Attached files
file | filename |
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EX-23.1 - EX-23.1 - UniTek Global Services, Inc. | v193568_ex23-1.htm |
8-K - 8-K - UniTek Global Services, Inc. | v193568_8k.htm |
UniTek
Holdings, Inc.
Consolidated
Financial Statements
Years
Ended December 31, 2009 and 2008
Contents
Report
of Independent Registered Public Accounting Firm
|
F-ii
|
Audited
Consolidated Financial Statements
|
|
Consolidated
Balance Sheets
|
F-1
|
Consolidated
Statements of Operations
|
F-2
|
Consolidated
Statements of Shareholders' Equity
|
F-3
|
Consolidated
Statements of Cash Flows
|
F-4
|
Notes
to Consolidated Financial Statements
|
F-5
|
F-i
Report of
Independent Registered Public Accounting Firm
Board of
Directors
UniTek
Holdings, Inc.
We have
audited the accompanying consolidated balance sheets of UniTek Holdings, Inc. as
of December 31, 2009 and 2008, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of UniTek Holdings, Inc.
at December 31, 2009 and 2008, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles.
As
discussed in Note 1, the Company has restated its statements of cash flows for
2009 and 2008.
/s/ Ernst
& Young LLP
Philadelphia,
Pennsylvania
April 12,
2010, except Notes 1, 22, 23, and 24, as to which the date is August 13,
2010
F-ii
Consolidated
Balance Sheets
December 31
|
||||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
2,263,278
|
$
|
5,348,133
|
||||
Restricted
cash
|
132,881
|
450,000
|
||||||
Accounts
receivable and unbilled revenue, net of allowances
|
24,679,947
|
26,944,879
|
||||||
Inventories
|
8,325,721
|
10,844,229
|
||||||
Prepaid
expenses and other current assets
|
3,803,787
|
2,437,089
|
||||||
Total
current assets
|
39,205,614
|
46,024,330
|
||||||
Property
and equipment, net
|
20,665,487
|
13,597,175
|
||||||
Goodwill
|
137,827,554
|
171,703,472
|
||||||
Customer
contracts, net
|
26,563,731
|
42,823,469
|
||||||
Other
intangible assets, net
|
376,799
|
686,458
|
||||||
Deferred
tax asset, net
|
109,000
|
34,000
|
||||||
Other
long-term assets
|
7,092,952
|
7,145,721
|
||||||
Total
assets
|
$
|
231,841,137
|
$
|
282,014,625
|
||||
Liabilities
and shareholders' equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
19,301,778
|
$
|
17,259,046
|
||||
Accrued
expenses
|
23,329,678
|
20,136,027
|
||||||
Current
income taxes
|
187,000
|
314,000
|
||||||
Current
portion of long-term debt
|
33,005,777
|
152,707,127
|
||||||
Current
portion of capital lease obligations and vehicle loans
|
5,097,245
|
784,836
|
||||||
Total
current liabilities
|
80,921,478
|
191,201,036
|
||||||
Long-term
debt, net of current portion
|
127,162,500
|
–
|
||||||
Capital
lease obligations and vehicle loans, net of current
portion
|
4,243,804
|
1,314,140
|
||||||
Deferred
income taxes
|
–
|
4,831,457
|
||||||
Other
long-term liabilities
|
–
|
1,669,076
|
||||||
Total
liabilities
|
212,327,782
|
199,015,709
|
||||||
Shareholders'
equity:
|
||||||||
Preferred
stock $.01 par value (1,000 shares authorized, no shares issued
or outstanding)
|
-
|
-
|
||||||
Common
stock $0.01 par value (150,000,000 shares, authorized, 109,100,000 and
109,050,000 shares issued and outstanding)
|
1,091,000
|
1,090,500
|
||||||
Additional
paid-in capital
|
112,746,597
|
110,871,208
|
||||||
Accumulated
other comprehensive income (loss)
|
60,642
|
(183,374
|
)
|
|||||
Accumulated
deficit
|
(94,384,884
|
)
|
(28,779,418
|
)
|
||||
Total
shareholders' equity
|
19,513,355
|
82,998,916
|
||||||
Total
liabilities and shareholders' equity
|
$
|
231,841,137
|
$
|
282,014,625
|
See
accompanying notes.
F-1
UniTek
Holdings, Inc.
Consolidated
Statements of Operations
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Revenues
|
$
|
278,098,344
|
$
|
215,751,912
|
||||
Cost
of revenues
|
237,350,454
|
180,318,723
|
||||||
Gross
profit
|
40,747,890
|
35,433,189
|
||||||
Selling,
general, and administrative expenses
|
26,859,882
|
20,863,530
|
||||||
Asset
impairment
|
38,430,952
|
–
|
||||||
Depreciation
and amortization
|
26,878,027
|
21,270,188
|
||||||
Operating
loss
|
(51,420,971
|
)
|
(6,700,529
|
)
|
||||
Interest
income
|
–
|
82,271
|
||||||
Interest
expense
|
18,824,916
|
16,096,036
|
||||||
Other
expense, net
|
284,273
|
7,480
|
||||||
Loss
from continuing operations before income taxes
|
(70,530,160
|
)
|
(22,721,774
|
)
|
||||
Benefit
(provision) for income taxes
|
4,743,254
|
(4,503,457
|
)
|
|||||
Loss
from continuing operations
|
(65,786,906
|
)
|
(27,225,231
|
)
|
||||
Income
from discontinued operations (net of tax benefit of $0 and $453,000,
respectively)
|
181,440
|
4,034,275
|
||||||
Net
loss
|
$
|
(65,605,466
|
)
|
$
|
(23,190,956
|
)
|
||
Net
loss per share:
|
||||||||
Basic
|
$
|
(0.60
|
)
|
$
|
(0.21
|
)
|
||
Diluted
|
$
|
(0.60
|
)
|
$
|
(0.21
|
)
|
||
Weighted
average number of shares outstanding:
|
||||||||
Basic
|
109,096,154
|
108,834,615
|
||||||
Diluted
|
109,096,154
|
108,834,615
|
See
accompanying notes.
F-2
UniTek
Holdings, Inc.
Consolidated
Statements of Shareholders' Equity
Common Stock
|
Additional
Paid-in
|
Accumulated
Other
Comprehensive
|
Accumulated
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Income
|
Deficit
|
Total
|
|||||||||||||||||||
Balance
as of December 31, 2007
|
108,650,000
|
$
|
1,086,500
|
$
|
109,184,648
|
$
|
–
|
$
|
(5,588,462
|
)
|
$
|
104,682,686
|
||||||||||||
Net
loss
|
–
|
–
|
–
|
–
|
(23,190,956
|
)
|
(23,190,956
|
)
|
||||||||||||||||
Currency
translation
|
–
|
–
|
–
|
(183,374
|
)
|
–
|
(183,374
|
)
|
||||||||||||||||
Total
comprehensive loss
|
(183,374
|
)
|
(23,190,956
|
)
|
(23,374,330
|
)
|
||||||||||||||||||
Capital
contributions
|
400,000
|
4,000
|
396,000
|
–
|
–
|
400,000
|
||||||||||||||||||
Stock
compensation expense
|
–
|
–
|
1,290,560
|
–
|
–
|
1,290,560
|
||||||||||||||||||
Balance
as of December 31, 2008
|
109,050,000
|
1,090,500
|
110,871,208
|
(183,374
|
)
|
(28,779,418
|
)
|
82,998,916
|
||||||||||||||||
Net
loss
|
–
|
–
|
–
|
(65,605,466
|
)
|
(65,605,466
|
)
|
|||||||||||||||||
Currency
translation
|
–
|
–
|
–
|
244,016
|
–
|
244,016
|
||||||||||||||||||
Total
comprehensive loss
|
244,016
|
(65,605,466
|
)
|
(65,361,450
|
)
|
|||||||||||||||||||
Warrants
issued in acquisition
|
–
|
–
|
137,500
|
–
|
–
|
137,500
|
||||||||||||||||||
Capital
contributions
|
50,000
|
500
|
49,500
|
–
|
–
|
50,000
|
||||||||||||||||||
Stock
compensation expense
|
–
|
–
|
1,688,389
|
–
|
–
|
1,688,389
|
||||||||||||||||||
Balance
as of December 31, 2009
|
109,100,000
|
$
|
1,091,000
|
$
|
112,746,597
|
$
|
60,642
|
$
|
(94,384,884
|
)
|
$
|
19,513,355
|
See
accompanying notes.
F-3
UniTek
Holdings, Inc.
Consolidated
Statements of Cash Flows
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$
|
(65,605,466
|
)
|
$
|
(23,190,956
|
)
|
||
Adjustments
to reconcile net loss to net cash provided by operating activities from
continuing operations:
|
||||||||
Income
from discontinued operations
|
(181,440)
|
(4,034,275
|
)
|
|||||
Provision
for doubtful accounts
|
602,779
|
2,678,743
|
||||||
Depreciation
and amortization
|
26,878,027
|
21,270,188
|
||||||
Asset
impairment
|
38,430,952
|
–
|
||||||
Deferred
financing cost amortization
|
2,196,746
|
1,698,295
|
||||||
Change
in fair value of collar
|
(121,413
|
)
|
1,264,143
|
|||||
Stock
compensation expense
|
1,688,389
|
1,290,560
|
||||||
Deferred
income taxes
|
(4,906,457
|
)
|
4,222,457
|
|||||
Loss
on sale of property and equipment
|
283,407
|
7,480
|
||||||
Interest
added to debt principal
|
2,021,150
|
1,345,938
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable and unbilled revenue
|
979,210
|
(13,590,427
|
)
|
|||||
Inventories
|
2,022,807
|
(4,640,730
|
)
|
|||||
Prepaid
expenses and other assets
|
(1,253,134
|
)
|
(924,082
|
)
|
||||
Accounts
payable and accrued expenses
|
2,502,548
|
7,729,324
|
||||||
Net
cash provided by (used in) operating activities – continuing
operations
|
5,538,105
|
(4,873,342
|
)
|
|||||
Net
cash provided by operating activities – discontinued
operations
|
674,399
|
6,291,141
|
||||||
Net
cash provided by operating activities
|
6,212,504
|
1,417,799
|
||||||
Cash
flows from investing activities
|
||||||||
Acquisition
of property and equipment
|
(4,604,711
|
)
|
(2,785,901
|
)
|
||||
Proceeds
from sale of property and equipment
|
461,546
|
30,634
|
||||||
Cash
restricted for acquisition of business
|
317,119
|
(450,000
|
)
|
|||||
Cash
paid for acquisition of businesses
|
(6,625,793
|
)
|
(26,016,445
|
)
|
||||
Net
cash used in investing activities
|
(10,451,839
|
)
|
(29,221,712
|
)
|
||||
Cash
flows from financing activities
|
||||||||
Capital
contribution
|
$
|
450,000
|
$
|
400,000
|
||||
Proceeds
from revolving credit facilities, net
|
7,000,000
|
12,400,000
|
||||||
Proceeds
from issuance of long-term debt
|
–
|
19,700,186
|
||||||
Repayment
of principal on capital leases
|
(2,643,916
|
)
|
(881,365
|
)
|
||||
Repayment
of long-term debt
|
(1,560,000
|
)
|
(755,000
|
)
|
||||
Financing
fees
|
(2,209,919
|
)
|
(1,310,533
|
)
|
||||
Net
cash provided by financing activities
|
1,036,165
|
29,553,288
|
||||||
Effect
of exchange rate on cash and cash equivalents
|
118,315
|
(57,703
|
)
|
|||||
Net
(decrease) increase in cash and cash equivalents
|
(3,084,855
|
)
|
1,691,672
|
|||||
Cash
and cash equivalents at beginning of year
|
5,348,133
|
3,656,461
|
||||||
Cash
and cash equivalents at end of year
|
$
|
2,263,278
|
$
|
5,348,133
|
||||
Supplemental
disclosures of cash flow information
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
paid
|
$
|
14,437,059
|
$
|
11,624,744
|
||||
Taxes
paid
|
$
|
259,689
|
$
|
12,066
|
||||
Significant
noncash items
|
||||||||
Fair
value of satellite markets provided
|
$
|
26,000,000
|
$
|
24,600,000
|
||||
Acquisition
of property and equipment financed by capital lease
obligations
|
$
|
579,394
|
$
|
200,186
|
See
accompanying notes.
