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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number: 0-21213

(703) 873-2000

Securities registered pursuant to Section 12(b) of the Act:

Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, par value $.01 per share

      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 o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o          No þ

      Based upon the closing price of the registrant’s common stock as of June 28, 2002, the aggregate market value of the common stock held by non-affiliates of the registrant is $10,335,661.*

      As of March 1, 2003, the registrant had outstanding 14,639,865 shares of Class A Common Stock, par value $.01 per share, (the “Class A Common Stock”) and 6,318,874 shares of Class B Common Stock, par value $.01 per share (the “Class B Common Stock”).

DOCUMENTS INCORPORATED BY REFERENCE

      List hereunder the following documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated:

      (1) Portions of the definitive Proxy Statement for the Annual Meeting of the Stockholders to be held on May 22, 2003 (the “Proxy Statement”) are incorporated by reference into Part III, Items 10 – 13 of this Form 10-K.

*	Solely for purposes of this calculation, all executive officers and directors of the registrant and all shareholders reporting beneficial ownership of more than 5% of the registrant’s common stock are assumed to be affiliates.

TABLE OF CONTENTS

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      This Annual Report on Form 10-K (“Form 10-K”) contains certain forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, which statements can be identified by the use of forward looking terminology, such as “may,” “will,” “expect,” “anticipate,” “estimate,” or “continue” or the negative thereof or other variations thereon or comparable terminology. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this Form 10-K. See the “Risk Factors” section of Item 1 “Business” for cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from results referred to in forward-looking statements.

PART I

Overview

      The Company is one of the world’s largest independent providers of wireless network and infrastructure services, including the planning, design and deployment, and ongoing operations and maintenance of wireless networks, to an increasingly broad range of companies, including wireless carriers, satellite service providers, telecommunication equipment vendors, and tower companies. Since its inception in 1983, the Company has delivered wireless network solutions to more than 350 customers in over 50 countries. Customers in the United States include wireless service providers such as AT&T Wireless Services, Cingular Wireless, Nextel Communications, Sprint PCS, U.S. Cellular, Verizon Wireless and XM Satellite Radio. Internationally-based customers accounted for approximately 57.0% of the Company’s revenues for the year ended December 31, 2002 and include large international wireless carriers, such as China Unicom, Dutchtone, Hutchison (including H3G in Italy and Hutchison UK), O2 (in both the UK and the Netherlands), Orascom Telecom Algerie, TA Orange, T-Mobile, Vodafone and Wind. The Company also provides services globally to large telecommunication equipment vendors such as Ericsson, and Nokia. In addition, the Company provides high level technical consulting services for companies such as B.V. Group, G.E. Capital, MDS America and Vulcan Ventures.

      The Company provides integrated end-to-end solutions for wireless voice and data communications networks with offerings ranging from high level technical consulting, to system design and deployment, to ongoing management and optimization services. As part of its strategy, the Company leverages initial opportunities to provide high level technical consulting services to secure later-stage system design and deployment contracts. Long-term engagements to provide design and deployment services also enable the Company to secure ongoing management and operations projects. Providing ongoing operations and maintenance services also positions the Company well for additional opportunities as new technologies continue to be developed and wireless network operators must either upgrade their existing networks or deploy new networks utilizing the latest available technologies.

      The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Stockholders are made available, free of charge, on its Web site http://www.lcc.com, as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission.

Industry Background

     Wireless Telecommunications Networks

      Wireless networks are telecommunication systems built using radio-based systems that allow a telephone set or data terminal to communicate without a metallic or optical cord or wire equipment. The life cycle of a wireless network continually evolves and consists of several phases including strategic planning, design, deployment, expansion, and optimization and maintenance. During the strategic planning phase, operators pursue the licenses necessary to build out a wireless system and make decisions about the type of technology and equipment to be used, where it will be located and how it will be configured. Technical planning and

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      Following acceptance of a wireless network design, access to land or building rooftops must be secured for towers or telecommunication equipment, including radio base stations, antennas and supporting electronics. Each site must be qualified in a number of areas, including zoning ordinance requirements, regulatory compliance and suitability for construction. Detailed site location designs are prepared and radio frequency engineers review interference to or from co-located antennae. Construction and equipment installation then must be performed and site performance is measured after completion of construction. Finally, professional technicians install and commission the new radio equipment, test it, integrate it with existing networks and tune the components to optimize performance.

      Once a wireless network becomes operational and the number of subscribers increases, the system must be expanded to increase system coverage and capacity. In addition, the wireless system must be continually updated and optimized to address changes in traffic patterns, and interference from neighboring or competing networks or other radio sources. Optimization also involves tuning the network to enable operators to compete more effectively in areas where there are multiple system operators.

      Finally, as new technologies are continuously developed, wireless operators must determine whether to upgrade their existing networks or deploy new networks utilizing the latest available technologies. Overlaying new technologies, such as 2.5 generation and third generation protocols, commonly referred to as 2.5G and 3G, respectively, with an existing network or deploying a new network requires operators to reengage in the strategic planning, design, deployment, expansion, and optimization and maintenance phases of a new cycle in the life of an existing or new network.

  Growth and Evolution of the Wireless Telecommunication Industry

      Worldwide use of wireless telecommunications has grown rapidly as cellular and other emerging wireless communications services have become more widely available and affordable for the mass business and consumer markets. The rapid growth in wireless telecommunications is driven by the dramatic increase in wireless telephone usage, as well as strong demand for wireless Internet and other data services.

      Wireless access to the Internet is in an early stage of development and growing rapidly as web-enabled devices become more widely accessible and affordable. Demand for wireless Internet access and other data services is accelerating the adoption of new technologies such as those embodied in the third generation standard, known as 3G, to enable wireless networks to deliver enhanced data capabilities. Examples of wireless data services include music on demand, m-banking, locations based entertainment and interactive games.

  Current Challenges Confronting Wireless Service Providers and Telecommunication Equipment Vendors

      Due to an increasingly competitive environment, wireless service providers, telecommunication equipment vendors and others are focused on satisfying customer demand for enhanced services, seamless and comprehensive coverage, better service quality, more robust content and application offerings, faster data transmission and lower prices. The proliferation of wireless carriers and new technologies has created a competitive environment in which speed to market and subscriber acquisition and retention are key factors influencing a wireless carrier’s success. Network operations and maintenance is becoming increasingly complex due to an increasing need to provide services through networks that rely on diverse technologies, heterogeneous network components and existing legacy applications. For example, the introduction of wireless data applications requiring the transmission of large amounts of data creates additional technological requirements for carriers establishing or upgrading their networks. These challenges have led wireless carriers to increasingly prioritize their resources, focusing on revenue generating activities and outsourcing when they can do so effectively.

      Equipment vendors are also confronting multiple challenges as they introduce new generations of equipment with increased features and functionality. Vendors are required to provide equipment that is both compatible with a carrier’s existing network and can be integrated with equipment offered by other vendors.

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      Although wireless carriers traditionally have relied upon their internal engineering workforces to address a significant portion of their wireless network needs, the current challenges in the wireless market and the need to reduce operating costs, have required wireless carriers and equipment vendors to focus on their core competencies and therefore outsource an increasing portion of their network services. The Company believes that wireless carriers that are seeking to outsource an increasing portion of their wireless network needs are engaging service providers that:

	•	offer speed to market and cost effective network implementation;
	•	have expertise with all major wireless technologies;
	•	have experience working with all major equipment vendors;
	•	offer turnkey solutions; and
	•	have sufficient numbers of highly skilled employees capable of handling large-scale domestic and international projects.

The LCC Solution

      The Company is helping wireless service providers around the world tackle the issues they face in developing networks to meet subscriber demand, reduce their costs and add new services and functionality. In addressing these issues and the need for wireless service providers, telecommunications equipment vendors and others to outsource an increasing portion of their wireless network services, the Company believes that it distinguishes itself through several competitive advantages:

	•	Speed to Market. The Company’s expertise and processes enable its customers to meet, or in some cases, beat, their project deadlines. Members of the Company’s technical, design and deployment teams often work together with the customer at the initial stage of a project in order to plan an effective and efficient solution for the customer’s needs.
	•	Expertise and Experience with All Major Wireless Technologies. The Company has experience in all major wireless access technologies, including 2G, 2.5G and 3G digital system protocols and their respective migration paths; i.e., Global System for Mobile Communications, commonly referred to as GSM, Time Division Multiple Access, commonly referred to as TDMA, Code Division Multiple Access, commonly referred to as CDMA, and Integrated Dispatch Enhanced Network, commonly referred to as iDEN; and other wireless technologies such as broadband’s LMDS, MMDS, UNII/802.11(a) and 802.11(b), Europe’s equivalent to iDEN referred to as Tetra and core network technologies such as MAP, IS-41, ATM and SS7. The Company is actively engaged in developing new and emerging technologies in the wireless telecommunications industry through participation in industry panels, industry association forums and through independent research. The Company’s Wireless Institute is an integral part of its technical development activities and has become one of the premier training schools for the wireless industry.
	•	Ability to Deliver Turnkey Solutions. The Company’s ability to provide end-to-end, or turnkey, services enables its wireless customers to engage a single responsible party who is accountable for delivering and managing its wireless network under a single contract. The Company coordinates its use of resources for each phase of the project from planning to design and deployment to optimization and management of the wireless network, enabling it to reduce the time and cost of its services. The Company provides its customers with a primary point of accountability and reduces the inefficiencies associated with coordinating multiple subcontractors to enable projects to be transitioned from discipline to discipline in an efficient manner.

