##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission file number: 000-22839
 Globecomm Systems Inc.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    11-3225567
(I.R.S. Employer
Identification No.)45 Oser Avenue, 
Hauppauge, NY
(Address of principal executive offices)
    
    11788
(Zip Code)
 Registrants telephone number, including area code: (631) 231-9800
 þ 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




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##### 



GLOBECOMM SYSTEMS INC.
  PagePart I  Financial InformationItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets  As of September 30, 2008 (unaudited) and June 30, 2008
    
    
    3Consolidated Statements of Operations (unaudited)  For the three months ended
September 30, 2008 and 2007
    
    
    4Consolidated Statement of Changes in Stockholders Equity (unaudited)  For the three
months ended September 30, 2008
    
    
    5Consolidated Statements of Cash Flows (unaudited)  For the three months ended
September 30, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20Part II  Other InformationItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    30Signatures
    
    
    31EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATIONS
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 GLOBECOMM SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 September 30,
    
    
    June 30,2008
    
    
    2008(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    56,612
    
    
    $
    51,399Accounts receivable, net
    
    
    34,551
    
    
    
    52,106Inventories
    
    
    16,888
    
    
    
    16,444Prepaid expenses and other current assets
    
    
    1,485
    
    
    
    1,402Deferred income taxes
    
    
    829
    
    
    
    1,017Total current assets
    
    
    110,365
    
    
    
    122,368Fixed assets, net
    
    
    33,071
    
    
    
    33,379Goodwill
    
    
    22,197
    
    
    
    22,197Intangibles, net
    
    
    2,500
    
    
    
    2,599Deferred income taxes
    
    
    11,496
    
    
    
    11,496Other assets
    
    
    1,066
    
    
    
    1,053Total assets
    
    $
    180,695
    
    
    $
    193,092Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    17,829
    
    
    $
    25,650Deferred revenues
    
    
    6,073
    
    
    
    10,004Accrued payroll and related fringe benefits
    
    
    3,531
    
    
    
    5,848Other accrued expenses
    
    
    1,725
    
    
    
    1,759Deferred liabilities
    
    
    49
    
    
    
    98Total current liabilities
    
    
    29,207
    
    
    
    43,359Other liabilities
    
    
    947
    
    
    
    957Commitments and contingenciesStockholders equity:Series A Junior Participating, shares
authorized, issued and outstanding: none at
September 30, 2008 and June 30, 2008
    
    
    
    
    
    
    Common stock, $.001 par value, 50,000,000
shares authorized, shares issued: 20,897,641
at September 30, 2008 and 20,695,466 at
June 30, 2008
    
    
    21
    
    
    
    21Additional paid-in capital
    
    
    183,020
    
    
    
    182,083Accumulated deficit
    
    
    (29,719
    )
    
    
    (30,547
    )Treasury stock, at cost, 465,351 shares at
September 30, 2008 and June 30, 2008
    
    
    (2,781
    )
    
    
    (2,781
    )Total stockholders equity
    
    
    150,541
    
    
    
    148,776Total liabilities and stockholders equity
    
    $
    180,695
    
    
    $
    193,092
  3




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GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007Revenues from infrastructure solutions
    
    $
    23,539
    
    
    $
    26,798Revenues from services
    
    
    18,816
    
    
    
    15,544Total revenues
    
    
    42,355
    
    
    
    42,342Costs and operating expenses:Costs from infrastructure solutions
    
    
    20,300
    
    
    
    21,184Costs from services
    
    
    14,205
    
    
    
    11,106Selling and marketing
    
    
    3,113
    
    
    
    2,525Research and development
    
    
    311
    
    
    
    497General and administrative
    
    
    3,661
    
    
    
    4,075Total costs and operating expenses
    
    
    41,590
    
    
    
    39,387Income from operations
    
    
    765
    
    
    
    2,955Interest income
    
    
    264
    
    
    
    520Interest (expense)
    
    
    
    
    
    
    (285
    )Income before income taxes
    
    
    1,029
    
    
    
    3,190Provision for income taxes
    
    
    201
    
    
    
    167Net income
    
    $
    828
    
    
    $
    3,023Basic net income per common share
    
    $
    0.04
    
    
    $
    0.17Diluted net income per common share
    
    $
    0.04
    
    
    $
    0.16Weighted-average shares used in the calculation of basic net income per common share
    
    
    20,152
    
    
    
    17,829Weighted-average shares used in the calculation of diluted
net income per common share
    
    
    20,690
    
    
    
    18,815
  4




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GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
(In thousands)
(Unaudited)
 Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Treasury Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance at June 30, 2008
    