F-4
Notes to
Consolidated Financial Statements
December
31, 2009
1.
Background
Headquartered
in Blue Bell, Pennsylvania, UniTek USA, LLC (“UniTek”), is a premier provider of
high-quality, specialized infrastructure services including engineering,
construction management and installation fulfillment services to the
telecommunications, network services, broadband cable and satellite industries.
UniTek has created a scalable platform through which it can rapidly deploy a
highly skilled workforce of over 5,000 throughout 89 field offices across the
United States and Canada, delivering a comprehensive end-to-end suite of
technical labor services. Operations in Canada contributed $12,405,971 and
$6,614,944 in revenue in 2009 and 2008, respectively. As of December 31, 2009
and 2008, our long-lived assets for continuing operations located in Canada were
$2,571,444 and $501,455, respectively.
On
September 27, 2007, UniTek Acquisition, Inc. (“Acquisition”) purchased 100%
of the outstanding membership interests of UniTek USA, LLC. Acquisition is a
wholly owned subsidiary of UniTek Midco, Inc. (“Midco”). Midco has no
substantive operations, assets or liabilities. Midco is a wholly owned
subsidiary of UniTek Holdings, Inc. (“Holdings” or the
“Company”). Holdings is majority owned by an investment fund of HM
Capital Partners, L.P. (“HM Capital”). The acquisition was accounted for as a
business combination and the assets and liabilities of the acquired operations
were stated at fair value as of the acquisition date. The acquisition was
treated as a purchase with Acquisition as the accounting acquirer.
The
Company has adjusted its previously issued statements of cash flows for a
mathematical error within cash provided from operations on the statement of cash
flows. The adjustment has no impact on total cash flows from
operating activities but did impact the reported amounts of cash provided by
continuing operations and cash provided by discontinued operations. The
effect of the adjustment for this error is that cash flows provided by (used in)
operating activities - continuing operations changed from $6,232,268 to
$5,150,164 and from $3,195,208 to ($4,873,342) on the amounts previously
reported for the years ended December 31, 2009 and 2008, respectively, and
cash flows provided by (used in) operating activities - discontinued operations
changed from ($19,764) to $1,062,340 and from ($1,777,409) to $6,291,141 for the
years ended December 31, 2009 and 2008, respectively.
Certain cable operations that began during 2009 were discontinued
during the first quarter of 2010. The Company's 2009 financial
statements have been restated to classify the financial information of these
cable businesses as discontinued operations for financial reporting purposes
(see Note 22). The effect of this adjustment for the year ended December 31,
2009 is that cash flows provided by operating activities - continuing operations
increased by $387,941 and cash flows provided by operating activities -
discontinued operations decreased by the same amount. These cable operations did
not exist during 2008.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements include the accounts of Holdings and the
accounts of its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of certain assets and liabilities, amounts
contained in certain of the notes to the consolidated financial statements, and
the revenues and expenses reported for the periods covered by the 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, allowances
for bad debts, and valuation of goodwill and intangible assets.
F-5
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
2.
Summary of Significant Accounting Policies (continued)
In the
ordinary course of accounting for items discussed above, the Company makes
changes in estimates as appropriate and as the Company becomes aware of
circumstances surrounding those estimates. Such changes and refinements 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 consolidated financial statements.
Cash
and Cash Equivalents
Cash and
cash equivalents include instruments with original maturities of three months or
less.
Accounts
Receivable and Allowance for Doubtful Accounts
Trade
accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company’s best estimate of
the amount of probable credit losses in its existing accounts receivable. A
specific reserve for bad debts is recorded for known or suspected doubtful
accounts receivable. For all other accounts, the Company recognizes a general
reserve for bad debts based on the length of time receivables are past due and
historical write-off experience. Account balances are charged off against the
allowance when the Company believes it is probable that the receivable will not
be recovered.
Inventories
Inventories
consist primarily of materials and supplies purchased from the customer and used
for installation fulfillment services. Inventories are stated at the lower of
cost or market, as determined by the first-in, first-out or the
specific-identification method.
Prepaid
Expenses and Other Current Assets
Prepaid
and other current assets consist primarily of prepaid insurance, taxes and
expenses. These costs are expensed ratably over the related periods of
benefit.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is generally calculated using the
straight-line method over the estimated useful lives of the assets, which
principally range from three to seven years for computers, construction
equipment, furniture, vehicles, and equipment. The useful life of leasehold
improvements is based on the shorter of the term of the lease or five years.
Assets under capital leases are amortized over the lesser of the lease term or
the asset’s estimated useful life. When assets are retired or disposed of, the
cost and accumulated depreciation thereon are removed and any resultant gains or
losses are recognized.
F-6
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
2.
Summary of Significant Accounting Policies (continued)
Goodwill
and Intangible Assets
Goodwill
is subject to an assessment for impairment using a two-step, fair value-based
test with the first step performed at least annually, or more frequently if
events or circumstances exist that indicate that goodwill may be impaired. The
Company completes an annual analysis of the reporting units at the beginning of
the fourth quarter of each fiscal year. The first step compares the fair value
of a reporting unit to its carrying amount, including goodwill. If the carrying
amount of the reporting unit exceeds its fair value, an impairment test is
performed to determine the implied value of goodwill for that reporting unit. If
the implied value is less than the carrying amount of goodwill for that
reporting unit, an impairment loss is recognized for that reporting
unit.
The
Company amortizes intangible assets, consisting of customer contracts and
noncompete agreements from acquired businesses, on a straight-line basis over
the 12- to 60-month lives of those agreements (see Note 9).
Other
Long-Term Assets
Costs
associated with obtaining long-term debt are deferred and amortized to interest
expense on a straight-line basis, which approximates the effective interest
method, over the term of the related debt (see Note 8). At
December 31, 2009 and 2008, $6,579,755 and $6,707,942 (net), respectively,
is included in other long-term assets related to deferred financing
fees.
The
Company reviews impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable based on undiscounted estimated cash flows expected from its use and
ultimate disposition. Assets to be disposed of are reclassified to assets held
for sale at the lower of their carrying value amount or fair value net of
selling costs.
Derivative
Financial Instruments
The
Company utilizes derivative financial instruments to reduce interest rate risks.
The Company does not hold derivative financial instruments for trading purposes.
All derivatives are accounted for at fair value. Changes in the fair value of
derivatives are recorded in earnings or other comprehensive income, based on
whether the instrument is designated as part of a hedge transaction and, if so,
the type of hedge transaction.
Revenue
Recognition
Revenues
from fulfillment services provided to the satellite and cable television markets
are recognized as the services are rendered. The Company recognizes revenue from
fulfillment services net of the satellite equipment because the Company
has determined that it acts as an agent.
F-7
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
2.
Summary of Significant Accounting Policies (continued)
The
Company also enters into contracts that require the installation or construction
of specified units within an infrastructure system. Under these contracts,
revenue is recognized at the contractually agreed price per unit as the units
are completed. Unbilled revenues represent amounts earned and recognized in the
period for which customer billings are issued in a subsequent period per the
contract terms.
Fair
Value of Financial Instruments
The
carrying values of cash and cash equivalents, accounts receivable, other current
assets, accounts payable, accrued liabilities and other current liabilities
approximate fair value due to the short-term nature of those instruments. The
carrying value of the capital lease obligations approximates fair value because
they bear interest at rates currently available to the Company for debt with
similar terms and remaining maturities. The fair values of debt and derivative
instruments are discussed in Notes 11 and 12, respectively.
Income
Taxes
The
Company follows the asset and liability method of accounting for income taxes.
Income taxes consist of taxes currently due plus deferred taxes related
primarily to differences between the basis of assets and liabilities for
financial and income tax reporting. Deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be deductible or taxable when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that are
available to offset future taxable income. Deferred tax assets and liabilities
are reflected at income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. A valuation allowance is recorded
against a deferred tax asset when it is determined to be more-likely-than-not
that the asset will not be realized.
The
Company provides an intra-period tax allocation of the income tax expense or
benefit for the year among continuing operations and discontinued
operations.
Leases
The
Company leases vehicles for performing fulfillment services in the satellite and
cable services divisions. Leases are accounted for either as operating or
capital depending on the terms of the lease. Each lease is reviewed as to the
terms and a determination is made whether the vehicle is an operating or capital
lease. Operating lease payments are expensed as incurred while payments on
capital leases are included on the consolidated balance sheet as a liability and
as a fixed asset.
F-8
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
2.
Summary of Significant Accounting Policies (continued)
Stock-Based
Compensation
The
Company measures and recognizes compensation expense for all share-based awards
made to employees and directors including employee stock options based on
estimated fair values.
The
consolidated financial statements as of and for the year ended December 31,
2009 and 2008 include stock option expense as compensation expense. Pretax
stock-based compensation expense recognized for the years ended
December 31, 2009 and 2008 was $1,688,389 and $1,290,560, respectively
(refer to Note 16 for additional information). For the years ended
December 31, 2009 and 2008, all stock-based compensation expense was
included in selling, general, and administrative expenses in the consolidated
statements of operations.
Stock-based
compensation expense recognized for the years ended December 31, 2009 and
2008 is based on the fair value of awards ultimately expected to vest, net of
estimated forfeitures. The Company estimates the fair value of stock-based
awards on the date of grant using an option-pricing model. The Company values
stock-based awards using the Black-Scholes option-pricing model and recognizes
compensation expense on a straight-line basis over the requisite service
periods. Stock-based compensation expense recognized during the current period
is based on the value of the portion of stock-based awards that is ultimately
expected to vest. The Company estimates forfeitures at the time of grant in
order to estimate the amount of stock-based awards that will ultimately vest.
Limited historical forfeiture data is available. As such, management has based
the estimated forfeiture rate on expected employee turnover. The Company records
the cash flows resulting from the tax deductions in excess of the compensation
cost recognized for those options (excess tax benefit) as financing cash
flows.
Reclassifications
Certain
reclassifications have been made to the prior-year financial statements to
conform to the current-year presentation.
