel, Maryland, Cedar Knolls, NJ, Washington
D.C., the Netherlands, the United Kingdom, Germany, the United
Arab Emirates, Singapore, Hong Kong and Afghanistan. We believe
that our facilities are adequate for our current needs and for
the foreseeable future; we also expect that suitable additional
space will be available as needed. Total monthly rent expense
for these locations is approximately $78,000.
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Item 3.
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Legal
Proceedings
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None.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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None.
27
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Our common stock is quoted on the Nasdaq Global Market under the
symbol GCOM. The quarterly high and low sales prices
of our common stock for fiscal 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2009
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2008
|
|
$
|
10.94
|
|
|
$
|
7.45
|
|
Quarter ended December 31, 2008
|
|
|
8.90
|
|
|
|
3.96
|
|
Quarter ended March 31, 2009
|
|
|
6.11
|
|
|
|
4.29
|
|
Quarter ended June 30, 2009
|
|
|
7.84
|
|
|
|
5.10
|
|
2008
|
|
|
|
|
|
|
|
|
Quarter ended September 30, 2007
|
|
$
|
14.96
|
|
|
$
|
11.37
|
|
Quarter ended December 31, 2007
|
|
|
16.49
|
|
|
|
9.28
|
|
Quarter ended March 31, 2008
|
|
|
12.00
|
|
|
|
7.77
|
|
Quarter ended June 30, 2008
|
|
|
10.53
|
|
|
|
8.20
|
|
At September 10, 2009, there were approximately 4,200
stockholders of record of our common stock, as shown in the
records of our transfer agent.
At the close of the Nasdaq Global Market on September 10,
2009, our market price per share was $7.83.
As of June 30, 2009, we had not declared or paid dividends
on our common stock since inception and we do not expect to pay
dividends in the foreseeable future.
The table below sets forth securities we have authorized for
issuance under our equity compensation plans.
Equity
Compensation Plan Information as of June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available
|
|
|
|
Number of
|
|
|
|
|
|
for future
|
|
|
|
securities to be
|
|
|
Weighted-average
|
|
|
issuance under
|
|
|
|
issued upon exercise
|
|
|
exercise price
|
|
|
equity compensation
|
|
|
|
of outstanding
|
|
|
of outstanding
|
|
|
plans (excluding
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
|
securities reflected
|
|
PLAN CATEGORY
|
|
and rights
|
|
|
and rights
|
|
|
in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plan approved by security holders
|
|
|
1,493,297
|
|
|
$
|
8.46
|
|
|
|
|
|
Equity compensation plan not approved by security holders(1)
|
|
|
35,000
|
|
|
|
6.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,528,297
|
|
|
$
|
8.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares were issued as part of the Globecomm Systems Inc/Telaurus
2009 Special Equity Incentive Plan, which was established in
connection with the acquisition of Telaurus. A copy of the Plan
is attached hereto as Exhibit 10.25. |
28
Performance
Graph
Set forth below is a graph comparing the cumulative total
stockholder return, assuming dividend reinvestment of $100
invested in the Companys common stock on June 30,
2004 through June 30, 2009 with the cumulative total
return, assuming dividend reinvestment of $100 invested in the
Nasdaq Global Market (U.S.) Index and a Self Constructed Peer
Group Index. The peer group consists of the following companies:
Comtech Telecommunications Corp., EMS Technologies, Inc.,
ViaSat, Inc., and Telecommunication Systems Inc.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Globecomm Systems Inc., The NASDAQ Composite Index
And A Peer Group
|
|
|
* |
|
$100 invested on 6/30/04 in stock or index, including
reinvestment of dividends. |
|
|
Fiscal year ending June 30. |
|
|
Item 6.
|
Selected
Financial Data
|
Our selected consolidated financial data as of and for each of
the five years in the period ended June 30, 2009 have
been derived from our audited consolidated financial statements.
EBITDA represents net income before interest income, interest
expense, provision (benefit) for income taxes, depreciation and
amortization expense, gain on sale of investment, gain on sale
of
available-for-sale
securities and gain on liquidation of foreign subsidiary. EBITDA
does not represent cash flows defined by accounting principles
generally accepted in the United States and does not necessarily
indicate that our cash flows are sufficient to fund all of our
cash needs. We disclose EBITDA since it is a financial measure
commonly used in our industry. EBITDA facilitates internal
comparisons of our historical financial position and operating
performance on a more consistent basis, we also use EBITDA in
measuring performance relative to that of our competitors and in
evaluating acquisition opportunities. EBITDA is not meant to be
considered a substitute or replacement for net income as
prepared in accordance with accounting principles generally
accepted in the United States. EBITDA may not be comparable to
other similarly titled measures of other companies.
29
We record an order in backlog when we receive a firm contract or
purchase order, which identifies product quantities, sales
price, service dates and delivery dates. Backlog represents the
amount of unrecorded revenue on undelivered orders and services
to be provided and a percentage of revenues from sales of
products that have been shipped where installation has not been
completed and final acceptance has not been received from the
customer. Our backlog at any given time is not necessarily
indicative of future period revenues.
Selected
Financial Data
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from infrastructure solutions
|
|
$
|
88,817
|
|
|
$
|
133,634
|
|
|
$
|
114,612
|
|
|
$
|
97,967
|
|
|
$
|
90,656
|
|
Revenues from services
|
|
|
81,344
|
|
|
|
62,891
|
|
|
|
36,133
|
|
|
|
28,069
|
|
|
|
18,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
170,161
|
|
|
|
196,525
|
|
|
|
150,745
|
|
|
|
126,036
|
|
|
|
109,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs from infrastructure solutions
|
|
|
73,877
|
|
|
|
106,699
|
|
|
|
92,197
|
|
|
|
81,410
|
|
|
|
75,357
|
|
Costs from services
|
|
|
60,995
|
|
|
|
47,739
|
|
|
|
29,052
|
|
|
|
23,605
|
|
|
|
15,527
|
|
Selling and marketing
|
|
|
12,985
|
|
|
|
10,873
|
|
|
|
8,376
|
|
|
|
7,029
|
|
|
|
5,821
|
|
Research and development
|
|
|
2,392
|
|
|
|
1,913
|
|
|
|
1,451
|
|
|
|
1,052
|
|
|
|
1,021
|
|
General and administrative
|
|
|
15,954
|
|
|
|
15,888
|
|
|
|
12,297
|
|
|
|
9,589
|
|
|
|
7,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating expenses
|
|
|
166,203
|
|
|
|
183,112
|
|
|
|
143,373
|
|
|
|
122,685
|
|
|
|
105,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,958
|
|
|
|
13,413
|
|
|
|
7,372
|
|
|
|
3,351
|
|
|
|
4,262
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
534
|
|
|
|
1,733
|
|
|
|
1,370
|
|
|
|
965
|
|
|
|
444
|
|
Interest expense
|
|
|
|
|
|
|
(285
|
)
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
Gain on liquidation of foreign subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264
|
|
|
|
|
|
Gain on sale of
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Gain on sale of investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,492
|
|
|
|
14,861
|
|
|
|
8,537
|
|
|
|
4,580
|
|
|
|
4,878
|
|
Provision (benefit) for income taxes
|
|
|
1,193
|
|
|
|
(12,158
|
)
|
|
|
211
|
|
|
|
88
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
3,299
|
|
|
$
|
27,019
|
|
|
$
|
8,326
|
|
|
$
|
4,492
|
|
|
$
|
4,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income from continuing operations per common share
|
|
$
|
0.16
|
|
|
$
|
1.39
|
|
|
$
|
0.53
|
|
|
$
|
0.30
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income from continuing operations per common share
|
|
$
|
0.16
|
|
|
$
|
1.34
|
|
|
$
|
0.50
|
|
|
$
|
0.29
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in the calculation of basic net
income from continuing operations per common share
|
|
|
20,219
|
|
|
|
19,476
|
|
|
|
15,795
|
|
|
|
15,001
|
|
|
|
14,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in the calculation of diluted net
income from continuing operations per common share
|
|
|
20,507
|
|
|
|
20,140
|
|
|
|
16,672
|
|
|
|
15,608
|
|
|
|
14,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,299
|
|
|
$
|
27,019
|
|
|
$
|
8,326
|
|
|
$
|
4,492
|
|
|
$
|
4,814
|
|
Other income, net
|
|
|
(534
|
)
|
|
|
(1,448
|
)
|
|
|
(1,165
|
)
|
|
|
(1,229
|
)
|
|
|
(616
|
)
|
Provision (benefit)for income taxes
|
|
|
1,193
|
|
|
|
(12,158
|
)(a)
|
|
|
211
|
|
|
|
88
|
|
|
|
64
|
|
Depreciation and amortization
|
|
|
5,968
|
|
|
|
5,742
|
|
|
|
3,333
|
|
|
|
3,023
|
|
|
|
2,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
9,926
|
|
|
$
|
19,155
|
|
|
$
|
10,705
|
|
|
$
|
6,374
|
|
|
$
|
6,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
9,011
|
|
|
$
|
9,207
|
|
|
$
|
14,357
|
|
|
$
|
(1,129
|
)
|
|
$
|
(3,926
|
)
|
Cash flows used in investing activities
|
|
|
(16,719
|
)
|
|
|
(5,008
|
)
|
|
|
(36,877
|
)
|
|
|
(2,484
|
)
|
|
|
(1,070
|
)
|
Cash flows provided by financing activities
|
|
|
339
|
|
|
|
21,642
|
|
|
|
23,566
|
|
|
|
2,531
|
|
|
|
2,347
|
|
Capital expenditures
|
|
|
4,336
|
|
|
|
5,008
|
|
|
|
17,808
|
(c)
|
|
|
2,484
|
|
|
|
3,303
|
|
Backlog at end of year
|
|
|
153,865
|
|
|
|
146,787
|
|
|
|
141,198
|
|
|
|
90,930
|
|
|
|
76,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,034
|
|
|
$
|
51,399
|
(b)
|
|
$
|
25,558
|
|
|
$
|
24,512
|
|
|
$
|
25,609
|
|
Working capital
|
|
|
74,644
|
|
|
|
79,009
|
|
|
|
37,251
|
|
|
|
43,695
|
|
|
|
36,520
|
|
Total assets
|
|
|
191,539
|
|
|
|
193,092
|
|
|
|
142,883
|
|
|
|
93,234
|
|
|
|
86,378
|
|
Long-term liabilities
|
|
|
1,506
|
|
|
|
957
|
|
|
|
13,568
|
(d)
|
|
|
353
|
|
|
|
670
|
|
Total stockholders equity
|
|
|
154,812
|
|
|
|
148,776
|
|
|
|
83,513
|
|
|
|
67,016
|
|
|
|
60,137
|
|
|
|
|
(a) |
|
During fiscal 2008 we recorded a non-recurring tax benefit of
$12.5 million primarily due to our recognition of a
significant portion of our deferred tax assets through a
reduction in our deferred tax asset valuation allowance. See
Note 12 of the Notes to Consolidated Financial Statements. |
|
(b) |
|
The increase in cash at June 30, 2008 is due to
approximately $36.4 million in net proceeds from an
offering of equity securities completed in August and September
2007. |
|
(c) |
|
Capital expenditures of $17.8 million primarily related to
the purchase of network operations center and teleport assets
primarily for a large program with Showtime Network Inc. as to
which service began on July 1, 2007. In addition, we
upgraded our facility to meet the requirements of our increase
in business levels. |
|
(d) |
|
The increase in long term liabilities at June 30, 2007 is
primarily due to a term loan used to partially fund the
acquisition of GlobalSat. The balance of the term loan was
repaid on September 26, 2007. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion of our financial
condition and results of operations with the consolidated
financial statements and related notes included elsewhere in
this Annual Report on
Form 10-K.
This discussion contains, in addition to historical information,
forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, based on our current
expectations, assumptions, estimates and projections. These
forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors,
such as, among others, our dependence on a limited number of
contracts for a high percentage of our revenues and a
significant reduction in revenues from the government
marketplace. These risks and others are more fully described in
the Risk Factors section and elsewhere in this
Annual Report on
Form 10-K.
We undertake no obligation to update publicly any
31
forward-looking statements for any reason, even if new
information becomes available or other events occur in the
future.
Overview
Our business is global and subject to technological and business
trends in the telecommunications marketplace. We derive much of
our revenue from government and government related entities
(government marketplace) and developing countries.
Our business is therefore affected by geopolitical developments
involving areas of the world in which our customers are located,
particularly in developing countries and areas of the world
involved in armed conflicts, which directly impacts our
military-related sector business.
The products and services we offer include: pre-engineered
systems, systems design and integration services, access,
hosted, and lifecycle support services. To provide these
products and services, we engineer all the necessary satellite
and terrestrial facilities as well as provide the integration
services required to implement those facilities. We also operate
and maintain managed networks and provide life cycle support
services on an ongoing basis. Our customers generally have
network service requirements that include
point-to-point
or
point-to-multipoint
connections via a hybrid network of satellite and terrestrial
facilities. In addition to the government marketplace, these
customers are communications service providers, commercial
enterprises and media and content broadcasters.
Since our products and services are often sold into areas of the
world which do not have fiber optic land-based networks, a
substantial portion of our revenues are derived from, and are
expected to continue to be derived from, developing countries.
These countries carry with them more enhanced risks of doing
business than in developed areas of the world, including the
possibility of armed conflicts or the risk that more advanced
land-based telecommunications will be implemented over time, and
less developed legal protection for intellectual property.
In the year ended June 30, 2009, 12% of our revenues were
derived from a U.S. government agency. Although the
identity of customers and contracts may vary from period to
period, we have been, and expect to continue to be, dependent on
revenues from a small number of customers or contracts in each
period in order to meet our financial goals. From time to time
these customers are located in developing countries or otherwise
subject to unusual risks.
Revenues related to contracts for infrastructure solutions and
services have been fixed-price contracts in a majority of cases.
Profitability of such contracts is subject to inherent
uncertainties as to the cost of performance. In addition to
possible errors or omissions in making initial estimates, cost
overruns may be incurred as a result of unforeseen obstacles,
including both physical conditions and unexpected problems
encountered in engineering design and testing. Since our
business is frequently concentrated in a limited number of large
contracts, a significant cost overrun on any contract could have
a material adverse effect on our business, financial condition
and results of operations.
Contract costs generally include purchased material, direct
labor, overhead and other direct costs. Anticipated contract
losses are recognized, as they become known. Costs from
infrastructure solutions consist primarily of the costs of
purchased materials (including shipping and handling costs),
direct labor and related overhead expenses, project-related
travel and living costs and subcontractor salaries. Costs from
services consist primarily of satellite space segment charges,
voice termination costs, network operations expenses and
Internet connectivity fees. Satellite space segment charges
consist of the costs associated with obtaining satellite
bandwidth (the measure of capacity) used in the transmission of
services to and from the satellites leased from operators.
Network operations expenses consist primarily of costs
associated with the operation of the network operations center
on a twenty-four hour a day, seven day a week basis, including
personnel and related costs and depreciation. Selling and
marketing expenses consist primarily of salaries, travel and
living costs for sales and marketing personnel. Research and
development expenses consist primarily of salaries and related
overhead expenses. General and administrative expenses consist
of expenses associated with our management, finance, contract
and administrative functions.
32
Critical
Accounting Policies
Certain of our accounting policies require judgment by
management in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty.
