Annual Reports

 
Quarterly Reports

  • 10-Q (Oct 30, 2015)
  • 10-Q (Jul 30, 2015)
  • 10-Q (May 1, 2015)
  • 10-Q (Nov 10, 2014)
  • 10-Q (Jul 31, 2014)
  • 10-Q (May 2, 2014)

 
8-K

 
Other

TeleCommunication Systems 10-Q 2013

      

      

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

      

FORM 10-Q

      

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2013

OR

 

¨

TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-30821

      

TELECOMMUNICATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

      

   

 

MARYLAND

   

52-1526369

(State or Other Jurisdiction of
Incorporation or Organization)

   

(I.R.S. Employer Identification No.)

   

   

   

275 West Street, Annapolis, MD

   

21401

(Address of principal executive offices)

   

(Zip Code)

(410) 263-7616

(Registrant’s telephone number, including area code)

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  þ    No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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  þ    No  ¨

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.

   

 

Large accelerated filer ¨

   

Accelerated filer þ

   

Non-accelerated filer ¨

   

Smaller reporting company ¨

   

   

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No   þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

   

 

Title of Each Class

Shares outstanding
as of July 29,
2013

Class A Common Stock, par value

      

$0.01 per share

53,420,409

Class B Common Stock, par value

      

$0.01 per share

5,247,769

Total Common Stock Outstanding

58,668,178

   

   

      

      

   

   


   

INDEX

TELECOMMUNICATION SYSTEMS, INC.

   

 

   

   

   

Page

   

   

PART I. FINANCIAL INFORMATION  

   

   

   

   

Item 1.

   

Financial Statements  

   

   

   

Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012  

3

   

   

Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 (Unaudited)  

4

   

   

Consolidated Statements Comprehensive Loss for the three and six months ended June 30, 2013 and 2012 (Unaudited)  

5

   

   

Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (Unaudited)  

6

   

   

Notes to Consolidated Financial Statements (Unaudited)  

7

   

   

   

Item 2.

   

Management’s Discussion and Analysis of Financial Condition and Results of Operations  

19

   

   

   

Item 3.

   

Quantitative and Qualitative Disclosures About Market Risk  

31

   

   

   

Item 4.

   

Controls and Procedures  

31

   

   

PART II. OTHER INFORMATION  

   

   

   

   

Item 1.

   

Legal Proceedings  

32

   

   

   

Item 1A.

   

Risk Factors  

32

   

   

   

Item 2.

   

Unregistered Sales of Equity Securities and Use of Proceeds  

32

   

   

   

Item 3.

   

Defaults Upon Senior Securities  

32

   

   

   

Item 4.

   

Mine and Safety Disclosures  

32

   

   

   

Item 5.

   

Other Information  

33

   

   

   

Item 6.

   

Exhibits  

33

   

   

SIGNATURES  

34

   

   

   

       

 

 2 

   


   

TeleCommunication Systems, Inc.

Consolidated Balance Sheets

(amounts in thousands, except share data)

   

 

   

June 30,
2013

   

   

December 31,
2012

   

(unaudited)

   

   

   

   

Assets

   

   

   

   

   

   

   

Current assets:

   

   

   

   

   

   

   

Cash and cash equivalents

$

59,615

   

   

$

36,623

   

Marketable securities

   

13,247

   

   

   

14,875

   

Accounts receivable, net of allowance of $ 607 in 2013 and $394 in 2012

   

54,669

   

   

   

83,013

   

Unbilled receivables

   

20,854

   

   

   

23,095

   

Inventory

   

13,668

   

   

   

11,084

   

Deferred tax assets

   

13,261

   

   

   

9,813

   

Deferred project costs and other current assets

   

15,159

   

   

   

15,394

   

Total current assets

   

190,473

   

   

   

193,897

   

   

   

   

   

   

   

   

   

Property and equipment, net of accumulated depreciation and amortization of $79,044 in  2013 and $72,050 in 2012

   

50,168

   

   

   

49,270

   

Software development costs, net of accumulated amortization of $ 30,871 in 2013 and  $27,317 in 2012

   

17,044

   

   

   

18,929

   

Acquired intangible assets, net of accumulated amortization of $12,180 in 2013 and $9,895  in 2012

   

23,887

   

   

   

26,172

   

Goodwill

   

112,450

   

   

   

112,450

   

Deferred tax assets

   

