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long-term depending on the expected product delivery dates or service coverage periods. Long-term deferred revenue is included in
other liabilities and long-term deferred project costs are included in other assets on our Consolidated Balance Sheets.
Under our contracts with the U.S. Government for both systems and services, contract costs, including the allocated indirect
expenses, are subject to audit and adjustment by the Defense Contract Audit Agency. We record revenue under these contracts at
estimated net realizable amounts.
Advertising Costs.
Advertising costs are expensed as incurred. Advertising expense totaled $104, $69, and $128, for the years
ended December 31, 2013, 2012, and 2011, respectively.
Capitalized Interest.
Total interest incurred, including amortization of deferred financing fees, was $11,780, $8,278, and
$8,249 for the years ended December 31, 2013, 2012, and 2011, respectively. Approximately $115, $138, and $168 of total interest
incurred was capitalized as a component of software development costs during the year ended December 31, 2013, 2012, and 2011
respectively.
Stock-Based Compensation.
We have two stock-based employee compensation plans, which are described more fully in
Note 18. Both the incentive stock option plan and the employee stock purchase plan are considered equity plans. The fair value of
stock option grants are estimated on the date of grant using a Black-Scholes option-pricing model and expensed on a straight-line basis
over the requisite service period of the options, which is generally three to five years. The employee stock purchase plan gives all
employees an opportunity to purchase shares of our Class A common stock at a discount of 15% of the fair market value.
Research and Development Expense.
We incur research and development costs which are primarily comprised of
compensation expenses for engineers engaged in the development and enhancement of software and integrated system products.
Research and development cost is expensed as incurred or accounted for as set forth in “Software Development Cost” above.
Income Taxes.
We account for income taxes in accordance with ASC 740, Accounting for Income Taxes. Deferred tax assets
and liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities using
enacted tax rates. Upon the adoption of ASC 740 on January 1, 2007, the estimated value of the Company’s uncertain tax positions
was a liability of approximately $2,700 resulting from unrecognized net tax benefits which did not include interest and penalties and
increased to $4,780 as of December 31, 2013. We recorded the estimated value of uncertain tax positions by reducing the value of
certain tax attributes. We would classify any interest and penalties accrued on any unrecognized tax benefits as a component of the
provision for income taxes. There were no interest or penalties recognized in the Consolidated Statements of Operations for 2013 and
the Consolidated Balance Sheets at December 31, 2013. We do not currently anticipate that the total amounts of unrecognized tax
benefits will significantly increase within the next 12 months. We file income tax returns in U.S. and various state and foreign
jurisdictions. As of December 31, 2013, open tax years in the federal and some state jurisdictions date back to 1996, due to the taxing
authorities’ ability to adjust operating loss carryforwards.
The accounting standards require that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion of the net deferred tax asset will not be realized. This process requires
management to make assessments regarding the timing and probability of the ultimate tax impact and to record valuation allowances
on deferred tax assets if determined it is more likely than not that the asset will not be realized. Management also establishes reserves
for uncertain tax positions based upon management’s judgment regarding potential future challenges to those positions. Actual income
taxes could vary from these estimates due to future changes in income tax law, significant changes in the jurisdictions in which the
Company operates, our inability to generate sufficient future taxable income or unpredicted results from the final determination of
each year’s liability by taxing authorities. These changes could have a significant impact on the Company’s financial position.
Deferred tax assets consist primarily of net operating loss and tax credit carryforwards as well as deductible temporary
differences. Prior to 2008 and at December 31, 2013, we provided a full valuation allowance for deferred tax assets based on
management’s evaluation that our ability to realize such assets did not meet the criteria of “more likely than not”. We continuously
evaluate additional facts representing positive and negative evidence in determining our ability to realize the deferred tax assets.
Other Comprehensive Income.
Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under
GAAP are included as a component of shareholders’ equity but are excluded from net income. Other comprehensive income consists
of foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available-for-sale.
Fair Value Measurements.
We apply valuation techniques, such as the market approach (comparable market prices), the
income approach (present value of future income or cash flows), and the cost approach (cost to replace the service capacity of an asset
or replacement cost) and uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