These judgments are based on our historical experience, terms of
existing contracts, our observance of trends in the industry,
information provided by our customers, and information available
from other outside sources, as appropriate. Actual results may
differ from these judgments under different assumptions or
conditions. Our accounting policies that require management to
apply significant judgment include:
Revenue
Recognition Infrastructure Solutions
We recognize revenue in accordance with Staff Accounting
Bulletin No. 104 (SAB 104), Revenue
Recognition, for our production-type contracts that are sold
separately as standard satellite ground segment systems when
persuasive evidence of an arrangement exists, the selling price
is fixed or determinable, collectability is reasonably assured,
delivery has occurred and the contractual performance
specifications have been met. Our standard satellite ground
segment systems produced in connection with these contracts are
typically short-term (less than twelve months in term) and
manufactured using a standard modular production process. Such
systems require less engineering, drafting and design efforts
than our long-term complex production-type projects. Revenue is
recognized on our standard satellite ground segment systems upon
shipment and acceptance of factory performance testing which is
when title transfers to the customer. The amount of revenues
recorded on each standard production-type contract is reduced by
the customers contractual holdback amount, which typically
requires 10% to 30% of the contract value to be retained by the
customer until installation and final acceptance is complete.
The customer generally becomes obligated to pay 70% to 90% of
the contract value upon shipment and acceptance of factory
performance testing. Installation is not deemed to be essential
to the functionality of the system since installation does not
require significant changes to the features or capabilities of
the equipment, does not require complex software integration and
interfacing and we have not experienced any difficulties
installing such equipment. In addition, the customer or other
third party vendors can install the equipment. The estimated
relative fair value of the installation services is determined
by management, which is typically less than the customers
contractual holdback percentage. If the holdback is less than
the fair value of installation, we will defer recognition of
revenues, determined on a
contract-by-contract
basis equal to the fair value of the installation services.
Payments received in advance by customers are deferred until
shipment and are presented as deferred revenues.
We recognize revenue using the
percentage-of-completion
method of accounting upon the achievement of certain contractual
milestones in accordance with Statement of Position
81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, for our non-standard, complex
production-type contracts for the production of satellite ground
segment systems and equipment that are generally integrated into
the customers satellite ground segment network. The
equipment and systems produced in connection with these
contracts are typically long-term (in excess of twelve months in
term) and require significant customer-specific engineering,
drafting and design effort in order to effectively integrate all
of the customizable earth station equipment into the
customers ground segment network. These contracts
generally have larger contract values, greater economic risks
and substantive specific contractual performance requirements
due to the engineering and design complexity of such systems and
related equipment. Progress payments received in advance by
customers are netted against the inventories balance.
The timing of our revenue recognition is primarily driven by
achieving shipment, final acceptance or other contractual
milestones. Project risks including project complexity,
political and economic instability in certain regions in which
we operate, export restrictions, tariffs, licenses and other
trade barriers which may result in the delay of the achievement
of revenue milestones. A delay in achieving a revenue milestone
may negatively impact our results of operations.
33
Costs
from Infrastructure Solutions
Costs related to our production-type contracts and our
non-standard, complex production-type contracts rely on
estimates based on total expected contract costs. Typically,
these contracts are fixed price projects. We use estimates of
the costs applicable to various elements which we believe are
reasonable. Our estimates are assessed continually during the
term of these contracts and costs are subject to revisions as
the contract progresses to completion. These estimates are
subjective based on managements assessment of project
risk. These risks may include project complexity and political
and economic instability in certain regions in which we operate.
Revisions in cost estimates are reflected in the period in which
they become known. A significant revision in an estimate may
negatively impact our results of operations. In the event an
estimate indicates that a loss will be incurred at completion,
we record the loss as it becomes known.
Goodwill
and Other Intangibles Assets
Goodwill represents the excess of the purchase price of
businesses over the fair value of the identifiable net assets
acquired. In accordance with SFAS No. 142, Goodwill
and Other Intangible Assets, goodwill and other indefinite life
intangible assets are no longer amortized, but instead tested
for impairment at least annually. The impairment test for
goodwill uses a two-step approach, which is performed at the
reporting unit level. Step one compares the fair value of the
reporting unit (calculated using a discounted cash flow method)
to its carrying value. If the carrying value exceeds the fair
value, there is a potential impairment and step two must be
performed. Step two compares the carrying value of the reporting
units goodwill to its implied fair value (i.e., fair value
of the reporting unit less the fair value of the units
assets and liabilities, including identifiable intangible
assets). If the carrying value of goodwill exceeds its implied
fair value, the excess is required to be recorded as an
impairment charge. The impairment test is dependent upon
estimated future cash flows of the services segment. There have
been no events during the year ended June 30, 2009 that
resulted in any goodwill impairment.
Deferred
tax assets
Consistent with the provisions of SFAS No. 109,
Accounting for Income Taxes, (FAS 109) we
regularly estimate our ability to recover deferred income taxes,
and report such deferred tax assets at the amount that is
determined to be more-likely-than-not recoverable, and we have
to estimate our income taxes in each of the taxing jurisdictions
in which we operate. This process involves estimating our
current tax expense together with assessing any temporary
differences resulting from the different treatment of certain
items, such as the timing for recognizing revenue and expenses
for tax and accounting purposes. These differences may result in
deferred tax assets and liabilities, which are included in our
consolidated balance sheets.
We are required to assess the likelihood that our deferred tax
assets, which include net operating loss carry forwards and
temporary differences that are expected to be deductible in
future years, will be recoverable from future taxable income or
other tax planning strategies. If recovery is not likely, we
have to provide a valuation allowance based on our estimates of
future taxable income in the various taxing jurisdictions, and
the amount of deferred taxes that are ultimately realizable. The
provision for current and deferred taxes involves evaluations
and judgments of uncertainties in the interpretation of complex
tax regulations. This evaluation considers several factors,
including an estimate of the likelihood of generating sufficient
taxable income in future periods, the effect of temporary
differences, the expected reversal of deferred tax liabilities
and available tax planning strategies.
During the year ended June 30, 2008, based on positive
evidence from our earnings trends, we recognized a portion of
our deferred tax assets through a reduction in our deferred tax
asset valuation allowance of approximately $12.5 million.
As of June 30, 2007, we maintained a full valuation
allowance against our deferred tax assets due to our prior
history of pre-tax losses and uncertainty about the timing of
and ability to generate taxable income in the future and our
assessment that the realization of the deferred tax assets did
not meet the more likely than not criterion under
FAS 109. At June 30, 2009 and 2008, we had a deferred
tax valuation allowance of approximately $6.6 million
primarily relating to $6.2 million from
34
net operating losses related to excess stock based compensation
expense deductions. If the remaining valuation allowance for the
excess stock based compensation were to be reversed the amount
would be recorded to additional paid in capital as it is
attributable to the tax effects of excess compensation
deductions from exercises of employee stock options.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income tax positions. FIN 48 requires that
we recognize in our financial statements the benefits of tax
return positions if that tax position is more likely than not of
being sustained on audit, based on its technical merits. The
provisions of FIN 48 became effective as of July 1,
2007. The adoption of this pronouncement on July 1, 2007
did not have an impact on our consolidated financial statements.
At June 30, 2009, we had a liability for unrecognized tax
benefits of approximately $106,000 (if recognized in the
future, would favorably impact our effective tax rate). We
record both accrued interest and penalties related to income tax
matters, if any, in the provision for income taxes in the
accompanying consolidated statements of operations. At
July 30, 2009 and June 30, 2008 we had not accrued any
amounts for the potential payment of penalties and interest.
Stock-Based
Compensation
We account for stock-based compensation in accordance with the
fair value recognition provisions of SFAS No. 123R
(revised 2004), Share-Based Payment, which is a revision of
SFAS 123 (SFAS 123R). Under the fair value
recognition provisions of FAS 123R, stock-based
compensation cost is measured at the grant date based on the
value of the award and is recognized as expense over the
appropriate vesting period. Determining the fair value of
stock-based awards at the grant date requires judgment,
including estimating the expected term of stock options, and the
expected volatility of our stock. In addition, judgment is
required in estimating the amount of stock-based awards that are
expected to be forfeited. If actual results differ significantly
from these estimates or different key assumptions were used, it
could have a material effect on our consolidated financial
statements.
As of June 30, 2009 there was approximately $3,026,000 of
unrecognized compensation cost related to non-vested stock-based
compensation related to the restricted shares and restricted
share units. The cost is expected to be recognized over a
weighted-average period of 2.0 years. As of June 30,
2009 there was approximately $333,000 of unrecognized
compensation cost related to non-vested outstanding stock
options. The cost is expected to be recognized over a
weighted-average period of 2.5 years.
Allowances
for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. We assess the customers ability to pay
based on a number of factors, including our past transaction
history with the customer and the creditworthiness of the
customer. An assessment of the inherent risks in conducting our
business with foreign customers is also made since a significant
portion of our revenues is international. Management
specifically analyzes accounts receivable, historical bad debts,
customer concentrations, customer creditworthiness and current
economic trends. If the financial condition of our customers
were to deteriorate in the future, resulting in an impairment of
their ability to make payments, additional allowances may be
required.
Inventories
Inventories consist primarily of
work-in-progress
from costs incurred in connection with specific customer
contracts, which are stated at the lower of cost (using the
first-in
first-out method of accounting) or market value. Progress
payments received under long-term contracts are netted against
inventories. In assessing the realizability of inventories, we
are required to make estimates of the total contract costs based
on the various elements of the
work-in-progress.
It is possible that changes to these estimates could cause a
reduction in the net realizable value of our inventories.
35
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157
establishes a common definition for fair value under accounting
principles generally accepted in the United States, establishes
a framework for measuring fair value and expands disclosure
requirements about such fair value measurements. SFAS 157
was effective for fiscal years beginning after November 15,
2007. The adoption of this pronouncement on July 1, 2008
did not have a material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations revised
(SFAS 141R). SFAS 141R provides additional
guidance and standards for the acquisition method of accounting
to be used for all business combinations. Changes for business
combination transactions pursuant to SFAS 141R include,
among others, expensing acquisition-related transaction costs as
incurred, the recognition of contingent consideration
arrangements at their acquisition date fair value and
capitalization of in-process research and development assets
acquired at their acquisition date fair value. FAS 141R is
effective for all business combinations consummated beginning
July 1, 2009. The adoption of SFAS 141R could have a
material impact on our financial position and results of
operations beginning July 1, 2009 if we complete
acquisitions in the future.
Results
of Operations
Fiscal
Years Ended June 30, 2009 and 2008
Our consolidated results of operations for the fiscal year ended
June 30, 2009 include results of Mach 6 and Telaurus since
these acquisitions took place on February 27, 2009 and
May 29, 2009, respectively. In the fiscal year ended
June 30, 2009, the services segment business results
included four months (March through June 2009) and one
month (June 2009), for Mach 6 and Telaurus, respectively, since
the acquisition dates in the fiscal year ended June 30,
2009.
Revenues from Infrastructure
Solutions. Revenues from infrastructure solutions
decreased by $44.8 million, or 33.5%, to $88.8 million
for the fiscal year ended June 30, 2009 from
$133.6 million for the fiscal year ended June 30,
2008. The decrease in revenues from record highs in the year
ended June 30, 2008 was primarily driven by a decline in
bookings of contract orders due to the global economic slowdown
resulting in government and commercial customers and prospects
delaying or cancelling projects. Due to the current global
economic conditions it is currently difficult to assess whether
or not future bookings will meet or exceed levels experienced in
the fiscal year ended June 30, 2008.
Revenues from Services. Revenues from services
increased by $18.5 million, or 29.3%, to $81.3 million
for the fiscal year ended June 30, 2009 from
$62.9 million for the fiscal year ended June 30, 2008.
The increase in revenues was primarily due to an increase in
access and lifecycle support service offerings primarily to the
government marketplace along with $5.8 million of revenue
from Mach 6 and Telaurus.
Costs from Infrastructure Solutions. Costs
from infrastructure solutions decreased by $32.8 million,
or 30.8%, to $73.9 million for the fiscal year ended
June 30, 2009 from $106.7 million for the fiscal year
ended June 30, 2008. The gross margin from infrastructure
solutions decreased to 16.8% for the fiscal year ended
June 30, 2009 compared to 20.2% for the fiscal year ended
June 30, 2008. The decrease in gross margin was mainly
attributable to a decrease in sales in the higher margin
pre-engineered systems product line in the government
marketplace.
Costs from Services. Costs from services
increased by $13.3 million, or 27.8%, to $61.0 million
for the fiscal year ended June 30, 2009 from
$47.7 million for the fiscal year ended June 30, 2008.
Gross margin for services increased to 25.0% for the fiscal year
ended June 30, 2009 compared to 24.1% for the fiscal year
ended June 30, 2008. The increase in the gross margin was
primarily driven by an increase in revenue in the government
marketplace. The increase in gross margin in the services
segment has been a key driver in the increase in our
consolidated income from operations. The future relationship
between the revenue and margin growth of our operating segments
will depend on a variety of factors, including the timing of
major contracts, which are difficult to predict.
36
Selling and Marketing. Selling and marketing
expenses increased by $2.1 million, or 19.4%, to
$13.0 million for the fiscal year ended June 30, 2009
from $10.9 million for the fiscal year ended June 30,
2008. The increase was a result of an increase in salary and
salary related expenses for additional marketing personnel,
costs associated with the launching of Cachendo in July 2008
along with marketing expenses of $0.6 million incurred at
Mach 6 and Telaurus.
Research and Development. Research and
development expenses increased by $0.5 million, or 25.0%,
to $2.4 million for the fiscal year ended June 30,
2009 from $1.9 million for the fiscal year ended
June 30, 2008. The increase was principally due to costs
associated with expanding X and Ka band product capabilities
along with research and development costs of $0.1 million
at Telaurus.
General and Administrative. General and
administrative expenses increased by $0.1 million, or 0.4%,
to $16.0 million for the fiscal year ended June 30,
2009 from $15.9 million for the fiscal year ended
June 30, 2008. The increase was due to an increase in stock
compensation expense along with general and administrative
expenses of $1.2 million at Mach 6 and Telaurus partially
offset by a decrease in the Companys pay for performance
plan based on current results of operations and a decrease in
amortization of intangibles. The stock compensation expense in
the three months ended September 30, 2008 included the
accelerated vesting of the restricted stock of our former
President, who passed away on July 20, 2008, partially
offset by $0.5 million of life insurance proceeds we
received.
Interest Income. Interest income decreased by
$1.2 million, or 69.2%, to $0.5 million for the fiscal
year ended June 30, 2009 from $1.7 million for the
fiscal year ended June 30, 2008, as a result of a decrease
in interest rates and reduction in cash balances. Beginning in
the three months ended December 31, 2008, in order to
reduce our investment risk, we transferred our excess cash into
money market funds with portfolios in treasury notes which earn
lower rates than our previous investment vehicles. In August
2009, our excess cash was transferred out of money market funds
with portfolios in treasury notes to an account with a financial
institution bearing a higher interest rate.
Interest Expense. Interest expense of
$0.3 million for the fiscal year ended June 30, 2008
is a result of the acquisition loan used to partially fund the
acquisition of GlobalSat. On September 26, 2007, the
Company repaid the principal balance of the acquisition term
loan.
Provision (Benefit) for income taxes. Our
effective income tax rate was 27% for the year ended
June 30, 2009. The effective rate includes a discrete tax
benefit associated with non-taxable life insurance proceeds due
to the passing of our former President and a federal research
and development tax credit. During fiscal 2008 we recorded a
non-recurring tax benefit of $12.5 million primarily due to
our recognition of a significant portion of our deferred tax
assets through a reduction in our deferred tax asset valuation
allowance based on positive evidence from our earnings trends.
