10-Q 1 a2013q3form10-q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 001-34867

UniTek Global Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		75-2233445
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 1777 Sentry Parkway West,

Gwynedd Hall, Suite 302

Blue Bell, Pennsylvania 19422

(Address of Principal Executive Offices)

(267) 464-1700

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer ¨		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of November 12, 2013, 18,971,550 shares of the registrant’s common stock, par value $0.00002, were outstanding.

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UNITEK GLOBAL SERVICES, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

Index

		Page No.
PART I:	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
SIGNATURES		31

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PART I:	FINANCIAL INFORMATION

Item 1.	Financial Statements

UNITEK GLOBAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)		September 28, 2013				December 31, 2012
ASSETS		(Unaudited)
CURRENT ASSETS
Cash and cash equivalents		$	1,619			$	3,836
Accounts receivable, net of allowances		94,046				102,490
Inventories		15,675				15,266
Other current assets		8,334				7,560
Total current assets		119,674				129,152
Restricted cash		24,716				—
Property and equipment, net of accumulated depreciation of $50,700 and $41,953		17,565				26,393
Amortizable intangible assets, net (includes amortizable customer relationships, net, of $33,558 and $38,090)		35,491				42,013
Goodwill		121,890				121,920
Other assets, net		6,253				6,925
Total assets		$	325,589			$	326,403
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt		$	7,393			$	3,450
Current portion of capital lease obligations		6,011				7,688
Accounts payable		34,600				48,845
Accrued insurance		17,589				16,248
Accrued compensation and benefits		6,614				9,766
Other current liabilities		19,647				27,361
Total current liabilities		91,854				113,358
Long-term debt, net of current portion		188,194				153,014
Long-term capital lease obligations, net of current portion		4,753				8,040
Other liabilities		4,376				3,688
Total liabilities		289,177				278,100
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.00002 par value (20,000 shares authorized, no shares issued or outstanding)		—				—
Common Stock, $0.00002 par value (200,000 shares authorized, 18,965 and 18,736 issued and outstanding)		—				—
Additional paid-in capital		274,842				260,077
Accumulated other comprehensive income		86				57
Accumulated deficit		(238,516		)		(211,831		)
Total stockholders’ equity		36,412				48,303
Total liabilities and stockholders’ equity		$	325,589			$	326,403

See accompanying notes

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UNITEK GLOBAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income or Loss

(Unaudited)

	Three Months Ended								Nine Months Ended
(in thousands, except per share amounts)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Revenues	$	130,037			$	130,482			$	365,062			$	316,667
Cost of revenues	104,227				102,824				298,594				257,657
Gross profit	25,810				27,658				66,468				59,010
Selling, general and administrative expenses	10,290				11,099				35,199				33,490
(Income) expense related to contingent consideration	—				—				(114		)		10,077
Restructuring charges	670				1,594				1,149				6,400
Restatement, investigation and related costs	2,524				—				7,590				—
Impairment charges	1,090				—				1,090				—
Depreciation and amortization	4,807				6,701				16,067				19,790
Operating income (loss)	6,429				8,264				5,487				(10,747		)
Interest expense	8,051				3,883				21,592				10,496
Loss on extinguishment of debt	9,247				—				9,247				—
Other expense (income), net	239				(76		)		232				(1,146		)
(Loss) income from continuing operations before income taxes	(11,108		)		4,457				(25,584		)		(20,097		)
Income tax expense	273				293				449				315
(Loss) income from continuing operations	(11,381		)		4,164				(26,033		)		(20,412		)
Income (loss) from discontinued operations	67				(30,773		)		(652		)		(34,672		)
Net loss	$	(11,314	)		$	(26,609	)		$	(26,685	)		$	(55,084	)
Other comprehensive income or loss:
Foreign currency translation	(8		)		(5		)		29				36
Comprehensive loss	$	(11,322	)		$	(26,614	)		$	(26,656	)		$	(55,048	)
Net loss per share – basic and diluted
Continuing operations	(0.60		)		$	0.22			$	(1.37	)		$	(1.14	)
Discontinued operations	0.01				(1.64		)		(0.03		)		(1.93		)
Total	$	(0.59	)		$	(1.42	)		$	(1.40	)		$	(3.07	)
Weighted average shares of common stock outstanding – basic and diluted	19,101				18,732				19,013				17,969

See accompanying notes

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UNITEK GLOBAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012
Cash flows from operating activities:
Net loss	$	(26,685	)		$	(55,084	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts	2,351				2,076
Depreciation and amortization	16,146				21,714
Impairment charges	1,090				35,180
Loss on extinguishment of debt	9,247				—
Interest and fees added to debt principal	5,964				—
Amortization of deferred financing costs and debt discount	1,600				1,148
(Income) expense related to contingent consideration	(114		)		10,077
Stock-based compensation	1,674				4,050
Loss (gain) on sale of property and equipment	202				(1,267		)
Deferred income taxes, net	585				(5,220		)
Contingent consideration	—				(1,560		)
Changes in working capital:
Accounts receivable	6,093				(29,964		)
Inventories	(409		)		(5,866		)
Prepaid expenses and other assets	(1,079		)		(1,645		)
Accounts payable and other liabilities	(17,385		)		21,518
Net cash used in operating activities	(720		)		(4,843		)
Cash flows from investing activities:
Acquisition of property and equipment	(1,736		)		(4,239		)
Proceeds from sale of property and equipment	391				1,917
Cash paid for acquisition of businesses, net of cash acquired	—				(16,858		)
Net cash used in investing activities	(1,345		)		(19,180		)
Cash flows from financing activities:
(Repayment of) proceeds from prior revolving credit facility, net	(26,892		)		19,490
Proceeds from new revolving credit facility, net	64,500				—
Proceeds from term loan facilities	—				33,750
Repayment of term loan facilities	(622		)		(888		)
Repayment of capital leases	(5,768		)		(8,928		)
Restriction of cash to collateralize letters of credit	(24,716		)		—
Payment of contingent consideration	—				(17,980		)
Payment of financing fees	(6,765		)		(1,016		)
Other financing activities	(9		)		(194		)
Net cash (used in) provided by financing activities	(272		)		24,234
Effect of exchange rate on cash and cash equivalents	120				(14		)
Net (decrease) increase in cash and cash equivalents	(2,217		)		197
Cash and cash equivalents at beginning of period	3,836				533
Cash and cash equivalents at end of period	$	1,619			$	730
Supplemental cash flow information:
Interest paid	$	11,784			$	8,993
Income taxes paid	382				784
Significant non-cash investing and financing activities:
Value of warrants issued to lenders under term loan facilities	$	13,100			$	—
Fair value of equity paid for acquisition	—				5,789
Acquisition of property and equipment financed by capital leases	804				3,788

See accompanying notes

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UNITEK GLOBAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.    Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of UniTek Global Services, Inc. and its subsidiaries (“UniTek” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the United States Securities and Exchange Commission. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly its results of its operations and cash flows at the dates and for the periods indicated. All intercompany transactions and balances among subsidiaries have been eliminated in consolidation. The results of operations for the interim periods are not necessarily indicative of the results for the full fiscal year.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Those audited consolidated financial statements include a summary of the Company’s significant accounting policies, to which there have been no significant changes.

The condensed consolidated statements of comprehensive income or loss and related footnote disclosures present the continuing operations of the Company. The condensed consolidated balance sheets, statements of cash flows and related footnote disclosures, including disclosures of changes in balance sheet amounts, present the total operations of the Company, including discontinued operations.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the reported amounts of revenues and expenses, and certain of the amounts contained in the notes to the condensed consolidated financial statements. Although such assumptions are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ significantly from those estimates and assumptions. The Company’s more significant estimates relate to revenue recognition, impairment testing of goodwill, indefinite-lived intangible assets and other long-lived assets, fair value measurements, the allowance for doubtful accounts, accrued insurance, income taxes and litigation and contingencies.

In the ordinary course of accounting for the items discussed above, the Company makes changes in estimates as appropriate and as the Company becomes aware of circumstances surrounding those estimates. Such changes in estimates are reflected in reported results of operations in the period in which the changes are made, and if material, their effects are disclosed in the notes to the condensed consolidated financial statements.

Net Income or Loss per Share

During the three and nine months ended September 28, 2013 and September 29, 2012, there were no differences in the amount of basic and diluted net income or loss per share. Common shares from the potential conversion of other long-term debt into 3.7 million common shares (see Note 5), the potential exercise of warrants for 3.9 million common shares (see Note 8) and the potential issuance of 0.4 million common shares related to outstanding stock-based compensation instruments (see Note 9) were excluded from the calculations of diluted net income or loss per share because their effects were anti-dilutive.

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2.    Accounts Receivable, Net of Allowances 

The following table presents the components of accounts receivable, net of allowances:

(in thousands)		September 28, 2013				December 31, 2012
Trade accounts receivable		$	27,772			$	22,954
Contract billings		33,911				37,246
Unbilled contract revenues		33,176				42,287
Other unbilled revenues		2,669				3,686
Retainage		2,807				2,657
Accounts receivable, gross		100,335				108,830
Allowance for doubtful accounts		(6,289		)		(6,340		)
Accounts receivable, net of allowances		$	94,046			$	102,490

All components of accounts receivable are expected to be collected within one year, except for retainage. Retainage has been billed but is not due until completion of performance and acceptance by customers according to the terms of contracts.

The following table presents the components of unbilled contract revenues, as presented above, net of billings in excess of costs and estimated earnings, a component of other current liabilities:

(in thousands)		September 28, 2013				December 31, 2012
Costs of in-process contracts		$	85,413			$	85,842
Estimated earnings, net of estimated losses		28,268				30,822
Less: progress billings		(85,560		)		(79,023		)
		$	28,121			$	37,641
Unbilled contract revenues		$	33,176			$	42,287
Billings in excess of costs and estimated earnings		(5,055		)		(4,646		)
		$	28,121			$	37,641

3.    Concentration Risks

A substantial majority of the Company’s revenues and accounts receivable, net of allowances, are concentrated with a few large customers. The largest three customers accounted for 42%, 20% and 12% of revenues for the nine months ended September 28, 2013 and 42%, 19% and 9% of accounts receivable, net of allowances, at September 28, 2013.