    
    20,695
    
    
    $
    21
    
    
    $
    182,083
    
    
    $
    (30,547
    )
    
    
    465
    
    
    $
    (2,781
    )
    
    $
    148,776Proceeds from exercise of stock options
    
    
    12
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    881Grant of restricted shares
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax benefit from stock compensation plan
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    828
    
    
    
    
    
    
    
    
    
    
    
    828Balance at September 30, 2008
    
    
    20,897
    
    
    $
    21
    
    
    $
    183,020
    
    
    $
    (29,719
    )
    
    
    465
    
    
    $
    (2,781
    )
    
    $
    150,541
  5




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GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007Operating Activities:Net income
    
    $
    828
    
    
    $
    3,023Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,371
    
    
    
    1,559Provision for doubtful accounts
    
    
    190
    
    
    
    76Deferred income taxes
    
    
    188
    
    
    
    88Stock compensation expense
    
    
    881
    
    
    
    85Tax benefit from stock compensation plan
    
    
    1
    
    
    
    8Changes in operating assets and liabilities:Accounts receivable
    
    
    17,365
    
    
    
    8,775Inventories
    
    
    (444
    )
    
    
    (5,326
    )Prepaid expenses and other current assets
    
    
    (83
    )
    
    
    1,446Other assets
    
    
    (13
    )
    
    
    (34
    )Accounts payable
    
    
    (7,821
    )
    
    
    (3,347
    )Deferred revenue
    
    
    (3,931
    )
    
    
    1,912Accrued payroll and related fringe benefits
    
    
    (2,317
    )
    
    
    (2,427
    )Other accrued expenses
    
    
    (34
    )
    
    
    (25
    )Other liabilities
    
    
    (59
    )
    
    
    (53
    )Net cash provided by operating activities
    
    
    6,122
    
    
    
    5,760Investing Activities:Purchases of fixed assets
    
    
    (964
    )
    
    
    (808
    )Net cash used in investing activities
    
    
    (964
    )
    
    
    (808
    )Financing Activities:Proceeds from exercise of stock options
    
    
    55
    
    
    
    267Proceeds from offering, net
    
    
    
    
    
    
    36,434Repayments of debt
    
    
    
    
    
    
    (15,806
    )Net cash provided by financing activities
    
    
    55
    
    
    
    20,895Net increase in cash and cash equivalents
    
    
    5,213
    
    
    
    25,847Cash and cash equivalents at beginning of period
    
    
    51,399
    
    
    
    25,558Cash and cash equivalents at end of period
    
     $
    56,612
    
    
     $
    51,405Supplemental Disclosure of Cash Flow InformationCash paid for interest
    
     $
    
    
    
    $
    385Cash paid for income taxes
    
    
    178
    
    
    
    34
  6




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GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited)
 1. Basis of Presentation
   Principles of Consolidation
  Accounting Estimates
  Revenue Recognition
  7




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Costs from Infrastructure Solutions
  Costs from Services
  Research and Development
  Stock-Based Compensation
  8




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Goodwill and Other Intangible Assets
    September 30,2008(in thousands)Customer relationships
    
    $
    3,000Covenants not to compete
    
    
    603,060Less accumulated amortization
    
    
    560Intangibles, net
    
    
    2,500
   2009
    
    $
    2962010
    
    
    3922011
    
    
    3752012
    
    
    3752013
    
    
    375
 Income Taxes
   9




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Product Warranties
  Recent Accounting Pronouncements
    10




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2. Basic and Diluted Net Income Per Common Share
  3. Inventories
  September 30,2008
    
    
    June 30,(Unaudited)
    
    
    2008(In thousands)Raw materials and component parts
    
    $
    185
    
    
    $
    187Work-in-progress
    
    
    19,106
    
    
    
    20,18319,291
    
    
    
    20,370Less progress payments
    
    
    2,403
    
    
    
    3,926$
    16,888
    
    
    $
    16,444
 4. Segment Information
   11




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4. Segment Information (continued)
  Three Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007(Unaudited)(In thousands)Revenues:Infrastructure solutions
    
    $
    23,576
    
    
    $
    26,798Services
    
    
    19,021
    
    
    
    15,664Intercompany eliminations
    
    
    (242
    )
    
    
    (120
    )Total revenues
    
    $
    42,355
    
    
    $
    42,342Income (loss) from operations:Infrastructure solutions
    
    $
    (1,638
    )
    
    $
    753Services
    
    
    2,392
    
    
    
    2,197Interest income
    
    
    264
    
    
    