Fiscal
Years Ended June 30, 2008 and 2007
Our consolidated results of operations for the fiscal year ended
June 30, 2008 include results of the GSM business which
have been included in the services segment for the full year. In
the fiscal year ended June 30, 2007, GSM business results
include two months (May and June 2007) since the
acquisition in May 2007.
Revenues from Infrastructure
Solutions. Revenues from infrastructure solutions
increased by $19.0 million, or 16.6%, to
$133.6 million for the fiscal year ended June 30, 2008
from $114.6 million for the fiscal year ended June 30,
2007. The increase in revenues was primarily driven by the
increase in the systems design and integration services
primarily due to a contract with a leading provider of
telecommunication services in Asia and an increase in
pre-engineered systems product revenue in the government
marketplace.
Revenues from Services. Revenues from services
increased by $26.8 million, or 74.1%, to $62.9 million
for the fiscal year ended June 30, 2008 from
$36.1 million for the fiscal year ended June 30, 2007.
The increase in revenue was primarily due to the increase of
$22.2 million of GSM revenue along with an increase within
the hosted service line from a large program with Showtime
37
Networks Inc. and an increase in the access plus product,
partially offset by a decrease in lifecycle support services in
the government marketplace and access voice termination.
Costs from Infrastructure Solutions. Costs
from infrastructure solutions increased by $14.5 million,
or 15.7%, to $106.7 million for the fiscal year ended
June 30, 2008 from $92.2 million for the fiscal year
ended June 30, 2007. The increase was attributable to the
higher revenue base. The increase in gross margin to 20.2% for
the fiscal year ended June 30, 2008 compared to 19.6% for
the fiscal year ended June 30, 2007 was mainly attributable
to the increased revenue in the pre-engineered systems product
line in the government marketplace.
Costs from Services. Costs from services
increased by $18.7 million, or 64.3%, to $47.7 million
for the fiscal year ended June 30, 2008 from
$29.1 million for the fiscal year ended June 30, 2007.
Gross margin increased to 24.1% for the fiscal year ended
June 30, 2008 compared to 19.6% for the fiscal year ended
June 30, 2007. The increase in the margin was primarily
driven by GSM revenue along with an increase in revenue within
the hosted service line from a large program with Showtime
Networks Inc., which has higher margin than the other service
offerings.
Selling and Marketing. Selling and marketing
expenses increased by $2.5 million, or 29.8%, to
$10.9 million for the fiscal year ended June 30, 2008
from $8.4 million for the fiscal year ended June 30,
2007. The increase is a result of an increase in selling and
marketing expenses incurred at GSM of $0.7 million along
with an increase in salary and salary related expenses for
additional marketing personnel pursuing business in the
government marketplace and travel and living expenses related to
marketing efforts exploring new markets.
Research and Development. Research and
development expenses increased by $0.5 million, or 31.8%,
to $1.9 million for the fiscal year ended June 30,
2008 from $1.5 million for the fiscal year ended
June 30, 2007. The increase was principally due to costs
associated with expanding CDMA and GSM capabilities to enhance
the cellular hosted switch offering.
General and Administrative. General and
administrative expenses increased by $3.6 million, or
29.2%, to $15.9 million for the fiscal year ended
June 30, 2008 from $12.3 million for the fiscal year
ended June 30, 2007. The increase in general and
administrative expenses for the fiscal year ended June 30,
2008 was due to an increase of $3.2 million at GSM and an
increase in stock compensation expense.
Interest Income. Interest income increased by
$0.4 million, or 26.5%, to $1.7 million for the fiscal
year ended June 30, 2008 from $1.4 million for the
fiscal year ended June 30, 2007, due to the increase in
cash from the proceeds of the Companys follow-on equity
offering in August and September 2007, which was offset by the
decrease in interest rates.
Interest Expense. Interest expense of
$0.3 million for the fiscal year ended June 30, 2008
is a result of the acquisition loan used to partially fund the
acquisition of GlobalSat.
Provision (benefit) for income taxes. During
fiscal 2008 we recorded a non-recurring tax benefit of
$12.5 million primarily due to our recognition of a
significant portion of our deferred tax assets through a
reduction in our deferred tax asset valuation allowance based on
positive evidence from our earnings trends.
Liquidity
and Capital Resources
At June 30, 2009, we had working capital of
$74.6 million, including cash and cash equivalents of
$44.0 million, net accounts receivable of
$45.4 million, inventories of $17.0 million, prepaid
expenses and other current assets of $2.3 million and
deferred income taxes of $1.1 million, offset by
$22.5 million in accounts payable, $5.3 million in
deferred revenue, $4.3 million in accrued payroll and
related fringe benefits and $3.1 million in other accrued
expenses.
At June 30, 2008, we had working capital of
$79.0 million, including cash and cash equivalents of
$51.4 million, net accounts receivable of
$52.1 million, inventories of $16.4 million, prepaid
expenses and other current assets of $1.4 million and
deferred income taxes of $1.0 million, offset by
$25.7 million in
38
accounts payable, $10.0 million in deferred revenue,
$5.8 million in accrued payroll and related fringe benefits
and $1.9 million in accrued expenses and other current
liabilities.
Net cash provided by operating activities during the fiscal year
ended June 30, 2009 was $9.0 million, which primarily
related to a decrease in accounts receivable of
$9.6 million due to the timing of billings and collections
from customers and a reduction in revenue in the fiscal year
ended June 30, 2009, a non-cash item representing
depreciation and amortization expense of $6.0 million
primarily related to depreciation expense related to the network
operations center and satellite earth station equipment and
amortization of intangibles, net income of $3.3 million,
non cash stock compensation expense of $2.3 million and a
decrease in deferred income taxes of $1.1 million due to
net income generated in the period, offset by a decrease in
accounts payable of $6.5 million relating to the reduction
in revenue and the timing of vendor payments in the fiscal year
ended June 30, 2009, a decrease in deferred revenue of
$4.8 million due to timing differences between project
billings and revenue recognition milestones resulting from
specific customer contracts, and a decrease in accrued payroll
and related fringe benefits of $1.9 million primarily due
to a significant reduction in awards under the pay for
performance plan based on fiscal 2009 operating results.
Net cash provided by operating activities during the fiscal year
ended June 30, 2008 was $9.2 million, which primarily
related to: net income of $27.0 million; non-cash
depreciation and amortization expense of $5.7 million
primarily related to depreciation of the network operations
center and satellite earth station equipment and amortization of
intangibles related to the acquisition of the GSM business; an
increase in accounts payable of $1.5 million relating to
the increase in revenue and timing of vendor payments; a
decrease in prepaid expenses and other current assets of
$1.4 million due to the receipt of payment related to the
working capital adjustment related to the acquisition of
GlobalSat; offset by an increase in accounts receivable of
$14.3 million due to the increase in revenues; and a
non-cash increase in deferred income taxes of $12.5 million
due to our recognition of a significant portion of our deferred
tax assets through a reduction in our deferred tax asset
valuation allowance.
Net cash used in investing activities during the fiscal year
ended June 30, 2009 was $16.7 million, which consisted
of $6.0 million related to the acquisition of Mach 6,
$6.4 million related to the acquisition of Telaurus and
capital expenditures of $4.3 million related to the
purchase of network operations center and teleport assets.
Net cash used in investing activities during fiscal year ended
June 30, 2008 was $5.0 million which primarily related
to the purchase of network operations center and teleport assets
and the completion of the upgrade of our Hauppauge facility to
meet the requirements of the increased business levels.
Net cash provided by financing activities during the fiscal year
ended June 30, 2009 was $0.3 million, which related to
proceeds from the exercise of stock options.
Net cash provided by financing activities during fiscal year
ended June 30, 2008 was $21.6 million, which related
primarily to proceeds from the offering of $36.4 million
and $1.1 million of proceeds from the exercise of stock
options and warrants, partially offset by the repayment of the
acquisition term loan of $15.8 million.
On March 11, 2009, we entered into a committed secured
credit facility with Citibank, N.A, which expires on
March 9, 2010. The credit facility is comprised of a
$50 million borrowing base line of credit (the
Line) and a foreign exchange line in the amount of
$10 million. The Line includes the following sublimits:
(a) $30 million available for standby letters of
credit; (b) $20 million available for commercial
letters of credit; (c) a line for up to two terms loans,
each have a term of no more than five years, in the aggregate
amount of up to $25 million that can be used for
acquisitions; and (d) $7.5 million available for
revolving credit borrowings. Advances under the Line bear
interest at the prime rate or LIBOR plus applicable margin based
on our leverage ratio, at our discretion, and are collateralized
by a first priority security interest on all of personal
property. At June 30, 2009 the applicable margin on the
LIBOR rate was 200 basis points. We are required to comply
with various ongoing financial covenants, including with respect
to the leverage ratio, liquidity ratio, minimum cash balance,
debt service ratio and minimum capital base, with which we were
in compliance at June 30, 2009. As of June 30, 2009,
no borrowings were outstanding under
39
this credit facility, however, there were standby letters of
credit of approximately $8.1 million, which were applied
against and reduced the amounts available under the credit
facility.
We lease satellite space segment services and other equipment
under various operating lease agreements, which expire in
various years through fiscal 2015. Future minimum lease payments
due on these leases through June 30, 2010 are approximately
$21.7 million.
We expect that our cash and working capital requirements for
operating activities will increase as we continue to implement
our business strategy. Management anticipates additional working
capital requirements for work in progress for orders as obtained
and that we may periodically experience negative cash flows due
to variances in quarter to quarter operating performance and if
cash is used to fund any future acquisitions of complementary
businesses, technologies and intellectual property. We will use
existing working capital and, if required, use our credit
facility to meet these additional working capital requirements.
Our future capital requirements will depend upon many factors,
including the success of our marketing efforts in the
infrastructure solutions and services business, the nature and
timing of customer orders and the level of capital requirements
related to the expansion of our service offerings. Based on
current plans, we believe that our existing capital resources
will be sufficient to meet working capital requirements at least
through June 30, 2010. However, we cannot assure that there
will be no unforeseen events or circumstances that would consume
available resources significantly before that time.
Additional funds may not be available when needed and, even if
available, additional funds may be raised through financing
arrangements
and/or the
issuance of preferred or common stock or convertible securities
on terms and prices significantly more favorable than those of
the currently outstanding common stock, which could have the
effect of diluting or adversely affecting the holdings or rights
of our existing stockholders. If adequate funds are unavailable,
we may be required to delay, scale back or eliminate some of our
operating activities, including, without limitation, capital
expenditures, research and development activities, and the
timing and extent of our marketing programs, and we may be
required to reduce headcount. We cannot assure that additional
financing will be available to us on acceptable terms, or at all.
Off-Balance
Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Contractual
Obligations and Commercial Commitments
At June 30, 2009, we had contractual obligations and
commercial commitments as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
5 years
|
|
|
Operating leases
|
|
$
|
43,322
|
|
|
$
|
21,687
|
|
|
$
|
14,560
|
|
|
$
|
7,018
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
43,322
|
|
|
$
|
21,687
|
|
|
$
|
14,560
|
|
|
$
|
7,018
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period
|
|
|
|
Total Amounts
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Other Commercial Commitments
|
|
Committed
|
|
|
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
5 years
|
|
|
Standby letters of credit
|
|
$
|
8,137
|
|
|
$
|
3,810
|
|
|
$
|
4,107
|
|
|
$
|
220
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
8,137
|
|
|
$
|
3,810
|
|
|
$
|
4,107
|
|
|
$
|
220
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Party Transactions
In August and September 2007 we completed an offering of equity
securities totaling $38,812,500 in gross proceeds. We sold
3,450,000 shares of common stock at a price of $11.25 per
share. We incurred total
40
expenses of approximately $2,412,000, of which approximately
$2,135,000 represented underwriting discounts and commissions
and approximately $277,000 represented other expenses which
resulted in net proceeds of approximately $36,400,000. Stephens
Inc. acted as a joint lead bookrunner in our offering. Because
A. Robert Towbin serves on our Board of Directors and as an
Executive Vice President and Managing Director of Stephens Inc.,
Stephens Inc. may be deemed to be an affiliate of
Globecomm under Rule 2720 of the Conduct Rules of the
National Association of Securities Dealers, Inc.
(NASD). Accordingly, the offering was made in
compliance with the applicable provisions of Rule 2720,
which require that the offering price of the common stock be no
higher than that recommended by a qualified independent
underwriter, as defined in Rule 2720.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are subject to a variety of risks, including foreign currency
exchange rate fluctuations relating to operations of our foreign
subsidiary, Mach 6, and certain purchases from foreign vendors.
In the normal course of business, we assess these risks and have
established policies and procedures to manage our exposure to
fluctuations in foreign currency values.
Our objective in managing our exposure to foreign currency
exchange rate fluctuations is to reduce the impact of adverse
fluctuations in earnings and cash flows associated with foreign
currency exchange rates. Accordingly, we may utilize from time
to time foreign currency forward contracts to hedge our exposure
on firm commitments denominated in foreign currency. At
June 30, 2009, we had no significant outstanding foreign
exchange contracts.
Our results of operations and cash flows are subject to
fluctuations due to changes in interest rates primarily from our
variable interest rate long term debt and from our investment of
available cash balances in money market funds with portfolios of
investment grade corporate and government securities. Under our
current positions, we do not use interest rate derivative
instruments to manage exposure to interest rate changes.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this item is incorporated by
reference to the Consolidated Financial Statements listed in
Item 15(a) of Part IV of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls and
Procedures. Our disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) are designed to ensure that
information required to be disclosed in the reports that we file
or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. Our
Chief Executive Officer and the Chief Financial Officer have
reviewed the effectiveness of our disclosure controls and
procedures as of June 30, 2009 and, based on their
evaluation, have concluded that the disclosure controls and
procedures were effective as of such date.
Managements Report on Internal Control Over Financial
Reporting. Under Section 404 of the
Sarbanes-Oxley Act of 2002, management is required to assess the
effectiveness of the Companys internal control over
financial reporting (as defined in
Rules 13a-15(f)
and 15d 15(f) under the Exchange Act) as of the end
of each fiscal year and to report, based on that assessment,
whether the Companys internal control over financial
reporting is effective.
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting for the Company. The Companys internal control
over financial reporting is
41
designed to provide reasonable assurance as to the reliability
of the Companys financial reporting and the preparation of
financial statements in accordance with generally accepted
accounting principles.
The Companys management has evaluated the effectiveness of
the Companys internal control over financial reporting as
of June 30, 2009. In making this assessment, the
Companys management used the framework and criteria
established by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework. These criteria are in the areas of control
environment, risk assessment, control activities, information
and communication, and monitoring. The Companys assessment
included extensive documenting, evaluating and testing the
design and operating effectiveness of its internal control over
financial reporting.
Based on managements processes and assessment, as
described above, management has concluded that, as of
June 30, 2009, the Companys internal control over
financial reporting was effective. We have excluded from this
assessment the operations of Mach 6 and Telaurus which were
acquired in the year ended June 30, 2009. Internal controls
over financial reporting, no matter how well designed, have
inherent limitations. Therefore, internal control over financial
reporting determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
may not prevent or detect all misstatements. Moreover,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The effectiveness of the Companys internal control over
financial reporting as of June 30, 2009 has been audited by
our independent auditors, as stated in their report, which
appears in the Report of Independent Registered Public
Accounting Firm on Internal Control Over Financial
Reporting on
page F-2
of this Annual Report on
Form 10-K.