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4.    Goodwill and Other Intangible Assets

The following table presents the components of goodwill by segment:

		September 28, 2013												December 31, 2012
(in thousands)		Gross Amount				Accumulated Impairment Losses				Net Amount				Gross Amount				Accumulated Impairment Losses				Net Amount
Fulfillment		$	111,306			$	—			$	111,306			$	111,336			$	—			$	111,336
Engineering and Construction		25,484				14,900				10,584				25,484				14,900				10,584
Total		$	136,790			$	14,900			$	121,890			$	136,820			$	14,900			$	121,920

Fulfillment segment goodwill includes $0.9 million denominated in Canadian dollars, resulting in small currency translation changes from period to period.

The following table presents the components of amortizable intangible assets:

		September 28, 2013												December 31, 2012
(in thousands)		Gross Amount				Accumulated Amortization				Net Amount				Gross Amount				Accumulated Amortization				Net Amount
Customer relationships		$	97,211			$	63,653			$	33,558			$	116,222			$	78,132			$	38,090
Other		5,561				3,628				1,933				7,359				3,436				3,923
Total		$	102,772			$	67,281			$	35,491			$	123,581			$	81,568			$	42,013

As a result of the sale of the wireline telecommunications business unit in December 2012 (see Note 11), the Company wrote off the gross amount and accumulated amortization of intangible assets related to that business unit. During the three months ended September 28, 2013, the Company determined that acquired technology assets of the Engineering and Construction segment with a carrying value of $1.1 million were fully impaired.

5.    Long-Term Debt

The following table presents the components of long-term debt:

(in thousands)		September 28, 2013				December 31, 2012
Revolving credit facility, net of discount of $3,336 at September 28, 2013		$	61,164			$	26,892
Term loan facility, net of discounts of $12,665 and $3,401		128,380				129,572
Other long-term debt		6,043				—
Total long-term debt		195,587				156,464
Current portion of long-term debt		7,393				3,450
Long-term debt, net of current portion		$	188,194			$	153,014

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Revolving Credit Facility

The Company has entered into a Revolving Credit and Security Agreement and an Amended and Restated Fee Letter, both dated July 10, 2013 and amended on July 25, 2013, with Apollo Investment Corporation (the “New Revolving Loan”). Prior to the refinancing of the Company’s debt in July 2013, the Company had entered into a Revolving Credit and Security Agreement by and among the Company and PNC Bank (the “Prior Revolving Loan”). Additional details are included in the section of this footnote entitled “July 2013 Refinancing.”

The New Revolving Loan is a $75.0 million facility with up to $35.0 million available for issuance of letters of credit. The New Revolving Loan may be used for general business purposes, and amounts may be drawn or repaid in unlimited repetition up to the maximum allowed amount so long as no event of default has occurred and is continuing. Interest is payable in cash at a rate equal to either (i) LIBOR (with a floor of 1.00%) plus a margin of 9.25%; or (ii) an alternate base rate (equal to the greatest of three other variable rates, as defined) plus a margin of 8.25%. The interest rate on the New Revolving Loan was 10.25% at September 28, 2013. The New Revolving Loan is subject to a commitment fee of 2.00% on the unused portion of the facility. Letters of credit may be issued up to the maximum amount at an annual interest rate equal to 9.00%. The New Revolving Loan matures on April 15, 2016.

There was $10.5 million of availability under the New Revolving Loan at September 28, 2013. Availability was calculated based upon (i) $75.0 million, which was determined as the lesser of (a) the $75.0 million amount of the facility and (b) a borrowing base of $52.5 million, calculated as a percentage of eligible receivables, plus an additional amount that decreases over time (the “Additional Borrowing Base Amount”); less (ii) outstanding letters of credit under the New Revolving Loan, of which there were none; less (iii) outstanding borrowings under the New Revolving Loan of $64.5 million. The Additional Borrowing Base Amount is defined as (i) from July 10, 2013 through October 31, 2013, an amount equal to $30.0 million; (ii) from November 1, 2013 through and including November 30, 2013, an amount equal to $25.0 million; and (iii) thereafter, an amount equal to $20.0 million.

In connection with the refinancing, proceeds from the New Revolving Loan were used to repay the Prior Revolving Loan. Refinancing costs of $1.2 million and $3.6 million were deferred as a component of other assets, net and as a discount to the New Revolving Loan, respectively. Such deferred costs are being amortized to interest expense over the life of the New Revolving Loan. Letters of credit of $24.0 million remain outstanding with the prior lenders as discussed further in the section of this footnote entitled “July 2013 Refinancing.”

Term Loan Facility

The term loan facility is a Credit Agreement with several banks and other financial institutions (the “Term Loan”). In connection with the refinancing of the Company’s debt in July 2013, the Company amended the Term Loan effective July 25, 2013 by entering into a Second Amendment and Limited Waiver to Credit Agreement (together with the Term Loan, the “Amended Term Loan”). Additional details are included in the section of this footnote entitled “July 2013 Refinancing.”

The face amount of the Amended Term Loan is $135.0 million. The Amended Term Loan requires quarterly repayments totaling 1.00% per annum of the face amount until maturity. Interest is payable (i) in cash, at a rate equal to either (a) LIBOR (with a floor of 1.50%) plus a margin of 9.50% or (b) an alternate base rate (equal to the greatest of three other variable rates, as defined) plus a margin of 8.50%; and (ii) in an amount added to the principal amount of the Amended Term Loan at an annual rate equal to 4.00% of the outstanding balance. The interest rate on the Amended Term Loan was 15.00% at September 28, 2013. The Amended Term Loan matures on April 15, 2018.

In connection with the amendment of the Term Loan, the Company issued $13.1 million of warrants to the lenders, which were deferred as a discount to the Amended Term Loan. Additionally, refinancing costs of $1.7 million were deferred as a component of other assets, net. The discount and the deferred financing costs are being amortized to interest expense over the remaining life of the Amended Term Loan.

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Other Long-Term Debt

In September 2012, the Company purchased substantially all of the assets of Skylink, LTD. (“Skylink”). In accordance with the purchase agreement for the acquisition, an earn-out payment of $6.0 million accrued as of May 31, 2013. However, the Company has not made this payment because certain contractual conditions have not yet been met, including compliance with debt covenants (which occurred on July 25, 2013) and minimum levels of liquidity after giving effect to such payments (which has not yet been satisfied). The obligation accrues interest at an amount equal to 10% per annum commencing on May 31, 2013 and contains an optional equity conversion right permitting the sellers to convert unpaid amounts into a maximum of 3,715,915 shares of the Company’s common stock, which amount is equal to 19.9% of the number of shares outstanding as of September 13, 2012, the date of the purchase agreement for the acquisition of Skylink. The conversion price would be calculated based on the 20-day trailing volume-weighted average of the closing prices of the common stock as of the date of the conversion. Any unpaid amounts not so converted would remain payable in cash.

Security Provisions and Covenants

The New Revolving Loan and the Amended Term Loan require the Company to make customary representations and warranties and contain provisions for repayment, guarantees and other security. The New Revolving Loan provides the lenders a first lien security interest in the Company’s accounts receivable and inventory, and the Amended Term Loan provides a second lien interest in the accounts receivable and inventory and a first lien interest in all other assets of the Company. The New Revolving Loan and the Amended Term Loan also provide for customary events of default (which are in some cases subject to certain exceptions, thresholds and grace periods) including, but not limited to, nonpayment of principal and interest, failure to perform or observe covenants, breaches of representations and warranties and certain bankruptcy-related events.

The New Revolving Loan and the Amended Term Loan require the Company to comply with customary affirmative and negative covenants, and the Amended Term Loan further requires the Company to maintain the following financial condition covenants: (i) a Consolidated Leverage Ratio no greater than specified amounts, representing the Company’s long-term debt divided by adjusted earnings; and (ii) a Fixed Charge Coverage Ratio no less than specified amounts, representing the Company’s adjusted earnings divided by fixed charges.

The following table presents the specified amounts of the Consolidated Leverage Ratio and the Fixed Charge Coverage Ratio:

		Consolidated Leverage Ratio			Fixed Charge Coverage Ratio
Twelve months ending:
September 30, 2013		5.65	:1.00		1.29	:1.00
December 31, 2013		4.90	:1.00		1.32	:1.00
March 31, 2014		4.87	:1.00		1.25	:1.00
June 30, 2014		4.26	:1.00		1.31	:1.00
September 30, 2014		4.11	:1.00		1.32	:1.00
Thereafter, changing over time to		1.65	:1.00		2.82	:1.00

In the event of noncompliance with these financial condition covenants or other defined events of default, the lenders are entitled to certain remedies, including accelerated repayment of amounts outstanding.

The New Revolving Loan contains a subjective acceleration clause that can be triggered if the lenders determine that the Company has experienced a material adverse change. If triggered by the lenders, this clause would create events of default with respect to both the New Revolving Loan and the Amended Term Loan, which in turn would permit the lenders to accelerate repayment of those obligations.

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Events Leading to the July 2013 Refinancing

Prior to the July 2013 refinancing, the Term Loan and the Prior Revolving Loan required the Company to be in compliance with specified financial covenants, as defined in each respective agreement, including (i) a Consolidated Leverage Ratio of less than a range of 4.75 – 3.25:1.00 (such ratio declining over time); (ii) a Fixed Charge Coverage Ratio of not less than 1.20:1.00 for every fiscal quarter ended after the end of fiscal year 2011; and (iii) certain other covenants related to the operation of the Company’s business in the ordinary course. In the event of noncompliance with the covenants, the lenders were entitled to certain remedies, including accelerated repayment of amounts outstanding.

