##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended September 30, 2010
 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.
  MARYLAND
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    52-1526369
(I.R.S. Employer Identification No.)
 275 West Street, Annapolis, MD
(Address of principal executive offices)
    
    21401
(Zip Code)
 (410) 263-7616
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Shares outstandingas of October 31,Title of Each Class
    
    2010Class A Common Stock, par value
$0.01 per share
    
    
    47,180,810Class B Common Stock, par value
$0.01 per share
    
    
    6,016,334Total Common Stock Outstanding
    
    
    53,197,144




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##### 



INDEX
 TELECOMMUNICATION SYSTEMS, INC.
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Income for the three- and nine-months ended September 30,
2010 and 2009 (Unaudited)
    
    
    3Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009
    
    
    4Consolidated Statement of Stockholders Equity for the nine-months ended September
30, 2010 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the nine-months ended September 30, 2010
and 2009 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Removed and Reserved
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



TeleCommunication Systems, Inc.
 
 Consolidated Statements of Income
 (amounts in thousands, except per share data)
(Unaudited)
 Three Months ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009RevenueServices
    
    $
    66,195
    
    
    $
    39,300
    
    
    $
    189,468
    
    
    $
    104,518Systems
    
    
    36,754
    
    
    
    32,309
    
    
    
    97,060
    
    
    
    104,728Total revenue
    
    
    102,949
    
    
    
    71,609
    
    
    
    286,528
    
    
    
    209,246Direct costs of revenueDirect cost of services revenue
    
    
    38,977
    
    
    
    21,245
    
    
    
    109,195
    
    
    
    58,434Direct cost of systems revenue, including
amortization of software development costs of
$2,327, $781, $6,934 and $2,103, respectively
    
    
    27,233
    
    
    
    22,153
    
    
    
    73,857
    
    
    
    67,307Total direct cost of revenue
    
    
    66,210
    
    
    
    43,398
    
    
    
    183,052
    
    
    
    125,741Services gross profit
    
    
    27,218
    
    
    
    18,055
    
    
    
    80,273
    
    
    
    46,084Systems gross profit
    
    
    9,521
    
    
    
    10,156
    
    
    
    23,203
    
    
    
    37,421Total gross profit
    
    
    36,739
    
    
    
    28,211
    
    
    
    103,476
    
    
    
    83,505Operating costs and expensesResearch and development expense
    
    
    7,523
    
    
    
    5,823
    
    
    
    22,612
    
    
    
    15,612Sales and marketing expense
    
    
    5,988
    
    
    
    3,579
    
    
    
    17,934
    
    
    
    11,742General and administrative expense
    
    
    10,060
    
    
    
    7,665
    
    
    
    28,324
    
    
    
    22,955Depreciation and amortization of property and equipment
    
    
    2,572
    
    
    
    1,571
    
    
    
    6,805
    
    
    
    4,459Amortization of acquired intangible assets
    
    
    1,161
    
    
    
    222
    
    
    
    3,504
    
    
    
    381Total operating costs and expenses
    
    
    27,304
    
    
    
    18,860
    
    
    
    79,179
    
    
    
    55,149Income from operations
    
    
    9,435
    
    
    
    9,351
    
    
    
    24,297
    
    
    
    28,356Interest expense
    
    
    (2,299
    )
    
    
    (371
    )
    
    
    (6,888
    )
    
    
    (784
    )Amortization of debt discount and debt issuance expenses
    
    
    (187
    )
    
    
    (16
    )
    
    
    (563
    )
    
    
    (74
    )Other income, net
    
    
    996
    
    
    
    43
    
    
    
    1,981
    
    
    
    327Income before income taxes
    
    
    7,945
    
    
    
    9,007
    
    
    
    18,827
    
    
    
    27,825Provision for income taxes
    
    
    (3,623
    )
    
    
    (3,596
    )
    
    
    (6,400
    )
    
    
    (10,941
    )Net income
    
    $
    4,322
    
    
    $
    5,411
    
    
    $
    12,427
    
    
    $
    16,884Net income per share-basic
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.23
    
    
    $
    0.36Net income per share-diluted
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.22
    
    
    $
    0.33Weighted average shares outstanding-basic
    
    
    53,127
    
    
    
    48,233
    
    
    
    52,902
    
    
    
    46,865Weighted average shares outstanding- diluted
    
    
    64,573
    
    
    
    52,862
    
    
    
    66,068
    
    
    
    51,804
  3




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TeleCommunication Systems, Inc.
 
 Consolidated Balance Sheets 
(amounts in thousands, except share data)
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    82,176
    
    
    $
    61,426Marketable securities
    
    
    30,641
    
    
    
    Accounts receivable, net of allowance of $427 in 2010 and
$389 in 2009
    
    
    62,479
    
    
    
    65,476Unbilled receivables
    
    
    28,156
    
    
    
    23,783Inventory
    
    
    8,612
    
    
    
    9,331Deferred income taxes
    
    
    6,992
    
    
    
    9,507Receivable from settlement of patent matter
    
    
    
    
    
    
    15,700Income tax refund receivable
    
    
    
    
    
    
    5,438Other current assets
    
    
    6,090
    
    
    
    8,945Total current assets
    
    
    225,146
    
    
    
    199,606Property and equipment, net of accumulated depreciation and
amortization of $53,743 in 2010 and $46,960 in 2009
    
    
    36,330
    
    
    
    20,734Software development costs, net of accumulated amortization of
$16,875 in 2010 and $9,941 in 2009
    
    
    40,086
    
    
    
    45,384Acquired intangible assets, net of accumulated amortization of
$5,030 in 2010 and $1,526 in 2009
    
    
    29,424
    
    
    
    33,975Goodwill
    
    
    168,212
    
    
    
    164,350Other assets
    
    
    8,120
    
    
    
    8,176Total assets
    
    $
    507,318
    
    
    $
    472,225Liabilities and stockholders equityCurrent
liabilities:Accounts payable and accrued expenses
    
    $
    51,064
    
    
    $
    52,999Accrued payroll and related liabilities
    
    
    14,550
    
    
    
    19,265Deferred
revenue
    
    
    22,853
    
    
    
    9,938Current portion of capital lease obligations and notes
payable
    
    
    49,185
    
    
    
    39,731Total current liabilities
    
    
    137,652
    
    
    
