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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, 2009
 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
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



GLOBECOMM SYSTEMS INC.
  PagePart I  Financial InformationItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets  As of September 30, 2009 (unaudited) and June 30, 2009
    
    
    3Consolidated Statements of Operations (unaudited)  For the three months ended September 30, 2009 and 2008
    
    
    4Consolidated Statement of Changes in Stockholders Equity (unaudited)  For the three months ended September 30, 2009
    
    
    5Consolidated Statements of Cash Flows (unaudited)  For the three months ended September 30, 2009 and 2008
    
    
    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-31.1EX-31.2EX-32
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GLOBECOMM SYSTEMS INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 September 30,
    
    June 30,2009
    
    2009(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    49,750
    
    
    $
    44,034Accounts receivable, net
    
    
    37,870
    
    
    
    45,438Inventories
    
    
    24,722
    
    
    
    17,043Prepaid expenses and other current assets
    
    
    1,526
    
    
    
    2,292Deferred income taxes
    
    
    1,058
    
    
    
    1,058Total current assets
    
    
    114,926
    
    
    
    109,865Fixed assets, net
    
    
    35,622
    
    
    
    33,379Goodwill
    
    
    25,613
    
    
    
    25,613Intangibles, net
    
    
    10,586
    
    
    
    11,020Deferred income taxes
    
    
    9,553
    
    
    
    10,214Other assets
    
    
    1,444
    
    
    
    1,448Total assets
    
    $
    197,744
    
    
    $
    191,539Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    27,007
    
    
    $
    22,468Deferred revenues
    
    
    4,685
    
    
    
    5,259Accrued payroll and related fringe benefits
    
    
    4,197
    
    
    
    4,348Other accrued expenses
    
    
    3,954
    
    
    
    3,146Total current liabilities
    
    
    39,843
    
    
    
    35,221Other liabilities
    
    
    809
    
    
    
    924Deferred income taxes
    
    
    582
    
    
    
    582Commitments and contingenciesStockholders equity:Series A Junior Participating, shares
authorized, issued and outstanding: none at
September 30, 2009 and June 30, 2009
    
    
    
    
    
    
    Common stock, $.001 par value, 50,000,000
shares authorized, shares issued: 21,341,807
at September 30, 2009 and 21,339,807 at
June 30, 2009
    
    
    21
    
    
    
    21Additional paid-in capital
    
    
    185,179
    
    
    
    184,736Accumulated deficit
    
    
    (26,007
    )
    
    
    (27,248
    )Treasury stock, at cost, 465,351 shares at
September 30, 2009 and June 30, 2009
    
    
    (2,781
    )
    
    
    (2,781
    )Accumulated other comprehensive income
    
    
    98
    
    
    
    84Total stockholders equity
    
    
    156,510
    
    
    
    154,812Total liabilities and stockholders equity
    
    $
    197,744
    
    
    $
    191,539
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GLOBECOMM SYSTEMS INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months EndedSeptember 30,
    
    September 30,2009
    
    2008Revenues from infrastructure solutions
    
    $
    19,068
    
    
    $
    23,539Revenues from services
    
    
    28,608
    
    
    
    18,816Total revenues
    
    
    47,676
    
    
    
    42,355Costs and operating expenses:Costs from infrastructure solutions
    
    
    15,795
    
    
    
    20,300Costs from services
    
    
    20,602
    
    
    
    14,205Selling and marketing
    
    
    3,202
    
    
    
    3,113Research and development
    
    
    751
    
    
    
    311General and administrative
    
    
    5,515
    
    
    
    3,661Total costs and operating expenses
    
    
    45,865
    
    
    
    41,590Income from operations
    
    
    1,811
    
    
    
    765Interest income
    
    
    135
    
    
    
    264Income before income taxes
    
    
    1,946
    
    
    
    1,029Provision for income taxes
    
    
    705
    
    
    
    201Net income
    
    $
    1,241
    
    
    $
    828Basic net income per common share
    
    $
    0.06
    
    
    $
    0.04Diluted net income per common share
    
    $
    0.06
    
    
    $
    0.04Weighted-average shares used in the calculation of basic
net income per common share
    
    
    20,363
    
    
    
    20,152Weighted-average shares used in the calculation of diluted
net income per common share
    