The restatement of the Company’s consolidated financial statements for periods in 2011 and 2012, delays in filing its consolidated financial statements on a timely basis with the SEC and certain misrepresentations by former members of management created events of default and covenant compliance violations under the Term Loan and the Prior Revolving Loan. As a result of the events of default, the Company incurred $0.7 million, $0.6 million and $0.6 million of penalty interest for the three months ended December 31, 2012, March 30, 2013 and June 29, 2013, respectively. The penalty interest incurred for the three months ended June 29, 2013 was paid in cash, and the remaining $1.3 million of penalty interest was applied to the principal amount of the Term Loan as shown in the table below.

In the second and third quarters of 2013, the Company entered into a series of forbearance agreements with the lenders under the Term Loan and the Prior Revolving Loan which provided that the lenders would not exercise their rights in response to the covenant compliance violations and events of default. Pursuant to those agreements, the Company incurred forbearance fees of 0.50% and 2.50% of the principal amount of the Term Loan, or $0.7 million and $3.3 million, respectively, both of which were added to the principal amount of the Term Loan. The Company also incurred forbearance fees of $0.2 million related to the Prior Revolving Loan. All of these fees were recorded as interest expense for the three months ended June 29, 2013.

The following table presents the rollforward of outstanding borrowings under the Term Loan from December 31, 2012 through the effective date of the amendment:

(in thousands)		Term Loan Facility
Outstanding at December 31, 2012		$	132,973
Forbearance fees (0.50% and 2.50%)		4,030
Non-cash penalty interest added to Term Loan		1,339
Principal payments		(622		)
Outstanding at July 25, 2013		$	137,720

July 2013 Refinancing

In July 2013, the Company refinanced its long-term debt by (i) entering into the New Revolving Loan, proceeds from which were used to repay the Prior Revolving Loan; and (ii) amending the Term Loan.

The following table presents changes to the balances of long-term debt as a result of the refinancing:

(in thousands)	Revolving Credit Facility				Term Loan Facility
Long-term debt, prior to refinancing	$	24,822			$	137,720
Collateralization of letters of credit	24,716				—
Payment of accrued interest and fees	261				—
Second amendment waiver and amendment fee (2.00%)	—				2,765
Additional borrowings for general business purposes	15,201				—
Long-term debt, subsequent to refinancing	$	65,000			$	140,485

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In connection with the repayment of the Prior Revolving Loan, the Company was required to deposit $24.7 million of cash with its former lenders consisting of (i) collateral for $24.0 million of letters of credit issued and still outstanding under the Prior Revolving Loan; and (ii) $0.7 million against which fees may be applied. The deposit, which is repayable to the Company upon transfer by the holders of the letters of credit to the issuing bank pursuant to the terms of the New Revolving Loan, is presented as restricted cash in the condensed consolidated balance sheet. In connection with the amendment, the lenders also received a waiver and amendment fee equal to 2.00% of the outstanding loan balance, or $2.8 million, which was added to the principal amount of the Amended Term Loan.

In connection with entering into the Amended Term Loan, the Company issued warrants exercisable at $0.01 per share for 3.8 million shares of the Company’s common stock, an amount equal to 19.99% of the shares outstanding prior to the effective date of the Amended Term Loan. See Note 8 for further information.

The refinancing of the revolving credit facility was accounted for as an extinguishment and issuance of new debt as a result of the change in the lenders. The carrying value of unamortized deferred financing costs related to the Prior Revolving Loan and refinancing costs paid to the prior lenders were included in the loss on extinguishment of debt. Refinancing costs paid to the new lenders were recorded as a discount to the New Revolving Loan, and costs paid to third parties were recorded as deferred financing costs, which will be amortized to interest expense over the life of the New Revolving Loan.

The amendment of the Term Loan was accounted for as an extinguishment and issuance of new debt because the terms of the amended debt were substantially different from the terms of the original debt. The carrying value of the unamortized deferred financing costs and debt discount related to the Term Loan and refinancing costs paid to the lenders were included in the loss on extinguishment of debt. Costs paid to third parties were recorded as deferred financing costs and are being amortized to interest expense over the remaining life of the Amended Term Loan. A portion of the assumed proceeds from the Amended Term Loan were allocated to the warrants based on the relative fair values of the Amended Term Loan and the warrants, resulting in $13.1 million recorded as additional paid-in capital and discount on long-term debt. The discount will be amortized to interest expense over the remaining life of the Amended Term Loan.

The following table presents the components of refinancing costs recognized currently in the Company’s results of operations. Such costs are presented as loss on extinguishment of debt in the condensed consolidated statements of comprehensive income or loss:

(in thousands)	Revolving Credit Facility				Term Loan Facility				Total
Unamortized costs of prior debt:
Deferred financing costs	$	465			$	2,693			$	3,158
Discount on long-term debt	—				3,025				3,025
Refinancing costs paid to lenders	65				2,999				3,064
Loss on extinguishment of debt	$	530			$	8,717			$	9,247

The following table presents the components of refinancing costs that have been deferred to future periods:

(in thousands)	Balance sheet location		Revolving Credit Facility				Term Loan Facility				Total
Deferred financing costs	Other assets, net		$	1,195			$	1,720			$	2,915
Discount on long-term debt	Long-term debt, net of current portion		3,551				13,100				16,651
Refinancing costs deferred to future periods			$	4,746			$	14,820			$	19,566

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6.    Fair Value Measurements

Assets and Liabilities for which Fair Value is only Disclosed

The carrying values of cash, accounts receivable, accounts payable and financial instruments included in other current assets and other current liabilities are presented in the condensed consolidated balance sheets at historical cost, which approximates fair value due to the relatively short-term maturities of these assets and liabilities (Level 2 measurements). The carrying values of capital lease obligations and long-term debt approximate fair value because they bear interest at rates available to the Company for obligations with similar terms and remaining maturities (Level 2 measurements).

Nonrecurring Fair Value Measurements

During the three months ended September 28, 2013, the Company determined that acquired technology assets of the Engineering and Construction segment with a carrying value of $1.1 million were fully impaired based on information received from prospective buyers while considering the possible disposition of these assets (Level 2 measurements).

Derivative Instruments

Pursuant to the requirements of the Term Loan, the Company maintained interest rate collar agreements covering 50% of the face value of the Term Loan, or $67.5 million at December 31, 2012. These interest rate collar agreements matured in July 2013. The fair value of the interest rate collar agreements was not material to the Company’s condensed consolidated financial statements.

7.    Legal and Regulatory Contingencies

As previously disclosed, a consolidated class action lawsuit was filed against the Company and certain of its current and former officers in the United States District Court for the Eastern District of Pennsylvania. The case, entitled In Re UniTek Global Services, Inc. Securities Litigation, Civil Action NO. 13-2119, alleges that the Company made misstatements and omissions regarding its business, its financial condition and its internal controls and systems in violation of the Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In October 2013, the plaintiffs and the Company reached a preliminary agreement to settle all claims for an amount of $1.6 million, including attorneys’ fees and expenses. This preliminary settlement is subject to the approval of the court, and the parties intend to submit settlement documents to the court by mid-December. The Company believes that the settlement amount will be covered by insurance and has accrued the $0.3 million deductible.

Subject to certain limitations, the Company is obligated to indemnify its current and former officers in connection with any regulatory or litigation matter. This obligation arises under the terms of the Company’s Amended and Restated Articles of Incorporation, the Company’s Amended and Restated Bylaws and Delaware law. An obligation to indemnify generally means that the Company is required to pay or reimburse the individual’s reasonable legal expenses and possibly damages and other liabilities that may be incurred.

The Company had a collective action under the Fair Labor Standards Act filed against it in February 2008. In October 2012, a judgment was entered for the plantiffs. The Company intends to appeal the judgment promptly as soon as it becomes final and appealable. The Company believes that the potential loss exposure for this action is between $0.0 million and $3.8 million and that it has accrued adequate reserves for any resulting loss deemed probable.

In August 2013, Skylink brought a complaint against the Company in the Common Pleas Court of Hancock County, Ohio alleging the Company had failed to pay an earn-out payment and requesting a declaratory judgment that the earn-out payment is due and immediately payable, together with the accrued interest thereon and costs and expenses. The Company brought a motion to dismiss the complaint in the United States District Court for the Northern District of Ohio. Skylink thereafter amended its complaint, and the Company has filed another motion to dismiss the amended complaint. While the Company acknowledges that the earn-out payment of $6.0 million accrued on May 31, 2013, the Company has not made this payment because certain contractual conditions have not yet been met. The earn-out payment is presented in the balance sheet as a component of current portion of long-term debt as discussed further in Note 5.

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The Company also is involved in certain other legal and regulatory actions from time to time which arise in the ordinary course of the Company’s business. The Company accrues for such matters when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company is unable to predict the outcome of these matters, but does not believe that the ultimate resolution of such matters will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. However, if certain of such matters were determined adversely to the Company, although the ultimate liability arising therefrom would not be material to the financial position of the Company, it could be material to its results of operations in an individual quarterly or annual period.

8.    Stockholders’ Equity

The Company is authorized to issue 220 million shares, consisting of (i) 20 million shares of preferred stock, par value $0.00002 per share; and (ii) 200 million shares of common stock, par value $0.00002 per share.

Warrants

The following table presents outstanding warrants to purchase shares of the Company’s common stock as of September 28, 2013:

(in thousands, except per share amounts)		Shares			Grant Date		Expiration Date		Weighted Average Exercise Price
Amended Term Loan lenders		3,791			July 25, 2013		—		$	0.01
Former employees and owners		89			September 26, 2007		September 26, 2017		140.00
Former owners of an acquired broadband cable business		2			December 2, 2010		December 2, 2020		56.00
		3,882

In connection with entering into the Amended Term Loan, on July 25, 2013, the Company issued warrants exercisable at $0.01 per share for 3.8 million shares of the Company’s common stock, an amount equal to 19.99% of the shares outstanding prior to the effective date of the Amended Term Loan. The warrants may be partially or fully exercised at any time at the option of the holder (i) for the stated number of shares, following the Company’s receipt of the exercise price in cash; or (ii) on a cashless basis for a number of shares net of the amount required to cover the exercise price otherwise due based on the current NASDAQ closing price. The warrants do not have an expiration date and also contain customary anti-dilution provisions. The warrants were recorded as $13.1 million of additional paid-in capital and discount to the Amended Term Loan based upon an allocation of assumed proceeds from the Amended Term Loan, as discussed further in Note 5.

