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in our assessment of the need for a valuation allowance could give rise to a change in such allowance, potentially resulting in material
amounts of additional tax expense or benefit in the period of change.
We recognize the benefits of tax positions in the financial statements, if such positions are more likely than not to be sustained
upon examination by the taxing authority and satisfy the appropriate measurement criteria. If the recognition threshold is met, the tax
benefit is generally measured and recognized as the tax benefit having the highest likelihood, based on our judgment, of being realized
upon ultimate settlement with the taxing authority, assuming full knowledge of the position and all relevant facts. At December 31,
2013, we had unrecognized tax benefits totaling approximately $4.8 million. The determination of these unrecognized amounts
requires significant judgments and interpretation of complex tax laws. Different judgments or interpretations could result in material
changes to the amount of unrecognized tax benefits.
Legal and Other Contingencies.
We are currently involved in various claims and legal proceedings. As required, we review the
status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is
considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is
required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably
estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As
additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may
revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of
operations and financial position.
Acquisitions
We did not make any material acquisitions in 2013. Opportunistic acquisitions are part of our long-term corporate strategy. We
pursue specific targets that complement our portfolio of existing products and services, and try to pursue business combinations
through exclusivity rather than participation in auction processes. We believe we can fund future acquisitions with our internally
available cash, equivalents and marketable securities, cash generated from operations, amounts available under our existing debt
facilities, additional borrowings or from the issuance of additional securities. We evaluate the financial impact of any potential
acquisition and associated financing with regard to earnings, operating margin, cash flow and return on invested capital targets before
deciding to move forward with an acquisition.
Effective July 6, 2012, we completed the acquisition of all of the outstanding shares of privately-held microDATA, GIS, Inc.,
(“microDATA.”) microDATA is a leading provider of Next Generation 9-1-1 software and solutions. Consideration for the acquisition
was approximately $35 million, comprised of $21 million in cash at closing, plus $14 million in promissory notes and performance-
based earn-out opportunities. microDATA’s business operations are included in our Commercial Segment.
On January 31, 2011, we acquired privately-held Trident Space & Defense, LLC, (“Trident”) a leading provider of engineering
and electronics solutions for global space and defense markets, located in Torrance, California. Total consideration for the acquisition
was $29.5 million including $17.2 million paid in cash and three million shares of our Class A common stock worth approximately
$12.3 million. The acquired business operations are included in our Government Segment.
Operating results of each acquired business are reflected in the Company’s consolidated financial statements from the date of
acquisition.
Indicators of Our Financial and Operating Performance
Our management monitors and analyzes a number of performance indicators in order to manage our business and evaluate our
financial and operating performance. Those indicators include:
x
Revenue.
We derive revenue from the sales of systems and services including recurring monthly service and subscriber fees,
maintenance fees, software licenses and related service fees for the design, development, and deployment of software and
communication systems, and products and services derived from the delivery of information processing, communication
systems and components for governmental agencies.
x
Gross profit (revenue minus direct cost of revenue, including certain non-cash expenses).
The major items comprising our
cost of revenue are compensation and benefits, third-party hardware and software, network operation center and co-location
facility operating expenses, amortization of capitalized software development costs, stock-based compensation, and
overhead expenses. The costs of hardware and third-party software are primarily associated with the delivery of systems,
and fluctuate from period to period as a result of the relative volume, mix of projects, level of service support required and
the complexity of customized products and services delivered. Amortization of capitalized software development costs,
including acquired technology, is associated with the recognition of revenue from our Commercial Segment.