6,233

   

   

   

6,233

   

Other assets

   

8,798

   

   

   

6,761

   

Total assets

$

409,053

   

   

$

413,712

   

   

   

   

   

   

   

   

   

Liabilities and stockholders’ equity

   

   

   

   

   

   

   

Current liabilities:

   

   

   

   

   

   

   

Accounts payable and accrued expenses

$

38,842

   

   

$

37,703

   

Accrued payroll and related liabilities

   

13,778

   

   

   

18,406

   

Deferred revenue

   

25,897

   

   

   

26,527

   

Current portion of bank borrowings, notes payable, and capital lease obligations

   

12,554

   

   

   

28,657

   

Total current liabilities

   

91,071

   

   

   

111,293

   

   

   

   

   

   

   

   

   

Notes payable and capital lease obligations, less current portion

   

154,880

   

   

   

138,939

   

Other liabilities

   

1,331

   

   

   

2,378

   

   

   

   

   

   

   

   

   

Stockholders’ equity:

   

   

   

   

   

   

   

Class A Common Stock; $0.01 par value:

   

   

   

   

   

   

   

Authorized shares—225,000,000; issued and outstanding shares of 53,412,469 in  2013 and 53,037,097 in 2012

   

537

   

   

   

531

   

Class B Common Stock; $0.01 par value:

   

   

   

   

   

   

   

Authorized shares—75,000,000; issued and outstanding shares of 5,247,769 in 2013 and 5,247,769 in 2012

   

52

   

   

   

52

   

Additional paid-in capital

   

337,470

   

   

   

334,058

   

Accumulated other comprehensive income

   

1

   

   

   

50

   

Accumulated deficit

   

(176,289

)

   

   

(173,589

)

Total stockholders’ equity

   

161,771

   

   

   

161,102

   

Total liabilities and stockholders’ equity

$

409,053

   

   

$

413,712

   

   

   

See accompanying Notes to Consolidated Financial Statements.

 

 3 

   


   

TeleCommunication Systems, Inc.

Consolidated Statements of Operations

(amounts in thousands, except per share data)

(unaudited)

   

 

   

Three Months Ended
June 30,

   

   

Six Months Ended
June 30,

   

   

2013

   

   

2012

   

   

2013

   

   

2012

   

Revenue

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Services

$

71,591

   

   

$

70,539

   

   

$

145,109

   

   

$

142,887

   

Systems

   

21,251

   

   

   

44,083

   

   

   

42,527

   

   

   

71,770

   

Total revenue

   

92,842

   

   

   

114,622

   

   

   

187,636

   

   

   

214,657

   

Direct costs of revenue

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Direct cost of services revenue

   

39,722

   

   

   

40,641

   

   

   

81,523

   

   

   

84,882

   

Direct cost of systems revenue

   

17,213

   

   

   

39,455

   

   

   

34,725

   

   

   

60,859

   

Total direct cost of revenue

   

56,935

   

   

   

80,096

   

   

   

116,248

   

   

   

145,741

   

Services gross profit

   

31,869

   

   

   

29,898

   

   

   

63,586

   

   

   

58,005

   

Systems gross profit

   

4,038

   

   

   

4,628

   

   

   

7,802

   

   

   

10,911

   

Total gross profit

   

35,907

   

   

   

34,526

   

   

   

71,388

   

   

   

68,916

   

Operating expenses

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Research and development expense

   

9,321

   

   

   

8,931

   

   

   

17,847

   

   

   

17,593

   

Sales and marketing expense

   

7,712

   

   

   

7,598

   

   

   

15,761

   

   

   

15,103

   

General and administrative expense

   

15,080

   

   

   

12,978

   

   

   

28,728

   

   

   

25,345

   

Depreciation and amortization of property and equipment

   

3,609

   

   

   

3,371

   

   

   

7,117

   

   

   

6,810

   

Amortization of acquired intangible assets

   

1,143

   

   

   

715

   

   

   

2,285

   

   

   

2,089

   

Impairment of goodwill and long-lived assets

   

—  

   

   

   

125,703

   

   

   

—  

   

   

   

125,703

   

Total operating expenses

   

36,865

   

   

   

159,296

   

   

   

71,738

   

   

   

192,643

   

Loss from operations

   

(958

)

   

   

(124,770

)

   

   

(350

)

   

   

(123,727

)

Interest expense

   

(2,109

)