Changes in Internal Control Over Financial
Reporting. There have been no changes in our
internal control over financial reporting that occurred during
the most recent fiscal quarter (the fourth quarter in the case
of the annual report) that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
42
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Certain information in response to this item is incorporated
herein by reference to Election of Directors and
Executive Officers in Globecomm Systems Inc.s
Proxy Statement to be filed with the Securities and Exchange
Commission (the SEC). Information on compliance with
Section 16(a) of the Exchange Act is incorporated herein by
reference to Section 16(a) Beneficial Ownership
Reporting Compliance in the Registrants Proxy
Statement to be filed with the SEC.
|
|
Item 11.
|
Executive
Compensation
|
Information in response to this item is incorporated herein by
reference to Executive Compensation Tables in the
Registrants Proxy Statement to be filed with the SEC.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information in response to this item is incorporated herein by
reference to Security Ownership in the
Registrants Proxy Statement to be filed with the SEC.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information in response to this item is incorporated herein by
reference to Certain Relationships and Related Person
Transactions in the Registrants Proxy Statement to
be filed with the SEC.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
Information in response to this item is incorporated herein by
reference to Fees Paid to Independent Registered Public
Accounting Firm in the Registrants Proxy Statement
to be filed with the SEC.
43
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
All other schedules for which provision is made in the
applicable accounting regulation from the SEC are not required
under the related instructions or are inapplicable and therefore
have been omitted.
44
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 of the Registrants Annual
Report on Form 10-K for the fiscal year ended June 30, 1998).
|
|
3
|
.2
|
|
Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2 of the Registrants Annual Report
on Form 10-K for the fiscal year ended June 30, 1998).
|
|
4
|
.2
|
|
See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Certificate of Incorporation and Amended and Restated
By-laws of the Registrant defining rights of holders of Common
Stock of the Registrant (incorporated by reference to Exhibit
4.2 of the Registrants Registration Statement on Form S-1,
File No. 333-22425 (the Registration Statement)).
|
|
10
|
.1
|
|
Employment Agreement dated as of October 9, 2001 by and between
the Registrant and David E. Hershberg (incorporated by reference
to Exhibit 10.9 of the Registrants Quarterly Report on
Form 10-Q, for the quarter ended September 30, 2001).
|
|
10
|
.2
|
|
The Amended and Restated 1997 Stock Incentive Plan (incorporated
by reference to Exhibit 99 of the Registrants Registration
Statement on Form S-8 Registration, File No. 333-112351).
|
|
10
|
.3
|
|
1999 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.8 of the Registrants Registration Statement on
Form S-8, File No. 333-70527).
|
|
10
|
.4
|
|
Employment Agreement, dated as of October 9, 2001, by and
between Stephen C. Yablonski and the Registrant (incorporated by
reference to Exhibit 10.20 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
|
|
10
|
.5
|
|
Employment Agreement, dated as of October 9, 2001, by and
between Andrew C. Melfi and the Registrant (incorporated by
reference to Exhibit 10.21 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
|
|
10
|
.6
|
|
Employment Agreement, dated as of October 9, 2001, by and
between Paul J. Johnson and the Registrant (incorporated by
reference to Exhibit 10.23 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
|
|
10
|
.7
|
|
Employment Agreement, dated as of October 9, 2001, by and
between Paul Eterno and the Registrant (incorporated by
reference to Exhibit 10.24 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
|
|
10
|
.8
|
|
2006 Incentive Stock Plan. (incorporated by reference to
Appendix A of the Registrants Definitive proxy on schedule
14A, filed with the Commission on October 13, 2006).
|
|
10
|
.9
|
|
Asset Purchase Agreement, dated May 2, 2007, by and between the
Registrant and Lyman Bros., Inc. (incorporated by reference to
Exhibit 2.1 of the Registrants Registration Statement on
Form 8-K, file No. 000-22839).
|
|
10
|
.10
|
|
Amendment to Employment Agreement, dated as of May 15, 2008, by
and between Andrew C. Melfi and the Registrant (incorporated by
reference to Exhibit 10.20 of the Registrants Annual
Report on Form 10-K for the year ended June 30, 2008).
|
|
10
|
.11**
|
|
Employment Agreement, dated as of April 23, 2007, by and between
William Raney and the Registrant (incorporated by reference to
Exhibit 10.21 of the Registrants Annual Report on
Form 10-K for the year ended June 30, 2008).
|
|
10
|
.12**
|
|
Amendment to Employment Agreement, dated as of April 1, 2008, by
and between William Raney and the Registrant (incorporated by
reference to Exhibit 10.22 of the Registrants Annual
Report on Form 10-K for the year ended June 30, 2008).
|
|
10
|
.13
|
|
Employment Agreement, dated as of June 30, 2008, by and between
Keith Hall and the Registrant (incorporated by reference to
Exhibit 10.23 of the Registrants Annual Report on Form
10-K for the year ended June 30, 2008).
|
|
10
|
.14
|
|
Employment Agreement, dated as of June 30, 2008, by and between
Tom Coyle and the Registrant (incorporated by reference to
Exhibit 10.24 of the Registrants Annual Report on Form
10-K for the year ended June 30, 2008).
|
|
10
|
.15
|
|
Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, David E. Hershberg and the Registrant
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
|
45
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
|
|
|
10
|
.16
|
|
Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Andrew C. Melfi and the Registrant (incorporated
by reference to Exhibit 10.2 of the Registrants Current
Report on Form 8-K, dated January 21, 2009).
|
|
10
|
.17
|
|
Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Stephen C. Yablonski and the Registrant
(incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
|
|
10
|
.18
|
|
Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Paul J. Johnson and the Registrant (incorporated
by reference to Exhibit 10.5 of the Registrants Current
Report on Form 8-K, dated January 21, 2009).
|
|
10
|
.19
|
|
Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Paul Eterno and the Registrant
(incorporated by reference to Exhibit 10.6 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
|
|
10
|
.20
|
|
Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Thomas C. Coyle and the Registrant (incorporated
by reference to Exhibit 10.7 of the Registrants Current
Report on Form 8-K, dated January 21, 2009).
|
|
10
|
.21
|
|
Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Keith Hall and the Registrant (incorporated by
reference to Exhibit 10.8 of the Registrants Current
Report on Form 8-K, dated January 21, 2009).
|
|
10
|
.22
|
|
Credit Agreement, dated March 11, 2009, by and between the
Registrant and Citibank, N.A. (incorporated by reference to
Exhibit 10.1 of the Registrants Current Report on Form
8-K, dated March 11, 2009).
|
|
10
|
.23
|
|
Employment Agreement, dated as of July 21, 2009, by and between
Keith Hall and the Registrant (filed herewith).
|
|
10
|
.24
|
|
Amendment No. 2 to Employment Agreement, dated as of July 21,
2009, by and between William Raney and the Registrant
(filed herewith).
|
|
10
|
.25
|
|
Globecomm Systems Inc./Telaurus 2009 Special Equity Incentive
Plan (filed herewith).
|
|
14
|
|
|
Registrants Code of Ethics and Business Conduct
(incorporated by reference to Exhibit 14 of the
Registrants Annual Report on Form 10-K for the year ended
June 30, 2004).
|
|
21
|
|
|
Subsidiaries of the Registrant (filed herewith).
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm (filed
herewith).
|
|
31
|
.1
|
|
Chief Executive Officer Certification required by Rules 13a-14
and 15d-14 under the Securities Exchange Act of 1934, as amended
(filed herewith).
|
|
31
|
.2
|
|
Chief Financial Officer Certification required by Rules 13a-14
and 15d-14 under the Securities Exchange Act of 1934, as amended
(filed herewith).
|
|
32
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002
(filed herewith).
|
|
|
|
** |
|
Portions of this agreement have been omitted and filed
separately with the secretary of the Securities and Exchange
Commission pursuant to a confidential treatment request. |
The response to this portion of Item 15 is submitted as a
separate section of this report.
|
|
(C)
|
Financial
Statement Schedules
|
The response to this portion of Item 15 is submitted as a
separate section of this report.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
|
|
GLOBECOMM SYSTEMS INC.
|
|
|
|
|
|
|
|
Date: September 14, 2009
|
|
By: /s/ DAVID
E. HERSHBERG
David
E. Hershberg,
Chairman of the Board and
Chief Executive Officer
|
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
/s/ DAVID
E. HERSHBERG
David
E. Hershberg
|
|
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
|
|
9/14/09
|
|
|
|
|
|
/s/ ANDREW
C. MELFI
Andrew
C. Melfi
|
|
Senior Vice President, Chief Financial Officer and Treasurer
(Principal
Financial and Accounting Officer)
|
|
9/14/09
|
|
|
|
|
|
/s/ KEITH
A. HALL
Keith
A. Hall
|
|
President and Chief Operating Officer and Director
|
|
9/14/09
|
|
|
|
|
|
/s/ RICHARD
E. CARUSO
Richard
E. Caruso
|
|
Director
|
|
9/14/09
|
|
|
|
|
|
/s/ HARRY
L. HUTCHERSON Jr.
Harry
L. Hutcherson Jr.
|
|
Director
|
|
9/14/09
|
|
|
|
|
|
/s/ BRIAN
T. MALONEY
Brian
T. Maloney
|
|
Director
|
|
9/14/09
|
|
|
|
|
|
/s/ JACK
A. SHAW
Jack
A. Shaw
|
|
Director
|
|
9/14/09
|
|
|
|
|
|
/s/ A.
ROBERT TOWBIN
A.
Robert Towbin
|
|
Director
|
|
9/14/09
|
|
|
|
|
|
/s/ C.J.
WAYLAN
C.J.
Waylan
|
|
Director
|
|
9/14/09
|
47
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Globecomm Systems Inc.
We have audited the accompanying consolidated balance sheets of
Globecomm Systems Inc. (the Company) as of
June 30, 2009 and 2008 and the related consolidated
statements of operations, changes in stockholders equity,
and cash flows for each of the three years in the period ended
June 30, 2009. Our audits also included the financial
statement schedule listed in the index at item 15(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Globecomm Systems Inc. at June 30,
2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended June 30, 2009, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related
financial statement schedule when considered in relation to the
basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, the Company adopted the provisions of Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109, effective
July 1, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Globecomm Systems Inc.s internal control over financial
reporting as of June 30, 2009, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated September 14, 2009
expressed an unqualified opinion thereon.
Melville, New York
September 14, 2009
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Stockholders of
Globecomm Systems Inc.
We have audited Globecomm Systems Inc.s internal control
over financial reporting as of June 30, 2009 based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Globecomm Systems
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As indicated in Managements Report on Internal Control
Over Financial Reporting, managements assessment of and
conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of
B.V. Mach 6 or Telaurus LLC, which are included in the 2009
consolidated financial statements of Globecomm Systems Inc. and
constituted approximately $6.6 million and
$0.4 million of total and net assets, respectively, as of
June 30, 2009 and approximately $5.8 million of
revenue, respectively, for the year then ended. Our audit of
internal control over financial reporting of Globecomm Systems
Inc. also did not include an evaluation of the internal control
over financial reporting of B.V. Mach 6 and Telaurus LLC.
In our opinion, Globecomm Systems Inc. maintained, in all
material respects, effective internal control over financial
reporting as of June 30, 2009 based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Globecomm Systems, Inc. as of
June 30, 2009 and 2008 and the related consolidated
statements of operations, changes in stockholders equity
and cash flows for each of the three years in the period ended
June 30, 2009 and our report dated September 14, 2009
expressed an unqualified opinion thereon.