Net
Loss Attributable to Common Shares
Basic net
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the periods presented. Diluted net
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the periods plus the dilution that
would occur upon the exercise or conversion of any instruments convertible to
common stock, such as stock options or warrants. At December 31, 2009
and 2008, no additional shares were dilutive to the computation because Holdings
reported a net loss for each of those years. Any outstanding stock
options, warrants, or other instruments that are convertible to common stock
could potentially be dilutive should Holdings report net income in a future
period.
F-9
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
2.
Summary of Significant Accounting Policies (continued)
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (the “FASB”) issued
new guidance related to business combinations. This guidance retains the
fundamental requirements of existing guidance that the acquisition method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. This guidance defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date the acquirer
achieves control.
Additionally,
it requires contingent purchase price to be measured and recorded at its
estimated fair value on the date of acquisition. This guidance was effective for
the Company beginning January 1, 2009 and the impact of the adoption of
this guidance depends upon the nature and terms of business combinations that
the Company consummates on or after January 1, 2009.
On
January 1, 2009, the Company adopted new guidance on accounting for
uncertainty in income taxes. The new guidance provides a financial statement
recognition threshold and measurement attribute for a tax position taken or
expected to be taken in a tax return. The Company may recognize the tax benefit
from an uncertain tax position only if it is more-likely-than-not that the tax
position will be sustained on examination by taxing authorities, based solely on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood to be sustained upon
ultimate settlement. The new guidance also covers the derecognition of income
tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with
tax positions, and income tax disclosures. The implementation of this standard
did not have a material impact on the Company’s consolidated financial position
and results of operations.
In
January 2009, the FASB issued new guidance on disclosures about derivative
instruments and hedging activities. The guidance is effective for fiscal years
beginning after November 15, 2008 and expands disclosure requirements about
an entity’s derivative instruments and hedging activities. The Company has
expanded its disclosures about derivative instruments and hedging activities
(see Note 12).
In
May 2009, the FASB issued new guidance on subsequent events. The standard
provides guidance on management’s assessment of subsequent events and
incorporates this guidance into accounting literature. The standard is effective
prospectively for interim and annual periods ending after June 15, 2009,
and the Company adopted this guidance commencing with the December 31, 2009
consolidated financial statements. The implementation of this standard did not
have a material impact on our consolidated financial position and results of
operations.
F-10
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
2.
Summary of Significant Accounting Policies (continued)
In
June 2009, FASB Accounting Standards Codification (Codification) was
issued, effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Codification supersedes literature of
the FASB, Emerging Issues Task Force and other sources. The Codification did not
change U.S. generally accepted accounting principles. The implementation of this
standard did not have a material impact on the Company’s consolidated balance
sheet and results of operations.
3.
DirecTV Enterprises LLC/180 Connect Transaction
On
April 18, 2008, the Company entered into an asset purchase and exchange
agreement with DTV HSP Merger Sub, Inc., a wholly owned subsidiary of DirecTV
Enterprises, LLC (“DirecTV”), one of the Company’s significant customers. The
acquisition closed on July 8, 2008. The results were included in the
Company’s consolidated results beginning July 9, 2008. The agreement
required the Company to pay cash and transfer three of its satellite television
markets to DirecTV in exchange for 10 satellite television markets and a cable
television installation business formerly owned by 180 Connect, Inc. The
transaction allows the Company to develop additional market share and geographic
diversification in the satellite television services. The associated cable
business acquired in the transaction expanded the existing footprint in the
southwestern U.S. and diversified the scope of work offered. No preexisting
relationships were settled as part of this agreement.
Acquisition
of Business
The
Company has accounted for the asset purchase and exchange as a purchase of a
business. The purchase price was calculated as the sum of the cash paid, the
fair value of the satellite television markets transferred to DirecTV, certain
liabilities assumed in the deal and the related transaction costs. The purchase
price was allocated to the assets acquired from DirecTV based on their
acquisition date fair values. The excess of the purchase price over the fair
value of assets acquired was recorded as goodwill. The allocation of purchase
price has been adjusted for the final valuation of fixed assets, the actual
liabilities assumed in the transaction and the actual transaction
costs.
F-11
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
3.
DirecTV Enterprises LLC/180 Connect Transaction (continued)
The final
purchase price was calculated as follows:
Cash
paid
|
$ | 6,868,252 | ||
Fair
value of satellite markets provided
|
24,600,000 | |||
Transaction
costs
|
1,602,075 | |||
Total
purchase price
|
$ | 33,070,327 |
The final
price was allocated to the assets acquired and liabilities assumed as
follows:
Property,
plant and equipment
|
$ | 1,774,478 | ||
Other
assets
|
143,121 | |||
Site
closure costs and severance
|
(2,526,916 | ) | ||
Capital
leases and vehicle loans
|
(154,090 | ) | ||
Contracts
|
15,000,000 | |||
Goodwill
|
18,833,734 | |||
Net
assets acquired
|
$ | 33,070,327 |
In
connection with the acquisition of the cable business from DirecTV, the Company
developed a plan to close certain facilities and reduce personnel of the
acquired business in areas where the Company was not able to continue a
contractual relationship with the customer. In connection with the plan, the
Company established reserves in purchase accounting totaling approximately
$2.3 million. During 2008, the facilities were abandoned and all positions
were eliminated. The balance of the reserve at December 31, 2009 reflects
lease obligations associated expenses in the accompanying consolidated balance
sheet. A summary of the reserve activity related to the restructuring plan as of
and for the year ended December 31, 2009 is as follows:
Initial
Reserves
Recorded in
Purchase
Accounting
|
2008
Payments
|
Balance as of
December 31,
2008
|
2009
Payments and
Adjustments
|
Balance as of
December 31,
2009
|
||||||||||||||||
Severance-related
costs
|
$
|
49,000
|
$
|
49,000
|
$
|
–
|
$
|
–
|
$
|
–
|
||||||||||
Lease
exit costs
|
2,225,608
|
772,167
|
1,453,441
|
335,387
|
1,118,054
|
|||||||||||||||
Total
|
$
|
2,274,608
|
$
|
821,167
|
$
|
1,453,441
|
$
|
335,387
|
$
|
1,118,054
|
Discontinued
Operations
The
satellite television markets transferred to DirecTV met the definition of a
business and was treated as a disposal of a portion of a reporting unit. The
carrying value of contract assets and goodwill attributable to these markets was
determined by an allocation based on the relative fair values of the satellite
television markets being disposed of and retained by the Company. The difference
between the fair value and carrying value of the satellite television markets
transferred to DirecTV was $(871,417) and was recorded as a loss within
discontinued operations on the consolidated statement of
operations.
F-12
Notes to
Consolidated Financial Statements
December
31, 2009
3.
DirecTV Enterprises LLC/180 Connect Transaction (continued)
As a
result of the asset purchase and exchange, the operations and cash flows
generated from the satellite television markets provided to DirecTV have ceased
for the Company. Accordingly, the Company has treated the operations of these
markets as discontinued operations on the consolidated statement of operations,
and the revenues, costs and expenses directly associated with these markets have
been classified as discontinued operations on the consolidated statement of
operations.
4.
2009 DirecTV Market Swap
On
February 1, 2009, the Company entered into an asset exchange agreement with
DirecTV, one of the Company’s significant customers. The exchange of satellite
installation sites was completed by April 1. The results of the acquired
business were included in the Company’s consolidated results beginning with the
timing of the transfer of each site. No cash was transferred as part of the
transaction. No preexisting relationships were settled as part of this
agreement.
Acquisition
of Business
The
Company has accounted for the asset exchange as a purchase of a business. The
purchase price was calculated as the fair value of the satellite television
markets transferred to DirecTV. The purchase price was allocated to the assets
acquired from DirecTV based on their acquisition date fair values. The excess of
the purchase price over the fair value of assets acquired was recorded as
goodwill. The allocation of the purchase price has been performed on a
preliminary basis and is subject to adjustment and finalization, which
management expects to complete during 2010.
The
results of the 2009 DirecTV swap are included in the consolidated results of the
Company effective at the date of the swap. During 2009, DirecTV markets received
in the swap contributed revenue of $37,171,299 and operating income of
$3,589,608 including depreciation and amortization.
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
4. 2009
DirecTV Market Swap (continued)
The
preliminary purchase price was calculated as follows:
Fair
value of satellite markets provided
|
$ | 26,000,000 | ||
Total
purchase price
|
$ | 26,000,000 |
The
purchase price was allocated to the assets acquired and liabilities assumed as
follows:
Property
and equipment
|
$ | 192,534 | ||
Customer
contracts
|
9,800,000 | |||
Goodwill
|
16,007,466 | |||
Net
assets acquired
|
$ | 26,000,000 |
Discontinued
Operations
The
satellite television markets transferred to DirecTV met the definition of a
business and were treated as a disposal of a portion of a reporting unit. The
carrying value of contract assets and goodwill attributable to these markets was
determined by an allocation based on the relative fair values of the satellite
television markets being disposed of and retained by the Company. The fair value
of the satellite television markets transferred to DirecTV exceeded their
carrying value by $110,885 and was recorded as a gain within discontinued
operations on the consolidated statement of operations.
As a
result of the asset purchase and exchange, the operations and cash flows
generated from the satellite television markets provided to DirecTV have ceased
for the Company. Accordingly, the Company has treated the operations of these
markets as discontinued operations on the 2009 consolidated statement of
operations, and the revenues, costs and expenses directly associated with these
markets have been classified as loss from discontinued operations on the
consolidated statement of operations.
5.
Other Acquisitions
Acquisition
of Metro Cable Services, Inc.
On
September 30, 2009, the Company acquired substantially all of assets and
assumed certain liabilities of Metro Cable Services, Inc. (“Metro”), a company
that provides cable television installation services in the greater Dallas, TX
area, for a total purchase price of $2,767,917. The combination of the
acquisition and the Company’s existing business substantially expands the
Company’s presence in the greater Dallas and Ft. Worth, TX area. The purchase
agreement provides that the sellers will be paid either 375,000 shares or
$255,417, depending upon certain conditions. The purchase agreement also
contains provisions allowing the sellers to realize contingent purchase price
consideration of up to $250,000 in cash and 375,000 shares of common stock of
Holdings, contingent upon achieving certain sales levels. The fair value of the
contingent consideration of $512,500 has been included in the preliminary
purchase price. The intangible asset valued at $100,000 relates to a noncompete
agreement which is being amortized over 12 months. The amortization of
intangible assets and goodwill is deductible for tax purposes. The allocation of
purchase price has been performed on a preliminary basis and is subject to
adjustment and finalization, which management expects to complete during
2010.
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
5.
Other Acquisitions (continued)
The
preliminary purchase price was calculated as follows:
Cash
|
$ | 2,000,000 | ||
Cash
or shares
|
255,417 | |||
Contingent
purchase price consideration
|
512,500 | |||
Total
purchase price
|
$ | 2,767,917 |
The
preliminary purchase price was allocated to the assets acquired and liabilities
assumed as follows:
Property
and equipment
|
$ | 134,492 | ||
Goodwill
|
403,718 | |||
Customer
contracts
|
2,200,000 | |||
Noncompete
agreement
|
100,000 | |||
Capital
lease obligations and vehicle loans – current
|
(32,826 | ) | ||
Capital
lease obligations and vehicle loans – long term
|
(37,467 | ) | ||
Total
net assets acquired
|
$ | 2,767,917 |
The
results of Metro were included in the consolidated results of the Company
effective September 30, 2009. During 2009, Metro contributed revenue of
$1,196,102 and operating income of $(94,994) including depreciation and
amortization.
