What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-03-03 compared with 2020-02-28 · 540 added, 567 removed, 999 unchanged (53% of the section changed)

24 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019 , and our report dated February 28, 2020 expressed an unqualified opinion on those financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated March 3, 2021 expressed an unqualified opinion on those financial statements.

Basis for opinion

16 unchanged sentences

Boston, Massachusetts

February 28, 2020

March 3, 2021

Other Information

22 unchanged sentences

Consolidated Statements of Operations for the years ended December 31, 20 20 and 20 19

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019 and 2018

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 20 20 and 20 19

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 20 20 and 201 9

2 unchanged sentences

Financial Statement Schedules

Incorporated by Reference

Share Purchase Agreement dated as of May 13, 2019 among KVH Industries, Inc., KVH Media Group Limited and Pelican Holdco Limited relating to the sale of the entire issued share capital of Super Dragon Limited and Videotel Marine Asia Limited

Tax Deed of Covenant dated as of May 13, 2019 among KVH Industries, Inc., KVH Media Group Limited and Pelican Holdco Limited relating to the sale of the entire issued share capital of Super Dragon Limited and Videotel Marine Asia Limited

Amended and Restated Certificate of Incorporation, as amended

Amended and Restated Bylaws

November 1, 2017

Specimen certificate for the common stock

March 2, 2018

Fourth Amended and Restated 2006 Stock Incentive Plan

April 25, 2013

2016 Equity and Incentive Plan

April 25, 2016

Amended and Restated 1996 Employee Stock Purchase Plan

April 25, 2016

Form of Incentive Stock Option Agreement granted under the 2016 Equity and Incentive Plan

March 9, 2017

Form of Non-Statutory Stock Option Agreement granted under the 2016 Equity and Incentive Plan

March 9, 2017

Form of Restricted Stock Agreement granted under the 2016 Equity and Incentive Plan

March 9, 2017

Policy Regarding Automatic Grants to Non-Employee Directors

Loan Agreement dated April 6, 2009 by and among KVH Industries, Inc., and Bank of America, N.A.

Second Amendment, dated June 9, 2011 by and between KVH Industries, Inc.

and Bank of America, N.A., amending the Loan Agreement, dated April 6, 2009, as amended

Master Loan and Security Agreement, dated as of January 30, 2013 by and between KVH Industries, Inc.

and Bank of America Leasing & Capital, LLC

February 5, 2013

Equipment Security Note, dated as of January 30, 2013 by and between KVH Industries, Inc.

and Bank of America Leasing & Capital, LLC

February 5, 2013

Incorporated by Reference

Amended and Restated Credit Agreement dated as of October 30, 2018 among KVH Industries, Inc., Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, and the Lenders party hereto

October 31, 2018

Description Filed with

10-K Incorporated by Reference

Form Filing Date Exhibit No.

Amended and Restated Certificate of Incorporation, as amended 10-Q August 6,

Amended and Restated Bylaws 10-Q November 1, 2017 3.2

Specimen certificate for the common stock 10-K March 2, 2018 4.1

Description of Capital Stock 8-K August 4, 2020 4.1

Amended and Restated 1996 Employee Stock Purchase Plan DEF 14A April 25, 2016 App.

Amended and Restated 2016 Equity and Incentive Plan

DEF 14A April 29, 2020 App.

Form of Incentive Stock Option Agreement granted under the 2016 Equity and Incentive Plan 10-K March 9, 2017 10.5

Form of Non-Statutory Stock Option Agreement granted under the 2016 Equity and Incentive Plan 10-K March 9, 2017 10.6

Form of Restricted Stock Agreement granted under the 2016 Equity and Incentive Plan 10-K March 9, 2017 10.7

Policy Regarding Automatic Grants to Non-Employee Directors 10-Q May 6, 2009 10.23

Description Filed with

10-K Incorporated by Reference

Form Filing Date Exhibit No.

Amended and Restated Security Agreement dated as of October 30, 2018 between KVH Industries, Inc.

and Bank of America, N.A., as Administrative Agent

October 31, 2018

and Bank of America, N.A., as Administrative Agent 10-Q October 31, 2018 10.2

Amended and Restated Pledge Agreement dated as of October 30, 2018 between KVH Industries, Inc.

and Bank of America, N.A., as Administrative Agent with respect to KVH Industries A/S

October 31, 2018

and Bank of America, N.A., as Administrative Agent with respect to KVH Industries A/S 10-Q October 31, 2018 10.3

Amended and Restated Pledge Agreement dated as of October 30, 2018 between KVH Industries, Inc.

and Bank of America, N.A., as Administrative Agent with respect to KVH Industries U.K.

October 31, 2018

Consent dated as of May 13, 2019 among KVH Industries, Inc., as Borrower, Bank of America, N.A., as Lender and Administrative Agent, and The Washington Trust Company, as Lender, under the Amended and Restated Credit Agreement dated as of October 30, 2018 among such parties

List of Subsidiaries

Consent of Grant Thornton LLP

Rule 13a-14(a)/15d-14(a) certification of principal executive officer

Rule 13a-14(a)/15d-14(a) certification of principal financial officer

Rule 1350 certification

Interactive Data File regarding (a) our Consolidated Balance Sheets as of December 31, 2019 and 2018, (b) our Consolidated Statements of Operations for the years ended December 31, 2019 and 2018, (c) our Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019 and 2018, (d) our Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019 and 2018, (e) our Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018, and (e) the Notes to such Consolidated Financial Statements

Limited 10-Q October 31, 2018 10.4

First Amendment to Amended and Restated Credit Agreement as of July 30, 2020 by and among KVH Industries, Inc., Bank of America, N.A., and The Washington Trust Company

July 31, 2020 10.3

Cooperation Agreement, dated as of April 8, 2020, by and among KVH Industries, Inc., Vintage Capital Management, LLC, and Kahn Capital Management, LLC

8-K April 9, 2020

Promissory Note dated as of May 1, 2020 and executed on May 3, 2020 by KVH Industries, Inc., in favor of Bank of America, N.A.

8-K May 6, 2020

List of Subsidiaries X

Consent of Grant Thornton LLP X

Rule 13a-14(a)/15d-14(a) certification of principal executive officer X

Rule 13a-14(a)/15d-14(a) certification of principal financial officer X

Rule 1350 certification X

101.1 Interactive Data File regarding (a) our Consolidated Balance Sheets as of December 31, 2020 and 2019, (b) our Consolidated Statements of Operations for the years ended December 31, 2020 and 2019, (c) our Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2020 and 2019, (d) our Consolidated Statements of Stockholders' Equity for the years ended December 31, 2020 and 2019, (e) our Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019, and (e) the Notes to such Consolidated Financial Statements X

104.1 Cover Page Interactive Data File (embedded within the Inline XBRL document) X

* Management contract or compensatory plan.

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KVH Industries, Inc.

February 28, 2020

March 3, 2021 By:

/ S / M ARTIN A.

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Name Title Date

/S/ MARTIN A.

KITS VAN HEYNINGEN

President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

February 28, 2020

KITS VAN HEYNINGEN President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) March 3, 2021

Kits van Heyningen

/S/ DONALD W.

Chief Financial Officer (Principal Financial Officer)

February 28, 2020

BRUUN Interim Chief Financial Officer (Principal Financial Officer) and Chief Operating Officer March 3, 2021

/S/ JENNIFER L.

Vice President and Chief Accounting Officer (Principal Accounting Officer)

February 28, 2020

BAKER Vice President and Chief Accounting Officer (Principal Accounting Officer) March 3, 2021

AIN Director March 3, 2021

/S/ DANELLE M.

BARRETT Director March 3, 2021

DODEZ Director March 3, 2021

/S/ STANLEY K.

February 28, 2020

HONEY Director March 3, 2021

/S/ ROBERT E.

TAVARES Director March 3, 2021

/S/ CHARLES R.

February 28, 2020

TRIMBLE Director March 3, 2021

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of KVH Industries, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2019 and 2018 , the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019 , and the related notes (collectively referred to as the “financial statements”).

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019 , based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2020 expressed an unqualified opinion.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 3, 2021 expressed an unqualified opinion.

Basis for opinion

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Quantitative impairment assessments – goodwill

As described in Note 1(k) to the financial statements, the Company evaluates goodwill for impairment at the reporting unit level annually on October 1 of each year, or more frequently if events or circumstances indicate the carrying value of a reporting unit that includes goodwill might exceed the fair value of that reporting unit.

Due to the impacts of the COVID-19 pandemic and the decline of the forecasted revenue particularly in the KVH Media Group, which has been impacted in part by a global reduction in travel, the Company determined that a quantitative impairment assessment should be performed for each of its two reporting units with goodwill at the annual impairment test date of October 1, 2020.

As a result of these assessments, management concluded that the carrying value of the KVH Media Group reporting unit exceeded its fair value and recorded an impairment charge of $8.7M as of the annual impairment test date.

We identified the estimation of the fair values of the reporting units in the quantitative goodwill impairment assessments as a critical audit matter.

The principal considerations for our determination that this matter is a critical audit matter are the significant management estimates and judgments related to forecasts of expected future cash flows used in the estimation of the reporting units’ fair value.

Management’s significant estimates and judgments include the determination of revenue growth rates, gross profit growth rates, operating expenses, capital expenditures, projected long-term growth rates and discount rates.

Changes in these assumptions could materially affect the fair values of the reporting units.

Our audit procedures related to quantitative impairment testing of the reporting units included the following procedures, among others:

• Tested the design and operating effectiveness of certain internal controls relating to management’s quantitative goodwill impairment assessment, including those over management’s forecasts of future revenue, operating income margins and long-term growth rates and the determination of the discount rate.

• Tested management’s process for determining the fair values of the reporting units.

This included evaluating the appropriateness of the valuation methods, testing the completeness, accuracy and relevance of data used by management, and evaluating management’s significant assumptions used to project future cash flows, which included forecasted gross profit, operating expenses, capital expenditures and discount rates.

• We performed sensitivity analyses on the future revenue, operating margins and discount rates used to evaluate the impact changes in these assumptions have on management’s conclusion.

• With the assistance of our valuation professionals with specialized skills and knowledge, we evaluated the valuation methodologies utilized by management.

Recognition of satellite connectivity services revenue

As described further in Note 1(e) to the financial statements, the Company's satellite connectivity services revenue, including broadband Internet, data and VoIP services, is recognized monthly based primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic processed.

We identified satellite connectivity services revenue as a critical audit matter.

The principal considerations for our determination that satellite connectivity service sales transactions are a critical audit matter is the complexity of the process used by management for recognizing revenue, given the diversity of data sources, and the number of systems involved, which includes third party systems.

This requires a high degree of audit subjectivity and effort in designing and performing audit procedures to evaluate whether the satellite connectivity services revenue is recognized properly.

Our audit procedures related to the satellite connectivity services revenue included the following, among others:

• We tested the design and operating effectiveness of controls related to management’s review and validation of data coming from third parties that is used as an input in revenue recognition as well as the controls over review of appropriate revenue recognition for this revenue stream.

• We performed detailed transaction testing over the occurrence and accuracy of the revenue recognized by validating usage data from third party reports which is utilized in customer billing.

• We obtained the billing service provider's SOC-1 report, bridge letter (as applicable), and Management's internal control review of the SOC-1 report.

We verified that Management had assessed key complementary user entity controls (“CUEC”s).

We inspected the SOC-1 report to verify that there were no failed controls, and that the opinion was unqualified.

In addition, we tested key controls that were responsive to the CUECs.

• We tested the design and operating effectiveness of IT general controls related to management’s ERP system used to record the related revenue for this stream.

/s/ GRANT THORNTON LLP

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Boston, Massachusetts

February 28, 2020

March 3, 2021

KVH INDUSTRIES, INC.