Melville, New York
September 14, 2009
F-2
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,034
|
|
|
$
|
51,399
|
|
Accounts receivable, net
|
|
|
45,438
|
|
|
|
52,106
|
|
Inventories
|
|
|
17,043
|
|
|
|
16,444
|
|
Prepaid expenses and other current assets
|
|
|
2,292
|
|
|
|
1,402
|
|
Deferred income taxes
|
|
|
1,058
|
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
109,865
|
|
|
|
122,368
|
|
Fixed assets, net
|
|
|
33,379
|
|
|
|
33,379
|
|
Goodwill
|
|
|
25,613
|
|
|
|
22,197
|
|
Intangibles, net
|
|
|
11,020
|
|
|
|
2,599
|
|
Deferred income taxes
|
|
|
10,214
|
|
|
|
11,496
|
|
Other assets
|
|
|
1,448
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
191,539
|
|
|
$
|
193,092
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
22,468
|
|
|
$
|
25,650
|
|
Deferred revenues
|
|
|
5,259
|
|
|
|
10,004
|
|
Accrued payroll and related fringe benefits
|
|
|
4,348
|
|
|
|
5,848
|
|
Other accrued expenses
|
|
|
3,146
|
|
|
|
1,759
|
|
Deferred liabilities
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
35,221
|
|
|
|
43,359
|
|
Other liabilities
|
|
|
924
|
|
|
|
957
|
|
Deferred income taxes
|
|
|
582
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series A Junior Participating, shares authorized, shares
issued and outstanding: none in 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, shares authorized:
50,000,000 at June 30, 2009 and 2008; shares issued:
21,339,807 at June 30, 2009 and 20,695,466 at June 30,
2008
|
|
|
21
|
|
|
|
21
|
|
Additional paid-in capital
|
|
|
184,736
|
|
|
|
182,083
|
|
Accumulated deficit
|
|
|
(27,248
|
)
|
|
|
(30,547
|
)
|
Treasury stock, at cost, 465,351 shares in 2009 and 2008
|
|
|
(2,781
|
)
|
|
|
(2,781
|
)
|
Accumulated other comprehensive income
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
154,812
|
|
|
|
148,776
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
191,539
|
|
|
$
|
193,092
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues from infrastructure solutions
|
|
$
|
88,817
|
|
|
$
|
133,634
|
|
|
$
|
114,612
|
|
Revenues from services
|
|
|
81,344
|
|
|
|
62,891
|
|
|
|
36,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
170,161
|
|
|
|
196,525
|
|
|
|
150,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs from infrastructure solutions
|
|
|
73,877
|
|
|
|
106,699
|
|
|
|
92,197
|
|
Costs from services
|
|
|
60,995
|
|
|
|
47,739
|
|
|
|
29,052
|
|
Selling and marketing
|
|
|
12,985
|
|
|
|
10,873
|
|
|
|
8,376
|
|
Research and development
|
|
|
2,392
|
|
|
|
1,913
|
|
|
|
1,451
|
|
General and administrative
|
|
|
15,954
|
|
|
|
15,888
|
|
|
|
12,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating expenses
|
|
|
166,203
|
|
|
|
183,112
|
|
|
|
143,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,958
|
|
|
|
13,413
|
|
|
|
7,372
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
534
|
|
|
|
1,733
|
|
|
|
1,370
|
|
Interest expense
|
|
|
|
|
|
|
(285
|
)
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,492
|
|
|
|
14,861
|
|
|
|
8,537
|
|
Provision (benefit) for income taxes
|
|
|
1,193
|
|
|
|
(12,158
|
)
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,299
|
|
|
$
|
27,019
|
|
|
$
|
8,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.16
|
|
|
$
|
1.39
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.16
|
|
|
$
|
1.34
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in the calculation of
|
|
|
|
|
|
|
|
|
|
|
|
|
basic net income per common share
|
|
|
20,219
|
|
|
|
19,476
|
|
|
|
15,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in the calculation of
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted net income per common share
|
|
|
20,507
|
|
|
|
20,140
|
|
|
|
16,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Balance at June 30, 2006
|
|
|
15,661
|
|
|
$
|
16
|
|
|
$
|
135,673
|
|
|
$
|
(65,892
|
)
|
|
$
|
|
|
|
|
465
|
|
|
$
|
(2,781
|
)
|
|
$
|
67,016
|
|
Proceeds from exercise of stock options
|
|
|
1,002
|
|
|
|
1
|
|
|
|
6,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,437
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214
|
|
Grant of restricted shares
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
242
|
|
|
|
|
|
|
|
1,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,444
|
|
Tax benefit from stock compensation plan
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
16,942
|
|
|
|
17
|
|
|
|
143,843
|
|
|
|
(57,566
|
)
|
|
|
|
|
|
|
465
|
|
|
|
(2,781
|
)
|
|
|
83,513
|
|
Proceeds from exercise of stock options
|
|
|
168
|
|
|
|
|
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
976
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
736
|
|
Grant of restricted shares
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from offering, net of issuance costs of $2,412
|
|
|
3,450
|
|
|
|
4
|
|
|
|
36,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,401
|
|
Proceeds from exercise of warrants
|
|
|
20
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Tax benefit from stock compensation plan
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
20,695
|
|
|
|
21
|
|
|
|
182,083
|
|
|
|
(30,547
|
)
|
|
|
|
|
|
|
465
|
|
|
|
(2,781
|
)
|
|
|
148,776
|
|
Proceeds from exercise of stock options
|
|
|
78
|
|
|
|
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,310
|
|
Grant of restricted shares
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock compensation plan
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,299
|
|
Gain from foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
21,340
|
|
|
$
|
21
|
|
|
$
|
184,736
|
|
|
$
|
(27,248
|
)
|
|
$
|
84
|
|
|
|
465
|
|
|
$
|
(2,781
|
)
|
|
$
|
154,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-5
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,299
|
|
|
$
|
27,019
|
|
|
$
|
8,326
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,968
|
|
|
|
5,742
|
|
|
|
3,333
|
|
Provision for doubtful accounts
|
|
|
857
|
|
|
|
560
|
|
|
|
546
|
|
Deferred income taxes
|
|
|
1,077
|
|
|
|
(12,513
|
)
|
|
|
22
|
|
Stock compensation expense
|
|
|
2,310
|
|
|
|
736
|
|
|
|
214
|
|
Tax benefit from stock compensation plan
|
|
|
4
|
|
|
|
21
|
|
|
|
76
|
|
Changes in operating assets and liabilities (net of impact of
acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,644
|
|
|
|
(14,288
|
)
|
|
|
(4,632
|
)
|
Inventories
|
|
|
(25
|
)
|
|
|
(150
|
)
|
|
|
(2,795
|
)
|
Prepaid expenses and other current assets
|
|
|
(734
|
)
|
|
|
1,421
|
|
|
|
103
|
|
Other assets
|
|
|
(343
|
)
|
|
|
(132
|
)
|
|
|
58
|
|
Accounts payable
|
|
|
(6,513
|
)
|
|
|
1,480
|
|
|
|
4,258
|
|
Deferred revenues
|
|
|
(4,790
|
)
|
|
|
212
|
|
|
|
1,235
|
|
Accrued payroll and related fringe benefits
|
|
|
(1,860
|
)
|
|
|
(189
|
)
|
|
|
2,961
|
|
Other accrued expenses
|
|
|
248
|
|
|
|
(476
|
)
|
|
|
30
|
|
Other liabilities
|
|
|
(131
|
)
|
|
|
(236
|
)
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
9,011
|
|
|
|
9,207
|
|
|
|
14,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
|
(4,336
|
)
|
|
|
(5,008
|
)
|
|
|
(17,808
|
)
|
Acquisition of businesses, net of cash received
|
|
|
(12,383
|
)
|
|
|
|
|
|
|
(19,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(16,719
|
)
|
|
|
(5,008
|
)
|
|
|
(36,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
339
|
|
|
|
976
|
|
|
|
6,437
|
|
Proceeds from exercise of warrants
|
|
|
|
|
|
|
110
|
|
|
|
1,444
|
|
Proceeds from offering
|
|
|
|
|
|
|
36,401
|
|
|
|
|
|
Borrowings under acquisition loan
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
Repayments of debt
|
|
|
|
|
|
|
(15,845
|
)
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
339
|
|
|
|
21,642
|
|
|
|
23,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(7,365
|
)
|
|
|
25,841
|
|
|
|
1,046
|
|
Cash and cash equivalents at beginning of year
|
|
|
51,399
|
|
|
|
25,558
|
|
|
|
24,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
44,034
|
|
|
$
|
51,399
|
|
|
$
|
25,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
404
|
|
|
$
|
86
|
|
Cash paid for income taxes
|
|
|
314
|
|
|
|
353
|
|
|
|
109
|
|
See accompanying notes.
F-6
June 30, 2009
|
|
1.
|
Organization
and Description of Business
|
Globecomm Systems Inc. (Globecomm) was incorporated
in the State of Delaware on August 17, 1994. The
Companys core business provides
end-to-end,
value-added satellite-based communications solutions. This
business supplies infrastructure solutions for satellite-based
communications including hardware and software to support a wide
range of satellite systems. The Companys wholly-owned
subsidiaries, Globecomm Network Services Corporation
(GNSC), Globecomm Services Maryland LLC
(GSM), Cachendo LLC (Cachendo), B.V.
Mach 6 (Mach 6) and Telaurus Communications LLC
(Telaurus) provide satellite communication services
capabilities.
|
|
2.
|
Significant
Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, GNSC, GSM,
Cachendo, Mach 6 and Telaurus (collectively, the
Company). All significant intercompany balances and
transactions have been eliminated in consolidation.
Accounting
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates.
Revenue
Recognition
The Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104
(SAB 104), Revenue Recognition, for its
production-type contracts that are sold separately as standard
satellite ground segment systems when persuasive evidence of an
arrangement exists, the selling price is fixed or determinable,
collectability is reasonably assured, delivery has occurred and
the contractual performance specifications have been met. The
Companys standard satellite ground segment systems
produced in connection with these contracts are typically
short-term (less than twelve months in term) and manufactured
using a standard modular production process. Such systems
require less engineering, drafting and design efforts than the
Companys long-term complex production-type projects.
Revenue is recognized on the Companys standard satellite
ground segment systems upon shipment and acceptance of factory
performance testing which is when title transfers to the
customer. The amount of revenues recorded on each standard
production-type contract is reduced by the customers
contractual holdback amount, which typically requires 10% to 30%
of the contract value to be retained by the customer until
installation and final acceptance is complete. The customer
generally becomes obligated to pay 70% to 90% of the contract
value upon shipment and acceptance of factory performance
testing. Installation is not deemed to be essential to the
functionality of the system since installation does not require
significant changes to the features or capabilities of the
equipment, does not require complex software integration and
interfacing and the Company has not experienced any difficulties
installing such equipment. In addition, the customer or other
third party vendors can install the equipment. The estimated
relative fair value of the installation services is determined
by management, which is typically less than the customers
contractual holdback percentage. If the holdback is less than
the fair value of installation, the Company will defer
recognition of revenues, determined on a
contract-by-contract
basis equal to the fair value of the installation services.
Payments received in advance by customers are deferred until
shipment and are presented as deferred revenues in the
accompanying consolidated balance sheets.
F-7
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
The Company recognizes revenue using the
percentage-of-completion
method of accounting upon the achievement of certain contractual
milestones in accordance with Statement of Position
81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, for its non-standard, complex
production-type contracts for the production of satellite ground
segment systems and equipment that are generally integrated into
the customers satellite ground segment network. The
equipment and systems produced in connection with these
contracts are typically long-term (in excess of twelve months in
term) and require significant customer-specific engineering,
drafting and design effort in order to effectively integrate all
of the customizable earth station equipment into the
customers ground segment network. These contracts
generally have larger contract values, greater economic risks
and substantive specific contractual performance requirements
due to the engineering and design complexity of such systems and
related equipment. Progress payments received in advance by
customers are netted against the inventory balances in the
accompanying consolidated balance sheets.
Contract costs generally include purchased material, direct
labor, overhead and other direct costs. Anticipated contracted
losses are recognized as they become known.
Revenues from services consist of the access, hosted and
lifecycle support service lines for a broad variety of
communications applications. Service revenues are recognized
ratably over the period in which services are provided. Payments
received in advance of services are deferred until the period
such services are provided and are presented as deferred
revenues in the accompanying consolidated balance sheets.
Costs
from Infrastructure Solutions
Costs from infrastructure solutions consist primarily of the
costs of purchased materials (including shipping and handling
costs), direct labor and related overhead expenses,
project-related travel and living costs and subcontractor
salaries.
Costs
from Services
Costs from services relating to Internet-based services consist
primarily of satellite space segment charges, Internet
connectivity fees, voice termination costs and network
operations expenses. Satellite space segment charges consist of
the costs associated with obtaining satellite bandwidth (the
measure of capacity) used in the transmission of services to and
from the satellite leased from operators. Network operations
expenses consist primarily of costs associated with the
operation of the Network Operation Centers, on a twenty-four
hour a day,
seven-day a
week basis, including personnel and related costs and
depreciation.
Research
and Development
Research and development expenditures are expensed as incurred.
Inventories
Inventories, which consist primarily of
work-in-progress
from costs incurred in connection with specific customer
contracts, are stated at the lower of cost (using the
first-in,
first-out method of accounting) or market value. Progress
payments received under long-term contracts are netted against
inventories.
Cash
Equivalents
The Company classifies highly liquid financial instruments with
a maturity, at the purchase date, of three months or less as
cash equivalents.
F-8
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
Fixed
Assets
Fixed assets are stated at cost less accumulated depreciation
and amortization. Major improvements are capitalized and repairs
and maintenance costs are expensed as incurred. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the assets ranging from three to twenty-five
years. Amortization of leasehold improvements and leased
equipment is calculated using the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
Fair
Value Measurements
The recorded amounts of the Companys cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities approximate their fair values because of the short
maturity of these instruments.
Stock-Based
Compensation
The Company accounts for stock based compensation in accordance
with SFAS No. 123R (revised 2004), Share-Based
Payment, which is a revision of SFAS 123
(SFAS 123R). SFAS 123R requires the
measurement of stock-based compensation expense based on the
fair value of the award at the date of the grant. Stock-based
compensation expense is generally recognized over the vesting
period.
The fair value of options granted under the Companys 1997
and 2006 Plans was estimated at date of grant using a
Black-Scholes option pricing model with the following
assumptions for the years ended June 30, 2009, 2008 and
2007: weighted average risk-free interest rate of 1.6% (2009),
3.7% (2008) and 4.6% (2007), weighted average volatility
factor of the expected market price of the Companys common
stock of .53 (2009), .52 (2008) and .57 (2007), no dividend
yields and a weighted-average expected life of the options of
four years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options, which have no
vesting restrictions. In addition, option valuation models
require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Companys
stock options have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate,
in managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its stock options under the Black-Scholes option valuation
model.
Goodwill
and Other Intangible Assets
Goodwill represents the excess of the purchase price of
businesses over the fair value of the identifiable net assets
acquired. In accordance with SFAS No. 142, Goodwill
and Other Intangible Assets, goodwill and other indefinite life
intangible assets are no longer amortized, but instead tested
for impairment at least annually. The impairment test for
goodwill uses a two-step approach, which is performed at the
reporting unit level. Step one compares the fair value of the
reporting unit (calculated using a discounted cash flow method)
to its carrying value. If the carrying value exceeds the fair
value, there is a potential impairment and step two must be
performed. Step two compares the carrying value of the reporting
units goodwill to its implied fair value (i.e., fair value
of the reporting unit less the fair value of the units
assets and liabilities, including identifiable intangible
assets). If the carrying value of goodwill exceeds its implied
fair value, the excess is required to be recorded as an
impairment charge.
The net carrying value of goodwill is approximately $25,613,000
and $22,197,000 at June 30, 2009 and 2008, respectively,
which relates to the services reporting unit. The Company
performs the goodwill
F-9
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
impairment test annually in the fourth quarter. No impairment
was noted on the goodwill and indefinite life intangible assets
at June 30, 2009 and 2008.
Intangibles subject to amortization consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
Est. useful life
|
|
|
(in thousands)
|
|
|
|
|
Customer relationships
|
|
$
|
10,574
|
|
|
$
|
3,000
|
|
|
8-18 years
|
Software
|
|
|
1,162
|
|
|
|
|
|
|
5 years
|
Contracts backlog
|
|
|
971
|
|
|
|
640
|
|
|
6-8 months
|
Covenant not to compete
|
|
|
125
|
|
|
|
60
|
|
|
3-4 years
|
Trademark
|
|
|
51
|
|
|
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,883
|
|
|
|
3,700
|
|
|
|
Less accumulated amortization
|
|
|
1,863
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
11,020
|
|
|
$
|
2,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of approximately $762,000, $875,000 and
$226,000 was included in general and administrative expenses in
the years ended June 30, 2009, 2008 and 2007, respectively.
Amortization expense for the next five years related to these
intangible assets is expected to be as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
1,275
|
|
2011
|
|
|
1,148
|
|
2012
|
|
|
1,147
|
|
2013
|
|
|
1,132
|
|
2014
|
|
|
1,107
|
|
Long-Lived
Assets
For other than goodwill and indefinite life intangibles, when
impairment indicators are present, the Company reviews the
carrying value of its assets in determining the ultimate
recoverability of their unamortized values using future
undiscounted cash flows expected to be generated by the assets
in accordance with the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
If such assets are considered impaired, the impairment
recognized is measured by the amount by which the carrying
amount of the asset exceeds the future discounted cash flows.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value, less cost to sell. No impairment
was noted on the long-lived assets at June 30, 2009 and
2008.
The Company evaluates the periods of amortization in determining
whether later events and circumstances warrant revised estimates
of useful lives. If estimates are changed, the unamortized cost
will be allocated to the increased or decreased number of
remaining periods in the revised lives.
Income
Taxes
Deferred
Tax Assets
Consistent with the provisions of SFAS No. 109,
Accounting for Income Taxes, (SFAS 109) the
Company regularly estimates the ability to recover deferred
income taxes, and report such deferred tax
F-10
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
assets at the amount that is determined to be
more-likely-than-not recoverable, and estimate income taxes in
each of the taxing jurisdictions in which the Company operates.
This process involves estimating current tax expense together
with assessing any temporary differences resulting from the
different treatment of certain items, such as the timing for
recognizing revenue and expenses for tax and accounting
purposes. These differences may result in deferred tax assets
and liabilities, which are included in the consolidated balance
sheets. The Company is required to assess the likelihood that
the deferred tax assets, which include net operating loss carry
forwards and temporary differences that are expected to be
deductible in future years, will be recoverable from future
taxable income or other tax planning strategies. If recovery is
not likely, a valuation allowance must be provided based on
estimates of future taxable income in the various taxing
jurisdictions, and the amount of deferred taxes that are
ultimately realizable. The provision for current and deferred
taxes involves evaluations and judgments of uncertainties in the
interpretation of complex tax regulations. This evaluation
considers several factors, including an estimate of the
likelihood of generating sufficient taxable income in future
periods, the effect of temporary differences, the expected
reversal of deferred tax liabilities, and available tax planning
strategies.
Uncertainty
in Tax Positions
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income tax positions. FIN 48 requires that
the Company recognize in its financial statements the benefits
of tax return positions if that tax position is more likely than
not of being sustained on audit, based on its technical merits.
The provisions of FIN 48 became effective as of
July 1, 2007. The adoption of this pronouncement on
July 1, 2007 did not have an impact on the financial
statements of the Company.
At June 30, 2009, the Company had a liability for
unrecognized tax benefits of approximately $106,000 (if
recognized in the future, would favorably impact the
Companys effective tax rate). The Company records both
accrued interest and penalties related to income tax matters, if
any, in the provision for income taxes in the accompanying
consolidated statements of operations. At July 30, 2009 and
June 30, 2008, the Company had not accrued any amounts for
the potential payment of penalties and interest.