Acquisition
of AMBB LLC
On
October 2, 2009, the Company acquired substantially all of assets and
assumed certain liabilities of AMBB LLC (“AMBB”), a company that provides cable
television installation services in the northeastern United States, for a total
purchase price $2,366,413. The acquisition expands the Company’s cable
installation operations into new geographical areas of the northeastern U.S. The
purchase agreement contains provisions allowing the sellers to realize
contingent purchase price consideration consisting of up to 250,000 warrants of
Holdings, contingent upon achieving certain sales levels. The acquisition date
fair value of the warrants of $137,500 has been included in the preliminary
purchase price. The intangible asset valued at $200,000 relates to a noncompete
agreement which is being amortized over 12 months. The amortization of
intangible assets and goodwill is deductible for tax purposes. The allocation of
purchase price has been performed on a preliminary basis and is subject to
adjustment and finalization, which management expects to complete during
2010.
F-15
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
5.
Other Acquisitions (continued)
The
preliminary purchase price was calculated as follows:
Cash
|
$ | 2,228,913 | ||
Contingent
purchase price consideration
|
137,500 | |||
Total
purchase price
|
$ | 2,366,413 |
The
preliminary purchase price was allocated to the assets acquired and liabilities
assumed as follows:
Property
and equipment
|
$ | 1,109,769 | ||
Goodwill
|
455,352 | |||
Customer
contracts
|
1,500,000 | |||
Noncompete
agreement
|
200,000 | |||
Accrued
expenses
|
(22,464 | ) | ||
Capital
lease obligations and vehicle loans – current
|
(101,007 | ) | ||
Capital
lease obligations and vehicle loans – long term
|
(775,237 | ) | ||
Total
net assets acquired
|
$ | 2,366,413 |
The
results of AMBB were included in the consolidated results of the Company
effective October 3, 2009. During 2009, AMBB contributed revenue of
$2,410,549 and operating income of $(154,665) including depreciation and
amortization.
Acquisition
of C&C Communications, Inc.
On
November 16, 2009, Wirecomm Systems Inc. (a wholly owned Canadian
subsidiary of the Company) acquired substantially all of assets and assumed
certain liabilities of C&C Communications, Inc. (“C&C”), a company that
provides cable television installation services in the greater Toronto, Ontario
area for a total purchase price $1,807,897. The combination of the acquisition
and the Company’s existing business substantially expands the Company’s presence
in the greater Toronto area. The purchase agreement contains provisions allowing
the sellers to realize contingent purchase price consideration of up to $189,888
contingent upon achieving certain sales levels. The acquisition date fair value
of the contingent consideration of $186,090 has been included in the preliminary
purchase price. The intangible asset valued at $47,575 relates to a noncompete
agreement which is being amortized over 12 months. The amortization of
intangible assets and goodwill is deductible for tax purposes.
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
5.
Other Acquisitions (continued)
The
allocation of purchase price has been performed on a preliminary basis and is
subject to adjustment and finalization, which management expects to complete
during 2010.
The
preliminary purchase price was calculated as follows:
Cash
paid to sellers
|
$ | 1,621,807 | ||
Contingent
purchase price consideration
|
186,090 | |||
Total
purchase price
|
$ | 1,807,897 |
The
preliminary purchase price was allocated to the assets acquired and liabilities
assumed as follows:
Property
and equipment
|
$ | 120,879 | ||
Prepaid
expenses
|
47,622 | |||
Goodwill
|
830,621 | |||
Customer
contracts
|
761,200 | |||
Noncompete
agreement
|
47,575 | |||
Total
net assets acquired
|
$ | 1,807,897 |
The
results of C&C were included in the consolidated results of the Company
effective November 16, 2009. During 2009, C&C contributed revenue of
$631,098 and operating income of $30,752 including depreciation and
amortization.
Acquisition
of Nexlink Communications
On
June 20, 2008, the Company acquired substantially all of assets and assumed
certain liabilities of Nexlink Communications (“Nexlink”), a company that
provides engineering consulting, and construction management for the
telecommunications industry and cable installations, for a total purchase price
$6,920,316. This transaction enhanced the capabilities of the network services
division by providing complete end-to-end engineering, design and construction
services to its customers. The purchase agreement contains a provision allowing
the sellers to realize additional purchase price consideration of $750,000
contingent upon achieving certain sales levels. This contingency has been
resolved and fully earned as of December 31, 2009. The intangible asset
valued at $100,000 relates to a noncompete agreement which is being amortized
over 15 months. The amortization of intangible assets and goodwill is deductible
for tax purposes. The allocation of purchase price has been adjusted for the
final valuation of fixed assets, the actual achievement of purchase price
adjustment and the actual transaction costs.
F-17
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
5.
Other Acquisitions (continued)
The final
purchase price was calculated as follows:
Cash
paid to sellers
|
$ | 6,639,905 | ||
Transaction
costs
|
280,411 | |||
Total
purchase price
|
$ | 6,920,316 |
The final
purchase price was allocated to the assets acquired and liabilities assumed as
follows:
Prepaid
expenses
|
$ | 128,768 | ||
Property
and equipment
|
727,826 | |||
Goodwill
|
3,936,997 | |||
Customer
contracts
|
2,400,000 | |||
Noncompete
agreement
|
100,000 | |||
Capital
lease obligations and vehicle loans – current
|
(124,425 | ) | ||
Capital
lease obligations and vehicle loans – long term
|
(248,850 | ) | ||
Total
net assets acquired
|
$ | 6,920,316 |
Acquisition
of Advanced Broadband System Services, Inc.
On
December 30, 2008, the Company acquired substantially all of assets and
assumed certain liabilities of Advanced Broadband System Services, Inc.
(“ABSS”), a company that provides cable television and broadband communications
consulting, construction management and cable installation services, for a total
purchase price of $4,622,134. The acquisition of ABSS reinforces the Company’s
infrastructure services division and allows the Company to become a full-service
provider to the telecommunications industry. The purchase agreement contains a
provision allowing the sellers to realize additional purchase price
consideration of $450,000 contingent upon achieving certain sales levels in
fiscal year 2009. The $450,000 amount was placed into escrow and included in
restricted cash in the December 31, 2008 consolidated balance sheet. The
actual sales level achieved in 2009 resulted in payment of $317,119 from the
escrow account. The intangible asset valued at $450,000 relates to noncompete
agreements, which are being amortized over 24 months. The amortization of
intangible assets and goodwill is deductible for tax purposes. The allocation of
purchase price has been adjusted for the final valuation of fixed assets, the
actual achievement of purchase price adjustment and the actual transaction
costs.
F-18
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
5.
Other Acquisitions (continued)
The final
purchase price was calculated as follows:
Cash
paid to sellers
|
$ | 4,367,119 | ||
Transaction
costs
|
255,015 | |||
Total
purchase price
|
$ | 4,622,134 |
The final
purchase price was allocated to the assets acquired and liabilities assumed as
follows:
Property
and equipment
|
$ | 976,510 | ||
Goodwill
|
779,761 | |||
Customer
contracts
|
2,700,000 | |||
Intangibles –
noncompete
|
450,000 | |||
Capital
lease obligations and vehicle loans – current
|
(85,122 | ) | ||
Capital
lease obligations and vehicle loans – long term
|
(199,015 | ) | ||
Total
net assets acquired
|
$ | 4,622,134 |
Unaudited
Pro Forma Information
The
following unaudited pro forma data presents revenue and results of operations as
if the acquisitions of Metro, AMBB, C&C, the 2009 DirecTV swap, Nexlink,
ABSS and the DirecTV/180 Connect transaction had occurred on January 1, 2008 for
the year ended December 31, 2008, and the acquisition of Metro,
AMBB, C&C and the 2009 DirecTV swap had been completed as of January 1,
2009 for the year ended December 31, 2009 is as follows (in
thousands):
Year
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Revenues
|
$ | 295,552 | $ | 348,964 | ||||
Loss
from continuing operations before income taxes
|
$ | (69,465 | ) | $ | (22,321 | ) | ||
6.
Accounts Receivable and Unbilled Revenue
Accounts
receivable consists of the following:
December 31
|
||||||||
2009
|
2008
|
|||||||
Trade
accounts receivable
|
$ | 19,583,622 | $ | 17,832,590 | ||||
Unbilled
revenue
|
6,425,484 | 11,224,870 | ||||||
Total
|
26,009,106 | 29,057,460 | ||||||
Less
allowance
|
(1,329,159 | ) | (2,112,581 | ) | ||||
Accounts
receivable, net
|
$ | 24,679,947 | $ | 26,944,879 |
F-19
Notes to
Consolidated Financial Statements
December
31, 2009
6.
Accounts Receivable and Unbilled Revenue (continued)
Activity
for the allowance account is as follows:
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Allowances
at beginning of the year
|
$ | 2,112,581 | $ | 1,177,544 | ||||
Provision
|
602,779 | 2,678,743 | ||||||
Amounts
charged against allowances
|
(1,386,201 | ) | (1,743,706 | ) | ||||
Allowances
at end of the year
|
$ | 1,329,159 | $ | 2,112,581 |
Amounts
charged against the reserve primarily represent the write-off of trade accounts
and unbilled revenue which had been fully reserved previously.
7.
Property and Equipment
Property
and equipment consisted of the following:
December 31
|
||||||||
2009
|
2008
|
|||||||
Vehicles
|
$ | 5,424,789 | $ | 5,617,300 | ||||
Computers
and equipment
|
5,723,963 | 3,201,300 | ||||||
Furniture
and fixtures
|
377,350 | 334,095 | ||||||
Construction
equipment
|
8,675,948 | 6,770,567 | ||||||
Leasehold
improvements
|
1,011,731 | 785,542 | ||||||
Assets
under capital leases
|
10,509,318 | 1,688,707 | ||||||
31,723,099 | 18,397,511 | |||||||
Less
accumulated depreciation
|
(11,057,612 | ) | (4,800,336 | ) | ||||
$ | 20,665,487 | $ | 13,597,175 |
Depreciation
expense, including amortization of assets under capital leases, was $6,827,042
and $4,162,361 for the years ended December 31, 2009 and 2008,
respectively.
Property
and equipment includes gross assets acquired under capital leases of $10,509,318
and $1,688,707 at December 31, 2009 and 2008, respectively. Amortization of
assets under capital leases is included in depreciation expense.
F-20
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
8.
Other Long-Term Assets
Other
long-term assets, net of accumulated amortization, consisted of the
following:
December 31
|
||||||||
2009
|
2008
|
|||||||
Financing
fees, net
|
$ | 6,579,755 | $ | 6,707,942 | ||||
Refundable
deposits and other
|
513,197 | 437,779 | ||||||
Total
other long-term assets
|
$ | 7,092,952 | $ | 7,145,721 |
Financing
fees represent direct costs associated with the issuance of debt. Such costs are
amortized to interest expense over the remaining life of the debt.
