Quarterly Report (10-q)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended September 30, 2013

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

Commission File No. 0-30821

TELECOMMUNICATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

MARYLAND		52-1526369
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

275 West Street, Annapolis, MD		21401
(Address of principal executive offices)		(Zip Code)

(410) 263-7616

(Registrant’s telephone number, including area code)

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class	Shares outstanding as of October 30, 2013
Class A Common Stock, par value
$0.01 per share	53,555,756
Class B Common Stock, par value
$0.01 per share	5,147,769
Total Common Stock Outstanding	58,703,525

INDEX

TELECOMMUNICATION SYSTEMS, INC.

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012 (Unaudited)	4
	Consolidated Statements Comprehensive Income (Loss) for the three and nine months ended September 30, 2013 and 2012 (Unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine and Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

SIGNATURES		34

TeleCommunication Systems, Inc.

Consolidated Bal ance Sheets

(amounts in thousands, except share data)

	September 30, 2013			December 31, 2012
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	43,659		$	36,623
Marketable securities		16,735			14,875
Accounts receivable, net of allowance of $653 in 2013 and $394 in 2012		57,541			83,013
Unbilled receivables		19,341			23,095
Inventory		10,811			11,084
Deferred tax assets		14,455			9,813
Deferred project costs and other current assets		16,154			15,394
Total current assets		178,696			193,897
Property and equipment, net of accumulated depreciation and amortization of $82,812 in 2013 and $72,050 in 2012		50,795			49,270
Software development costs, net of accumulated amortization of $32,849 in 2013 and $27,317 in 2012		15,385			18,929
Acquired intangible assets, net of accumulated amortization of $13,323 in 2013 and $9,895 in 2012		22,744			26,172
Goodwill		112,450			112,450
Deferred tax assets		6,233			6,233
Other assets		6,864			6,761
Total assets	$	393,167		$	413,712
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	39,898		$	37,703
Accrued payroll and related liabilities		11,459			18,406
Deferred revenue		25,274			26,527
Current portion of bank borrowings, notes payable, and capital lease obligations		12,271			28,657
Total current liabilities		88,902			111,293
Notes payable and capital lease obligations, less current portion		139,728			138,939
Other liabilities		1,319			2,378
Stockholders’ equity:
Class A Common Stock; $0.01 par value:
Authorized shares—225,000,000; issued and outstanding shares of 53,555,756 in 2013 and 53,037,097 in 2012		536			531
Class B Common Stock; $0.01 par value:
Authorized shares—75,000,000; issued and outstanding shares of 5,147,769 in 2013 and 5,247,769 in 2012		51			52
Additional paid-in capital		339,060			334,058
Accumulated other comprehensive income		15			50
Accumulated deficit		(176,444	)		(173,589	)
Total stockholders’ equity		163,218			161,102
Total liabilities and stockholders’ equity	$	393,167		$	413,712

See accompanying Notes to Consolidated Financial Statements.

TeleCommunication Systems, Inc.

Consolidated Statements of Op erations

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue
Services	$	72,034		$	79,096		$	217,143		$	221,983
Systems		23,999			60,960			66,526			132,730
Total revenue		96,033			140,056			283,669			354,713
Direct costs of revenue
Direct cost of services revenue		39,573			45,545			121,096			130,427
Direct cost of systems revenue		20,677			50,385			55,402			111,244
Total direct cost of revenue		60,250			95,930			176,498			241,671

Services gross profit		32,461			33,551			96,047			91,556
Systems gross profit		3,322			10,575			11,124			21,486
Total gross profit		35,783			44,126			107,171			113,042

Operating expenses
Research and development expense		7,898			9,799			25,745			27,392
Sales and marketing expense		6,684			8,041			22,445			23,144
General and administrative expense		13,824			14,931			42,552			40,276
Depreciation and amortization of property and equipment		3,768			3,689			10,885			10,499
Amortization of acquired intangible assets		1,142			1,431			3,427			3,520
Impairment of goodwill and long-lived assets		—			—			—			125,703
Total operating expenses		33,316			37,891			105,054			230,534
Income (loss) from operations		2,467			6,235			2,117			(117,492	)

Interest expense		(2,173	)		(2,088	)		(6,126	)		(5,367	)
Amortization of deferred financing fees		(1,538	)		(190	)		(3,275	)		(568	)
Loss on early retirement of debt		(151	)		—			(151	)		—
Other income (expense), net		46			(115	)		(62	)		(83	)
Net income (loss) before income taxes		(1,349	)		3,842			(7,497	)		(123,510	)
Income tax benefit		1,194			337			4,642			16,203
Net income (loss)	$	(155	)	$	4,179		$	(2,855	)	$	(107,307	)

Net income (loss) per share-basic	$	(0.00	)	$	0.07		$	(0.05	)	$	(1.86	)
Net income (loss) per share-diluted	$	(0.00	)	$	0.07		$	(0.05	)	$	(1.86	)

Weighted average shares outstanding-basic		58,687			58,019			58,574			57,806
Weighted average shares outstanding-diluted		58,687			68,505			58,574			57,806

See accompanying Notes to Consolidated Financial Statements.

TeleCommunication Systems, Inc.

Consolidated Statements of Comp rehensive Income (Loss)

(amounts in thousands)

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Net income (loss)	$	(155	)	$	4,179	$	(2,855	)	$	(107,307	)
Other comprehensive income (loss):
Foreign currency translation adjustments		(3	)		—		(13	)		(7	)
Unrealized gains (loss) on securities:
Arising during the period		24			23		(17	)		62
Reclassification to net income (loss)		(7	)		6		(5	)		(4	)
Net unrealized gains (loss)		17			29		(22	)		58
Other comprehensive income (loss)		14			29		(35	)		51

Comprehensive income (loss)	$	(141	)	$	4,208	$	(2,890	)	$	(107,256	)

See accompanying Notes to Consolidated Financial Statements.

TeleCommunication Systems, Inc.

Consolidated Statements of Cas h Flows

(amounts in thousands)

(unaudited)

	Nine Months Ended September 30,
Operating activities:	2013			2012
Net loss	$	(2,855	)	$	(107,307	)
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of goodwill and long-lived assets		—			125,703
Depreciation and amortization of property and equipment		10,885			10,499
Stock-based compensation expense		5,294			6,760
Amortization of capitalized software development costs		5,532			5,910
Amortization of acquired intangible assets		3,427			3,520
Amortization of investment premiums and accretion of discounts, net		(65	)		341
Deferred tax benefit		(4,642	)		(16,370	)
Loss on early retirement of debt		151			—
Amortization of deferred financing fees		3,275			568
Other non-cash adjustments		1,471			2,009
Changes in operating assets and liabilities:
Accounts receivable, net		25,453			4,685
Unbilled receivables		3,754			997
Inventory		273			(3,454	)
Deferred project costs and other current assets		(760	)		1,280
Other assets		(3,378	)		1,056
Accounts payable and accrued expenses		70			(719	)
Accrued payroll and related liabilities		(6,947	)		(3,798	)
Deferred revenue		(1,253	)		6,347
Other liabilities		(1,059	)		327
Subtotal—Changes in operating assets and liabilities		16,153			6,721
Net cash provided by operating activities		38,626			38,354

Investing activities:
Acquisitions, net of cash acquired		—			(20,786	)
Purchases of property and equipment		(8,995	)		(15,222	)
Purchases of marketable securities		(7,795	)		(3,046	)
Proceeds from sale and maturity of marketable securities		5,749			6,626
Capitalized software development costs		(1,962	)		(761	)
Net cash used in investing activities		(13,003	)		(33,189	)

Financing activities:
Proceeds from bank and other borrowings		66,500			48,500
Payments on bank borrowings, notes payable, and capital lease obligations		(84,799	)		(42,101	)
Earn-out payment related to 2009 acquisition		—			(3,863	)
Payments of tax withholdings on restricted stock		(457	)		—
Proceeds from exercise of employee stock options and sale of stock		169			674
Net cash provided by/(used in) financing activities		(18,587	)		3,210

Net Increase in cash		7,036			8,375
Cash and cash equivalents at the beginning of the period		36,623			40,898

Cash and cash equivalents at the end of the period	$	43,659		$	49,273

See accompanying Notes to Consolidated Financial Statements.

TeleCommunication Systems, Inc.

N otes to Consolidated Financial Statements

September 30, 2013

(amounts in thousands, except per share amounts)

(unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. These consolidated financial statements should be read in conjunction with our audited financial statements and related notes included in our 2012 Annual Report on Form 10-K. The terms “TCS”, “Company”, “we”, “us” and “our” as used in this Form 10-Q refer to TeleCommunication Systems, Inc. and its subsidiaries as a combined entity, except where it is made clear that such terms mean only TeleCommunication Systems, Inc.

Use of Estimates. The preparation of these financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Significant estimates and assumptions in these consolidated financial statements include estimates used in revenue recognition, fair value of business combinations, fair value associated with goodwill, intangible assets and long-lived asset impairment tests, estimated values of software development costs, income taxes and deferred valuation allowances, the fair value of marketable securities and stock based compensation, and legal and contingency fees. Actual results could differ from those estimates.

In the second quarter of 2012, our Navigation reporting unit’s goodwill and long-lived assets with a carrying value of $164,500 were written down to estimated fair value of $38,797, resulting in an impairment charge of $125,703 to goodwill, acquired intangibles, and long-lived (fixed) assets. We engaged a third party valuation firm to assist in the determination of the fair value of goodwill, acquired intangibles, capitalized software, and long-lived assets. We utilized a discounted cash flow model to determine the fair value of goodwill and an income approach to determine the fair values of acquired intangibles, capitalized software, and long-lived assets.

Reclassifications. Certain reclassifications have been made to prior period amounts in the Consolidated Statements of Cash Flows to conform to current period presentations. The reclassifications have no effect on the net increase in cash for the period.

Goodwill. Goodwill represents the excess of cost over the fair value of net assets of acquired businesses. Goodwill is not amortized, but instead is evaluated annually for impairment using a discounted cash flow model and other measurements of fair value such as market comparable transactions. The authoritative guidance for the goodwill impairment model includes a two-step process. First, it requires a comparison of the book value of net assets to the fair value of the reporting units that have goodwill assigned to them. If the fair value is determined to be less than the book value, a second step is performed to compute the amount of the impairment. In the second step, a fair value for goodwill is estimated, based in part on the fair value of the reporting unit used in the first step, and is compared to its carrying value. The shortfall of the fair value below carrying value, if any, would represent the amount of goodwill impairment.

We assess goodwill for impairment in the fourth quarter of each fiscal year, or sooner should there be an indicator of impairment. We periodically analyze whether any such indicators of impairment, such as a sustained, significant decline in the Company’s stock price and market capitalization, a decline in the Company’s expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, and/or slower growth rate, among others.

For goodwill impairment testing, we have four reporting units: two Commercial Segment units, Navigation and Other Commercial (which comprises our text messaging and location-based technology businesses, including E9-1-1 call routing); and two Government Segment units, Government Solutions Group and Cyber Intelligence.