The Company is subject to taxation in the U.S. and various
state and foreign taxing jurisdictions. The Companys
federal tax returns for the 2006 through 2008 tax years remain
subject to examination. The Company files in numerous state
jurisdictions with varying statutes of limitation.
Product
Warranties
The Company offers warranties on its contracts, the specific
terms and conditions of which vary depending upon the contract
and work performed. Generally, a basic limited warranty,
including parts and labor, is provided to customers for one
year. The Company can recoup certain of these costs through
product warranties it holds with its original equipment
manufacturers, which typically are one year in term.
Historically, warranty expense has been minimal, however,
management periodically assesses the need for any additional
warranty reserve.
Comprehensive
Income
Comprehensive income for the year ended June 30, 2009 of
approximately $84,000 represents an unrealized foreign currency
translation gain.
F-11
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
2.
|
Significant
Accounting Policies (continued)
|
Subsequent
Events
In the preparation of its consolidated financial statements, the
Company considered subsequent events through September 14,
2009, which was the date the Companys consolidated
financial statements were issued.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157
establishes a common definition for fair value under accounting
principles generally accepted in the United States, establishes
a framework for measuring fair value and expands disclosure
requirements about such fair value measurements. SFAS 157
was effective for fiscal years beginning after November 15,
2007. The adoption of this pronouncement on July 1, 2008
did not have a material impact on the financial statements of
the Company.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations revised
(SFAS 141R). SFAS 141R provides additional
guidance and standards for the acquisition method of accounting
to be used for all business combinations. Changes for business
combination transactions pursuant to SFAS 141R include,
among others, expensing acquisition-related transaction costs as
incurred, the recognition of contingent consideration
arrangements at their acquisition date fair value and
capitalization of in-process research and development assets
acquired at their acquisition date fair value. SFAS 141R
will be effective for all business combinations consummated
beginning July 1, 2009. The adoption of SFAS 141R
could have a material impact on the Companys financial
position and results of operations beginning July 1, 2009
if the Company completes acquisitions in the future.
On May 29, 2009, the Company, acting through its wholly
owned subsidiary Telaurus LLC, acquired the entire business
operations of Telaurus Communications LLC (the
Seller), a privately owned company, including all of
the issued stock of the Sellers wholly-owned subsidiary
Telaurus Communications Pte. Ltd., a company incorporated in
Singapore.
Pursuant to the terms of the acquisition, the Company acquired
the entire business operations of the Seller for a cash purchase
price of $6.1 million (funded through the Companys
existing cash position). The Seller also is entitled to receive
up to 335,000 shares of the Companys common stock and
up to 1,000,000 warrants to purchase shares of the
Companys common stock, subject to an earn-out based upon
the acquired business achieving certain earnings milestones
within twelve months following the closing.
Telaurus is a service provider concentrated in the maritime
sector, government and satellite service providers. Telaurus
employs approximately 28 staff and has recurring service
revenues in the maritime marketplace. The acquisition of
Telaurus provides the Company with further entry into the
growing maritime market currently being served by the Company.
The Company has accounted for the acquisition as a purchase
under the purchase method of accounting, in accordance with
SFAS 141, Business Combinations
(SFAS 141), the assets and liabilities of
Telaurus are recorded as of the acquisition date at their
respective fair values and consolidated with those of the
Company. The excess of the purchase price over the net assets
acquired was recorded as goodwill and other intangible assets of
approximately $6,631,000 and is deductible for income tax
purposes over 15 years.
F-12
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
3.
|
Acquisitions
(continued)
|
The purchase price allocation, which includes approximately
$289,000 in transaction related costs, was as follows (in
thousands):
|
|
|
|
|
Total current assets
|
|
$
|
2,497
|
|
Fixed assets
|
|
|
158
|
|
Other assets
|
|
|
24
|
|
Goodwill
|
|
|
373
|
|
Customer relationships
|
|
|
5,025
|
|
Software
|
|
|
1,162
|
|
Covenant not to compete
|
|
|
44
|
|
Trademarks
|
|
|
27
|
|
Liabilities
|
|
|
(2,906
|
)
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
6,404
|
|
|
|
|
|
|
On February 27, 2009, the Company entered into a Stock
Purchase Agreement (the Purchase Agreement) with
Stichting Administratiekantoor Mach 6, a foundation incorporated
under the laws of the Netherlands, P.Visser Beheer B.V., a
private company with limited liability incorporated under the
laws of the Netherlands, Post Beheer B.V., a private company
with limited liability incorporated under the laws of the
Netherlands, Mr. Petrus Johannes Anthonius Visser,
Mr. Albert Jan Post and B.V. Mach 6
(Mach 6).
Pursuant to the terms of the Purchase Agreement, the Company
acquired 100% of the shares of Mach 6 for a purchase price
of $5.7 million in cash (which was funded through the
Companys existing cash position). The Sellers can also
receive up to 300,000 shares of the Companys common
stock, subject to an earn-out based on certain net income
milestones, which must be achieved within twelve months of the
acquisition date.
Mach 6 is a service provider and teleport operator, experienced
in multiple vertical markets such as the maritime sector,
government and satellite service providers. Mach 6 employs
approximately 30 staff and has recurring service revenues in the
government and maritime marketplaces. The acquisition of Mach 6
provides the Company with further entry into the growing
maritime market and adds further penetration into government
markets, currently being served by the Company.
The Company has accounted for the acquisition as a purchase
under the purchase method of accounting, in accordance with
SFAS 141, the assets and liabilities of Mach 6 are recorded
as of the acquisition date at their respective fair values and
consolidated with those of the Company. The excess of the
purchase price over the net assets acquired was recorded as
goodwill and other intangible assets of approximately
$5,897,000. Since this is a foreign entity, the goodwill and
intangible assets are not deductible for income tax purposes.
F-13
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
3.
|
Acquisitions
(continued)
|
The purchase price allocation, which includes approximately
$289,000 in transaction related costs, was as follows (in
thousands):
|
|
|
|
|
Total current assets
|
|
$
|
1,933
|
|
Fixed assets
|
|
|
592
|
|
Other assets
|
|
|
72
|
|
Goodwill
|
|
|
2,972
|
|
Customer relationships
|
|
|
2,549
|
|
Contracts backlog
|
|
|
331
|
|
Covenant not to compete
|
|
|
21
|
|
Trademarks
|
|
|
24
|
|
Liabilities
|
|
|
(2,495
|
)
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
5,999
|
|
|
|
|
|
|
In the year ended June 30, 2009, the services segment
results of operations include four months (March through June)
and one month (June 2009), for Mach 6 and Telarus,
respectively, since the dates of acquisition.
On a proforma basis, had the Mach 6 and Telaurus acquisitions
taken place as of the beginning of the periods presented, our
results of operations for those periods would not have been
materially affected.
On April 23, 2007, the Company entered into an Asset
Purchase Agreement (the Purchase Agreement) with
Lyman Bros., Inc., a Utah corporation (Lyman), and
GlobalSat, LLC, a Maryland limited liability company and a
wholly-owned subsidiary of Lyman Bros., Inc.
(GlobalSat). The Purchase Agreement provides for the
acquisition of substantially all of the assets and the
assumption of certain liabilities of GlobalSat (the
Assets), and the acquisition of 100% of the equity
interests of Lyman Maryland Properties, LLC, a Utah limited
liability company, and Turbo Logic Associates, LLC a Delaware
limited liability company, each a wholly-owned subsidiary of
Lyman, comprising the GlobalSat Division of Lyman Bros. The
transaction closed on May 2, 2007.
Pursuant to the terms of the Purchase Agreement, the Company
acquired the GlobalSat Division from Lyman for a purchase price
of $18.5 million in cash. The purchase price was partially
funded through a $16 million acquisition term loan provided
by Citibank, N.A.
GlobalSat was a privately held global provider of
satellite-based telecommunications services. Headquartered in
metropolitan Washington D.C., it employed approximately
70 employees worldwide of which a majority are
U.S. Government cleared and had a high concentration of
recurring service revenues in the government marketplace.
The Company has accounted for the acquisition as a purchase
under the purchase method of accounting, the assets and
liabilities of GlobalSat are recorded as of the acquisition date
at their respective fair values and consolidated with those of
the Company. The excess of the purchase price over the net
assets acquired recorded as goodwill and other intangible assets
of approximately $18,693,000 is deductible for income tax
purposes over 15 years.
F-14
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
3.
|
Acquisitions
(continued)
|
The purchase price allocation, which includes approximately
$677,000 in transaction related costs, was as follows (in
thousands):
|
|
|
|
|
Total current assets
|
|
$
|
5,848
|
|
Fixed assets
|
|
|
3,027
|
|
Other assets
|
|
|
19
|
|
Goodwill
|
|
|
14,993
|
|
Customer relationships
|
|
|
3,000
|
|
Contracts backlog
|
|
|
640
|
|
Covenant not to compete
|
|
|
60
|
|
Liabilities
|
|
|
(8,362
|
)
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
19,225
|
|
|
|
|
|
|
The following unaudited pro forma information assumes that the
acquisition of the GlobalSat Division occurred on July 1 of the
year presented, after giving effect to certain adjustments,
including amortization of intangibles, increased interest
expense on the acquisition note, decrease in interest income due
to use of cash to partially fund acquisition, and income tax
adjustments. The pro forma results are not necessarily
indicative of the results of operations that would actually have
occurred had the transaction taken place on the date indicated
or of the results that may occur in the future:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
(unaudited)
|
|
|
Revenues
|
|
$
|
169,069
|
|
|
|
|
|
|
Net income
|
|
$
|
8,736
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.55
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.52
|
|
|
|
|
|
|
Accounts receivable include amounts billed but not paid by
customers pursuant to retainage provisions in connection with
infrastructure solutions contracts. At June 30, 2009 and
2008 there was approximately $1,130,000 and $3,277,000,
respectively, billed but not paid by customers under retainage
provisions in connection with long-term contracts. Such balances
are included in accounts receivable in the accompanying
consolidated balance sheets. Based on the Companys
experience with similar contracts in recent years, billed
receivables relating to long-term contracts are expected to be
collected within one year.
F-15
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Raw materials and component parts
|
|
$
|
797
|
|
|
$
|
187
|
|
Work-in-progress
|
|
|
18,243
|
|
|
|
20,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,040
|
|
|
|
20,370
|
|
Less progress payments
|
|
|
1,997
|
|
|
|
3,926
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,043
|
|
|
$
|
16,444
|
|
|
|
|
|
|
|
|
|
|
Fixed assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Depreciable life
|
|
|
(In thousands)
|
|
|
|
|
Land
|
|
$
|
2,116
|
|
|
$
|
2,116
|
|
|
|
Building and improvements
|
|
|
13,830
|
|
|
|
13,689
|
|
|
10-25 years
|
Computer equipment
|
|
|
4,904
|
|
|
|
4,427
|
|
|
3-5 years
|
Machinery and equipment
|
|
|
5,160
|
|
|
|
4,539
|
|
|
3-5 years
|
Network operations center
|
|
|
23,530
|
|
|
|
21,860
|
|
|
3-10 years
|
Satellite earth station equipment
|
|
|
14,966
|
|
|
|
13,136
|
|
|
10 years
|
Furniture and fixtures
|
|
|
1,879
|
|
|
|
1,829
|
|
|
5 years
|
Leasehold improvements
|
|
|
686
|
|
|
|
337
|
|
|
Shorter of lease term
or estimated life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,071
|
|
|
|
61,933
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
33,692
|
|
|
|
28,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,379
|
|
|
$
|
33,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense of approximately $5,206,000, $4,867,000 and
$3,107,000 was included in the statements of operations in the
years ended June 30, 2009, 2008 and 2007, respectively.
Offering
During the year ended June 30, 2008, the Company completed
an offering of equity securities totaling $38,812,500 in gross
proceeds. The Company sold 3,450,000 shares of common stock
at a price of $11.25 per share. Expenses incurred totaled
approximately $2,412,000, of which approximately $2,135,000
represented underwriting discounts and commissions and
approximately $277,000 represented other expenses which resulted
in net proceeds of approximately $36,400,000. Stephens Inc.
acted as a joint lead bookrunner in the offering. Because A.
Robert Towbin serves on the Companys Board of Directors
and as an Executive Vice President and Managing Director of
Stephens Inc., Stephens Inc. may be deemed to be an
affiliate of Globecomm under Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers,
Inc. Accordingly, the offering was made in compliance with the
applicable provisions of
F-16
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
7.
|
Common
Stock (continued)
|
Rule 2720, which require that the offering price of the
common stock be no higher than that recommended by a
qualified independent underwriter, as defined in
Rule 2720.
|
|
8.
|
Stock
Incentive and Stock Purchase Plans
|
On November 22, 2006, the Companys Board of Directors
authorized, and the stockholders subsequently approved, the 2006
Stock Incentive Plan (2006 Plan), which provides for
grants of stock options or restricted stock awards to employees,
directors and consultants of the Company for an aggregate of
850,000 shares of the Companys common stock. At
June 30, 2009 there were no shares available for grant
under the 2006 Plan.
On February 26, 1997, the Companys Board of Directors
authorized, and the stockholders subsequently approved, the 1997
Stock Incentive Plan (1997 Plan), which authorized
the granting to employees, directors and consultants of the
Company options to purchase an aggregate of
2,280,000 shares of the Companys common stock. In
November 2000 and 2001, the Companys stockholders approved
amendments to the 1997 Plan whereby the number of shares
authorized for issuance under the 1997 Plan increased by
800,000 shares in fiscal 2001 and 2002. In November 2004,
the Companys stockholders approved amendments to the 1997
Plan whereby the number of shares authorized for issuance under
the 1997 Plan increased by 1,000,000 shares. On
November 22, 2006, the Company terminated the 1997 Plan and
cancelled all remaining unissued shares totaling approximately
1,311,000. No new options can be granted from the 1997 Plan.
Options granted under the 1997 Plan and 2006 Plan may be either
incentive or non-qualified stock options. The exercise price of
an option shall be determined by the Companys Board of
Directors or compensation committee of the board at the time of
grant, however, in the case of an incentive stock option the
exercise price may not be less than 100% of the fair market
value of such stock at the time of the grant, or less than 110%
of such fair market value in the case of options granted to a
10% owner of the Companys stock.
Employee options generally vest annually in equal installments
over a four-year period and expire on the tenth anniversary of
the date of grant. Director options granted upon initial
election to the Board of Directors vest one third on the grant
date and an additional one third on each of the next two
succeeding anniversaries of the date of grant. Each additional
annual grant vests immediately. All director options expire the
earlier of ten years from the date of grant or one year from
concluding service as a director of the Company. Restricted
stock awards generally vest annually in equal installments over
a three-year period. One restricted grant of 202,000 shares
(granted in February 2009) vested one third on the grant
date and an additional one third on each of the next two
succeeding anniversaries of the date of grant.