9.
Goodwill and Intangible Assets
The
following table summarizes the changes in the carrying amount of the Company’s
goodwill:
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Beginning
balance
|
$ | 171,703,472 | $ | 174,078,695 | ||||
Goodwill
associated with acquisitions
|
17,697,157 | 21,722,417 | ||||||
Transfer
of satellite markets in DirecTV and 180 Connect
transactions
|
(21,031,502 | ) | (19,799,097 | ) | ||||
Impairment
of Telecom reporting unit
|
(32,369,648 | ) | – | |||||
Revision
of purchase price allocations
|
1,828,075 | (4,298,543 | ) | |||||
Ending
balance
|
$ | 137,827,554 | $ | 171,703,472 |
Accumulated
impairment at December 31, 2009 and 2008 was $32,369,648 and $0,
respectively.
F-21
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
9.
Goodwill and Intangible Assets (continued)
Other
intangible assets consisted of the following:
December 31
|
||||||||
2009
|
2008
|
|||||||
Intangible
assets:
|
||||||||
Customer
contracts
|
$ | 70,467,827 | $ | 66,400,000 | ||||
Noncompete
agreements
|
1,025,047 | 949,722 | ||||||
Total
intangible assets
|
71,492,874 | 67,349,722 | ||||||
Accumulated
amortization:
|
||||||||
Customer
contracts
|
43,904,096 | 23,576,531 | ||||||
Noncompete
agreements
|
648,248 | 263,264 | ||||||
Total
accumulated amortization
|
44,552,344 | 23,839,795 | ||||||
Intangible
assets, net
|
$ | 26,940,530 | $ | 43,509,927 |
The
customer contracts are being amortized on a straight-line basis over the 28- to
60-month lives of those agreements. The noncompete agreements are being
amortized on a straight-line basis over 15 to 24 months. The Company recognized
amortization expense for intangible assets of $20,712,549 and $19,624,943 for
the years ended December 31, 2009 and 2008, respectively.
Estimated
aggregate amortization expense of intangible assets for each of the succeeding
years is as follows:
Year
ending December 31,
|
||||
$ | 13,221,714 | |||
2011
|
7,367,159 | |||
2012
|
5,739,152 | |||
2013
|
612,505 | |||
Total
|
$ | 26,940,530 |
The
Company performed its required annual goodwill impairment test as of
October 3, 2009 and determined that the carrying value of its telecom
reporting unit exceeded its fair value and was therefore impaired. The reduction
in the fair value of the telecom reporting unit was a result of expected
declines in revenue. The Company calculated the implied value of goodwill for
that reporting unit by performing a hypothetical purchase price allocation, and
determined that an impairment loss of $32,369,648 was
required.
F-22
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
9.
Goodwill and Intangible Assets (continued)
The
Company determined that the impairment of the Telecom reporting unit represented
an indicator of impairment over the other intangible assets and long-lived
assets of the reporting unit. Contracts of the Telecom reporting unit that were
assigned a value on the date they were acquired by the Company are treated as an
asset group for purposes of the long-lived impairment test. As a result, the
Company performed the required tests of recoverability for each asset group over
their lives and determined that the estimated undiscounted cash flows of its
customer contracts and noncompete agreements did not exceed their carrying
value. The Company calculated the fair value of these assets and determined that
an impairment loss of $6,061,304 was required to state the customer contracts
and the noncompete agreements at their fair values.
The
methods of determining the fair value of the Telecom reporting unit, the
customer contracts, and the noncompete agreements are discussed more fully in
Note 21. The impairment losses were recorded as a component of operating
loss in the Company’s 2009 consolidated statement of operations. No such
impairment losses were recorded during the year ended December 31,
2008.
10.
Accrued Expenses
Accrued
expenses consisted of the following:
December 31
|
||||||||
2009
|
2008
|
|||||||
Accrued
compensation and benefits
|
$ | 4,154,829 | $ | 5,404,011 | ||||
Acquisition
liabilities
|
3,099,790 | 1,453,441 | ||||||
Accrued
subcontractor
|
1,473,844 | 2,635,051 | ||||||
Retention
payables
|
2,064,414 | 1,501,885 | ||||||
Accrued
insurance reserves
|
4,514,705 | 1,312,649 | ||||||
Accrued
litigation contingencies
|
2,130,957 | 772,914 | ||||||
Interest
rate collar
|
1,547,663 | – | ||||||
Accrued
expenses – other
|
4,343,476 | 7,056,076 | ||||||
Total
accrued expenses
|
$ | 23,329,678 | $ | 20,136,027 |
F-23
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
11.
Long-Term Debt
Long-term
debt consisted of the following:
December 31
|
||||||||
2009
|
2008
|
|||||||
First
Lien Credit Agreement:
|
||||||||
Revolving
credit facility
|
$ | 11,500,000 | $ | 4,500,000 | ||||
Term
B credit facility
|
75,502,500 | 77,062,500 | ||||||
Term
C credit facility
|
19,500,000 | 19,500,000 | ||||||
106,502,500 | 101,062,500 | |||||||
Second
Lien Credit Agreement:
|
||||||||
Term
facility
|
25,000,000 | 25,000,000 | ||||||
Holdings
revolving facility
|
28,665,777 | 26,644,627 | ||||||
Total
debt
|
160,168,277 | 152,707,127 | ||||||
Less
current portion
|
33,005,777 | 152,707,127 | ||||||
Long-term
debt, net of current portion
|
$ | 127,162,500 | $ | – |
Maturities
of long-term debt are as follows:
Year
ending December 31,
|
||||
$ | 33,005,777 | |||
2011
|
2,340,000 | |||
2012
|
124,822,500 | |||
Total
|
$ | 160,168,277 |
Term
Loan (First Lien)
The First
Lien Credit Agreement provides for a First Lien Revolving Credit Facility, a
First Lien Term B Credit Facility and a First Lien Term C Credit Facility. The
Company entered into two amendments with the First Lien debt holders in 2009.
The first amendment in June 2009 modified certain covenants in return for a
1% fee and an increase in the interest rate. The second amendment, in
December 2009, provided retroactive covenant relief for certain matters as
of December 31, 2008, modified certain financial covenants through
September 2012 pending meeting the required terms for closing the amendment
and provided forbearance through February 15, 2010 until certain terms were
met. These terms were met with an infusion of equity and the closing of an
acquisition in January 2010 that are discussed in
Note 24.
F-24
Notes to
Consolidated Financial Statements
December
31, 2009
11.
Long-Term Debt (continued)
The
Revolving Credit Facility provides loans in a maximum amount of $20,000,000 and
matures on September 27, 2012. In connection with the closing of the
amendment in January 2010, the interest rate is, at the Company’s option, either
a rate of one-half of 1% per annum above the Federal Funds Rate plus 5.0% for
base rate advances or the Eurodollar rate plus 6% provided that the rate will
increase 75 basis points if the Company’s Leverage Ratio (as defined in the
Credit Facility) exceeds a certain level. Unused borrowings under the Revolving
Credit Facility are subject to a 1% commitment fee per annum. As of
December 31, 2009, the Company had drawn $11,500,000 on the revolver and
$2,975,000 of letters of credit were outstanding as of that date. Borrowings
under the Revolving Credit Facility are classified as long-term debt based on
the Company’s intent and ability to refinance the borrowing on a long-term
basis. Borrowings on the revolver are secured by the assets of the
Company.
The First
Lien Term B Credit Facility as amended is for $78,000,000. The Company did not
make any additions to the Term B credit facility in 2009. As of
December 31, 2009, $75,502,500 was outstanding under the First Lien Term B
Loan. The term loan provides for interest, depending on the Company’s election,
with interest at a rate of one-half of 1% per annum above the Federal Funds Rate
plus 5.5% or Eurodollar plus 6.5% at the Company’s option. At December 31,
2009 in connection with the closing of the amendment in January 2010, the
interest rate increases by 75 basis points if the Company’s Leverage Ratio (as
defined in the Credit Facility) exceeds a certain level. The First Lien Term B
loan is to be amortized from December 31, 2007 until maturity. The First
Lien Term B Credit Facility is secured by substantially all of the assets of the
Company.
Term
Loan (First Lien)
The First
Lien Term C Credit Facility is for $19,500,000 which is the outstanding balance
as of December 31, 2009. There were no additions to the Term C in 2009. The
Term C interest rate was amended to 16.25% on $8,000,000 of the Term C Credit
Facility for the period from April 1, 2009 to December 31, 2009 in
connection with the December 2009 amendment and 13.08% on the remaining
$11,500,000. Effective January 1, 2010, the interest rate on the $8,000,000
increased to 16.5%.
The First
Lien Credit Agreement as amended includes various financial covenants, the most
significant of which requires that the Company maintain certain quarterly
financial ratios and limits annual capital expenditures. The required quarterly
financial ratios become more restrictive to the Company over time. The Company’s
future compliance with quarterly financial ratios is dependent on the Company’s
ability to generate profits in excess of required amounts, which is subject to
the risks and uncertainties surrounding the Company’s business. With the closing
of the December 2009 amendment in January 2010, the Company was in
compliance with all covenants at December 31, 2009. The Company was not in
compliance with the terms of the First Lien Credit Facility at December 31,
2008 on the date of the original issuance of the financial statements;
accordingly, the debt has been reflected as a current liability at
December 31, 2008 in the accompanying consolidated balance
sheet.
F-25
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
11.
Long-Term Debt (continued)
Term
Loan (Second Lien)
The
Second Lien Credit provides for a $25,000,000 Term facility that matures on
September 27, 2012 and is repayable in full at that date. The Company
entered into two amendments with the Second Lien debt holders in 2009. The first
in May modified certain covenants in return for a 1% fee and an increase in
the interest rate. The second amendment in December modified certain
financial covenants through September 2012 pending meeting the required
terms for closing the amendment. These terms were met with an infusion of equity
and the closing of an acquisition in January 2010 that are discussed in
Note 24. The interest rate at December 31, 2009 was the greater of
15.0% per annum and the Eurodollar rate plus 7.25%. The Second Lien amendment
included a change in the interest rate to a rate of the greater of 15.75% per
annum and the Eurodollar rate plus 7.25%. Interest is due quarterly beginning on
December 31, 2007 until maturity.
The
agreement includes various covenants, the most significant of which requires the
Company to maintain certain quarterly financial ratios and limits capital
expenditures. The Second Lien Term Loan Agreement is secured by substantially
all of the assets of the Company. With the closing of the December 2009
amendment in January 2010, the Company was in compliance with all covenants
at December 31, 2009.
Pursuant
to the terms of the Second Lien Credit Facility, the Second Lien Credit Facility
has also been reflected as a current liability at December 31, 2008 in the
accompanying consolidated balance sheet as a result of the First Lien debt not
being in compliance on the date of original issuance.
F-26
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
11.