The warrants were issued with an accompanying registration rights agreement providing that the Company use reasonable best efforts to cause a registration statement to be filed with the Securities and Exchange Commission as soon as reasonably practicable, but in no event later than November 15, 2013. The registration statement shall provide for resales and transfers of any common stock issued or issuable upon the conversion or exercise of the warrants, as well as any other common stock that may be issued or issuable pursuant to the warrants (the “Registrable Securities”). If the registration statement is not filed by November 15, 2013, does not become effective within the timeframe specified in the agreement, or ceases to be effective following its effective date for any reason, the warrant holders are entitled to receive liquidated damages equal to 1.0% of the market price of the Registrable Securities on that date and on each monthly anniversary following that date, calculated based on the NASDAQ closing price of the Company’s common stock on such dates. The registration rights agreement does not expire and contains no limitations to the maximum amount of consideration that could be transferred. The Company has determined that it is not probable that payment would be required under the registration rights agreement, so no amounts have been accrued for such damages.

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9.    Stock-Based Compensation

As of September 28, 2013, the Company sponsored three stock-based compensation plans; the 1999 Securities Plan (the “1999 Plan”), the 2007 Equity Incentive Plan (the “2007 Plan”) and the 2009 Omnibus Securities Plan (the “2009 Plan”) (collectively, the “Plans”).

The Plans provide for the grant of various types of stock-based awards, of which the Company has granted stock options and restricted stock units (“RSUs”). As of September 28, 2013, a total of 1.8 million shares of the Company’s common stock had been authorized for issuance under the 2009 Plan, of which 0.3 million shares were eligible for the grant of awards. There were no remaining shares authorized or eligible for grant under the 1999 Plan or the 2007 Plan. The Company has also granted restricted shares and RSUs to certain of its executives as inducement grants, which are not included in the Plans (“Non-Plan Inducement Grants”).

The following table presents stock-based compensation, a component of selling, general and administrative expenses:

	Three Months Ended								Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Stock-based compensation	$	517			$	1,003			$	1,674			$	4,050

Plan Activity

The following table presents changes in outstanding stock options and unvested RSUs and Non-Plan Inducement Grants:

		Stock Options							RSUs							Non-Plan Inducement Grants
(in thousands, except per share amounts)		Shares			Weighted Average Exercise Price				Shares			Weighted Average Grant Date Fair Value				Shares			Weighted Average Grant Date Fair Value
Balance at December 31, 2012		33			$	10.42			232			$	6.12			192			$	2.60
Granted		—			—				339			3.80				24			1.80
Exercised or vested(1)		—			—				(161	)		4.86				(96	)		2.60
Cancelled, forfeited or expired		(22	)		9.88				(160	)		5.39				—			—
Balance at September 28, 2013		11			11.55				250			4.25				120			2.44

(1)	Represents exercises of stock options and vesting of RSUs and Non-Plan Inducement Grants

During the nine months ended September 28, 2013, the Company granted 215,227 RSUs and 23,925 Non-Plan Inducement Grants to senior executives and 124,032 RSUs to members of the Board of Directors as a portion of their compensation for their service on the Board for 2013. During that same period, 111,403 RSUs and 96,154 Non-Plan Inducement Grants vested as scheduled, and the Company entered into an agreement with a former member of senior management entitling him to the immediate vesting of 49,666 RSUs. As a result of the Audit Committee Investigation, described further in Note 12, the former Chief Financial Officer, the former Chief Accounting Officer and the former President of Pinnacle Wireless were terminated, resulting in the forfeiture of 128,750 RSUs. An additional 22,231 stock options and 30,393 RSUs were cancelled, were forfeited or expired pursuant to underlying agreements or the terms of the 2009 Plan.

10.    Income Taxes

The Company’s effective tax rate differs from the Federal statutory tax rate of 35% primarily because it has not yet achieved profitable operations outside of Canada. As a result, the Company’s non-Canadian deferred tax assets do not satisfy the criteria for realizability, and it has established a full valuation allowance for such assets. In addition, the Company is required to pay incomes taxes in certain states and localities in which it does business.

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11.    Discontinued Operations

On December 28, 2012, the Company sold substantially all of the assets of the wireline telecommunications business unit (the “Wireline Group”), a portion of the Engineering and Construction segment, to NX Utilities, LLC (“NX Utilities”). The Company has also closed certain broadband cable fulfillment and wireless service locations. As a result, the results of operations of the Wireline Group and the closed locations have been reclassified as discontinued operations for all periods presented.

The following table presents the results of discontinued operations:

	Three Months Ended								Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Revenues	$	—			$	10,165			$	1,666			$	39,205
Income (loss) from discontinued operations before income taxes	61				(37,836		)		(635		)		(40,173		)
Income tax (benefit) expense from discontinued operations	(6		)		(7,063		)		17				(5,501		)
Income (loss) from discontinued operations	$	67			$	(30,773	)		$	(652	)		$	(34,672	)

12.    Restatement, Investigation and Related Costs

On April 12, 2013, the Company announced that as a result of an internal investigation conducted by the Audit Committee of the Company’s Board of Directors, with the assistance of outside independent counsel and a forensic accounting firm (the “Audit Committee Investigation”), it was determined that several employees of the Company’s Pinnacle Wireless division engaged in fraudulent activities that resulted in improper revenue recognition. In connection with the Audit Committee Investigation, the former President of the Pinnacle Wireless division and several other employees of the Pinnacle Wireless division were terminated. In addition, the Company’s former Chief Financial Officer, former Chief Accounting Officer and another former finance department employee were terminated.

As a result of the Audit Committee Investigation, the Company concluded that certain previously issued financial statements could no longer be relied upon due to the improper revenue recognition at the Pinnacle Wireless division and certain other errors related to the valuation of contingent consideration, the application of a revenue recognition policy and classification of debt and cash overdrafts. The Company undertook a process to restate those financial statements (the “Restatement”), which it completed with the filing of its 2012 Form 10-K in August 2013.

The Audit Committee Investigation and the Restatement required the Company to incur substantial additional costs for audit fees and other professional services, including the cost of litigation and consultants. Such costs are presented as restatement, investigation and related costs on the Company’s condensed consolidated statements of comprehensive income or loss.

The following table presents the components of restatement, investigation and related costs:

	Three Months Ended								Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Incremental audit fees	$	889			$	—			$	2,871			$	—
Other professional services	1,635				—				4,719				—
Restatement, investigation and related costs	$	2,524			$	—			$	7,590			$	—

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13.    Restructuring

During 2012 and 2013, the Company made changes to its management structure in order to align its executive management for continued growth in wireless and fulfillment services. Future payments of $1.7 million will occur in 2013 and 2014. Restructuring charges of $0.6 million and $1.1 million for the three and nine months ended September 28, 2013, respectively, resulted from the separation of former members of senior management.

The following table presents changes in accrued restructuring costs:

(in thousands)	One-Time Termination Benefits
Balance at December 31, 2012	$	2,812
Restructuring charges	1,149
Amounts paid	(2,264		)
Balance at September 28, 2013	$	1,697

14.    Segment Reporting

The Company reports its results in two segments based on the services that it provides and the industries that it serves. The Company’s Fulfillment segment provides comprehensive installation and fulfillment services to customers in the satellite television and broadband cable industries. Revenues in this segment are primarily recurring in nature and based on predetermined rates for each type of service performed. The Company’s Engineering and Construction segment provides infrastructure services, systems integration for public safety and land mobile radio applications, construction and project management services to customers in the wireless telecommunications and public safety industries. Revenues in this segment are primarily contract-based and are recognized primarily using the percentage-of-completion method using certain estimated costs incurred to-date or milestones achieved to measure progress towards completion.

The Company evaluates the performance of its operating segments based on several factors, one of which is adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”), which is a non-GAAP measure. Management believes that operating income or loss represents the closest GAAP measure to Adjusted EBITDA.

The following table presents selected segment financial information:

	Three Months Ended								Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Revenues:
Fulfillment	$	88,574			$	84,629			$	240,863			$	224,601
Engineering and Construction	41,463				45,853				124,199				92,066
Total	$	130,037			$	130,482			$	365,062			$	316,667
Operating income (loss):
Fulfillment	$	6,987			$	6,644			$	10,528			$	7,306
Engineering and Construction	(558		)		1,620				(5,041		)		(18,053		)
Total	$	6,429			$	8,264			$	5,487			$	(10,747	)

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read together with our condensed consolidated financial statements and their notes included elsewhere in this Form 10-Q. Unless the context otherwise requires, references to “we,” “us,” “our” and the “Company” refer to UniTek Global Services, Inc. and its subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information included in this Quarterly Report on Form 10-Q (“Quarterly Report”) contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the Exchange Act, the attainment of which involves various risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology, such as “anticipate,” “may,” “will,” “could,” “expects,” “believes,” “intends,” “estimates,” “anticipates,” “planned,” “scheduled,” “continue,” or similar terms, variations of those terms or the negative of those terms. They may include comments about liquidity, potential transactions, competition within our industry, concentration of customers, loss of customers, long-term receivables, availability of capital, legal proceedings, fluctuation in interest rates, governmental regulations, and other statements contained herein that are not historical facts.

