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United States Securities and Exchange Commission

Form 10-Q

(Mark One)

LCC International, Inc.

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

Not Applicable

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

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes             No        

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of May 1, 2003 the registrant had outstanding 14,647,359 shares of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and 6,318,874 shares of Class B Common Stock, par value $0.01 per share (the “Class B Common Stock”).

LCC International, Inc. and Subsidiaries

Quarterly Report on Form 10-Q

INDEX

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PART I: FINANCIAL INFORMATION

LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Supplemental disclosures of non-cash investing and financing activities:

In January 2002, the Company purchased all of the assets of Smith Woolley Telecom for a purchase price of approximately $8.6 million. The purchase price consisted of $7.1 million in cash included above as part of business acquisitions and the issuance of 215,000 shares of the Company’s Class A Common Stock, par value $0.01 per share. The value of the Class A Common Stock was approximately $1.5 million. As a result, common stock and additional paid in capital increased, offset by an increase to goodwill and other intangibles.

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Note 1:  Description of Operations

      The Company provides integrated end-to-end solutions for wireless voice and data communication networks with service offerings to include high level technical consulting, system design and deployment and ongoing operations and maintenance services. 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 (5) changes in wireless infrastructure spending and deployment. Although the Company believes that its services are transferable to emerging technologies, rapid changes in technology and deployment could have an adverse financial impact on the Company.

Note 2:  Basis of Presentation

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

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

Note 3:  Recent Accounting Pronouncements

      In July 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. 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 Emerging Issues Task Force (“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 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.

      In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 gives further guidance to Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements”. ARB No. 51 requires companies to consolidate their financial statements when one

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Note 4:  Equity-Based Compensation

      The Company accounts for equity-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) No. 25 and complies with the disclosure provisions of FASB SFAS No. 123, as amended by FASB SFAS No. 148. All equity-based awards to non-employees are accounted for at their fair value in accordance with FASB SFAS No. 123. Under APB No. 25, compensation expense is based upon the difference, if any, on the date of grant, between the fair value of the Company’s stock and the exercise price.

      Had compensation cost for the Company’s stock based-compensation plans and employee stock purchase plan been determined on the fair value at the grant dates for awards under those plans, consistent with FASB SFAS No. 123, the Company’s net loss and net loss per share would have been reported at the pro forma amounts indicated below.

Note 5:  Restructuring Charge

      During the second quarter of 2002, the Company adopted a restructuring plan and recorded a restructuring charge of $10.0 million. During the fourth quarter of 2002, the Company recorded an additional $3.5 million restructuring charge relating to the costs of excess office space. The restructuring plan was in response to the low utilization of professional employees caused by the completion of several large fixed-price contracts and the difficulty in obtaining new contracts as a result of the slowdown in wireless telecommunications infrastructure spending. The cost of the severance and associated expenses was approximately $1.0 million and resulted in a work force reduction of approximately 140 people. In addition, the Company had excess facility costs relative to the space occupied by the employees affected by the reduction in force, space previously occupied by divested operations, and reduced business use of office space resulting from a continued trend for clients to provide professional staff office space while performing their services. The charge for the excess office space was approximately $12.5 million, which included $1.5 million in written-off leasehold improvements and other assets related to the excess space. The facility charge takes the existing lease obligation, less the anticipated rental receipts to be received from existing and potential subleases. This charge required significant judgments about the length of time that space will remain vacant, anticipated cost escalators and operating costs associated with the leases, market rate of the subleased space, and broker fees or other costs necessary to market the space. During the first quarter of 2003, the Company reversed excess severance payable of approximately $0.2 million.

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      A reconciliation of the restructuring activities is as follows:

      The restructuring payable was classified as follows:

Note 6:  Other Comprehensive Income (Loss)

      Comprehensive income (loss) is defined as net income (loss) plus the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under accounting principles generally accepted in the United States of America are included in comprehensive income (loss), but excluded from net income (loss). Other comprehensive income (loss) consists solely of foreign currency translation adjustments at March 31, 2002 and 2003. Comprehensive income (loss) for the three months ended March 31 is as follows (in thousands).

Note 7:  Related Party Transactions

      RF Investors, a subsidiary of Telcom Ventures, indirectly owns the Class B Common Stock shares outstanding, which have ten-to-one voting rights over the Class A Common Stock shares and therefore represent approximately 81.0% voting control.