    520Interest expense
    
    
    
    
    
    
    (285
    )Intercompany eliminations
    
    
    11
    
    
    
    5Income before income taxes
    
    $
    1,029
    
    
    $
    3,190Depreciation and amortization:Infrastructure solutions
    
    $
    508
    
    
    $
    490Services
    
    
    874
    
    
    
    1,080Intercompany eliminations
    
    
    (11
    )
    
    
    (11
    )Total depreciation and amortization
    
    $
    1,371
    
    
    $
    1,559Expenditures for long-lived assets:Infrastructure solutions
    
    $
    408
    
    
    $
    487Services
    
    
    556
    
    
    
    321Total
expenditures for long-lived assets
    
    $
    964
    
    
    $
    808
 September 30,2008
    
    
    June 30,(Unaudited)
    
    
    2008(In thousands)Assets:Infrastructure solutions
    
    $
    203,058
    
    
    $
    216,023Services
    
    
    47,941
    
    
    
    46,358Intercompany eliminations
    
    
    (70,304
    )
    
    
    (69,289
    )Total assets
    
    $
    180,695
    
    
    $
    193,092
 5. Debt
  12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
     13




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Critical Accounting Policies
  Revenue Recognition
  14




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Costs from Infrastructure Solutions
  Goodwill Impairment
  Deferred tax assets
 15




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Stock-Based Compensation
  Allowances for Doubtful Accounts
  Inventories
  Recent Accounting Pronouncements
  16




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Results of Operations
 Three Months Ended September 30, 2008 and 2007
 Revenues from Infrastructure Solutions.
 Revenues from Services.
 Costs from Infrastructure Solutions.
 Costs from Services.
 Selling and Marketing.
 Research and Development
 17




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General and Administrative
 Interest Income
 Interest Expense
 Provision
for income taxes.
 Liquidity and Capital Resources
      18




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Payments Due by PeriodMoreLess than 1
    
    
    1-3
    
    
    4-5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsOperating leases
    
    $
    16,779
    
    
    $
    11,814
    
    
    $
    3,590
    
    
    $
    1,147
    
    
    $
    228Total contractual cash
obligations
    
    $
    16,779
    
    
    $
    11,814
    
    
    $
    3,590
    
    
    $
    1,147
    
    
    $
    228
 Amount of Commitment Expiration Per PeriodTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MoreOther Commercial
    
    Amounts
    
    
    Less than 1
    
    
    1-3
    
    
    4-5
    
    
    Than 5Commitments
    
    Committed

    
    
    year
    
    
    year
    
    
    year
    
    
    yearStandby letters of credit
    
    $
    8,112
    
    
    $
    6,539
    
    
    $
    1,573
    
    
    $
    
    
    
    $
    Total commercial
commitments
    
    $
    8,112
    
    
    $
    6,539
    
    
    $
    1,573
    
    
    $
    
    
    
    $
    
    19




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Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.
 20




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Part II  Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Risks Related to Our Business
 A limited number of customer contracts account for a significant portion of our revenues, and the
inability to replace a key customer contract or the failure of the customer to implement its plans
would adversely affect our results of operations, business and financial condition.
  We derive a substantial portion of our revenues from the government marketplace.
   Reductions in telecommunications equipment and systems spending may negatively affect our revenues,
profitability and the recoverability of our assets.
  Risks associated with operating in international markets could restrict our ability to expand
globally and harm our business and prospects.
  21




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
    
    general political and economic instability in international markets, including the
hostilities in Iraq and Afghanistan, could impede our ability to deliver our products
and services to customers and harm our results of operations;
    
    difficulties in collecting accounts receivable could adversely affect our results
of operations;
    
    changes in regulatory requirements could restrict our ability to deliver services to
our international customers; including the addition of a country to the list of
sanctioned countries under the International Emergency Economic Powers Act or similar
legislation;
    
    export restrictions, tariffs, licenses and other trade barriers could prevent us
from shipping products outside the United States or adequately equipping our network
facilities;
    
    differing technology standards across countries may impede our ability to integrate
our products and services across international borders;
    
    protectionist laws and business practices favoring local competition may give
unequal bargaining leverage to key vendors in countries where competition is scarce,
significantly increasing our operating costs;
    
    increased expenses associated with marketing services in foreign countries could
affect our ability to compete;
    
    relying on local subcontractors for installation of our products and services could
adversely impact the quality of our products and services;
    
    difficulties in staffing and managing foreign operations could affect our ability
to compete;
    
    complex foreign laws and treaties could affect our ability to compete; and
    
    potentially adverse taxes could affect our results of operations.
  We derive a substantial portion of our revenues from fixed-price projects, under which we assume
greater financial risk if we fail to accurately estimate the costs of the projects.
  Our service revenue has increased as a percentage of total revenue and if our service revenue
decreases or margins decrease, our results of operations will be harmed
  22




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In the event of a catastrophic loss affecting our operations in Hauppauge, New York or Laurel,
Maryland, our results of operations would be harmed.
  Our markets are highly competitive and we have many established competitors, and we may lose market
share as a result.
     We may not realize all of the anticipated benefits of our acquisition of the GlobalSat business.
  23




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Future acquisitions and strategic investments may divert our resources and managements attention,
results may fall short of expectations and, as a result, our operating results may be difficult to
forecast and may be volatile.
  
    
    difficulties in the integration of the operations, technologies,
products and personnel of an acquired business;
    
    diversion of managements attention from other business concerns;
    
    increased expenses associated with the acquisition; and
    
    loss of key employees or customers of any acquired business.
  If our products and services are not accepted in developing countries with emerging markets, our
revenues will be impaired .
  
    
    the speed at which communications infrastructure, including terrestrial microwave,
coaxial cable and fiber optic communications systems, which compete with
satellite-based services, is built;
    
    the effectiveness of our local resellers and sales representatives in marketing and
selling our products and services; and
    
    the acceptance of our products and services by customers.
  Since sales of satellite communications equipment are dependent on the growth of communications
networks, if market demand for these networks declines, our revenue and profitability are likely to
decline.
  24




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We depend upon certain key personnel and may not be able to retain these employees. If we lose the
services of these individuals or cannot hire additional qualified personnel, our business will be
harmed.
   Satellites upon which we rely may malfunction or be damaged or lost.
  We depend on our suppliers, some of which are our sole or a limited source of supply, and the loss
of these suppliers could materially adversely affect our business, results of operations and
financial condition.
  Our network may experience security breaches, which could disrupt our services.
  If the satellite communications industry fails to continue to develop or new technology makes it
obsolete, our business and financial condition will be harmed.
  25




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We may not be able to keep pace with technological changes, which would make our products and
services become non-competitive and obsolete.
  Unauthorized use of our intellectual property by third parties may damage our business.
    Defending against intellectual property infringement claims could be time consuming and expensive,
and if we are not successful, could cause substantial expenses and disrupt our business.
  Risks Related to the Securities Markets and Ownership of Our Common Stock
 Our stock price is volatile.
  26




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
    
    quarterly variations in operating results;
    
    announcements of new technology, products or services by us or any of our
competitors;
    
    changes in financial estimates or recommendations by securities analysts;
    
    general market conditions, including the current trend of unprecedented volatility;
or
    
    domestic and international economic factors unrelated to our performance.
   Because our common stock is thinly traded, it may be difficult to sell shares of our common stock
into the markets without experiencing significant price volatility.
  A third party could be prevented from acquiring shares of our stock at a premium to the market
price because of our anti-takeover provisions.
  We have not paid dividends in the past and do not expect to pay dividends in the future, and any
return on investment may be limited to the value of our stock.
  27




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Risks Related to Government Approvals
 We are subject to many government regulations, and failure to comply with them will harm our
business.
 Operations and Use of Satellites
  Foreign Regulations
  Regulation of the Internet
  28




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Telecommunications Taxation, Support Requirements, and Access Charges
   Export of Telecommunications Equipment
  Foreign Ownership
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  29




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Item 6. Exhibits
 Exhibit No.
 31.1
    
    
    Chief Executive Officer Certification required by Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as amended (filed herewith).31.2
    
    
    Chief Financial Officer Certification required by Rules 13a- 14 and 15d- 14 under the
Securities Exchange Act of 1934, as amended (filed herewith).32
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
 30




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SIGNATURES
  GLOBECOMM SYSTEMS INC.
          (Registrant)Date: November 10, 2008
    /s/ DAVID E. HERSHBERGDavid E. HershbergChairman of the Board,

Chief Executive Officer and President

(Principal Executive Officer)Date: November 10, 2008
    /s/ ANDREW C. MELFIAndrew C. MelfiVice President, Chief Financial
Officer and Treasurer 
(Principal
Financial and Accounting Officer) 31




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Index to Exhibits:
 Exhibit No.
 31.1
    
    Chief Executive Officer Certification required by Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as amended (filed herewith).31.2
    
    Chief Financial Officer Certification required by Rules 13a- 14 and 15d- 14 under the
Securities Exchange Act of 1934, as amended (filed herewith).32
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
 32