These forward-looking statements are based on assumptions that we have made in light of our experience in the industry in which we operate, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial condition or results of operations and cause actual results to differ materially from those in the forward-looking statements. These factors include, among other things:

•	difficulty that we may have in correcting our improper accounting practices identified by the internal investigation conducted by the Audit Committee (the “Audit Committee Investigation”) that necessitated our making restatement adjustments in our consolidated financial statements and have resulted in our inability to timely file required periodic reports with the SEC;

•	the substantial accounting, legal and other expenses resulting from the Audit Committee Investigation and the restatement of our financial reports;

•	the outcome of legal proceedings to which we are or may become a party;

•	the potential for additional litigation and governmental enforcement action resulting from the improper accounting practices;

•	our disclosure controls and procedures, which were ineffective as of September 28, 2013, because of the material weaknesses in our internal control over financial reporting described in the 2012 Form 10-K;

•	our use of the percentage-of-completion method to account for revenue is subject to assumptions and variations of actual results from our assumptions may impact our profitability;

•	our continued ability to service our corporate indebtedness;

•	our ability to comply with the financial covenants under our debt agreements including maintaining certain ratios between earnings and debt;

•	the uncertainty regarding the adequacy of capital resources, including liquidity, and potential limited access to additional financing;

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•	our success of converting unbilled receivables to invoices and collecting on such invoices;

•	a potential increase in our insurance premiums or collateral requirements;

•	general economic or business conditions nationally and in our primary markets;

•	the consolidation of our vendors, customers and competition;

•	a substantial majority of the Company’s revenues and accounts receivable, net of allowances, are concentrated with a few large customers. The largest three customers accounted for 42%, 20% and 12% of revenues for the nine months ended September 28, 2013 and 42%, 19% and 9% of accounts receivable, net of allowances, at September 28, 2013;

•	many of our largest customers have the right to either terminate their contract, or reduce the amount of work that we will perform under their contract, on relatively short notice, with or without cause;

•	our ability to maintain the listing of our common stock on a national securities exchange;

•	our ability to generate future revenues and/or earnings and our ability to manage and control costs;

•	the actions of competitors within our industry;

•	our ability to meet changing technologies;

•	the success of business strategies that we implement; and

•	the retention of key employees including skilled technicians and financial staff; and

•	other statements that contain words like “may,” “will,” “expects,” “believes,” “estimates,” “anticipates,” “planned,” “scheduled,” “continue” and similar expressions that are also used to identify forward-looking statements.

This list is only an example of the risks that may affect the forward-looking statements. If any of these risks or uncertainties materialize or fail to materialize, or if the underlying assumptions are incorrect, then actual results may differ materially from those projected in the forward-looking statements.

Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, without limitation, those discussed elsewhere in this Quarterly Report and in our 2012 Form 10-K. It is important not to place undue reliance on these forward-looking statements, which reflect our analysis, judgment, belief or expectation only as of the date of this Quarterly Report. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this Quarterly Report.

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Business Overview

We are a leading full-service provider of permanently outsourced infrastructure services, offering an end-to-end suite of technical services to customers in the wireless telecommunications, public safety, satellite television and broadband cable industries in the United States and Canada. Our services include:

•	Comprehensive installation and fulfillment;

•	Construction and project management;

•	Wireless telecommunication infrastructure services; and

•	Wireless system integration for public safety and land mobile radio applications.

Our customers utilize our services to build and maintain their infrastructure and networks and to provide residential and commercial fulfillment services. These services are critical to our customers’ ability to deliver voice, video and data services to their end users. Our customers include leading media and telecommunication companies such as DIRECTV, AT&T, Clearwire Communications, Ericsson, Sprint, T-Mobile, Comcast, Charter Communications, Time Warner Cable and Rogers Communications.

A substantial majority of the Company’s revenues and accounts receivable, net of allowances, are concentrated with a few large customers. The largest three customers accounted for 42%, 20% and 12% of revenues for the nine months ended September 28, 2013 and 42%, 19% and 9% of accounts receivable, net of allowances, at September 28, 2013.

We have longstanding relationships with many of our customers and often provide services under master service agreements. Because our business is concentrated among relatively few major customers, our business could be negatively impacted if the amount of business we obtain from these customers is reduced, or if we complete the required work on projects and cannot replace them with similar projects.

We have actively pursued a diversification and expansion strategy in our operations in the markets we serve. Our strategy has enabled us to grow and scale our business units across a diversified set of customers, geographies and end markets by executing to the highest performance standards. We intend to leverage our performance, commitment to technology and shared services platform to continue to grow our revenues and profitability.

Critical Accounting Policies and Estimates

There have been no changes to the critical accounting policies and estimates disclosed in our most recently filed Form 10-K.

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Summary of Financial Condition and Results of Operations

Overview

The following section presents our discussion and analysis of our financial condition and results of operations for the three and nine months ended September 28, 2013 compared to the same periods ended September 29, 2012. We have derived this data from our condensed consolidated financial statements and other financial information included elsewhere in this report.

We report our results in two segments based on the services that we provide and the industries that we serve:

•

Our Fulfillment segment provides comprehensive installation and fulfillment services to customers in the satellite television and broadband cable industries. Revenues in this segment are primarily recurring in nature and based on predetermined rates for each type of service performed. Our two most significant customers for this segment for the three and nine months ended September 28, 2013 were DIRECTV and Comcast.

•

Our Engineering and Construction segment provides infrastructure services, systems integration for public safety and land mobile radio applications, construction and project management services to customers in the wireless telecommunications and public safety industries. Revenues in this segment are primarily contract-based and are recognized primarily using the percentage-of-completion method using estimated costs incurred to-date or milestones achieved to measure progress towards completion. Our two most significant projects for this segment for the three and nine months ended September 28, 2013 were awarded by AT&T, where we construct and upgrade wireless towers in a significant region of the northeastern United States, and by Five Star Electric and Eaton Electric, where we are designing and constructing an integrated public safety communications system at the World Trade Center.

Historical Results

We have experienced organic growth by winning new projects from our wireless customers and capturing additional market share from our broadband cable fulfillment competitors. Since September 14, 2012, the results of our Fulfillment segment also include the acquisition of Skylink, LTD. (“Skylink”), a provider of satellite fulfillment services in Indiana, Ohio and West Virginia.

Our results of operations also reflect actions we have taken to align our operations with what we perceive as our customers’ most significant areas of growth. These areas of growth include (i) growing consumer demand for wireless bandwidth and technological improvements; (ii) the continuing need for best-in-class fulfillment services by our satellite television customers; and (iii) vendor consolidation by broadband cable service providers. In order to concentrate our presence in these areas of growth, we sold our wireline telecommunications business unit (the “Wireline Group”) during the fourth quarter of 2012. We have also closed certain broadband cable fulfillment and wireless service locations that reside outside of the geographic regions where we expect the greatest amount of growth. The results of operations related to these operations are presented as income or loss from discontinued operations in our discussion and analysis of results of operations.

On April 12, 2013, the Company announced that as a result of an internal investigation conducted by the Audit Committee of the Company’s Board of Directors, with the assistance of outside independent counsel and a forensic accounting firm (the “Audit Committee Investigation”), it was determined that several employees of the Company’s Pinnacle Wireless division engaged in fraudulent activities that resulted in improper revenue recognition. As a result of the Audit Committee Investigation, the Company concluded that certain previously issued financial statements could no longer be relied upon due to the improper revenue recognition at the Pinnacle Wireless division and certain other errors related to the valuation of contingent consideration, the application of a revenue recognition policy and classification of debt and cash overdrafts. The Company undertook a process to restate those financial statements (the “Restatement”), which it completed with the filing of its 2012 Form 10-K in August 2013. The Audit Committee Investigation and the Restatement required the Company to incur substantial costs for professional services and consultants. Such costs are presented as restatement, investigation and related costs in our discussion and analysis of results of operations.

In July 2013, the Company refinanced its long-term debt, which resulted in significant refinancing costs and an increase in the cost of our debt. Refinancing costs of $9.2 million for the three and nine months ended September 28, 2013 were included in our results of operations as loss on extinguishment of debt, and refinancing costs of $19.6 million (including warrants with a value of $13.1 million) have been deferred, to be incurred as a component of interest expense over the remaining life of the debt. Furthermore, the interest rate of the term loan facility increased by 600 basis points, of which 400 basis points are applied directly to the principal balance of the term loan, and the interest rate of the revolving credit facility increased by 675 basis points.

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Trends and Uncertainties

This discussion and analysis may not be indicative of our future financial condition or results of operations as a result of the following trends and uncertainties, which could materially impact our results of operations and financial condition in future periods:

•	Our ability to bid on new engineering and construction projects was limited as a result of our restatement and the delayed issuance of our 2012 financial statements, which may have diminished our pipeline of new projects that will contribute to future earnings;

•

Our relationships with our customers and vendors may have been harmed as a result of our restatement, the delayed issuance of our 2012 financial statements and our inability to pay our vendors timely. This in turn could harm our ability to maintain business with existing customers, to attract new customers and to maintain the insurance, bonding and other requirements required by our customers. For example, we were notified in the second quarter of 2013 by AT&T that they would reduce the amount of wireless construction work that we forecasted we would perform for them, the impact of which is expected to be approximately $21 million less than such forecast for 2013;

•

We have incurred $7.6 million of costs to date to complete the Audit Committee Investigation and the restatement of our financial statements, the majority of which were incurred during the second and third quarters of 2013. Additional costs for related legal matters are likely to arise in the future, such as our obligation to indemnify our current and former officers in connection with any regulatory or litigation matters or any additional legal actions we may choose to pursue. We are not able to estimate what the costs related to these matters might be, but such costs could be significant;

•

The Company had a collective action under the Fair Labor Standards Act filed against it in February 2008. In October 2012, a judgment was entered for the plantiffs. The Company intends to appeal the judgment promptly as soon as it becomes final and appealable. The Company believes that the potential loss exposure for this action is between $0.0 million and $3.8 million and that it has accrued adequate reserves for any resulting loss;

•	We need to improve our management of working capital within our wireless construction business, which if not managed well, could require us to borrow additional amounts. This in turn may reduce our profitability, cause us to become ineligible for new borrowings, and/or cause us to default on our debt; and

•	We were notified by our insurance carriers that they required us to deposit funds with them to cover all or a portion of our self-insured claims.