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	•	Worldwide Depth of Resources. During the past 20 years, the Company has designed wireless networks in North America, Europe, Asia, Latin America, the Middle East and Africa employing all major wireless technologies. As of December 31, 2002, the Company had approximately 420 highly qualified and experienced engineers and system deployment professionals. The Company’s system deployment professionals collectively have experience deploying networks in the major markets in the United States as well as many countries throughout the world. As of December 31, 2002, approximately 60% of the Company’s employees were employed outside the U.S. and represented approximately 50 different nationalities.

LCC Services

      The Company offers to its wireless customers a complete range of wireless network services, including: (1) high level technical consulting services (approximately 3.4% of 2002 revenues); (2) design and deployment services (approximately 95.0% of 2002 revenues); and (3) ongoing operations and maintenance services (approximately 1.6% of 2002 revenues).

  Consulting Services

      Applying its extensive technical and operational expertise and experience, the Company may be first engaged by a wireless customer to analyze the engineering and technology issues related to a proposed network deployment project. From assisting customers with evaluating their business plans, to licensing and application support, technology assessments and defining and refining implementation strategies, the Company’s team of advanced degreed senior wireless professionals focuses on providing customers with key insights into all aspects of wireless communications and the impact that a new technology, device or application might have on the industry.

  Design and Deployment Services

      Program management. Company provides project management services as part of an overall design and deployment project, to manage site acquisition, radio frequency engineering, fixed network engineering and construction management services. Project managers utilize the Company’s proprietary software system, Web Integrated Network Deployment System (WINDS), to manage all phases of an engagement. Utilizing WINDS, all information regarding a project is stored in one location, enabling project managers to track and retrieve information across all project phases, including site acquisition and leasing, zoning, construction, materials management, radio frequency engineering and installation and optimization. The WINDS system generates a visual presentation of the network in process, provides customers with “look-in” capabilities using remote connectivity and an Internet browser and forecasts timelines for each phase of the project. The Company maintains copyright and trade secret protection for its WINDS system.

      Radio frequency and fixed network engineering. The Company provides both radio frequency engineering and fixed network engineering services to design wireless networks for its customers. The Company’s radio frequency engineers design each wireless network based upon the customer’s transmission requirements, which are determined based upon the projected level of subscriber density, estimated traffic demand and the scope of the operator’s license coverage area. The Company’s engineers perform the calculations, measurements and tests necessary to optimize placement of wireless equipment, to optimize use of radio frequency and to deliver the highest possible signal quality for the greatest portion of subscriber usage within existing constraints. Typical constraints that must be addressed include cost parameters, terrain and license limitations, interference from other operators, site availability limitations and applicable zoning restrictions as well as other factors.

      In addition, because most wireless calls are ultimately routed through a wireline network, traffic from wireless networks must be connected with switching centers within wireline networks. The Company’s fixed network engineers determine the most effective method to connect call sites to the wireless backbone. The Company also provides services to cover the entire core network including interconnect, switching and

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      Competitive benchmarking. The Company provides system analysis to its wireless customers for the measurement of network performance, including “benchmarking” versus competitors based upon an extensive set of parameters such as call quality, drop call rates, signal strength and coverage.

      Site acquisition and development. The Company’s local experts in each market study the feasibility and desirability of locating base stations in the proposed area according to the wireless customer’s requirements, including zoning ordinance requirements, leasing constraints and building access issues.

      Regulatory compliance. The Company develops a regulatory compliance program in the United States designed to satisfy FCC and Occupational Safety and Health Act requirements with respect to radio frequency emissions.

      Architecture and engineering. The Company manages various activities associated with the design, layout and physical assessment of existing and proposed telecommunications facilities, including base stations and switching centers. This includes managing architecture and engineering firms with respect to site drawings, zoning exhibits, structural analysis and making recommendations to confirm that the infrastructure has the structural capacity to accommodate the design of the wireless network and other materials and services as may be necessary to secure building permits and jurisdictional approvals.

      Construction and procurement management. The Company manages various construction subcontractors to prepare the rooftop or tower site and secure the proper electrical and telecommunication connections. The Company also manages the procurement of materials and equipment for its wireless customers and the installation of radio frequency equipment, including base station electronics and antennas.

  Operations and Maintenance Services

      The Company provides operations and maintenance services to wireless carriers with ongoing outsourcing needs. Depending on customers’ needs, the scope of such arrangements varies greatly — the Company may assume responsibility for all or part of the day-to-day operation and maintenance of wireless networks. In 2002, the Company was engaged to provide operations and maintenance services to wireless service providers such as Lucent and XM Satellite.

      See note 19 to the Consolidated Financial Statements for information about the Company’s segments.

Customers and Backlog

      The Company provides consulting, design and deployment, and operations and maintenance services to wireless carriers, telecommunication equipment vendors, satellite service providers, and tower companies. The Company’s top ten customers, listed below, accounted for approximately 60.3% of total revenues for the fiscal year ended December 31, 2002:

	Ericsson H3G Italy Nextel Communications Northcoast Communications O2 UK O2 B.V. (Telfort) Sprint PCS T-Mobile U.S. Cellular XM Satellite Radio

      The Company had a firm backlog of $29.3 million as of December 31, 2002, including renewals and extensions from existing customers, compared with $24.7 million as of December 31, 2001. The increase in backlog relates predominantly to the Company’s new contracts in the Europe, Middle East, Africa

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      In addition to the firm backlog described above, the Company derives significant revenue from master service agreements and similar arrangements. Such arrangements do not provide a firm contractual commitment and therefore are excluded from the Company’s calculations of firm backlog. The Company’s implied backlog from these arrangements was approximately $21.0 million as of December 31, 2002.

Sales and Marketing

      The Company sells and markets its consulting, design and deployment, and operations and maintenance services through the collaborative efforts of its direct sales force, its senior management, its marketing group and its Wireless Institute.

  Direct Sales

      The Company has established direct sales forces in three regions of the world: the first region is North America and Latin America; the second region is Europe, the Middle East and Africa; and the third region is Asia-Pacific. The Company’s professional sales force works in conjunction with its senior executives to develop new client relationships. Sales personnel and the Company’s senior management proactively establish contact with targeted prospects to identify potential sales opportunities and work to establish awareness and preference for the Company’s services. Because customers’ purchase decisions often involve an extended decision making process requiring involvement of their technical personnel, the Company’s sales personnel work collaboratively with the Company’s technical consulting and deployment personnel to develop new sales leads and secure new contracts. Finally, the Company’s Wireless Institute, providing extensive training in the latest technologies, including emerging mobile data technologies such as 2.5G and 3G, also positions the Company well to generate additional sales opportunities.

  Marketing

      The Company’s marketing staff supports its business strategy through articles, publications, analyst meetings and conferences. The marketing group conducts market and competitive analysis, defines industry-specific business requirements and identifies potential sales opportunities. The Company’s marketing group helps position service offerings, creates awareness/ brand recognition and manages joint marketing efforts with strategic alliance partners.

      As of December 31, 2002, the Company employed 32 full-time sales and marketing staff.

Competition

      The market for technical consulting, design and deployment and operations and maintenance is highly competitive and fragmented and includes numerous service providers. In particular, the Company believes that the competition in Europe is particularly fragmented with numerous small, regional independent service providers. The Company’s competitors fall into six broad categories:

	•	internal staffs of wireless network operators;
	•	telecommunication equipment vendors, which frequently provide design and deployment services as part of an equipment sale;
	•	independent service companies such as Wireless Facilities, Inc. which provides a full range of wireless network services, and a large number of other companies that provide limited wireless services;

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	•	construction and project management companies, such as Bechtel Group Inc. and General Dynamics for the deployment of wireless networks;
	•	tower ownership and management companies, such as Crown Castle International and American Tower Corporation, which provide tower deployment service capabilities; and
	•	information technology and consulting companies such as Bearing Point, Inc. (formerly known as KPMG Consulting, Inc.), Logica and others, which have developed capabilities to deliver network consulting services to wireless service providers.

      Although the services provided by many of these competitors are comparable to the services provided by the Company, there are areas where certain competitors may have an advantage over the Company. For example, telecommunications equipment vendors presumably know the relative strengths and weaknesses of their products better than the service providers who have no product offerings; construction companies have more hands-on capabilities with respect to the construction aspects of a deployment project; and equipment vendors, construction companies and tower ownership and management companies have greater financial resources that allow them to offer financing and deferred payment arrangements. In addition, many of the Company’s competitors have significantly greater marketing resources, larger workforces and greater name recognition than the Company.