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Accounts receivable, net of allowance for doubtful accounts of $ 1,596 and $ 1,589 as of December 31, 2020 & December 31, 2019, respectively

33,687 32,891

Inventories 24,674 23,465

Prepaid expenses and other current assets 3,894 3,188

Current contract assets 1,086 1,458

Current assets held for sale

Total current assets 101,060 109,274

Property and equipment, net

56,273 53,584

Intangible assets, net

Goodwill 6,592 15,408

Right of use assets 6,893 6,286

1 unchanged sentence

Non-current contract assets 2,661 3,408

Non-current deferred income tax asset

Non-current assets held for sale

Deferred income tax asset 73 45

Total assets $ 183,591 $ 199,391

LIABILITIES AND STOCKHOLDERS’ EQUITY

8 unchanged sentences

Liability for uncertain tax positions 560 521

Current liabilities held for sale

Total current liabilities 40,788 38,390

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Long-term debt, excluding current portion 1,935 —

Non-current deferred income tax liability

Non-current liabilities held for sale

Deferred income tax liability 418 762

Total liabilities $ 51,707 $ 49,402

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Additional paid-in capital 149,170 144,485

Accumulated earnings (deficit)

Accumulated (deficit) retained earnings ( 2,402 ) 19,538

Accumulated other comprehensive loss ( 3,232 ) ( 2,767 )

treasury stock at cost, common stock, 1,397,438 and 1,282,422 shares as of December 31, 2019 and December 31, 2018, respectively

143,735 161,450

treasury stock at cost, 1,432,694 and 1,397,438 shares as of December 31, 2020 and December 31, 2019, respectively

( 11,851 ) ( 11,461 )

Total stockholders’ equity 131,884 149,989

6 unchanged sentences

Year Ended December 31,

Product $ 64,619 $ 61,925

Service 94,114 95,968

Net sales 158,733 157,893

Costs and expenses:

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General and administrative 24,445 25,486

Goodwill impairment charge 8,732 —

Intangible asset impairment charge 1,758 —

Total costs and expenses 181,670 178,989

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Other income, net 193 101

Loss from continuing operations before income tax (benefit) expense

Income tax (benefit) expense from continuing operations

Loss from continuing operations before income tax expense (benefit) ( 21,766 ) ( 20,012 )

Income tax expense (benefit) from continuing operations 174 ( 4,003 )

Net loss from continuing operations ( 21,940 ) ( 16,009 )

Income from discontinued operations, net of tax — 49,264

Net income (loss)

Net (loss) income $ ( 21,940 ) $ 33,255

Net loss from continuing operations per common share

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Basic and diluted $ 0.00 $ 2.82

Net income (loss) per common share

Net (loss) income per common share

Basic and diluted $ ( 1.24 ) $ 1.90

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

Year Ended December 31,

Net income (loss)

Other comprehensive income (loss), net of tax:

Unrealized gain on available-for-sale securities

Net (loss) income $ ( 21,940 ) $ 33,255

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment ( 465 ) 11,953

Unrealized gain on derivative instruments, net — 11

Other comprehensive income (loss), net of tax (1)

Total comprehensive income (loss)

Other comprehensive (loss) income, net of tax (1)

( 465 ) 11,964

Total comprehensive (loss) income $ ( 22,405 ) $ 45,219

(1) Tax impact was nominal for all periods.

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(in thousands)

(Accumulated Deficit) Retained Earnings

Common Stock Additional

Capital (Accumulated Deficit) Retained Earnings Accumulated

Comprehensive

Treasury Stock

Loss Treasury Stock Total

Stockholders’

Shares Amount Shares Amount

Balance at December 31, 2018

Other comprehensive loss

ASC 606 Adoption

19,026 $ 190 $ 139,617 $ ( 15,397 ) $ ( 14,731 ) ( 1,282 ) $ ( 10,164 ) $ 99,515

Net income — — — 33,255 — — — 33,255

Other comprehensive income — — — — 11,964 — — 11,964

ASC 606 correction (FN 11) — — — 1,680 — — — 1,680

Stock-based compensation — — 4,159 — — — — 4,159

Issuance of common stock under employee stock purchase plan 45 — 414 — — — — 414

Sales of treasury stock

Acquisition of treasury stock — — — — — ( 115 ) ( 1,297 ) ( 1,297 )

Exercise of stock options and issuance of restricted stock awards, net of forfeitures 328 4 295 — — — — 299

Balance at December 31, 2019

Other comprehensive income

ASC 606 correction (FN 11)

19,399 $ 194 $ 144,485 $ 19,538 $ ( 2,767 ) ( 1,397 ) $ ( 11,461 ) $ 149,989

Net loss — — — ( 21,940 ) — — — ( 21,940 )

Other comprehensive loss — — — — ( 465 ) — — ( 465 )

Stock-based compensation — — 3,462 — — — — 3,462

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Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Net (loss) income $ ( 21,940 ) $ 33,255

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Provision for doubtful accounts

Depreciation and amortization

11,663 11,487

Impairment charge to goodwill and intangibles 10,490 —

Deferred income taxes

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Compensation expense related to stock-based awards and employee stock purchase plan

Unrealized currency translation loss (gain)

Unrealized currency translation loss

Changes in operating assets and liabilities:

Accounts receivable

( 1,123 ) ( 4,344 )

( 1,205 ) ( 553 )

Prepaid expenses, other current assets, and current contract assets

( 314 ) ( 307 )

Other non-current assets and non-current contract assets

( 484 ) ( 1,042 )

Accounts payable

( 3,274 ) ( 1,916 )

Deferred revenue, contract liabilities, and long-term contract liabilities

( 817 ) 1,170

Accrued compensation, product warranty, and other

( 458 ) ( 2,691 )

Other long-term liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities $ ( 3,079 ) $ ( 14,165 )

Cash flows from investing activities:

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Maturities and sales of marketable securities 13,500 12,000

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities $ ( 9,295 ) $ 46,048

Cash flows from financing activities:

Repayments of long-term debt — ( 2,597 )

Proceeds from PPP loan 6,927 —

Repayments of term note borrowings — ( 21,938 )

3 unchanged sentences

Repurchase of common stock ( 390 ) ( 1,297 )

Sale of treasury stock

Payment of finance lease ( 624 ) ( 624 )

Net cash used in financing activities

Net cash provided by (used in) financing activities $ 7,129 $ ( 30,756 )

Effect of exchange rate changes on cash and cash equivalents ( 542 ) ( 812 )

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents ( 5,787 ) 315

Cash and cash equivalents at beginning of period 18,365 18,050

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Changes in accrued other and accounts payable related to property and equipment additions $ 165 $ 126

Satellite hubs acquired under finance lease

Cash in current assets held for sale

Right of use assets (ROU) assets arising from entering into new operating lease obligations $ 3,032 $ 494

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(1) Summary of Significant Accounting Policies

Description of Business

(a) Description of Business

KVH Industries, Inc.

16 unchanged sentences

however, any maintenance costs on the hardware is expensed in the period these costs are incurred.

Mobile connectivity service sales also include the distribution of commercially licensed entertainment, including news, sports, music, and movies to commercial and leisure customers in the maritime, hotel, and retail markets through KVH Media Group.

KVH also earns monthly usage fees from third-party satellite connectivity services, including voice, data and Internet services, provided to its Inmarsat and Iridium customers who choose to activate their subscriptions with KVH.

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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

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KVH’s inertial navigation service sales include product repairs, engineering services provided under development contracts and extended warranty sales.

Principles of Consolidation

(b) Principles of Consolidation

The accompanying consolidated financial statements of KVH Industries, Inc.

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All significant intercompany accounts and transactions have been eliminated in consolidation.

Significant Estimates and Assumptions and Other Significant Non-Recurring Transactions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of sales and expenses during the reporting periods.

The 2019 consolidated financial statements reflect the sale of Videotel as a discontinued operation.

On an on-going basis, the Company evaluates its significant estimates, including those related to revenue recognition, valuation of accounts receivable, value of inventory, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of long-lived assets, including goodwill, amortization methods and periods, certain accrued expenses and other related charges, stock-based compensation, contingent liabilities, forfeitures and key valuation assumptions for its share-based awards, estimated fulfillment costs for warranty obligations, tax reserves and recoverability of the Company’s net deferred tax assets and related valuation allowance.

There have been no material changes to the Company's significant accounting policies since January 1, 2018, except for (1) ASC 606, Revenue from Contracts with Customers , which the Company adopted effective January 1, 2018 (see Notes 1(e) and 11 for further discussion), and (2) ASC 842, Leases , which the Company adopted effective January 1, 2019 (see Notes 1(f) and 17 for further discussion).

On February 27, 2018, the Company entered into a stock purchase agreement with SKY Perfect JSAT Corporation, or SJC, pursuant to which the Company agreed to sell 377 shares of treasury stock to SJC for a purchase price of $11.95 per share, or an aggregate of $4,500 , in a private placement.

The transaction closed on February 28, 2018.

During the first quarter of 2018, the Company entered into a five -year finance lease for three satellite hubs for the HTS network.

Please see Note 17 for further discussion.

The 2020 consolidated financial statements reflect an impairment charge on the KVH Media Group reporting unit within the mobile connectivity segment.

See Note 1(k) and Note 9.

On an on-going basis, the Company evaluates its significant estimates, including those related to terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill and estimated fair values of long-lived assets, including goodwill, amortization methods and periods.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates.

Changes in estimates are recorded in the period in which they become known.

The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

During the second quarter of 2019, the Company sold Videotel.

Please see Notes 18 for further discussion.

Please see Note 18 for further discussion.

During the third quarter of 2019, the Company identified an out-of-period immaterial error related to the implementation and application of ASC 606 with respect to the recognition of revenue associated with sales-type leases.

Please see Note 11 for further discussion.

During the fourth quarter of 2020, the Company recorded $ 10,490 of goodwill and intangible impairment charges mostly driven by the ongoing impacts of COVID-19 on the KVH Media Group reporting unit.

Please see Note 1(k) and Note 9 for further discussion.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

Concentration of Credit Risk and Single Source Suppliers

(d) Concentration of Credit Risk and Single Source Suppliers

Cash, cash equivalents and marketable securities.

10 unchanged sentences

Beginning balance $ 1,589 $ 2,390

(Subtractions) additions

Additions (Subtractions) 333 ( 189 )

Deductions (write-offs/recoveries) from reserve ( 326 ) ( 612 )

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The failure of a supplier, including a subcontractor, to deliver on schedule could delay or interrupt the Company’s delivery of products and thereby materially adversely affect the Company’s revenues and operating results.

Revenue Recognition

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

The adoption of ASC 606 represents a change in accounting principle that was intended to more closely align revenue recognition with the delivery of the Company's products and services and to provide enhanced disclosures.

(e) Revenue Recognition

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised products and services.

4 unchanged sentences

The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors, including the customer’s historical payment pattern or, in the case of a new customer, published credit and financial information pertaining to the customer.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

2) Identify the performance obligations in the contract

2 unchanged sentences

If these criteria are not met, the promised products and services are accounted for as a combined performance obligation.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

3) Determine the transaction price

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In certain circumstances customers may request a bill-and-hold arrangement.

Under these bill-and-hold arrangements, revenue is recognized when the Company has fulfilled all of its performance obligations, the Company has received notification of customer acceptance of the goods, the units are segregated for the specific customer only, and the goods are ready for physical transfer to the customer in accordance with their defined contract delivery schedule.

The Company’s standard payment terms are generally Net 30.

Under these bill-and-hold arrangements, revenue is recognized when the Company has fulfilled all of its performance obligations, the units are segregated for the specific customer only, and the goods are ready for physical transfer to the customer in accordance with their defined contract delivery schedule.

The Company’s standard payment terms for product sales are generally Net 30.

Under certain limited conditions, the Company, at its sole discretion, provides for the return of goods.

1 unchanged sentence

The Company establishes reserves for potential sales returns, credits, and allowances, and evaluates, on a monthly basis, the adequacy of those reserves based upon historical experience and expectations for the future.

Contracts with multiple performance obligations

The Company sells products and services through arrangements that in certain instances bundle VSAT equipment, satellite connectivity and other services.

For these arrangements, the Company has determined that the performance obligations are not distinct in the context of the contracts with certain customers.

The Company recognizes product revenue under these arrangements over the estimated satellite connectivity customer life, which is estimated to be five years based on historical evidence.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

Contracts with multiple performance obligations

The Company sells products and services through arrangements that in certain instances bundle VSAT equipment, satellite connectivity and other services.

For these arrangements, the Company has determined that the performance obligations are not distinct in the context of the contracts with certain customers.