Non-GAAP Financial Measurements

As appropriate, we supplement our results of operations determined in accordance with GAAP with certain non-GAAP financial measurements that we believe are useful to investors in assessing our performance. The non-GAAP financial measurement referenced in this discussion and analysis is earnings before interest, taxes, depreciation and amortization, adjusted for certain items described below (“Adjusted EBITDA”). This measurement should not be considered in isolation or as a substitute for reported net income or loss but rather as an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the provided reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of our business. We strongly encourage investors and shareholders to review our financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

Adjusted EBITDA is a key indicator used by our management to evaluate operating performance of our continuing operations and to make decisions regarding compensation and other operational matters as well as by our investors and lenders in evaluating our performance. While this Adjusted EBITDA is not intended to replace any presentation included in our consolidated financial statements under generally accepted accounting principles, or GAAP, and should not be considered an alternative to operating performance, we believe this measure is useful to investors in assessing our performance with other companies in our industry. This calculation may differ in method of calculation from similarly titled measures used by other companies or from required calculations pursuant to our loan agreements. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. Adjusted EBITDA is our EBITDA adjusted for discontinued operations, stock-based compensation and other unusual or non-recurring costs, including the costs associated with the Restatement, the Audit Committee Investigation and related costs.

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Results of Operations — Comparison of Three and Nine Months ended September 28, 2013 and September 29, 2012

The following table summarizes our results of operations:

	Three Months Ended								Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Revenues	$	130,037			$	130,482			$	365,062			$	316,667
Cost of revenues	104,227				102,824				298,594				257,657
Gross profit	25,810				27,658				66,468				59,010
Selling, general and administrative expenses	10,290				11,099				35,199				33,490
(Income) expense related to contingent consideration	—				—				(114		)		10,077
Restructuring charges	670				1,594				1,149				6,400
Restatement, investigation and related costs	2,524				—				7,590				—
Impairment charges	1,090				—				1,090				—
Depreciation and amortization	4,807				6,701				16,067				19,790
Operating income (loss)	6,429				8,264				5,487				(10,747		)
Interest expense	8,051				3,883				21,592				10,496
Loss on extinguishment of debt	9,247				—				9,247				—
Other expense (income), net	239				(76		)		232				(1,146		)
(Loss) income from continuing operations before income taxes	(11,108		)		4,457				(25,584		)		(20,097		)
Income tax expense	273				293				449				315
(Loss) income from continuing operations	(11,381		)		4,164				(26,033		)		(20,412		)
Income (loss) from discontinued operations	67				(30,773		)		(652		)		(34,672		)
Net loss	$	(11,314	)		$	(26,609	)		$	(26,685	)		$	(55,084	)

Revenues

Revenues decreased $0.4 million, or 0.3%, to $130.0 million from $130.5 million for the three months ended September 28, 2013 and September 29, 2012, respectively. For the Fulfillment segment, revenues increased $3.9 million, or 4.7%, to $88.6 million from $84.6 million for the three months ended September 28, 2013 and September 29, 2012, respectively. The increase in Fulfillment revenues was primarily attributable to the impact of the Skylink acquisition ($6.9 million), partially offset by lower volume from our cable fulfillment customers. For the Engineering and Construction segment, revenues decreased $4.4 million, or 9.6%, to $41.5 million from $45.9 million for the three months ended September 28, 2013 and September 29, 2012, respectively. The decrease in Engineering and Construction revenues was primarily attributable to a reduction of AT&T work ($7.9 million) offset by an increase in other construction and systems integration projects.

Revenues increased $48.4 million, or 15.3%, to $365.1 million from $316.7 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. For the Fulfillment segment, revenues increased $16.3 million, or 7.2%, to $240.9 million from $224.6 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The increase in Fulfillment revenues was primarily attributable to the impact of the Skylink acquisition ($21.2 million) and growth from satellite internet customers ($2.8 million), partially offset by lower volume from our cable fulfillment customers ($8.0 million). For the Engineering and Construction segment, revenues increased $32.1 million, or 34.9%, to $124.2 million from $92.1 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The increase in Engineering and Construction revenues was primarily attributable to revenue growth from our AT&T projects in the northeastern United States ($27.0 million).

We were notified in the second quarter of 2013 by AT&T that they would reduce the amount of wireless construction work that we would perform for them, the impact of which is expected to reduce our forecasted revenues by $21 million for 2013.

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Gross Profit

Gross profit decreased $1.8 million, or 6.7%, to $25.8 million from $27.7 million for the three months ended September 28, 2013 and September 29, 2012, respectively. Gross margin decreased to 19.8% compared to 21.2% for the three months ended September 28, 2013 and September 29, 2012, respectively. For the Fulfillment segment, gross margin decreased to 21.0% compared to 22.7% for the three months ended September 28, 2013 and September 29, 2012, respectively. The decrease was primarily attributable to cable start-up costs in the southeast. For the Engineering and Construction segment, gross margin decreased to 17.4% compared to 18.4% for the three months ended ended September 28, 2013 and September 29, 2012, respectively. The decrease was primarily attributable to the reduction in AT&T volume, as previously discussed.

Gross profit increased $7.5 million, or 12.6%, to $66.5 million from $59.0 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. Gross margin decreased to 18.2% compared to 18.6% for the nine months ended September 28, 2013 and September 29, 2012, respectively. For the Fulfillment segment, gross margin remained essentially consistent at 20.0% compared to 20.6% for the nine months ended September 28, 2013 and September 29, 2012, respectively. For the Engineering and Construction segment, gross margin increased to 14.8% compared to 13.8% for the nine months ended ended September 28, 2013 and September 29, 2012, respectively. The increase was primarily attributable to revenue growth from our AT&T projects in the northeastern United States, which growth is not expected to continue.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $0.8 million, or 7.3%, to $10.3 million from $11.1 million for the three months ended September 28, 2013 and September 29, 2012, respectively. The decrease was primarily attributable to lower stock-based compensation of $0.5 million.

Selling, general and administrative expenses increased $1.7 million, or 5.1%, to $35.2 million from $33.5 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. Increases of $4.7 million were attributable to a higher provision for doubtful accounts, due to the increased mix of receivables from our Engineering and Construction segment, as well as higher insurance and personnel expenses, partially offset by $2.4 million lower stock-based compensation. Stock-based compensation expense for the nine months ended September 29, 2012 included $2.3 million for the acceleration of RSU vesting related to the separations of the former Chief Executive Officer, the former Executive Chairman of the Board and the former Chief Administrative officer, in accordance with the terms of their employment agreements, and the acceleration of RSUs awarded to members of the Board of Directors.

Income or Expense related to Contingent Consideration

We recognized no expense related to contingent consideration during the three months ended September 28, 2013 or September 29, 2012 and negligible income related to contingent consideration during the nine months ended September 28, 2013. Expense related to contingent consideration was $10.1 million for the nine months ended September 29, 2012. The expense was related to the remeasurement of contingent consideration to fair value at each period end, which was related to the acquisition of Pinnacle Wireless, Inc. (“Pinnacle”). Using information then available, the estimated fair value of the Pinnacle earn-out increased based on (i) the revised EBITDA forecast for the twelve months ended March 30, 2013; and (ii) the provisions of the asset purchase agreement for Pinnacle regarding the calculation of the earn-out for that period, resulting in the recognition of expense.

Restructuring Charges

Restructuring charges were $0.7 million and $1.6 million for the three months ended September 28, 2013 and September 29, 2012, respectively. The charges for the three months ended September 28, 2013 were related to the separations of former members of senior management. The charges for the three months ended September 29, 2012 were related to the elimination of certain management positions, including the Chief Administrative Officer, and the retention of senior management during the search for our new Chief Executive Officer.

Restructuring charges were $1.1 million and $6.4 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The charges for the nine months ended September 28, 2013 were related to the separations of former members of senior management. The charges for the nine months ended September 29, 2012 were related to the separation of our former Chief Executive Officer, the elimination of certain management positions, including the Executive Chairman and the Chief Administrative Officer, and the retention of senior management during the search for our new Chief Executive Officer.

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Restatement, Investigation and Related Costs

Restatement, investigation and related costs were $2.5 million and $7.6 million for the three and nine months ended September 28, 2013, respectively. We incurred significant costs to complete the Audit Committee Investigation and the restatement of our financial statements, the majority of which were incurred during the second and third quarters of 2013. No such costs were incurred during the three and nine months ended September 29, 2012.

Impairment Charges

During the three months ended September 28, 2013, the Company determined that acquired technology assets of the Engineering and Construction segment with a carrying value of $1.1 million were fully impaired based on information received from prospective buyers while considering the possible disposition of these assets. No impairment charges were incurred during the three or nine months ended September 29, 2012.

Depreciation and Amortization

Depreciation and amortization decreased $1.9 million, or 28.3%, to $4.8 million from $6.7 million for the three months ended September 28, 2013 and September 29, 2012, respectively. The decrease was caused by lower amortization of $1.1 million caused by intangible assets reaching the end of their amortizable lives and lower depreciation of $0.8 million.

Depreciation and amortization decreased $3.7 million, or 18.8%, to $16.1 million from $19.8 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The decrease was driven by lower amortization of $2.4 million caused by intangible assets reaching the end of their amortizable lives, partially offset by new amortization from the intangible assets acquired from Skylink, and lower depreciation of $1.3 million.

Interest Expense

Interest expense increased $4.2 million, or 107.3%, to $8.1 million from $3.9 million for the three months ended September 28, 2013 and September 29, 2012, respectively. Interest expense increased $11.1 million, or 105.7%, to $21.6 million from $10.5 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The increases were caused by higher interest rates as a result of the July 2013 refinancing, higher average principal balances and $4.7 million of non-cash forbearance and penalty fees. As a result of the refinancing in July 2013, the interest rates on the revolving credit and term loan facilities increased by 675 basis points and 600 basis points, respectively, and outstanding borrowings under the revolving credit facility increased from $24.8 million to $65.0 million. With respect to the Term Loan, the Company exercised its right to increase borrowings by an aggregate amount of $35.0 million during the second and third quarters of 2012. The remainder of the increase was attributable to penalty interest associated with the events of default and higher amortization of deferred financing fees and debt discount.