    
    20,788
    
    
    
    20,690
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GLOBECOMM SYSTEMS INC.
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
 (In thousands)
 (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance at June 30, 2009
    
    
    21,340
    
    
    $
    21
    
    
    $
    184,736
    
    
    $
    (27,248
    )
    
    $
    84
    
    
    
    465
    
    
    $
    (2,781
    )
    
    $
    154,812Proceeds from exercise of stock options
    
    
    2
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    432Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241Gain from foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,255Balance at September 30, 2009
    
    
    21,342
    
    
    $
    21
    
    
    $
    185,179
    
    
    $
    (26,007
    )
    
    $
    98
    
    
    
    465
    
    
    $
    (2,781
    )
    
    $
    156,510
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GLOBECOMM SYSTEMS INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months EndedSeptember 30,
    
    September 30,2009
    
    2008Operating Activities:Net income
    
    $
    1,241
    
    
    $
    828Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,778
    
    
    
    1,371Provision for doubtful accounts
    
    
    408
    
    
    
    190Deferred income taxes
    
    
    661
    
    
    
    188Stock compensation expense
    
    
    432
    
    
    
    881Tax benefit from stock compensation plan
    
    
    
    
    
    
    1Changes in operating assets and liabilities:Accounts receivable
    
    
    7,205
    
    
    
    17,365Inventories
    
    
    (7,664
    )
    
    
    (444
    )Prepaid expenses and other current assets
    
    
    776
    
    
    
    (83
    )Other assets
    
    
    10
    
    
    
    (13
    )Accounts payable
    
    
    4,499
    
    
    
    (7,821
    )Deferred revenue
    
    
    (574
    )
    
    
    (3,931
    )Accrued payroll and related fringe benefits
    
    
    (155
    )
    
    
    (2,317
    )Other accrued expenses
    
    
    779
    
    
    
    (34
    )Other liabilities
    
    
    (115
    )
    
    
    (59
    )Net cash provided by operating activities
    
    
    9,281
    
    
    
    6,122Investing Activities:Purchases of fixed assets
    
    
    (3,582
    )
    
    
    (964
    )Net cash used in investing activities
    
    
    (3,582
    )
    
    
    (964
    )Financing Activities:Proceeds from exercise of stock options
    
    
    11
    
    
    
    55Net cash provided by financing activities
    
    
    11
    
    
    
    55Effect of foreign currency translation on cash
    
    
    6
    
    
    
    Net increase in cash and cash equivalents
    
    
    5,716
    
    
    
    5,213Cash and cash equivalents at beginning of period
    
    
    44,034
    
    
    
    51,399Cash and cash equivalents at end of period
    
    $
    49,750
    
    
    $
    56,612Supplemental Disclosure of Cash Flow InformationCash paid for income taxes
    
    $
    77
    
    
    $
    178
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GLOBECOMM SYSTEMS INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER 30, 2009
 (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,
    
    
    June 30,2009
    
    
    2009
    
    
    Est. useful life(In thousands)Customer relationships
    
    $
    10,574
    
    
    $
    10,574
    
    
    8-18 yearsSoftware
    
    
    1,162
    
    
    
    1,162
    
    
    5  yearsContracts backlog
    
    
    971
    
    
    
    971
    
    
    6- 8 monthsCovenant not to compete
    
    
    125
    
    
    
    125
    
    
    3-4 yearsTrademark
    
    
    51
    
    
    
    51
    
    
    5  years12,883
    
    
    
    12,883Less accumulated amortization
    
    
    2,297
    
    
    
    1,863Intangibles, net
    
    $
    10,586
    
    
    $
    11,020
   2010
    
    $
    8412011
    
    
    1,1482012
    
    
    1,1472013
    
    
    1,1322014
    
    
    1,107
 Income Taxes
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Comprehensive Income
  Product Warranties
  Subsequent Events
  Recent Accounting Pronouncements
   10




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2. Basic and Diluted Net Income Per Common Share
  3. Inventories
  September 30,
    
    June 30,2009
    
    2009(Unaudited)(In thousands)Raw materials and component parts
    
    $
    740
    
    
    $
    797Work-in-progress
    
    
    25,346
    
    
    
    18,24326,086
    
    
    
    19,040Less progress payments
    
    
    1,364
    
    
    
