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United States Securities and Exchange Commission

Form 10-Q

(Mark One)

LCC International, Inc.

Registrant’s telephone number, including area code: (703) 873-2000

Not Applicable

(Former name, former address and former fiscal year, if changed, since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X           No        

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of August 9, 2002, the registrant had outstanding 14,610,644 shares of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and 6,318,874 shares of Class B Common Stock, par value $0.01 per share (the “Class B Common Stock”).

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LCC International, Inc. and Subsidiaries

Quarterly Report on Form 10-Q

INDEX

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PART I: FINANCIAL INFORMATION

LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Note 1:  Description of Operations

      The Company provides integrated end-to-end solutions for wireless voice and data communication networks with service offerings that include high level technical consulting, system design and deployment and ongoing operations and maintenance services. Telcom Ventures owns the Class B Common Stock shares outstanding, which have ten-to-one voting rights over the Class A Common Stock shares and therefore represent approximately 81% of the voting control.

      The Company operates in a highly competitive environment subject to rapid technological change and emergence of new technologies. Historically, the key drivers of growth in the Company’s wireless services business have been (1) the issuance of new or additional licenses to wireless operators; (2) the introduction of new services or technologies; (3) increases in the number of subscribers served by wireless operators; and (4) the increasing complexity of wireless systems in operation. Although the Company believes that its services are transferable to emerging technologies, rapid changes in technology could have an adverse financial impact on the Company.

Note 2:  Basis of Presentation

      The condensed consolidated financial statements of the Company included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim period.

      Certain information and footnote disclosure normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and the quarterly report on Form 10-Q for the period ended March 31, 2002. Operating results for the interim periods are not necessarily indicative of results for an entire year.

      Certain reclassifications of prior year amounts have been made to conform to the current year presentation.

Note 3:  Recent Accounting Pronouncements

      On January 1, 2002, the Company adopted FASB SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their estimated useful lives to their residual values, and be reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The adoption of SFAS No. 142 did not have a significant impact on the Company’s financial condition and results of operations.

      On January 1, 2002, the Company adopted FASB SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets which supersedes FASB SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and APB Opinion No. 30, Reporting the Results of Operations-Reporting Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. The statement addresses the accounting and reporting of a disposal of a segment and resolves significant implementation issues related to SFAS No. 121. The adoption of SFAS No. 144 did not have a significant impact on the Company’s financial condition and results of operations.

      In July 2002, FASB SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued. The statement provides specific guidance for the recognition, measurement and reporting of costs associated with exiting an activity or disposing of a long-lived asset, including restructuring charges that the Company currently accounts for under EITF Issue No. 94-3, Liability Recognition for Certain Employee

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Note 4:  Other Comprehensive Income (Loss)

      Comprehensive income (loss) is defined as net income (loss) plus the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under accounting principles generally accepted in the United States of America are included in comprehensive income (loss), but excluded from net income (loss). Other comprehensive income (loss) consists solely of foreign currency translation adjustments at June 30, 2001 and 2002. Comprehensive income (loss) for the three and six months ended June 30, 2001 and 2002 is as follows (in thousands).

Note 5:     Accounts Receivable

      The Company’s ten largest customers constituted 87.6% and 83.3% of the Company’s net receivables balance as of June 30, 2002 and December 31, 2001, respectively. The Company frequently performs work for development stage customers, which carry a higher degree of risk, particularly as to the collection of accounts receivable. These customers may be particularly vulnerable to current tightening of available credit and general economic slowdown. The Company considers three of the Company’s ten largest customers to be development stage customers. These customers, XM Satellite, Orascomm Telecom in Algeria, and NorthCoast Communications, had outstanding receivable balances in the aggregate at December 31, 2001 and June 30, 2002 of $20.8 million and $11.3 million, respectively.

Note 6:     Restructuring Charge

      During the second quarter of 2002, the Company adopted a restructuring plan and recorded a restructuring charge of $10.0 million. The restructuring plan was in response to the low utilization of professional employees caused by the recent completion of several large fixed price contracts and the difficulty in obtaining new contracts as a result of the slowdown in wireless telecommunications infrastructure spending. The cost of the severance and associated expenses was approximately $1.0 million and resulted in a work force reduction of approximately 140 people. In addition, the Company had excess facility costs relative to the space occupied by the employees affected by the reduction in force, space previously occupied by divested operations, and reduced business use of office space resulting from a continued trend for clients to provide professional staff office space while performing their services. The charge for the excess office space was approximately $9.0 million, which included $1.5 million in written-off leasehold improvements related to the excess space. The Company has paid out approximately $0.6 million in severance and $0.6 million in facility costs as of June 30, 2002. The Company has also written-off leasehold improvements aggregating $1.5 million

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Note 7:     Impairment of Assets

      In June 2000, the Company acquired 18.2% of Mobilocity, Inc. (“Mobilocity”) which was diluted to less than 3 percent as Mobilocity continued to raise additional capital. During the second quarter of 2002, the Company evaluated its investment in Mobilocity to determine if an impairment loss had occurred. Mobilocity has implemented a voluntary liquidation plan, leading the Company to determine the investment is probably not recoverable and to record a $0.5 million impairment charge.

      The Company has invested a total of $4.6 million ($2.9 million in August 2000 and $1.7 million in February 2001) to maintain its 15.0% interest in Plan + Design Netcare AG (“PDN”). The Company used the cost method to account for this investment. PDN, and its operating subsidiary, have filed for insolvency protection. During the second quarter of 2002, the Company evaluated this investment and determined that the investment is probably not recoverable and recorded a $4.6 million impairment charge.

Note 8:     Business Combinations

      On January 31, 2002, the Company acquired all of the assets of Smith Woolley Telecom (“Smith Woolley”). Smith Woolley is a telecommunications consultancy company that specializes in the provision of search, acquisition, design, build, management and maintenance services to the wireless industry in the United Kingdom. Smith Woolley is based in Cambridge, England, with several regional offices. The purchase price of the acquisition was approximately $8.6 million consisting of $7.1 million in cash and approximately 215,000 shares of LCC Class A common stock, par value $0.01 per share. The value of the LCC Class A common stock was approximately $1.5 million and was based on the closing price on January 31, 2002 of $7.08 per share. The acquisition was accounted for using the purchase method of accounting and therefore, Smith Woolley’s results have been included in the condensed consolidated financial statements since the date of acquisition.

      Allocation of the purchase price to the assets acquired and liabilities assumed for this acquisition was finalized during the second quarter of 2002. The net assets and liabilities acquired and assumed amounted to $0.7 million. The Company utilized an independent valuation firm to assist in the allocation of the purchase price between intangible assets and goodwill. Goodwill recognized in the acquisition amounted to $5.9 million. Other intangible assets acquired amounted to $2.0 million. Other intangible assets, including contract backlog, customer relationships, and the Smith Woolley trade name, are amortized over two to five years depending on the estimated remaining useful lives. The Company recognized $0.2 million in amortization expense for the intangible assets from the date of purchase through June 30, 2002. The Company expects amortization expense on the acquired intangible assets to be $0.3 million for the remainder of 2002 and $0.6 million for 2003, $0.3 million for 2004 through 2006, and $0.02 million in 2007. Goodwill and other intangibles will be evaluated annually for possible impairment under the provisions of SFAS No. 142.

Note 9:     Tower Portfolio Sale and Administration

      During 2000, Microcell Management, Inc. (“Microcell”), a subsidiary of the Company, completed the closing of the sale of its telecommunication tower portfolio to Pinnacle Towers Inc. (“Pinnacle”) pursuant to an Asset Purchase Agreement between Pinnacle and Microcell. As part of the tower sale transaction, Microcell and Pinnacle entered into a Master Antenna Site Lease pursuant to which Microcell agreed to lease, until December 31, 2002, the unoccupied space on each telecommunication tower sold to Pinnacle. As of December 31, 2001, the Company had deferred $2.0 million of the gain and included it in other current liabilities. Microcell and Pinnacle also entered into a Tower Services Agreement to provide Pinnacle with audit, maintenance, and program management services. The Tower Services Agreement, which expired in August 2001, provided for minimum annual payments to Microcell of $10.0 million for the contemplated services.

      On January 25, 2002, the Company entered into a settlement agreement with Pinnacle. Pursuant to the agreement, the Company received $2.0 million in cash to satisfy Pinnacle’s obligations under the Tower Services Agreement. This gain was recognized in the second quarter of 2002, when all uncertainties related to

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Note 10:     Related Party Transactions

      During 2001 and the first half of 2002, the Company provided services to Telcom Ventures and various other companies majority owned, or controlled by, Telcom Ventures or its members. Revenues from Telcom Ventures were 0.1% of 2001 revenues and none in the first half of 2002. Receivables from these related parties were $19,000 at December 31, 2001 and June 30, 2002 and are included in accounts receivable in the accompanying consolidated balance sheets. Also included accounts receivable are employee and travel advances aggregating approximately $89,000 and $108,000 at December 31, 2001 and June 30, 2002, respectively.

      During 2001 and the first half of 2002, the Company made certain payments on behalf of Telcom Ventures that consisted primarily of fringe benefit and payroll service-related payments. At December 31, 2001 and June 30, 2002, outstanding amounts associated with these payments totaled $0.4 million and $0.1 million, respectively, and were included in accounts receivable within the accompanying condensed consolidated balance sheets.

      In September 1996, the Company lent $3.5 million to Telcom Ventures to assist in the payment of taxes due in connection with the assumption by the Company of $30.0 million of convertible subordinated debt from Telcom Ventures. The original note was payable over five years with equal annual principal payments over the term. Interest accrued at the rate of LIBOR, plus 1.75%. The Company received the final payment of principal and accrued interest of approximately $0.8 million during the first quarter of 2002 in satisfaction of the note.

      During 2001 and the first half of 2002, the Company provided services to XM Satellite. Telcom Ventures has a minority investment in XM Satellite, and Dr. Rajendra Singh, a director of Telcom Ventures, is a member of the board of directors of the Company. Dr. Singh is also a former member of the XM Satellite board of directors. Revenues earned for services provided to XM Satellite were $13.7 million and $0.3 million for the second quarter of 2001 and 2002, respectively. For the six months ended June 30, 2001 and 2002, revenues earned from XM Satellite were $35.0 million and $3.3 million, respectively. Receivables due from XM Satellite were $13.0 million and $7.5 million at December 31, 2001 and June 30, 2002, respectively.

Note 11:     Contingencies

      The Company is party to various non-material legal proceedings and claims incidental to its business. Management does not believe that these maters will have a material adverse affect on the consolidated results of operations or financial condition of the Company.

Note 12:     Segment Information

      The Company’s operating segments include Services (Design Services and Deployment Services) and Tower ownership and management. Design Services provides engineering and design services for cellular phone system operators, personal communication system (“PCS”) operators and other wireless communication system providers. Deployment Services provides program and construction management services related to the build-out of wireless communication systems.

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      Segment detail is summarized as follows (in thousands):

      A reconciliation of net income (loss) reported for the operating segments to the amount in the condensed consolidated financial statements is as follows (in thousands):

Note 13:     Recovery of Receivables

      On March 28, 2001, the United States Bankruptcy Court, District of Maryland, Northern Division, entered an order confirming the Amended Joint Plan of Reorganization Under Chapter 11 (the “Plan”) for DCR PCS, Inc. (“DCR”) and Pocket Communications, Inc. (“Pocket”). The Plan provides that the Company’s claim against DCR will be allowed in the amount of $5.0 million. The Company received payment of $5.0 million on April 11, 2001 which has been recognized as a recovery of a bad debt during the quarter ended June 30, 2001 and was recorded as a reduction in general and administrative expense. The Plan also provided that the Company’s general unsecured claim against Pocket would be allowed. The Company received $1.6 million as final settlement for the Pocket claim during the second quarter of 2002. The Company recorded the receipt as a recovery of bad debt and as a reduction in general and administrative expense during the quarter.

      During 1997, the Company recorded a charge for receivables due from a Malaysian corporation. On March 15, 2001, the Company received payment of $2.1 million, net of taxes withheld at the source of $0.4 million, as complete settlement on these balances after the Malaysian Corporation successfully emerged from bankruptcy. This amount has been recognized as a recovery of bad debt during the quarter ended March 31, 2001 and was recorded as a reduction in general and administrative expense.

Note 14:     Subsequent Events

      On July 9, 2002, the Company’s subsidiary, LCC United Kingdom Limited (“LCC UK”) acquired 51 percent of the outstanding shares of Detron LCC Network Services B.V.(“Detron”), a newly-formed

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

LCC International, Inc. and Subsidiaries

For the Three and Six Months Ended June 30, 2001 and 2002

      This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1934. The Management’s Discussion and Analysis of Financial Condition and Results of Operations includes, without limitation, forward-looking statements regarding the Company’s ability to pursue and secure new business opportunities, its tower business, and its working capital. A more complete discussion of business risks is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

Overview

      The Company provides integrated end-to-end solutions for wireless voice and data communication networks with service offerings that include high level technical consulting, system design and deployment and ongoing operations and maintenance services. Since its inception in 1983, the Company has delivered wireless network solutions to more than 300 customers in over 50 countries.

      In the last two years, the Company has made several strategic decisions that have enabled it to focus on its core competency in providing end-to-end wireless services. In March 2000, the Company sold its telecommunication tower business. The Company expanded its international presence with the acquisitions of Transmast Italia in Italy and Smith Woolley Telecom in the United Kingdom. In addition, the Company acquired 51 percent of Detron LCC Network Services B.V. in the Netherlands in July 2002.The Company operates in a highly competitive environment subject to rapid technological change and emergence of new technologies. Historically, the key drivers of growth in the Company’s wireless services business have been (1) the issuance of new or additional licenses to wireless operators; (2) the introduction of new services or technologies; (3) increases in the number of subscribers served by wireless operators; and (4) the increasing complexity of wireless systems in operation.

      The Company’s primary sources of revenues are from engineering design and system deployment services. Revenues from services are derived from fixed price and time and materials contracts. The Company recognizes revenues from fixed price service contracts using the percentage-of-completion method. With fixed price contracts the Company recognizes revenue based on the ratio of individual contract costs incurred to date on a project compared with total estimated costs. Anticipated contract losses are recognized, as they become known and estimable. The Company recognizes revenues on time and materials contracts as the services are performed.

      Cost of revenues includes direct compensation and benefits, living and travel expenses, payments to third-party subcontractors and consultants, equipment rentals, expendable computer software and equipment, and allocated, or directly attributed, facility and overhead costs identifiable to projects.

      General and administrative expenses consist of compensation, benefits, office and occupancy, and other costs required for the finance, human resources, information systems, and executive office functions. Sales and marketing expenses consist of salaries, benefits, sales commissions, travel and other related expenses required to implement the Company’s marketing, sales and customer support plans.

Trends That Have Affected or May Affect Results of Operations and Financial Condition

      The Company has continued to see tightened capital markets, which among other things have contributed to a slowdown in wireless telecommunications infrastructure spending. The Company’s success depends upon continued growth in the design and deployment and optimization of wireless networks. Many wireless carriers are reliant upon the capital markets to obtain funds to finance building and improving their wireless networks. Most vulnerable are the customers that are new licensees and operator/carriers who have limited sources of funds from operations or have business plans that are dependent on funding from the capital markets. The slowdown in wireless telecommunications infrastructure spending caused some of the Company’s customers or potential customers to slow, postpone or reduce the scope of the deployment of new wireless networks or expansion of existing networks, which has reduced the demand for the Company’s services. This industry slowdown is occurring, as the Company needs to replace the revenue provided by the

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      The completion of the XM Satellite contract coupled with the industry slowdown caused revenue to further decline in the second quarter of 2002 over the first quarter of 2002. Additionally, the need to replace revenue and the difficult marketplace has caused gross profit as a percentage of total revenues to decline. Cost reduction measures currently being taken by the Company are not sufficient to return the Company to profitability without additional growth in revenue. The Company has seen renewed customer activity lately to upgrade or enhance existing systems. Despite this renewed activity, it remains uncertain the impact, if any, and the related timing of any such impact, upon the Company’s future revenue growth opportunities.

      The most promising area for revenue growth is in Europe. This optimism is caused by the need of the European carriers to meet network-building obligations associated with their 3G licenses, which represent a significant investment on their part. With the recent availability of 3G equipment in Europe, the Company expects that demand for the types of services provided by the Company will increase. While revenue from 3G networks only constituted 14.8% of the Company’s revenues for the six months ended June 30, 2002, it is expected to be an area of business growth in 2002 and in the future. In anticipation of this growth, the Company has recently acquired additional deployment capability in Europe. In December 2001, the Company acquired Transmast Italia, a wireless infrastructure, deployment, civil engineering and project management firm located in Milan, Italy. In January 2002, the Company acquired the assets of Smith Woolley Telecom, a telecommunications consultancy company that specializes in the provision of search, acquisition, design, build, management and maintenance services to the wireless industry in the United Kingdom. In July 2002, the Company acquired 51% of Detron LCC Network Services B.V., a newly formed company specializing in the provision, of deployment, management and maintenance services to the wireless industry in the Netherlands. The Company also anticipates that its reliance upon fixed price contracts will continue to grow in connection with these recent acquisitions. These newly acquired international operations provide more support for network deployment and construction management, where use of fixed price contracts is more typical. These contracts typically contain payment terms that are less favorable, and consequently require greater working capital than has historically been required by the Company.

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Results of Operations

      The following table and discussion provide information which management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. The discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes thereto included elsewhere herein.

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Three Months Ended June 30, 2001

      Revenues. Revenues for the three months ended June 30, 2002 were $12.2 million compared to $29.5 million for the prior year, a decrease of $17.3 million or 58.6%. The substantial completion of the Company’s deployment contract with XM Satellite Radio, Inc. (“XM Satellite contract”) in 2001 was the largest contributor to the decline. The XM Satellite contract contributed $13.4 million of the revenue decline. The balance of the revenue decline is largely attributed to a slowdown in wireless telecommunications infrastructure spending, with the largest decline in the United States of $5.5 million.

      Cost of Revenues. Cost of revenues for the three months ended June 30, 2002 was $10.7 million compared to $24.7 million for the prior year, a decrease of $14.0 million. As a percentage of total revenues, cost of revenues was 87.8% and 83.5% for the three months ended June 30, 2002 and 2001, respectively. Cost of revenues was higher in each year for selected costs. For 2002 cost of revenues as a percentage of total revenues increased because of lower utilization of professional staff by 5.8% ($0.7 million). In 2001, as a percentage of total revenues, cost of revenues increased because of a change in estimated contract costs to complete a large, fixed price contract in the Middle East by 7.5% ($2.2 million), and an additional provision for expatriate employee reimbursed taxes by 4.4% ($1.3 million). After adjusting for all these items, cost of revenues as a percentage of revenues, was 82.0% and 71.6% for the three months ended June 30, 2002 and 2001, respectively. Cost of revenues increased in 2002 as a percentage of revenues because of reductions in gross profit, discussed below.

      Gross Profit. Gross profit for the three months ended June 30, 2002 was $1.5 million compared to $4.9 million for the prior year, a decrease of $3.4 million. The reduced level of sales in 2002 resulted in reduced gross profit. Gross profit as a percentage of revenue, or gross profit margin, has declined. The gross profit margin was 12.2% and 16.5% for the three months ended June 30, 2002 and 2001, respectively. Excluding the additional items of cost, discussed in cost of revenues, gross profit margins would have been 18.0% and 28.4% for the three months ended June 30, 2002 and 2001, respectively. The gross profit margin decline in 2002 was largely driven by price reductions in response to increased competition caused by a slowdown in wireless telecommunications infrastructure spending. The decline in revenue also contributed to the gross profit margin decline, since some costs of sales, such as shared management and infrastructure costs remains relatively fixed.

      Sales and Marketing. Sales and marketing expenses were $2.0 million for the three months ended June 30, 2002 compared to $1.6 million for the prior year, an increase of $0.4 million. The increase in sales and marketing is largely related to increased business development activity in the Asia Pacific region. As a percentage of total revenues, sales and marketing was 16.0% and 5.5% for 2002 and 2001, respectively. The slowdown in wireless telecommunications infrastructure spending has increased competition. To respond to competitive pressures, the Company has maintained a higher level of sales and marketing expenditures despite the decline in revenues.

      General and Administrative. General and administrative expenses were $2.1 million for the three months ended June 30, 2002 compared to $2.4 million for the prior year. General and administrative expenditures in the second quarter of both 2001 and 2002 received an unusual benefit relative to recoveries of receivables from bankrupt clients. The benefit recognized from bankruptcy recoveries was $1.6 million and $5.0 million for the three months ended June 30, 2002 and 2001, respectively. The benefit from bad debt recoveries received in 2001 was partially offset by an increase in the provision for doubtful accounts of $1.5 million, largely driven by new bankruptcies. Excluding the receivable recoveries and provision for bad debts, general and administrative expenditures decreased $2.3 million or 37.8% for the three months ended June 30, 2002 compared to the same quarter in the prior year. This cost reduction reflects cost saving initiatives and reduced administrative support requirements.

      Restructuring Charge. A restructuring charge of $10.0 million was recorded for the three months ended June 30, 2002 pursuant to a restructuring plan adopted by the Company. The plan was formulated to respond to the low utilization of professional employees caused by the recent completion of several large fixed price contracts and the difficulty in obtaining new contracts as a result of a slowdown in wireless telecommunications infrastructure spending. The cost of the severance and associated expenses were approximately

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      Gain on Sale of Tower Portfolio and Administration, Net. During February 2000, the Company entered into an agreement for the sale of telecommunications towers that it owned. As part of the sale agreement, the Company agreed to lease unoccupied space on the towers, effectively guaranteeing a minimum rent level of a fixed amount on the towers sold. The gain from the tower portfolio sale deferred an amount corresponding to this rent commitment, until the space was leased to another tenant or otherwise satisfied. The Company recognized $2.0 million and $0.7 million of this previously deferred gain, for the three months ended June 30, 2002 and 2001, respectively.

      Depreciation and Amortization. Depreciation and amortization expense was $0.8 million for both the three months ended June 30, 2002 and 2001. Depreciation expense declined $0.3 million for the three months ended June 30, 2002 compared to the same quarter in the prior year. The decline in depreciation expense was offset by amortization expense relative to capitalized intangibles incurred in connection with the purchase of Smith Woolley Telecom in January 2002.

      Interest Income. Interest income was $0.2 million for the three months ended June 30, 2002 compared to $0.5 million for the prior year. Interest income in 2002 declined over 2001 reflecting a decline in yields available for short-term investments.

      Other Income (Expense). Other expense for the three months ended June 30, 2002 contained an impairment charge of $5.1 million. This charge relates to the entire investment the Company made in 2000 relative to investments in two separate companies, Plan + Design Netcare AG ($4.6 million) and Mobilocity, Inc. ($0.5 million). Both firms have entered into statutory or voluntary liquidation plans during the second quarter of 2002. In both cases, no proceeds are anticipated to be returned to shareholders.