In the second quarter of 2012, we received notice from a significant navigation application customer that it intended to adjust pricing for TCS services. Management considered this to be an indicator that we should evaluate the long-lived assets (including goodwill and other intangible assets) related to our 2009 acquisition of Networks In Motion, operating as our Navigation unit, for potential impairment. As a result, we recorded a $125,703 impairment charge in the second quarter of 2012 for the excess of the carrying value of goodwill, long-lived (fixed) assets including capitalized software for internal use, software development costs and acquired intangibles over the estimated fair value. No triggering events occurred with regard to other reporting units, so an interim analysis of other units was not completed.

In performing our annual goodwill impairment testing during the fourth quarter of 2012, we used a market approach based on observable public comparable company multiples for all reporting units. For our Navigation and Cyber Intelligence reporting units, we also used a discounted cash flow analysis. Where multiple approaches were used, we weighted the results from different methods to estimate the reporting unit’s fair value. Our discounted cash flow models were based on our expectation of future market conditions for each of the reporting units, as well as discount rates that would be used by market participants in an arms-length transaction. Future events could cause us to conclude that market conditions have declined or discount rates have increased to the extent that our goodwill could be impaired. It is not possible at this time to determine if any such future impairment charge would result. There was no indication of any further impairment in any of our reporting units during the 2012 annual testing and accordingly, the second step of the goodwill impairment analysis was not performed.

Earnings per share. Basic net income (loss) per common share is based upon the average number of shares of common stock outstanding during the period. Stock options and restricted stock of approximately 11,500 shares and 14,700 shares for the three and nine months ended September 30, 2013, respectively, and 32,100 shares and 25,200 shares for the three and nine months ended September 30, 2012, respectively, were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three and nine months ending September 30, 2013 and for the nine months ended September 30, 2012, shares issuable upon conversion of convertible debt were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive. Shares issuable upon conversion of the convertible debt notes were included in the weighted average diluted shares for the three months ended September 30, 2012. Concurrent with the issuance of the convertible notes, we entered into convertible note hedge and warrant transactions. If the Company’s share price is greater than the warrant exercise price of $12.74 per share for any period presented, the warrants would be dilutive to the Company’s earnings per share. The convertible note hedge is excluded from the calculation of diluted earnings per share as the impact is always considered anti-dilutive since the call option would be exercised by us when the exercise price is lower than the market price. For the three and nine months ending September 30, 2013 and 2012, the Company’s share price was less than the warrant exercise price of $12.74, therefore no value was assigned to the warrants because the effect of their inclusion would have been anti-dilutive.

Our two classes of common stock (Class A and B) share equally in dividends declared or accumulated and have equal participation rights in undistributed earnings. Additionally our unvested restricted stock does not contain non-forfeitable rights to dividends and dividend equivalents. As such, unvested shares of restricted stock are not participating securities and our basic and diluted earnings per share are not impacted by the two class method of computing earnings per share.

The following table summarizes the computations of basic and diluted earnings per share:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Numerator:
Net income (loss), basic ............................................	$	(155	)	$	4,179	$	(2,855	)	$	(107,307	)
Adjustment for assumed dilution:
Interest on 4.5% convertible notes, net of taxes................		—			718		—			—
Net income (loss), diluted ..........................................	$	(155	)	$	4,897	$	(2,855	)	$	(107,307	)

Denominator:
Total basic weighted-average common shares outstanding .....		58,687			58,019		58,574			57,806
Effect of dilutive stock options and restricted stock based on treasury stock method ............................................		—			484		—			—
Effect of 4.5% convertible notes, based on “if converted” method .............................................................		—			10,002		—			—
Weighted average diluted shares ..................................		58,687			68,505		58,574			57,806

Basic earnings per common share:
Net income (loss) per share-basic ...............................	$	(0.00	)	$	0.07	$	(0.05	)	$	(1.86	)
Diluted earnings per common share:
Net income (loss) per share-diluted .............................	$	(0.00	)	$	0.07	$	(0.05	)	$	(1.86	)

Recent Accounting Pronouncements. In February 2013, the FASB amended the disclosure requirements regarding the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment does not change the current requirement for reporting net income or other comprehensive income, but requires additional disclosures about significant amounts reclassified out of accumulated other comprehensive income including the effect of the reclassification on the related net income line items. This amendment was adopted prospectively effective January 1, 2013.

In March 2013, the FASB amended guidance related to a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to derecognition events occurring after the effective date. We do not anticipate the adoption of this amendment will have a material impact on our financial statements.

In July 2013, the FASB amended guidance related to income taxes and the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar loss, or a tax credit carryforward exists. Under certain circumstances, unrecognized tax benefits should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. We do not expect this pronouncement to have a material effect on our consolidated financial statements.

2. Stock-Based Compensation

Restricted Stock

We had 1,770 and 1,428 restricted stock units outstanding at a weighted-average grant date fair value per share of $2.75 and $3.00 as at September 30, 2013 and 2012, respectively. Share-based compensation expense is recognized on a straight line basis, for only those shares expected to vest over the requisite service period of the award, which is generally the vesting over one year for directors and vest in annual increments over three years for executives conditional on continued employment.

Stock Options

We had 17,506 and 17,229 stock options outstanding as at September 30, 2013 and 2012, respectively. During the nine months of 2013, we granted 2,319 options and had exercises of 87 options. Share-based compensation expense is recognized on a straight line basis, net of any estimated forfeiture rate, for only those shares expected to vest over the requisite service period of the award, which is generally 5 years.

Total Stock-Based Compensation

We recognized total share-based compensation expense of $1,503 and $2,015 in the three months ended September 30, 2013 and 2012, respectively, and $5,294 and $6,760 in the nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013 and 2012, we had $6,721 and $10,369, respectively, of total unrecognized share-based compensation expense, which is expected to be recognized over a weighted-average period of approximately 3 years, respectively.

3. Supplemental Disclosure of Cash Flow Information

Property and equipment acquired under capital leases totaled $1,351 and $3,524 during the three and nine months ended September 30, 2013, respectively. We acquired $915 and $4,268 of property under capital leases during the three and nine months ended September 30, 2012, respectively.

Interest paid totaled $556 and $3,919 during the three and nine months ended September 30, 2013, respectively. We paid $739 and $4,105 during the three and nine months ended September 30, 2012, respectively.

Income taxes and estimated state income taxes paid totaled $36 and $326, respectively, during the three and nine months ended September 30, 2013, respectively. Income taxes paid totaled $173 and $982 for the three and nine months ended September 30, 2012, respectively.

4. Marketable Securities

Available-for-sale marketable securities at September 30, 2013 were:

	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate bonds	$	15,762	$	27	$	(7	)	$	15,782
Mortgage-backed and asset-backed securities		954		—		(1	)		953
Total marketable securities	$	16,716	$	27	$	(8	)	$	16,735

The estimated fair value of available-for-sale marketable securities by contractual maturity at September 30, 2013 were:

	Fair Value
Due within 1 year or less	$	5,316
Due within 1-2 years		7,621
Due within 2-3 years		3,798
	$	16,735

Available-for-sale marketable securities at December 31, 2012 were:

	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate bonds	$	13,102	$	42	$	(3	)	$	13,141
Mortgage-backed and asset-backed securities		1,732		3		(1	)		1,734
Total marketable securities	$	14,834	$	45	$	(4	)	$	14,875

The estimated fair value of available-for-sale marketable securities by contractual maturity at December 31, 2012 were:

	Fair Value
Due within 1 year or less	$	7,251
Due within 1-2 years		3,557
Due within 2-3 years		4,067
	$	14,875

5. Fair Value Measurements

Our assets and liabilities subject to fair value measurements on a recurring basis and the required disclosures were:

As of September 30, 2013	Fair Value Total		Fair Value Measurements Using Fair Value Hierarchy
As of September 30, 2013	Fair Value Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	43,659	$	43,659	$	—	$	—
Corporate bonds		15,782		15,782		—		—
Mortgage-backed and asset-backed securities		953		953		—		—
Marketable securities		16,735		16,735		—		—
Deferred compensation plan investments		947		947		—		—
Assets at fair value	$	61,341	$	61,341	$	—	$	—
Liabilities:
Deferred compensation	$	597	$	597		—	$	—
Contractual acquisition earn-outs		342		—		—		342
Liabilities at fair value	$	939	$	597	$	—	$	342

As of December 31, 2012	Fair Value Total		Fair Value Measurements Using Fair Value Hierarchy
As of December 31, 2012	Fair Value Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	36,623	$	36,623	$	—	$	—
Corporate bonds		13,141		13,141		—		—
Mortgage-backed and asset-backed securities		1,734		1,734		—		—
Marketable securities		14,875		14,875		—		—
Deferred compensation plan investments		690		690		—		—
Assets at fair value	$	52,188	$	52,188	$	—	$	—
Liabilities:
Deferred compensation	$	394	$	394	$	—	$	—
Contractual acquisition earn-outs		508		—		—		508
Liabilities at fair value	$	902	$	394	$	—	$	508

We hold marketable securities that are investment grade and are classified as available-for-sale. The securities include corporate bonds, and mortgage and asset backed securities that are carried at fair market value based on quoted market prices.

We hold trading securities as part of a rabbi trust to fund supplemental executive retirement plans and deferred income plans. The funds held are all managed by a third party, and include fixed income funds, equity securities, and money market accounts, or other investments for which there is an active quoted market. The related deferred compensation liabilities are valued based on the underlying investment selections in each participant’s account.

The contractual acquisition earn-outs were part of the consideration paid for acquisitions. The fair value of the earn-outs is based on probability-weighted payouts under different scenarios, discounted using a discount rate commensurate with the risk.

The following table provides a summary of the changes in the our contractual acquisition earn-outs measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2013:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at January 1, 2013	$	508
Issuances		—
Fair value adjustment recognized in earnings		(166	)
Balance at September 30, 2013	$	342

Long-term debt, excluding leases, consists of borrowings under Senior Credit Facilites, 4.5% and 7.75% convertible senior notes, and promissory notes; see Note 11. The long-term debt, excluding leases, is currently reported at the borrowed amounts outstanding. At September 30, 2013, the estimated fair value of long-term debt, excluding leases, was $129,175 versus a carrying value of $140,829. At September 30, 2012, the estimated fair value of long-term debt, excluding leases, was $148,130 versus a carrying value of $161,850. The estimated fair value is based on a market approach using quoted market prices or current market rates for similar debt with approximately the same remaining maturities, where possible.

Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, and goodwill. These items are recognized at fair value when they are considered to be impaired. For the three and nine months ended September 30, 2013, there was no required fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis. During the second quarter of 2012, our Navigation reporting unit’s goodwill and long-lived assets with a carrying value of $164,500 at March 31, 2012 were written down to their estimated fair value of $38,797, resulting in an impairment charge of 125,703.

6. Segment Information

Our two reporting segments are the Commercial and Government Segments.

Government Segment: We provide professional services including field support of deployable wireless systems and cybersecurity training to the U.S. Department of Defense and other government and foreign customers. We own and operate secure satellite teleport facilities, resell access to satellite airtime (known as space segment), and design, furnish, install and operate wireless communication systems and components, including our SwiftLink ^® deployable communication systems which integrate high speed, satellite, and, internet protocol technology with secure, federal government-approved cryptologic devices.