    1,997$
    24,722
    
    
    $
    17,043
 4. Segment Information
   11




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4. Segment Information (continued)
  Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008(Unaudited)(In thousands)Revenues:Infrastructure solutions
    
    $
    19,674
    
    
    $
    23,576Services
    
    
    29,573
    
    
    
    19,021Intercompany eliminations
    
    
    (1,571
    )
    
    
    (242
    )Total revenues
    
    $
    47,676
    
    
    $
    42,355Income (loss) from operations:Infrastructure solutions
    
    $
    (1,569
    )
    
    $
    (1,638
    )Services
    
    
    3,436
    
    
    
    2,392Interest income
    
    
    135
    
    
    
    264Intercompany eliminations
    
    
    (56
    )
    
    
    11Income before income taxes
    
    $
    1,946
    
    
    $
    1,029Depreciation and amortization:Infrastructure solutions
    
    $
    484
    
    
    $
    508Services
    
    
    1,303
    
    
    
    874Intercompany eliminations
    
    
    (9
    )
    
    
    (11
    )Total depreciation and amortization
    
    $
    1,778
    
    
    $
    1,371Expenditures for long-lived assets:Infrastructure solutions
    
    $
    292
    
    
    $
    408Services
    
    
    3,290
    
    
    
    556Total expenditures for long-lived
assets
    
    $
    3,582
    
    
    $
    964
 September 30,2009
    
    June 30,(Unaudited)
    
    2009(In thousands)Assets:Infrastructure solutions
    
    $
    201,463
    
    
    $
    191,677Services
    
    
    80,821
    
    
    
    72,544Intercompany eliminations
    
    
    (84,540
    )
    
    
    (72,682
    )Total assets
    
    $
    197,744
    
    
    $
    191,539
 5. Line of Credit
  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 and Other Intangible Assets 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, 2009 and 2008
  Revenues from Infrastructure Solutions
 Revenues from Services.
 Costs from Infrastructure Solutions
 Costs from Services
 Selling and Marketing.
 Research and Development
 General and Administrative
 17




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Interest Income
 Provision for income taxes
 Liquidity and Capital Resources
       18




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Payments Due by PeriodMoreContractual
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    than 5Obligations
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsOperating leases
    
    $
    37,692
    
    
    $
    17,819
    
    
    $
    13,955
    
    
    $
    5,918
    
    
    $
    Total contractual
cash obligations
    
    $
    37,692
    
    
    $
    17,819
    
    
    $
    13,955
    
    
    $
    5,918
    
    
    $
    
 Amount of Commitment Expiration Per PeriodTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MoreOther Commercial
    
    Amounts
    
    
    Less than 1
    
    
    1-3
    
    
    4-5
    
    
    Than 5Commitments
    
    Committed
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsStandby letters of credit
    
    $
    9,317
    
    
    $
    4,678
    
    
    $
    4,163
    
    
    $
    476
    
    
    $
    Total commercial
commitments
    
    $
    9,317
    
    
    $
    4,678
    
    
    $
    4,163
    
    
    $
    476
    
    
    $
    
  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
 Reductions in telecommunications equipment and systems spending have negatively affected our
revenues and profitability.
  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, and a downturn in
this marketplace would adversely affect us.
   Risks associated with operating in international markets, including areas of conflict, could
restrict our ability to expand globally and harm our business and prospects.
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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;
    
    difficulties in collecting accounts receivable;
    
    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 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.
    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.
  23




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
    
    failure of the acquisition or investment to meet the
expectations upon which we made a decision to proceed;
    
    difficulties in the integration of the operations,
technologies, products and personnel of an acquired
business;
 
    
    diversion of managements attention from other business concerns;
    
    substantial transaction costs;
    
    the potential of significant goodwill and intangibles
write-offs in the future in the event that an acquisition
does not meet expectations;
    
    increased expenses associated with the acquisition; and
    
    loss of key employees, customers or suppliers 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 does not increase from recent depressed levels, 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; 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 9, 2009
    
    /s/ DAVID E. HERSHBERGDavid E. HershbergChairman of the Board and
Chief Executive Officer
(Principal Executive Officer)Date: November 9, 2009
    
    /s/ ANDREW C. MELFIAndrew C. MelfiSenior Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer) 31




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##### Table of Contents



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