F-17
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
8.
|
Stock
Incentive and Stock Purchase Plans (continued)
|
The following table summarizes the Companys stock option
activity (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Balance, beginning of year
|
|
|
1,655
|
|
|
$
|
8.38
|
|
|
|
1,863
|
|
|
$
|
8.32
|
|
|
|
2,809
|
|
|
$
|
7.55
|
|
Grants
|
|
|
76
|
|
|
|
5.57
|
|
|
|
58
|
|
|
|
13.08
|
|
|
|
94
|
|
|
|
10.86
|
|
Exercised
|
|
|
(78
|
)
|
|
|
4.33
|
|
|
|
(168
|
)
|
|
|
5.81
|
|
|
|
(1,002
|
)
|
|
|
6.42
|
|
Canceled
|
|
|
(125
|
)
|
|
|
8.78
|
|
|
|
(98
|
)
|
|
|
14.36
|
|
|
|
(38
|
)
|
|
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
1,528
|
|
|
|
8.42
|
|
|
|
1,655
|
|
|
|
8.38
|
|
|
|
1,863
|
|
|
|
8.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
1,437
|
|
|
$
|
8.38
|
|
|
|
1,578
|
|
|
$
|
8.24
|
|
|
|
1,782
|
|
|
$
|
8.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value options granted during the year
|
|
|
|
|
|
$
|
2.43
|
|
|
|
|
|
|
$
|
5.82
|
|
|
|
|
|
|
$
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding at June 30, 2009 (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Range of Exercise Price
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$1.47 $3.14
|
|
|
3
|
|
|
|
4.4
|
|
|
$
|
1.80
|
|
|
|
3
|
|
|
$
|
1.80
|
|
$3.35 $5.16
|
|
|
437
|
|
|
|
4.1
|
|
|
|
3.93
|
|
|
|
427
|
|
|
|
3.91
|
|
$5.29 $8.26
|
|
|
649
|
|
|
|
3.0
|
|
|
|
6.76
|
|
|
|
606
|
|
|
|
6.75
|
|
$8.31 $12.88
|
|
|
201
|
|
|
|
2.7
|
|
|
|
10.77
|
|
|
|
186
|
|
|
|
10.81
|
|
$13.01 $21.00
|
|
|
210
|
|
|
|
3.0
|
|
|
|
18.28
|
|
|
|
187
|
|
|
|
18.82
|
|
$24.88 $28.00
|
|
|
28
|
|
|
|
0.6
|
|
|
|
26.73
|
|
|
|
28
|
|
|
|
26.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,528
|
|
|
|
3.2
|
|
|
$
|
8.42
|
|
|
|
1,437
|
|
|
$
|
8.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares and restricted stock units granted under the
2006 Plan totaled 587,000 and 115,000 shares in the years
ended June 30, 2009 and 2008, respectively. The weighted
average grant date fair value of restricted shares and
restricted stock units granted during the years ended
June 30, 2009 and 2008 was $6.26 and $12.41. As of
June 30, 2009 there was approximately $3,026,000 of
unrecognized compensation cost related to non-vested stock-based
compensation related to the restricted shares and restricted
share units. The cost is expected to be recognized over a
weighted-average period of 2.0 years. As of June 30,
2009 there was approximately $333,000 of unrecognized
compensation cost related to non-vested outstanding stock
options. The cost is expected to be recognized over a
weighted-average period of 2.5 years.
The Company has reserved approximately 2,074,000 shares of
its common stock for issuance upon exercise of all available and
outstanding options, warrants, and unvested restricted shares
and restricted share units at June 30, 2009.
F-18
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
8.
|
Stock
Incentive and Stock Purchase Plans (continued)
|
On September 23, 1998, the Board of Directors adopted, and
the stockholders subsequently approved, the 1999 Employee Stock
Purchase Plan (1999 Plan). Pursuant to the 1999
Plan, 400,000 shares of the Companys common stock
will be reserved for issuance. The 1999 Plan is intended to
provide eligible employees of the Company, and its participating
affiliates, the opportunity to acquire an interest in the
Company at the lesser of 85% of fair market value at date of
grant or date of purchase through participation in the
payroll-deduction based employee stock purchase plan. The Board
of Directors suspended the 1999 Plan effective July 1, 2005
because of the impact on the Companys operating results
due to the adoption of SFAS 123R. At June 30, 2009,
the number of remaining shares available for issuance under the
1999 Plan (if the Board of Directors were to lift the Plan
suspension in the future) was 121,321.
|
|
9.
|
Basic and
Diluted Net Income Per Common Share
|
The Company computes net income per share in accordance with the
provisions of SFAS No. 128, Earnings Per Share. Basic
net income per common share is computed by dividing the net
income for the period by the weighted-average number of common
shares outstanding for the period. For diluted net income per
common share, the weighted average shares include the
incremental common shares issuable upon the exercise of stock
options and warrants and unvested restricted shares and
restricted stock units (using the treasury stock method). The
incremental common shares for stock options, warrants and
unvested restricted shares and restricted stock units are
excluded from the calculation of diluted net income per share,
if their effect is anti-dilutive. Diluted net income per share
for the years ended June 30, 2009, 2008 and 2007, excludes
the effect of approximately 967,000, 450,000, and 430,000 stock
options, warrants and unvested restricted shares and restricted
stock units in the calculation of the incremental common shares,
respectively, as their effect would have been anti-dilutive.
The Company maintains a 401(k) plan, which covers substantially
all employees of the Company. Participants may elect to
contribute from 1% to 75% of their pre-tax compensation, subject
to elective deferral limitations under Section 403 of the
Internal Revenue Code. The plan allows for a matching
contribution equal to the discretionary percentage of a
participating employee not to exceed 4% of their compensation by
the Company. Effective January 1, 2009 the Company changed
the matching contribution to a maximum of 4% of their
compensation or $2,500 per employee per calendar year. The
Company contributed approximately $667,000, $881,000, and
$640,000 to the 401(k) plan during the years ended June 30,
2009, 2008 and 2007, respectively. In addition, the plan also
provides for discretionary profit sharing contributions by the
Company. There were no discretionary profit sharing
contributions made by the Company during the years ended
June 30, 2009, 2008 and 2007.
|
|
11.
|
Related
Party Transactions
|
During fiscal 2001, the Company advanced $200,000 to a former
executive officer of the Company. The Company received a
promissory note payable on December 31, 2002 for this
advance, which bore interest at an annual rate of 5.0% payable
quarterly. During fiscal 2002, the Company increased the
$200,000 loan to $300,000 and amended the promissory note
accordingly. During fiscal 2003, this former executive officer
resigned from the board of directors and pursuant to a letter
agreement (the agreement) the Company consolidated
the then outstanding loan and advances receivable from this
former executive officer and current employee of the Company
into a $321,000 promissory note. Under the terms of the letter
agreement the Company will forgive the outstanding principal and
interest amounts due on the promissory note in five annual
installments beginning in January 2004 so long as the former
executive officer remains an employee
F-19
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
11.
|
Related
Party Transactions (continued)
|
of the Company, subject to the terms of the agreement. The
remaining principal balance of $65,000 was forgiven in March
2008.
In August and September 2007, the Company completed an offering
of equity securities totaling $38,812,500 in gross proceeds. The
Company sold 3,450,000 shares of common stock at a price of
$11.25 per share. Expenses incurred totaled approximately
$2,412,000, of which approximately $2,135,000 represented
underwriting discounts and commissions and approximately
$277,000 represented other expenses which resulted in net
proceeds of approximately $36,400,000. Stephens Inc. acted as a
joint lead bookrunner in the offering. Because A. Robert Towbin
serves on the Companys Board of Directors and as an
Executive Vice President and Managing Director of Stephens Inc.,
Stephens Inc. may be deemed to be an affiliate of
Globecomm under Rule 2720 of the Conduct Rules of the
National Association of Securities Dealers, Inc. Accordingly,
the offering was made in compliance with the applicable
provisions of Rule 2720, which require that the offering
price of the common stock be no higher than that recommended by
a qualified independent underwriter, as defined in
Rule 2720.
The Company computes income taxes using the liability method.
Accordingly, deferred tax assets and liabilities are recognized
for estimated future tax consequences attributable to the
differences between the carrying amount of the assets and
liabilities for financial statement and income tax purposes. The
deferred tax assets and liabilities are determined by using
enacted tax laws and rates in effect when the differences are
expected to reverse. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be
realized.
Significant components of the Companys deferred tax assets
(liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Domestic net operating loss carryforwards
|
|
$
|
15,276
|
|
|
$
|
17,239
|
|
Foreign net operating loss carryforwards
|
|
|
87
|
|
|
|
|
|
Accruals and reserves
|
|
|
1,665
|
|
|
|
1,391
|
|
Write-down of investments
|
|
|
383
|
|
|
|
383
|
|
AMT tax credit
|
|
|
771
|
|
|
|
659
|
|
Research and development credit
|
|
|
416
|
|
|
|
|
|
Projects in progress
|
|
|
400
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,998
|
|
|
|
19,912
|
|
Valuation allowance for deferred tax assets
|
|
|
(6,634
|
)
|
|
|
(6,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
12,364
|
|
|
|
13,351
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(1,674
|
)
|
|
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
10,690
|
|
|
$
|
12,513
|
|
|
|
|
|
|
|
|
|
|
F-20
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
12.
|
Income
Taxes (continued)
|
During fiscal 2009, 2008 and 2007, the Company recorded a tax
provision (benefit) of approximately $1,193,000, $(12,158,000),
and $211,000 respectively. Information pertaining to the
Companys provision (benefit) for income taxes is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
113
|
|
|
$
|
340
|
|
|
$
|
189
|
|
State
|
|
|
3
|
|
|
|
15
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
355
|
|
|
|
211
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,276
|
|
|
|
(11,680
|
)
|
|
|
|
|
State
|
|
|
(35
|
)
|
|
|
(833
|
)
|
|
|
|
|
Foreign
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,077
|
|
|
|
(12,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
1,193
|
|
|
$
|
(12,158
|
)
|
|
$
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended June 30, 2009, 2008 and 2007, the
valuation allowance increased (decreased) by approximately
$73,000, $(19,905,000), and $(2,492,000), respectively.
For the year ended June 30, 2008, the Companys
deferred tax asset valuation allowance decreased by
approximately $19,905,000 in response to positive evidence which
developed during fiscal 2008 from the Companys updated
assessments as to the Companys ability to realize benefits
of its deferred tax assets, based primarily upon its
expectations for future taxable income.
As of June 30, 2009, the deferred tax asset valuation
allowance of approximately $6,634,000 relates to net operating
losses related to excess stock based compensation expense
deductions of approximately $6,251,000 and write-down of
investments of approximately $383,000. If the remaining
valuation allowance were to be reversed, approximately
$6,251,000 would be allocated to additional
paid-in-capital
as such amounts are attributable to the tax effects of excess
compensation deductions from exercises of employee stock
options. The remainder of the valuation allowance of
approximately $383,000 would reduce income tax expense.
At June 30, 2009, the Company had federal and state net
operating loss carryforwards of approximately $40,752,000 and
$1,012,000, respectively, which will expire at various dates
beginning in 2020 through 2024, if not utilized.
At June 30, 2009, the Company also had federal alternative
minimum tax credit carryforwards of approximately $771,000,
which may be carried forward indefinitely.
F-21
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
12.
|
Income
Taxes (continued)
|
The reconciliations of tax (benefit) provision computed at the
U.S. federal statutory tax rates to the effective income
tax rates on pre-tax income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
34
|
%
|
Research and development credit
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
1
|
|
|
|
2
|
|
|
|
4
|
|
Change in valuation allowance
|
|
|
|
|
|
|
(119
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
%
|
|
|
(82
|
)%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009, the Company had a liability for
unrecognized tax benefits of approximately $106,000. A
reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
Balance at beginning of year
|
|
$
|
|
|
Additions based on tax positions taken during the current period
|
|
|
106
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
106
|
|
|
|
|
|
|
The Company operates through two business segments. Its
infrastructure solutions segment, through Globecomm Systems Inc.
is engaged in the design, assembly and installation of ground
segment systems and networks. Its services segment, through
GNSC, GSM, Cachendo, Mach 6 and Telaurus provides satellite
communication services capabilities.
The Companys reportable segments are business units that
offer different products and services. The reportable segments
are each managed separately because they provide distinct
products and services.
F-22
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
13.
|
Segment
Information (continued)
|
The following is the Companys business segment information
for the years ended June 30, 2009, 2008 and 2007 and as of
June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure solutions
|
|
$
|
89,122
|
|
|
$
|
134,712
|
|
|
$
|
114,642
|
|
Services
|
|
|
82,473
|
|
|
|
63,408
|
|
|
|
36,628
|
|
Intercompany eliminations
|
|
|
(1,434
|
)
|
|
|
(1,595
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
170,161
|
|
|
$
|
196,525
|
|
|
$
|
150,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure solutions
|
|
$
|
(5,999
|
)
|
|
$
|
7,315
|
|
|
$
|
4,790
|
|
Services
|
|
|
9,881
|
|
|
|
6,091
|
|
|
|
2,506
|
|
Interest income
|
|
|
534
|
|
|
|
1,733
|
|
|
|
1,370
|
|
Interest expense
|
|
|
|
|
|
|
(285
|
)
|
|
|
(205
|
)
|
Intercompany eliminations
|
|
|
76
|
|
|
|
7
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
4,492
|
|
|
$
|
14,861
|
|
|
$
|
8,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure solutions
|
|
$
|
2,068
|
|
|
$
|
2,027
|
|
|
$
|
1,327
|
|
Services
|
|
|
3,946
|
|
|
|
3,761
|
|
|
|
2,065
|
|
Intercompany eliminations
|
|
|
(46
|
)
|
|
|
(46
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
5,968
|
|
|
$
|
5,742
|
|
|
$
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Expenditures for long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure solutions
|
|
$
|
1,022
|
|
|
$
|
1,990
|
|
|
$
|
8,875
|
|
Services
|
|
|
3,314
|
|
|
|
3,018
|
|
|
|
8,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenditures for long-lived assets
|
|
$
|
4,336
|
|
|
$
|
5,008
|
|
|
$
|
17,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Infrastructure solutions
|
|
$
|
191,677
|
|
|
$
|
216,023
|
|
Services
|
|
|
72,544
|
|
|
|
46,358
|
|
Intercompany eliminations
|
|
|
(72,682
|
)
|
|
|
(69,289
|
)
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
191,539
|
|
|
$
|
193,092
|
|
|
|
|
|
|
|
|
|
|
F-23
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
13.
|
Segment
Information (continued)
|
At June 30, 2009, the Company had total assets of
approximately $2,835,000 including cash and cash equivalents of
approximately $309,000 and long lived assets of approximately
$802,000 located in the Netherlands, associated with its
wholly-owned subsidiary, Mach 6.
|
|
14.
|
Significant
Customers and Concentrations of Credit Risk
|
The Company designs, assembles and installs infrastructure
solutions for customers in diversified geographic locations.
Credit risk with respect to accounts receivable is concentrated
due to the limited number of customers. The timing of cash
realization is determined based upon the contract or service
agreements with the customers. The Company performs ongoing
credit evaluations of its customers financial condition
and in some cases requires a letter of credit or cash in advance
for foreign customers. The Company evaluates the collectibility
of accounts receivable based on numerous factors, including past
transaction history with customers and their credit worthiness.
The Companys estimate of its allowance for doubtful
accounts is periodically adjusted when the Company becomes aware
of a specific customers inability to meet its financial
obligations, or as a result of changes in the overall aging of
accounts receivable. Allowances related to accounts receivable
at June 30, 2009 and 2008, were approximately $1,043,000,
and $834,000, respectively.
The Companys consolidated revenues for the years ended
June 30, 2009, 2008 and 2007 included: one customer which
accounted for 12% of the Companys consolidated revenue;
one customer which accounted for 19% of the Companys
consolidated revenue; and two customers which accounted for 17%
and 11% of the Companys consolidated revenue, respectively.
Revenues earned from infrastructure solutions are attributed to
the geographic location to which the equipment is shipped.