Commercial Segment: We are one of two leading companies that enable 9-1-1 call routing via cellular, Voice over Internet Protocol, and next generation technology. Other TCS hosted and managed services include cellular carrier infrastructure for text messaging and location-based platforms and applications, including turn-by-turn navigation. Commercial segment customers include wireless carrier network operators, Voice over Internet Protocol service providers, wireless device manufacturers, automotive industry suppliers, and state and local governments.

Management evaluates segment performance based on gross profit and all revenues reported below are from external customers. We do not maintain information regarding segment assets. Accordingly, asset information by reportable segment is not presented.

The following tables set forth the results of our reportable segments and a reconciliation of segment gross profit to net income (loss):

	Three Months Ended September 30,
	2013						2012
	Gvmt		Comm.		Total		Gvmt		Comm.		Total
Revenue
Services	$	34,817	$	37,217	$	72,034	$	37,890	$	41,206	$	79,096
Systems		17,497		6,502		23,999		53,846		7,114		60,960
Total revenue		52,314		43,719		96,033		91,736		48,320		140,056
Direct costs of revenue
Direct cost of services		23,718		15,855		39,573		28,076		17,469		45,545
Direct cost of systems		15,199		5,478		20,677		45,912		4,473		50,385
Total direct costs		38,917		21,333		60,250		73,988		21,942		95,930
Gross profit
Services gross profit		11,099		21,362		32,461		9,814		23,737		33,551
Systems gross profit		2,298		1,024		3,322		7,934		2,641		10,575
Total gross profit	$	13,397	$	22,386	$	35,783	$	17,748	$	26,378	$	44,126

	Nine Months Ended September 30,
	2013						2012
	Gvmt		Comm.		Total		Gvmt		Comm.		Total
Revenue
Services	$	104,409	$	112,734	$	217,143	$	103,947	$	118,036	$	221,983
Systems		51,261		15,265		66,526		118,136		14,594		132,730
Total revenue		155,670		127,999		283,669		222,083		132,630		354,713
Direct costs of revenue
Direct cost of services		73,756		47,340		121,096		77,616		52,811		130,427
Direct cost of systems		42,207		13,195		55,402		100,905		10,339		111,244
Total direct costs		115,963		60,535		176,498		178,521		63,150		241,671
Gross profit
Services gross profit		30,653		65,394		96,047		26,331		65,225		91,556
Systems gross profit		9,054		2,070		11,124		17,231		4,255		21,486
Total gross profit	$	39,707	$	67,464	$	107,171	$	43,562	$	69,480	$	113,042


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Total segment gross profit	$	35,783		$	44,126		$	107,171		$	113,042
Research and development expense		(7,898	)		(9,799	)		(25,745	)		(27,392	)
Sales and marketing expense		(6,684	)		(8,041	)		(22,445	)		(23,144	)
General and administrative expense		(13,824	)		(14,931	)		(42,552	)		(40,276	)
Depreciation and amortization of property and equipment		(3,768	)		(3,689	)		(10,885	)		(10,499	)
Amortization of acquired intangible assets		(1,142	)		(1,431	)		(3,427	)		(3,520	)
Impairment of goodwill and long-lived assets		—			—			—			(125,703	)
Interest expense		(2,173	)		(2,088	)		(6,126	)		(5,367	)
Amortization of deferred finance fees		(1,538	)		(190	)		(3,275	)		(568	)
Loss on early retirement of debt		(151	)		—			(151	)		—
Other income (expense), net		46			(115	)		(62	)		(83	)
Income (loss) before income taxes		(1,349	)		3,842			(7,497	)		(123,510	)
Benefit for income taxes		1,194			337			4,642			16,203
Net income (loss)	$	(155	)	$	4,179		$	(2,855	)	$	(107,307	)

7. Inventory

Inventory consisted of the following:

	September 30, 2013		December 31, 2012
Component parts	$	9,310	$	8,018
Finished goods		1,501		3,066
Total inventory	$	10,811	$	11,084

8. Acquired Intangible Assets, Capitalized Software Development Costs, and Goodwill

Our acquired intangible assets and capitalized software development costs consisted of the following:

	September 30, 2013						December 31, 2012
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Acquired intangible assets:
Customer lists and other	$	34,733	$	12,406	$	22,327	$	34,733	$	9,115	$	25,618
Trademarks and patents		1,334		917		417		1,334		780		554
Total acquired intangible assets		36,067		13,323		22,744		36,067		9,895		26,172
Software development costs, including acquired technology		48,234		32,849		15,385		46,246		27,317		18,929
Total acquired intangible assets and software development costs	$	84,301	$	46,172	$	38,129	$	82,313	$	37,212	$	45,101

Estimated future amortization expense:

Three-months ending December 31, 2013	$	2,988
Year ending December 31, 2014		9,052
Year ending December 31, 2015		7,512
Year ending December 31, 2016		6,475
Year ending December 31, 2017		4,096
Thereafter		8,006
	$	38,129

Acquired intangible assets:

As a result of the fair value evaluation of the Navigation reporting unit in the second quarter of 2012, we recorded a $13,964 impairment charge for the excess of the carrying value of acquired intangible assets over the estimated fair value.

Software development costs:

For the three and nine months ended September 30, 2013, we capitalized $319 and $1,988, respectively, of software development costs for certain software projects after the point of technological feasibility had been reached but before the software was available for general release. For the three and nine months ended September 30, 2012, we capitalized $303 and $768, respectively, of software development costs. Accordingly, these costs have been capitalized and are being amortized over their estimated useful lives beginning when the products are available for general release. The capitalized costs relate to our location-based software. We believe that these capitalized costs will be recoverable from future gross profits generated by these products.

We routinely update our estimates of the recoverability of the software products that have been capitalized. Management uses these estimates as the basis for evaluating the carrying values and remaining useful lives of the respective assets. During the second quarter of 2012, we recorded an impairment charge of $12,420 after determining certain capitalized software development costs related to the Navigation reporting unit were not recoverable based on decreased projected revenues and sales pipeline.

Goodwill:

The carrying amount of goodwill is as follows:

	Commercial Segment				Government Segment				Total
Balance as of September 30, 2013 and December 31, 2012	$	58,154			$	54,296			$	112,450

As a result of our impairment test of goodwill related to its Navigation reporting unit during the second quarter of 2012, an $86,332 impairment charge was recorded for the excess of the carrying value over the estimated fair value.

9. Concentrations of Credit Risk and Major Customers

The financial instruments that potentially subject us to concentrations of credit risk are accounts receivable and unbilled receivables. Those customers that comprised 10% or more of our revenue, accounts receivable and unbilled receivables are summarized in the following tables:

Percentage of total revenue:	Segment		% of Total Revenue For the Three Months Ended September 30,						% of Total Revenue For the Nine Months Ended September 30,
Customer	Segment		2013			2012			2013			2012
U.S. Government agencies and departments		Government		37	%		48	%		37	%		43	%
Customer A		Commercial		15	%		12	%		15	%		14	%
Customer B		Commercial		<10	%		<10	%		<10	%		<10	%

Percentage of receivables (billed and unbilled) as of September 30:
Customer	Segment		2013			2012
U.S. Government		Government		35	%		32	%
Customer A		Commercial		18	%		17	%
Customer B		Commercial		14	%		12	%

10. Line of Credit

We have maintained a line of credit arrangement with our principal bank since 2003. On June 25, 2013, we closed on a new Senior Secured Credit Facility (the "Senior Credit Facility”), with the Silicon Valley Bank and a syndicate of lenders. The Senior Credit Facility includes a new revolving loan facility (“Revolving Loan Facility”) replacing the line under the July 2012, Fourth Amendment to our previous Loan and Security Agreement (“Line of Credit”).

The Revolving Loan Facility includes an aggregate principal amount available to borrow of up to $30,000 and matures on March 31, 2018. The principal amount outstanding under the Revolving Loan Facility is payable prior to or on the maturity date. Interest on the Revolving Loan Facility is payable monthly and accrues at Eurodollar/LIBOR (beginning at L+3.75%) or Alternate Base Rate (“ABR”) (beginning at ABR +2.75%), which may be adjusted as provided in the Credit Agreement.

The Revolving Loan Facility includes two sub-facilities: (i) a $10,000 letter of credit sub-facility pursuant to which the bank may issue letters of credit, and (ii) a $5,000 swingline sub-facility.

Under our previous Line of Credit, the maximum amount we could borrow was $35,000, limited by certain credit sub-facilities. Interest was calculated at a floating per annum rate equal to one-half of one percentage point (0.5%) above the prime rate.

As of September 30, 2013, there were no borrowings on our Revolving Loan Facility, and we had $30,000 of unused borrowing availability. As of December 31, 2012, we had $6,000 of borrowings outstanding under the Line of Credit and had approximately $25,400 of unused borrowing availability under our Line of Credit.

11. Long-Term Debt

Long-term debt consisted of the following:

	September 30, 2013			December 31, 2012
Senior credit facility	$	66,500		$	—
7.75% Convertible notes due 2018		50,000			—
4.5% Convertible notes due 2014		18,792			93,500
Bank term loan paid in full June 26, 2013		—			41,779
Promissory notes payable to microDATA sellers		5,537			14,010
Total long-term debt		140,829			149,289

Less: current portion		(7,137	)		(16,784	)
Non-current portion of long-term debt	$	133,692		$	132,505

Aggregate maturities of long-term debt at September 30, 2013 are as follows:

2013	$	415
2014		26,407
2015		3,325
2016		3,741
2017		6,153
2018		100,788
Total long-term debt	$	140,829

Senior credit facilities

On June 25, 2013, we closed on new $130,000 Senior Credit Facilities (the "Senior Credit Facilities") which include (i) a $56,500 term loan A facility ("Term Loan A Facility"), (ii) a $43,500 delayed draw term loan facility ("Delayed Draw Term Loan Facility"), and (iii) a $30,000 revolving loan facility ("Revolving Loan Facility.") The Senior Credit Facilities also include a $25,000 incremental loan arrangement subject to the Company's future needs and bank approval, although no assurances can be given that this incremental loan amount will be available to us when and if needed.

On June 25, 2013, we borrowed $56,500 under the Term Loan A Facility at closing. Proceeds were used for (i) repayment of the remaining balance under 2012 Term Loan, which was terminated, (ii) approximately $16,000 for on-going working capital and other general corporate purposes, and (iii) fees and expenses associated with the new facility. On September 30, 2013, we borrowed $10,000 under the Delayed Draw Term Loan Facility and the proceeds were used towards the retirement of the 4.5% Convertible Senior Notes, discussed below.

Additional liquidity is available through the undrawn $30,000 Revolving Loan Facility, to be used for our on-going working capital and other general corporate purposes, replacing the previous line of credit which has been paid off and terminated, see Line of Credit Note 10.

The Term Loan A Facility and the Delayed Draw Term Loan Facility have a maturity date of March 31, 2018, unless extended as provided in the Credit Agreement, and the Revolving Loan Facility has a termination date of March 31, 2018, unless extended as provided in the Credit Agreement. Beginning October 1, 2013, the Term Loan A Facility and the Delayed Term Loan are payable in consecutive quarterly installments of $416 on the first day of each fiscal quarter, increasing to $831 on December 31, 2014 and to $1,247 on December 31, 2016 and to $2,413 on December 31, 2017, with the remaining principal due at maturity. Additional Delayed Draw Term Loan Facility borrowings would be repaid in consecutive quarterly installment payments in the same proportion as the installment payments for the Term Loan A and existing Delayed Draw Term Loan borrowings, with the remaining principal due at maturity.

The Senior Credit Facilities are secured by substantially all of the Company’s tangible and intangible assets, including intellectual property. The Credit Agreement contains customary representations and warranties of the Company and customary covenants and events of default. Availability under the Revolving Loan Facility and the Delayed Draw Term Loan Facility is subject to certain conditions, including the continued accuracy of the Company’s representations and warranties and compliance with covenants. The Senior Credit Facilities are also subject to possible mandatory repayments from excess cash flow and other sources, such as net cash proceeds of debt or equity issuances, asset sales, casualty insurance claims and other recovery events, as described in the Credit Agreement. During the continuance of an event of default, at the request of the required lenders, all outstanding loans shall bear interest at a rate per annum equal to the rate that would otherwise be applicable thereto plus 2%, and shall be payable from time to time on demand.

7.75% Convertible notes

On May 8, 2013, we completed privately-negotiated exchange agreements with noteholders under which we retired $50,000 of our outstanding 4.5% Convertible Senior Notes due 2014 issued in 2009 (the “2014 Notes”) in exchange for $50,000 of new 7.75% Convertible Senior Notes due 2018 (the “2018 Notes”).

The 2018 Notes were issued pursuant to an indenture, dated as of May 8, 2013 (the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). We offered the 2018 Notes to certain holders of the 2014 Notes in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. The 2018 Notes bear interest at 7.75% per year, payable semiannually in arrears in cash on June 30 and December 30 of each year, beginning on December 30, 2013. The 2018 Notes are TCS’s senior unsecured obligations and rank equally with all of its present and future senior unsecured debt and senior to any future subordinated debts and will be effectively subordinate to all of TCS’s present and future secured debt to the extent of the collateral securing that debt.

Holders may convert the 2018 Notes at their option on any day prior to the close of business on the second “scheduled trading day” (as defined in the Indenture) immediately preceding June 30, 2018. The conversion rate will initially be 96.637 shares of Class A common stock per $1 (one thousand) principal amount of 2018 Notes, equivalent to an initial conversion price of $10.348 per share of Class A common stock, which is the same conversion price as the 2014 Notes. Shares of the Company’s Class A common stock into which the 2018 Notes are convertible have been reserved for issuance by the Company. We may redeem some or all of the 2018 Notes at any time on or after June 30, 2014 at the redemption prices set forth in the Indenture plus accrued and unpaid interest to the redemption date. In addition, subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their 2018 Notes upon a “fundamental change” (as defined in the Indenture) at a price equal to the purchase prices set forth in the Indenture, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.

The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the 2018 Notes then outstanding may declare the entire principal amount of all the 2018 Notes plus accrued interest, if any, to be immediately due and payable.

4.5% Convertible notes

In 2009, we sold $103,500 aggregate principal amount of 4.5% Convertible Senior Notes due 2014. During the fourth quarter of 2012, we repurchased $10,000 of the outstanding 2014 Notes, plus accrued and unpaid interest. During the third quarter of 2013, we repurchased an additional $24,708 of the outstanding 2014 Notes and recorded a loss of $151 on the retirement including transition costs. On May 8, 2013, we retired $50,000 in aggregate principal of these 2014 Notes, in exchange for $50,000 of new 7.75% Convertible Senior Notes due 2018, as discussed above.

The 2014 Notes are not registered and were offered under Rule 144A of the Securities Act of 1933. Concurrent with the issuance of the 2014 Notes, we entered into convertible note hedge transactions and warrant transactions, also detailed below, that are expected to reduce the potential dilution associated with the conversion of the 2014 Notes. Holders may convert the 2014 Notes at their option on any day prior to the close of business on the second “scheduled trading day” (as defined in the Indenture) immediately preceding November 1, 2014. The conversion rate will initially be 96.637 shares of Class A common stock per $1 (one thousand) principal amount of 2014 Notes, equivalent to an initial conversion price of approximately $10.35 per share of Class A common stock. The effect of the convertible note hedge and warrant transactions is an increase in the effective conversion premium of the 2014 Notes to $12.74 per share.

recognized them in permanent equity in Additional paid-in capital, and will not recognize subsequent changes in fair value as long as the instruments remain classified as equity.

Interest on the 2014 Notes is payable semiannually on November 1 and May 1 of each year, beginning May 1, 2010. The 2014 Notes will mature and convert on November 1, 2014, unless previously converted in accordance with their terms. The 2014 Notes are TCS’s senior unsecured obligations and rank equally with all of its present and future senior unsecured debt and senior to any future subordinated debts and will be effectively subordinate to all of TCS’s present and future secured debt to the extent of the collateral securing that debt.

As a result of the repurchase and exchange of $84,708 of the outstanding 2014 Notes, the convertible note hedge was adjusted to reflect the reduced number of outstanding 2014 Notes. The convertible note hedge transactions’ originally covering 10,001 shares was adjusted to cover proportionally fewer of shares of Class A common stock. The warrants were not affected by the retirements of the 2014 Notes.

Term loan from commercial bank

In July 2012, we borrowed $45,000 under a term loan agreement (“2012 Term Loan”) with the Silicon Valley Bank, as administrative agent and collateral agent (“SVB”.) Approximately $19,400 of the borrowings under the 2012 Term Loan were used to pay off the prior term loan with SVB and transaction fees and approximately $20,000 were used as part of the acquisition of microDATA. The 2012 Term Loan was paid in full with funds borrowed under the new Term Loan A Facility, as discussed above.

Promissory notes payable to microDATA sellers

On July 6, 2012, we issued $14,250 in promissory notes as part of the consideration paid for our acquisition of microDATA bearing simple interest at 6%. The promissory notes are due in two installments: $7,500 plus interest was paid June 30, 2013 and $6,750 due June 30, 2014, less post-closing indemnification adjustments of $1,213 as of September 30, 2013, up to a maximum adjustment of $2,000. The promissory notes are effectively subordinated to TCS’s structured debt.

12. Capital Leases

We lease certain equipment under capital leases. Capital leases are collateralized by the leased assets. Amortization of leased assets is included in depreciation and amortization expense.

Future minimum payments under capital lease obligations consisted of the following at September 30, 2013:

2013	$	1,691
2014		4,831
2015		3,167
2016		1,628
2017		553
Total minimum lease payments		11,870
Less: amounts representing interest		(702	)
Present value of net minimum lease payments (including current portion of $5,134)	$	11,168

13. Income Taxes

We reported income tax benefits of $1,194 and $4,642 for the three and nine months ended September 30, 2013, respectively, as compared to $337 and $16,203 tax benefit recorded for the three and nine months ended September 30, 2012. The benefit recorded for the nine month period ended September 30, 2013 is comprised of current year tax benefit of $3,215 based on estimated annual pretax income (loss) plus a discrete adjustment of $1,427 related to a tax benefit resulting from the May 8, 2013 convertible note exchange and the repurchase of some the 4.5% Convertible Senior Notes. The benefit for the nine month period ended September 30, 2012 is comprised of current year tax benefit of $978 based on estimated annual pretax income (loss) plus a discrete adjustment of $17,190 related to the Navigation reporting unit goodwill and long-lived asset impairment charge.

We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

14. Commitments and Contingencies

and services in combination with products and services of other vendors. In some cases we have agreed to assume the defense of the case. In others, the Company will continue to negotiate with these customers in good faith because the Company believes its technology does not infringe the cited patents and due to specific clauses within the customer contractual arrangements that may or may not give rise to an indemnification obligation. The Company cannot currently predict the outcome of these matters and the resolutions could have a material effect on our consolidated results of operations, financial position or cash flows. Due to the inherent difficulty of predicting the outcome of litigation and other legal proceedings and uncertainties regarding the Company’s existing litigation and other legal proceedings, the Company is unable to estimate the amount or range of reasonably possible loss in excess of amounts reserved. The Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. Therefore, it is possible that an unfavorable resolution of one or more pending litigation or other contingencies could have a material adverse effect on the Company's consolidated financial statements in a future fiscal period.

The application and interpretation of applicable state and local sales and other tax laws to certain of our service and system offerings in certain jurisdictions is uncertain. In accordance with generally accepted accounting principles, the Company makes a provision for a liability for taxes when it is both probable that the liability has been incurred and the amount of the liability or range of liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted if necessary. At September 30, 2013, the Company is subject to an on-going state and local tax audit by the Washington State Department of Revenue. As this and other tax audits progress in the normal course of business, the Company will review and adjust a provision for loss as appropriate.

Other than the items discussed immediately above, we are not currently subject to any other material legal proceedings. However, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business.

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

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements, related notes, and other detailed information included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (this “Form 10-Q”). This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition. We generally identify forward-looking statements by the use of terms such as “believe”, “intend”, “expect”, “may”, “should”, “plan”, “project”, “contemplate”, “anticipate”, or other similar statements. Examples of forward looking statements in this Quarterly Report on Form 10-Q include, but are not limited to statements: (a) regarding our belief that our technology does not infringe the patents related to customer indemnification requests and that indemnification claims should not have a material effect on our results of operations; (b) regarding our expectations with regard our senior credit facility, notes and notes hedge transactions; (c) that we believe we have sufficient capital resources to fund our operations for the next twelve months; (d) relating to our backlog; (e) that we believe that capitalized software development costs will be recoverable from future gross profits; (f) regarding our expectations with regard to income tax assumptions and future stock based compensation expenses; (g) regarding our assumptions related to goodwill; (h) that a significant underperformance relative to historical or projected future operating results, significant change in the manner of our use of acquired assets, and significant negative industry or economic trends could cause us to conclude that impairment indicators exist and that our acquired intangible assets might be impaired; (i) relating to our R&D spending; and (j) regarding our reliance on funding by the U.S. government and any decrease in expenditures, the elimination or curtailment of a material program in which we are involved, or changes in payment patterns of our customers as a result of changes in U.S. government spending, could have a material adverse effect on our operating results, financial condition, and/or cash flows.

These forward-looking statements relate to our plans, objectives and expectations for future operations. We base these statements on our beliefs as well as assumptions made using information currently available to us. In light of the risks and uncertainties inherent in all such projected operational matters, the inclusion of forward-looking statements in this report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. Revenues, results of operations, and other matters are difficult to forecast and our actual financial results realized could differ materially from the statements made herein, as a result of the risks and uncertainties described in our filings with the Securities and Exchange Commission. These include without limitation risks and uncertainties relating to our financial results and our ability to (i) continue to rely on our customers and other third parties to provide additional products and services that create a demand for our products and services, (ii) conduct our business in foreign countries, (iii) adapt and integrate new technologies into our products, (iv) develop software without any errors or defects, (v) protect our intellectual property rights, (vi) implement our business strategy, (vii) realize backlog, (viii) compete with small business competitors, (ix) effectively manage our counterparty risks, (x) achieve continued revenue growth in the foreseeable future in certain of our business lines, (xi) have sufficient capital resources to fund the Company’s operations, and (xii) successfully integrate the assets and personnel obtained in our acquisitions. These factors should not be considered exhaustive; we undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. We caution you not to put undue reliance on these forward-looking statements.