    121,933Capital lease obligations and notes payable, less current
portion
    
    
    143,707
    
    
    
    143,316Deferred income taxes
    
    
    14,075
    
    
    
    15,435Other long-term liability
    
    
    3,374
    
    
    
    5,755Stockholders
equity:Class A Common Stock; $0.01 par value:Authorized shares - 225,000,000; issued
and outstanding
shares of 47,156,997 in 2010 and
46,157,025 in 2009
    
    
    472
    
    
    
    462Class B Common Stock; $0.01 par value:Authorized shares - 75,000,000; issued
and outstanding shares
of 6,016,334 in 2010 and 6,276,334 in
2009
    
    
    60
    
    
    
    63Additional paid-in capital
    
    
    293,966
    
    
    
    283,733Accumulated other comprehensive income
    
    
    69
    
    
    
    12Accumulated deficit
    
    
    (86,057
    )
    
    
    (98,484
    )Total stockholders equity
    
    
    208,510
    
    
    
    185,786Total liabilities and stockholders
equity
    
    $
    507,318
    
    
    $
    472,225
  4




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##### Table of Contents



TeleCommunication Systems, Inc.
 
 Consolidated Statement of Stockholders Equity
 (amounts in thousands, except share data)
(unaudited)
 AccumulatedClass A
    
    
    Class B
    
    
    Additional
    
    
    OtherCommon
    
    
    Common
    
    
    Paid-In
    
    
    Comprehensive
    
    
    AccumulatedStock
    
    
    Stock
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance at January 1, 2010
    
    $
    462
    
    
    $
    63
    
    
    $
    283,733
    
    
    $
    12
    
    
    $
    (98,484
    )
    
    $
    185,786Options exercised for the purchase of 554,108 shares
of Class A Common Stock
    
    
    5
    
    
    
    
    
    
    
    1,903
    
    
    
    
    
    
    
    
    
    
    
    1,908Issuance of 185,764 shares of Class A Common Stock
under Employee Stock Purchase Plan
    
    
    2
    
    
    
    
    
    
    
    895
    
    
    
    
    
    
    
    
    
    
    
    897Conversion of 260,000 shares of Class B Common Stock
to Class A Common Stock
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of shares of 15,107 Restricted Class A Common
Stock
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    7,418
    
    
    
    
    
    
    
    
    
    
    
    7,418Net unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net income for the nine-months ended September 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,427
    
    
    
    12,427Balance at September 30, 2010
    
    $
    472
    
    
    $
    60
    
    
    $
    293,966
    
    
    $
    69
    
    
    $
    (86,057
    )
    
    $
    208,510
  5




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##### Table of Contents



TeleCommunication Systems, Inc.
 
 Consolidated Statements of Cash Flows
 (amounts in thousands)
(unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009Operating activities:Net Income
    
    $
    12,427
    
    
    $
    16,884Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    6,805
    
    
    
    4,459Amortization of acquired intangible assets
    
    
    3,504
    
    
    
    381Amortization of software development costs
    
    
    6,934
    
    
    
    2,103Deferred tax provision
    
    
    6,400
    
    
    
    9,987Stock-based compensation expense
    
    
    7,418
    
    
    
    3,546Impairment of capitalized software
    
    
    
    
    
    
    763Amortization of debt discount and debt issuance expenses
    
    
    563
    
    
    
    74Impairment of marketable securities
    
    
    225
    
    
    
    15Amortization of discount on marketable securities
    
    
    121
    
    
    
    Other non-cash adjustments
    
    
    87
    
    
    
    37Changes in operating assets and liabilities:Accounts receivable, net
    
    
    2,853
    
    
    
    19,390Unbilled receivables
    
    
    (4,577
    )
    
    
    117Inventory
    
    
    719
    
    
    
    (6,164
    )Other current assets
    
    
    21,962
    
    
    
    54Other assets
    
    
    (169
    )
    
    
    (2,739
    )Accounts payable and accrued expenses
    
    
    (4,589
    )
    
    
    (7,849
    )Accrued payroll and related liabilities
    
    
    (5,601
    )
    
    
    (4,844
    )Other liabilities
    
    
    (2,816
    )
    
    
    Deferred revenue
    
    
    12,915
    
    
    
    5,334Subtotal  Changes in operating assets and liabilities
    
    
    20,697
    
    
    
    3,299Net cash provided by operating activities
    
    
    65,181
    
    
    
    41,548Investing activities:Purchases of marketable securities
    
    
    (30,706
    )
    
    
    Acquisitions, net of cash acquired
    
    
    
    
    
    
    (15,000
    )Purchases of property and equipment
    
    
    (14,541
    )
    
    
    (937
    )Capitalized software development costs
    
    
    (3,973
    )
    
    
    (823
    )Net cash used in investing activities
    
    
    (49,220
    )
    
    
    (16,760
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    10,000
    
    
    
    20,000Payments on long-term debt and capital lease obligations
    
    
    (8,015
    )
    
    
    (10,224
    )Proceeds from exercise of warrants
    
    
    
    
    
    
    1,680Proceeds from exercise of employee stock options and sale of stock
    
    
    2,805
    
    
    
    4,075Net cash provided by financing activities
    
    
    4,790
    
    
    
    15,531Net increase in cash
    
    
    20,751
    
    
    
    40,319Cash and cash equivalents at the beginning of the period
    
    
    61,425
    
    
    
    38,977Cash and cash equivalents at the end of the period
    
    $
    82,176
    
    
    $
    79,296
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##### Table of Contents



TeleCommunication Systems, Inc.
 