Long-Term Debt (continued)
Holdings
Revolving Facility
Holdings
entered into a Loan Authorization Agreement dated as of September 25, 2007 with
BMO Capital Markets Financing, Inc. (“BMO”). The Loan Authorization
Agreement established an $18,000,000 revolving credit facility (the “Holdings
Revolving Facility”), and amounts borrowed against the facility are evidenced by
a promissory note. Interest is calculated based on the prime
commercial rate, as defined in the Loan Authorization Agreement. The
average interest rates during 2009 and 2008 were 7.25% and 5.5%,
respectively. Interest on the borrowings are payable quarterly, at
the option of Holdings, in cash or by adding such interest to the unpaid
principal balance of the facility. All interest incurred to date has
been added to the principal balance of the facility. Accrued and
unpaid interest was $3,665,777 and $1,644,627 at December 31, 2009 and 2008,
respectively. The Holdings Revolving Facility and any unpaid interest
accumulated to date are payable and mature on demand of BMO. On March
24, 2008 and September 15, 2009, Holdings entered into amendments to the Loan
Authorization Agreement that increased the amount of maximum credit under the
facility to $28,000,000 and $35,000,000, respectively. The
obligations under the Loan Authorization Agreement are guaranteed by two funds
of HM Capital. There are no financial covenants included in the
Holdings Revolving Facility. The Holdings Revolving Facility is
not secured or guaranteed by any assets of Holdings' subsidiaries.
12.
Derivative Financial Instruments
The
Company manages interest rate exposure by using derivative instruments to reduce
the variability of interest payments for variable-rate debt. The Company is also
required to maintain interest rate hedge agreements covering a notional amount
of not less than 50% of the debt outstanding under the First Lien Credit
Agreement.
On
November 29, 2007, the Company entered into an interest rate collar
agreement with an aggregate notional principal amount of $65,000,000 and a
maturity date of November 30, 2010. The collar is used to hedge the
required portion of the Company’s First Lien Credit Agreement and consists of a
cap and a floor with a strike of 5.50% and 2.98%, respectively. The strike is
indexed to three-month LIBOR. The change in the fair value of the derivative is
reported as a component of interest expense. The amount of interest expense
recorded for the interest rate collar for the years ended December 31, 2009
and 2008 was $1,272,114 and $1,712,168, respectively, which includes changes in
the fair value of the collar liability. The fair value of the interest rate
collar liability was $1,547,663 and $1,669,076 at December 31, 2009 and
2008, respectively, and is recorded as a component of accrued expenses in the
consolidated balance sheet at December 31, 2009 and as other long-term
liability in the consolidated balance sheet at December 31,
2008.
F-27
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
13.
Income Taxes
The
components of (benefit) provision for income taxes were as follows:
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Federal:
|
||||||||
Current
|
$
|
–
|
$
|
–
|
||||
Deferred
|
(4,197,254
|
)
|
3,647,516
|
|||||
Total
|
$
|
(4,197,254
|
)
|
$
|
3,647,516
|
|||
Foreign:
|
||||||||
Current
|
$
|
165,000
|
$
|
314,000
|
||||
Deferred
|
(74,000
|
)
|
(34,000
|
)
|
||||
Total
|
$
|
91,000
|
$
|
280,000
|
||||
State:
|
||||||||
Current
|
$
|
22,000
|
$
|
–
|
||||
Deferred
|
(659,000
|
)
|
575,941
|
|||||
Total
|
$
|
(637,000
|
)
|
$
|
575,941
|
The
components of net deferred tax assets and liabilities are as
follows:
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Gross
deferred tax assets:
|
||||||||
Net
operating losses
|
$
|
11,934,000
|
$
|
3,866,783
|
||||
Loss
on asset write-down
|
–
|
353,000
|
||||||
Depreciation
and amortization
|
12,278,000
|
7,410,957
|
||||||
Accrued
interest expense
|
1,158,000
|
823,000
|
||||||
Goodwill
|
6,324,000
|
–
|
||||||
Other
|
1,723,000
|
1,015,000
|
||||||
Total
gross deferred tax assets
|
33,417,000
|
13,468,740
|
||||||
Less
valuation allowance
|
(33,308,000
|
)
|
(13,434,740
|
)
|
||||
Net
deferred tax assets
|
$
|
109,000
|
$
|
34,000
|
||||
Gross
deferred tax liabilities:
|
||||||||
Goodwill
|
$
|
–
|
$
|
4,831,457
|
||||
Total
gross deferred tax liability
|
$
|
–
|
$
|
4,831,457
|
||||
Net
deferred tax liability
|
$
|
–
|
$
|
4,831,457
|
F-28
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
13.
Income Taxes (continued)
At
December 31, 2009 and 2008, the Company had gross deferred income tax
assets of approximately $33,417,000 and $13,468,739, respectively, and gross
deferred income tax liabilities of $0 and $4,831,457, respectively, which result
primarily from federal and state net operating loss carry forwards, foreign tax,
reserve balances, and depreciation and amortization. Because the Company has not
yet achieved profitable operations, management believes the potential tax
benefits from the deferred tax assets do not satisfy the realization criteria
set forth in FASB ASC 740, and accordingly, has recorded a valuation allowance
of the entire gross tax asset.
For tax
purposes, goodwill is being amortized. In periods when the cumulative book basis
of goodwill exceeds the tax basis of goodwill, as the basis difference will not
reverse within the period that the deferred tax assets will reverse, a net tax
deferred liability is recorded in the consolidated financial
statements.
A
reconciliation of U.S. statutory federal income tax rate related to pretax
income (loss) from continuing operations to the effective tax rate for the years
ended December 31 is as follows:
2009
|
2008
|
|||||||
U.S.
statutory federal rates applied to pretax loss
|
35.0
|
%
|
35.0
|
%
|
||||
Nondeductible
expenses
|
(1.2
|
)
|
(4.0
|
)
|
||||
State
income taxes net of federal benefit
|
3.6
|
5.8
|
||||||
Provision
to return adjustment
|
(1.2
|
)
|
(1.1
|
)
|
||||
Other
|
(1.6
|
)
|
2.0
|
|||||
Valuation
allowance on deferred tax assets
|
(28.0
|
)
|
(59.2
|
)
|
||||
Canada
impact
|
0.2
|
0.4
|
||||||
Effective
income tax rate
|
6.8
|
%
|
(21.1
|
)%
|
The
Company’s effective tax rate differed from the federal statutory rate due to
deferred state tax assets and liabilities and the Company’s valuation
allowance.
At
December 31, 2009 and 2008, the Company had federal and state net operating
loss carry forwards of approximately $30,857,000 and $9,542,000, respectively,
which begin to expire in 2014 and are fully expired in 2029.
The
Company did not have unrecognized tax benefits as of December 31, 2009 and
does not expect this to change significantly over the next 12 months. The
Company recognizes interest and penalties accrued on any unrecognized tax
benefits as a component of income tax expense. As of December 31, 2009, the
Company has not accrued interest or penalties related to uncertain tax
positions. The Company’s tax returns for the years ended December 31, 2007
through December 31, 2009 are still subject to examination by tax
jurisdictions.
F-29
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
14.
Concentration of Credit Risk
Financial
instruments that may potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents and contract receivables.
The Company maintains substantially all of its cash investments with what it
believes to be high-credit-quality financial institutions. As a policy, the
Company does not collateralize its receivables; however, if collectability
becomes questionable, appropriate liens may be filed.
The
Company’s three largest customers accounted for approximately 85% and 86% of its
consolidated revenues for the years ended December 31, 2009 and 2008,
respectively. The Company’s three largest customers accounted for approximately
64%, 13% and 8% of its consolidated revenues, respectively, for the year ended
December 31, 2009 compared to 53%, 21% and 12% of its consolidated
revenues, respectively, for the year ended December, 31, 2008.
At
December 31, 2009, accounts receivable, including unbilled revenue, due
from the Company’s four largest customers with respect to outstanding
receivables represented 26%, 23%, 17% and 16%, respectively, of the Company’s
total accounts receivable balance. No other customer represented 10% or more of
accounts receivable as of December 31, 2009. At December 31, 2008, the
Company’s two largest customers with respect to outstanding receivables
represented 61% and 20%, respectively, of the Company’s total accounts
receivable balance. No other customer represented 10% or more of accounts
receivable as of December 31, 2008.
15.
Shareholder’s Equity
At the
Company’s inception, the Board of Directors authorized 150,001,000 shares of
capital stock consisting of 1,000 shares of preferred stock, par value $0.01 per
share and 150,000,000 shares of common stock, par value $0.01 per share. As of
December 31, 2009, the Company had 109,100,000 shares of common stock
issued and outstanding. There were no shares of preferred stock
issued or outstanding at December 31, 2009.
16.
Stock-Based Compensation
As of
December 31, 2009, a total of 17,881,250 shares of Holdings’ common stock
had been reserved for issuance under the 2007 Equity Incentive Plan (the “2007
Plan”) including 396,449 shares remaining eligible for the grant of awards under
the plan.
Administration of the 2007
Plan. The 2007 Plan is administered by Holdings’ compensation committee
of the Board of Directors or by one or more committees of the Board of Directors
as designated. The administrator of the 2007 Plan and its authorized delegates
have the authority to select the persons to whom awards may be granted and to
determine: (i) the number, type and value of awards; (ii) the exercise price of
an award and the time when it may be exercised (the plan administrator may not
set the exercise price of an award lower than the fair market value of the stock
on the date of the grant); (iii) the method of payment of the exercise price;
and (iv) the other terms and conditions of awards.
F-30
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
16.
Stock-Based Compensation (continued)
Eligibility. Participation in
the 2007 Plan is limited to employees, directors and consultants. The plan
administrator, in its sole discretion, will determine which participants are
eligible to participate in the 2007 Plan.
Vesting and Performance
Objectives. An award under the 2007 Plan will become vested only if the
vesting conditions set forth in the award agreement (as determined by the plan
administrator) are satisfied. The vesting conditions include performance of
services for a specified period. In granting performance-based awards, which are
regulated by Section 162(m) of the Internal Revenue Code, the plan administrator
is bound to follow the criteria established under the 2007 Plan. Generally,
options vest over a five-year period.
Reorganization Event. Upon a
change of control as defined under the 2007 Plan, all of the outstanding awards
shall immediately vest.
Term of the Plan. Unless
earlier terminated by the Board of Directors, the 2007 Plan will terminate on
September 25, 2017.
In 2009
and 2008, the Company considered the following methodologies in arriving at its
opinion as to the fair value of our common stock:
|
•
|
an estimate of the value of the
Company based on the values of publicly held companies with similar
businesses;
|
|
•
|
an estimate of the value of the
Company based on a discounted cash flow analysis, utilizing the present
value of anticipated future cash flows, discounted at an appropriate
discount rate reflecting the risk inherent in the investment;
and
|
|
•
|
allocation of our Company’s
equity value, as determined by reference to the above analyses, to our
outstanding classes of equity securities based on the relative risks,
preferences, and privileges of such
securities.
|
The
Company estimated the fair value of its common stock based on the values of
other publicly held companies engaged in similar businesses expressed as a
multiple of earnings.
F-31
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
16.
Stock-Based Compensation (continued)
For the
purpose of calculating the fair value of the Company’s stock options, the
Company estimates expected stock-price volatility based on a value calculated
using the historical volatility of an appropriate industry sector index. The
risk-free interest rate assumption included in the calculation is based upon
observed interest rates appropriate for the expected life of the employee stock
options. The dividend yield assumption is based on the Company’s intent not to
issue a dividend. The expected holding period is based on management’s best
estimate of the period over which the options will be held.
Stock-based
compensation expense recognized for the year ended December 31, 2009 was
based on awards ultimately expected to vest, net of estimated forfeitures.
Forfeitures were estimated based on management’s expectations as to the length
of time they expect to own the Company.
The
weighted-average fair value per share of stock options granted was $0.41 and
$0.55 for the years ended December 31, 2009 and 2008, respectively. There
were no stock options exercised during the year ended December 31, 2008.
The weighted-average, grant-date fair value of options granted was $657,194 and
$4,587,288 for the years ended December 31, 2009 and 2008,
respectively.
The fair
value of each option grant for the year ended December 31, 2009 was
estimated on the grant date using the Black-Scholes option-pricing model with
the following assumptions:
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Weighted-average
assumptions:
|
||||||||
Expected
volatility
|
63.03
|
%
|
58.08
|
%
|
||||
Dividend
yield
|
0.00
|
%
|
0.00
|
%
|
||||
Risk-free
interest rate
|
2.19
|
%
|
2.98
|
%
|
||||
Annual
forfeiture rate
|
4.00
|
%
|
4.00
|
%
|
||||
Expected
holding period (in years)
|
5
|
5
|
F-32
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
16.
Stock-Based Compensation (continued)
The
following tables summarize information for the options outstanding and
exercisable for the year ended December 31, 2009:
Options
|
Weighted-Average
Exercise Price Per
Share
|
Weighted-Average
Remaining
Contractual Life
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Balance,
December 31, 2008
|
16,559,026
|
$
|
1.00
|
|||||||||||||
Granted
|
1,610,375
|
1.00
|
||||||||||||||
Forfeited
|
(684,600
|
)
|
1.00
|
|||||||||||||
Balance,
December 31, 2009
|
17,484,801
|
$
|
1.00
|
|||||||||||||
Options
expected to ultimately vest as of December 31, 2009
|
15,312,362
|
$
|
1.00
|
7.7
|
$
|
–
|
||||||||||
Options
exercisable as of December 31, 2009
|
4,739,445
|
$
|
1.00
|
7.7
|
$
|
–
|
As of
December 31, 2009, there was $5,488,000 of total unrecognized compensation
cost, which includes the impact of expected forfeitures related to unvested
stock-based compensation arrangements. That cost is expected to be recognized
over a weighted-average period of 3.3 years.
17.
Warrants
On
September 27, 2007, concurrently with the purchase of UniTek USA, LLC,
warrants were issued to purchase 5,000,000 shares of Holdings’ common stock with
an exercise price of $2.50. The warrants are immediately exercisable and have a
contractually agreed-upon 10-year term. The fair value of the warrants is
$1,350,000 and was estimated using the Black-Scholes option-pricing model. The
warrants were fully exercisable on the date of grant; accordingly, they have
been reflected as a cost of the transaction.
F-33
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
18.
Commitments and Contingencies
The
Company rents office space and equipment and trucks under noncancelable
operating and capital leases, certain of which contain purchase option terms.
Operating lease payments are expensed as incurred. During 2009, approximately
$8,158,028 of trucks previously treated as operating leases were converted to
capital leases by an amendment with the lessor. The future minimum lease
commitments for all noncancelable operating and capital leases as of
December 31, 2009 are as follows:
Capital
Leases
|
Operating
Leases
|
|||||||
Year
ending December 31,
|
||||||||
2010
|
$
|
5,189,235
|
$
|
8,369,933
|
||||
2011
|
2,849,952
|
6,352,202
|
||||||
2012
|
1,161,372
|
4,382,416
|
||||||
2013
|
309,069
|
3,124,059
|
||||||
2014
|
–
|
836,430
|
||||||
Thereafter
|
–
|
107,549
|
||||||
Total
minimum lease payments
|
9,509,628
|
23,172,589
|
||||||
Less:
Amounts representing interest
|
168,579
|
–
|
||||||
Total
capital lease obligation recorded in balance sheet
|
$
|
9,341,049
|
$
|
23,172,589
|
Rent
expense was $3,631,271 and $2,532,150 for the years ended December 31, 2009
and 2008, respectively.
19.
Related-Party Transactions
The
Company maintains certain policies and procedures for the review, approval, and
ratification of related-party transactions to ensure that all transactions with
selected parties are fair, reasonable and in the Company’s best interest. All
significant relationships and transactions are separately identified by
management if they meet the definition of a related party or a related-party
transaction. Related-party transactions include transactions that occurred
during the year, or are currently proposed, in which the Company was or will be
a participant and in which any related person had or will have a direct or
indirect material interest. All related-party transactions are reviewed,
approved and documented by the appropriate level of the Company’s management in
accordance with these policies and procedures.
F-34
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
19.
Related-Party Transactions (continued)
In
conjunction with the September 27, 2007 transaction, the Company and HM
Capital entered into a Financial Advisory Agreement relating to the provision of
certain financial and strategic advisory services and consulting services.
Beginning on October 1, 2007, the Company entered into a Monitoring and
Oversight Agreement with HM Capital that provides for an annual base fee of
either $500,000 or an annual monitoring fee of 2.0% of the budgeted consolidated
annual EBITDA of UniTek Holdings, Inc. and its subsidiaries, whichever is
higher. For the years ended December 31, 2009 and 2008, the Company paid
$696,781 and $686,139, respectively, in monitoring and oversight fees including
expenses.
Additionally,
the Monitoring and Oversight Agreement also provides for a financial advisory
fee equal to 1.5% of the purchase price for all subsequent transactions plus
reimbursable expenses. For the years ended December 31, 2009 and 2008, the
Company paid $104,133 and $266,856, respectively, in such fees.
20.
Litigation
From time
to time, the Company is a party to various lawsuits, claims, or other legal
proceedings and is subject, due to the nature of its business, to governmental
agency oversight, audits, investigations and review. Such actions may seek,
among other things, compensation for alleged personal injury, breach of
contract, property damage, punitive damages, civil penalties or other losses, or
injunctive or declaratory relief. Under such governmental audits and
investigations, the Company may become subject to fines and penalties or other
monetary damages. With respect to such lawsuits, claims, proceedings and
governmental investigations and audits, the Company accrues reserves when it is
probable a liability has been incurred and the amount of loss can be reasonably
estimated. The Company does not believe any of the pending proceedings,
individually or in the aggregate, will have a material adverse effect on its
consolidated results of operations, cash flows or financial
condition.
F-35
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
21.
Fair Value Measurements
As
defined by ASC 820, Fair Value
Measurements and Disclosures (ASC 820), the fair value of an asset or
liability would be based on an “exit price” basis rather than an “entry price”
basis. Additionally, the fair value should be market-based and not an
entity-based measurement. SFAS No. 157 also establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. SFAS
No. 157 describes three levels of input that may be used to measure fair
value.
|
•
|
Level 1 – Financial
assets and liabilities whose values are based on unadjusted quoted prices
for identical assets or liabilities in an active market that the Company
has the ability to access at the measurement
date.
|
|
•
|
Level 2 – Financial
assets and liabilities whose values are based on quoted prices in markets
where trading occurs infrequently or whose values are based on quoted
prices of instruments with similar attributes in active markets. Level 2
inputs include the
following:
|
|
–
|
Quoted prices for similar assets
or liabilities in active
markets;
|
|
–
|
Quoted prices for identical or
similar assets or liabilities in non-active
markets;
|
|
–
|
Inputs other than quoted prices
that are observable for substantially the full term of the asset or
liability; and
|
|
–
|
Inputs that are derived
principally from or corroborated by observable market data for
substantially the full term of the asset or
liability.
|
|
•
|
Level 3 – Financial
assets and liabilities whose values are based on prices or valuation
techniques that require inputs that are both unobservable and significant
to the overall fair value measurement. These inputs reflect management’s
own assumptions about the assumptions a market participant would use in
pricing the asset or
liability.
|
F-36
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
21.
Fair Value Measurements (continued)
The
following table summarizes our financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2009:
Fair Value Measurements at December 31, 2009
|
||||||||||||||||
Fair Value at
December 31,
2009
|
Quoted
Prices in
Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
|||||||||||||
Assets
|
||||||||||||||||
Cash
|
$
|
2,263,278
|
$
|
2,263,278
|
$
|
–
|
$
|
–
|
||||||||
Total
|
$
|
2,263,278
|
$
|
2,263,278
|
$
|
–
|
$
|
–
|
||||||||
Liabilities
|
||||||||||||||||
Interest-rate
collar
|
$
|
1,547,663
|
$
|
–
|
$
|
1,547,663
|
$
|
–
|
||||||||
Total
|
$
|
1,547,663
|
$
|
–
|
$
|
1,547,663
|
$
|
–
|
The
following table summarizes our financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2008:
Fair Value Measurements at December 31, 2008
|
||||||||||||||||
Fair Value at
December 31,
2008
|
Quoted
Prices in
Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
|||||||||||||
Assets
|
||||||||||||||||
Cash
|
$
|
5,348,133
|
$
|
5,348,133
|
$
|
–
|
$
|
–
|
||||||||
Total
|
$
|
5,348,133
|
$
|
5,348,133
|
$
|
–
|
$
|
–
|
||||||||
Liabilities
|
||||||||||||||||
Interest-rate
collar
|
$
|
1,669,076
|
$
|
–
|
$
|
1,669,076
|
$
|
–
|
||||||||
Total
|
$
|
1,669,076
|
$
|
–
|
$
|
1,669,076
|
$
|
–
|
F-37
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
21.
Fair Value Measurements (continued)
The
following table summarizes our financial assets and liabilities measured at fair
value on a nonrecurring basis as of October 3, 2009, the date on which the
Company determined that certain assets of the Telecom reporting unit were
impaired:
Fair Value
|
Quoted Prices
in Active
Markets
(Level 1)
|
Significant Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
|||||||||||||
Assets
|
||||||||||||||||
Goodwill –
Telecom
|
$
|
32,670,235
|
$
|
–
|
$
|
–
|
$
|
32,670,235
|
||||||||
Customer
Contracts – Telecom
|
480,000
|
–
|
–
|
480,000
|
||||||||||||
Other
Intangibles – Telecom
|
18,672
|
–
|
–
|
18,672
|
||||||||||||
Total
|
$
|
33,168,907
|
$
|
–
|
$
|
–
|
$
|
33,168,907
|
Derivatives
On
November 29, 2007, the Company entered into an interest-rate collar
agreement with an aggregate notional principal amount of $65,000,000. The collar
is used to hedge the required portion of the Company’s First Lien Credit
Agreement. The fair value of the interest-rate collar liability was $1,547,663
and $1,669,076 at December 31, 2009 and 2008, respectively. The Company
utilized a present value technique to fair value each derivative contract. The
Company calculated the present value of future expected cash flows using a
discount rate commensurate with the underlying risk of the debtor.
Asset
Impairment
The
Company performed its required annual goodwill impairment test as of
October 3, 2009 and determined that the goodwill, customer contracts, and
certain other intangibles of its Telecom reporting unit were impaired as of that
date. The fair value of the goodwill was implied by calculating the fair value
of the Telecom reporting unit and subtracting from that the fair values of the
assets attributable to the reporting unit other than goodwill. The fair values
of the reporting unit, the customer contracts, and the other intangible assets
of Telecom were determined by estimating the future discounted cash flows
attributable to each, which was determined using the Company’s internal
operating forecasts, weighted-average cost of capital, and certain other
assumptions (Level 3 measurements). The fair values of the other assets
attributable to the Telecom reporting unit were calculated using observable
inputs (Level 1 or 2 measurements) and used only for purposes of calculating the
implied value of the Telecom reporting unit goodwill.
F-38
UniTek
Holdings, Inc.
Notes to
Consolidated Financial Statements
December
31, 2009
22.
Discontinued Operations
Discontinued
operations consist of the satellite markets provided to DirecTV as part of the
market swaps highlighted in Notes 3 and 4 and certain cable markets that
have been exited for various operations reasons. The following table summarizes
the results for our discontinued operations for the year ended December 31,
2009 and 2008:
Year Ended December 31
|
||||||||
2009
|
2008
|
|||||||
Revenues
|
$
|
12,266,027
|
$
|
47,035,198
|
||||
Cost
of revenues
|
11,530,252
|
40,065,390
|
||||||
Gross
profit
|
735,775
|
6,969,808
|
||||||
Depreciation
and amortization
|
665,220
|
2,517,116
|
||||||
Operating
income
|
70,555
|
4,452,692
|
||||||
(Gain)
loss on sale of assets
|
(110,885
|
)
|
871,417
|
|||||
Income
from discontinued operations before income taxes
|
181,440
|
3,581,275
|
||||||
Tax
benefit from discontinued operations
|
–
|
453,000
|
||||||
Income
from discontinued operations
|
$
|
181,440
|
$
|
4,034,275
|
23.
Segment Reporting
We report
our financial results on the basis of two reportable segments: (1) fulfillment
and (2) engineering and construction. The fulfillment segment
consists of installation and other services for the television industry. This
reporting segment includes the satellite and cable operating segments of the
Company. The Company recognizes revenue from fulfillment services net
of satellite equipment as the Company acts solely as an agent. The
engineering and construction segment consists of engineering and construction
services for the wired telecommunications industry on a project
basis. The reporting segment includes the telecom operating segment
of the Company. Revenue is recognized based on the contractually
agreed price per unit as the units are completed.
The
Company evaluates the performance of its operating segments based on several
factors of which the primary financial measure is segment
EBITDA. Management believes segment operating income represents the
closest GAAP measure to segment EBITDA. Selected segment financial
information for the years ended December 31, 2009 and December 31, 2008 is
presented below:
Year Ended
|
||||||||||||||||||||||||
December 31, 2009
|
December 31, 2008
|
|||||||||||||||||||||||
Fulfillment
|
Engineering &
Construction
|
Total
|
Fulfillment
|
Engineering &
Construction
|
Total
|
|||||||||||||||||||
Revenue
|
$ | 238,656,428 | 39,441,916 | $ | 278,098,344 | $ | 148,463,541 | $ | 67,288,371 | $ | 215,751,912 | |||||||||||||
Cost
of revenue
|
200,326,193 | 37,024, 261 | 237,350,454 | 123,422,622 | 56,896,101 | 180,318,723 | ||||||||||||||||||
Gross
profit
|
38,330,235 | 2,417,655 | 40,747,890 | 25,040,919 | 10,392,270 | 35,433,189 | ||||||||||||||||||
Selling,
general and administrative expenses
|
20,761,134 | 6,098,748 | 26,859,882 | 14,756,828 | 6,106,702 | 20,863,530 | ||||||||||||||||||
Asset
impairment
|
— | 38,430,952 | 38,430,952 | — | — | — | ||||||||||||||||||
Depreciation
and amortization
|
17,144,224 | 9,733,803 | 26,878,027 | 11,305,876 | 9,964,312 | 21,270,188 | ||||||||||||||||||
Operating
income (loss)
|
$ | 424,877 | $ | (51,845,848 | ) | $ | (51,420,971 | ) | $ | (1,021,785 | ) | $ | (5,678,744 | ) | $ | (6,700,529 | ) | |||||||
Interest
expense, net
|
18,824,916 | 16,013,765 | ||||||||||||||||||||||
Other
expense, net
|
284,273 | 7,480 | ||||||||||||||||||||||
Loss
from continuing operations before income taxes
|
$ | (70,530,160 | ) | $ | (22,721,774 | ) | ||||||||||||||||||
Acquisition
of property and equipment
|
$ | 4,110,563 | $ | 494,148 | $ | 4,604,711 | $ | 2,013,995 | $ | 771,906 | $ | 2,785,901 |
F-39
23.
Segment Reporting (continued)
At
December 31, 2009, the total assets of the fulfillment segment were $182,092,265
and the engineering and construction segment were $49,748,872. This
compares to $171,757,316 and $110,257,309 at December 31, 2008 for the
fulfillment and engineering and construction segment,
respectively. The increase of $10,334,949 in the fulfillment segment
was primarily from higher working capital. The decrease of
$60,508,437 on the engineering and construction segment compared to December 31,
2008 was primarily related to the impairment of long-lived assets in 2009 and
lower working capital.
At
December 31, 2009, goodwill of the fulfillment segment was $104,822,810 and the
engineering and construction segment was $33,004,745. This compares
to $107,808,637 and $63,894,835 at December 31, 2008 for the fulfillment and
engineering and construction segment, respectively. The decrease of
$2,985,827 in the fulfillment segment was primarily related to the 2009 DirecTV
swap. The decrease of $30,890,090 on the engineering and construction
segment compared to December 31, 2008 was primarily related to the impairment of
the telecom goodwill in 2009.
Our two
largest customers contributed accounted for 89% and 84%, respectively, of
revenue to the fulfillment segment in 2009 and 2008. Our largest two
customers contributed 83% and 84%, respectively, of revenue to the engineering
and construction segment in 2009 and 2008. No other customers
contributed more than 10% of segment revenue.
During the years ended December 31, 2009 and 2008, DirecTV
contributed 64% and 44%, respectively, and Comcast contributed 13% and 14%,
respectively, to our total revenue to the fulfillment segment.
24.
Subsequent Events
On
January 26, 2010, HM Capital and certain other shareholders invested
$12.5 million of equity into Holdings for 12,500,000 shares of Series A
Convertible Preferred Stock of Holdings (“Holdings Series A”).
On
January 27, 2010, Holdings and HM Capital entered into an Agreement and
Plan of Merger with Berliner Communications, Inc. (“Berliner”). Berliner is a
public company trading on the OTC Bulletin Boards. Berliner services the
wireless telecommunications industry’s construction and site acquisition
markets. The terms of the Agreement and Plan of Merger call for Holdings common
shares to be exchanged at a 1:1 ratio for Berliner common shares. In addition,
Holdings paid in full the $11,581,502 outstanding principal of the Berliner
senior credit facility with PNC Bank and the Company repaid $2.0 million of
the outstanding balance on its Term B Credit Facility. The PNC payoff was funded
by Berliner excess cash and the proceeds received from the issuance of Holdings
Series A shares.
For
accounting purposes, the Merger is treated as a reverse merger with the Company
being the accounting acquirer. Unaudited pro-forma information of the
Company assuming the Merger, and the related amendments to the Company’s debt
facilities, had been completed as of January 1, 2009 is as follows (in
thousands):
Revenues
|
$
|
347,511
|
||
Operating
loss
|
$
|
(58,624
|
)
|
|
Net
loss from continuing operations
|
$
|
(77,091
|
)
|
In
connection with the Berliner transaction, the Company entered into an Amended
and Restated Monitoring and Oversight Agreement (the “M&O Agreement”) with
HM Capital. Pursuant to the M&O Agreement, the Company will pay HM Capital
an annual fee of $720,000 for calendar year 2010, $730,000 for calendar year
2011 and $754,000 for calendar year 2012 and for each calendar year thereafter.
Each annual fee will be payable quarterly; however, no payment is due unless the
Company meets a total leverage ratio defined in the M&O Agreement. In the
event the ratio is not achieved, the annual fee will accrue until any subsequent
quarter in which the covenant level is exceeded at which time all accrued and
unpaid payments will become due and payable.
F-40
24.
Subsequent Events (continued)
In
conjunction with the Berliner transaction, the Company entered into a Credit and
Support Agreement with two funds of HM Capital that are parties to the guaranty
of the Holdings Revolving Facility. The Credit and Support Agreement
provides for the payment of a credit support fee for the continued guaranty of
the Company’s performance under the Holdings Revolving Facility. The
credit support fee is equal to 6% (or the maximum contract rate of interest
permitted by law if less than 6%) on the aggregate of the outstanding principal
and accrued interest added to the principal. The credit support fee
is payable quarterly in cash or, at the Company’s option in shares of Berliner
Series B Preferred stock.
On
March 31, 2010, the Company entered into a Senior Secured Letter of Credit
Facility arrangement (the “LOC Facility”), via an amendment to the First Lien
Credit Agreement, by and among the Company, Midco, certain subsidiaries of the
Company as guarantors, the initial lenders under the LOC Facility, Royal Bank of
Canada, as administrative agent and collateral agent for the lenders and HSBC
Bank Canada, as issuing bank for the letters of credit. The LOC Facility permits
the Company to draw from a $12,000,000 tranche added to the credit facility
established by the First Lien Credit Agreement. This tranche allows the Company
to issue letters of credit in support of the Company’s obligations under certain
insurance policies and other general corporate purposes. The LOC Facility
charges a 1.333% per month cash fee payable on issued but unfunded letters of
credit and a 1.0% per annum cash fee on the daily average unfunded amount of the
LOC Facility. Funded letters of credit will carry an interest rate of LIBOR plus
6.75% per annum with a 2.5% LIBOR floor.
On June
16, 2010, the Company entered into an amendment with the First Lien Debt Holders
to amend certain financial covenants.
On July
16, 2010, the Company amended its existing Term B Credit Facility to provide a
Third Incremental Term B Facility of up to $20,000,000. $15,000,000
of the facility was made available to the Company upon the closing of the
amendment. The additional $5,000,000 of the facility shall be
available to the Company as early as November upon the achievement of certain
EBITDA levels and covenant compliance as defined in the
amendment. The proceeds were used to reduce the existing balance on
the Revolving Credit Facility to support future working capital
needs. The Third Incremental Term B Facility currently bears interest
at the same rate as the prior Term B facility. Pursuant to the terms
of the amendment, the Third Incremental Term B Lenders received warrants to
purchase an aggregate of 3,000,000 shares of common stock of the
Company. The warrants have an exercise price of $0.01 per share,
vested 25% upon issuance, and the remaining warrants vest ratably through
September 1, 2012. The warrants contain a cashless exercise provision
and provide for anti-dilution adjustments in the case of reclassifications,
consolidations, mergers or sales that impact the Company’s common
stock.
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