The information in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our unaudited consolidated financial statements, which have been prepared in accordance with GAAP for interim financial information.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified our most critical accounting policies and estimates to be those related to the following:

-	Revenue recognition,

-	Business combinations,

-	Acquired intangible assets,

Goodwill,

-	Software development costs,

-	Marketable securities,

-	Stock compensation expense,

-	Income taxes, and

-	Legal and other contingencies .

This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in our 2012 Form 10-K.

Overview

Our business is reported using two business segments: (i) the Government Segment: We provide professional services including field support of deployable wireless systems and cybersecurity training to the U.S. Department of Defense and other government and foreign customers. We own and operate secure satellite teleport facilities, resell access to satellite airtime (known as space segment), and design, furnish, install and operate wireless communication systems and components, including our SwiftLink ^® deployable communication systems which integrate high speed, satellite, and, internet protocol technology with secure, federal government-approved cryptologic devices. (ii) the Commercial Segment: We are one of two leading companies that enable 9-1-1 call routing via cellular, Voice Over Internet Protocol (“VoIP”), and next generation technology. Other TCS hosted and managed services include cellular carrier infrastructure for text messaging and location-based platforms and applications, including turn-by-turn navigation and E9-1-1 call routing. Commercial segment customers include wireless carrier network operators, VoIP service providers, wireless device manufacturers, automotive industry suppliers, and state and local governments.

This “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) provides information that our management believes to be necessary to achieve a clear understanding of our financial statements and results of operations. You should read this MD&A together with Item 1A “Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2012 Form 10-K as well as the unaudited interim consolidated financial statements and the notes thereto located elsewhere in this Form 10-Q.

Indicators of Our Financial and Operating Performance

Our management monitors and analyzes a number of performance indicators in order to manage our business and evaluate our financial and operating performance. Those indicators include:

Revenue. We derive revenue from the sales of systems and services including recurring monthly service and subscriber fees, maintenance fees, software licenses and related service fees for the design, development, and deployment of software and communication systems, and products and services derived from the delivery of information processing, communication systems and components for governmental agencies.

Gross profit (revenue minus direct cost of revenue, including certain non-cash expenses). The major items comprising our cost of revenue are compensation and benefits, third-party hardware and software, network operation center and co-location facility operating expenses, amortization of capitalized software development costs, stock-based compensation, and overhead expenses. The costs of hardware and third-party software are primarily associated with the delivery of systems, and fluctuate from period to period as a result of the relative volume, mix of projects, level of service support required and the complexity of customized products and services delivered. Amortization of capitalized software development costs, including acquired technology, is associated with the recognition of revenue from our Commercial Segment.

Operating expenses. Our operating expenses are primarily compensation and benefits, professional fees, facility costs, marketing and sales-related expenses, and travel costs as well as certain non-cash expenses such as stock based compensation expense, depreciation and amortization of property and equipment, and amortization of acquired intangible assets.

Liquidity and cash flows. The primary driver of our cash flows is the results of our operations. Other important sources of our liquidity are our capacity to borrow, through our bank credit and term loan facility and other markets; lease financing for the purchase of equipment; and access to the public equity market.

·	Balance sheet. We view cash, working capital, and accounts receivable balances and days revenue outstanding as important indicators of our financial health.

Results of Operations

We develop and deliver highly reliable and secure wireless communication technology. Our mobile cloud computing services provide wireless applications and operator infrastructure for 9-1-1 call routing, navigation, asset and social applications, telematics, and text messaging. Our engineered satellite-based solutions incorporate cybersecurity expertise, and include base station management, deployable solutions for mission-critical communications with expert field support, and professional services including training.

Revenue and Cost of Revenue

The following discussion addresses the revenue, direct cost of revenue, and gross profit for our two business segments.

Government Segment


	Three Months Ended September 30,						2013 vs. 2012						Nine Months Ended September 30,						2013 vs. 2012
($ in millions)	2013			2012			$			%			2013			2012			$			%
Services revenue	$	34.8		$	37.9		$	(3.1	)		(8	%)	$	104.4		$	103.9		$	0.5			—
Systems revenue		17.5			53.8			(36.3	)		(67	%)		51.3			118.1			(66.8	)		(57	%)
Total Government Segment revenue		52.3			91.7			(39.4	)		(43	%)		155.7			222.0			(66.3	)		(30	%)

Direct cost of services		23.8			28.1			(4.3	)		(15	%)		73.8			77.6			(3.8	)		(5	%)
Direct cost of systems		15.2			45.9			(30.7	)		(67	%)		42.2			100.9			(58.7	)		(58	%)
Total Government Segment cost of revenue		39.0			74.0			(35.0	)		(47	%)		116.0			178.5			(62.5	)		(35	%)

Services gross profit		11.0			9.8			1.2			12	%		30.6			26.3			4.3			16	%
Systems gross profit		2.3			7.9			(5.6	)		(71	%)		9.1			17.2			(8.1	)		(47	%)
Total Government Segment gross profit ¹	$	13.3		$	17.7		$	(4.4	)		(25	%)	$	39.7		$	43.5		$	(3.8	)		(9	%)
Segment gross profit as a percentage of revenue		25	%		19	%								25	%		20	%

¹	See discussion of segment reporting in Note 6 to the accompanying unaudited consolidated financial statements

The primary customers of this segment are U.S. government agencies including Department of Defense (“DoD”) and Homeland Security, domestic and foreign space programs, and the contractors that supply products and services to these government customers. TCS is a prime contractor on several multi-year, multi-billion dollar contracts, some of which are indefinite-delivery, indefinite quantity, or IDIQ, contracts, through which this segment generates much of its revenue. As a result, we rely on funding by the U.S. government for the programs in which we are involved. These funding levels follow the cycle of general public policy and political support for this type of spending. Moreover, although our contracts often contemplate that our services will be performed over a period of several years, the Executive Branch must propose and Congress must approve funds for a given program each government fiscal year and may significantly change — increase, reduce or eliminate — funding for a program. A decrease in expenditures, the elimination or curtailment of a material program in which we are involved, the expiration of a contracting vehicle (like the Worldwide Satellite Systems contract vehicle) or changes in payment patterns of our customers as a result of changes in U.S. government spending, could have a material adverse effect on our operating results, financial condition, and/or cash flows.

Government Services Revenue, Cost of Revenue, and Gross Profit:

Government services revenue is generated from professional communications engineering and field support, cyber security training, program management, help desk outsource, network design and management for government agencies, as well as operation of teleport (fixed satellite ground terminal) facilities for data connectivity via satellite, including resale of satellite airtime. Systems maintenance fees are usually collected in advance and recognized ratably over the contractual maintenance periods. Government services revenue was $3.1 million, or 8% lower for the three months ended September 30, 2013 compared to 2012, as a result of about 7% lower professional services volume reflecting accelerated draw-down of Afghanistan field support personnel, non-recurring teleport installation services occurring in the prior year quarter, and less-than-expected replacement business. Government services revenue remained about the same for the nine months ended September 30, 2013 compared to 2012 as a result of about 7% more professional services inclusive of field support and maintenance and in-building wireless and 8% higher cyber security training business volume, offset by the non-recurring installation services occurring in the prior year.

Direct cost of government services revenue consists of compensation, benefits and travel expenses incurred in delivering these services, as well as satellite space segment purchased for resale. These costs were lower in the three and nine months ended September 30, 2013 compared to the same periods in 2012 as a result of the decreased volume of services and cost savings.

Our gross profit from government services increased $1.2 million, or 12% and $4.3 million, or 16% in the three and nine months ended September 30, 2013, compared to the same periods in 2012 due largely to the effects of some one-time changes to compensation arrangements as personnel transitioned from one contract to a successor.

Government Systems Revenue, Cost of Revenue, and Gross Profit:

We generate government systems revenue from selling secure wireless communication systems, primarily deployable satellite-based and line-of-sight deployable systems, and integration of these systems into customer networks. These are largely variations on lightweight, secure, deployable communication kits, sold mainly to units of the U.S. Department of Defense and other federal agencies. Our government systems revenue also includes electronic components, sold mainly to domestic and foreign space programs. Government systems sales decreased $36.3 million, or 67%, in the three months ended September 30, 2013 compared to 2012 due to significant non-recurring “pass through” (low-margin, low-value-add) orders delivered in the second and third quarters of 2012, and funding delays for our highly reliable electronic components and deployable communication systems that resulted in 40% lower revenue in these areas. For the nine month ended September 30, 2013, government systems sales were $66.8 million, or 57% lower compared to the prior year period due to about 85% less “pass through” revenue noted above and about 30% lower sales of highly reliable-electronic components and sales of our deployable communication systems due to delays in funded new orders.

The cost of our government systems revenue consists of purchased system components, compensation and benefits, the costs of third-party contractors, and travel. These costs have varied over the periods as a direct result of changes in volume. These equipment and third-party costs are variable for our different products, so that margins fluctuate between periods based on pricing and product mix.

Our government systems gross profit decreased $5.6 million, or 71% in the third quarter, and $8.1 million, or 47% for the nine months ended September 30, 2013, compared to the same periods in 2012 due to the lower sales volume. Government systems gross profit as a percentage of revenue was 13% and 15% for the three month ended September 30, 2013 and 2012, respectively, reflecting lower volume and product mix. Government systems gross profit as a percentage of revenue was 18% and 15% for the nine months ended September 30, 2013 and 2012, respectively, reflecting less lower-margin pass-through revenue in the mix.

Commercial Segment


	Three Months Ended September 30,						2013 vs. 2012						Nine Months Ended September 30,						2013 vs. 2012
($ in millions)	2013			2012			$			%			2013			2012			$			%
Services revenue	$	37.2		$	41.2		$	(4.0	)		(10	%)	$	112.7		$	118.0		$	(5.3	)		(4	%)
Systems revenue		6.5			7.1			(0.6	)		(8	%)		15.3			14.6			0.7			5	%
Total Commercial Segment revenue		43.7			48.3			(4.6	)		(10	%)		128.0			132.6			(4.6	)		(3	%)

Direct cost of services		15.8			17.4			(1.6	)		(9	%)		47.3			52.8			(5.5	)		(10	%)
Direct cost of systems		5.5			4.5			1.0			22	%		13.2			10.3			2.9			28	%
Total Commercial Segment cost of revenue		21.3			21.9			(0.6	)		(3	%)		60.5			63.1			(2.6	)		(4	%)

Services gross profit		21.4			23.8			(2.4	)		(10	%)		65.4			65.2			0.2			—
Systems gross profit		1.0			2.6			(1.6	)		(62	%)		2.1			4.3			(2.2	)		(51	%)
Total Commercial Segment gross profit ¹	$	22.4		$	26.4		$	(4.0	)		(15	%)	$	67.5		$	69.5		$	(2.0	)		(3	%)
Segment gross profit as a percentage of revenue		51	%		55	%								53	%		52	%

¹	See discussion of segment reporting in Note 6 to the accompanying unaudited consolidated financial statements.

Commercial Services Revenue, Cost of Revenue, and Gross Profit:

Our commercial services revenue is generated from hosting and maintaining software and networks for public safety 9-1-1 service for wireless and VoIP service providers, and operators of next generation 9-1-1 infrastructure (mainly state and local governments), as well as applications and infrastructure software for Location-Based Services (“LBS”) including turn-by-turn navigation and locator applications, and maintenance of text messaging platform software. This revenue primarily consists of monthly recurring service fees recognized in the month earned. Hosted LBS service and E9-1-1 fees are generally priced based on units served during the period, such as the number of customer cell sites, the number of connections to Public Safety Answering Points (“PSAPs”), or the number of customer subscribers or sessions using our technology. Subscriber service revenue is generated by client software applications for wireless subscribers, generally on a per-subscriber per month basis. Maintenance fees on our systems and software licenses are usually collected in advance and recognized ratably over the contractual maintenance period. Unrecognized maintenance fees are included in deferred revenue. Services also include custom software development, implementation and related service projects under time and materials or fixed-fee contracts, which are reported using percentage-of-completion accounting.

Commercial services revenue was $4 million, or 10%, lower in the three months ended September 30, 2013 compared to the same period in 2012 reflecting 6% higher revenue from 9-1-1 related services offset by about 20% lower platform and application services revenue, including navigation. Commercial services revenue was $5.3 million, or 4% lower, in the nine months ended September 30, 2013 compared to the same period in 2012 due to about 10% less application and platform services revenue, mainly due to a wireless carrier navigation application contract change reported in the third quarter of 2012, partially offset by higher 9-1-1 related network monitoring, and other professional services revenue.

The direct cost of our commercial services revenue consists primarily of compensation and benefits, licensed location-based application content, network access, data feed and circuit costs for network operation centers and co-location facilities, and equipment and software maintenance. The direct cost of services also includes amortization of acquired and capitalized software development costs of $0.6 million and $0.3 million for the three months ended September 30, 2013 and 2012, respectively. For the three months ended September 30, 2013, the direct cost of services revenue decreased $1.6 million, or 9%, from 2012, due mainly to lower contractor labor and other direct costs as part of cost containment actions taken during the period. Amortization of capitalized software development costs was $1.8 million and $2.4 million, respectively, for the nine months ended September 30, 2013 and 2012. The decrease in amortization of capitalized software development costs for the nine months ended September 30, 2013 reflects the write-down of amortizable intangibles during the second quarter of 2012. The direct cost of services revenue decreased $5.5 million, or 10%, for the nine months ended September 30, 2013 compared to the same period in 2012, reflecting a decrease in contractor and other direct costs as part of the cost containment actions noted above.

Commercial services gross profit for the three months ended September 30, 2013 decreased $2.4 million, or 10%, from 2012 due mainly to lower volume of application and platform services revenue, including navigation. Commercial services gross profit for the nine months ended September 30, 2013 was about the same as in the 2012 quarter.

Commercial Systems Revenue, Cost of Revenue, and Gross Profit:

We sell communications systems to wireless carriers and state and local governments incorporating our licensed software for enablement of 9-1-1 call routing and computer-aided responder dispatch, including Next Generation 9-1-1 technology and location-based wireless services and text messaging. Revenue from our larger deployments of Next Generation 9-1-1 technology, incorporating our software and third party components, are long term contracts reported using percentage of completion accounting. We recognize revenue from the sale of patents and licensing of our intellectual property including payments for past patent infringement liabilities, upfront and non-refundable license fees, and royalty fees. Licensing fees for our carrier software are generally a function of its volume of usage in our customers’ networks during the relevant period. In all cases, revenue from the licensing of our intellectual property is recognized when all of four of the revenue recognition criteria are met.

Commercial systems revenue for the three months ended September 30, 2013 decreased $0.6 million, or 8%, compared to 2012 as a result of about 75% lower Next Generation 9-1-1 revenue due to delays of system deployments which are dependent on the readiness of our channel partners and customers, partially offset by higher platform sales and proceeds from intellectual property monetization. Commercial systems revenue for the nine months ended September 30, 2013 was $0.7 million, or 5%, higher compared to 2012 due to text messaging custom feature development and licensing of our intellectual property offset by lower Next Generation 9-1-1 deployment revenue for the reason noted above.

The direct cost of our commercial systems revenue consists primarily of compensation and benefits, third-party hardware and software purchased for integration and resale, travel expenses, consulting fees as well as the amortization of acquired and capitalized software development. The direct costs of systems revenue for the three and nine months ended September 30, 2013 increased $1 million, or 22% and $2.9 million, or 28%, respectively, compared to the same periods in 2012, reflecting an increase in labor and direct costs for customer-related custom messaging and location-based system development projects. During the three and nine months ended September 30, 2013, direct costs of systems revenue included $1.3 million and $3.6 million, respectively, of amortization of software development costs. Amortization of software development costs in the prior year three and nine month periods was about the same at $1.4 million and $3.5 million, respectively.

Our commercial systems gross profit for the three months ended September 30, 2013 decreased $1.6 million compared to the prior year period, reflecting the lower revenue due to deployment delays on Next Generation 9-1-1 systems and the impact on gross profit of non-variable costs necessary to perform those deployments. Our commercial systems gross profit for the nine months ended September 30, 2013 decreased $2 million compared to the prior year period mainly due to the delay in Next Generation 9-1-1 deployments noted above.

Revenue Backlog

As of September 30, 2013 and 2012, we had unfilled orders or backlog as follows:


($ in millions)	2013		2012		$			%
Commercial Segment	$	224.3	$	242.8	$	(18.5	)		(8	%)
Government Segment		77.6		124.6		(47.0	)		(38	%)
Total funded contract backlog	$	301.9	$	367.4	$	(65.5	)		(18	%)
Commercial Segment	$	224.3	$	242.8	$	(18.5	)		(8	%)
Government Segment		809.4		912.2		(102.8	)		(11	%)
Total backlog of orders and commitments, including customer options	$	1,033.7	$	1,155.0	$	(121.3	)		(11	%)
Expected to be realized within next 12 months	$	174.2	$	245.2	$	(71.0	)		(29	%)

Funded contract backlog represents contracts for which fiscal year funding has been appropriated by the our customers (mainly federal agencies), and for hosted services (mainly for wireless carriers). Backlog is computed by multiplying the most recent month’s contract or subscription revenue by the months remaining under the existing long-term agreements, which is considered to be the best available information for anticipating revenue under those agreements. Total backlog, as is typically measured by government contractors, includes orders covering optional periods of service and/or deliverables, but for which budgetary funding may not yet have been approved, and could expire unused. Our total backlog has approximately $690 million of unfunded orders related to the Worldwide Satellite Systems contract vehicle which is expected to expire in the first quarter of 2014 and may expire unused. Our backlog at any given time may be affected by a number of factors, including the availability of funding, contracts being renewed, or new contracts being signed before existing contracts are completed. The timing and amounts of government contract funding may be adversely affected by federal budget policy decision like handling of sequestration and continuing resolutions, and can lead to delays in procurement of our products and services due to lack of funding. Some of our backlog could be canceled for causes such as late delivery, poor performance and other factors. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual revenue.

Operating Expenses

Research and development expense:

	Three Months Ended September 30,						2013 vs. 2012						Nine Months Ended September 30,						2013 vs. 2012
($ in millions)	2013			2012			$			%			2013			2012			$			%
Research and development expense	$	7.9		$	9.8		$	(1.9	)		(19	%)	$	25.7		$	27.4		$	(1.7	)		(6	%)
% of total revenue		8	%		7	%								9	%		8	%

Our research and development (“R&D”) expense consists of compensation, benefits, and a proportionate share of facilities and corporate overhead. The costs of developing software products are expensed prior to establishing technological feasibility. Technological feasibility is established for our software products when a detailed program design is completed. We incur R&D costs to enhance existing packaged software products as well as to create new software products including software hosted in network operations centers. These costs primarily include compensation and benefits as well as costs associated with using third-party laboratory and testing resources. We expense such costs as they are incurred until technological feasibility has been reached and we believe that capitalized costs will be recoverable, upon which we capitalize and amortize them over the product’s expected life.

We incur R&D expense for software mainly used by commercial and government network operators. Throughout the reporting periods our R&D efforts were primarily focused on wireless location, VoIP and Next Generation 9-1-1, secure satellite-based communication technology for government customers and applications for network operators, telematics supply chain, network security and to patent our developers’ innovations. We continually assess our spending on R&D to ensure our resources are focused on technology that is expected to achieve the highest level of success.

In addition to company deliverables, our research and development expenditures and acquisitions have yielded a portfolio of 336 patents as of September 30, 2013, and about 375 patent applications pending, primarily for wireless location-based technology. During 2012 we began a program of monetizing this portfolio through patent and license sales and other arrangements with partners and licensees.

Research and development expenses decreased $1.9 million and $1.7 million for the three and nine months ended September 30, 2013 compared to the prior year period mainly due to cost containment efforts focused on reducing labor, contractor, and other vendor costs as well as a shift of resources to custom development efforts (reported as cost of revenue).

Sales and marketing expense:

	Three Months Ended September 30,						2013 vs. 2012						Nine Months Ended September 30,						2013 vs. 2012
($ in millions)	2013			2012			$			%			2013			2012			$			%
Sales and marketing expense	$	6.7		$	8.0		$	(1.3	)		(16	%)	$	22.5		$	23.1		$	(0.6	)		(3	%)
% of total revenue		7	%		6	%								8	%		7	%

Our sales and marketing expenses include fixed and variable compensation and benefits, trade show expenses, travel costs, advertising and public relations costs as well as a proportionate share of facility-related costs which are expensed as incurred. Our marketing efforts also include speaking engagements and attending and sponsoring industry conferences. We sell our solutions through our direct sales force and through indirect channels. We have also historically leveraged our relationships with original equipment manufacturers to market our software products to wireless carrier customers. We sell our products and services to agencies and departments of the U.S. government primarily through direct sales professionals, and to foreign customers through agency and subcontractor arrangements. Sales and marketing expenses decreased $1.3 million and $0.6 million for the three and nine months ended September 30, 2013 versus the comparable periods of 2012 due to decreases in variable compensation and personnel, and travel reductions.

General and administrative expense:

	Three Months Ended September 30,						2013 vs. 2012						Nine Months Ended September 30,						2013 vs. 2012
($ in millions)	2013			2012			$			%			2013			2012			$		%
General and administrative expense	$	13.9		$	14.9		$	(1.0	)		(7	%)	$	42.6		$	40.3		$	2.3		6	%
% of total revenue		14	%		11	%								15	%		11	%

General and administrative (“G&A”) expense primarily represents management, finance, legal (including intellectual property management), human resources and internal information system functions. These costs include compensation, benefits, professional fees, travel, and a proportionate share of rent, utilities and other facilities costs which are expensed as incurred.

The $1 million decrease in G&A expense for the three months ended September 30, 2013 versus the comparable period in 2012 is due mainly to cost reductions and the absence of nonrecurring 2012 microDATA acquisition expenses. G&A expenses for the nine months ended September 30, 2013 were $2.3 million higher than the same period in 2012 mainly due to an increase in G&A expenses related to our intellectual property monetization efforts and higher spending on the security and operations of internal data networks.

Depreciation and amortization of property and equipment:

	Three Months Ended September 30,				2013 vs. 2012					Nine Months Ended September 30,				2013 vs. 2012
($ in millions)	2013		2012		$		%			2013		2012		$		%
Depreciation and amortization of property and equipment	$	3.8	$	3.7	$	0.1		3	%	$	10.9	$	10.5	$	0.4		4	%
Average gross cost of property and equipment during the period	$	131.1	$	116.8						$	126.8	$	117.1

Depreciation and amortization of property and equipment represents the period costs associated with our investment in information technology and telecommunications equipment, software, furniture and fixtures, and leasehold improvements, as well as amortization of capitalized software developed for internal use, including hosted applications. We compute depreciation and amortization using the straight-line method over the estimated useful lives of the assets, generally five years for furniture, fixtures, and leasehold improvements, and three to seven years for other types of assets including computers, software, and telephone equipment.

Depreciation expense has increased year-over-year as a result of cumulative capital expenditures made over time. Our depreciable asset base increased primarily as a result of additions to property and equipment of about $12.5 million in the first nine months of 2013.

Amortization of acquired intangible assets:


	Three Months Ended September 30,				2013 vs. 2012						Nine Months Ended September 30,				2013 vs. 2012
($ in millions)	2013		2012		$			%			2013		2012		$			%
Amortization of acquired intangible assets	$	1.1	$	1.4	$	(0.3	)		(21	%)	$	3.4	$	3.5	$	(0.1	)		(3	%)

The amortization of acquired intangible assets results from our acquisitions. These assets are being amortized over their estimated useful lives of between four and nineteen years. Amortization of acquired intangible assets decreased in the three and nine

months ending September 30, 2013 compared to the prior year periods as a result of the lower Navigation (formerly Networks in Motion) accounting basis for amortization after the 2012 write-down , partly offset by additional amortization resulting from the 2012 acquisition of microDATA.

Interest expense:

	Three Months Ended September 30,				2013 vs. 2012						Nine Months Ended September 30,				2013 vs. 2012
($ in millions)	2013		2012		$			%			2013		2012		$			%
Interest expense incurred on bank and other notes payable	$	0.8	$	0.7	$	0.1			14	%	$	2.1	$	1.3	$	0.8			62	%
Interest expense incurred on convertible note financing		1.3		1.1		0.2			18	%		3.6		3.4		0.2			6	%
Interest expense incurred on capital lease obligations		0.1		0.2		(0.1	)		(50	%)		0.4		0.6		(0.2	)		(33	%)
Amortization of deferred financing fees		1.5		0.2		1.3			650	%		3.3		0.6		2.7			450	%
Total interest and financing expense	$	3.7	$	2.2	$	1.5			68	%	$	9.4	$	5.9	$	3.5			59	%

Interest expense is incurred under bank and other notes payable, convertible note financing, and capital lease obligations. Financing expense reflects amortization of deferred up-front financing expenditures at the time of contracting for financing arrangements, which are being amortized over the term of the note or the life of the facility.

Interest and financing expenses were higher in the three and nine months ended September 30, 2013 compared to the prior year periods due mainly to interest on the higher average borrowing balance under our new Senior Credit Facility, interest on the 2012 microDATA promissory notes, the higher interest rate on the new convertible notes due 2018 that were exchanged in the second quarter for the lower interest rate convertible notes due 2014, the amortization of deferred financing fees reflecting the write-off of the 2012 bank term loan, and a prorated write-off of the convertible notes financing fees. For additional details, see Liquidity and Capital Resources section presented below.

Our capital lease obligations include interest at various amounts depending on the lease arrangement. Our interest under capital leases fluctuates depending on the amount of capital lease obligations in each year.

Other income (expenses), net:

Other income (expenses), net, includes adjustments to the estimated payments under earn-out arrangements that were part of the consideration for our acquisitions, as well as interest income earned and realized gains on investment accounts and foreign currency transaction gain or loss, which is dependent on fluctuation in exchange rates. Other income (expenses), net also includes the effects of foreign currency revaluation on our cash, receivables and deferred revenues that are stated in currencies other than U.S dollars.

Income taxes:

In the nine months ended September 30, 2013, we recorded a tax benefit of $4.6 million, representing an effective tax rate of 62%. In the nine months ended September 30, 2012, we recorded a tax benefit of $16.2 million, representing an effective tax rate of 13%. The tax benefit recorded for the first nine months of 2013 is higher than would be normally expected as a result of a $1.4 million discrete item related to a tax benefit in connection with the May 8, 2013 convertible note exchange and the repurchases of some of the 4.5% convertible notes. The tax benefit for the nine months ended September 30, 2012 was lower than would be normally expected as a result of a $17.2 million discrete item related to the Navigation reporting unit goodwill and long-lived asset impairment charge of $125.7 million and a foreign subsidiary worthless stock deduction.

Net income (loss):


	Three Months Ended September 30,					2013 vs. 2012						Nine Months Ended September 30,						2013 vs. 2012
($ in millions)	2013			2012		$			%			2013			2012			$		%
Net income (loss)	$	(0.2	)	$	4.2	$	(4.4	)		(105	%)	$	(2.9	)	$	(107.3	)	$	104.4		97	%

Net income (loss) was lower in the three months ended September 30, 2013 compared to the three months ended September 30, 2012, mainly due to lower revenue that was partially offset by decreases in R&D and selling, general and administrative expenses, and other factors discussed above. Net loss was higher in the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, due mainly to the second quarter 2012 Navigation reporting unit goodwill and other intangible asset impairment charge, lower gross margins, and other factors discussed above.

Liquidity and Capital Resources


	Nine Months Ended September 30,						2013 vs. 2012
($ in millions)	2013			2012			$			%
Net cash and cash equivalents provided by/(used in):
Operating activities:
Net loss	$	(2.9	)	$	(107.3	)	$	104.4			97	%
Non-cash charges		30.0			29.7			0.3			1	%
Non-cash impairment of goodwill and long-lived assets		—			125.7			(125.7	)		(100	%)
Deferred income tax provision		(4.6	)		(16.4	)		11.8			(72	%)
Net changes in working capital including changes in other assets		16.1			6.7			9.4			140	%
Net operating activities		38.6			38.4			0.2			1	%
Investing activities:
Acquisition, net of cash acquired		—			(20.8	)		20.8			(100	%)
Proceeds (purchases) of marketable securities, net		(2.1	)		3.6			(5.7	)		(158	%)

Purchases of property and equipment		(12.5	)		(19.5	)		7.0			36	%
Capital purchases funded through leases		3.5			4.3			(0.8	)		(19	%)
Purchases of property and equipment, net of assets funded through leases		(9.0	)		(15.2	)		6.2			41	%
Capitalized software development costs		(1.9	)		(0.8	)		(1.1	)		(138	%)
Net investing activities		(13.0	)		(33.2	)		20.2			61	%
Financing activities:
Payments on long-term debt and capital leases		(84.8	)		(42.1	)		(42.7	)		(101	%)
Proceeds from bank and other debt borrowings		66.5			48.5			18.0			37	%
Earn-out payment related to 2009 acquisition		—			(3.9	)		3.9			100	%
Other financing activities		(0.3	)		0.7			(1.0	)		(143	%)
Net financing activities		(18.6	)		3.2			(21.8	)		(681	%)
Net change in cash and cash equivalents	$	7.0		$	8.4		$	(1.4	)		(17	%)
Days revenue outstanding in accounts receivable including unbilled receivables		72			59

Capital resources: We have funded our operations, acquisitions, and capital expenditures primarily using cash generated by our operations, debt and capital leases, and issuance of public equity.

Sources and uses of cash: At September 30, 2013, our cash and cash equivalents balance was $43.7 million and when added to marketable securities, our total liquid funds were $60.4 million. At September 30, 2012, cash and equivalents were $49.3 million, and when marketable securities were added, the total was $64.6 million.

Operations: Cash generated by operating activities was $38.6 million for the nine months ended September 30, 2013 compared to $38.4 million for the nine months ended September 30, 2012. The decrease in working capital at September 30, 2013 compared to December 31, 2012 was comprised of a decrease in billed and unbilled receivables due to the timing of customer payments and invoicing agreement terms, an increase in accounts payable due to the timing of vendor payments, a decrease in inventory, offset by a decrease in deferred revenue due to timing of percentage of completion projects.

Investing activities: Fixed asset additions, excluding assets funded by leasing, were approximately $9 million and $15.2 million, for the nine months ended September 30, 2013 and 2012, respectively. Also, investments were made in development of software for resale which had reached the stage of development calling for capitalization, in the amounts of $1.9 million and $0.8 million for the nine months ended September 30, 2013 and 2012, respectively.

Financing activities: Financing activities during the nine months ended September 30, 2013 included new Senior Credit Facilities agreements and retirement of $50 million of our outstanding 4.5% Convertible Senior Notes in exchange for new $50 million 7.75% Convertible Senior Notes and the repurchase of $24.7 million of 4.5% Convertible Senior Notes, as described under Capital Resources below. We made $41.8 million in payments towards the termination of our prior term loan and scheduled payments on bank borrowings. We paid off our $6 million of borrowings on our prior line of credit outstanding December 31, 2013. We also made our scheduled $7.5 million payment due on our promissory notes payable and made our regularly scheduled capital lease payments of $4.8 million. Fixed assets acquired under capital leases during the nine months ended September 30, 2013 and 2012 were valued at $3.5 million and $4.3 million, respectively.

Capital Resources:

Senior debt: On June 25, 2013, we closed on new $130 million Senior Credit Facilities (the "Senior Credit Facilities".) The Senior Credit Facilities include (i) a $56.5 million term loan A facility ("Term Loan A Facility"), (ii) a $43.5 million delayed draw term loan facility ("Delayed Draw Term Loan Facility"), and (iii) a $30 million revolving loan facility ("Revolving Loan Facility").The Senior Credit Facilities also include a $25 million incremental loan arrangement subject to the Company's future needs and bank approval, although no assurance can be given that this incremental loan amount will be available to us when and if needed.

On June 25, 2013, we borrowed $56.5 million under the Term Loan A Facility. Proceeds were used for (i) repayment of the remaining balance under 2012 Term Loan, which was terminated (ii) approximately $16 million for on-going working capital and other general corporate purposes, and (iii) fees and expenses associated with the new facility. On September 30, 2013, we borrowed an additional $10 million under the Delayed Draw Term Loan Facility which was used towards the purchase of an additional $24.7 million of our 4.5% convertible notes. Additional liquidity is available through the undrawn $30 million Revolving Loan Facility, to be used for our on-going working capital and other general corporate purposes, replacing the revolving line under the 2009 Loan and Security Agreement which has been paid off and terminated.

Loans borrowed under the Term Loan A Facility, the Revolving Loan Facility or the Delayed Draw Term Loan Facility may be borrowed at rates based on the Eurodollar/LIBOR (beginning at L +3.75%) or Alternate Base Rate (ABR) (beginning at ABR + 2.75%), which may be adjusted as provided in the Credit Agreement. The Term Loan A Facility and the Delayed Draw Term Loan Facility have a maturity date of March 31, 2018, unless extended as provided in the Credit Agreement, and the Revolving Loan Facility has a termination date of March 31, 2018, unless extended as provided in the Credit Agreement. Beginning October 1, 2013, the Term Loan A Facility and the Delayed Term Loan Facility are to be paid in consecutive quarterly installments of $0.4 million on the first day of each fiscal quarter, increasing to $0.8 million on December 31, 2014 and to $1.2 million on December 31, 2016 and to $2.4 million on December 31, 2017, with the remaining principal due at maturity. Additional Delayed Draw Term Loan Facility borrowings would be repaid on the same dates and in the same proportions as the Term Loan A Facility and the existing Delayed Draw Term Loan Facility borrowings, with the remaining principal due at maturity.

In July 2012, we borrowed $45 million under our term loan agreement (“2012 Term Loan”) with Silicon Valley Bank (“SVB”), as administrative and collateral agent. Approximately $19 million of the borrowings under the 2012 Term Loan were used to pay off outstanding indebtedness under its prior term loan with SVB and transaction fees associated with the Amendment, and approximately $20 million was used as part of the acquisition of privately-held microDATA. The 2012 Term Loan was paid in full with funds borrowed under the new Term Loan A Facility, as discussed above.

7.75% Convertible Notes : On May 8, 2013, we completed privately-negotiated exchange agreements with noteholders and retired $50 million of our outstanding 4.5% Convertible Senior Notes due 2014 issued in 2009 (“2014 Notes”) in exchange for $50 million of new 7.75% Convertible Senior Notes due 2018 (“2018 Notes”.) The 2018 Notes were issued pursuant to an indenture, dated as of May 8, 2013 (the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”.) We offered the 2018 Notes to certain holders of the 2014 Notes in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. The 2018 Notes bear interest at a rate of 7.75% per year, payable semiannually in arrears in cash on June 30 and December 30 of each year, beginning on December 30, 2013. Holders may convert the 2018 Notes at their option prior to June 30, 2018. The 2018 Notes have the same conversion rate as the 2014 Notes, which is 96.637 shares of Class A common stock per one thousand dollars principal amount of 2018 Notes, equivalent to a conversion price of $10.348 per share of Class A common stock. Shares of the Company’s Class A common stock into which the 2018 Notes are convertible have been reserved for issuance by the Company. We may redeem some or all of the 2018 Notes at any time on or after June 30, 2014 at the redemption prices set forth in the Indenture plus accrued and unpaid interest to the redemption date. In addition, subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their 2018 Notes upon a “fundamental change” (as defined in the Indenture) at a price equal to the purchase prices set forth in the Indenture, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the 2018

Notes then outstanding may declare the entire principal amount of all the 2018 Notes plus accrued interest, if any, to be immediately due and payable.

4.5% Convertible Notes: In 2009, we sold $103.5 million aggregate principal amount of 4.5% Convertible Senior Notes due 2014 and in the fourth quarter of 2012, we repurchased $10 million of the outstanding 2014 Notes, plus accrued and unpaid interest and recorded a gain on the early retirement of $0.4 million. On May 8, 2013, we retired $50 million of the 4.5% Convertible Senior Notes by exchanging them for $50 million of 2018 Notes. During the third quarter of 2013, we repurchased $24.7 million of the outstanding 2014 Notes, plus accrued and unpaid interested and recorded a loss of $0.2 million. At September 30, 2013, the principal amount outstanding of the 4.5% Convertible Senior Notes was $18.8 million. The 2014 Notes are not registered and were offered under Rule 144A of the Securities Act of 1933. Concurrent with the issuance of the 2014 Notes, we entered into convertible note hedge transactions and warrant transactions, also detailed below, that are expected to reduce the potential dilution associated with the conversion of the 2014 Notes. Holders may convert the 2014 Notes at their option on any day prior to the close of business on the second “scheduled trading day” (as defined in the Indenture) immediately preceding November 1, 2014. The conversion rate is initially be 96.637 shares of Class A common stock per one thousand principal amount of 2014 Notes, equivalent to an initial conversion price of approximately $10.35 per share of Class A common stock. The effect of the convertible note hedge and warrant transactions, described below, is an increase in the effective conversion premium of the 2014 Notes to $12.74 per share.

The convertible note hedge and the warrant transactions are separate transactions, each entered into by the Company with the counterparties, which are not part of the terms of the 2014 Notes and will not affect the holders’ rights under the 2014 Notes. The cost of the convertible note hedge transactions to the Company was approximately $23.8 million, and has been accounted for as an equity transaction in accordance with ASC 815-40 , Contracts in Entity’s own Equity . The Company received proceeds of approximately $13 million related to the sale of the warrants, which has also been classified as equity as the warrants meet the classification criteria under ASC 815-40-25, in which the warrants and the convertible note hedge transactions require settlements in shares and provide the Company with the choice of a net cash or common shares settlement. As the convertible note hedge and warrants are indexed to our common stock, we recognized them in permanent equity in Additional paid-in capital, and will not recognize subsequent changes in fair value as long as the instruments remain classified as equity. As a result of the repurchase and exchange of $84.7 million of the outstanding 2014 Notes, the convertible note hedge was adjusted to reflect the reduced amount of outstanding 2014 Notes. The convertible note hedge transactions’ originally covering 34.7 million shares was adjusted to cover proportionally fewer shares of Class A common stock. The warrants are not affected by the retirements of 2014 Notes.

Seller Notes: On July 6, 2012, we issued $14.3 million in promissory notes as part of the consideration paid for the acquisition of microDATA bearing simple interest at 6%. The promissory notes are due in two installments: $7.5 million plus interest due June 30, 2013 and $6.8 million, less adjustments for post-closing indemnifications of $1.2 million as of September 20, 2013, up to a maximum adjustment of $2 million, plus interest due June 30, 2014. The promissory notes are effectively subordinated to our structured debt and structurally subordinated to any of our present and future indebtedness and other obligations of our subsidiaries.

We currently believe that we have sufficient capital resources with cash generated from operations as well as cash on hand to meet our anticipated cash operating expenses, working capital, and capital expenditure and debt service needs for the next twelve months. We have a $30 million undrawn Revolving Loan Facility through March 2018, $33.5 million undrawn Delayed Draw Term Loan Facility, and borrowing capacity available to us under a capital lease facility. The remainder of the outstanding 2014 Notes mature in November 2014 and the 2018 Notes mature in 2018. We may also consider raising capital in the public markets as a means to meet our capital needs and to invest in our business. Although we may need to return to the capital markets, establish new credit facilities, raise capital in private transactions in order to meet our capital requirements, or repurchase the remainder of the outstanding 2014 Notes, we can offer no assurances that we will be able to access these potential sources of funds on terms acceptable to us or at all.

Contractual Commitments

As of September 30, 2013, our most significant commitments consisted of our term debt, non-cancelable operating leases, purchase obligations, and obligations under capital leases. We lease certain furniture and computer equipment under capital leases. We lease office space and equipment under non-cancelable operating leases. Purchase obligations mainly represent contracts for parts and services in connection with our government satellite services and systems offerings. Contractual acquisition earn-outs consist of contingent consideration included as part of the purchase price of our acquisition.

As of September 30, 2013, except where noted, our commitments consisted of the following:

($ in millions)	Within 12 Months		1-3 Years		3-5 Years		More Than 5 Years		Total
7.75% Convertible notes obligation due 2018	$	4.5	$	7.8	$	57.5	$	—	$	69.8
4.5% Convertible notes obligation due 2014		1.7		19.2		—		—		20.9
Senior credit facility		4.3		11.7		62.0		—		78.0
Operating leases		7.2		16.0		1.0		0.2		24.4
Purchase obligations		12.8		1.8		—		—		14.6
Promissory notes payable to microDATA sellers		5.8		0		—		—		5.8
Capital lease obligations		5.5		6.3		—		—		11.8
Contractual acquisition earn-outs		0.3		—		—		—		0.3
Total contractual commitments	$	42.1	$	62.8	$	120.5	$	0.2	$	225.6

Item 3. Quan titative and Qualitative Disclosures About Market Risk

Interest Rate Risk

There have not been any material changes to our interest rate risk as described in Item 7A of our 2012 Annual Report on Form 10-K.

Foreign Currency Risk

For the three and nine months ended September 30, 2013, we generated $8.4 million and $27.6 million, respectively, of revenue outside the U.S, mostly denominated in U.S. dollars. A change in exchange rates would not have a material impact on our Consolidated Financial Statements. As of September 30, 2013, we had approximately $4.5 million of billed accounts receivable that are denominated in foreign currencies and would be exposed to foreign currency exchange risk. During the nine month of 2013, our average receivables subject to foreign currency exchange risk was $0.5 million. We had an average balance of $0.1 million of unbilled receivables and an average balance of $0.1 million of deferred revenue denominated in foreign currency during the nine month of 2013. We recorded immaterial transaction gains or losses on foreign currency denominated receivables and deferred revenue for the three and nine months ended September 30, 2013.

There have not been any other material changes to our foreign currency risk as described in Item 7A of our 2012 Annual Report on Form 10-K.

Item 4. Cont rols and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, and summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2013.

There have been no changes in the Company’s internal control over financial reporting during the latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. — OTH ER INFORMATION

Item 1. Leg al Proceedings

Some customers seek indemnification under their contractual arrangements with the Company for costs associated with defending lawsuits alleging infringement of certain patents through the use of our products and services, and the use of our products and services in combination with products and services of other vendors. In some cases we have agreed to assume the defense of the case. In others, the Company will continue to negotiate with these customers in good faith because the Company believes its technology does not infringe the cited patents and due to specific clauses within the customer contractual arrangements that may or may not give rise to an indemnification obligation. The Company cannot currently predict the outcome of these matters and the resolutions could have a material effect on our consolidated results of operations, financial position or cash flows. Due to the inherent difficulty of predicting the outcome of litigation and other legal proceedings and uncertainties regarding the Company’s existing litigation and other legal proceedings, the Company is unable to estimate the amount or range of reasonably possible loss in excess of amounts reserved. The Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. Therefore, it is possible that an unfavorable resolution of one or more pending litigation or other contingencies could have a material adverse effect on the Company's consolidated financial statements in a future fiscal period.

Item 1A. Risk Fac tors

There have not been any material changes to the information previously disclosed in “Item 1A. Risk Factors” in our 2012 Annual Report on Form 10-K.

Item 2. Unregi stered Sales of Equity Securities and Use of Proceeds

None.

Item 3. D efaults Upon Senior Securities

None.

Item 4. M ine and Safety Disclosures

None.

Item 5. Ot her Information

(a) None

(b) None.

Item 6. E xhibits

Exhibit Numbers		Description

31.1		Certification of CEO required by the Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a)

31.2		Certification of CFO required by the Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a)

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGN ATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 4th day of November 2013.

TELECOMMUNICATION SYSTEMS, INC.

By:		/ S / M AURICE B. T OSÉ
		Maurice B. Tosé
		Chairman, President and Chief Executive Officer

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

/ S / M AURICE B. T OSÉ		Chairman, President and Chief Executive Officer (Principal Executive Officer)
Maurice B. Tosé November 4, 2013

/ S / T HOMAS M. B RANDT , J R .		Senior Vice President and Chief Financial Officer (Principal Financial Officer)
Thomas M. Brandt, Jr. November 4, 2013

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