 Notes to Consolidated Financial Statements  September 30, 2010  (amounts in thousands, except per share amounts)  (unaudited)
 1. Basis of Presentation and Summary of Significant Accounting Policies
 Basis of Presentation.
 Use of Estimates.
 Marketable Securities.
 Goodwill.
  Other Comprehensive Income/(Loss).
 Deferred Compensation Plan.
 7




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##### Table of Contents



Stock-Based Compensation.
 Earnings per share.
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income, basic
    
    $
    4,322
    
    
    $
    5,411
    
    
    $
    12,427
    
    
    $
    16,884Adjustment for assumed dilution:Interest on convertible debt, net of taxes
    
    
    757
    
    
    
    
    
    
    
    2,237
    
    
    
    Net income, diluted
    
    $
    5,079
    
    
    $
    5,411
    
    
    $
    14,664
    
    
    $
    16,884Denominator:Total basic weighted-average common shares outstanding
    
    
    53,127
    
    
    
    48,233
    
    
    
    52,902
    
    
    
    46,865Effect of dilutive stock options based on treasury stock method
    
    
    1,444
    
    
    
    4,629
    
    
    
    3,164
    
    
    
    4,939Effect of dilutive 4.5% convertible debt, based on if converted method
    
    
    10,002
    
    
    
    
    
    
    
    10,002
    
    
    
    Weighted average diluted shares
    
    
    64,573
    
    
    
    52,862
    
    
    
    66,068
    
    
    
    51,804Basic earnings per common share:Net income per share  basic
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.23
    
    
    $
    0.36Diluted earnings per common share:Net income per share-diluted
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.22
    
    
    $
    0.33
 Income Taxes.
  Recent Accounting Pronouncements.
   8




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##### Table of Contents



2. Acquisitions
    Assets:Accounts receivable, net
    
    $
    145Unbilled accounts receivable
    
    
    1,081Other current assets
    
    
    205Property and equipment
    
    
    865Acquired technology and software development costs
    
    
    3,703Acquired intangible assets
    
    
    8,720Goodwill
    
    
    12,206Total assets
    
    
    26,925Liabilities:Accounts payable and accrued expenses
    
    
    1,273Accrued payroll and related liabilities
    
    
    325Total liabilities
    
    
    1,598Fair value of net assets acquired
    
    $
    25,327
   9




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##### Table of Contents



Three Months
    
    
    Nine Monthsended
    
    
    endedSeptember 30,
    
    
    September 30,Pro forma information
    
    2009
    
    
    2009Revenue
    
    $
    93,988
    
    
    $
    267,354Net income
    
    $
    8,575
    
    
    $
    22,186Basic earnings per share
    
    $
    0.17
    
    
    $
    0.45Diluted earnings per share
    
    $
    0.15
    
    
    $
    0.40
 3. Stock-Based Compensation
  10




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation:Stock options granted at fair value
    
    $
    1,942
    
    
    $
    1,290
    
    
    $
    7,083
    
    
    $
    3,364Restricted stock
    
    
    54
    
    
    
    52
    
    
    
    176
    
    
    
    117Employee stock purchase plan
    
    
    51
    
    
    
    21
    
    
    
    159
    
    
    
    65Total stock-based compensation expense
    
    $
    2,047
    
    
    $
    1,363
    
    
    $
    7,418
    
    
    $
    3,546
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation:Direct cost of revenue
    
    $
    1,287
    
    
    $
    878
    
    
    $
    4,665
    
    
    $
    2,284Research and development expense
    
    
    534
    
    
    
    317
    
    
    
    1,936
    
    
    
    826Sales and marketing expense
    
    
    125
    
    
    
    110
    
    
    
    451
    
    
    
    286General and administrative expense
    
    
    101
    
    
    
    58
    
    
    
    366
    
    
    
    150Total stock-based compensation included in operating expenses
    
    $
    2,047
    
    
    $
    1,363
    
    
    $
    7,418
    
    
    $
    3,546
  WeightedAverageNumber of
    
    
    Exercise(Share amounts in thousands)
    
    Options
    
    
    PriceOutstanding, beginning of year
    
    
    14,612
    
    
    $
    5.32Granted
    
    
    2,557
    
    
    $
    7.05Exercised
    
    
    (554
    )
    
    $
    3.47Expired
    
    
    (185
    )
    
    $
    6.10Forfeited
    
    
    (920
    )
    
    $
    8.04Outstanding, at September 30, 2010
    
    
    15,510
    
    
    $
    5.50Exercisable, at September 30, 2010
    
    
    8,320
    
    
    $
    4.05Vested and expected to vest at September 30, 2010
    
    
    14,409
    
    
    $
    5.35Weighted-average remaining contractual life of options outstanding at September 30, 2010
    
    6.6 years
 Nine MonthsSeptember 30,2010
    
    
    2009Estimated weighted-average grant-date fair value of options granted during the period
    
    $
    3.88
    
    
    $
    4.56Total fair value of options vested during the period
    
    $
    11,212
    
    
    $
    4,131Intrinsic value of options exercised during the period
    
    $
    2,316
    
    
    $
    4,889
 11




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##### Table of Contents



Weighted-AverageWeighted-Average
    
    
    
    
    
    
    
    
    
    
    RemainingWeighted-Average
    
    
    Remaining
    
    
    
    
    
    
    Weighted-Average
    
    
    Contractual LifeExercise Prices
    
    
    Contractual Life
    
    
    Options
    
    
    Exercise Prices
    
    
    of OptionsOptions
    
    
    of Options
    
    
    of Options
    
    
    Vested and
    
    
    of Options Vested
    
    
    Vested andExercise Prices
    
    Outstanding
    
    
    Outstanding
    
    
    Outstanding (years)
    
    
    Exercisable
    
    
    and Exercisable
    
    
    Exercisable (years)$1.07  $1.84
    
    
    78
    
    
    $
    1.70
    
    
    
    2.30
    
    
    
    78
    
    
    $
    1.70
    
    
    
    2.30$1.92  $2.99
    
    
    2,372
    
    
    $
    2.47
    
    
    
    5.05
    
    
    
    2,224
    
    
    $
    2.47
    
    
    
    5.02$3.05  $4.68
    
    
    5,628
    
    
    $
    3.41
    
    
    
    5.85
    
    
    
    3,830
    
    
    $
    3.34
    
    
    
    4.77$4.83  $7.45
    
    
    2,201
    
    
    $
    6.74
    
    
    
    4.53
    
    
    
    1,784
    
    
    $
    6.73
    
    
    
    3.62$7.95  $9.86
    
    
    5,231
    
    
    $
    8.66
    
    
    
    9.01
    
    
    
    404
    
    
    $
    8.17
    
    
    
    8.0515,510
    
    
    
    
    
    
    
    
    
    
    
    8,320
   Nine Months Ended September 30,2010
    
    
    2009Expected life (in years)
    
    
    5.5
    
    
    
    5.5Risk-free interest rate(%)
    
    
    1.9%-2.8
    %
    
    
    1.65%-2.61
    %Volatility(%)
    
    
    59%-60
    %
    
    
    63%-64
    %Dividend yield(%)
    
    
    0
    %
    
    
    0
    %
 4. Supplemental Disclosure of Cash Flow Information
    5. Fair Value Measurements
  Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical
assets or liabilities.
 Level 2: Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or liabilities
in active markets and quoted prices for identical or similar assets or liabilities in markets
that are not active.
 Level 3: Observable inputs that reflect the reporting entitys own assumptions.
 12




---



##### Table of Contents



Fair Value
    
    
    Fair Value Measurements atas of
    
    
    9/30/20109/30/2010
    
    
    Using Fair Value HierarchyTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3AssetsCash and cash equivalents
    
    $
    82,176
    
    
    $
    82,176
    
    
    $
    
    
    
    $
    Marketable securities
    
    
    30,641
    
    
    
    30,641
    
    
    
    
    
    
    
    Deferred compensation plan investments
    
    
    1,143
    
    
    
    1,143
    
    
    
    
    
    
    
    Assets at Fair Value
    
    $
    113,960
    
    
    $
    113,960
    
    
    $
    
    
    
    $
    LiabilitiesDeferred compensation
    
    $
    989
    
    
    $
    989
    
    
    $
    
    
    
    $
    Contractual acquisition earnouts
    
    
    5,680
    
    
    
    
    
    
    
    
    
    
    
    5,680Liabilities at Fair Value
    
    $
    6,669
    
    
    $
    989
    
    
    $
    
    
    
    $
    5,680
   Fair ValueMeasurementsUsing SignificantUnobservableInputs (level 3)Balance at January 1, 2010
    
    $
    7,753Fair value adjustment recognized in earnings
    
    
    (2,073
    )Balance at September 30, 2010
    
    $
    5,680
   6. Segment Information
   ®
 13




---



##### Table of Contents



Three Months Ended September 30,2010
    
    
    2009Comm.
    
    
    Gvmt.
    
    
    Total
    
    
    Comm.
    
    
    Gvmt.
    
    
    TotalRevenueServices
    
    $
    42,990
    
    
    $
    23,205
    
    
    $
    66,195
    
    
    $
    23,619
    
    
    $
    15,681
    
    
    $
    39,300Systems
    
    
    11,615
    
    
    
    25,139
    
    
    
    36,754
    
    
    
    9,512
    
    
    
    22,797
    
    
    
    32,309Total revenue
    
    
    54,605
    
    
    
    48,344
    
    
    
    102,949
    
    
    
    33,131
    
    
    
    38,478
    
    
    
    71,609Direct costs of revenueDirect cost of services
    
    
    22,872
    
    
    
    16,105
    
    
    
    38,977
    
    
    
    8,770
    
    
    
    12,475
    
    
    
    21,245Direct cost of systems
    
    
    3,685
    
    
    
    23,548
    
    
    
    27,233
    
    
    
    2,543
    
    
    
    19,610
    
    
    
    22,153Total direct costs
    
    
    26,557
    
    
    
    39,653
    
    
    
    66,210
    
    
    
    11,313
    
    
    
    32,085
    
    
    
    43,398Gross profitServices gross profit
    
    
    20,118
    
    
    
    7,100
    
    
    
    27,218
    
    
    
    14,849
    
    
    
    3,206
    
    
    
    18,055Systems gross profit
    
    
    7,930
    
    
    
    1,591
    
    
    
    9,521
    
    
    
    6,969
    
    
    
    3,187
    
    
    
    10,156Total gross profit
    
    $
    28,048
    
    
    $
    8,691
    
    
    $
    36,739
    
    
    $
    21,818
    
    
    $
    6,393
    
    
    $
    28,211
 Nine Months Ended September 30,2010
    
    
    2009Comm.
    
    
    Gvmt.
    
    
    Total
    
    
    Comm.
    
    
    Gvmt.
    
    
    TotalRevenueServices
    
    $
    123,591
    
    
    $
    65,877
    
    
    $
    189,468
    
    
    $
    62,074
    
    
    $
    42,444
    
    
    $
    104,518Systems
    
    
    26,930
    
    
    
    70,130
    
    
    
    97,060
    
    
    
    29,706
    
    
    
    75,022
    
    
    
    104,728Total revenue
    
    
    150,521
    
    
    
    136,007
    
    
    
    268,528
    
    
    
    91,780
    
    
    
    117,466
    
    
    
    209,246Direct costs of revenueDirect cost of services
    
    
    62,606
    
    
    
    46,589
    
    
    
    109,195
    
    
    
    25,337
    
    
    
    33,097
    
    
    
    58,434Direct cost of systems
    
    
    10,574
    
    
    
    63,283
    
    
    
    73,857
    
    
    
    6,874
    
    
    
    60,433
    
    
    
    67,307Total direct costs
    
    
    73,180
    
    
    
    109,872
    
    
    
    183,052
    
    
    
    32,211
    
    
    
    93,530
    
    
    
    125,741Gross profitServices gross profit
    
    
    60,985
    
    
    
    19,288
    
    
    
    80,273
    
    
    
    36,737
    
    
    
    9,347
    
    
    
    48,084Systems gross profit
    
    
    16,356
    
    
    
    6,847
    
    
    
    23,203
    
    
    
    22,832
    
    
    
    14,589
    
    
    
    37,421Total gross profit
    
    $
    77,341
    
    
    $
    26,135
    
    
    $
    103,476
    
    
    $
    59,569
    
    
    $
    23,936
    
    
    $
    83,505
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Total segment gross profit
    
    $
    36,739
    
    
    $
    28,211
    
    
    $
    103,476
    
    
    $
    83,505Research and development expense
    
    
    (7,523
    )
    
    
    (5,823
    )
    
    
    (22,612
    )
    
    
    (15,612
    )Sales and marketing expense
    
    
    (5,988
    )
    
    
    (3,579
    )
    
    
    (17,934
    )
    
    
    (11,742
    )General and administrative expense
    
    
    (10,060
    )
    
    
    (7,665
    )
    
    
    (28,324
    )
    
    
    (22,955
    )Depreciation and amortization of property and equipment
    
    
    (2,572
    )
    
    
    (1,571
    )
    
    
    (6,805
    )
    
    
    (4,459
    )Amortization of acquired intangible assets
    
    
    (1,161
    )
    
    
    (222
    )
    
    
    (3,504
    )
    
    
    (381
    )Interest expense
    
    
    (2,299
    )
    
    
    (371
    )
    
    
    (6,888
    )
    
    
    (784
    )Amortization debt discount and debt issuance expenses
    
    
    (187
    )
    
    
    (16
    )
    
    
    (563
    )
    
    
    (74
    )Other income, net
    
    
    996
    
    
    
    43
    
    
    
    1,981
    
    
    
    327Income before income taxes
    
    
    7,945
    
    
    
    9,007
    
    
    
    18,827
    
    
    
    27,825Provision for income taxes
    
    
    (3,623
    )
    
    
    (3,596
    )
    
    
    (6,400
    )
    
    
    (10,941
    )Net income
    
    $
    4,322
    
    
    $
    5,411
    
    
    $
    12,427
    
    
    $
    16,884
 7. Marketable Securities
  14




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Adjusted Cost
    
    
    Gross Unrealized
    
    
    Gross Unrealized
    
    
    EstimatedBasis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCorporate bonds
    
    $
    22,109
    
    
    $
    77
    
    
    $
    7
    
    
    $
    22,179Mortgage-backed and asset-backed securities
    
    
    5,224
    
    
    
    2
    
    
    
    17
    
    
    
    5,209Agency bonds
    
    
    2,003
    
    
    
    1
    
    
    
    
    
    
    
    2,004Commercial paper
    
    
    1,249
    
    
    
    
    
    
    
    
    
    
    
    1,249Total marketable securities
    
    $
    30,585
    
    
    $
    80
    
    
    $
    24
    
    
    $
    30,641
  Cost
    
    
    Fair ValueDue within 1 year or less
    
    $
    7,053
    
    
    $
    7,058Due within 1-2 years
    
    
    8,042
    
    
    
    8,057Due within 2-3 years
    
    
    15,490
    
    
    
    15,526$
    30,585
    
    
    $
    30,641
 8. Inventory
  Sept. 30,
    
    
    Dec. 31,2010
    
    
    2009Component parts
    
    $
    3,436
    
    
    $
    5,658Finished goods
    
    
    5,176
    
    
    
    3,673Total inventory at period end
    
    $
    8,612
    
    
    $
    9,331
 9. Acquired Intangible Assets and Capitalized Software Development Costs
  September 30, 2010
    
    
    December 31, 2009Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetAcquired intangible assets:Customer lists and other
    
    $
    12,951
    
    
    $
    2,484
    
    
    $
    10,467
    
    
    $
    13,735
    
    
    $
    1,151
    
    
    $
    12,584Customer relationships
    
    
    20,138
    
    
    
    2,148
    
    
    
    17,990
    
    
    
    20,402
    
    
    
    113
    
    
    
    20,289Trademarks and patents
    
    
    1,364
    
    
    
    398
    
    
    
    966
    
    
    
    1,364
    
    
    
    262
    
    
    
    1,102Software development costs, including acquired technology
    
    
    56,960
    
    
    
    16,874
    
    
    
    40,086
    
    
    
    55,325
    
    
    
    9,941
    
    
    
    45,384Total acquired intangible assets and software dev. costs
    
    $
    91,413
    
    
    $
    21,904
    
    
    $
    69,509
    
    
    $
    90,826
    
    
    $
    11,467
    
    
    $
    79,359
 Estimated future amortization expense:Three Months ending December 31, 2010
    
    $
    3,507Year ending December 31, 2011
    
    
    13,914Year ending December 31, 2012
    
    
    13,750Year ending December 31, 2013
    
    
    13,699Year ending December 31, 2014
    
    
    11,997Thereafter
    
    
    12,642$
    69,509
   15




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10. Concentrations of Credit Risk and Major Customers
   % of Total% of Total Revenue For
    
    
    Revenue Forthe Three
    
    
    the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,Customer
    
    Segment
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Federal Agencies
    
    Government
    
    
    35
    %
    
    
    42
    %
    
    
    35
    %
    
    
    42
    %Customer A
    
    Commercial
    
    
    28
    %
    
    
    24
    %
    
    
    28
    %
    
    
    24
    %
 As of September 30, 2010Accounts
    
    
    UnbilledCustomer
    
    Segment
    
    
    Receivable
    
    
    ReceivablesU.S. Government
    
    Government
    
    
    21
    %
    
    
    51
    %Customer A
    
    Commercial
    
    
    38
    %
    
    
    26
    %
 11.
    
    Lines of Credit   12. Long-term Debt
  Sept. 30,
    
    
    Dec. 31,2010
    
    
    20094.5% Convertible notes dated November 16, 2009
    
    $
    103,500
    
    
    $
    103,5006.0% Promissory note payable to NIM sellers dated December 16, 2009
    
    
    40,000
    
    
    
    40,000Term loan from commercial bank dated December 31, 2009
    
    
    25,000
    
    
    
    30,000Term loan from commercial bank dated September 30, 2010
    
    
    10,000
    
    
    
    Total long-term debt
    
    
    178,500
    
    
    
    173,500Less: current portion
    
    
    (44,333
    )
    
    
    (36,667
    )Non-current portion of long-term debt
    
    $
    134,167
    
    
    $
    136,833
 16




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##### Table of Contents



2010
    
    $
    37,4502011
    
    
    25,8682012
    
    
    14,8482013
    
    
    14,4282014
    
    
    112,886Total long-term debt
    
    $
    205,480
    , Contracts in Entitys own Equity Additional paid-in
capital,
     17




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##### Table of Contents



13. Capital leases
   2010
    
    $
    1,4422011
    
    
    5,6672012
    
    
    4,8412013
    
    
    3,2482014
    
    
    787Total minimum lease payments
    
    
    15,985Less: amounts representing interest
    
    
    (1,593
    )Present value of net minimum lease payments (including current portion of $4,852)
    
    $
    14,392
 14. Income taxes
   15. Commitments and Contingencies
   18




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19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Critical Accounting Policies and Estimates
  -
    
    Revenue recognition,-
    
    Acquired intangible assets,
 20




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##### Table of Contents



-
    
    Impairment of goodwill,-
    
    Stock-based compensation expense,-
    
    Income taxes,-
    
    Marketable securities,-
    
    Software development costs,-
    
    Business combinations, and-
    
    Legal and other contingencies.
  Overview
  2009 Acquisitions
   
    
    On May 19, 2009, we acquired substantially all of the assets of LocationLogic LLC
(LocationLogic), a provider of infrastructure, applications and services for carriers and
enterprises to deploy location-based services.
    