      The Company believes that the principal competitive factors in its market include: expertise in new and evolving technologies, industry experience, ability to deliver end-to-end services, ability to deliver results within budget and on time, reputation and competitive pricing. In particular, the Company believes that the breadth of its service offerings, the efficiencies of its processes, its ability to integrate new technologies and equipment from multiple vendors, its ability to provide training for its customers through its Wireless Institute and the high quality of its professional staff provide it with a competitive advantage.

      The Company believes its ability to compete also depends on a number of additional factors, which are outside of its control, including:

	•	the willingness of competitors to finance customers’ projects on favorable terms;
	•	the ability and willingness of customers to rely on their internal staffs to perform services themselves; and
	•	the customer’s desire to bundle equipment and services.

Employees and Culture

      Recognizing the critical importance of employee retention for its business, the Company works closely with its employees to develop and enhance the technical, professional and management skills required to be successful in the Company. Senior management of the Company believes it is critically important to create and maintain an open culture that encourages learning, responsibility and collaboration. C. Thomas Faulders, III, the Company’s chief executive officer, hosts monthly teleconference meetings with all employees to foster an open working environment. The Company recognizes that preserving its culture requires its employees to have a stake in the success of its business. For that reason, the Company has granted stock options to a significant majority of its employees, including its clerical and administrative support staff.

      The Company invests in all of its professionals to expand their professional education. In particular, the Company allocates substantial resources to its Wireless Institute, which provides training for its engineers covering the latest technologies developed and employed throughout the world. In addition, the Company’s engineers receive continuous on-the-job exposure to the latest wireless technologies.

      As of December 31, 2002, the Company had approximately 550 full-time employees worldwide. The Company believes that relations with its employees are good. None of the Company’s employees are represented by a labor union, and the Company has not experienced any work stoppages. The Company

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International Operations

      The further development of the Company’s international operations requires the Company to research and comply with local laws and regulations, including employment, corporate and tax laws. For example, if the Company enters into a longer term contract overseas, it is often required to establish a local presence in country, either as a branch or subsidiary and, if hiring locally, to comply with all local employment recruiting, hiring and benefit requirements. When not hiring locally, the Company faces the task of obtaining visas and work permits for its assigned employees and must comply with local tax requirements for its expatriate employees.

Risk Factors

   The Company tends to derive a significant portion of revenue in any given year from a limited number of projects, and the Company’s inability to replace projects that are nearing or at completion with new contract awards would cause a significant decrease in revenues and negatively impact the Company’s results.

      The Company has derived, and believes that it will continue to derive, a significant portion of its revenues in any given year from a limited number of large projects. For the year ended December 31, 2002, the Company derived approximately 60.3% of its total revenues from its ten largest customers. As these projects wind down to completion, the Company faces the task of replacing such revenue with a new project for the customer or with projects from new customers. The Company’s inability to replace such revenues would cause a significant decrease in the Company’s revenue and negatively affect its operating results. For example, the Company’s initial deployment of a terrestrial network of repeater sites for XM Satellite was substantially completed during the fourth quarter of 2001, wound down in 2002 and the Company was unable to generate such significant revenues from other projects in 2002.

   Many of the Company’s customers face difficulties in obtaining financing to fund the expansion of their businesses, including deployments and upgrades, which results in reduced demand for the Company’s services.

      Due to downturns in the financial markets in general since 2000, and specifically within the telecommunications financial markets, many of the Company’s customers or potential customers are having trouble obtaining financing. The current volatility of the financial markets and slowdown in the U.S. economy in particular and economies world wide has also intensified the uncertainty experienced by the Company’s customers, who are increasingly finding it difficult to predict demand for their products and services. As a result, many of the Company’s customers have slowed and postponed deployment of new networks and development of new products, which reduces the demand for the Company’s services.

   The Company may experience significant fluctuations in its quarterly results in 2003 as a result of uncertainties relating to its ability to generate additional revenues, manage its expenditures and other factors, certain of which are outside of the Company’s control.

      The Company’s quarterly and annual operating results have varied considerably in the past and are likely to vary considerably in 2003 and the future due to a number of additional factors, many of which are outside of the Company’s control. The factors outside the Company’s control include, among others:

	•	the timing of receipt of new licenses, use of existing spectrum for new services, or financing by potential customers;
	•	the length of the Company’s sales cycles;
	•	changes in pricing policy by the Company’s competitors;
	•	the timing and size of contracts;
	•	customer budget changes;

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	•	the commencement of services by a customer and the pace at which a customer desires to build its network;
	•	services and equipment furnished by other providers;
	•	the availability of capital for wireless carriers to fund build-outs;
	•	the growth rate of wireless subscribers, which has a direct impact on the rate at which new cell sites are developed and built;
	•	the Company’s ability to generate significant additional revenues to replace revenues associated with projects that are nearing, or at project completion;
	•	the timing of the adoption and deployment of new technologies such as 3G and broadband, and availability of equipment to adopt and deploy such technologies; and
	•	telecommunications market conditions and economic conditions generally.

      The factors within the Company’s control include, among others:

	•	the amount of the Company sales and marketing expenses and general and administrative expenses incurred by the Company;
	•	the timing and expansion into new international markets, through acquisitions or otherwise; and
	•	changes in the prices of services offered by the Company.

      Due to the factors above, quarterly revenues, expenses and results of operations could vary significantly in 2003 and beyond. As a result, the Company’s results may not meet the expectations of securities analysts and investors, which could cause the price of the Company’s common stock to decline significantly.

   Because an increasing percentage of the Company’s revenue is contracted on a fixed price basis, changes in estimated project costs could cause fluctuations in the Company’s quarterly results and adversely affect its operating results.

      An increasing percentage of the Company’s revenue is derived from fixed price contracts and its reliance on fixed price contracts may continue to grow. The portion of the Company’s revenue from fixed price contracts was 44.5% in 2001 and 61.1% in 2002. Fixed price contracts are typically paid on a milestone basis. As a result of the current business climate, particularly in Europe, fixed price contracts recently have included fewer milestones than in previous years, which in turn requires the Company to finance an increased amount of unbilled receivables.

      In addition, the Company recognizes revenue on fixed price contracts using the percentage-of-completion method of accounting, which requires considerable judgment since this technique relies upon estimates or budgets. With the percentage-of-completion method, in each period the Company recognizes expenses as they are incurred and recognizes revenue based on the ratio of the current costs incurred for the project to the then estimated total costs of the project. Accordingly, the revenue that the Company recognizes in a given quarter depends on, among other things, costs it has incurred for individual projects and its then current estimate of the total remaining costs to complete individual projects. If in any period the Company significantly increases its estimate of the total costs to complete a project, it may recognize very little or no additional revenue with respect to that project. If the total contract cost estimates indicate that there is a loss, such loss is recognized in the period such determination is made. To the extent that the Company’s cost estimates fluctuate over time or differ from actual costs, the Company’s operating results may be materially affected. As a result of these challenges associated with fixed price contracts, the Company’s gross profit in future periods may be significantly reduced or eliminated.

   If the Company is unable to collect receivables from development stage customers and other telecommunication companies, its operating results may be materially harmed.

      The Company frequently performs services for development stage customers that carry a higher degree of financial risk for the Company. The Company’s customers, established and development stage, are also

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   If the Company is not able to reduce expenses timely to correspond with any decrease in revenues, its costs as a percentage of revenue may increase and its net earnings could decline disproportionately to any decrease in revenues.

      The Company may not be able to reduce its expenses in order to timely correspond with any decrease in its revenues, including decreases resulting from delays, cancellation or completion of existing projects. The Company’s failure to timely effect a redeployment of personnel associated with such projects and reduce its costs would decrease gross profits and increase the Company’s operating expenses. Efforts to reduce costs may include a restructuring of the Company’s business, reduction in headcount, office closings and the reduction or elimination of other administrative functions. Costs of compliance with domestic and international regulations associated with such headcount reductions, particularly in Europe, the Middle East and Africa, where the Company anticipates considerable growth, could be significant. The Company’s efforts to reduce expenses could give rise to significant accounting charges and the payment of certain separation or severance benefits. Efforts to reduce expenses and the corresponding compliance burdens would place considerable strain on the Company’s management, legal and administrative functions. The Company’s inability to reduce costs as fast as a decrease in revenues would cause its costs as a percentage of revenue to increase and its net earnings to decline disproportionately to any decrease in revenues. The Company experienced difficulties reducing general and administrative expenses in the same proportion as the Company’s revenue decreased in 2002.

   Further delays in the adoption and deployment of new technologies such as 3G would negatively affect the Company’s opportunity to generate revenues in 2003 and beyond.