   

   

(1,637

)

   

   

(3,953

)

   

   

(3,279

)

Amortization of deferred financing fees

   

(1,440

)

   

   

(190

)

   

   

(1,737

)

   

   

(378

)

Other income (expense), net

   

(13

)

   

   

(72

)

   

   

(108

)

   

   

32

   

Net loss before income taxes

   

(4,520

)

   

   

(126,669

)

   

   

(6,148

)

   

   

(127,352

)

Income tax benefit

   

2,649

   

   

   

15,552

   

   

   

3,448

   

   

   

15,866

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net loss

$

(1,871

)

   

$

(111,117

)

   

$

(2,700

)

   

$

(111,486

)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net loss per share-basic and diluted

$

(0.03

)

   

$

(1.91

)

   

$

(0.05

)

   

$

(1.93

)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Weighted average shares outstanding-basic and diluted

   

58,461

   

   

   

58,059

   

   

   

58,517

   

   

   

57,767

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

See accompanying Notes to Consolidated Financial Statements.

 

 4 

   


   

TeleCommunication Systems, Inc.

Consolidated Statements of Comprehensive Loss

(amounts in thousands)

(unaudited)

   

 

   

Three Months Ended
June 30,

   

   

Six Months Ended
June 30,

   

   

2013

   

   

2012

   

   

2013

   

   

2012

   

Net loss

$

(1,871

)

   

$

(111,117

)

   

$

(2,700

)

   

$

(111,486

)

Other comprehensive loss:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Foreign currency translation adjustments

   

(3

)

   

   

(7

)

   

   

(10

)

   

   

(7

)

Unrealized gains (loss) on securities

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Arising during the period

   

(40

)

   

   

(14

)

   

   

(41

)

   

   

39

   

Reclassification to net income (loss)

   

4

   

   

   

(7

)

   

   

2

   

   

   

(10

)

Net unrealized gains (loss)

   

(36

)

   

   

(21

)

   

   

(39

)

   

   

29

   

Other comprehensive income (loss)

   

(39

)

   

   

(28

)

   

   

(49

)

   

   

22

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Comprehensive loss

$

(1,910

)

   

$

(111,145

)

   

$

(2,749

)

   

$

(111,464

)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

See accompanying Notes to Consolidated Financial Statements.

 

 5 

   


   

TeleCommunication Systems, Inc.

Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

   

 

   

Six Months Ended
June 30,

   

Operating activities:

2013

   

   

2012

   

Net loss

$

(2,700

)

   

$

(111,486

)

Adjustments to reconcile net income to net cash provided by operating activities:

   

   

   

   

   

   

   

Impairment of goodwill and long-lived assets

   

—  

   

   

   

125,703

   

Depreciation and amortization of property and equipment

   

7,117

   

   

   

6,810

   

Stock-based compensation expense

   

3,791

   

   

   

4,745

   

Amortization of capitalized software development costs

   

3,554

   

   

   

4,210

   

Amortization of acquired intangible assets

   

2,285

   

   

   

2,089

   

Amortization of investment premiums and accretion of discounts, net

   

110

   

   

   

240

   

Deferred tax benefit

   

(3,448

)

   

   

(16,032

)

Amortization of deferred financing fees

   

1,737

   

   

   

378

   

Other non-cash adjustments

   

364

   

   

   

659

   

Changes in operating assets and liabilities:

   

   

   

   

   

   

   

Accounts receivable, net

   

28,326

   

   

   

3,989

   

Unbilled receivables

   

2,241

   

   

   

10,974

   

Inventory

   

(2,584

)

   

   

(3,986

)

Deferred project costs and other current assets

   

235

   

   

   

(4,579

)

Other assets

   

(3,774

)

   

   

1,028

   

Accounts payable and accrued expenses

   

471

   

   

   

5,398

   

Accrued payroll and related liabilities

   

(4,628

)

   

   

(4,443

)

Deferred revenue

   

(630

)

   

   

7,537

   

Other liabilities

   

(1,047

)

   

   

2,192

   

Subtotal—Changes in operating assets and liabilities

   

18,610

   

   

   

18,110

   

Net cash provided by operating activities

   

31,420

   

   

   

35,426

   

   

   

   

   

   

   

   

   

Investing activities:

   

   

   

   

   

   

   

Purchases of property and equipment

   

(5,980

)

   

   

(12,655

)

Purchases of marketable securities

   

(1,936

)

   

   

(2,447

)

Proceeds from sale and maturity of marketable securities

   

3,415

   

   

   

5,567

   

Capitalized software development costs

   

(1,657

)

   

   

(461

)

Net cash used in investing activities

   

(6,158

)

   

   

(9,996

)

   

   

   

   

   

   

   

   

Financing activities:

   

   

   

   

   

   

   

Proceeds from bank and other borrowings

   

56,500

   

   

   

3,500

   

Payments on bank borrowings, notes payable, and capital lease obligations

   

(58,397

)

   

   

(20,896

)

Earn-out payment related to 2009 acquisition

   

—  

   

   

   

(3,634

)

Payments of tax withholdings on restricted stock

   

(456

)

   

   

—  

   

Proceeds from exercise of employee stock options and sale of stock

   

83

   

   

   

454

   

Net cash used in financing activities

   

(2,270

)

   

   

(20,576

)

   

   

   

   

   

   

   

   

Net Increase in cash

   

22,992

   

   

   

4,854

   

Cash and cash equivalents at the beginning of the period

   

36,623

   

   

   

40,898

   

   

   

   

   

   

   

   

   

Cash and cash equivalents at the end of the period

$

59,615

   

   

$

45,752

   

   

See accompanying Notes to Consolidated Financial Statements.

 

 6 

   


   

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements

June 30, 2013

(amounts in thousands, except per share amounts)

(unaudited)

   

   

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. These consolidated financial statements should be read in conjunction with our audited financial statements and related notes included in our 2012 Annual Report on Form 10-K. The terms “TCS”, “Company”, “we”, “us” and “our” as used in this Form 10-Q refer to TeleCommunication Systems, Inc. and its subsidiaries as a combined entity, except where it is made clear that such terms mean only TeleCommunication Systems, Inc.

Use of Estimates. The preparation of these financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Significant estimates and assumptions in these consolidated financial statements include estimates used in revenue recognition, fair value of business combinations, fair value associated with goodwill, intangible assets and long-lived asset impairment tests, estimated values of software development costs, income taxes and deferred valuation allowances, the fair value of marketable securities and stock based compensation, and legal and contingency fees. Actual results could differ from those estimates.

In the second quarter of 2012, our Navigation reporting unit’s goodwill and long-lived assets with a carrying value of $164,500 were written down to estimated fair value of $38,797, resulting in an impairment charge of $125,703 to goodwill, acquired intangibles, and long-lived (fixed) assets. We engaged a third party valuation firm to assist in the determination of the fair value of goodwill, acquired intangibles, capitalized software, and long-lived assets. We utilized a discounted cash flow model to determine the fair value of goodwill and an income approach to determine the fair values of acquired intangibles, capitalized software, and long-lived assets.

Reclassifications. Certain reclassifications have been made to prior period amounts in the Consolidated Statements of Cash Flows to conform to current period presentations. The reclassifications have no effect on the net increase in cash for the period.

Goodwill. Goodwill represents the excess of cost over the fair value of net assets of acquired businesses. Goodwill is not amortized, but instead is evaluated annually for impairment using a discounted cash flow model and other measurements of fair value such as market comparable transactions. The authoritative guidance for the goodwill impairment model includes a two-step process. First, it requires a comparison of the book value of net assets to the fair value of the reporting units that have goodwill assigned to them. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of the impairment. In the second step, a fair value for goodwill is estimated, based in part on the fair value of the reporting unit used in the first step, and is compared to its carrying value. The shortfall of the fair value below carrying value, if any, would represent the amount of goodwill impairment.

We assess goodwill for impairment in the fourth quarter of each fiscal year, or sooner should there be an indicator of impairment. We periodically analyze whether any such indicators of impairment, such as a sustained, significant decline in the Company’s stock price and market capitalization, a decline in the Company’s expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, and/or slower growth rate, among others.

For goodwill impairment testing, we have four reporting units: two Commercial Segment units, Navigation and Other Commercial (which comprises our text messaging and location-based technology businesses, including E9-1-1 call routing); and two Government Segment units, Government Solutions Group and Cyber Intelligence.

 

 7 

   


   

In the second quarter of 2012, we received notice from a significant navigation application customer that it intended to adjust pricing for TCS services. Management considered this to be an indicator that we should evaluate the long-lived assets (including goodwill and other intangible assets) related to our 2009 acquisition of Networks In Motion, operating as our Navigation unit, for potential impairment. As a result, we recorded a $125,703 impairment charge was recorded in 2012 for the excess of the carrying value of goodwill, long-lived (fixed) assets including capitalized software for internal use, software development costs and acquired intangibles over the estimated fair value. No triggering events occurred with regard to other reporting units, so an interim analysis of other units was not completed.

In performing our annual goodwill impairment testing during the fourth quarter of 2012, we used a market approach based on observable public comparable company multiples for all reporting units. For our Navigation and Cyber Intelligence reporting units, we also used a discounted cash flow analysis. Where multiple approaches were used, we may weight the results from different methods to estimate the reporting unit’s fair value. Our discounted cash flow models are based on our expectation of future market conditions for each of the reporting units, as well as discount rates that would be used by market participants in an arms-length transaction. Future events could cause us to conclude that market conditions have declined or discount rates have increased to the extent that our goodwill could be impaired. It is not possible at this time to determine if any such future impairment charge would result.

There was no indication of any further impairment in any of our reporting units during the 2012 annual testing and accordingly, the second step of the goodwill impairment analysis was not performed.

Earnings per share. Basic net income (loss) per common share is based upon the average number of shares of common stock outstanding during the period. Stock options and restricted stock of approximately 17,000 shares and 16,000 shares for the three and six months ended June 30, 2013, respectively, and 29,900 shares and 22,500 shares for the three and six months ended June 30, 2012, respectively, were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three and six months ending June 30, 2013 and 2012, shares issuable upon conversion of convertible debt were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive. Concurrent with the issuance of the convertible notes, we entered into convertible note hedge and warrant transactions. If the Company’s share price is greater than the warrant exercise price of $12.74 per share for any period presented, the warrants would be dilutive to the Company’s earnings per share. The convertible note hedge is excluded from the calculation of diluted earnings per share as the impact is always considered anti-dilutive since the call option would be exercised by us when the exercise price is lower than the market price. For the three and six months ending June 30, 2013 and 2012, the Company’s share price was less than the warrant exercise price of $12.74, therefore no value was assigned to the warrants because the effect of their inclusion would have been anti-dilutive.

Our two classes of common stock (Class A and B) share equally in dividends declared or accumulated and have equal participation rights in undistributed earnings. Additionally our unvested restricted stock does not contain non-forfeitable rights to dividends and dividend equivalents. As such, unvested shares of restricted stock are not participating securities and our basic and diluted earnings per share are not impacted by the two class method of computing earnings per share.

Recent Accounting Pronouncements. In February 2013, the FASB amended the disclosure requirements regarding the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment does not change the current requirement for reporting net income or other comprehensive income, but requires additional disclosures about significant amounts reclassified out of accumulated other comprehensive income including the effect of the reclassification on the related net income line items. This amendment was adopted prospectively effective January 1, 2013.

In March 2013, the FASB amended guidance related to a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to derecognition events occurring after the effective date. We do not anticipate the adoption of this amendment will have a material impact on our financial statements.

   

2. Acquisitions

On July 6, 2012, we acquired all of the outstanding shares of privately-held microDATA GIS, Inc. (“microDATA”), in accordance with a Purchase and Sale Agreement. microDATA is a leading provider of Next Generation 9-1-1 software and solutions. Its technology and expertise enhanced our end-to-end public safety communications business with expanded Geographical Information Systems emergency services information network software and additional Public Safety Answering Point-based customer premise equipment software. The microDATA acquisition was accounted for using the acquisition method; accordingly, microDATA’s operating results are reflected in the consolidated financial statements and are integrated into the Commercial Segment.

 

 8 

   


   

The purchase price of $35,544 was comprised of $20,786 in cash, net of cash acquired, and $14,250 in promissory notes, and performance-based earn-out opportunities was allocated to the acquired assets and assumed liabilities based on management’s valuation of the fair values as of July 6, 2012.

The acquisition cash was funded by incremental bank debt; see Note 12. The total purchase price has been allocated based on the estimated fair value of the acquired tangible and intangible assets and assumed liabilities, with the excess of the purchase price over the assets acquired and liabilities assumed being allocated to goodwill. The weighted average amortization period for the other intangibles is 6.5 years. The valuation resulted in $22,032 of goodwill, which will be deductible for tax purposes over 15 years.

The following table summarizes the final fair values of the assets acquired and liabilities assumed:

   

 

Accounts receivable

$

2,190

   

Other current assets

   

1,228

   

Deferred tax asset

   

553

   

Property and equipment

   

175

   

Acquired intangible assets

   

12,834

   

Software development costs

   

5,969

   

Accounts payable and accrued expenses

   

(2,099

)

Accrued payroll and related liabilities

   

(353

)

Deferred revenue

   

(6,985

)

Total net assets

   

13,512

   

Goodwill

   

22,032

   

Total purchase price

$

35,544

   

The microDATA operations have been included in our consolidated results of operations since the acquisition date of July 6, 2012. The Consolidated Balance Sheets as of June 30, 2013 reflect the final purchase price allocations for microDATA. A pro forma statement of operations was omitted because the acquisition of the outstanding shares of microDATA did not have a significant impact on our results of operations or income (loss) per share attributable to common stockholders.

   

3. Stock-Based Compensation

Restricted Stock

We had 1,770 and 1,428 restricted stock units outstanding at a weighted-average grant date fair value per share of $2.75 and $3.00 as at June 30, 2013 and 2012, respectively. Share-based compensation expense is recognized on a straight line basis, for only those shares expected to vest over the requisite service period of the award, which is generally the vesting over one year for directors and vest in annual increments over three years for executives conditional on continued employment.

Stock Options

We had 17,837 and 16,963 stock options outstanding as at June 30, 2013 and 2012, respectively. During the first half of 2013, we granted 1,801 options and had exercises of 43 options. Share-based compensation expense is recognized on a straight line basis, net of any estimated forfeiture rate, for only those shares expected to vest over the requisite service period of the award, which is generally 5 years.

Total Stock-Based Compensation

We recognized total share-based compensation expense of $1,338 and $1,938 in the three months ended June 30, 2013 and 2012, respectively, and $3,791 and $4,745 in the six months ended June 30, 2013 and 2012, respectively. As of June 30, 2013 and 2012, we had $7,517 and $11,458, respectively, of total unrecognized share-based compensation expense, which is expected to be recognized over a weighted-average period of approximately 3 years, respectively.

   

4. Supplemental Disclosure of Cash Flow Information

Property and equipment acquired under capital leases totaled $1,525 and $2,173 during the three and six months ended June 30, 2013, respectively. We acquired $1,474 and $3,353 of property under capital leases during the three and six months ended June 30, 2012, respectively.

Interest paid totaled $2,761 and $3,363 during the three and six months ended June 30, 2013, respectively. We paid $2,849 and $3,366 during the three and six months ended June 30, 2012, respectively.

 

 9 

   


   

Income taxes and estimated state income taxes paid totaled $92 and $290, respectively, during the three and six months ended June 30, 2013, respectively. Income taxes paid totaled $315 and $809 for the three and six months ended June 30, 2012, respectively.

   

5. Marketable Securities

Available-for-sale marketable securities at June 30, 2013 were:

   

 

   

   

Amortized
Cost
Basis

   

   

   

Gross
Unrealized
Gains

   

   

   

Gross
Unrealized
Losses

   

   

   

Estimated
Fair
Value

   

Corporate bonds

$

11,903

   

   

$

21

   

   

$

(15

)

   

$

11,909

   

Mortgage-backed and asset-backed securities

   

1,342

   

   

   

—  

   

   

   

(4

)

   

   

1,338

   

Total marketable securities

$

13,245

   

   

$

21

   

   

$

(19

)

   

$

13,247

   

The original cost and estimated fair value of available-for-sale marketable securities by contractual maturity at June 30, 2013 were:

   

 

   

   

Original
Cost

   

   

   

Fair
Value

   

Due within 1 year or less

$

7,066

   

   

$

6,832

   

Due within 1-2 years

   

3,713

   

   

   

3,663

   

Due within 2-3 years

   

2,775

   

   

   

2,752

   

   

$

13,554

   

   

$

13,247

   

   

Available-for-sale marketable securities at December 31, 2012 were:

   

 

   

   

Amortized
Cost
Basis

   

   

   

Gross
Unrealized
Gains

   

   

   

Gross
Unrealized
Losses

   

   

   

Estimated
Fair
Value

   

Corporate bonds

$

13,102

   

   

$

42

   

   

$

(3

)

   

$

13,141

   

Mortgage-backed and asset-backed securities

   

1,732

   

   

   

3

   

   

   

(1

)

   

   

1,734

   

Total marketable securities

$

14,834

   

   

$

45

   

   

$

(4

)

   

$

14,875

   

   

The original cost and estimated fair value of available-for-sale marketable securities by contractual maturity at December 31, 2012 were:

 

   

   

Original
Cost

   

   

   

Fair
Value

   

Due within 1 year or less

$

7,567

   

   

$

7,251

   

Due within 1-2 years

   

3,626

   

   

   

3,557

   

Due within 2-3 years

   

4,075

   

   

   

4,067

   

   

$

15,268

   

   

$

14,875

   

 

 10 

   


   

   

   

6. Fair Value Measurements

Our assets and liabilities subject to fair value measurements on a recurring basis and the required disclosures were:

   

 

As of June 30, 2013

Fair
Value
Total

   

      

Fair Value Measurements
Using Fair Value Hierarchy

   

      

Level 1

   

      

Level 2

   

      

Level 3

   

Assets:

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

Cash and cash equivalents

$

59,615

   

      

$

59,615

   

      

$

—  

   

      

$

—  

   

Corporate bonds

   

11,909

   

      

   

11,909

   

      

   

—  

   

      

   

—  

   

Mortgage-backed and asset-backed securities

   

1,338

   

      

   

1,338

   

      

   

—  

   

      

   

—  

   

Marketable securities

   

13,247

   

      

   

13,247

   

      

   

—  

   

      

   

—  

   

Deferred compensation plan investments

   

848

   

      

   

848

   

      

   

—  

   

      

   

—  

   

Assets at fair value

$

73,710

   

      

$

73,710

   

      

$

—  

   

      

$

—  

   

Liabilities:

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

Contractual acquisition earn-outs

$

1,064

   

      

$

—  

   

      

$

—  

   

      

$

1,064

   

Deferred compensation

   

505

   

      

   

505

   

      

   

—  

   

      

   

—  

   

Liabilities at fair value

$

1,569

   

      

$

505

   

      

$

—  

   

      

$

1,064

   

   

 

As of December 31, 2012

Fair
Value
Total

   

      

Fair Value Measurements
Using Fair Value Hierarchy

   

      

Level 1

   

      

Level 2

   

      

Level 3

   

Assets:

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

Cash and cash equivalents

$

36,623

   

      

$

36,623

   

      

$

—  

   

      

$

—  

   

Corporate bonds

   

13,141

   

      

   

13,141

   

      

   

—  

   

      

   

—  

   

Mortgage-backed and asset-backed securities

   

1,734

   

      

   

1,734

   

      

   

—  

   

      

   

—  

   

Marketable securities

   

14,875

   

      

   

14,875

   

      

   

—  

   

      

   

—  

   

Deferred compensation plan investments

   

690

   

      

   

690

   

      

   

—  

   

      

   

—  

   

Assets at fair value

$

52,188

   

      

$

52,188

   

      

$

—  

   

      

$

—  

   

Liabilities:

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

Deferred compensation

$

394

   

      

$

394

   

      

$

—  

   

      

$

—  

   

Contractual acquisition earn-outs

   

508

   

      

   

—  

   

      

   

—  

   

      

   

508

   

Liabilities at fair value

$

902

   

      

$

394

   

      

$

—  

   

      

$

508

   

We hold marketable securities that are investment grade and are classified as available-for-sale. The securities include corporate bonds, and mortgage and asset backed securities that are carried at fair market value based on quoted market prices.

We hold trading securities as part of a rabbi trust to fund supplemental executive retirement plans and deferred income plans. The funds held are all managed by a third party, and include fixed income funds, equity securities, and money market accounts, or other investments for which there is an active quoted market. The related deferred compensation liabilities are valued based on the underlying investment selections in each participant’s account.

The contractual acquisition earn-outs were part of the consideration paid for acquisitions. The fair value of the earn-outs is based on probability-weighted payouts under different scenarios, discounted using a discount rate commensurate with the risk.

The following table provides a summary of the changes in the our contractual acquisition earn-outs measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2013:

   

 

   

Fair Value
Measurements
Using Significant
Unobservable
Inputs (Level 3)

Balance at January 1, 2013

$

508

Issuances

   

520

Fair value adjustment recognized in earnings

   

36

Balance at June 30, 2013

$

1,064

 

 11 

   


   

Long-term debt, excluding leases, consists of borrowings under a commercial bank term loan agreement, 4.5% and 7.75% convertible senior notes, and promissory notes; see Note 12. The long-term debt, excluding leases, is currently reported at the borrowed amounts outstanding. At June 30, 2013, the estimated fair value of long-term debt, excluding leases, was $153,700 versus a carrying value of $156,071. At June 30, 2012, the estimated fair value of long-term debt, excluding leases, was $105,539 versus a carrying value of $122,166. The estimated fair value is based on a market approach using quoted market prices or current market rates for similar debt with approximately the same remaining maturities, where possible.

Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, and goodwill. These items are recognized at fair value when they are considered to be impaired. For the three and six months ended June 30, 2013, there was no required fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis. During the second quarter of 2012, our Navigation reporting unit’s goodwill and long-lived assets with a carrying value of $164,500 at March 31, 2012 were written down to their estimated fair value of $38,797, resulting in an impairment charge of $125,703 during the second quarter of 2012, see Note 1, Goodwill, Acquired intangibles, and Long-lived assets for further information regarding the valuation inputs.

   

   

7. Segment Information

Our two reporting segments are the Commercial and Government Segments.

Government Segment: We provide professional services including field support of deployable wireless systems and cybersecurity training to the U.S. Department of Defense and other government and foreign customers. We own and operate secure satellite teleport facilities, resell access to satellite airtime (known as space segment), and design, furnish, install and operate wireless communication systems and components, including our SwiftLink® deployable communication systems which integrate high speed, satellite, and, internet protocol technology with secure, federal government-approved cryptologic devices.

Commercial Segment: We are one of two leading companies that enable 9-1-1 call routing via cellular, Voice over Internet Protocol, and next generation technology. Other TCS hosted and managed services include cellular carrier infrastructure for text messaging and location-based platforms and applications, including turn-by-turn navigation. Commercial segment customers include wireless carrier network operators, Voice over Internet Protocol service providers, wireless device manufacturers, automotive industry suppliers, and state and local governments.

Management evaluates segment performance based on gross profit and all revenues reported below are from external customers. We do not maintain information regarding segment assets. According, asset information by reportable segment is not presented.

The following tables set forth the results of our reportable segments and a reconciliation of segment gross profit to net loss:

   

 

   

Three Months Ended June 30,

   

   

2013

   

      

2012

   

   

Gvmt

   

      

Comm.

   

      

Total

   

      

Gvmt

   

      

Comm.

   

      

Total

   

Revenue

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

Services

$

33,497

      

      

$

38,094

      

      

$

71,591

      

      

$

32,744

      

      

$

37,795

      

      

$

70,539

      

Systems

   

17,020

      

      

   

4,231

      

      

   

21,251

      

      

   

40,765

      

      

   

3,318

      

      

   

44,083

      

Total revenue

   

50,517

      

      

   

42,325

      

      

   

92,842

      

      

   

73,509

      

      

   

41,113

      

      

   

114,622

      

Direct costs of revenue

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

Direct cost of services

   

24,623

      

      

   

15,099

      

      

   

39,722

      

      

   

24,329

      

      

   

16,312

      

      

   

40,641

      

Direct cost of systems

   

13,083

      

      

   

4,130

      

      

   

17,213

      

      

   

36,638

      

      

   

2,817

      

      

   

39,455

      

       Total direct costs

   

37,706

      

      

   

19,229

      

      

   

56,935

      

      

   

60,967

      

      

   

19,129

      

      

   

80,096

      

Gross profit

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

Services gross profit

   

8,874

      

      

   

22,995

      

      

   

31,869

      

      

   

8,415

      

      

   

21,483

      

      

   

29,898

      

Systems gross profit

   

3,937

      

      

   

101

      

      

   

4,038

      

      

   

4,127

      

      

   

501

      

      

   

4,628

      

Total gross profit

$

12,811

      

      

$

23,096

      

      

$

35,907

      

      

$

12,542

      

      

$

21,984

      

      

$

34,526

      

   

 

 12 

   


   

   

 

   

Six Months Ended June 30,

   

   

2013

   

      

2012

   

   

Gvmt

   

      

Comm.

   

      

Total

   

      

Gvmt

   

      

Comm.

   

      

Total

   

Revenue