    On December 15, 2009, we acquired Networks In Motion, Inc., (NIM) a provider of
wireless navigation solutions for GPS-enabled mobile phones.
  
    
    On November 3, 2009, we acquired Solvern Innovations, Inc., (Solvern) a provider of
comprehensive communications products and solutions, training, and technology services for
cyber security-based platforms.
    
    On November 16, 2009, we acquired substantially all of the assets of Sidereal Solutions,
Inc., (Sidereal), a satellite communications technology engineering, operations and
maintenance support services company.
   21




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##### Table of Contents



Indicators of Our Financial and Operating Performance
  
    
    Revenue and gross profit.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 and communication systems to governmental agencies.
    
    Gross profit represents 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, amortization of software development costs, non-cash
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 software
development costs, including acquired technology, is associated with the recognition of
systems revenue from our Commercial Segment.
    
    Operating expenses.Our operating expenses are primarily compensation and benefits,
professional fees, facility costs, marketing and sales-related expenses, and travel costs as
well as certain non-cash expenses such as non-cash stock-based compensation expense,
depreciation and amortization of property and equipment, and amortization of acquired
intangible assets.
    
    Liquidity and cash flows.The primary driver of our cash flows is the results of our
operations. Other important sources of our liquidity are our convertible debt agreement,
financial institution loan agreement, lease financings secured for the purchase of equipment
and potential borrowings under our credit lines.
    
    Balance sheet.We view cash, working capital, accounts receivable balances and days
revenues outstanding as important indicators of our financial health.
 Results of Operations
  Revenue and Cost of Revenue
  Commercial Segment:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded September 30,
    
    
    2010 vs. 2009
    
    
    Ended September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Services revenue
    
    $
    43.0
    
    
    $
    23.6
    
    
    $
    19.4
    
    
    
    82
    %
    
    $
    123.6
    
    
    $
    62.1
    
    
    $
    61.5
    
    
    
    99
    %Systems revenue
    
    
    11.6
    
    
    
    9.5
    
    
    
    2.1
    
    
    
    22
    %
    
    
    26.9
    
    
    
    29.7
    
    
    
    (2.8
    )
    
    
    (9
    )%Commercial segment revenue
    
    
    54.6
    
    
    
    33.1
    
    
    
    21.5
    
    
    
    65
    %
    
    
    150.5
    
    
    
    91.8
    
    
    
    58.7
    
    
    
    64
    %Direct cost of services revenue
    
    
    22.9
    
    
    
    8.8
    
    
    
    14.1
    
    
    
    160
    %
    
    
    62.6
    
    
    
    25.3
    
    
    
    37.3
    
    
    
    147
    %Direct cost of systems revenue
    
    
    3.7
    
    
    
    2.5
    
    
    
    1.2
    
    
    
    48
    %
    
    
    10.6
    
    
    
    6.9
    
    
    
    3.7
    
    
    
    54
    %Commercial segment cost of revenue
    
    
    26.6
    
    
    
    11.3
    
    
    
    15.3
    
    
    
    135
    %
    
    
    73.2
    
    
    
    32.2
    
    
    
    41.0
    
    
    
    127
    %Services gross profit
    
    
    20.1
    
    
    
    14.8
    
    
    
    5.3
    
    
    
    36
    %
    
    
    61.0
    
    
    
    36.8
    
    
    
    24.2
    
    
    
    66
    %% of revenue
    
    
    47
    %
    
    
    63
    %
    
    
    
    
    
    
    
    
    
    
    49
    %
    
    
    59
    %Systems gross profit
    
    
    7.9
    
    
    
    7.0
    
    
    
    0.9
    
    
    
    13
    %
    
    
    16.3
    
    
    
    22.8
    
    
    
    (6.5
    )
    
    
    (29
    )%% of revenue
    
    
    68
    %
    
    
    74
    %
    
    
    
    
    
    
    
    
    
    
    61
    %
    
    
    77
    %Commercial segment gross profit1
    
    $
    28.0
    
    
    $
    21.8
    
    
    $
    6.2
    
    
    
    28
    %
    
    $
    77.3
    
    
    $
    59.6
    
    
    $
    17.7
    
    
    
    30
    %% of revenue
    
    
    51
    %
    
    
    66
    %
    
    
    
    
    
    
    
    
    
    
    51
    %
    
    
    65
    %
 
 1
    
    See discussion of segment reporting in Note 6 to the accompanying unaudited
consolidated financial statements 22




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##### Table of Contents



Commercial Services Revenue, Cost of Revenue, and Gross Profit:
      Commercial Systems Revenue, Cost of Revenue, and Gross Profit:
    23




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Government Segment:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded September 30,
    
    
    2010 vs. 2009
    
    
    Ended September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Services revenue
    
    $
    23.2
    
    
    $
    15.7
    
    
    $
    7.5
    
    
    
    48
    %
    
    $
    65.9
    
    
    $
    42.4
    
    
    $
    23.5
    
    
    
    55
    %Systems revenue
    
    
    25.1
    
    
    
    22.8
    
    
    
    2.3
    
    
    
    10
    %
    
    
    70.1
    
    
    
    75.0
    
    
    
    (4.9
    )
    
    
    (7
    )%Government segment revenue
    
    
    48.3
    
    
    
    38.5
    
    
    
    9.8
    
    
    
    25
    %
    
    
    136.0
    
    
    
    117.4
    
    
    
    18.6
    
    
    
    16
    %Direct cost of services revenue
    
    
    16.1
    
    
    
    12.5
    
    
    
    3.6
    
    
    
    29
    %
    
    
    46.6
    
    
    
    33.1
    
    
    
    13.5
    
    
    
    41
    %Direct cost of systems revenue
    
    
    23.5
    
    
    
    19.6
    
    
    
    3.9
    
    
    
    20
    %
    
    
    63.3
    
    
    
    60.4
    
    
    
    2.9
    
    
    
    5
    %Government segment cost of revenue
    
    
    39.6
    
    
    
    32.1
    
    
    
    7.5
    
    
    
    23
    %
    
    
    109.9
    
    
    
    93.5
    
    
    
    16.4
    
    
    
    18
    %Services gross profit
    
    
    7.1
    
    
    
    3.2
    
    
    
    3.9
    
    
    
    122
    %
    
    
    19.3
    
    
    
    9.3
    
    
    
    10.0
    
    
    
    108
    %% of revenue
    
    
    31
    %
    
    
    20
    %
    
    
    
    
    
    
    
    
    
    
    29
    %
    
    
    22
    %Systems gross profit
    
    
    1.6
    
    
    
    3.2
    
    
    
    (1.6
    )
    
    
    (50
    )%
    
    
    6.8
    
    
    
    14.6
    
    
    
    (7.8
    )
    
    
    (53
    )%% of revenue
    
    
    6
    %
    
    
    14
    %
    
    
    
    
    
    
    
    
    
    
    10
    %
    
    
    19
    %Government segment gross profit1
    
    
    8.7
    
    
    $
    6.4
    
    
    
    2.3
    
    
    
    36
    %
    
    
    26.1
    
    
    $
    23.9
    
    
    
    2.2
    
    
    
    10
    %% of revenue
    
    
    18
    %
    
    
    17
    %
    
    
    
    
    
    
    
    
    
    
    19
    %
    
    
    20
    %
 
 1
    
    See discussion of segment reporting in Note 6 to the accompanying unaudited
consolidated financial statements  Government Services Revenue, Cost of Revenue, and Gross Profit:
   Government Systems Revenue, Cost of Revenue, and Gross Profit:
 ®
 24




---



##### Table of Contents



®
  ®
 Revenue Backlog
  Nine MonthsEndedSeptember 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %Commercial Segment
    
    $
    228.9
    
    
    $
    90.6
    
    
    $
    138.3
    
    
    
    153
    %Government Segment
    
    
    107.6
    
    
    
    109.0
    
    
    
    (1.4
    )
    
    
    (1
    %)Total funded contract backlog
    
    $
    336.5
    
    
    $
    199.6
    
    
    $
    136.9
    
    
    
    69
    %Commercial Segment
    
    $
    228.9
    
    
    $
    90.6
    
    
    $
    138.3
    
    
    
    153
    %Government Segment
    
    
    646.5
    
    
    
    348.3
    
    
    
    298.2
    
    
    
    86
    %Total backlog of orders and commitments, including customer options
    
    $
    875.4
    
    
    $
    438.9
    
    
    $
    436.5
    
    
    
    100
    %Expected to be realized within next 12 months
    
    $
    178.1
    
    
    $
    158.2
    
    
    $
    19.9
    
    
    
    13
    %
  Operating Expenses
 Research and development expense:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    
    
    
    
    
    
    
    
    EndedSeptember 30,
    
    
    2010 vs. 2009
    
    
    September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Research and development expense
    
    $
    7.5
    
    
    $
    5.8
    
    
    $
    1.7
    
    
    
    29
    %
    
    $
    22.6
    
    
    $
    15.6

    

    
    $
    7.0
        
    
    45
    %% of total revenue
    
    
    7
    %
    
    
    8
    %
    
    
    
    
    
    
    
    
    
    
    8
    %
    
    
    7
    %
  25




---



##### Table of Contents



Sales and marketing expense:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    
    
    
    
    
    
    
    
    EndedSeptember 30,
    
    
    2010 vs. 2009
    
    
    September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Sales and marketing expense
    
    $
    6.0
    
    
    $
    3.6
    
    
    $
    2.4
    
    
    
    67
    %
    
    $
    17.9
    
    
    $
    11.7
    

    

    $
    6.2

    

    
    
    53

    %% of total revenue
    
    
    6
    %
    
    
    5
    %
    
    
    
    
    
    
    
    
    
    
    6
    %
    
    
    6
    %
   General and administrative expense:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    
    
    
    
    
    
    
    
    EndedSeptember 30,
    
    
    2010 vs. 2009
    
    
    September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %General and administrative expense
    
    $
    10.1
    
    
    $
    7.7
    
    
    $
    2.4
    
    
    
    31
    %
    
    $
    28.3
    
    
    $
    23.0
    
    
    $
    5.3
    
    
    
    23
    %% of total revenue
    
    
    10
    %
    
    
    11
    %
    
    
    
    
    
    
    
    
    
    
    10
    %
    
    
    11
    %
   Depreciation and amortization of property and equipment:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded September 30,
    
    
    2010 vs. 2009
    
    
    Ended September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Depreciation
and amortization of
property and
equipment
    
    $
    2.6
    
    
    $
    1.6
    
    
    $
    1.0
    
    
    
    63
    %
    
    $
    6.8
    
    
    $
    4.5
    
    
    $
    2.3
    
    
    
    51
    %Average gross cost
of property and
equipment during
the period
    
    $
    87.3
    
    
    $
    60.1
    
    
    
    
    
    
    
    
    
    
    $
    78.8
    
    
    $
    57.3
 26




---



##### Table of Contents



Amortization of acquired intangible assets:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    
    
    
    
    
    
    
    
    EndedSeptember 30,
    
    
    2010 vs. 2009
    
    
    September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Amortization
of acquired
intangible assets
    
    $
    1.2
    
    
    $
    0.2
    
    
    $
    1.0
    
    
    
    500
    %
    
    $
    3.5
    
    
    $
    0.4
    
    
    $
    3.1
    
    
    
    775
    %
  Interest expense:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded
    
    
    
    
    
    
    
    
    
    
    EndedSeptember 30,
    
    
    2010 vs. 2009
    
    
    September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Interest expense incurred on bank
and other notes payable
    
    $
    1.0
    
    
    $
    0.2
    
    
    $
    0.8
    
    
    
    400
    %
    
    $
    2.9
    
    
    $
    0.4
    
    
    $
    2.5
    
    
    
    625
    %Interest expense incurred on 4.5%
convertible debt financing
    
    
    1.1
    
    
    
    
    
    
    
    1.1
    
    
    
    100
    %
    
    
    3.4
    
    
    
    
    
    
    
    3.4
    
    
    
    100
    %Interest expense incurred on capital
lease obligations
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    100
    %
    
    
    0.6
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    100
    %Amortization of deferred financing fees
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    100
    %
    
    
    0.6
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    500
    %Total interest and financing expense
    
    $
    2.5
    
    
    $
    0.4
    
    
    $
    2.1
    
    
    
    525
    %
    
    $
    7.5
    
    
    $
    0.8
    
    
    $
    6.7
    
    
    
    838
    %
     27




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##### Table of Contents



Other income/(expense), net:
  Income taxes:
  Net income:
 Three Months
    
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded September 30,
    
    
    2010 vs. 2009
    
    
    Ended September 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    2010
    
    
    2009
    
    
    $
    
    
    %Net income
    
    $
    4.3
    
    
    $
    5.4
    
    
    $
    (1.1
    )
    
    
    (20
    )%
    
    $
    12.4
    
    
    $
    16.9
    
    
    $
    (4.5
    )
    
    
    (27
    )%
  Liquidity and Capital Resources
 Nine MonthsEndedSeptember 30,
    
    
    2010 vs. 2009($ in millions)
    
    2010
    
    
    2009
    
    
    $
    
    
    %Net cash and cash equivalents provided by/(used in):Income
    
    $
    12.4
    
    
    $
    16.9
    
    
    $
    (4.5
    )
    
    
    (27
    )%Non-cash charges
    
    
    25.7
    
    
    
    11.4
    
    
    
    14.3
    
    
    
    125
    %Deferred income tax provision
    
    
    6.4
    
    
    
    10.0
    
    
    
    (3.6
    )
    
    
    (36
    )%Net changes in working capital including changes in other assets
    
    
    20.7
    
    
    
    3.3
    
    
    
    17.4
    
    
    
    527
    %Operating activities
    
    
    65.2
    
    
    
    41.6
    
    
    
    23.6
    
    
    
    57
    %Purchases of marketable securities, net
    
    
    (30.7
    )
    
    
    
    
    
    
    (30.7
    )
    
    
    100
    %Acquisition of LocationLogic assets
    
    
    
    
    
    
    (15.0
    )
    
    
    15.0
    
    
    
    100
    %Purchases of property and equipment
    
    
    (22.4
    )
    
    
    (6.4
    )
    
    
    (16.0
    )
    
    
    (250
    )%Capital purchases funded through leases
    
    
    7.9
    
    
    
    5.5
    
    
    
    2.4
    
    
    
    44
    %Purchases of property and equipment, excluding assets funded by leasing
    
    
    (14.5
    )
    
    
    (0.9
    )
    
    
    (13.6
    )
    
    
    (1511
    )%Capitalized software development costs
    
    
    (4.0
    )
    
    
    (0.8
    )
    
    
    (3.2
    )
    
    
    (400
    )%Proceeds from new borrowings
    
    
    10.0
    
    
    
    20.0
    
    
    
    (10.0
    )
    
    
    (50
    )%Other financing activities
    
    
    (5.2
    )
    
    
    (4.6
    )
    
    
    (0.6
    )
    
    
    13
    %Net increase in cash
    
    $
    20.8
    
    
    $
    40.3
    
    
    $
    (19.5
    )
    
    
    48
    %Days revenue in accounts receivable, including unbilled receivables at quarter-end
    
    
    79
    
    
    
    82
 28




---



##### Table of Contents



Capital resources:
 Sources and uses of cash:
 Operations:
 Investing activities:
 Financing activities:
 Capital Resources:
    29




---



##### Table of Contents



Contractual Commitments
  Within 12
    
    
    1-3
    
    
    3-5
    
    
    More than($ in millions)
    
    Months
    
    
    Years
    
    
    Years
    
    
    5 Years
    
    
    TotalTerm loan from commercial bank dated December 31, 2009
    
    $
    7.7
    
    
    $
    14.5
    
    
    $
    5.1
    
    
    $
    
    
    
    $
    27.3Term loan from commercial bank dated September 30, 2010
    
    
    3.1
    
    
    
    5.8
    
    
    
    2.0
    
    
    
    
    
    
    
    10.94.5% Convertible debt interest obligation
    
    
    4.7
    
    
    
    9.4
    
    
    
    6.9
    
    
    
    
    
    
    
    21.0Promissory notes payable
    
    
    37.7
    
    
    
    5.3
    
    
    
    
    
    
    
    
    
    
    
    43.0Other long-term debt
    
    
    3.2
    
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    5.6Capital lease obligations
    
    
    5.7
    
    
    
    8.8
    
    
    
    1.5
    
    
    
    
    
    
    
    16.0Operating leases
    
    
    5.6
    
    
    
    11.6
    
    
    
    4.8
    
    
    
    2.1
    
    
    
    24.1Purchase obligations
    
    
    4.7
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    5.4Total contractual commitments
    
    $
    72.4
    
    
    $
    58.5
    
    
    $
    20.3
    
    
    $
    2.1
    
    
    $
    153.3
 30




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Foreign Currency Risk
   
 Item 4. Controls and Procedures
    31




---



##### Table of Contents



PART II.  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  Our past and future acquisitions of companies or technologies could prove difficult to integrate,
disrupt our business, dilute shareholder value or adversely affect operating results or the market
price of our Class A common stock.
  
    
    properly evaluate the technology;
    
    accurately forecast the financial impact of the transaction, including accounting
charges and transaction expenses;
    
    integrate and retain personnel;
    
    retain and cross-sell to acquired customers;
    
    combine potentially different corporate cultures; and
    
    effectively integrate products and services, and research and development, sales and
marketing and support operations.
  32




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##### Table of Contents



Our accounting policies and methods are fundamental to how we record and report our financial
position and results of operations, and they require management to make estimates, judgments and
assumptions about matters that are inherently uncertain.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Removed and Reserved
 
 Item 5. Other Information
   
 Item 6. Exhibits
 ExhibitNumbers
    
    Description31.1
    
    Certification of CEO required by the Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a)31.2
    
    Certification of CFO required by the Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a)32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 33




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##### Table of Contents



SIGNATURES
  TELECOMMUNICATION SYSTEMS, INC.By:
    /s/  Maurice B. ToséMaurice B. ToséChairman, President and Chief Executive Officer  /s/ Maurice B. Tosé
    
    Chairman, President and Chief Executive OfficerMaurice B. Tosé November 8, 2010
    
    (Principal
Executive Officer)/s/ Thomas M. Brandt, Jr.
    
    Senior Vice President and Chief Financial OfficerThomas M. Brandt, Jr. November 8, 2010
    
    (Principal
Financial Officer)
 34