The following table presents the components of interest expense:

	Three Months Ended								Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Interest paid or payable in cash	$	6,168			$	3,410			$	14,028			$	9,348
Interest and fees added to debt principal:
Penalty interest and forbearance fees	—				—				4,695				—
PIK interest added to Amended Term Loan (4%)	1,046				—				1,046				—
Other	49				—				223				—
Amortization of deferred financing fees and debt discount	788				473				1,600				1,148
Interest expense	$	8,051			$	3,883			$	21,592			$	10,496

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Loss on Extinguishment of Debt

In July 2013, the Company refinanced its long-term debt, which resulted in significant refinancing costs and an increase in the cost of our debt. Refinancing costs of $9.2 million for the three and nine months ended September 28, 2013 were included in our results of operations as loss on extinguishment of debt, and refinancing costs of $19.6 million have been deferred, to be recognized as a component of interest expense over the remaining life of the debt. No loss on extinguishment of debt was incurred during the three or nine months ended September 29, 2012.

Income Tax Expense or Benefit

Income tax expense or benefit was not material to our results of operations for the three and nine months ended September 28, 2013 and September 29, 2012. Our effective tax rate differs from the Federal statutory tax rate of 35% primarily because we have not yet achieved profitable operations outside of Canada. As a result, our non-Canadian deferred tax assets do not satisfy the criteria for realizability, and we have established a full valuation allowance for such assets. In addition, we are required to pay incomes taxes in certain states and localities in which we do business.

Income or Loss from Discontinued Operations

Income from discontinued operations was $0.1 million compared to loss from discontinued operations of $30.8 million for the three months ended September 28, 2013 and September 29, 2012, respectively. Loss from discontinued operations decreased $34.0 million to $0.7 million from $34.7 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The variances were caused by our sale of the Wireline Group in the fourth quarter of 2012, the results of which were included in loss from discontinued operations for the three and nine months ended September 29, 2012.

Adjusted EBITDA

The following table presents the reconciliation of net loss to Adjusted EBITDA:

	Three Months Ended								Nine Months Ended
(in thousands)	September 28, 2013				September 29, 2012				September 28, 2013				September 29, 2012
Net loss	$	(11,314	)		$	(26,609	)		$	(26,685	)		$	(55,084	)
(Income) loss from discontinued operations	(67		)		30,773				652				34,672
Income tax expense	273				293				449				315
Impairment charges	1,090				—				1,090				—
Depreciation and amortization	4,807				6,701				16,067				19,790
Restructuring charges	670				1,594				1,149				6,400
Restatement, investigation and related costs	2,524				—				7,590				—
Interest expense	8,051				3,883				21,592				10,496
Loss on extinguishment of debt	9,247				—				9,247				—
(Income) expense related to contingent consideration	—				—				(114		)		10,077
Stock-based compensation	517				1,003				1,674				4,050
Transaction costs	—				121				80				201
Other expense (income), net	239				(76		)		232				(1,146		)
Adjusted EBITDA	$	16,037			$	17,683			$	33,023			$	29,771

Adjusted EBITDA decreased $1.6 million, or 9.3%, to $16.0 million from $17.7 million for the three months ended September 28, 2013 and September 29, 2012, respectively. The decrease was caused by a decrease of $1.8 million in gross profit, partially offset by a decrease in selling, general and administrative expenses of $0.2 million excluding the effect of stock-based compensation and transaction costs.

Adjusted EBITDA increased $3.3 million, or 10.9%, to $33.0 million from $29.8 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The increase was caused by an increase of $7.5 million in gross profit, partially offset by an increase in selling, general and administrative expenses of $4.2 million excluding the effect of stock-based compensation and transaction costs.

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Liquidity and Capital Resources

Overview

At September 28, 2013, our liquidity included cash of $1.6 million and $10.5 million of availability under the New Revolving Loan. Availability was calculated based upon (i) $75.0 million, which was determined as the lesser of (a) the $75.0 million amount of the facility and (b) a borrowing base of $52.5 million, calculated as a percentage of eligible receivables, plus an additional amount that decreases over time (the “Additional Borrowing Base Amount”); less (ii) outstanding letters of credit under the New Revolving Loan, of which there were none; less (iii) outstanding borrowings under the New Revolving Loan of $64.5 million. The Additional Borrowing Base Amount is defined as (i) from July 10, 2013 through October 31, 2013, an amount equal to $30.0 million; (ii) from November 1, 2013 through and including November 30, 2013, an amount equal to $25.0 million; and (iii) thereafter, an amount equal to $20.0 million.

Our primary sources of cash are from our operations and from borrowings under loan arrangements. Our primary uses of cash are for (i) contractual obligations to service our debt and to make required payments under our vehicle fleet, facility and other leases; and (ii) other needs for cash that are necessary to run our business, such as investing in working capital to support our business requirements, providing collateral for our insurance policies in the form of letters of credit, and funding capital expenditures. Historically, we have also used cash to acquire businesses.

During the nine months ended September 28, 2013, the most significant factors impacting our liquidity were as follows:

•

Our greatest sources of cash for the nine months ended September 28, 2013 were from operations and from net borrowings on our revolving credit facilities. Adjusted EBITDA, which we use as an indicator of cash from operations prior to certain items, was $33.0 million. Net proceeds from our New Revolving Loan were $64.5 million, which were offset by $26.9 million of net repayments of our Prior Revolving Loan and $24.7 million that we deposited as collateral for letters of credit held by our prior lenders.

•

Our greatest uses of cash for the nine months ended September 28, 2013 were from increases in net working capital and payments of interest, financing fees, capital leases and certain other significant items. Net working capital increased $11.7 million, caused by reductions of $17.4 million of accounts payable and other liabilities that were partially offset by $6.1 million of reductions in accounts receivable. We paid $11.8 million of interest, $6.8 million of fees to refinance our debt, $5.8 million for capital lease obligations and $2.3 million for restructuring activities. We also incurred $7.6 million of restatement, investigation and related costs, the majority of which were paid in cash during the period.

•	There was $10.5 million of availability under our revolving credit facility at September 28, 2013 compared to $12.9 million of availability at December 31, 2012.

As of the date of this filing, we expect to continue to have adequate liquidity, including availability on our New Revolving Loan and cash on hand. Our liquidity varies on a daily basis depending upon:

•	The timing of collections from customers, which are significant and generally have been consistently paid;

•	Payroll for our employees, which is paid for the majority of employees on a biweekly basis;

•	Payments to subcontractors, vendors and other service providers for operating costs and capital expenditures; and

•	Debt service costs, including monthly payments of interest on our amended term loan and New Revolving Loan as well as quarterly amortization.

Our liquidity in the future is impacted by the terms of our debt agreements. In particular, our New Revolving Loan contains an Additional Borrowing Base Amount which decreases over time. On November 1, 2013, the Additional Borrowing Base Amount decreased by $5.0 million, to $25.0 million, and will decrease by an additional $5.0 million, to $20.0 million, on December 1, 2013. To the extent we have eligible receivables, as defined in the New Revolving Loan, that are below $50.0 million as of November 1, 2013 and $55.0 million as of December 1, 2013, we will have availability of less than $75.0 million on or after those dates. 

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Trends and Uncertainties

This discussion and analysis may not be indicative of our future liquidity or capital resources as a result of the following trends and uncertainties, which could materially impact our future liquidity and capital resources in future periods:

•

As a result of the findings from the Audit Committee Investigation, we experienced events of default under our Term Loan and our Revolving Loan. During the second quarter of 2013 and through the refinancing of our debt in July 2013, we entered into a series of forbearance agreements providing for standstill periods with respect to the events of default. In July 2013, we entered into a new revolving credit agreement and amended our term loan agreement which significantly increased our liquidity but at a substantially higher cost of borrowing due to fees and a higher rate of interest, as previously discussed. Additionally, we issued warrants to our lenders, exercisable at $0.01 per share, for 3.8 million shares of the Company’s common stock;

•	The New Revolving Loan contains a subjective acceleration clause that can be triggered if the lenders determine that the Company has experienced a material adverse change. If triggered by the lenders, this clause would create events of default with respect to both the New Revolving Loan and the Amended Term Loan, which in turn would permit the lenders to accelerate repayment of those obligations;

•	We need to improve our management of working capital within our wireless construction business, which if not managed well could require us to borrow additional amounts, which would reduce our profitability, or cause us to become ineligible for new borrowings or default on our debt, or both;

•	We must improve our ability to retain key subcontractors for future work; and

•	It is uncertain when we will be required to pay the final portion of the earn-out for the acquisition of Skylink, pursuant to the terms of the purchase agreement.

Our future liquidity and capital resources could also be impacted by trends and uncertainties surrounding our results of operations, as discussed elsewhere in this discussion and analysis.

Historical Cash Flows – Comparison of Nine Months ended September 28, 2013 and September 29, 2012

The following table summarizes our historical cash flows:

		Nine Months Ended
(in thousands)		September 28, 2013				September 29, 2012
Net cash provided by (used in):
Operating activities		$	(720	)		$	(4,843	)
Investing activities		(1,345		)		(19,180		)
Financing activities		(272		)		24,234

Cash Flows from Operating Activities

Cash flows from operating activities increased $4.1 million to net cash used of $0.7 million from net cash used of $4.8 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The increase in operating cash flows was driven by changes in working capital, partially offset by higher cash paid for interest.

We increased net working capital by $11.7 million during the nine months ended September 28, 2013 and $19.3 million during the comparable period of 2012, an improvement in cash flows of $7.6 million. The majority of the improvement was due to $36.1 million of higher cash flows from accounts receivable and $5.5 million of higher cash flows from inventory, driven by the impact of the 2012 ramp up of our wireless business and improved receivables management in 2013. The improvement was substantially offset by $34.4 million of lower cash flows from accounts payable and other liabilities, excluding the change in accrued restructuring, which was also caused by the 2012 growth in our wireless business and, to a lesser extent, additional payments made in 2013.

Cash paid for interest increased $2.8 million to $11.8 million from $9.0 million for the nine months ended September 28, 2013 and September 29, 2012, respectively, for the reasons discussed previously in our discussion and analysis of results of operations.

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Cash Flows from Investing Activities

Cash flows from investing activities increased $17.8 million to net cash used of $1.3 million from net cash used of $19.2 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The increase was driven primarily by $16.9 million of cash paid for the acquisitions of Skylink and cable fulfillment businesses during 2012.

Cash Flows from Financing Activities

Cash flows from financing activities decreased $24.5 million to net cash used of $0.3 million from net cash provided of $24.2 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. The net cash provided in 2012 was driven by $52.4 million of net proceeds from long-term debt, of which $18.0 million was used for partial payment of the Pinnacle earn-out and $8.9 million was used to repay capital lease obligations. This decrease was partially offset by net cash used in the 2013 period, driven by net proceeds from our New Revolving Loan of $64.5 million, which were offset by $26.9 million of net repayments of our Prior Revolving Loan and $24.7 million that we deposited as collateral for letters of credit held by our prior lenders. We also paid $6.8 million of fees to refinance our debt and $5.8 million for capital lease obligations.

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and new Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. The purpose of this evaluation is to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is accumulated and communicated to our management, including our Principal Executive and Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As explained in greater detail under Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, at December 31, 2012, management identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures. As a result of those material weaknesses, which have not yet been remediated, we concluded that our disclosure controls and procedures were not effective as of September 28, 2013. Notwithstanding the existence of the material weaknesses, each of our Chief Executive Officer and Chief Financial Officer has concluded that the consolidated financial statements in this report fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates and for the periods presented, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

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Management’s Plan for Remediation

Management is committed to the implementation of a plan to address the material weaknesses and to ensure that each area affected by a material control weakness is adequately remediated. These remediation efforts, summarized below, portions of which are either implemented or in process, are intended to both address the identified material weaknesses and to enhance our overall financial control environment:

•

Management will implement an enhanced review process at the corporate level wherein systematic review of the status of in-process contracts and evaluation of the assumptions, estimates and other information used to recognize revenues to-date will take place. In December 2012, we completed the implementation of our Oracle ERP system at the Pinnacle Wireless division, which we view as an integral part of the design and implementation of new transaction-level controls responsive to certain issues noted above. Further, we have begun an evaluation of our relevant accounting policies and processes to ensure that they are documented and standardized across the Company, circulated to the appropriate constituencies and reviewed and updated on a periodic basis.

•

The Internal Audit function’s direct reporting responsibility to the Audit Committee and the Board of Directors has been emphasized and is now monitored by the General Counsel / Chief Compliance Officer. Further, in August 2013 the Company engaged a nationally-recognized internal audit firm to provide the Company additional internal audit professionals qualified and experienced in internal audit standards of practice.

•

The process and related internal controls for revenue recognition accounting within the Engineering and Construction segment will be improved to ensure effective management review of contract terms, timely and accurate preparation of initial and updated detailed cost estimates, effective communication with accounting personnel, and effective management review and approval of the revenue recognition assumptions, calculations and conclusions.

•

In addition to our new Chief Financial Officer and Vice President and Corporate Controller, the Company has engaged and is in the process of recruiting fully qualified, appropriately credentialed candidates to take certain finance and accounting positions in both the corporate office and in the Engineering and Construction segment. These candidates will possess an appropriate level of accounting knowledge, experience, and training in the application of GAAP, including the application of the percentage-of-completion method of accounting, and will have the appropriate reporting responsibilities to corporate management.

When fully implemented and operational, management believes the measures described above will remediate the material weaknesses identified and strengthen internal control over financial reporting. However, there can be no assurance at this time that our disclosure controls and procedures will be effective at December 31, 2013. The Company is committed to continuing to improve its internal control processes and will continue to diligently and vigorously review its financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, our management may determine to take additional measures to address the material weaknesses or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.

Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the period ended September 28, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II:	OTHER INFORMATION

Item 1.	Legal Proceedings

As previously disclosed, a consolidated class action lawsuit was filed against the Company and certain of its current and former officers in the United States District Court for the Eastern District of Pennsylvania. The case, entitled In Re UniTek Global Services, Inc. Securities Litigation, Civil Action NO. 13-2119, alleges that the Company made misstatements and omissions regarding its business, its financial condition and its internal controls and systems in violation of the Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In October 2013, the plaintiffs and the Company reached a preliminary agreement to settle all claims for an amount of $1.6 million, including attorneys’ fees and expenses. This preliminary settlement is subject to the approval of the court, and the parties intend to submit settlement documents to the court by mid-December. The Company believes that the settlement amount will be covered by insurance and has accrued the $0.3 million deductible.

In September 2012, the Company purchased substantially all of the assets of Skylink, LTD. (“Skylink”). In accordance with the purchase agreement for the acquisition, an earn-out payment of $6.0 million accrued as of May 31, 2013. However, the Company has not made this payment because certain contractual conditions have not yet been met, including compliance with debt covenants (which occurred on July 25, 2013) and minimum levels of liquidity after giving effect to such payments (which has not yet been satisfied). This obligation accrues interest at an amount equal to 10% per annum, commencing on May 31, 2013.

In August 2013, Skylink brought a complaint against the Company in the Common Pleas Court of Hancock County, Ohio alleging the Company had failed to pay this earn-out payment and requesting a declaratory judgment that this earn-out payment is due and immediately payable, together with the accrued interest thereon and costs and expenses. The Company brought a motion to dismiss the complaint in the United States District Court for the Northern District of Ohio. Skylink thereafter amended its complaint, and the Company has filed another motion to dismiss the amended complaint. While the Company acknowledges that this earn-out payment accrued on May 31, 2013, the Company has not yet paid this earn-out payment because the obligation to make this payment requires certain conditions to be met, which have not yet occurred.

The Company also is involved in certain other legal and regulatory actions from time to time which arise in the ordinary course of the Company’s business. The Company is unable to predict the outcome of these matters, but does not believe that the ultimate resolution of such matters will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. However, if certain of such matters were determined adversely to the Company, although the ultimate liability arising therefrom would not be material to the financial position of the Company, it could be material to its results of operations in an individual quarter or annual period.

Item 1A.	Risk Factors

There have been no material changes to any of the risk factors disclosed in our most recently filed Form 10-K.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

As disclosed in the Company’s most recently filed Form 10-K, on July 16, 2012, Rocco Romanella, Chief Executive Officer, was granted 192,307 unregistered securities pursuant to an inducement grant. On July 16, 2013, 48,077 of these securities vested. Such unregistered securities were granted pursuant to an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended. The grant was approved by the Compensation Committee of the Board of Directors of the Company solely for compensation purposes, and the Company did not receive any consideration for such securities.

Item 3.	Defaults Upon Senior Securities

Information required by this item has been previously disclosed on reports on Form 8-K.

Item 4.	Mine Safety Disclosures

Not applicable

Item 5.	Other Information

None

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Item 6.	Exhibits

(a) Exhibits

#			10.1	Revolving Credit and Security Agreement, dated as of July 10, 2013, by and among the Company, certain subsidiaries thereof and Apollo Investment Corporation (Incorporated herein by reference from the Company’s Annual Report on Form 10-K filed on August 12, 2013.)
			10.2	Forbearance Agreement, dated as of July 17, 2013, among the Company, the Subsidiary Guarantors signatory thereto, the several banks and financial institutions signatory thereto as Lenders and Cerberus Business Finance, LLC. (Incorporated herein by reference from the Company’s Current Report on Form 8-K filed on July 18, 2013.)
			10.3	Second Amendment and Limited Waiver to Credit Agreement, dated as of July 25, 2013, by and among the Company, the lenders party thereto, Cerberus Business Finance, LLC, and the Credit Support Parties (as defined therein). (Incorporated herein by reference from the Company’s Current Report on Form 8-K filed on July 31, 2013.)
			10.4	Form of Warrant. (Incorporated herein by reference from the Company’s Current Report on Form 8-K filed on July 31, 2013.) (See schedule included in such exhibit for a list of recipients of warrants and the respective numbers of shares underlying the warrants issued to each recipient.)
			10.5	Form of Registration Rights Agreement. (Incorporated herein by reference from the Company’s Current Report on Form 8-K filed on July 31, 2013.) (See schedule included in such exhibit for a list of parties to such registration rights agreements.)
			10.6	Amendment and Limited Waiver to Revolving Credit and Security Agreement and Fee Letter, dated as of July 25, 2013, by and among the Company, Unitek Acquisition, Inc., Pinnacle Wireless USA, Inc., Unitek USA, LLC, Advanced Communications USA, Inc., DirectSat USA, LLC, FTS USA, LLC, the Lenders party thereto and Apollo Investment Corporation. (Incorporated herein by reference from the Company’s Current Report on Form 8-K filed on July 31, 2013.)
	+		31.1	Certification of the Chief Executive Officer of UniTek Global Services, Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
	+		31.2	Certification of the Chief Financial Officer of UniTek Global Services, Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
		*	32.1	Certification of the Chief Executive Officer and Chief Financial Officer of UniTek Global Services, Inc. required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended.
		*	101.INS	XBRL Instance Document
		*	101.SCH	XBRL Taxonomy Extension Schema
		*	101.CAL	XBRL Taxonomy Extension Calculation Linkbase
		*	101.LAB	XBRL Taxonomy Extension Label Linkbase
		*	101.PRE	XBRL Taxonomy Extension Presentation Linkbase
		*	101.DEF	XBRL Taxonomy Extension Definition Linkbase

#	Certain information in this exhibit has been omitted and has been filed separately with the Securities and Exchange Commission pursuant to an application for confidential treatment, which was granted on November 5, 2013.
+	Filed herewith.
*	Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITEK GLOBAL SERVICES, INC.

Date:	November 12, 2013	By:	/s/ Rocco Romanella
			Rocco Romanella
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 12, 2013	By:	/s/ Andrew J. Herning
			Andrew J. Herning
			Chief Financial Officer
			(Principal Financial Officer)

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