      Wireless carriers have been re-evaluating their network deployment plans in response to downturns in the capital markets, changing perceptions regarding industry growth and the level of customer acceptance of new technologies. Wireless carriers have delayed or failed to make the significant capital commitments necessary to begin deployment of their wireless networks. The costs to acquire 3G licenses that have been issued in Europe to date have been substantial and coupled with the continued delay in issuing additional spectrum in the US, wireless carriers currently may not have the capital or spectrum required to begin deployment of their networks based on 3G technology. In 2002, deployment of 3G networks continued to be delayed in certain regions in Europe, particularly the United Kingdom and Germany. Since the Company expects that a substantial portion of its growth is dependent upon services related to new technologies, further delays in the adoption and deployment of new technologies such as 3G would negatively affect the Company’s opportunity to generate revenues in 2003 and in the future.

   The Company’s increasing dependence on international operations may give rise to increased management challenges and could harm results of operations.

      Approximately 57.0% of the Company’s revenues for the year ended December 31, 2002 were generated outside of the United States, primarily in Europe, the Middle East and Africa. The Company currently expects international revenues to increase as a percentage of total revenues in 2003 and the future, driven by international acquisitions, projects undertaken in multiple countries, and anticipated growth in work in Europe. In 2001, the Company completed its acquisition of Transmast Italia, a Milan based deployment firm. In January 2002, the Company completed the acquisition of Smith Woolley Telecom, a U.K. based deployment firm. In July 2002, the Company acquired 51.0% of the equity interest of Detron LCC, a

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	•	the effects of war with Iraq or terrorism;
	•	the general economic and political conditions in each country;
	•	the effect of applicable foreign tax structures, including tax rates that may be higher than tax rates in the United States;
	•	tariff and trade regulations;
	•	difficulties in obtaining local business licenses;
	•	management of a geographically diverse organization; and
	•	difficulties and increased expenses in complying with a variety of foreign laws and regulations, including labor, employment and immigration laws where failure to comply could expose the Company to substantial fines and penalties and a reduction in its available workforce.

      The level and timing of the demand for the Company’s services and products could also be affected by changes in the applicable industry regulatory environments in foreign countries, including delays in deregulation or privatization affecting the pace at which licenses are awarded to wireless network system operators.

      Expansion of the Company’s international operations may require significant expenditure of operating, financial and management resources and result in increased administrative and compliance costs that could harm its results of operations. In addition, by expanding the Company’s international operations, the Company’s operations and earnings may be significantly affected by political instability and other political developments throughout the world, such as war and other international conflicts, civil unrest and local security concerns. Both the likelihood of such occurrences and their overall effect upon the Company vary greatly from country to country and are not predictable.

      Providing services outside the United States carries the additional risk of currency fluctuations and foreign exchange controls imposed by certain countries since many of the Company’s non-U.S. projects are undertaken in local currency. Although the Company generally incurs project expenses in the same currency in which payments are received under the contract, the Company does not currently engage in additional currency hedging activities to limit the risk of exchange rate fluctuations. Therefore, fluctuations in the currency exchange rate could have a negative impact on the profitability of the Company’s operations particularly if (1) the Company cannot incur project expenses in the same currency in which payments are received under the contract, and (2) there is a negative impact when converting back to U.S. dollars. See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.”

     The Company’s operating results may suffer because of intense competition in the wireless services industry in the United States and internationally.

      The Company faces intense competition in the United States and internationally in the market for wireless network design and system deployment services. Wireless operators themselves and system equipment vendors have and continue to develop capabilities competitive with those provided by the Company.

      Many competitors, including equipment vendors, and system integrators, have substantially greater financial and other resources than the Company. The ability of such competitors to leverage their greater resources to more effectively deliver a full turnkey solution, e.g. by providing equipment as part of their solution or quickly deploying a large number of personnel for a project, poses a competitive threat to the Company’s business. Although the equipment vendors or system integrators may subcontract a portion of the services to the Company in some cases, the Company often experiences lower margins for such services as a subcontractor.

      Competition can increase pressure on the Company’s pricing. For example, in a deployment project the Company typically provides program management services as well as site development and construction

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      Lastly, as a result of intense competition, the Company has increasingly encountered and may be required to agree to less favorable contract terms, including provisions such as liquidated damages, performance guarantees and deferred payment terms.

     Managing the size of the Company’s workforce to anticipate increases or decreases in market demand for the Company’s services is challenging. Difficulties associated with such management could result in increased costs to the Company and may harm its competitive position and financial results.

      If the Company maintains or increases staffing levels in anticipation of one or more projects and those projects are delayed, reduced, terminated or otherwise do not materialize, the Company may underutilize these personnel, which would increase its cost of revenues, harming results of operations. Due to current economic conditions and the corresponding effect on the Company’s customers or potential customers, managing the appropriate size of the Company’s workforce and projected demand for its services is extremely difficult. If the Company maintains a workforce sufficient to support a resurgence in demand, then its expenses will be high relative to revenues. If the Company reduces the size of its workforce in response to any industry slowdown or decrease in the demand for services, then the Company may not maintain a sufficient number of skilled personnel to be able to effectively respond to any resurgence. As a result of these insufficient staffing levels, the Company’s competitive position in the industry could be negatively impacted and the Company could incur increased recruiting costs to replace its workforce. To the extent that the Company is unable to successfully anticipate increases or decreases in market demand for its services and manage the size of its workforce accordingly or mitigate through the use of contract labor, the Company’s financial results will be harmed.

     Competitors that offer wireless customers financing pose a threat to the Company’s ability to compete for business, particularly in international markets.

      Wireless network operators, particularly new operators and new licensees, depend increasingly on wireless telecommunication equipment vendors to supply and to finance the deployment of entire wireless networks. Frequently, those vendors only make financing available for services or products if they are contracted to provide the services themselves. For services the vendors do not provide directly, financing is provided only if they have the right to select the providers of those services and products, including radio frequency engineering and network deployment services. The Company faces similar competition in the United States and internationally from tower ownership and management companies that provide tower deployment service capabilities as part of their overall leasing package or as part of a build-to-suit financing package. The Company does not typically provide these types of financing to its wireless customers. To the extent that future wireless companies continue to seek such financing, it would harm the Company’s ability to compete for such business.

     The Company’s inability to anticipate or adapt to changes in technology may harm its competitive position, reputation and opportunities for revenue growth.

      The Company operates in a highly competitive environment that is subject to rapid technological changes and the emergence of new technologies. Future revenues for the Company depend significantly upon the adoption and deployment by wireless customers of new technologies. The Company’s success will depend on its ability to timely enhance its current service offerings to keep pace with new technologies and the changing needs of its customers. If the Company is not successful in responding to technological changes, industry or

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     The Company may not be able to hire or retain a sufficient number of qualified engineers and other employees to meet its contract commitments or maintain the quality of its services.

      As a service business the Company’s success depends significantly on its ability to attract, train and retain engineering, system deployment, managerial, marketing and sales personnel who have excellent technical skills, particularly as technology changes, as well as the interpersonal skills crucial to fostering client satisfaction. Competition within the wireless industry for employees with the required range of skills fluctuates, depending on customer needs, and can be intense, particularly for radio frequency engineers. At times the Company has had difficulty recruiting and retaining qualified technical personnel to properly and quickly staff large customer projects. In addition to recruitment difficulties, the Company must fully and properly train its employees according to the customer’s technology requirements and deploy and fully integrate each employee into the customer’s project. Increased competition in the wireless industry is increasing the level of specific technical experience and training required to fulfill customer-staffing requirements. This process is costly and resource constraints may impede the Company’s ability to quickly and effectively train and deploy all of the personnel required to staff a large project.

     The Company’s contracts typically have provisions that permit customers to terminate their contracts under various circumstances. If a large project is terminated, the Company may not be able to replace the revenues from such project and its revenues and operating results may decline.

      The Company’s contracts typically have provisions that permit customers to terminate their contracts under various circumstances, including termination for convenience. Certain contracts, particularly with international customers, a sector that the Company expects to grow, provide for the deferral of payment for services until the completion of a project, rather than periodic milestone payments. Termination of such contracts by the customers may result in further loss of revenues and cause the Company to incur legal and other expenses associated with its efforts to collect some or all of the amounts it may be entitled to under such contracts. The Company also believes that intense competition and the current trend in industry contracting toward shorter term contracts that provide increased grounds for customer termination may result in increased frequency of customer termination or renegotiation. If large projects, or a number of projects that in the aggregate account for a material amount of revenues, are suspended for any significant length of time or terminated, the Company may encounter difficulty replacing such revenues and its revenues and operating results would decline.

     Because the Company has experienced, and expects to continue to experience, long sales cycles, the Company expects to incur significant costs to generate new business and its customer base may not experience growth commensurate with such costs.

      Purchases of the Company’s services by customers often entail a lengthy decision-making process for the customer. Selecting wireless network deployment services involves substantial costs and has strategic implications. Senior management of the customer is often involved in this process, given the importance of the decision, as well as the risks faced by the customer if the services do not meet the customer’s particular needs. The Company may expend substantial funds and effort to negotiate agreements for these services, but may ultimately be unable to consummate agreements for services and expand its customer base. In addition, the Company has increasingly been required to change both its personnel and the techniques it employs to respond to customer organizational changes and expanded geographic reach. Customer buying habits currently seem to favor a regionalized sales force, which can increase cost, and may prove to be ineffective. As a result of its lengthy sales cycles and these potential increased costs, the Company expects to continue to incur relatively high costs to generate new business.

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     The Company may not be able to successfully achieve the expected benefits of its acquisitions.

      The Company has made three acquisitions of deployment service companies since December 2001 and may make additional acquisitions in the future. The three companies acquired are small, regional operations that are highly dependent on the relationships the principals have with the company’s customers.

      The Company’s acquisition strategy was an attempt to leverage the acquired company’s relationships with its customers in the local market in order to either (1) build a turnkey services offering to the customer in the respective market, or (2) expand the customer relationship to additional markets. The Company may not be able to successfully increase its services to the customer in the same market, leverage the relationship to expand outside the market, or ultimately build customer loyalty at the Company level.

     Future acquisitions of new companies or technologies may result in disruption to the Company’s business and expose the Company to risks associated with acquisitions.

      The Company may make future acquisitions or investments in other companies or technologies. Any future acquisitions or investments may require additional debt or equity financing, or the issuance of shares, which could be dilutive to the Company’s existing shareholders. In addition, the Company’s operating results may suffer as a result of any acquisition-related costs or impairment of goodwill and other intangible assets acquired in connection with an acquisition (See Note 9 to Consolidated Financial Statements). In addition, acquisitions could expose the Company to a number of other risks and challenges, including:

	•	diversion of management’s attention and resources;
	•	potential loss of key employees and customers of the acquired companies;
	•	difficult and costly integration of operations;
	•	lack of experience operating in the geographic market or industry sector of the acquired business;
	•	an increase in the Company’s expenses and working capital requirements; and
	•	exposure to unanticipated contingent liabilities of acquired companies.

      Any of these and other factors could disrupt the Company’s business and harm its ability to achieve the anticipated benefits of an acquisition.

     RF Investors’ voting control may result in the taking of certain unilateral actions.

      RF Investors owns all of the outstanding shares of the Company’s Class B Common Stock, which carries 10 to 1 voting rights and represents 81.2% of the combined voting power of both classes of common stock. These shares may be sold without participation of any other Company shareholder in the sale; however, when such Class B shares are sold, the shares automatically convert to Class A Common Stock and lose the 10 to 1 voting rights. Accordingly, RF Investors, its parent company Telcom Ventures and its equity holders are able, without approval of any other Company shareholder, to control the Company’s management and operations and the outcome of virtually all matters submitted for a stockholder vote.

      RF Investors may also, by converting its shares of Class B Common Stock into shares of Class A Common Stock, obtain a sufficient number of shares of Class A Common Stock (30.2% of the total outstanding shares of Class A Common Stock on March 1, 2003 or 35.3% when combined with the Class A Common Stock held by its parent company, Telcom Ventures) to influence the outcome of any vote on which the holders of Class A Common Stock are entitled to vote together as a class.

      Dr. Rajendra and Neera Singh, who with certain Singh family trusts indirectly control Telcom Ventures, are directors of the Company. Dr. Singh was also a director of XM Satellite, which accounted for approximately 5.1% of the Company’s total revenues for 2002. Telcom Ventures is principally engaged in making investments in wireless system operators and emerging wireless and Internet technologies. If the Company desires to pursue a transaction requiring stockholder approval that may conflict with the interests of Telecom Ventures, RF Investors may elect to vote its shares to block such transaction.

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     Significant sales of common stock in the future may depress the trading price of the Company’s common stock.

      If the Company’s stockholders sell significant amounts of their common stock, including shares issuable upon conversion of Class B common stock, or upon exercise of outstanding options, or if the market perceives that such sales may occur, the market price of the Company’s common stock may decline. Ownership of a significant portion of the Company’s common stock is concentrated in the hands of a few shareholders, i.e., RF Investors (owning approximately 30.2% of the Company’s outstanding common shares or 35.3% when combined with the Class A Common Stock held by its parent company, Telcom Ventures), WorldCom, Inc. (owning approximately 13.6% of the Company’s outstanding common shares) and the “Carlyle Investors” (which consist of five separate legal entities, four of which have the same general partner) owning in the aggregate approximately 10.1% of the Company’s outstanding shares. The shares held by these shareholders are deemed to be “restricted securities” under applicable securities laws but may be eligible for sale in compliance with Rule 144 under the Securities Act. Rule 144 generally provides that a person holding restricted securities that have been outstanding for a period of one year after the later of the issuance by the Company or sale by an affiliate of the Company, may sell in brokerage transactions an amount equal to the greater of 1% of the Company’s outstanding common stock and the Company’s average weekly trading volume for the prior four weeks, every three months. A person who is a “non-affiliate,” and has not been an affiliate within 90 days, who has held restricted securities for over two years is not subject to the aforesaid volume limitations as long as the other conditions of the rule are met. The Carlyle Investors are not subject to such restrictions. Sales of a significant number of shares (whether by these shareholders or by shareholders that also accumulate a significant number of shares), in a single public transaction or over a period of time, could have a depressive effect on the trading price of the Company’s common stock and may make it more difficult for the Company to sell its equity securities in the future at a time and price deemed to be appropriate.

     The Company’s relationship with Telcom Ventures may result in potential conflicts of interest.

      Telcom Ventures, RF Investors’ parent company, is principally engaged in making investments in wireless system operators and emerging wireless and Internet technologies. Directors of Telcom Ventures and its subsidiaries who are also the Company’s directors have certain fiduciary obligations to each organization. Telcom Ventures and directors of Telcom Ventures and its subsidiaries who are also the Company’s directors may be subject to conflicts of interest in transactions concerning the Company. For example, the Company may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in the Company’s judgment, could be beneficial to the Company, even though such transactions might conflict with the interests of Telcom Ventures. If such conflicts do occur, directors of Telcom Ventures and its subsidiaries who are also the Company’s directors may exercise their influence in the best interests of Telcom Ventures instead of the best interests of the Company.

      The Company has entered, and will enter, into arrangements with Telcom Ventures and certain of Telcom Ventures’ subsidiaries, which provide for transactions and relationships between the parties or which otherwise affect the Company. The Company, RF Investors, Telcom Ventures and the Telcom Ventures owners (the Singh family, including companies they own, and the Carlyle Investors) have entered into an intercompany agreement, by which, among other things, (i) the Singh Family group is limited in its ability to compete with the Company in its traditional lines of business and (ii) Telcom Ventures is limited in its ability to invest in entities whose primary business is to compete with the Company in its traditional lines of business, in each case until the earlier of (i) the date on which those owners no longer possess 51% or more of the outstanding voting power of the Company or (ii) the occurrence of certain termination events specified in the intercompany agreement. No termination events have occurred to date.

      Each of the Carlyle Investors (but not its affiliates) is limited in its ability to invest in entities whose primary business is to compete with the Company in its traditional line of business (excluding the program management and tower businesses) until the earlier of (i) the date on which the Carlyle Investor no longer owns, directly or indirectly, an interest in the Company or (ii) the occurrence of certain termination events specified in the intercompany agreement.

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      The Company is free to pursue investment opportunities on its own, but it is obligated to refer to Telcom Ventures investment opportunities prior to offering the opportunities to any other third party. If Telcom Ventures does not elect to pursue the investment opportunity within five days, the Company will then be free to offer the opportunity to third parties. The intercompany agreement may not eliminate or reduce conflicts of interest or inconsistent fiduciary obligations.

Item 2.     Properties

      The Company currently leases approximately 155,000 square feet of office space at its headquarters in McLean, Virginia, under a ten-year lease expiring in 2007. The Company occupies approximately 32,000 square feet of the McLean facility and currently subleases approximately 24,000 square feet to subtenants. Approximately 99,000 square feet was vacant as of December 31, 2002 and the Company is actively pursuing additional subleasing opportunities.

      The Company leases approximately 8,600 square feet of office space at its EMEA regional headquarters in London, England under a 13 year lease expiring in September 2014. The Company occupies approximately 4,500 square feet of the London facility and is actively pursuing subleasing opportunities.

      In addition, the Company leases office space in connection with its local operations in North and South America (Mission Viejo, California and Sao Paolo, Brazil), the United Kingdom (Cambridge, Bath, Newark, Enfield), Italy (Rome, Milan), the Netherlands (’s Hertogenbosch). The Company also leases space in connection with its regional marketing efforts in Spain and Australia.

      All of the Company’s facilities are used for current operations of all segments.

Item 3.     Legal Proceedings

      The Company is party to various non-material legal proceedings and claims incidental to its business.

Item 4.     Submission of Matters to a Vote of Security Holders

      None.

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PART II

Item 5.     Market for Registrant’s Common Stock and Related Stockholder Matters

      Since completion of the Company’s initial public offering in September 1996, its Class A Common Stock has been quoted on the NASDAQ National Market under the trading symbol “LCCI.” As of March 1, 2003, there were 115 stockholders of record of the Class A Common Stock and two stockholders of record of the Class B Common Stock. As of March 1, 2003, the Company estimates there were in excess of 4,000 beneficial holders of Class A Common Stock. The following table summarizes the high and low sales prices of the Class A Common Stock by fiscal quarter for 2001 and 2002 as reported on the NASDAQ National Market:

      The Company has never paid any cash dividends on Common Stock and the Company does not anticipate paying dividends on the Common Stock, cash or otherwise, in the foreseeable future. Future dividends, if any, will be at the discretion of the Board of Directors and will depend upon, among other things, the Company’s operations, capital requirements and surplus, general financial condition, contractual restrictions and such other factors as the Board of Directors may deem relevant.

Equity Compensation Plan Information

Item 6.  Selected Financial Data

      Set forth below are selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2002, which have been derived from the Company’s audited consolidated financial statements. The selected consolidated financial data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the

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      The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto and the other financial data appearing elsewhere in this Form 10-K.

Overview

      The Company provides integrated end-to-end solutions for wireless voice and data communication networks with service offerings to 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 350 customers in over 50 countries. Internationally based customers accounted for approximately 57.0% of the Company’s revenues for the year ended December 31, 2002. See note 19 of the Consolidated Financial Statements for additional information about revenues derived from internationally based customers.

      In the last several 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 October 1999, the Company disposed of its hardware and software products businesses and, in March 2000, the Company sold its telecommunication tower business. In addition, during the last two years, the Company has entered into a number of strategic acquisitions and investments to enhance its wireless capabilities with a particular focus on certain international markets.

      The Company operates in a highly competitive environment subject to rapid technological change and emergence of new technologies. Historically, the key drivers of changes 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; (4) the increasing complexity of wireless systems in operation, and changes in wireless infrastructure spending and deployment.

      The Company’s primary sources of revenues are from engineering design and system deployment services. Prior to the sale of its tower business in March 2000, tower lease revenues provided an additional source of revenues (see note 4 to the Consolidated Financial Statements). 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. Fixed price revenues as a percentage of total revenues were 63.4%, 44.5%, and 61.1% in 2000, 2001, and 2002, respectively. 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. Lease revenues from the tower business in 2000 and preceding periods are recognized over the term of the related lease.

      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

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

      Europe is a promising area for revenue growth for the Company. 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. Revenue from 3G networks constituted 4.7% and 20.0% of the Company’s revenues for the years ended December 31, 2001 and 2002, respectively, and it is expected to continue to be an area of business growth in the future. In anticipation of this growth, and in order to complement its European Radio Frequency Engineering capacity with local deployment capability necessary to provide end-to-end services in key European markets, 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, and 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, which is reflected as an increase in days sales outstanding. Additionally, the work may provide lower gross profit margins than engineering design services.

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Results of Operations

      The following table sets forth certain items as a percentage of revenues from the Company’s audited consolidated statements of operations for the years ended December 31, 2000, 2001, and 2002. The table, and the discussion that follows, 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 consolidated financial statements and accompanying notes thereto included elsewhere herein.

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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

     Revenues

      Revenues for the twelve months ended December 31, 2002 were $67.1 million compared to $130.6 million for the prior year, a reduction of $63.5 million or 48.6%. This reduction was primarily composed of a decrease in revenues in the Americas region of $72.6 million, offset by an increase in the Europe, Middle East and Africa (“EMEA”) region of $11.4 million. Of the decrease in revenues in the Americas of $72.6 million, approximately $53.9 million reflected the substantial completion of the XM contract together with a general slow down in wireless infrastructure spending and deployment. The increase in revenues in EMEA of $11.4 million was primarily attributable to the acquisition of Transmast Italia in December 2001, Smith Woolley Telecom in January 2002 and Detron in July 2002.

     Cost of Revenues

      Cost of revenues for the twelve months ended December 31, 2002 was $58.4 million compared to $103.5 million for the prior year, a reduction of $45.1 million. This reduction was primarily composed of a decrease in cost of revenues for Americas of $50.5 million and an increase in cost of revenues for EMEA of $6.8 million, reflecting the reasons described above for reduction in revenue. As a percentage of total revenues, cost of revenues for the twelve months ended December 31, 2002 was 87.1%, compared to 79.3% for the prior year. After adjusting for the completion of the XM contract, cost of revenues for the twelve months ended December 31, 2002 was 86.1%, compared to 85.3% for the prior year.

     Gross Profit

      Gross profit for the twelve months ended December 31, 2002 was $8.6 million compared to $27.1 million for the prior year, a reduction of $18.5 million. As a percentage of total revenues, gross profit for the twelve months ended December 31, 2002 was 12.9%, compared to 20.7% for the prior year. After adjusting for the completion of the XM contract, gross profit for the twelve months ended December 31, 2002 was 13.9%, compared to 14.7% for the prior year.

     Sales and Marketing

      Sales and marketing expenses for the twelve months ended December 31, 2002 were $8.1 million, compared to $7.1 million for the prior year. The increase of $1.0 million was mostly attributable to the acquisitions in EMEA described above together with increased sales and marketing expenses in the Asia Pacific region. As a percentage of revenues, sales and marketing expenses for the twelve months ended December 31, 2002 were 12.1%, compared to 5.4% for the prior year, reflecting the relatively fixed nature of the expenses.

     General and Administrative

      General and administrative expenses for the twelve months ended December 31, 2002 were $20.3 million, compared to $16.0 million for the prior year, an increase of $4.3 million. Included in these figures are provisions for bad debts net of benefits from recoveries of $2.7 million (net expense) in 2002 and $5.4 million (net benefit) in 2001 respectively.

      Excluding the effects of recovering bad debts written off in prior periods, general and administrative expenses for the twelve months ended December 31, 2002 were $17.6 million, compared to $21.4 million for the prior year. Of the reduction of $3.8 million, $2.2 million was attributable to real property expenses charged against the restructuring provision and the balance of $1.6 million was attributable to the Company’s continuing efforts to manage the general and administrative expenses in relation to the volume of business.

      As a percentage of revenues, general and administrative expenses excluding the effect of recovering bad debts written off in prior periods for the twelve months ended December 31, 2002 were 26.2%, compared to 16.3% for the prior year. The increase in percentage of revenues for the twelve months ended December 31, 2002 was attributable to the overall reduction in volume, described above under “Revenues”.

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     Restructuring Charge

      Restructuring charge for the twelve months ended December 31, 2002 was $13.5 million. There was no comparable charge in the prior year. The charge was recorded pursuant to a restructuring plan adopted by the Company, which included a reduction of approximately 140 employees. Of the total charge of $13.5 million, approximately $1.0 million related to employee severance and associated costs, and approximately $12.5 million related to excess office space. See note 7 to the Consolidated Financial Statements.

     Gain on Sale of Tower Portfolio and Administration, Net

      During February 2000, the Company entered into an agreement for the sale of telecommunication 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 the rent commitment, until the space was leased to another tenant or otherwise satisfied. For the twelve months ended December 31, 2002, the Company recognized $2.0 million of this previously deferred gain, compared to $3.0 million for the prior year. As of December 31, 2002, the Company has recognized the entire deferred gain.

     Depreciation and Amortization

      Depreciation and amortization for the twelve months ended December 31, 2002 was $2.9 million, compared to $3.0 million for the prior year. Reductions in infrastructure depreciation of about $0.9 million have been offset by increases in amortization of intangible assets of about the same amount.

     Interest Income

      Interest income for the twelve months ended December 31, 2002 was $0.8 million, compared to $1.9 million for the prior year. The reduction of $1.1 million was attributable to the lower average balance of cash deposits combined with further decreases in available yields on short-term investments.

     Other Income and Expense

      Other income and expense for the twelve months ended December 31, 2002 was a net expense of $3.8 million, compared to a net income of $22.1 million for the prior year. The net expense of $3.8 million for 2002 was composed of an impairment charge of $5.1 million and other income of $1.3 million. The impairment charge related to the entire investment the Company made in two separate companies, Plan + Design Netcare AG ($4.6 million) and Mobilocity, Inc. ($0.5 million). Both firms entered into statutory or voluntary liquidation plans during 2002 and, in both cases, no proceeds are anticipated to be returned to the shareholders. Of the other income of $1.3 million in 2002, approximately $1.1 million was attributable to the recovery of excess provisions no longer required for operations in Egypt. The net income of $22.1 million for 2001 was largely related to the gains from the sale of the Company’s investments and assets held in Nextwave ($21.4 million) and Tecnosistemi ($1.0 million).

     Provision (Benefit) for Income Taxes

      The provision for income taxes was recorded for the twelve months ended December 31, 2002 using an effective income tax rate of 22.8% compared to 39.4% for the comparative period in 2001. The lower rate reflects an adjustment to deferred tax assets, domestic losses and increased foreign taxes.

     Net Income (Loss)

      Net loss for the twelve months ended December 31, 2002 was $28.7 million, compared to net income of $17.0 million for the prior year. Net income in 2001 was increased by gains related to the sale of the Company’s assets included in other income and expense of $22.4 million. The net loss for 2002 did not reflect any such unusual gains, and included a restructuring charge of $13.5 million as well as a charge for impaired assets of $5.1 million.

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Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Revenues

      Revenues for the twelve months ended December 31, 2001 were $130.6 million compared to $150.4 million for the prior year, a decrease of $19.8 million or 13.2%. A slowdown in a large fixed-price contract performed in the Middle East contributed to $11.1 million of the decreased revenues. Revenue declines in the United States of $6.5 million, largely related to decreased customer spending on broadband and other wireless infrastructure spending also contributed to the decline. A major driver for the decline in revenues was the slowdown in wireless telecommunications infrastructure spending due to the tightening of the capital markets during the year.

     Cost of Revenues

      Cost of revenues for the twelve months ended December 31, 2001 was $103.5 million compared to $110.3 million for the prior year, a decrease of $6.8 million. As a percentage of total revenues, cost of revenues was 79.3% and 73.3% for 2001 and 2000, respectively. Cost of revenues in 2001 was a higher percentage of revenue than in the previous year due to an increase in costs to complete a large fixed-price contract in the Middle East of $3.3 million, an additional provision for expatriate employees reimbursed taxes of $1.3 million, costs associated with lower utilization of professional staff of $1.0 million, and a $1.5 million benefit recorded in 2000 relative to certain employment related taxes recorded in prior years.

     Gross Profit

      Gross profit for the twelve months ended December 31, 2001 was $27.1 million compared to $40.1 million for the prior year, a decrease of $13.0 million or 32.4%. As a percentage of total revenues, gross profit was 20.7% and 26.7% for 2001 and 2000, respectively. The decline in gross profit margin in 2001 is primarily attributable to additional items of cost, discussed in Cost of Revenues above, and contract margin declines caused by increased competition driven by a slowdown in customer wireless telecommunications infrastructure spending.

     Sales and Marketing

      Sales and marketing expenses were $7.1 million for the twelve months ended December 31, 2001 compared to $7.8 million for the prior year, a decrease of $0.7 million. As a percentage of total revenues, sales and marketing was 5.4% and 5.2% for 2001 and 2000, respectively. The decrease is primarily attributed both to reductions in agent commissions relative to the revenue decline of a large fixed-price contract performed in the Middle East as well as reductions from cost saving measures.

     General and Administrative

      General and administrative expenses were $16.0 million for the twelve months ended December 31, 2001 compared to $19.7 million for the prior year. General and administrative expenditures in 2001 include a net benefit of $7.4 million due to the recovery of receivable balances written-off in prior years from two bankrupt customers, offset by bad debt provisions for 2001 of $2.1 million. The provision for bad debt expense in 2001 is caused by a general tightening of the capital markets to customers in the wireless telecommunications market and increased incidence of bankruptcy filings among the Company’s customers. Other increases in the general and administrative expenses in 2001 were related to employee severance and related costs of $0.7 million, insurance costs of $0.3 million, and other administrative costs associated with infrastructure to support anticipated international growth and expansion.

     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 $5.2 million on the towers sold. The gain from the

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     Depreciation and Amortization

      Depreciation and amortization expense was $3.0 million for the twelve months ended December 31, 2001 compared to $2.9 million for the prior year.

     Interest Income

      Interest income was $1.9 million for the twelve months ended December 31, 2001 compared to $2.0 million for the prior year. Interest income in 2001 declined slightly over 2000 reflecting a decline in yields available for short-term investments.

     Other Income (Expense)

      Other income was $22.1 million for the twelve months ended December 31, 2001 compared to an expense of $0.8 million for the prior year. Other income in 2001 is largely attributable to the sale of all of the Company’s NextWave Class B common stock and substantially all of its current debt claims against NextWave resulting in a gain of $21.4 million. The Company also sold its investment in Tecnosistemi, an Italian telecommunications services company in which the Company invested in September 1999, resulting in a gain of $1.0 million in 2001. Other expense in the prior year was primarily due to losses from using the equity method of accounting for one of the Company’s investments.

     Provision for Income Taxes

      The provision for income taxes was recorded for the twelve months ended December 31, 2001 using an effective income tax rate of 39.4% compared to 44.5% for the comparable period in 2000. The higher tax rate in 2000 reflects permanent differences relative to the tower portfolio sale.

     Net Income

      Net income was $17.0 million for the twelve months ended December 31, 2001 compared to $20.6 million in the prior year. Net income in both 2001 and 2000 was increased by gains related to the sale of the Company’s telecommunications towers of $26.4 million and $3.0 million in 2000 and 2001, respectively. Net income for 2001 also contained an unusual gain related to the sale of the Company’s assets included in other income of $22.4 million.

Liquidity and Capital Resources

      Cash combined with short-term investments at December 31, 2002 provided total liquid assets of $38.0 million compared to $53.1 million at December 31, 2001, a decrease of $15.1 million. This decrease in liquidity was primarily attributable to the acquisitions made during the year of $9.0 million, the purchase of property and equipment of $2.9 million and cash used to fund operating losses of $2.8 million.

      Cash used in operating activities was $2.8 million for the twelve months ended December 31, 2002, compared to $7.7 million for the prior year. Excluding $8.8 million of gains and related taxes from sales of investments and assets, cash used in operating activities in the prior year was $1.1 million. The cash used in operating activities in 2002 was largely attributable to the inability of the Company to reduce fixed expenses in relation to declining revenues.

      Cash used in investing activities was $11.9 million for the twelve months ended December 31, 2002. Of the $11.9 million used in 2002, $9.0 million related to the acquisitions made during the year and $2.9 million related to the purchase of property and equipment. For the prior year, cash provided by investing activities of $37.1 million was largely composed of $22.6 million in proceeds from the sale of investments and assets and

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      Cash from financing activities was $0.5 million and provided $1.0 million for the twelve months ended December 31, 2002 and prior year, respectively. In 2002, the Company increased restricted cash by $1.3 million, which related to the deposit of cash to support the issue of certain advance and performance guarantees, offset by the receipt of $0.7 million resulting from the repayment of a loan by a shareholder. The Company’s cash position negated the need for any significant financing activity during the twelve months ended December 31, 2002.

      Working capital was $50.0 million at December 31, 2002 compared to $72.1 million at December 31, 2001, a decrease of $22.1 million. The decrease in working capital in 2002 was due to the use of cash to fund acquisitions and operating losses, and the reduction of receivables following the decrease in revenues during the year. The Company has no material cash commitments other than obligations under its operating leases. Future capital requirements will depend upon many factors, including the timing of payments under contracts and increases in personnel in advance of new contracts.

      The Company’s operating lease obligations at December 31, 2002 are as follows (in thousands):

      The Company had no debt and did not maintain a line of credit as of December 31, 2002, since it had cash and short-term investments that it considered sufficient to meet liquidity requirements. The Company may consider the limited use of debt facilities in the EMEA region to support the anticipated growth in working capital for specific projects or entities. The Company has not engaged in any off-balance sheet financing as of December 31, 2002. The Company believes it has sufficient assets and relationships with financial institutions to obtain appropriate debt facilities should the business need arise.

      For the short-term, the Company believes it has adequate cash and short-term investments to satisfy cash requirements for at least the next twelve months. The Company also believes it will generate sufficient cash from operations to meet its long-term liquidity needs.

Critical Accounting Policies

The Company’s critical accounting policies are as follows:

	•	Revenue recognition;
	•	Allowance for doubtful accounts and accrual of expatriate taxes;
	•	Accounting for income taxes;
	•	Impairment of investments in affiliates; and
	•	Restructuring charge.

     Revenue recognition policy

      The Company’s principal source of revenues consists of design and system deployment services. The Company provides design services on a contract basis, usually in a customized plan for each client and generally charges for engineering services on a time and materials or fixed price basis. The Company generally offers its deployment services on a fixed price, time-certain basis. The portion of the Company’s revenue from fixed-price contracts was 61.1% in 2002. The Company recognizes revenue on fixed-price contracts using the percentage-of-completion method. With the percentage-of-completion method, expenses on each project are recognized as incurred, and revenues are recognized based on the ratio of the current costs incurred for the project to the then estimated total costs of the project. Accordingly, revenue recognized in a given period

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     Allowance for doubtful accounts and accrual of expatriate taxes

      The preparation of financial statements requires the Company’s management to make estimates and assumptions that affect the reported amount of assets, liabilities, contingent assets and liabilities and the reported amounts of revenues and expenses during the reported period. Specifically, the Company’s management must make estimates of the probability of collection of its accounts receivable. Management specifically analyzes accounts receivable balances, customer concentrations, customer credit-worthiness, current economic trends and changes in its customer payment terms when evaluating the adequacy of the valuation allowance for doubtful accounts. For the year ended December 31, 2002, the Company derived 60.3% of its total revenues from its ten largest customers, indicating significant customer concentration risk with the Company’s receivables. These ten largest customers constituted 66.4% of the Company’s net receivable balance as of December 31, 2002. In addition, fixed-price contracts with unfavorable milestone payments can cause unbilled receivables to grow prior to achieving the applicable milestone that permits billing. At December 31, 2002, the Company had approximately $12.4 million of unbilled receivables, compared to approximately $10.2 million at December 31, 2001. Lastly, the Company frequently performs services 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 estimates liabilities associated with taxes relative to employees sent to assignments in foreign countries. These expatriate employees are reimbursed for any additional personal income tax burden that was derived as a result of the assignment. Calculation of these obligations takes considerable knowledge of payroll, social, and other taxes in multiple countries, and the employee’s personal tax situation. In addition, it requires interpretation of tax laws, an assessment of potential audit risk from tax authorities, and often the resolution of the tax liabilities may not occur for several years. The Company has $2.7 million accrued for expatriate tax obligations as of December 31, 2002.

     Accounting for income taxes

      As part of the process of preparing the Company’s consolidated financial statements an estimate for income taxes is required for each of the jurisdictions in which the Company operates. This process requires estimating the Company’s actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. The Company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not likely, it must establish a valuation allowance The valuation allowance is based on the Company’s estimates of taxable income by jurisdiction in which it operates and the period over which its deferred tax assets will be recoverable. In the event the actual results differ from these estimates the Company may need to increase or decrease its valuation allowance, which could materially have an impact on its financial position and results of operations.

      Considerable management judgment may be required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. The Company has recorded a valuation allowance of $6.2 million as of December 31, 2002, due to uncertainties related to its ability to utilize some of its deferred tax assets before they expire. These deferred tax assets primarily consist of foreign net operating losses carried forward, foreign tax credits and non-

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     Impairment of investments in affiliates

      The Company maintained investments in affiliates of $5.1 million as of December 31, 2001 and none at December 31, 2002. These investments were made in 2000 relative to two separate companies, Plan + Design Netcare AG ($4.6 million) and Mobilocity, Inc. ($0.5 million). Both investments were accounted for at cost. Mobilocity has implemented a voluntary liquidation plan. Plan + Design Netcare AG and its operating subsidiary have filed for insolvency protection. Based upon the voluntary liquidation plans and insolvency filings, the Company has determined these investments are probably not recoverable and recorded an impairment charge of $5.1 million in the second quarter of 2002.

     Restructuring charge

      The Company recorded a restructuring charge during the second quarter of 2002 and an additional charge during the fourth quarter of 2002. Included in this restructuring charge of $13.5 million was a charge for excess facilities aggregating approximately $12.5 million. This facility charge significantly relates to leased office space, which the Company no longer occupies. The facility charge takes the existing lease obligation less anticipated rental receipts to be received from existing and potential subleases. This requires significant judgments about the length of time space will remain vacant, anticipated cost escalators and operating costs associated with the leases, market rate the space will be subleased at, and broker fees or other costs necessary to market the space. These judgments were based upon independent market analysis and assessment from experienced real estate brokers. The restructuring charge calculation assumes $10.1 million will be derived in sublease income, for which the Company does not currently have a subtenant.

Related Party Transactions

      The Company provided services to Telcom Ventures and various other companies that are majority owned, or controlled by, Telcom Ventures or its members. The Company’s relationship with Telcom Ventures may result in potential conflicts of interest (see “Risk Factors — The Company’s relationship with Telcom Ventures may result in potential conflicts of interest.”). Revenues from Telcom Ventures are not material, providing 1.3%, 0.1%, and none of 2000, 2001 and 2002 revenues, respectively.

      During 2001 and 2002, the Company continued to make certain payments on behalf of Telcom Ventures that consisted primarily of fringe and payroll-related costs of $252,000 and $155,000, respectively and the Company received reimbursements of $98,000 and $464,000, respectively. During 2002, the Company also provided an allowance of $100,000 for amounts in disagreement, for which the Company continues to pursue collection. At December 31, 2001 and 2002, outstanding amounts associated with these payments totaling $418,000 and $9,000, respectively, are included in due from related parties and affiliates within the accompanying consolidated balance sheets.

      During 2000, 2001 and 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 was also a former director of the XM Satellite board of directors. Revenues earned during 2000, 2001 and 2002 for services provided to XM Satellite were $58.4 million, $57.3 million and $3.4 million, respectively. Receivables from XM Satellite were $17.0 million and none at December 31, 2001 and 2002, respectively. See note 5 to the Company’s consolidated financial statements for a further discussion of related party transactions.

      In July 2002, the Company acquired 51 percent of the outstanding shares of Detron LCC Network Services B.V. (“Detron”), a newly formed corporation in the Netherlands. LCC acquired the shares from Westminster Capital B.V. (“Westminster”). Detron has certain ongoing transactions with Westminster. Under a five-year lease agreement for office space, Detron recorded approximately $27,000 of rent expense

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Recent Accounting Pronouncements

      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 Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The provisions are effective after December 31, 2002. The Company’s adoption of SFAS No. 146 may have an effect on the timing of future restructuring charges taken, if and when they occur.

      In December 2002, FASB SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123, was issued. This statement provides for alternative methods of transition for a company that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. The statement also amends the required disclosures relating to employee stock-based compensation effective December 31, 2002. At this time, the Company does not plan to adopt the fair value based method of accounting for its stock-based employee compensation.

      In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations it has undertaken in issuing the guarantee and also to include more detailed disclosures in respect to those guarantees. FIN 45 is effective on a prospective basis for guarantees issued or modified starting January 1, 2003 and requires the additional disclosures for the interim and annual financial statements for periods ending after December 15, 2002. The Company does not anticipate issuing any guarantees which would be required to be recognized as a liability under FIN 45 and, therefore, the Company does not expect the adoption of this interpretation to have a material impact on the Company’s financial condition and results of operations.

      The Company is exposed to the impact of foreign currency fluctuations. The Company’s exposure to exchange rates relates primarily to its foreign subsidiaries. Subsidiaries with material foreign currency exposure are in Great Britain, the Netherlands, Italy and Brazil. For its foreign subsidiaries, exchange rates can have an impact on the U.S. dollar value of their reported earnings and the intercompany transactions with the subsidiaries.

      Approximately 57.0% of the Company’s revenues were generated outside the United States for the twelve months ended December 31, 2002, the majority of which were in Europe. In connection with the Company’s recent acquisitions and the increased availability of 3G equipment in Europe, the Company anticipates continued growth of its international operations, particularly in Europe, the Middle East and Africa, in 2003 and beyond. As a result, fluctuations in the value of foreign currencies against the U.S. dollar may have a significant impact on the reported results of the Company. Revenues and expenses denominated in foreign currencies are translated monthly into United States dollars at the weighted average exchange rate. Consequently, as the value of the dollar strengthens or weakens relative to other currencies in the Company’s major markets the resulting translated revenues, expenses and operating profits become lower or higher, respectively.

      Fluctuations in currency exchange rates also can have an impact on the U.S. dollar amount of shareholders’ equity of the Company. The assets and liabilities of the Company’s non-U.S. subsidiaries are translated into United States dollars at the exchange rate in effect at December 31, 2002. The resulting translation adjustments are recorded in shareholders’ equity as accumulated other comprehensive loss. The dollar was stronger relative to many of the foreign currencies at December 31, 2002 compared to December 31, 2001. Consequently, the accumulated other comprehensive loss component of shareholders’

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      The Company is exposed to the impact of foreign currency fluctuations due to the operations of and short-term intercompany transactions with its consolidated foreign subsidiaries. While these intercompany balances are eliminated in consolidation, exchange rate changes do affect consolidated earnings. A hypothetical 10% adverse change would result in a $1.0 million reduction to operating losses generated outside the United States. This was estimated using a 10% deterioration factor to the average monthly exchange rates applied to net income or loss for each of the subsidiaries in the respective period. Foreign exchange gains and losses recognized on any transactions are included in the Consolidated Statements of Operations.

      Although currency fluctuations can have an impact on the Company’s reported results and shareholders’ equity, such fluctuations generally do not affect the Company’s cash flow or result in actual economic gains or losses. The Company currently does not hedge any of these risks in its foreign subsidiaries because: (i) the Company’s Brazilian subsidiary derives revenues and incurs expenses within a single country, and consequently, does not incur currency risks in connection with the conduct of its normal operations, (ii) the British pound sterling, U.S. dollar, and Euro are relatively stable against each other, (iii) other foreign operations are minimal, and (iv) the Company does not believe that hedging transactions are justified by the current exposure and cost at this time.

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors

      We have audited the accompanying consolidated balance sheets of LCC International, Inc. and Subsidiaries (the “Company”) as of December 31, 2001 and 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2002. In connection with our audits of the consolidated financial statements, we have also audited the related financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LCC International, Inc. and Subsidiaries as of December 31, 2001 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

KPMG LLP

McLean, Virginia

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LCC INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS