<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<S> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
</TABLE>
COMMISSION FILE NUMBER: 0-21213
------------------------
LCC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1807038
(State of Incorporation) (IRS Employer Identification Number)
7925 JONES BRANCH DRIVE, MCLEAN, VA 22102
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 873-2000
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed, since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
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 11, 1998, the registrant had outstanding 7,096,542 shares of Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock") and
8,460,984 shares of Class B Common Stock, par value $0.01 per share (the "Class
B Common Stock").
================================================================================
<PAGE> 2
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Condensed consolidated statements of operations for the
three months ended March 31, 1997 and 1998................ 2
Condensed consolidated balance sheets as of December 31,
1997 and March 31, 1998................................... 3
Condensed consolidated statements of cash flows for the
three months ended March 31, 1997 and 1998................ 4
Notes to condensed consolidated financial statements........ 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 7
PART II: OTHER INFORMATION........................................... 13
ITEM 1: Legal Proceedings
ITEM 2: Changes in Securities
ITEM 3: Defaults Upon Senior Securities
ITEM 4: Submission Of Matters to a Vote of Security Holders
ITEM 5: Other Information
ITEM 6: Exhibits and Reports on Form 8K
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1998
-------- --------
<S> <C> <C>
REVENUES:
Service................................................... $20,224 $22,506
Product................................................... 14,146 10,469
Asset management.......................................... -- 127
------- -------
34,370 33,102
------- -------
COST OF REVENUES:
Service................................................... 13,802 15,615
Product................................................... 7,856 5,786
------- -------
21,658 21,401
------- -------
GROSS PROFIT................................................ 12,712 11,701
------- -------
OPERATING EXPENSES:
Sales and marketing....................................... 2,207 1,998
General and administrative................................ 5,393 5,553
Research and development.................................. 2,121 1,929
Non-cash compensation..................................... 158 125
Depreciation and amortization............................. 1,722 1,047
------- -------
11,601 10,652
------- -------
OPERATING INCOME............................................ 1,111 1,049
------- -------
OTHER INCOME (EXPENSE):
Interest income........................................... 140 271
Interest expense.......................................... (876) (615)
Other income (expense).................................... 395 (196)
------- -------
(341) (540)
------- -------
INCOME BEFORE INCOME TAXES.................................. 770 509
PROVISION FOR INCOME TAXES.................................. 380 210
------- -------
NET INCOME.................................................. $ 390 $ 299
======= =======
NET INCOME PER SHARE:
Basic..................................................... $ 0.03 $ 0.02
======= =======
Diluted................................................... $ 0.02 $ 0.02
======= =======
WEIGHTED AVERAGE SHARES USED IN THE CALCULATION OF
NET INCOME PER SHARE:
Basic..................................................... 14,527 15,283
======= =======
Diluted................................................... 15,718 16,030
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................... $ 15,838 $ 21,345
Short-term investments.................................. 8,619 67
Receivables, net of allowance for doubtful accounts of
$15,426 and $15,192 at December 31, 1997 and March 31,
1998, respectively:
Trade accounts receivable.......................... 30,643 26,055
Due from related parties and affiliates............ 1,375 1,767
Unbilled receivables............................... 11,695 10,426
Inventory, net.......................................... 7,400 6,979
Deferred income taxes, net.............................. 9,874 9,782
Prepaid expenses and other current assets............... 1,315 1,370
-------- --------
Total current assets............................... 86,759 77,791
Property and equipment, net................................. 10,531 15,533
Software development costs, net............................. 6,133 7,966
Investment in joint venture................................. 1,300 401
Deferred income taxes, net.................................. 1,513 1,164
Other assets................................................ 4,782 4,592
-------- --------
$111,018 $107,447
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Note payable............................................ $ 1,395 $ 2,366
Accounts payable........................................ 4,994 2,406
Accrued expenses........................................ 9,895 6,646
Accrued employee compensation and benefits.............. 9,038 7,030
Obligations under incentive plans....................... 1,106 1,201
Deferred revenue........................................ 4,650 4,796
Income taxes payable.................................... 7,507 7,617
Other current liabilities............................... 1,193 1,692
-------- --------
Total current liabilities............................... 39,778 33,754
Convertible subordinated debt............................... 50,000 50,000
Other liabilities........................................... 1,038 604
-------- --------
Total liabilities....................................... 90,816 84,358
-------- --------
Preferred stock:
10,000 shares authorized; -0- shares issued and
outstanding........................................... -- --
Class A common stock, $.01 par value:
70,000 shares authorized; 6,644 and 7,084 shares issued
and outstanding at December 31, 1997 and March 31,
1998, respectively.................................... 66 71
Class B common stock, $.01 par value:
20,000 shares authorized; 8,461 shares issued and
outstanding at December 31, 1997 and March 31, 1998... 85 85
Paid-in capital............................................. 33,210 36,169
Retained deficit............................................ (8,847) (8,548)
Note receivable from shareholder............................ (2,800) (2,800)
-------- --------
Subtotal................................................ 21,714 24,977
Accumulated other comprehensive loss -- Foreign currency
translation adjustments................................... (1,512) (1,888)
-------- --------
Total shareholders' equity.............................. 20,202 23,089
-------- --------
$111,018 $107,447
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 390 $ 299
Adjustments to reconcile net cash provided by operating
activities:
Depreciation and amortization..................... 1,722 1,047
Provision for doubtful accounts................... 607 (79)
Non-cash compensation............................. 158 125
(Income) loss from investments in joint ventures,
net.............................................. (89) 155
Changes in operating assets and liabilities:
Trade, unbilled, and other receivables....... 3,269 5,840
Accounts payable and accrued expenses........ (7,872) (7,845)
Inventory.................................... 326 421
Other current assets and liabilities......... 3,757 1,043
Other non-current assets and liabilities..... (600) 24
-------- --------
Net cash provided by operating activities................... 1,668 1,030
-------- --------
Cash flows from investing activities:
Decrease in short term investments, net................ 600 8,552
Purchases of property and equipment.................... (1,784) (6,297)
Increase in capitalized software....................... (1,041) (1,584)
-------- --------
Net cash (used in) provided by investing activities......... (2,225) 671
-------- --------
Cash flows from financing activities:
Proceeds from note payable............................. -- 971
Payments on note payable............................... (10,445) --
Proceeds from issuance of common stock, net............ -- 333
Proceeds from exercise of options...................... -- 2,502
-------- --------
Net cash (used in) provided by financing activities......... (10,445) 3,806
-------- --------
Net (decrease) increase in cash and cash equivalents........ (11,002) 5,507
Cash and cash equivalents at beginning of period............ 13,732 15,838
-------- --------
Cash and cash equivalents at end of period.................. $ 2,730 $ 21,345
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest.......................................... $ 25 $ 42
Income taxes...................................... 273 46
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: DESCRIPTION OF OPERATIONS
LCC International, Inc. (also referred to as the "Company") is a leading
provider of integrated services and products relating to the design,
engineering, deployment, operation and maintenance of wireless communications
systems. In addition, through its Microcell Management, Inc. ("Microcell
Management") subsidiary, the Company now offers wireless network operators the
opportunity to finance and outsource the ownership and maintenance of
transmission towers used in their networks. The services and products provided
by the Company are as follows:
SERVICES
Engineering and design services. The Company provides engineering and
design services for cellular phone system operators, personal communication
system (PCS) operators and other wireless communication system providers.
Program management services. The Company provides program management
services related to the build-out of wireless communications systems.
PRODUCTS
Software products. The Company develops and markets proprietary software
and data, which support the design and operation of wireless communication
systems.
Hardware products. The Company designs, assembles and sells field
measurement and network analysis tools used in the implementation, testing and
maintenance of wireless communication systems.
ASSET MANAGEMENT
The Company, through Microcell Management: (i) builds multi-tenant towers
to the initial committed operator's specifications and leases space thereon to
such operator and other operators, (ii) purchases existing multi-tenant towers
from operators and leases back space to the existing users thereof as well as to
new operators, or (iii) leases space on existing towers owned or to be built by
it.
NOTE 2: BASIS OF PRESENTATION
The condensed consolidated financial statements of LCC International, Inc.
and subsidiaries included herein have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the interim period.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The interim financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997. Operating results for the interim periods
are not necessarily indicative of results for an entire year.
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
5
<PAGE> 7
NOTE 3: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Field measurement and network analysis tools......... $ 4,249 $ 2,560
Parts and accessories................................ 4,190 5,431
------- -------
8,439 7,991
Less -- reserve for obsolete and slow moving
inventory.......................................... (1,039) (1,012)
------- -------
$ 7,400 $ 6,979
======= =======
</TABLE>
NOTE 4: COMPREHENSIVE INCOME (LOSS)
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive
Income, which established standards for reporting and displaying comprehensive
income and its components in the financial statements. Comprehensive income is
defined as net income 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 refers to revenues, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income, but excluded from net income. Other comprehensive income
consists solely of foreign currency translation adjustments at March 31, 1997
and 1998. Comprehensive income (loss) and other comprehensive income (loss), for
the three months ended March 31, is as follows (in thousands).
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Net income.................................................. $ 390 $ 299
----- -----
Other comprehensive (loss), before tax...................... (399) (580)
Income tax (benefit) related to items of comprehensive
income.................................................... (168) (204)
----- -----
Other comprehensive (loss), net of tax...................... (231) (376)
----- -----
Comprehensive income (loss)................................. $ 159 $ (77)
===== =====
</TABLE>
6
<PAGE> 8
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Exchange Act of 1934. These
are in paragraphs 4, 7, 9, 23, 24, and 29 of Management's Discussion and
Analysis of Financial Condition and Results of Operations (beginning below). 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, 1997.
OVERVIEW
The Company is one of the world's largest independent providers of RF
engineering and program management services and products to the wireless
telecommunications industry. The Company has provided these services, along with
related proprietary software tools and field measurement and analysis equipment,
to operators of more than 200 wireless systems in more than 50 countries.
The Company's revenues are generated through contracts for RF engineering
and program management services, licenses of the Company's software products and
sales of the Company's field measurement and analysis products. The Company
provides engineering 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 provides
program management services on a time and materials or fixed price basis. The
Company's revenues also include reimbursement for expenses, including the living
expenses of engineers on customer sites. The software tools used by the
Company's engineers, which are used as part of the customer's system after
completion of the project pursuant to a license, are recorded as product, not
service revenues. Revenues from software tools are earned under license
arrangements, which, in the U.S., often consists of an annual fee per
workstation or per cell site and which are for a fixed term that requires
renewal by the customer to retain the software. The Company charges an up-front
fee in many cases outside the U.S. where customers are not accustomed to paying
annual licensing fees for software. A portion of the revenues from licensing
software to customers, apart from those associated with engineering design
services contracts, consists of upgrades or additional software modules
developed by the Company following the initial licensing. Revenues from field
measurement and analysis equipment consist primarily of one-time payments,
although there are some periodic rental payments and there may be additional
charges for equipment maintenance and upgrades.
In December 1996, through the formation of a new subsidiary, Microcell
Management, Inc. ("Microcell Management"), the Company entered the wireless
infrastructure asset management business to acquire/develop and manage RF
transmission towers. Capitalized cost related to tower development was
approximately $8.0 million at March 31, 1998.
Service revenue consists of revenues from engineering services and program
management services. Product revenues consist of revenues from software tools
and field measurement and analysis products. Asset management revenue consists
of lease income on Company owned RF transmission towers. The Company derives a
significant portion of its revenues from its international customers. Export
sales were approximately 37.2% of consolidated revenues in 1997, but due to
strong international wireless growth are expected to increase in 1998 to
approximately 50.0% of consolidated revenues.
Cost of revenues consists of costs associated with engineering design
services and program management services as well as costs associated with the
production and design of field measurement and analysis equipment, licensing of
software and related maintenance costs. Sales and marketing expenses consist of
salaries, sales commissions, bonuses, travel and other expenses required to
implement the Company's marketing, sales and customer support plans. General and
administrative expenses consist of the compensation, benefits, professional
services, office and occupancy and other costs required to manage the Company's
business. Non-cash compensation consists of awards under a program for key
executives adopted in 1994.
7
<PAGE> 9
Such plan was accounted for as a variable plan, and therefore, to the extent
that the deemed fair market value of the Company increased, compensation expense
increased accordingly. In connection with the Company's initial public offering
in September 1996, the Company granted stock options to replace the awards
granted under this plan.
The key drivers of the Company's growth have historically been: (i) the
issuances of new or additional wireless telecommunications licenses by
governmental authorities to wireless operators, (ii) increases in the number of
cell sites operated and the number of subscribers served by wireless network
operators, (iii) the introduction of new services or technologies, (iv) the
increasing complexity of the systems deployed by wireless network operators, and
(v) the expansion and optimization of existing systems by wireless network
operators.
To keep pace with the subscriber growth currently anticipated by most
industry analysts, the Company expects that there will continue to be
significant investment by network system operators over the next few years in
design services, program management services, software tools and field
measurement and analysis equipment. The Company expects that as system build-out
is completed and areas (particularly in the U.S.) begin to have multiple network
operators, the demand for RF engineering services will change.
Although the Company's revenues from the sales of products and services is
primarily derived from the design, build-out and optimization of wireless
systems, increased emphasis has been placed on products and services which
assist in achieving network efficiency and cost savings. The Company's
acquisition of European Technology Partner AS ("ETP") in December 1996 has
facilitated the Company's development of hardware and software products and
services designed to enhance system performance by providing automated data
collection, analysis and optimization capabilities.
The Company has experienced fluctuations in revenues in each of the past
several years, with greater revenues in the second half of its calendar year and
lesser amounts in the first half. This trend may or may not continue as the
Company broadens its product and service offerings. A significant portion of the
Company's software license agreements are concluded in the last month of the
calendar quarter, generally with a concentration of such revenues in the final
ten business days of that month. The Company believes that these revenue
fluctuations are caused primarily by customer buying patterns. In any case, due
to the relatively fixed nature of certain costs, including personnel and
facilities expenses, a decline or shortfall in quarterly and/or annual revenues
typically results in lower profitability.
8
<PAGE> 10
RESULTS OF OPERATIONS
The following table and discussion provides 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
REVENUES
THREE MONTHS
ENDED
MARCH 31,
--------------
1997 1998
----- -----
<S> <C> <C>
Revenues:
Service................................................ 58.8% 68.0%
Product................................................ 41.2 31.6
Asset management....................................... 0.0 0.4
----- -----
Total revenues.................................... 100.0 100.0
Cost of revenues............................................ 63.0 64.7
----- -----
Gross profit................................................ 37.0 35.3
----- -----
Operating expenses:
Sales and marketing.................................... 6.4 6.0
General and administrative............................. 15.7 16.8
Research and development............................... 6.2 5.8
Non-cash compensation.................................. 0.5 0.4
Depreciation and amortization.......................... 5.0 3.1
----- -----
Total operating expenses.......................... 33.8 32.1
----- -----
Operating income............................................ 3.2 3.2
----- -----
Other income (expense):
Interest income........................................ 0.4 0.8
Interest expense....................................... (2.5) (1.9)
Other income (expense)................................. 1.1 (0.6)
----- -----
Total other (expense)............................. (1.0) (1.7)
----- -----
Income before income taxes.................................. 2.2 1.5
Provision for income taxes.................................. 1.1 0.6
----- -----
Net income.................................................. 1.1% 0.9%
===== =====
</TABLE>
9
<PAGE> 11
THREE MONTHS ENDED MARCH 31, 1997
COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
Revenues. Revenues for the three months ended March 31, 1998 were $33.1
million compared to $34.4 million for the prior year, a decrease of $1.3 million
or 3.7%. Service revenues were $22.5 million compared to $20.2 million for the
prior year, an increase of $2.3 million or 11.3%. Service revenues increased
primarily as a result of an increase in Program Management volume. Product
revenues were $10.5 million compared to $14.1 million for the prior year, a
decrease of $3.6 million or 26.0%. The decrease is primarily due to the
inclusion in 1997 of a large product sale under a single field measurement
products contract.
Cost of Revenues. Cost of revenues for the three months ended March 31,
1998 was $21.4 million compared to $21.7 for the prior year, a decrease of $0.3
million or 1.2%. As a percentage of total revenues, cost of revenues was 64.7%
and 63.0% for 1998 and 1997, respectively. Service cost of revenues for the
three months ended March 31, 1998 was $15.6 million compared to $13.8 million
for the prior year, an increase of $1.8 million or 13.1%. The increase is due
primarily to the increase in Program Management revenue. Product cost of
revenues for the three months ended March 31, 1998 was $5.8 million compared to
$7.9 million for the prior year, a decrease of $2.1 million or 26.3%. Product
cost of revenues as a percentage of Product revenues, was 55.3% and 55.5% for
1998 and 1997, respectively. The dollar decrease is due primarily to the change
in revenues mix year over year as well as lower sales volume.
Gross Profit. Gross profit for the three months ended March 31, 1998 was
$11.7 million compared to $12.7 million for the prior year, a decrease of $1.0
million or 8.0%. As a percentage of total revenues, gross profit was 35.3% and
37.0% for 1998 and 1997, respectively. The decrease in gross profit margin was
due to the change in mix of service revenues discussed above.
Sales and Marketing. Sales and marketing expenses were $2.0 million for
the three months ended March 31, 1998 compared to $2.2 million for the prior
year, a decrease of $0.2 million or 9.5%. The decrease is due primarily to a
decline in agent commissionable sales between years.
General and Administrative. General and administrative expenses were $5.6
million for the three months ended March 31, 1998 compared to $5.4 million for
the prior year, an increase of $0.2 million or 3.0%. The increase is due
primarily to increased costs related to Microcell Management, which commenced
operations in January 1997.
Depreciation and Amortization. Depreciation and amortization expense was
$1.0 million for the three months ended March 31, 1998 compared to $1.7 million
for the prior year, a decrease of $0.7 million or 39.2%. The decrease is a
result of lower amortization expense related to the Company's software products.
Interest Income. Interest income was $0.3 million for the three months
ended March 31, 1998 compared to $0.1 million for the prior year, an increase of
$0.2 million or 93.6%. The increase is a result of an increase in the amount of
funds available for investment.
Interest Expense. Interest expense was $0.6 million for the three months
ended March 31, 1998 compared to $0.9 million for the prior year, a decrease of
$0.3 million or 29.8%. The decrease is due primarily to the decrease in interest
rates on the MCI convertible subordinated debt. On October 23, 1997, the Company
announced that it had agreed with MCI to defer the Company's option to convert
the notes in 1997. As part of the agreement, interest payable under the notes
was reduced from 6.8% to 4.4% per annum.
Other Income (Expense). Other income (expense) was $(0.2) million for the
three months ended March 31, 1998 compared to $0.4 million for the prior year, a
decrease of $0.6 million. The decrease is due primarily to the expiration of the
24-month distribution rights arrangement for the Company's hardware and software
products which was granted with the sale of the Company's 50.0% interest in
Telemate S.A. in January 1996 and a reduction in income recognized from the
Company's 33.3% joint venture with Koll Telecommunications Services, L.L.C.
Provision for Income Taxes. The provision for income taxes was $0.2
million for the three months ended March 31, 1998 compared to $0.4 million for
the prior year, a decrease of $0.2 million or 44.7%. The
10
<PAGE> 12
provision for income taxes was recorded in 1998 using a consolidated effective
income tax rate of 41%. The provision for income taxes was recorded in 1997
based on a consolidated effective income tax rate of approximately 49.4%. The
change in effective income tax rates is due to the impact of the Company's
foreign operations which are taxed at various rates.
Net income. Net income for the three months ended March 31, 1998 was $0.3
million compared to $0.4 million for the prior year, a decrease of $0.1 million
or 23.3%. Adjusting for non-cash compensation, net income would have been $0.4
million compared to $0.5 million for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, were $21.3 million at March 31, 1998 compared to
$15.8 million at December 31, 1997 an increase of $5.5 million or 34.8%. Net
cash provided by operations was $1.0 million for the three months ended March
31, 1998. Net cash provided by investing activities was $0.7 million, consisting
primarily of cash paid for additions to property and equipment ($6.3 million),
an increase in capitalized software ($1.6 million) and a decrease in short-term
investments ($8.6 million). Net cash provided by financing activities was $3.8
million, representing cash received from stock issuances as a result of options
exercised during the period ($2.5 million), cash received for shares purchased
under the Company's Employee Stock Purchase Plan ($0.3 million) and advances
under the ETP Credit Facility ($1.0 million -- defined below). Short-term
investments were $0.1 million at March 31, 1998 compared to $8.6 million at
December 31, 1997, a decrease of $8.5 million. The decrease is primarily due to
the classification of the related funds as cash and cash equivalents at March
31, 1998 as a result of a change in the underlying investments during the
quarter.
During December 1997, the Company increased its allowance for doubtful
accounts due to the continued aging of receivables from its Asia-Pacific
customers. The economic downturn and exchange rate fluctuations in the
Asia-Pacific region during the latter part of calendar 1997 had resulted in
certain of the Company's customers experiencing difficulty in arranging in a
timely fashion needed additional financing and hard currency to satisfy U.S.
dollar denominated liabilities to the Company. As a result of the uncertainty
associated with the collection of amounts due, the Company recorded additional
reserves of approximately $2.9 million to cover potential Asia-Pacific region
exposure and established procedures to require downpayment or use of letters of
credit for certain Asia-Pacific sales. The Company believes that its reserves
for outstanding receivables from its Asia-Pacific customers are adequate at
March 31, 1998.
The Company anticipates a significant commitment for capital expenditures
for its Microcell Management subsidiary. This effort is currently being funded
from the Company's working capital. In addition, under the Company's software
development program, the Company capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," $1.0 million and $1.6
million in the three month periods ended March 31, 1997 and 1998, respectively.
Net cash provided by operations was $1.7 million for the three months ended
March 31, 1997. Net cash used in investing activities was $2.2 million,
consisting primarily of cash paid for additions to property and equipment ($1.8
million), increase in capitalized software ($1.0 million), offset by a decrease
in short term investments ($0.6 million). Net cash used in financing activities
was $10.4 million, representing cash paid in total satisfaction of the note
agreement established for the purchase of ETP in December 1996.
Working capital was $44.0 million at March 31, 1998 versus $47.0 million at
December 31, 1997, a decrease of $3.0 million or 6.3%. The decrease in working
capital was primarily due to a decrease in receivables, a decrease in the net
amount of cash and cash equivalents and short-term investments and an increase
in note payable, offset by a decrease in accounts payable, accrued expenses and
accrued employee compensation and benefits.
11
<PAGE> 13
In February 1998, the Company adopted a stock repurchase program pursuant
to which the Company is authorized to purchase, through open market
transactions, privately negotiated transactions, or in such other manner as will
comply with the provisions of the Securities Exchange Act of 1934, and the rules
and regulations thereunder, up to one million shares of Class A Common Stock.
The actual timing and blocks of shares to be purchased will depend on a variety
of factors, including price and market conditions. As of March 31, 1998, the
Company had not purchased any shares pursuant to this program.
The Company has a credit facility with Chase Manhattan Bank Co. NA, which
consists of a revolving credit loan and letter of credit facility in an
aggregate principal amount not to exceed $20 million. The revolving credit
commitment expires in September 1999. Interest under the credit facility accrues
at the Company's election (subject to certain restrictions and limitations) at
either (i) the variable rate equal to the greater of (a) the Federal funds rate
plus one-half of one percent, and (b) the announced prime commercial lending
rate of Chase, or (ii) a fixed rate for a designated period of time determined
by reference to the London Interbank Market. The payment and performance of the
obligations of the Company under the credit facility are secured by
substantially all of the assets of the Company. Effective December 30, 1996 the
Credit Facility was amended to revise the financial ratios and certain other
covenants contained therein for the effect of the special charge recorded by the
Company. Effective December 15, 1997, the Credit Facility was amended to
"carve-out" a separate credit facility for ETP (the "ETP Credit Facility") in
the aggregate principal amount of $2.5 million. ETP and Microcell Management
executed the amended credit facility as parties and guarantors of the Company's
obligation. The Company has pledged 65% of the equity of ETP and 100% of the
Company's equity of Microcell Management to Chase as security for repayment
under the facility. Also, effective March 31, 1998, the Credit Facility was
amended to revise one of its financial ratios and increase the amount of capital
expenditures allowed thereunder to accommodate the growth of Microcell
Management. No amounts were outstanding under the Credit Facility during the
period January 1, 1998 through March 31, 1998 with the exception of amounts
outstanding under the ETP Credit Facility. Approximately $2.4 million was
outstanding under the ETP Credit Facility at March 31, 1998.
The Company believes that its cash and cash equivalents, short-term
investments, cash flow from operations and available credit will be sufficient
to satisfy the current capital requirements of the Company.
12
<PAGE> 14
PART II -- OTHER INFORMATION
Item 1: Legal Proceedings
Not Applicable
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
27.1 -- Financial Data Schedule
27.2 -- Financial Data Schedule
(b) Reports on Form 8-K
On January 12, 1998 the Company filed a Current Report on Form
8-K which reported that, on January 8, 1998, the Company announced
the resignation of Piyush Sodha as its President and Chief Executive
Officer and as member of its Board of Directors and the appointment
of Richard Hozik as Acting President and Chief Executive Officer
until a successor is named. On January 21, 1998 the Company filed a
Current Report on Form 8-K which reported that, on January 20, 1998,
the Company announced the appointment of Dr. Geoffrey Scott Carroll
as its President and Chief Executive Officer and as a member of its
Board of Directors. On February 13, 1998 the Company filed a Current
Report on Form 8-K which reported that, on February 9, 1998, the
Company announced that the Board of Directors had authorized a stock
repurchase program.
13
<PAGE> 15
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.
<TABLE>
<S> <C>
LCC International, Inc.
Date: May 15, 1998
------------------------------------------------- Signed: /s/ RICHARD HOZIK
--------------------------------------------
Richard Hozik
Senior Vice President, Treasurer
and Chief Financial Officer
</TABLE>
14
<PAGE> 1
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
1997 1998
----------------------------- -----------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income Available to Common
Shareholders.................. $390 14,527 $0.03 $299 15,283 $0.02
===== =====
Effect of Dilutive Securities
Convertible Debt................. -- -- -- --
Stock Option Plans............... -- 1,191 -- 747
---- ------ ---- ------
Diluted EPS
Net Income Available to Common
Stockholders and Assumed
Conversions................... $390 15,718 $0.02 $299 16,030 $0.02
==== ====== ===== ==== ====== =====
</TABLE>
NOTE: The Company's subordinated debt, which is exchangeable into 2.8 million
shares of the Company's Class A Common Stock, was outstanding during the three
months ended March 31, 1997 and 1998, but was not included in the computation of
diluted earnings per share because the effect of which would have been
anti-dilutive.
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 21,345
<SECURITIES> 0
<RECEIVABLES> 26,055
<ALLOWANCES> 15,192
<INVENTORY> 6,979
<CURRENT-ASSETS> 77,791
<PP&E> 15,533
<DEPRECIATION> 18,995
<TOTAL-ASSETS> 107,447
<CURRENT-LIABILITIES> 33,754
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 22,933
<TOTAL-LIABILITY-AND-EQUITY> 107,447
<SALES> 10,469
<TOTAL-REVENUES> 33,102
<CGS> 5,786
<TOTAL-COSTS> 21,401
<OTHER-EXPENSES> 10,652
<LOSS-PROVISION> (79)
<INTEREST-EXPENSE> 615
<INCOME-PRETAX> 509
<INCOME-TAX> 210
<INCOME-CONTINUING> 299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,730
<SECURITIES> 0
<RECEIVABLES> 33,543
<ALLOWANCES> 17,372
<INVENTORY> 6,127
<CURRENT-ASSETS> 71,515
<PP&E> 6,579
<DEPRECIATION> 14,644
<TOTAL-ASSETS> 95,600
<CURRENT-LIABILITIES> 35,555
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 8,648
<TOTAL-LIABILITY-AND-EQUITY> 95,600
<SALES> 14,146
<TOTAL-REVENUES> 34,370
<CGS> 7,856
<TOTAL-COSTS> 21,658
<OTHER-EXPENSES> 11,601
<LOSS-PROVISION> 607
<INTEREST-EXPENSE> 876
<INCOME-PRETAX> 770
<INCOME-TAX> 380
<INCOME-CONTINUING> 390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.02
</TABLE>