Revenues earned from services are attributed to the geographic
location in which the services are being provided. Revenues
attributed to the United States for the years ended
June 30, 2009, 2008 and 2007 were 51%, 52% and 48%.
Revenues from foreign sales as a percentage of total
consolidated revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Africa
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
7
|
%
|
North and South America
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
10
|
%
|
Asia
|
|
|
9
|
%
|
|
|
15
|
%
|
|
|
4
|
%
|
Europe
|
|
|
6
|
%
|
|
|
4
|
%
|
|
|
7
|
%
|
Middle East
|
|
|
24
|
%
|
|
|
21
|
%
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
%
|
|
|
48
|
%
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company places its cash and cash equivalents with high
quality financial institutions. Substantially all cash and cash
equivalents are held in one financial institution at
June 30, 2009 and 2008. Cash equivalents are comprised
money market funds with portfolios of treasury notes or
short-term debt instruments of direct or guaranteed obligations
of the United States, which are held to maturity and approximate
fair market value. Cash and cash equivalents is in excess of
Federal Deposit Insurance Company insurance limits.
F-24
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
15.
|
Commitments
and Contingencies
|
Line of
Credit
On March 11, 2009, the Company entered into a committed
secured credit facility with Citibank, N.A, which expires on
March 9, 2010. The credit facility is comprised of a
$50 million borrowing base line of credit (the
Line) and a foreign exchange line in the amount of
$10 million. The Line includes the following sublimits:
(a) $30 million available for standby letters of
credit; (b) $20 million available for commercial
letters of credit; (c) a line for up to two term loans,
each having a term of no more than five years, in the aggregate
amount of up to $25 million that can be used for
acquisitions; and (d) $7.5 million available for
revolving credit borrowings. Advances under the Line bear
interest at the prime rate or LIBOR plus applicable margin based
on the Companys leverage ratio, at the discretion of the
Company, and are collateralized by a first priority security
interest on all of the personal property of the Company. At
June 30, 2009 applicable margin on the LIBOR rate was
200 basis points. The Company is required to comply with
various ongoing financial covenants, including with respect to
the Companys leverage ratio, liquidity ratio, minimum cash
balance, debt service ratio and minimum capital base, with which
the Company was in compliance at June 30, 2009. As of
June 30, 2009, no borrowings were outstanding under this
credit facility, however, there were standby letters of credit
of approximately $8.1 million, which were applied against
and reduced the amounts available under the credit facility.
Lease
Commitments
The Company currently leases satellite space segment services,
office space, teleport services and other equipment under
various operating leases, which expire in various years through
2015. As leases expire, it can be expected that in the normal
course of business they will be renewed or replaced.
Future minimum lease payments under non-cancelable operating
leases with terms of one year or more consist of the following
at June 30, 2009 (in thousands):
|
|
|
|
|
2010
|
|
$
|
21,687
|
|
2011
|
|
|
8,367
|
|
2012
|
|
|
6,193
|
|
2013
|
|
|
4,561
|
|
2014
|
|
|
2,457
|
|
Thereafter
|
|
|
57
|
|
|
|
|
|
|
|
|
$
|
43,322
|
|
|
|
|
|
|
Rent expense for satellite space segment services, office space,
teleport services, and other equipment was approximately
$21,091,000, $18,694,000 and $11,704,000 for years ended
June 30, 2009, 2008 and 2007, respectively.
Employment
Agreements
The Company has entered into employment agreements with certain
executive officers. The Company will have certain obligations to
these individuals if they are terminated. Each employment
agreement renews automatically for additional terms of one year,
unless either party provides written notice to the other party
of its intention to terminate the agreement. The Board of
Directors approved annual salaries for these individuals of an
aggregate amount of approximately $2,230,000 for fiscal 2009.
F-25
GLOBECOMM
SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
16.
|
Quarterly
Information (unaudited)
|
The following tables set forth unaudited consolidated financial
information for each of the eight fiscal quarters in the period
ended June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
|
June 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from infrastructure solutions
|
|
$
|
24,548
|
|
|
$
|
19,396
|
|
|
$
|
21,334
|
|
|
$
|
23,539
|
|
|
$
|
40,428
|
|
|
$
|
27,483
|
|
|
$
|
38,925
|
|
|
$
|
26,798
|
|
Revenues from services
|
|
|
24,687
|
|
|
|
19,198
|
|
|
|
18,643
|
|
|
|
18,816
|
|
|
|
16,016
|
|
|
|
15,809
|
|
|
|
15,522
|
|
|
|
15,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
49,235
|
|
|
|
38,594
|
|
|
|
39,977
|
|
|
|
42,355
|
|
|
|
56,444
|
|
|
|
43,292
|
|
|
|
54,447
|
|
|
|
42,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs from infrastructure solutions
|
|
|
20,630
|
|
|
|
15,938
|
|
|
|
17,009
|
|
|
|
20,300
|
|
|
|
32,692
|
|
|
|
21,388
|
|
|
|
31,435
|
|
|
|
21,184
|
|
Costs from services
|
|
|
18,219
|
|
|
|
14,386
|
|
|
|
14,185
|
|
|
|
14,205
|
|
|
|
12,428
|
|
|
|
12,178
|
|
|
|
12,027
|
|
|
|
11,106
|
|
Selling and marketing
|
|
|
3,765
|
|
|
|
2,891
|
|
|
|
3,216
|
|
|
|
3,113
|
|
|
|
3,163
|
|
|
|
2,457
|
|
|
|
2,728
|
|
|
|
2,525
|
|
Research and development
|
|
|
936
|
|
|
|
636
|
|
|
|
509
|
|
|
|
311
|
|
|
|
253
|
|
|
|
507
|
|
|
|
656
|
|
|
|
497
|
|
General and administrative
|
|
|
4,698
|
|
|
|
3,892
|
|
|
|
3,703
|
|
|
|
3,661
|
|
|
|
4,051
|
|
|
|
3,533
|
|
|
|
4,229
|
|
|
|
4,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating expenses
|
|
|
48,248
|
|
|
|
37,743
|
|
|
|
38,622
|
|
|
|
41,590
|
|
|
|
52,587
|
|
|
|
40,063
|
|
|
|
51,075
|
|
|
|
39,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
987
|
|
|
|
851
|
|
|
|
1,355
|
|
|
|
765
|
|
|
|
3,857
|
|
|
|
3,229
|
|
|
|
3,372
|
|
|
|
2,955
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
23
|
|
|
|
33
|
|
|
|
214
|
|
|
|
264
|
|
|
|
270
|
|
|
|
387
|
|
|
|
556
|
|
|
|
520
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,010
|
|
|
|
884
|
|
|
|
1,569
|
|
|
|
1,029
|
|
|
|
4,127
|
|
|
|
3,616
|
|
|
|
3,928
|
|
|
|
3,190
|
|
Provision (benefit) for income taxes
|
|
|
29
|
|
|
|
342
|
|
|
|
621
|
|
|
|
201
|
|
|
|
(12,726
|
)
|
|
|
193
|
|
|
|
208
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
981
|
|
|
$
|
542
|
|
|
$
|
948
|
|
|
$
|
828
|
|
|
$
|
16,853
|
|
|
$
|
3,423
|
|
|
$
|
3,720
|
|
|
$
|
3,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
$
|
0.84
|
|
|
$
|
0.17
|
|
|
$
|
0.19
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
$
|
0.82
|
|
|
$
|
0.17
|
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in the calculation of basic net
income per common share
|
|
|
20,324
|
|
|
|
20,210
|
|
|
|
20,193
|
|
|
|
20,152
|
|
|
|
20,063
|
|
|
|
20,036
|
|
|
|
19,992
|
|
|
|
17,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in the calculation of diluted net
income per common share
|
|
|
20,623
|
|
|
|
20,357
|
|
|
|
20,416
|
|
|
|
20,690
|
|
|
|
20,578
|
|
|
|
20,610
|
|
|
|
20,868
|
|
|
|
18,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
GLOBECOMM
SYSTEMS INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
End of
|
|
Description
|
|
Period
|
|
|
Additions
|
|
|
Deductions
|
|
|
Period
|
|
|
Year ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for estimated doubtful accounts receivable
|
|
$
|
834,000
|
|
|
$
|
857,000
|
|
|
$
|
(648,000
|
)(a)
|
|
$
|
1,043,000
|
|
Valuation allowance on deferred tax assets
|
|
|
6,561,000
|
|
|
|
73,000
|
(b)
|
|
|
|
|
|
|
6,634,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,395,000
|
|
|
$
|
930,000
|
|
|
$
|
(648,000
|
)
|
|
$
|
7,677,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for estimated doubtful accounts receivable
|
|
$
|
1,113,000
|
|
|
$
|
560,000
|
|
|
$
|
(839,000
|
)(a)
|
|
$
|
834,000
|
|
Valuation allowance on deferred tax assets
|
|
|
26,466,000
|
|
|
|
|
|
|
|
(19,905,000
|
)(b)
|
|
|
6,561,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,579,000
|
|
|
$
|
560,000
|
|
|
$
|
(20,744,000
|
)
|
|
$
|
7,395,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and allowances deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for estimated doubtful accounts receivable
|
|
$
|
825,000
|
|
|
$
|
546,000
|
|
|
$
|
(258,000
|
)(a)
|
|
$
|
1,113,000
|
|
Valuation allowance on deferred tax assets
|
|
|
28,958,000
|
|
|
|
|
|
|
|
(2,492,000
|
)(b)
|
|
|
26,466,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,783,000
|
|
|
$
|
546,000
|
|
|
$
|
(2,750,000
|
)
|
|
$
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27,579,000
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(a)
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Reduction in allowance due to
write-off of accounts receivable balances (net of recovery).
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(b)
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Increase (reduction) in valuation
allowance for net deferred tax assets.
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S-1
Index of
Exhibits
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Exhibit
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No.
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3
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.1
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Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 of the Registrants Annual
Report on Form 10-K for the fiscal year ended June 30, 1998).
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3
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.2
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Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2 of the Registrants Annual Report
on Form 10-K for the fiscal year ended June 30, 1998).
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4
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.2
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See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Certificate of Incorporation and Amended and Restated
By-laws of the Registrant defining rights of holders of Common
Stock of the Registrant (incorporated by reference to Exhibit
4.2 of the Registrants Registration Statement on Form S-1,
File No. 333-22425 (the Registration Statement)).
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10
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.1
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Employment Agreement dated as of October 9, 2001 by and between
the Registrant and David E. Hershberg (incorporated by
reference to Exhibit 10.9 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
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10
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.2
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The Amended and Restated 1997 Stock Incentive Plan (incorporated
by reference to Exhibit 99 of the Registrants Registration
Statement on Form S-8 Registration, File No. 333-112351).
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10
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.3
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1999 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.8 of the Registrants Registration Statement on
Form S-8, File No. 333-70527).
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10
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.4
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Employment Agreement, dated as of October 9, 2001, by and
between Stephen C. Yablonski and the Registrant (incorporated by
reference to Exhibit 10.20 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
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10
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.5
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Employment Agreement, dated as of October 9, 2001, by and
between Andrew C. Melfi and the Registrant (incorporated by
reference to Exhibit 10.21 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
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10
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.6
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Employment Agreement, dated as of October 9, 2001, by and
between Paul J. Johnson and the Registrant (incorporated by
reference to Exhibit 10.23 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
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10
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.7
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Employment Agreement, dated as of October 9, 2001, by and
between Paul Eterno and the Registrant (incorporated by
reference to Exhibit 10.24 of the Registrants Quarterly
Report on Form 10-Q, for the quarter ended September 30, 2001).
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10
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.8
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2006 Incentive Stock Plan. (incorporated by reference to
Appendix A of the Registrants Definitive proxy on schedule
14A, filed with the Commission on October 13, 2006).
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10
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.9
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Asset Purchase Agreement, dated May 2, 2007, by and between the
Registrant and Lyman Bros., Inc. (incorporated by reference to
Exhibit 2.1 of the Registrants Registration Statement on
Form 8-K, file No. 000-22839).
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10
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.10
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Amendment to Employment Agreement, dated as of May 15, 2008, by
and between Andrew C. Melfi and the Registrant (incorporated by
reference to Exhibit 10.20 of the Registrants Annual
Report on Form 10-K for the year ended June 30, 2008).
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10
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.11**
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Employment Agreement, dated as of April 23, 2007, by and between
William Raney and the Registrant (incorporated by reference to
Exhibit 10.21 of the Registrants Annual Report on Form
10-K for the year ended June 30, 2008).
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10
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.12**
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Amendment to Employment Agreement, dated as of April 1, 2008, by
and between William Raney and the Registrant (incorporated
by reference to Exhibit 10.22 of the Registrants Annual
Report on Form 10-K for the year ended June 30, 2008).
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10
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.13
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Employment Agreement, dated as of June 30, 2008, by and between
Keith Hall and the Registrant (incorporated by reference to
Exhibit 10.23 of the Registrants Annual Report on Form
10-K for the year ended June 30, 2008).
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10
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.14
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Employment Agreement, dated as of June 30, 2008, by and between
Tom Coyle and the Registrant (incorporated by reference to
Exhibit 10.24 of the Registrants Annual Report on Form
10-K for the year ended June 30, 2008).
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10
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.15
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Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, David E. Hershberg and the Registrant
(incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
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Exhibit
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No.
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10
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.16
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Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Andrew C. Melfi and the Registrant
(incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
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10
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.17
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Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Stephen C. Yablonski and the Registrant
(incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
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10
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.18
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Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Paul J. Johnson and the Registrant (incorporated
by reference to Exhibit 10.5 of the Registrants Current
Report on Form 8-K, dated January 21, 2009).
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10
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.19
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Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Paul Eterno and the Registrant
(incorporated by reference to Exhibit 10.6 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
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10
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.20
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Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Thomas C. Coyle and the Registrant
(incorporated by reference to Exhibit 10.7 of the
Registrants Current Report on Form 8-K, dated January 21,
2009).
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10
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.21
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Amendment to Employment Agreement, dated as of January 21, 2009,
by and between, Keith Hall and the Registrant (incorporated
by reference to Exhibit 10.8 of the Registrants Current
Report on Form 8-K, dated January 21, 2009).
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10
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.22
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Credit Agreement, dated March 11, 2009, by and between the
Registrant and Citibank, N.A. (incorporated by reference to
Exhibit 10.1 of the Registrants Current Report on Form
8-K, dated March 11, 2009).
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10
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.23
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Employment Agreement, dated as of July 21, 2009, by and between
Keith Hall and the Registrant (filed herewith).
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10
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.24
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Amendment No. 2 to Employment Agreement, dated as of July 21,
2009, by and between William Raney and the Registrant
(filed herewith).
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10
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.25
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Globecomm Systems Inc./Telaurus 2009 Special Equity Incentive
Plan (filed herewith).
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14
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Registrants Code of Ethics and Business Conduct
(incorporated by reference to Exhibit 14 of the
Registrants Annual Report on Form 10-K for the year ended
June 30, 2004).
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21
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Subsidiaries of the Registrant (filed herewith).
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23
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Consent of Independent Registered Public Accounting Firm (filed
herewith).
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31
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.1
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Chief Executive Officer Certification required by Rules 13a-14
and 15d-14 under the Securities Exchange Act of 1934, as amended
(filed herewith).
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31
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.2
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Chief Financial Officer Certification required by Rules 13a-14
and 15d-14 under the Securities Exchange Act of 1934, as
amended (filed herewith).
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32
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Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002
(filed herewith).
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** |
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Portions of this agreement have been omitted and filed
separately with the secretary of the Securities and Exchange
Commission pursuant to a confidential treatment request. |