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      During 2002 and the first quarter of 2003, the Company continued to make certain payments on behalf of Telcom Ventures consisting primarily of fringe and payroll-related costs of $155,000 and $11,000, respectively and received reimbursements of $464,000 in 2002 and $7,900 during the first quarter of 2003. At December 31, 2002 and March 31, 2003, outstanding amounts associated with these payments, totaling $9,000 and $6,000, respectively, are included in due from related parties and affiliates within the accompanying condensed balance sheets. During 2002, the Company also provided an allowance of $100,000 for amounts in dispute. In April 2003, the Company received $100,000 to resolve the dispute in its entirety.

      In September 1996, the Company lent $3.5 million to Telcom Ventures to assist in the payment of taxes due in connection with the assumption by the Company of $30.0 million of convertible subordinated debt from Telcom Ventures. The original note was payable over five years with equal annual principal payments over the term. Interest accrued at the rate of LIBOR, plus 1.75%. The Company received the final payment of principal and accrued interest of approximately $700,000 during the first quarter of 2002 in satisfaction of the note.

      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. The Company 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 $17,000 of rent expense for the quarter ended March 31, 2003. During the first quarter of 2003, Detron seconded various idle employees to Detron Telematics, Westminster’s wholly-owned subsidiary and recorded revenue of approximately $100,000.

      Advances to employees aggregating approximately $33,000 and $36,000 at December 31, 2002 and March 31, 2003, respectively are included in due from related parties and affiliates on the accompanying condensed balance sheets.

Note 8:  Commitments and Contingencies

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

      In connection with the acquisition of 51 percent of Detron in July 2002, the purchase agreement provided for the payment of an additional $0.5 million should Detron achieve certain objectives by the end of the calendar year as confirmed by its adopted accounts. These objectives were achieved and the Company expects to pay the additional amount in 2003.

Note 9:  Investments

      In June 2001, the US Court of Appeals for the District of Columbia (the “DC Court of Appeals”) issued its decision in the case captioned NextWave Personal Communications Inc. and NextWave Power Partners Inc. v. Federal Communications Commission and United States of America, et. al, Case Nos. 00-1402 and 00-1403. The US Court of Appeals ruled that federal bankruptcy law prohibited the Federal Communications Commission (the “FCC”) from canceling certain broadband personal communications services licenses that it had granted to NextWave Personal Communications Inc. (“NPCI”). The FCC revoked these licenses after NPCI filed for bankruptcy protection on June 8, 1998. On August 6, 2001, NextWave filed its Second Plan of Reorganization under Chapter 11 with the US Bankruptcy Court for the Southern District of New York (the “NextWave Plan”). Various objections have been filed in the case. In October 2001, the FCC filed a petition for certiorari before the U.S. Supreme Court. On March 6, 2002, the U.S. Supreme Court announced its decision to hear the case. Substantive hearings in the bankruptcy case were delayed pending the decision of the U.S. Supreme Court. On January 27, 2003, the U.S. Supreme Court announced its decision upholding the decision of the DC Court of Appeals.

      The Company held 1,666,666 shares of Class B Common Stock of NextWave Telecom, Inc. (“NextWave Telecom”). NextWave Telecom is the parent corporation of NPCI. The Company acquired the shares of NextWave Telecom in May 1996 for a purchase price of $5.0 million in connection with a series of

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      The total amount of pre-petition debt owed to the Company by NextWave Telecom and certain of its subsidiaries (collectively, “NextWave”) was approximately $14.3 million, plus post-petition interest thereon. This amount includes the Company’s interest, amounting to approximately $0.7 million plus post-petition interest thereon, in a general unsecured claim against NextWave that was acquired by the Company in connection with its acquisition of Koll Telecommunications LLC in 1997 (the “Koll Claim”).

      In September 2001, the Company sold all of its 1,666,666 shares of Class B common stock and the Company’s pre-petition debt claims (excluding a 92.5% interest in pre-petition interest that may be payable with respect to the claims, the “Pre-Petition Interest Amount”) against NextWave Telecom resulting in a gain of $21.4 million, which equaled the proceeds from the sale. The gain was recorded in other income in the accompanying consolidated statement of operations. The September 2001 sale of current pre-petition debt excluded (a) the Koll Claim, (b) any claims resulting from the assumption or rejection of the March Agreement, and (c) the Pre-Petition Interest Amount.

      In February 2003, the Company sold its interest in the Pre-Petition Interest Amount for $1.0 million in cash, which was paid in March 2003. The Company recorded the receipt in other income (expense) on the accompanying condensed consolidated statement of operations.

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

LCC International, Inc. and Subsidiaries

For the Three Months Ended March 31, 2002 and 2003

      This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1934. The Management’s Discussion and Analysis of Financial Condition and Results of Operations includes, without limitation, forward-looking statements regarding the Company’s ability to pursue and secure new business opportunities. A more complete discussion of business risks is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Overview

      The Company provides integrated end-to-end solutions for wireless voice and data communication networks with service offerings that include high level technical consulting, system design and deployment and ongoing operations and maintenance services. Since its inception in 1983, the Company has delivered wireless network solutions to more than 350 customers in over 50 countries.

      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 (5) changes in wireless infrastructure spending and deployment.

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

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

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

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

      The Company has continued to see tightened capital markets, which among other things have contributed to a slowdown in wireless telecommunications infrastructure spending. The Company’s success depends upon continued growth in the design and deployment and optimization of wireless networks. Many wireless carriers are reliant upon the capital markets to obtain funds to finance building and improving their wireless networks. Most vulnerable are the customers that are new licensees and operator/carriers who have limited sources of funds from operations or have business plans that are dependent on funding from the capital

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      The completion of the XM Satellite contract coupled with the industry slowdown has caused revenue to decline dramatically since 2001. 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 13.4% and 33.4% of the Company’s revenues for the quarter ended March 31, 2002 and 2003, 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 LCC Italia (formerly known as Transmast), 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 and discussion provide information which management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. The discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes thereto included elsewhere herein.

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Three Months Ended March 31, 2003

      Revenues. Revenues for the three months ended March 31, 2003 were $17.1 million compared to $17.4 million for the prior year, a decrease of $0.3 million or 1.7%. The net decrease comprised a reduction in revenues in the Americas region of approximately $3.3 million, offset by an increase in the EMEA and Asia Pacific regions of $3.0 million. Of the $3.3 million reduction in revenues in the Americas region, about $3.0 million related to the completion of the XM Satellite contract in 2002. The increase in the EMEA and Asia Pacific regions of $3.0 million was mostly attributable to the acquisition and subsequent growth in revenues of LCC Italia of $3.7 million offset by the completion of a major network deployment contract in 2002 of $0.9 million for a customer in the Middle East.

      Cost of Revenues. Cost of revenues for the three months ended March 31, 2003 was $14.6 million compared to $16.3 million for the prior year, a decrease of $1.7 million or 10.4%. Consistent with the explanation for the changes in revenue above, the net decrease of $1.7 million comprised a decrease in cost in the Americas region of $3.5 million, offset by an increase in costs in the EMEA and Asia Pacific regions of $1.8 million. Of the decrease in cost of revenues for the Americas region of $3.5 million approximately $2.4 million was attributable to the completion of the XM Satellite contract and approximately $0.5 million was attributable to improvements in the utilization of professional staff. The increase in cost of revenues in the EMEA and Asia Pacific regions represent an increase in cost for LCC Italia of $3.0 million and a decrease in costs for the customer in the Middle East of $1.3 million.

      Gross Profit. Gross profit for the three months ended March 31, 2003 was $2.5 million or 14.8% of revenues compared to $1.1 million or 6.5% of revenues for the prior year, an increase of $1.4 million or 8.3%. Consistent with the explanation for the changes in revenue above, the net increase in gross profit of $1.4 million (8.3%) comprised an increase in the Americas region of $0.2 million (1.3%) and an increase in the EMEA and Asia Pacific regions of $1.2 million (7.0%). The increase of $1.2 million (7.0%) in the EMEA and Asia Pacific regions consisted of $0.8 million (4.7%) related to LCC Italia and from the recognition of $0.4 million (2.3%) in 2002 of costs in excess of revenues on completion of the network deployment contract for the customer in the Middle East.

      Sales and Marketing. Sales and marketing expenses for the three months ended March 31, 2003 were $2.0 million compared to $2.3 million in the prior year, a decrease of $0.3 million. Sales and marketing as a percentage of total revenues was 11.4% and 13.2% for 2003 and 2002, respectively. The decrease is largely attributable to the Americas region efforts during the first quarter of 2002 to develop new projects to replace the XM Radio contract that ended in the first quarter of 2002.

      General and Administrative. General and administrative expenses for the three months ended March 31, 2003 were $4.7 million compared to $5.1 million in the prior year, a decrease of $0.4 million. Included in these figures are provisions for bad debts net of benefits from recoveries of $0.7 million (net benefit) in 2003 and $0.7 million (net expense) in 2002 respectively, a net reduction in general and administrative expenses of $1.4 million.

      Excluding the effects of bad debts, general and administrative expenses for 2003 was $5.4 million compared to $4.4 million for the prior year. The increase of $1.0 million was largely attributable to the acquisition of Smith Woolley Telecom and Detron in the EMEA region in 2002, offset by reductions from the Company’s restructuring efforts.

      Restructuring Charge. There was a recovery of restructuring charges of $0.2 million in the three months ended March 31, 2003. There were no comparable recoveries or charges during the first quarter of 2002. In March 2003, the Company reversed the excess severance accruals remaining from the initial restructuring charge taken in June 2002.

      Depreciation and Amortization. Depreciation and amortization expense for the three months ended March 31, 2003 was $0.8 million compared to $0.7 million in the prior year, an increase of $0.1 million. Reductions in infrastructure spending in the Americas region of approximately $0.2 million were offset by the

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      Other Income and Expense. Other income and expense for the three months ended March 31, 2003 was a net income of $1.3 million compared to net income of $0.3 million in the prior year. Other income increased in 2003 over 2002 by approximately $1.0 million due to cash received from the sale of NextWave Pre-Petition interest (see note 9 of the condensed consolidated financial statements).

      Benefit for Income Taxes. The benefit for income taxes was recorded for the three months ended March 31, 2003 using an effective income tax rate of 37.5% compared to 24.0% for the first quarter of 2002. The increase in the effective income tax rate in 2003 is the result of the decrease in foreign operating losses relative to the total results of worldwide operations, since no tax benefits are recorded on foreign operating losses. The effective income tax rate would have been approximately 35.0% in 2002 if these benefits were recorded.

      Net Loss. The net loss for the first quarter of 2003 was $2.2 million compared to a net loss of $5.1 million in the prior year. The lower net loss for the first quarter of 2003 was due to the improvement in gross profit described above, the net decrease in general and administrative expenses and the sale of the NextWave Pre-Petition interest.

Liquidity and Capital Resources

      Cash combined with restricted cash and short-term investments at March 31, 2003 provided total liquid assets of $35.1 million, compared to $39.3 million at December 31, 2002, a decrease of $4.2 million. This decrease in liquidity largely related to cash used in operations for the three months ended March 31, 2003.

      Cash used by operations was $4.1 million for the three months ended March 31, 2003, compared to $3.8 million for the prior year.

      Cash used by investing activities was $0.2 million for the three months ended March 31, 2003, compared to $7.6 million for the prior year. Cash used by investing activities in 2002 largely related to the acquisition of Smith Woolley Telecom in the United Kingdom.

      Cash used in financing activities was $0.2 million for the three months ended March 31, 2003, compared to cash provided of $0.8 million for the prior year. In 2003, the Company increased restricted cash by $0.2 million, which related to the deposit of cash to support the issue of certain advance and performance guarantees. Cash provided in 2002 mostly related to the repayment to the Company of the final installment of a loan by Telcom Ventures, a shareholder.

      Working capital was $47.6 million, compared to $50.0 million at December 31, 2002, a decrease of $2.4 million. The decrease in working capital in 2003 was due to the use of cash to fund operating losses.

      The Company had no debt and did not maintain a line of credit as of March 31, 2003, since it had cash and short-term investments that it considered sufficient to meet liquidity requirements. Subsequent to March 31, 2003, the Company has established a line of credit in The Netherlands to fund the growth in working capital of its subsidiary, Detron LCC Network Services B.V. The Company has not engaged in any off-balance sheet financing as of March 31, 2003. 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.

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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; 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 80.9% during the first quarter of 2003. 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 depends on, among other things, the costs incurred on each individual project and its then current estimate of the total remaining costs to complete individual projects. Considerable judgment on the part of the Company’s management may be required in determining estimates to complete a project including the scope of the work to be completed, and reliance on the customer or other vendors to fulfill some task(s). 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 total contract cost estimates increase, gross profit for any single project may be significantly reduced or eliminated. If the total contract cost estimates indicate that there is a loss, the loss is recognized in the period the determination is made.

     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 quarter ended March 31, 2003, the Company derived 78.7% of its total revenues from its ten largest customers, indicating significant customer concentration risk with the Company’s receivables. These ten largest customers constituted 69.8% of the Company’s net receivable balance as of March 31, 2003. 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 March 31, 2003, the Company had approximately $14.8 million of unbilled receivables, compared to approximately $12.4 million at December 31, 2002. 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

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     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 March 31, 2003, 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-cash compensation accruals relating to stock options issued under a phantom membership plan in effect prior to the Company’s initial public offering. The net deferred tax assets, as of March 31, 2003 were $5.3 million.

     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

      During 2002 and the first quarter of 2003, the Company continued to make certain payments on behalf of Telcom Ventures consisting primarily of fringe and payroll-related costs of $155,000 and $11,000, respectively and received reimbursements of $464,000 in 2002 and $7,900 during the first quarter of 2003. At December 31, 2002 and March 31, 2003, outstanding amounts associated with these payments, totaling $9,000 and $6,000, respectively, are included in due from related parties and affiliates within the accompanying condensed balance sheets. During 2002, the Company also provided an allowance of $100,000 for amounts in dispute. In April 2003, the Company received $100,000 to resolve the dispute in its entirety.

      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. The Company 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 $17,000 of rent expense for the quarter ended March 31, 2003. During the first quarter of 2003, Detron seconded various idle employees to Detron Telematics, Westminster’s wholly-owned subsidiary and recorded revenue of approximately $100,000.

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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 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 guarantee’s 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.

      In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 gives further guidance to ARB No. 51, “Consolidated Financial Statements”. ARB No. 51 requires companies to consolidate their financial statements when one company has a controlling financial interest, which is usually having a majority of the voting interest. FIN 46 further defines a controlling financial interest where the majority voting interest requirement is not met, a variable interest entity, and if the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated statements of the company. FIN 46 is effective for all arrangements entered into after January 31, 2003. As of March 31, 2003, the Company had not entered into any such arrangements.

Item 3:     Quantitative and Qualitative Disclosures about Market Risk

      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 63.7% the Company’s revenues were generated outside the United States for the three months ended March 31, 2003, 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 March 31, 2003. 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 March 31, 2002 compared to March 31, 2003. Consequently, the accumulated other comprehensive loss component of shareholders’ equity increased $0.4 million during the three months ended March 31, 2003. As of March 31, 2003, the total amount of long-

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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 $0.1 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.

Item 4:     Controls and Procedures

(a) Evaluation of disclosure controls and procedures

      Within 90 days prior to the date of this report (the Evaluation Date), the Company’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15(d)-14(c)). Based on that evaluation, these officers have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and the Company’s consolidated subsidiaries would be made known to them by others within those entities.

(b) Changes in internal controls

      There were no significant changes in the Company’s internal controls or other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the Evaluation Date.

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PART II — OTHER INFORMATION

Item 1:     Legal Proceedings

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

Item 2:     Changes in Securities

      Not Applicable

Item 3:     Defaults Upon Senior Securities

      Not Applicable

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

      Not Applicable

Item 5:     Other Information

      Not Applicable

Item 6:     Exhibits and Reports on Form 8-K

      (a) Exhibits

           11  — Calculation of Net Income Per Share

	99.1 —	Written Statement of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.2 —	Written Statement of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

      (b) Reports on Form 8-K

      On February 10, 2003, the Company filed a Current Report on Form 8-K, which reported that the Company on February 10, 2003 issued a press release announcing its fourth quarter and year-end financial results for 2002.

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Signature

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

	LCC International, Inc. and Subsidiaries
	/s/ GRAHAM B. PERKINS
	Graham B. Perkins
	Senior Vice President, Chief Financial
	Officer and Treasurer
	(Principal Financial Officer and
	Principal Accounting Officer)

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CERTIFICATIONS

I, C. Thomas Faulders, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of LCC International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

      a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ C. THOMAS FAULDERS, III

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I, Graham B. Perkins, certify that:

1. I have reviewed this quarterly report on Form 10-Q of LCC International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

      a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ GRAHAM B. PERKINS

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