The Company will recognize product revenue under these arrangements over the estimated satellite connectivity customer life, which is estimated to be five years based on historical evidence.

Satellite connectivity and media content service sales

Directly sold and re-sold satellite connectivity service for voice, data and Internet is recognized monthly based upon minutes or megabytes of traffic processed or contracted fixed-fee schedules.

Typically, subscribers enter into a one-year minimum service agreement.

Directly sold and re-sold satellite connectivity service for voice, data and Internet is recognized monthly based primarily on contracted fixed-fee schedules as well as any overages for minutes or megabytes of traffic processed.

The Company has evaluated whether it obtains control of the services that are being transferred to the customer in assessing gross revenue reporting as principal verse net revenue reporting as agent for its satellite connectivity service sales and its payments to the applicable service providers.

Based on the Company's assessment of the indicators, the Company has determined that gross revenue reporting as a principal is appropriate.

The applicable indicators of gross revenue reporting included, but were not limited to, the following:

The applicable indicators of gross revenue reporting include, but are not limited to, the following:

• The Company is the primary obligor in its arrangements with its subscribers.

19 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

33 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

4 unchanged sentences

The present value of lease payments is determined using the incremental borrowing rate based on the information available at the lease commencement date.

Fair Value of Financial Instruments

(g) Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents, investments, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to the short maturity of these instruments.

See Note 2 for more information on the fair value of the Company’s marketable securities.

The carrying amount of the Company’s debt, line of credit, and capital lease approximates fair value based on currently available quoted rates of similarly structured debt facilities.

The carrying amount of the Company’s debt, and capital lease approximates fair value based on currently available quoted rates of similarly structured debt facilities.

See Note 5 for more information on the fair value of the Company’s debt and line of credit and Note 17 for the Company's finance lease.

Cash, Cash Equivalents, and Marketable Securities

In accordance with the Company’s investment policy, cash in excess of operational needs is invested in money market mutual funds, government agency bonds, United States treasuries, municipal bonds, corporate notes, and certificates of deposit.

(h) Cash, Cash Equivalents, and Marketable Securities

All highly liquid investments with a maturity date of three months or less at the date of purchase are classified as cash equivalents.

5 unchanged sentences

The Company has reviewed its securities with unrealized losses as of December 31, 2020 and 2019 and has concluded that no other-than-temporary impairments exist.

(i) Inventories

Inventories are stated at the lower of cost and net realizable value using the first-in first-out costing method.

1 unchanged sentence

The Company records inventory charges to costs of product sales.

Property and Equipment

(j) Property and Equipment

Property and equipment are stated at cost.

8 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

Goodwill, Intangible Assets and other Long-Lived Assets

(k) Goodwill, Intangible Assets and other Long-Lived Assets

The Company’s goodwill and intangible assets are associated with the purchase of Virtek Communication (now known as KVH Industries Norway AS) in September 2010 and Headland Media Limited (now known as the KVH Media Group) in May 2013.

ASC Topic 350, Intangibles—Goodwill and Other (ASC 350) requires the completion of a goodwill impairment test at least annually.

The Company performed its annual goodwill impairment test for 2019 as of October 1, 2019 .

For this test, the Company performed a qualitative assessment of goodwill impairment (Step 0) and concluded that it was more-likely-than-not that its reporting units' fair values exceeded their respective carrying values.

Accordingly, it was not necessary for the Company to perform the full Step 1 quantitative analysis.

Intangible assets with estimated lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of intangible assets with estimated lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group.

If these comparisons indicate that an asset is not recoverable, the Company will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value.

Estimated fair value is based on either discounted future operating cash flows or appraised values, depending on the nature of the asset.

During 2019 , there were no events or changes in circumstances that indicated any of the carrying amounts of the Company’s intangible assets or other long-lived assets may not be recoverable.

In accordance with ASC Update No.

2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test of Goodwill Impairment.

(ASC 350), the Company performs a goodwill impairment test at least annually based on either an optional qualitative assessment or a quantitative analysis comparing the estimated fair value of a reporting unit to its carrying value as of the test date.

Any impairment charges would be based on the quantitative analysis.

Prior to 2020, the Company has not recorded or incurred goodwill impairment charges.

For the October 1, 2019 test, the Company performed a qualitative assessment of goodwill impairment and concluded that it was more likely than not that the reporting units' fair values exceeded their carrying values.

Accordingly, it was not necessary for the Company to perform the quantitative analysis.

For the October 1, 2020 test, however, due to the uncertainty that the global pandemic presented during 2020, the Company determined that it should perform a quantitative analysis of goodwill impairment.

The Company performed this full quantitative analysis in the fourth quarter of 2020 in conjunction with its annual budgeting and long-term planning cycle.

The last full quantitative analysis was completed in 2017.

The COVID-19 pandemic has impacted various aspects of the Company's operations and it has been monitoring the impact of this global crisis carefully throughout the year.

The Company has particularly monitored the operations of KVH Media Group which depends heavily on travel and travel-related industries.

The revenues and cash flows of KVH Media Group have been significantly impacted by the global reduction in travel since the start of the pandemic.

Prior to the annual impairment test in the fourth quarter of 2020, based on the Company's quarterly review of the impact of this global crisis on its forecasted revenues and cash flows, there was no indication of impairment to the carrying value of goodwill or other intangible assets.

However, in the fourth quarter of 2020, there were increases in the number of reported COVID-19 cases, and substantial shutdowns were reinstated in the United States, UK and Europe, which caused continued disruptions to the KVH Media Group business as the global travel and related industries remained at historically depressed levels.

In response to the impact of the pandemic, particularly with respect to the KVH Media Group business, during the Company's annual budgeting and long-term planning process, the Company conducted detailed discussions with many of its largest customers in the KVH Media Group to validate its assumptions, which indicated further expected delays in recovery, and certain areas of the KVH Media Group business that may not recover completely or at all.

Accordingly, in connection with the annual goodwill assessment, the Company updated its long-term revenue and cash flow forecast to reflect these most recent observations, which were used in the annual goodwill test.

With the assistance of valuation specialists, the Company utilized an income approach and market approach to estimate the fair value of its reporting units.

The Company believes that the assumptions used to estimate the fair value of its reporting units were reasonable.

As an additional corroborative test of the reasonableness of those assumptions, the Company completed a reconciliation of its market capitalization and overall enterprise value to the fair value of all of its reporting units as of October 1, 2020.

The Company estimated that, as of October 1, 2020, the fair value of the mobile broadband reporting unit exceeded its carrying value by 18 %;

however, the carrying value of the KVH Media Group reporting unit exceeded its fair value by $ 10,156 , which signified that an impairment had occurred and identified a triggering event to review the other long-lived assets for impairment.

In accordance with ASC 360-10, Property, Plant and Equipment – Impairment or Disposal of Long-Lived Assets (ASC 360), with regard to its long-lived assets, the Company performed an undiscounted cash flow analysis and concluded that the carrying value of the asset group was not recoverable.

Accordingly, the Company then performed an analysis to estimate the fair value of the other long-lived assets and recognized an impairment charge of $ 1,758 , against the distribution rights intangible asset, the amount by which the carrying value of the asset group’s other long-lived assets exceeded their estimated fair value, and a reduction in the associated deferred tax liability of $ 334 .

As a result, the Company recognized an impairment charge to KVH Media Group’s goodwill in the amount of $ 8,732 , the remaining amount by which the carrying value exceeded its fair value.

After recording this impairment, the Company's consolidated balance sheet continues to include $ 8,846 of goodwill and other intangible assets of which $ 4,445 relates to KVH Media Group.

A negative trend of operating results or material changes to forecasted operating results could result in the requirement for additional interim goodwill impairment tests and the potential of future goodwill impairment charges, which could be material.

See Note 9 for further discussion of goodwill and intangible assets.

Other Non-Current Assets

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

(l) Other Non-Current Assets

Other non-current assets are primarily comprised of long-term lease receivables, prepaid expenses, and deposits.

Product Warranty

(m) Product Warranty

The Company’s products carry standard limited warranties that range from one to two years and vary by product.

9 unchanged sentences

Ending balance $ 1,812 $ 2,194

Shipping and Handling Costs

(n) Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and included in cost of sales.

Billings for shipping and handling are reflected within net sales in the accompanying consolidated statements of operations.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

Research and Development

(o) Research and Development

Expenditures for research and development, including customer-funded research and development, are expensed as incurred.

3 unchanged sentences

Customer-funded costs included in costs of service sales $ 2,935 $ 4,373

Advertising Costs

(p) Advertising Costs

Costs related to advertising are expensed as incurred.

Advertising expense was $ 1,285 and $ 2,290 for the years ended December 31, 2020 and 2019, respectively, and is included in sales, marketing, and support expense in the accompanying consolidated statements of operations.

Foreign Currency Translation

(q) Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries located in Denmark and Singapore are maintained using the United States dollar as the functional currency.

2 unchanged sentences

Foreign currency exchange gains and losses are recognized within “ Other income, net ” in the accom panying consolidated statements of operations.

For the years ended December 31, 2019 and 2018 , the Company recorded a total of net foreign currency exchange losses (gains) in its accompanying consolidated statements of operations of $181 and $(552) , respectively, which is comprised of both realized and unrealized foreign currency exchange gains and losses.

The financial statements of the Company’s foreign subsidiaries located in the United Kingdom, Brazil, Norway, Cyprus, Belgium, the Netherlands and Japan use the foreign subsidiaries’ respective local currencies as the functional currency.

For the years ended December 31, 2020 and 2019, the Company recorded a total of net foreign currency exchange losses in its accompanying consolidated statements of operations of $ 48 and $ 181 , respectively, which is comprised of both realized and unrealized foreign currency exchange gains and losses.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

The financial statements of the Company’s foreign subsidiaries located in the United Kingdom, Brazil, Norway, Cyprus and Japan use the foreign subsidiaries’ respective local currencies as the functional currency.

The Company translates the assets and liabilities of these foreign subsidiaries at the exchange rates in effect at year-end.

1 unchanged sentence

Gains and losses from foreign currency translation are credited or charged to accumulated other comprehensive loss included in stockholders' equity in the accompanying consolidated balance sheets.

(r) Income Taxes

The Company is subject to income taxes in the U.S.

10 unchanged sentences

See Note 8 for further discussion of income taxes.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

Net Loss per Common Share

(s) Net Loss per Common Share

Basic net loss per share is calculated based on the weighted average number of common shares outstanding during the period.

5 unchanged sentences

Weighted average common shares outstanding—diluted 17,669 17,459

Contingent Liabilities

(t) Contingent Liabilities

The Company estimates the amount of potential exposure it may have with respect to claims, assessments and litigation in accordance with ASC 450, Contingencies .

2 unchanged sentences

Additionally, it is not always possible for management to make meaningful estimates of the potential loss or range of loss associated with such litigation.

Operating Segments

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

(u) Operating Segments

The Company operates in two segments, the mobile connectivity and inertial navigation segments.

3 unchanged sentences

Revenues from international locations, primarily consisting of Canada, European countries, both inside and outside the European Union, as well as Africa, Asia/Pacific, the Middle East, and South America (see Note 12, " Segment Reporting ").

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

Recently Issued Accounting Standards

(v) Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies.

2 unchanged sentences

Standards Implemented

ASC Updates No.

2016-02, 2018-10, 2018-11, and 2018-20

In February 2016, the FASB issued ASC Update No.

2016-02, Leases (Topic 842).

It is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Earlier application is permitted.

2016-02 creates new accounting and reporting guidelines for leasing arrangements.

The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases.

Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease.

The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

In July 2018, the FASB issued ASC Update No.

2018-10, Codification Improvements to Topic 842, Leases.

2018-10 made corrections to and further clarified Topic 842.

In July 2018, the FASB issued ASC Update No.

2018-11, Leases-Targeted Improvements (Topic 842).

2018-11 allows companies to use the effective date of the new lease standard as the date of initial application on transition and not to apply the new lease standard in the comparative prior periods included in their financial statements in the year of adoption.

The new guidance also gives entities the option not to separate non-lease components from the associated lease components when certain criteria are met.

In December 2018, the FASB issued ASC Update No.

2018-20, Leases (Topic 842):

Narrow-Scope Improvements for Lessors.

The amendments in this update affect the guidance in Update No.

2016-02, but can be early adopted.

The Update No.

2018-20 amends the guidance in ASC 842 by allowing lessors to elect to account for sales and other similar taxes collected from lessees as lessee costs and to exclude them from the consideration in the contract and from variable payments not included in the consideration in the contract.

Also, the lessors should exclude from variable payments, and therefore from revenue, all costs paid by lessees directly to third parties.

Finally, lessors should allocate certain variable payments to lease and non-lease components when the facts and circumstances that trigger the variable payments occur.

ASC Update No.

In August 2018, the FASB issued ASC Update No.

2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities .

The update is effective for annual periods beginning after December 15, 2018.

Early adoption is permitted.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.

The update is effective for annual periods beginning on or after December 15, 2019.

The purpose of Update No.

2017-12 is to improve the presentation and disclosure requirements for, and simplify the application and increase transparency of, hedge accounting.

2018-13 is to modify and eliminate some of the disclosure requirements on fair value measurements found in Topic 820, Fair Value Measurement .

Through the inclusion of this update, FASB aims to facilitate a clear communication of the information required by GAAP that is most important to users of each entity's financial statements, thus helping to improve the effectiveness of disclosures in the notes to financial statements.

The adoption of Update No.

1 unchanged sentence

ASC Update No.

In June 2018, the FASB issued ASC Update No.

2018-07, Compensation-Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting.

In August 2018, the FASB issued ASC Update No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Topic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

The update is effective for annual periods beginning on or after December 15, 2019.

Early adoption is permitted.

The purpose of Update No.

2018-07 is to expand the scope of the employee share-based payments guidance to include share-based payments issued to nonemployees.

2018-15 is to provide a new guideline to the accounting of a customer of a cloud computing arrangement hosted by a vendor when the customer incurs costs associated with the implementation, set-up, and other upfront costs.

Specifically, customers will follow the same criteria found in an arrangement with a software license when they capitalize the implementation costs.

The new guidance also affects the classification of the capitalized implementation costs and related amortization expense found in a company's balance sheet, income statement, and cash flow statement, and the update also requires additional quantitative and qualitative disclosures.

The adoption of Update No.

2018-15 did not have a material impact on the Company's financial position or results of operations.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

Standards to be Implemented

8 unchanged sentences

Measurement of Credit Losses on Financial Instruments .

The update is effective for fiscal years beginning after December 15, 2019.

Early adoption is permitted for fiscal years beginning after December 15, 2018.

The purpose of Update No.

2016-13 is to replace the incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

In November 2018, the FASB issued ASC Update No.

4 unchanged sentences

In May 2019, the FASB issued ASC Update No.

2019-04, Codification Improvements to Topic 326, Financial

Instruments—Credit Losses, Topic 815 , Derivatives and Hedging, and Topic 825 , Financial Instruments.

2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815 , Derivatives and Hedging, and Topic 825 , Financial Instruments.

This update introduced clarifications of the Board’s intent with respect to accrued interest, the transfer between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projects of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures, and extension and renewal options.

5 unchanged sentences

2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).

The amendments in this update change some effective dates for certain new accounting standards for certain types of entities.

The update amends ASC 326 and ASC 350's effective date for all SEC filers other than smaller reporting companies to be the fiscal years beginning after December 15, 2019, and interim periods therein.

The effective date for all other entities, including smaller reporting companies, will be the fiscal years beginning after December 15, 2022, and interim periods therein.

The update does not change the effective date of ASC 815 and ASC 842 for public business entities (PBEs), but amends the effective date for all other entities to be the fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

The amendments in this update change some effective dates for certain new accounting standards including those pertaining to Topic 326 discussed above, for certain types of entities.

In November 2019, the FASB issued ASC Update No.

2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses.

The update is effective for entities that have adopted ASU 2016-13, and the amendments in ASU 2019-11 are effective for fiscal years beginning after December 15, 2019, and interim periods therein.

Early adoption is permitted in any interim period after issuance of this update as long as an entity has adopted the amendments in Update 2016-13.

The update is effective for entities that have adopted ASU 2016-13.

The purpose of Update No.

2019-11 is to clarify the scope of the recovery guidance to purchased financial assets with credit deterioration.

As a current smaller reporting entity, the effective date will be the fiscal years beginning after December 15, 2022.

As a smaller reporting entity, for ASC 815 and ASC 842, the effective dates will be the fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021 and for ASC 326, the effective date will be the fiscal years beginning after December 15, 2022.

The adoption of Update Nos.

2016-13, 2018-19, 2019-04, 2019-05, 2019-10 and 2019-11 is not expected to have a material impact on the Company's financial position or results of operations.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

ASC Update No.

In August 2018, the FASB issued ASC Update No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.

The update is effective for annual periods beginning on or after December 15, 2019.

Early adoption is permitted upon issuance of this update.

The purpose of Update No.

2018-13 is to modify and eliminate some of the disclosure requirements on fair value measurements found in Topic 820, Fair Value Measurement, for both public and nonpublic entities.

2018-13 is not expected to have a material impact on the Company's financial position or results of operations.

ASC Update No.

In August 2018, the FASB issued ASC Update No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Topic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

The update is effective for annual periods beginning on or after December 15, 2019.

Early adoption of the amendments in this update is permitted, including adoption in any interim period, for all entities.

The purpose of Update No.

Specifically, customers will follow the same criteria found in an arrangement with a software license when they capitalize the implementation costs.

2018-15 is not expected to have a material impact on the Company's financial position or results of operations.

ASC Update No.

In November 2018, the FASB issued ASC Update No.

2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606.

This update is effective for public business entities for fiscal years beginning after December 15, 2019, and the interim periods within those fiscal years.

Early adoption is permitted, including adoption in any interim period, for public business entities for periods for which financial statements have not yet been issued.

The purpose of Update No.

2018-18 is to help make clarifications on the interactions between Topic 808, Collaborative Arrangement, and Topic 606, Revenue from Contracts with Customers.

2018-18 is not expected to have a material impact on the Company's financial position or results of operations.

ASC Update No.

In November 2019, the FASB issued ASC Update No.

2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606).

For entities that have adopted the amendments in Update 2018-07, the amendments in this update are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Early adoption is permitted, but not before the amendments in Update 2018-07 are adopted.

The purpose of Update No.

2019-08 is to clarify the accounting for share-based payments issued as consideration payable to a customer in accordance with ASC 606, and entities apply the guidance in ASC 718 to measure and classify share-based payments issued to a customer that are not in exchange for a distinct good or service.

2019-08 is not expected to have a material impact on the Company's financial position or results of operations.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

ASC Update No.

In December 2019, the FASB issued ASC Update No.

7 unchanged sentences

There are no other recent accounting pronouncements issued by the FASB that the Company expects would have a material impact on the Company's financial statements.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

(2) Marketable Securities

Marketable securities consisted of the following as of December 31, 2019 and 2018 :

December 31, 2019

Marketable securities as of December 31, 2020 and 2019 consisted of the following:

December 31, 2020 Amortized

Money market mutual funds $ 20,142 $ — $ — $ 20,142

United States treasuries 4,999 — — 4,999

Total marketable securities designated as available-for-sale $ 25,141 $ — $ — $ 25,141

December 31, 2018

December 31, 2019 Amortized

Money market mutual funds $ 29,907 $ — $ — $ 29,907

Total marketable securities designated as available-for-sale $ 29,907 $ — $ — $ 29,907

The amortized costs and fair value of debt securities as of December 31, 2019 and 2018 are shown below by effective maturity.

Effective maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

December 31, 2019

Due in less than one year

December 31, 2018

Due in less than one year

Interest income from cash equivalents and marketable securities was $480 and $18 for the years ended December 31, 2019 and 2018 , respectively.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

The effective maturity date of the United States treasuries is less than one year.

Interest income from marketable securities was $ 135 and $ 480 for the years ended December 31, 2020 and 2019, respectively.

(3) Inventories

Inventories are stated at the lower of cost and net realizable value using the first-in first-out costing method.

4 unchanged sentences

Finished goods 6,721 7,593

During 2019, the Company recorded an inventory reserve of $2.3 million relating to its TracPhone V-IP products as the Company decided to no longer promote sales of these products and instead to focus its efforts on migrating customers to its HTS network and products.

$ 24,674 $ 23,465

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

(4) Property and Equipment

Property and equipment, net, as of December 31, 2020 and 2019 consist of the following:

Land $ 3,828 $ 3,828

Building and improvements 24,197 24,172

4 unchanged sentences

Motor vehicles 31 31

114,265 107,618

Less accumulated depreciation ( 57,992 ) ( 54,034 )

$ 56,273 $ 53,584

Depreciation expense for the years ended December 31, 2020 and 2019 amounted to $ 10,659 and $ 8,798 , respectively.

Certain revenue-generating hardware assets are utilized by the Company in the delivery of the Company's airtime services, media, and other content.

KVH INDUSTRIES, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

(5) Debt and Line of Credit

Long-term debt consists of the following:

2018 term notes

2018 revolver

Mortgage loan

PPP loan $ 6,927 $ —

Total long-term debt 6,927 —

Less debt issuance costs for 2018 term note (a)

Total debt less debt issuance costs

Less amounts classified as current 4,992 —

Long-term debt, excluding current portion $ 1,935 $ —

(a) - As of December 31, 2018, debt issuance costs classified as current and long-term are $60 and $110 , respectively.

Term Note and Line of Credit

On October 30, 2018, the Company amended and restated its then-outstanding senior credit facility agreement (the 2014 Credit Agreement) by entering into (i) a three -year senior credit facility agreement (the 2018 Credit Agreement) with Bank of America, N.A., as Administrative Agent, and the lenders named from time to time as parties thereto (the 2018 Lenders), for an aggregate amount of up to $42,500 , including a term loan (2018 Term Loan) of $22,500 and a reducing revolving credit facility (the 2018 Revolver) of up to $20,000 initially and reducing to $15,000 on December 31, 2019, each to be used for general corporate purposes, including the refinancing of the Company’s then-outstanding indebtedness under the 2014 Credit Agreement as described below, (ii) a Security Agreement required by the 2018 Lenders with respect to the grant by the Company of a security interest in substantially all of the assets of the Company in order to secure the obligations of the Company under the 2018 Credit Agreement, and (iii) Pledge Agreements required by the 2018 Lenders with respect to the grant by the Company of a security interest in 65% of the capital stock of each of KVH Industries A/S and KVH Industries U.K.

Limited held by the Company in order to secure the obligations of the Company under the 2018 Credit Agreement.

On the closing date, the Company repaid $17,225 on the term loan outstanding under the 2014 Credit Agreement and refinanced its remaining balance.

On the closing date, the Company also borrowed $5,000 under the 2018 Revolver.

On May 13, 2019, the Company entered into a consent with Bank of America, N.A., as Administrative Agent, authorizing the Purchase Agreement and Bridge Loan, as discussed in Note 1.

On June 27, 2019, the Company used the proceeds of the sale of Videotel to repay in full the then-outstanding balance of $21,375 under the 2018 Term Loan and to repay $13,000 of the then-outstanding balance under the 2018 Revolver.

Under the terms of the consent, the 2018 Revolver will remain at $20,000 through the term of the 2018 Credit Agreement.

On October 30, 2021, the entire principal balance of any outstanding loans under the 2018 Revolver will be due and payable, together with all accrued and unpaid interest, fees and any other amounts due and payable under the 2018 Credit Agreement.

As of December 31, 2019 , no amounts were outstanding under the 2018 Revolver, and the full balance of $20,000 was available for borrowing.

The 2018 Credit Agreement contains provisions requiring the mandatory prepayment of amounts outstanding under the 2018 Revolver under specified circumstances, including (i) 100% of the net cash proceeds from certain dispositions to the extent not reinvested in the Company's business within a stated period, (ii) 50% of the net cash proceeds from stated equity issuances and (iii) 100% of the net cash proceeds from certain receipts above certain threshold amounts outside the ordinary course of business.

Borrowings under the 2018 Revolver are subject to the satisfaction of various conditions precedent at the time of each borrowing, including the continued accuracy of the Company’s representations and warranties and the absence of any default under the 2018 Credit Agreement.

Paycheck Protection Program Loan

In May 2020, the Company received a $ 6,927 loan (the PPP Loan) from Bank of America, N.A., under the Paycheck Protection Program, which was established under the Coronavirus Aid, Relief, and Economic Security Act (as modified by the Paycheck Protection Flexibility Act of 2020, the CARES Act) and is administered by the U.S.

Small Business Administration.

The Company believes it has used the proceeds from the PPP Loan in accordance with the requirements of the CARES Act, primarily for payroll costs and to retain workers.

The term of the PPP Loan is two years from the funding date of the PPP Loan.

The interest rate on the PPP Loan is 1.00%.

Under the terms of the PPP Loan, interest accrues from the funding date of the PPP Loan but is deferred until the lender determines the amount of loan forgiveness, but the deferral period will end if the Company fails to apply for loan forgiveness within ten months after the loan forgiveness covered period.

Principal and interest on the PPP Loan will be payable in monthly installments in accordance with the repayment letter.

If forgiveness is determined, then there is no repayment.

The promissory note evidencing the PPP Loan contains various events of default relating to, among other things, insolvency, bankruptcy or the like, payment defaults under the PPP Loan or other loans by the lender, certain defaults under other indebtedness, breach of representations and warranties, the occurrence of a material adverse event, changes in ownership, or breach of other provisions of the promissory note.

Upon an event of default, all principal and accrued interest on the PPP Loan and any and all other loans

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

made by the lender to the Company would at the lender’s option become immediately due and payable.

The Company agreed that it will not receive any other loan under the Paycheck Protection Program.

Pursuant to the terms of the CARES Act, the Company can apply for and may be granted forgiveness for all or a portion of the PPP Loan, if and to the extent that the Company satisfies all of the requirements applicable to forgiveness of the PPP Loan.

Such forgiveness will be determined in part based on the use of PPP Loan proceeds in accordance with the terms of the CARES Act during the 24-week period after loan origination and the maintenance or achievement of certain employee and compensation levels.

The Company has not decided whether to apply for forgiveness and can provide no assurance that any portion of the PPP Loan will be forgiven should it seek forgiveness.

Term Note and Line of Credit

Effective October 30, 2018, the Company entered into an amended and restated three-year senior secured credit facility agreement (the 2018 Credit Agreement) with Bank of America, N.A., as Administrative Agent, and the lenders named from time to time as parties thereto (the 2018 Lenders), for an aggregate amount of up to $ 42,500 , including a term loan (2018 Term Loan) of $ 22,500 and a reducing revolving credit facility (the 2018 Revolver) of up to $ 20,000 initially and reducing to $ 15,000 on December 31, 2019, each to be used for general corporate purposes, including the refinancing of indebtedness under the Company’s then-outstanding senior credit facility agreement.

The Company's obligations under the 2018 Credit Agreement are secured by substantially all of our assets and the pledge of equity interests in certain of our subsidiaries.

On June 27, 2019, the Company used the proceeds of the sale of Videotel to repay in full the then-outstanding balance of $ 21,375 under the 2018 Term Loan and to repay $ 13,000 of the then-outstanding balance under the 2018 Revolver.

The 2018 Revolver remained at $ 20,000 through December 31, 2019 and then reduced to $ 15,000 for the remaining term of the 2018 Credit Agreement.

As of December 31, 2020, no amounts were outstanding under the 2018 Revolver.

Borrowings of up to $ 15,000 under the 2018 Revolver are subject to the satisfaction of various conditions precedent at the time of each borrowing, including the continued accuracy of the Company’s representations and warranties and the absence of any default under the 2018 Credit Agreement.

As of December 31, 2020, the Company is only able to draw on $ 9,400 of the $ 15,000 facility due to covenant restrictions.

The 2018 Credit Agreement contains two financial covenants, a maximum Consolidated Leverage Ratio and a minimum Consolidated Fixed Charge Coverage Ratio, each as defined in the 2018 Credit Agreement.

The Consolidated Leverage Ratio may not be greater than 2.50 :1.00 on December 31, 2019 and declines to 2.00 :1.00 on December 31, 2020.

The Consolidated Leverage Ratio could not exceed 2.50 :1.00 through December 31, 2019 and may not exceed 2.00 :1.00 after December 31, 2020.

The Consolidated Fixed Charge Coverage Ratio may not be less than 1.25 :1.00.

On July 30, 2020, the Company amended the 2018 Credit Agreement to reflect the incurrence of the PPP Loan.

Under the amended agreement, the principal and interest on the PPP Loan are not included in the maximum Consolidated Leverage Ratio or the minimum Consolidated Fixed Charge Coverage Ratio calculations except as to any portion of the PPP Loan that is not ultimately forgiven.

The 2018 Credit Agreement imposes certain other affirmative and negative covenants, including without limitation covenants with respect to the payment of taxes and other obligations, compliance with laws, performance of material contracts, creation of liens, incurrence of indebtedness, investments, dispositions, fundamental changes, restricted payments, changes in the nature of the Company’s business, transactions with affiliates, corporate and accounting changes, and sale and leaseback arrangements.

The Company’s obligation to repay loans under the 2018 Credit Agreement could be accelerated upon an event of default under its terms, including certain failures to pay principal or interest when due, certain breaches of representations and warranties, the failure to comply with the Company’s affirmative and negative covenants under the 2018 Credit Agreement, a change of control of the Company, certain defaults in payment relating to other indebtedness, the acceleration of payment of certain other indebtedness, certain events relating to the liquidation, dissolution, bankruptcy, insolvency or receivership of the Company, the entry of certain judgments against the Company, certain Company property loss events, and certain events relating to the impairment of collateral or the 2018 Lenders' security interest therein.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

Mortgage Loan

In April 2019, the Company repaid in full the outstanding balance under its mortgage loan in the amount of $2,551 .

The Company previously had a mortgage loan (Mortgage Loan) related to its headquarters facility in Middletown, Rhode Island.

On April 1, 2019, on the Mortgage Loan’s original termination date, the Company repaid in full the outstanding balance of $ 2,551 .

As discussed in Note 15 to the consolidated financial statements, in April 2010 the Company entered into two interest rate swap agreements that were intended to hedge its mortgage interest obligations over the term of the Mortgage Loan by fixing the interest rates specified in the Mortgage Loan to 5.91 % for half of the principal amount outstanding as of April 1, 2010 and 6.07 % for the remaining half.

3 unchanged sentences

The following reflects future minimum payments under operating leases and other commitments that have initial or remaining non-cancelable terms at December 31, 2020:

Years ending December 31,

Commitments (a)

Years ending December 31, Commitments (a)

2021 $ 38,826

Thereafter 97

Total minimum payments $ 88,130

2 unchanged sentences

Total expense incurred under satellite capacity and equipment operating leases and other commitments for the years ended December 31, 2020 and 2019 amounted to $ 34,990 and $ 36,390 , respectively, which also includes payments for usage charges in excess of the minimum contractual requirements.

In the normal course of business, the Company enters into unconditional purchase order obligations with its suppliers for inventory and other operational purchases.

Outstanding and unconditional purchase order obligations were $ 19,172 as of December 31, 2020, which the Company expects to fulfill in 2021.

The Company did not have any off-balance sheet commitments, guarantees, or standby repurchase obligations as of December 31, 2020.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

In the normal course of business, the Company enters into unconditional purchase order obligations with its suppliers for inventory and other operational purchases.

Outstanding and unconditional purchase order obligations were $24,679 as of December 31, 2019 , which the Company expects to fulfill in 2020 .

The Company did not have any off-balance sheet commitments, guarantees, or standby repurchase obligations as of December 31, 2019 .

(7) Stockholders’ Equity

1 unchanged sentence

Stock-based compensation expense, excluding compensation charges related to our employee stock purchase plan, or the ESPP, was $ 3,414 and $ 4,099 for the year ended December 31, 2020 and 2019, respectively.

The Company is authorized to grant stock options, restricted stock awards and other stock-based awards under its 2016 Equity and Incentive Plan (the 2016 Plan) with respect to up to 3,000 shares of common stock (plus up to an additional 1,690 shares in respect of certain awards under earlier equity compensation plans that may be forfeited, canceled, reacquired by the Company or terminated after adoption of the 2016 Plan).

The Company is authorized to grant stock options, restricted stock awards and other stock-based awards under its Amended and Restated 2016 Equity and Incentive Plan (the 2016 Plan) with respect to up to 4,800 shares of common stock, an increase of 1,800 shares reserved for issuance under the previous 2016 Plan as approved by our shareholders on June 10, 2020.

Options have generally been granted with an exercise price equal to the fair market value of the common stock on the date of grant and have generally provided for vesting in equal annual amounts over four years beginning on the first anniversary of the date of the grant.

5 unchanged sentences

The Compensation Committee of the Board of Directors administers the equity compensation plans, approves the individuals to whom awards will be granted and determines the number of shares and other terms of each award.

Outstanding options under the Company's equity compensation plans at December 31, 2019 expire from January 2020 through August 2024.

Outstanding options under the Company's equity compensation plans at December 31, 2020 expire from November 2021 through August 2025.

None of the Company’s outstanding options includes performance-based or market-based vesting conditions as of December 31, 2020.

Employee Stock Options

(a) Employee Stock Options

The Company has estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model.

12 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

1 unchanged sentence

The changes in outstanding stock options for the year ended December 31, 2020 and 2019 are as follows:

Number of Options

Weighted Average

Exercise Price

Weighted Average

Number of Options Weighted Average

Exercise Price Weighted Average

Contractual Life

Aggregate Intrinsic

(in Years) Aggregate Intrinsic

Outstanding at December 31, 2019

Granted 654 $ 8.12

Exercised ( 110 ) $ 8.02

Expired, canceled or forfeited ( 134 ) $ 12.14

Outstanding at December 31, 2020

2,034 $ 9.25 3.21 $ 4,288

Exercisable at December 31, 2020

611 $ 9.83 2.19 $ 939

Options vested or expected to vest at December 31, 2020

Number of Options

Weighted Average

Exercise Price

Weighted Average

2,034 $ 9.25 3.21 $ 4,288

Number of Options Weighted Average

Exercise Price Weighted Average

Contractual Life

Aggregate Intrinsic

(in Years) Aggregate Intrinsic

Outstanding at December 31, 2018

1,276 $ 10.28

Granted 630 $ 9.48

Exercised ( 37 ) $ 7.89

Expired, canceled or forfeited ( 245 ) $ 11.35

Outstanding at December 31, 2019

1,624 $ 9.86 3.25 $ 2,325

Exercisable at December 31, 2019

440 $ 10.26 2.07 $ 572

Options vested or expected to vest at December 31, 2019

1,624 $ 9.86 3.25 $ 2,325

The total aggregate intrinsic value of options exercised was $ 269 and $ 108 in 2020 and 2019, respectively.

3 unchanged sentences

During 2020 and 2019, cash received under stock option plans for exercises was $ 880 and $ 286 , respectively.

Restricted Stock

(b) Restricted Stock

The Company granted 317 and 322 restricted stock awards to employees under the terms of the 2016 Plan or the Amended and Restated 2006 Stock Incentive Plan (2006 Plan) for the years ended December 31, 2020 and 2019, respectively.

3 unchanged sentences

The weighted-average grant-date fair value of restricted stock granted during 2020 and 2019 was $ 8.19 and $ 9.67 per share, respectively.

As of December 31, 2019 , there was $3,350 of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 2.14 years .

Compensation costs for awards subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for the entire award.

Compensation cost for awards initially subject to certain performance conditions are recognized on a ratable basis over the requisite service period for the entire award.

In 2019 and 2018 , the Company recorded compensation charges of $3,023 and $2,411 , respectively, related to restricted stock awards.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

As of December 31, 2020, there was $ 3,851 of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 2.52 years.

Compensation costs for awards subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for the entire award.

Compensation cost for awards initially subject to certain performance conditions are recognized on a ratable basis over the requisite service period for the entire award.

In 2020 and 2019, the Company recorded compensation charges of $ 2,013 and $ 3,023 , respectively, related to restricted stock awards.

Restricted stock activity under the 2006 Plan and the 2016 Plan for 2020 is as follows:

Shares Weighted-

Outstanding at December 31, 2019, unvested

Granted 317 8.19

Vested ( 252 ) 9.18

Forfeited ( 7 ) 10.00

Outstanding at December 31, 2020, unvested

Employee Stock Purchase Plan

Under the Company's Amended and Restated 1996 Employee Stock Purchase Plan (ESPP), an aggregate of 1,650 shares of common stock have been reserved for issuance, of which 847 shares remain available as of December 31, 2020.

7 unchanged sentences

During 2020 and 2019, cash received under the ESPP was $ 336 and $ 414 , respectively.

Stock-Based Compensation Expense

(d) Stock-Based Compensation Expense

The following presents stock-based compensation expense, including expense for the ESPP, in the Company's consolidated statements of operations for the years ended December 31, 2020 and 2019.

4 unchanged sentences

General and administrative 2,022 2,237

$ 3,462 $ 4,159

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

1 unchanged sentence

(e) Accumulated Other Comprehensive Loss (AOCI)

Comprehensive income (loss) includes net income (loss), unrealized gains and losses from foreign currency translation, and unrealized gains and losses from available for sale marketable securities and changes in fair value related to interest rate swap derivative instruments, net of tax attributes, which were not material.

The components of the Company’s comprehensive income (loss) and the effect on earnings for the periods presented are detailed in the accompanying consolidated statements of comprehensive income (loss).

Foreign Currency Translation

Unrealized (Loss) Gain on Available for Sale Marketable Securities

Interest Rate Swaps

Total Accumulated Other Comprehensive Loss

Balance, December 31, 2017

Other comprehensive (loss) income before reclassifications

Reclassified from AOCI

Net other comprehensive (loss) income, December 31, 2018

Foreign Currency Translation Interest Rate Swaps Total Accumulated Other Comprehensive Loss

Balance, December 31, 2018

$ ( 14,720 ) $ ( 11 ) $ ( 14,731 )

Other comprehensive income before reclassifications 470 3 473

Reclassified from AOCI

Net other comprehensive income, December 31, 2019

Amounts reclassified from AOCI 11,483 8 11,491

Net other comprehensive income 11,953 11 11,964

Balance, December 31, 2019

( 2,767 ) — ( 2,767 )

Other comprehensive loss ( 465 ) — ( 465 )

Net other comprehensive loss ( 465 ) — ( 465 )

Balance, December 31, 2020

$ ( 3,232 ) $ — $ ( 3,232 )

For additional information, see Note 2, "Marketable Securities", and see Note 15, "Derivative Instruments and Hedging Activities."

1 unchanged sentence

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

1 unchanged sentence

(8) Income Taxes

Income tax expense for the years ended December 31, 2019 and 2018 attributable to loss from operations is presented below.

Income tax expense (benefit) for the years ended December 31, 2020 and 2019 attributable to loss from operations is presented below.

Current Deferred Total

Year ended December 31, 2020

Federal $ 240 $ — $ 240

Foreign 321 ( 387 ) ( 66 )

$ 561 $ ( 387 ) $ 174

Year ended December 31, 2019

Actual income tax expense differs from the “expected” income tax benefit computed by applying the United States Federal statutory income tax rate of 21% for both 2019 and 2018 to loss before tax expense, as follows:

Federal $ ( 196 ) $ ( 4,741 ) $ ( 4,937 )

State ( 28 ) ( 29 ) ( 57 )

Foreign 1,143 ( 152 ) 991

$ 919 $ ( 4,922 ) $ ( 4,003 )

Actual income tax expense (benefit) differs from the “expected” income tax expense (benefit) computed by applying the United States Federal statutory income tax rate of 21% for both 2020 and 2019 to loss before tax expense, as follows:

Year Ended December 31,

Income tax benefit at Federal statutory income tax rate

(Decrease) increase in income taxes resulting from:

State income tax (benefit) expense, net of federal benefit

$ ( 4,571 ) $ ( 4,203 )

Increase (decrease) in income taxes resulting from:

State income tax benefit, net of federal benefit ( 600 ) ( 610 )

State research and development, investment credits ( 213 ) 71

1 unchanged sentence

Non-deductible stock compensation expense 19 18

Nontaxable interest income

Foreign tax rate differential 235 ( 4 )

2 unchanged sentences

Provision to tax return adjustments 144 21

Change in tax rates

Change in valuation allowance 3,980 934

Foreign research and development incentives

Loss on legal entity dissolution — 244

Income tax (benefit) expense

Impairment of goodwill and intangibles 1,834 —

Other ( 8 ) 90

Income tax expense (benefit) $ 174 $ ( 4,003 )

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

Loss from continuing operations before income tax (benefit) expense determined by tax jurisdiction, are as follows:

Loss from continuing operations before income tax expense (benefit) determined by tax jurisdiction, are as follows:

Year Ended December 31,

United States $ ( 11,862 ) $ ( 22,452 )

Foreign ( 9,904 ) 2,440

Total $ ( 21,766 ) $ ( 20,012 )

Deferred tax assets and liabilities for the periods presented consisted of the following:

1 unchanged sentence

Accounts receivable, due to allowance for doubtful accounts $ 221 $ 373

Inventories 1,209 776

Operating loss carry-forwards 2,744 1,343

1 unchanged sentence

Property and equipment, due to difference in depreciation 841 47

Research and development, alternative minimum tax credit carry-forwards

Research and development tax credit carry-forwards 5,640 5,243

Foreign tax credit carry-forwards 2,345 2,345

3 unchanged sentences

Accrued expenses 1,216 845

Right of use assets

Lease liability 1,574 1,378

Gross deferred tax assets 24,085 20,089

4 unchanged sentences

Property and equipment, due to differences in depreciation ( 50 ) ( 132 )

Lease liability

Right of use asset ( 1,564 ) ( 1,378 )

Total deferred tax liabilities ( 1,998 ) ( 2,354 )

Net deferred tax liability $ ( 345 ) $ ( 717 )

Non-current deferred income tax asset

Non-current deferred income tax liability

Deferred income tax asset $ 73 $ 45

Deferred income tax liability $ ( 418 ) $ ( 762 )

As of December 31, 2020 the Company has federal and state tax loss carryforwards of approximately $ 9,180 and $ 12,317 , respectively.

The federal loss carryforward has no expiration date.

The state losses expire through the year 2040.

As of December 31, 2020, the Company had federal research and development tax credit carry-forwards in the amount of $ 5,631 and other general business credits of $ 9 that expire in years 2028 through 2040.

6 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

As of January 1, 2017, the Company adopted Update No.

In accordance with Update No.

2016-09, previously unrecognized excess tax benefits are recognized on a modified retrospective basis.

On January 1, 2017, the Company recorded a $1,117 deferred tax asset related to unrecognized excess tax benefits with an offsetting adjustment to retained earnings.

As the Company had previously recorded a full valuation allowance on its U.S.

deferred tax assets, a corresponding increase to the valuation allowance was recorded with an offsetting adjustment to retained earnings.

As of January 1, 2018, the Company adopted ASC 606.

The adoption of ASC 606 primarily resulted in a deferment of revenue as of December 31, 2017, which in turn generated additional deferred tax assets that ultimately increased the Company's net deferred tax asset position by $ 202 as of January 1, 2018 related to sales made by the Company in certain international jurisdictions.

In assessing the realizability of its net deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

1 unchanged sentence

The change was the result of an increase in domestic tax credit and net operating loss balances offset by a decrease attributed to the derecognition of foreign net operating losses.

As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating taxable income and its near-term forecasts of future taxable income.

As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating tax losses and its near-term forecasts of future taxable income or losses.

As of December 31, 2020, unremitted foreign earnings, which were not significant, have been retained by the Company's foreign subsidiaries for indefinite reinvestment.

6 unchanged sentences

Unrecognized tax benefits as of January 1 $ 1,897 $ 494

Gross increase in unrecognized tax benefits - prior year tax positions

Gross (decrease) increase in unrecognized tax benefits - prior year tax positions ( 105 ) 1,524

Gross increase in unrecognized tax benefits - current year tax positions — 78

7 unchanged sentences

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2020 may decrease approximately $ 25 in the next twelve months as a result of a lapse of statutes of limitation and settlements with taxing authorities.

The Company’s tax jurisdictions include the United States, the United Kingdom, Denmark, Cyprus, Norway, Brazil, Singapore, Hong Kong, Japan, and India.

In general, the statute of limitations with respect to the Company's United States federal income taxes has expired for years prior to 2017, and the relevant state and foreign statutes vary.

However, preceding years remain open to examination by United States federal and state and foreign taxing authorities to the extent of future utilization of net operating losses and research and development tax credits generated in each preceding year.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

The Company’s tax jurisdictions include the United States, the United Kingdom, Denmark, Cyprus, Norway, Brazil, Singapore, Belgium, the Netherlands, Hong Kong, Japan, and India.

In general, the statute of limitations with respect to the Company's United States federal income taxes has expired for years prior to 2016 , and the relevant state and foreign statutes vary.

The 2017 Tax Cuts and Jobs Act (the 2017 Tax Act), which was signed into law on December 22, 2017, resulted in significant changes to the U.S.

corporate income tax system.

These changes included a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation.

The 2017 Tax Act transitioned international taxation from a worldwide system to a modified territorial system and included base erosion prevention measures on non-U.S.

earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S.

taxation as global intangible low-taxed income (GILTI).

The 2017 Tax Act included a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax).

These changes were effective beginning in 2018.

Changes in tax rates and tax laws are accounted for in the period of enactment.

Therefore, during the year ended December 31, 2018, the Company recorded a reduction in its deferred tax assets and corresponding valuation allowance of $484 related to the provisions of the 2017 Tax Act.

On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No.

118 to provide guidance to companies on how to implement the accounting and disclosure changes in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of H.R.1, also known as the 2017 Tax Act.

During the year ended December 31, 2017, the Company recorded a reduction in our deferred tax assets and corresponding valuation allowance of $1,780 and a net tax benefit of $54 related to the Company's current estimate of the provisions of the 2017 Tax Act.

As of December 31, 2018, the Company has completed its assessment of the total impact of the 2017 Tax Act, which resulted in a total reduction in our deferred tax assets and corresponding valuation allowance of $2,264 and a net tax benefit of $54 .

Included in the $2,264 reduction in our deferred tax assets and corresponding valuation allowance, is $1,209 related to the Transition Toll Tax

In 2018, due to the completion of this analysis we recorded a reduction in our deferred tax assets and corresponding valuation allowance of $484 in order to adjust our 2017 estimate.

(9) Goodwill and Intangible Assets

3 unchanged sentences

(i) 10 years for acquired subscriber relationships and (ii) 15 years for distribution rights.

Due to the impairment of distribution rights during the Company's 2020 annual impairment test, the estimated useful life of distribution rights was reduced to 1 year.

The intangibles arising from the KVH Media Group were recorded in pounds sterling and fluctuations in exchange rates cause these amounts to increase or decrease from time to time.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

In January 2017, the Company completed the acquisition of certain subscriber relationships from a third party.

5 unchanged sentences

The amounts payable under the contingent consideration arrangement, if any, will be included in the measurement of the cost of the acquired subscriber relationships.

During the year ended December 31, 2019 , $94 additional consideration was earned under the contingent consideration arrangement.

An additional $ 75 and $ 94 of consideration was earned under the contingent consideration arrangement during the years ended December 31, 2020 and 2019, respectively.

Acquired intangible assets are subject to amortization.

The following table summarizes other intangible assets as of December 31, 2020 and 2019, respectively:

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Gross Carrying Amount Accumulated Amortization Net Carrying Value

December 31, 2020

4 unchanged sentences

Intellectual property 2,284 2,284 —

$ 11,171 $ 8,917 $ 2,254

December 31, 2019

4 unchanged sentences

Intellectual property 2,284 2,284 —

Amortization expense related to intangible assets was $980 and $1,008 for years ended December 31, 2019 and 2018 , respectively, and was categorized as general administrative expense.

$ 15,056 $ 10,113 $ 4,943

Amortization expense related to intangible assets was $ 1,004 and $ 980 for years ended December 31, 2020 and 2019, respectively, and was categorized as general and administrative expense.

As of December 31, 2020, the total weighted average remaining useful lives of the definite-lived intangible assets was 2.0 years and the weighted average remaining useful lives by the definite-lived intangible asset category are as follows:

Intangible Asset

Weighted Average Remaining Useful Life in Years

Subscriber relationships

Distribution rights

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

Intangible Asset Weighted Average Remaining Useful Life in Years

Subscriber relationships 2.5

Distribution rights 0.8

Estimated future amortization expense for intangible assets recorded by the Company at December 31, 2020 is as follows:

Years ending December 31,

Years ending December 31, Amortization

Thereafter 61

Total amortization expense $ 2,254

3 unchanged sentences

Intangibles assets acquired in asset acquisition 75

Impairment of distribution rights ( 1,758 )

Foreign currency translation adjustment ( 2 )

2 unchanged sentences

All of the Company's goodwill as of December 31, 2020 relates to its mobile connectivity reportable segment.

None of the Company's goodwill is deductible for tax purposes.

No ne of the Company's goodwill is deductible for tax purposes.

The changes in the carrying amount of goodwill during the year ended December 31, 2020 is as follows:

Balance at December 31, 2019 $ 15,408

Impairment of KVH Media Group ( 8,732 )

Foreign currency translation adjustment ( 84 )

2 unchanged sentences

The Company has a 401(k) Plan (the Plan) for all eligible employees.

Participants may defer a portion of their pre-tax earnings subject to limits determined by the Internal Revenue Service.

Participants may defer a portion of their pre-tax or post-tax earnings subject to limits determined by the Internal Revenue Service.

Participants age 50 or older may be eligible to make additional contributions.

As of December 31, 2019 , the Company matches 6% contributed by the Plan participants.

As of December 31, 2020, the Company matches contributions by the Plan participants up to 6 %.

The Company’s contributions vest over a five-year period from the date of hire.

Total Company matching contributions were $822 and $726 for the years ended December 31, 2019 and 2018 , respectively.

In addition, the Company may make contributions to the Plan at the discretion of the Compensation Committee of the Board of Directors.

During a five and half month period in 2020, as a result of the uncertainty caused by the COVID-19 pandemic, the Company paused matching contributions.

The Company matching contributions were $ 561 and $ 822 for the years ended December 31, 2020 and 2019, respectively.

In addition, the Company may make additional contributions to the Plan at the discretion of the Compensation Committee of the Board of Directors.

There were no discretionary contributions in 2020 and 2019.

1 unchanged sentence

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

1 unchanged sentence

(11) Revenue from Contracts with Customers (ASC 606)

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised products and services.

Revenue is recognized when a customer obtains control of promised products and services.

The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these products and services

Out-of-Period Error

During the year ended December 31, 2019 , the Company identified an out-of-period immaterial error related to the implementation and application of ASC 606 with respect to the recognition of revenue associated with sales-type leases.

During the implementation of ASC 606 effective January 1, 2018, the Company treated the leased products and services for these contracts as single performance obligations as if they were not distinct in the context of the contract;

however, the leased product portion should have continued to have been accounted for under ASC 840 (now ASC 842).

In general, the error was to defer recognition of product revenue and associated expenses for sales-type leases rather than to recognize those items upon shipment.

In accordance with ASC 250, Accounting Changes and Error Corrections , the immaterial cumulative correction was recorded during the year ended December 31, 2019 and had the effect of increasing net loss by $250 , comprised primarily of a $1,350 increase in product sales, a $1,591 increase in costs of product sales, and a $15 increase in sales, marketing and support expenses.

During the year ended December 31, 2019, the Company identified an out-of-period immaterial error related to the implementation and application of ASC 606 with respect to the recognition of revenue associated with sales-type leases, which impacted our September 30, 2019 consolidated interim financial statements.

In general, the error was an incorrect deferral of product revenue and associated expenses for sales-type leases rather than to recognize those items upon shipment.

The balance sheet impact of correcting January 1, 2019 sales-type leases in effect as of January 1, 2018 was a reduction in accumulated deficit of $ 1,680 , comprised of a reduction in current contract assets of $ 2,132 , non-current contract assets of $ 3,110 , current contract liabilities of $ 2,970 , non-current contract liabilities of $ 4,018 and non-current deferred income tax asset of $ 66 .

The correction recorded during the year ended December 31, 2019 had the effect of increasing net loss by $ 250 , comprised primarily of a $ 1,350 increase in product sales, a $ 1,591 increase in costs of product sales, and a $ 15 increase in sales, marketing and support expenses.

There was no impact to the statement of operations for December 31, 2020.

Disaggregation of Revenue

1 unchanged sentence

Mobile connectivity product, transferred at point in time $ 25,140 $ 26,419

Mobile connectivity product, transferred over time (a)

Mobile connectivity product, transferred over time (1)

Mobile connectivity service 91,590 90,392

3 unchanged sentences

(1) Reflects the correction discussed above.

Revenue recognized during the years ended December 31, 2019 and 2018 from amounts included in contract liabilities at the beginning of the fiscal year was approximately $2,736 and $4,670 .

Revenue recognized during the years ended December 31, 2020 and 2019 from amounts included in contract liabilities at the beginning of the fiscal year was approximately $ 2,586 and $ 2,736 , respectively.

For mobile connectivity product sales, the delivery of the Company’s performance obligations are generally transferred to the customer, and therefore associated revenue is generated, at a point in time, with the exception of certain mini-VSAT contracts which are transferred to customers over time.

For mobile connectivity service sales, the delivery of the Company’s performance obligations are transferred to the customer, and therefore associated revenue is generated, over time.

For mobile connectivity service sales, the delivery of the Company’s performance obligations are transferred to the customer over time, and therefore associated revenue is recognized over time.

For inertial navigation product sales, the delivery of the Company’s performance obligations are generally transferred to the customer, and therefore associated revenue is generated, at a point in time.

For inertial navigation service sales, the Company's performance obligations are generally transferred to customers, and therefore associated revenue is generated, over time.

For inertial navigation service sales, the Company's performance obligations are generally transferred to customers over time, and therefore associated revenue is recognized over time

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

5 unchanged sentences

The Company performs ongoing credit evaluations of the financial condition of its customers and generally does not require collateral.

The Company had no customers that accounted for 10% or more of its consolidated net sales for the years ended December 31, 2019 and 2018 , respectively, or accounts receivable as of years ended December 31, 2019 and 2018 .

The Company had no customers that accounted for 10% or more of its consolidated net sales for the years ended December 31, 2020 or 2019 or accounts receivables as of December 31, 2020 or 2019.

Certain components from third parties used in the Company’s products are procured from single sources of supply.

8 unchanged sentences

Segment-level asset information has not been provided as such information is not reviewed by the chief operating decision-maker for purposes of assessing segment performance and allocating resources.

There are no inter-segment sales or transactions.

There are no significant inter-segment sales or transactions.

As discussed in Note 1, the Company’s Videotel business, which had previously been included in the mobile connectivity segment, has been classified as discontinued operations and therefore excluded from the segment information below.

2 unchanged sentences

The mobile connectivity segment primarily manufactures and distributes a comprehensive family of mobile satellite antenna products and services that provide access to television, the Internet and voice services while on the move.

Product sales within the mobile connectivity segment accounted for approximately 20% of our consolidated net sales for both 2019 and 2018 .

Product sales within the mobile connectivity segment accounted for approximately 18 % and 20 % of our consolidated net sales for 2020 and 2019, respectively.

Sales of mini-VSAT Broadband airtime service accounted for approximately 51 % and 48 % of our consolidated net sales for 2020 and 2019, respectively.

1 unchanged sentence

The principal product categories in this segment include the FOG-based inertial measurement units (IMUs) for precision guidance, FOGs for tactical navigation as well as pointing and stabilization systems, and digital compasses that provide accurate heading information for demanding applications, security, automation and access control equipment and systems.

Sales of FOG-based guidance and navigation systems within the inertial navigation segment accounted for approximately 16% and 17% of consolidated net sales for 2019 and 2018 , respectively.

Sales of FOG-based guidance and navigation systems within the inertial navigation segment accounted for approximately 16 % of consolidated net sales for both 2020 and 2019.

No other single product class accounts for 10% or more of consolidated net sales.

The Company operates in a number of major geographic areas, including internationally.

Revenues from international locations, primarily consisting of Canada, European countries, both inside and outside the European Union, as well as Africa, Asia/Pacific, the Middle East, and India.

Revenues are based upon customer location and internationally represented 54% and 57% of consolidated net sales for 2019 and 2018 , respectively.

No individual foreign country represented 10% or more of the Company's consolidated net sales for 2019 or 2018 .

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

The Company operates in a number of major geographic areas, including internationally.

Revenues from international locations primarily include Canada, European Union countries, and other European countries, as well as countries in Africa, Asia/Pacific, the Middle East, and India.

Revenues are based upon customer location and internationally represented 64 % and 54 % of consolidated net sales for 2020 and 2019, respectively.

No individual foreign country represented 10% or more of the Company's consolidated net sales for 2020 or 2019.

As of December 31, 2020 and 2019, the long-lived tangible assets related to the Company’s international subsidiaries were less than 10% of the Company’s long-lived tangible assets and were deemed not material.

Net sales and operating (loss) income for the Company's reporting segments and the Company's loss from continuing operations before income tax (benefit) expense for the years ended December 31, 2019 and 2018 were as follows:

Net sales and operating income (loss) for the Company's reporting segments and the Company's loss from continuing operations before income tax expense (benefit) for the years ended December 31, 2020 and 2019 were as follows:

For the year ended December 31,

4 unchanged sentences

Mobile connectivity (1)

$ ( 10,071 ) $ ( 5,569 )

Inertial navigation 4,799 2,961

Subtotal ( 5,272 ) ( 2,608 )

Unallocated, net ( 17,665 ) ( 18,488 )

Loss from operations ( 22,937 ) ( 21,096 )

Net interest and other income (expense)

Loss from continuing operations before income tax (benefit) expense

Net interest and other income 1,171 1,084

Loss from continuing operations before income tax expense (benefit) $ ( 21,766 ) $ ( 20,012 )

(1) Includes an impairment charge of $ 10,490 for the KVH Media Group reporting unit within the mobile connectivity segment as of December 31, 2020.

Depreciation expense and amortization expense for the Company's segments are presented in the table that follows for the periods presented:

3 unchanged sentences

Inertial navigation 1,325 1,155

Unallocated 608 559

Total consolidated depreciation expense $ 10,659 $ 8,798

2 unchanged sentences

Inertial navigation — —

Unallocated — —

Total consolidated amortization expense $ 1,004 $ 980

1 unchanged sentence

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

1 unchanged sentence

(13) Share Buyback Program

On November 26, 2008, the Company’s Board of Directors authorized a program to repurchase up to 1,000 shares of the Company’s common stock.

The program was superseded on October 4, 2019.

On October 4, 2019, the Company's Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to 1,000 shares of the Company’s common stock.

The repurchase program is expected to be funded using the Company’s existing cash, cash equivalents, marketable securities and future cash flows.

Under the repurchase program, the Company, at management’s discretion, may repurchase shares on the open market from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement.

The timing of such repurchases depends on availability of shares, price, market conditions, alternative uses of capital, and applicable regulatory requirements.

The program may be modified, suspended or terminated at any time without prior notice.

The repurchase program has a duration of one year .

Under the Company's 2018 Credit Agreement, the Company may not repurchase more than $5,000 of shares before October 31, 2021 without appropriate consent.

During 2019 , the Company repurchased 115 shares of common stock in open market transactions at a cost of approximately $1,300 .

On October 4, 2019, the Company's Board of Directors authorized a share repurchase program pursuant to which the Company was authorized to purchase up to 1,000 shares of the Company’s common stock.

The program expired on October 4, 2020.

Under the repurchase program, the Company, at management’s discretion, was authorized to repurchase shares on the open market from time to time, in privately negotiated transactions or block transactions, or through an accelerated repurchase agreement.

In January 2020, the Company repurchased 36 shares of common stock in open market transactions at a cost of approximately $ 390 .

The total amount the Company repurchased under the repurchase program since the inception of the October 4, 2019 repurchase program was 151 shares of common stock for an approximate cost of $ 1,690 .

Except as noted above, there were no other repurchase programs outstanding during 2020.

5 unchanged sentences

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

The Company’s Level 1 assets are investments in money market mutual funds.

The Company’s Level 1 assets are investments in money market mutual funds and United States treasuries.

Quoted prices for similar assets or liabilities in active markets;

or observable prices that are based on observable market data, based on directly or indirectly market-corroborated inputs.

The Company’s Level 2 inputs related to interest rate swaps.

The Company has no Level 2 assets or liabilities.

Unobservable inputs that are supported by little or no market activity, and are developed based on the best information available given the circumstances.

The Company has no Level 3 inputs.

The Company has no Level 3 assets.

Assets and liabilities measured at fair value are based the valuation techniques identified in the table below.

The valuation techniques are:

Market approach—prices and other relevant information generated by market transactions involving identical or comparable assets.

The valuations of the interest rate swaps intended to mitigate the Company’s interest rate risk are determined with the assistance of a third-party financial institution using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument.

This analysis utilizes observable market-based inputs, including interest rate curves and interest rate volatility and reflects the contractual terms of these instruments, including the period to maturity, as of April 1, 2019.

(a) Market approach—prices and other relevant information generated by market transactions involving identical or comparable assets.

The following tables present financial assets and liabilities at December 31, 2020 and December 31, 2019 for which the Company measures fair value on a recurring basis, by level, within the fair value hierarchy:

December 31, 2020 Total Level 1 Level 2 Level 3 Valuation

Money market mutual funds $ 20,142 $ 20,142 $ — $ — (a)

United States treasuries 4,999 4,999 — — (a)

December 31, 2019 Total Level 1 Level 2 Level 3 Valuation

Money market mutual funds $ 29,907 $ 29,907 $ — $ — (a)

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

The following tables present financial assets and liabilities at December 31, 2019 and December 31, 2018 for which the Company measures fair value on a recurring basis, by level, within the fair value hierarchy:

December 31, 2019

Money market mutual funds

December 31, 2018

Money market mutual funds

Interest rate swaps

Certain financial instruments are carried at cost on the consolidated balance sheets, which approximates fair value due to their short-term, highly liquid nature.

These instruments include cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses.

These instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and debt obligations.

The carrying amount of the Company's operating and financing lease liabilities approximates fair value based on currently available quoted rates of similarly structured borrowings.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company's non-financial assets, such as goodwill, intangible assets, and other long-lived assets resulting from business combinations, are measured at fair value using income approach valuation methodologies at the date of acquisition and subsequently re-measured if an impairment exists.

There were no impairments of the Company’s non-financial assets noted as of December 31, 2019 or 2018 .

There was no impairment of the Company’s non-financial assets noted as of December 31, 2019.

During 2020, the Company recorded an impairment charge of $ 10,490 to goodwill and intangible assets.

See Note 1(k) and Note 9 for additional details.

The Company does not have any liabilities that are recorded at fair value on a non-recurring basis.

4 unchanged sentences

For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive (loss) income (AOCI) to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings.

As the Company made the required principal and interest payments under the mortgage loan and the related interest rate swaps were settled, the Company reclassified to earnings the amounts recorded in AOCI related to the changes in the fair value of the settled interest rate swaps.

To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in other income (expense) in the consolidated statements of operations.

As the Company made the required principal and interest payments under the mortgage loan and the related interest rate swaps were settled, the Company reclassified the amounts recorded in AOCI related to the changes in the fair value of the settled interest rate swaps to earnings.

To the extent there was any hedge ineffectiveness, changes in fair value relating to the ineffective portion were immediately recognized in earnings in other income (expense) in the consolidated statements of operations.

The interest rate swap was recorded within accrued other liabilities on the balance sheet.

2 unchanged sentences

On April 1, 2019, the two interest rate swaps matured and the Company made its final payment for its mortgage loan thereafter.

As of December 31, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivatives

(in thousands)

Effective Date

Maturity Date

Interest rate swap

April 1, 2010

April 1, 2019

1-month LIBOR

Interest rate swap

April 1, 2010

April 1, 2019

1-month LIBOR

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

(16) Legal Matters

2 unchanged sentences

The Company is not a party to any lawsuit or proceeding that, in management's opinion, is likely to materially harm the Company's business, results of operations, financial condition or cash flows.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

The Company has operating leases for office facilities, equipment, and satellite service capacity and related equipment.

Operating lease expense from continuing operations for the year ended December 31, 2019 was $5,079 .

Short-term operating lease costs from continuing operations for the year ended December 31, 2019 was $160 .

Sublease income from continuing operations for the year ended December 31, 2019 was $132 .

The future minimum lease payments under our operating leases as of December 31, 2019 are:

Lease expense was $ 3,413 and $ 5,079 for the year ended December 31, 2020 and 2019, respectively.

Short-term operating lease costs was $ 244 and $ 160 for the years ended December 31, 2020 and 2019, respectively.

Sublease income was $ 134 and $ 132 for the years ended December 31, 2020 and 2019, respectively.

Maturities of lease liabilities as of December 31, 2020 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows:

2025 and thereafter

Total minimum lease payments

Total undiscounted lease payments $ 7,539

Less amount representing interest $ ( 509 )

Present value of net minimum operating lease payments

Present value of operating lease liabilities $ 7,030

Less current installments of obligation under current-operating lease liabilities $ 3,826

4 unchanged sentences

As of December 31, 2020, the gross costs and accumulated depreciation associated with this lease are included in revenue generating assets and amounted to $ 3,068 and $ 1,284 , respectively.

Property and equipment under financing leases are stated at the present value of minimum lease payments.

The obligations under financing leases are stated at the present value of minimum lease payments.

The property and equipment held under this financing lease are amortized on a straight‑line basis over the seven-year estimated useful life of the asset, since the lease meets the bargain purchase option criteria .

1 unchanged sentence

Depreciation expense for these capital assets was $ 438 and $ 439 for the years ended December 31, 2020 and 2019, respectively.

Financing lease expense from continuing operations was $624 and $580 for the years ended December 31, 2019 and 2018 , respectively.

The financing lease expense includes $14 and $18 of interest expense for the years ended December 31, 2019 and 2018 , respectively.

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

(in thousands, except per share amounts)

The future minimum lease payments under this financing lease as of December 31, 2019 are:

2024 and thereafter

Total minimum lease payments

The future undiscounted lease payments under this financing lease as of December 31, 2020 are:

Total undiscounted lease payments $ 1,293

Less amount representing interest $ ( 9 )

Present value of net minimum capital lease payments

Present value of financing lease liabilities $ 1,284

Less current installments of obligation under accrued other $ 618

10 unchanged sentences

The current portion of the net investment in the leases is included in accounts receivable, net of allowance for doubtful accounts on the accompanying consolidated balance sheets and the non-current portion of the net investment in these leases is included in other non-current assets on the accompanying consolidated balance sheets.

Interest income from sales-type leases was $699 during the year ended December 31, 2019 .

Interest income from sales-type leases was $ 859 and $ 699 during the year ended December 31, 2020 and 2019, respectively.

The future undiscounted cash flows from these leases as of December 31, 2020 are:

4 unchanged sentences

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

1 unchanged sentence

(18) Discontinued Operations

The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations to the amounts presented separately in the Company's consolidated balance sheet:

December 31, 2018

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Current assets held for sale

Property and equipment, net

Intangible assets, net

Other non-current assets

Non-current assets held for sale

Accounts payable

Accrued compensation and employee-related expenses

Accrued other

Contract liabilities

Liability for uncertain tax positions

Current liabilities held for sale

Non-current deferred income tax liability

Non-current liabilities held for sale

Net assets held for sale

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

December 31, 2019 and 2018

(in thousands, except per share amounts)

The following table presents a reconciliation of the major financial line items constituting the results for discontinued operations to the net income from discontinued operations, net of tax, presently separately in the Company's consolidated statements of operations and comprehensive income (loss):

During the second quarter of 2019, the Company sold its Videotel business.

The Company determined that the sale met the requirements for reporting as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20.

Service sales $ — $ 5,769

14 unchanged sentences

The following table presents supplemental cash flow information of the discontinued operations:

Cash (used in) provided by operating activities—discontinued operations

Cash provided by (used in) investing activities—discontinued operations

Cash used in operating activities—discontinued operations $ — $ ( 2,638 )

Cash provided by investing activities—discontinued operations $ — $ 87,986

KVH INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

December 31, 2020 and 2019

3 unchanged sentences

Financial information for interim periods was as follows:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

First Quarter Second Quarter Third Quarter Fourth Quarter

(in thousands, except per share amounts)

Product sales (a)

Product sales $ 13,094 $ 13,949 $ 16,650 $ 20,926

Service sales 23,474 22,977 24,462 23,201

Cost of product sales (a)

Cost of product sales 9,636 9,554 10,422 11,996

Cost of service sales 15,195 14,378 14,875 15,069

Operating expenses (a)

19,385 16,430 16,318 28,412

Loss from continuing operations (a)

( 7,648 ) ( 3,436 ) ( 503 ) ( 11,350 )

Net loss from continuing operations (a)

Net income (loss) from discontinued operations

Net (loss) income (a)

( 6,214 ) ( 3,552 ) ( 537 ) ( 11,637 )

$ ( 6,214 ) $ ( 3,552 ) $ ( 537 ) $ ( 11,637 )

Net loss continuing operations per share (b) :

Net income (loss) discontinued operations per share (b) :

Net (loss) income per share (b) :

Product sales

Basic $ ( 0.35 ) $ ( 0.20 ) $ ( 0.03 ) $ ( 0.65 )

Diluted $ ( 0.35 ) $ ( 0.20 ) $ ( 0.03 ) $ ( 0.65 )

Net loss per share (b) :

Basic $ ( 0.35 ) $ ( 0.20 ) $ ( 0.03 ) $ ( 0.65 )

Diluted $ ( 0.35 ) $ ( 0.20 ) $ ( 0.03 ) $ ( 0.65 )

Product sales (c)

$ 13,215 $ 15,189 $ 14,808 $ 18,713

Service sales 23,161 24,541 24,503 23,763

Cost of product sales

Cost of product sales (c)

8,284 12,649 10,823 11,131

Cost of service sales 15,373 15,379 15,029 15,475

Operating expenses

Loss from continuing operations

Net loss from continuing operations

Net income from discontinued operations

Operating expenses (c)

18,953 18,381 18,317 19,195

Loss from continuing operations (c)

( 6,234 ) ( 6,679 ) ( 4,858 ) ( 3,325 )

Net loss from continuing operations (c)

( 6,497 ) ( 3,294 ) ( 3,308 ) ( 2,910 )

Net income (loss) from discontinued operations 243 50,630 ( 1,036 ) ( 573 )

Net (loss) income (c)

$ ( 6,254 ) $ 47,336 $ ( 4,344 ) $ ( 3,483 )

Net loss continuing operations per share (b) :

Net income discontinued operations per share (b) :

Net loss per share (b) :

The Company’s product sales, costs of product sales, sales, marketing and support expense, income tax benefit and net loss from continuing operations for 2019 include adjustments to correct immaterial prior period accounting errors related to the implementation and application of ASC 606.

See Note 11 of our consolidated financial statements for more information.

Basic $ ( 0.38 ) $ ( 0.19 ) $ ( 0.19 ) $ ( 0.17 )

Diluted $ ( 0.38 ) $ ( 0.19 ) $ ( 0.19 ) $ ( 0.17 )

Net income (loss) discontinued operations per share (b) :

Basic $ 0.01 $ 2.90 $ ( 0.06 ) $ ( 0.03 )

Diluted $ 0.01 $ 2.90 $ ( 0.06 ) $ ( 0.03 )

Net (loss) income per share (b) :

Basic $ ( 0.36 ) $ 2.71 $ ( 0.25 ) $ ( 0.20 )

Diluted $ ( 0.36 ) $ 2.71 $ ( 0.25 ) $ ( 0.20 )

Includes an impairment charge of $ 10,490 for the KVH Media Group reporting unit within the mobile connectivity segment during the fourth quarter of 2020.

Net loss per share is computed independently for each of the quarters.

Therefore, the net loss per share for the four quarters may not equal the annual net loss per share data.

See Note 11 of our consolidated financial statements for more information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures