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United States Securities and Exchange Commission

Form 10-Q

(Mark One)

Commission File Number: 0-21213

LCC International, Inc.

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

Not Applicable

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

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

Yes    X            No     

APPLICABLE ONLY TO 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 November 6, 2000 the registrant had outstanding 12,026,436 shares of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and 8,449,984 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

Condensed Consolidated Statements of Operations

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

     Supplemental disclosures of non-cash investing and financing activities:

     In July 1999, the Company issued approximately 2.8 million shares of Class A common stock in exchange for its 4.4% convertible subordinated notes. As a result both long-term debt and long-term deferred tax assets were reduced by $50.0 million and $12.6 million, respectively and shareholders’ equity increased $37.4 million.

     In August 1999, the Company issued approximately 0.9 million shares of Class A common stock in exchange for its 9.0% convertible notes payable. As a result, current debt was reduced by $5.0 million, accrued interest $0.2 million, and shareholders’ equity increased $5.2 million.

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Note 1:  Description of Operations

      LCC International, Inc. and subsidiaries (also referred to herein as the “Company”) is a leading provider of end-to-end services relating to the design, engineering, deployment and operation of wireless communications systems.

      The Company operates in a highly competitive environment subject to rapid technological change and emergence of new technologies. Future revenues are dependent upon the re-engineering of existing wireless communications systems, introduction of existing wireless technologies into new markets, the entrance of new wireless providers into existing markets, the introduction of new technologies and the recruiting, training and retention of management and professional staff. Although the Company believes that its services are transferable to emerging technologies, rapid changes in technology could have an adverse financial impact on the Company.

Note 2:  Basis of Presentation

      The condensed consolidated financial statements of 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 disclosure 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, 1999. 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.

Note 3:  Other 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

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Note 4:  Investments in Unconsolidated Affiliates

      In September 1999, the Company, through its wholly-owned subsidiary, LCC, United Kingdom, Limited, acquired 19.9% of Tecnosistemi S.p.A. (“Tecnosistemi”) (formerly, Italtel Sistemi, S.p.A.) for $1.1 million. Tecnosistemi is an Italian telecommunications services company, and is a recently spun off division of the Italtel Group whose major shareholders were Siemens and Telecom Italia. The Company, until September 2000, applied the equity method to account for its investment in Tecnosistemi. Tecnosistemi incurred cumulative losses since the date of acquisition through September 30, 2000 of $3.4 million. The Company recorded a loss in other income (expense) of $0.8 million related to its pro-rata share of the losses generated by Tecnosistemi since the date of acquisition. During September 2000, Tecnosistemi merged into Tecneudosia S.p.A. As a result of the merger, the Company’s ownership percentage was decreased to 9.4% and the Company discontinued application of the equity method.

      In June 2000, the Company acquired 18.2% of Mobilocity, Inc. (“Mobilocity”) for $0.5 million. Mobilocity provides mobile-business strategic consulting and implementation services. During August 2000, the Company’s ownership percentage was diluted to 3.1% as Mobilocity raised additional capital, as planned, through issuance of additional stock. The Company uses the cost method to account for this investment.

      In August 2000, the Company acquired 15.0% of Plan + Design Netcare AG (“PDN”) for $2.9 million. PDN is a German wireless network deployment firm. In addition to the investment, the Company entered into a five-year joint marketing agreement with PDN. The Company uses the cost method to account for this investment.

Note 5:  Tower Portfolio Sale and Administration

      During March 2000, Microcell Management, Inc. (“Microcell”), a subsidiary of the Company, completed the initial closing of the sale of its telecommunication tower portfolio to Pinnacle Towers Inc. (“Pinnacle”) pursuant to an Asset Purchase Agreement between Pinnacle and Microcell. Pursuant to the Asset Purchase Agreement, Microcell agreed to sell up to 197 tower sites owned or to be constructed by Microcell for a total purchase price of up to $80 million in cash payable as the sites are conveyed to Pinnacle. As of September 30, 2000, 177 tower sites were conveyed to Pinnacle for net proceeds of $72.2 million. While some portion of the remaining towers may convey periodically through year-end, the Company believes substantially all of the towers that will convey have been conveyed to Pinnacle. As a part of the sale transaction, Microcell and Pinnacle entered into a Master Antenna Site Lease pursuant to which Microcell has agreed to lease, until December 31, 2002, the unoccupied space on each telecommunication tower sold to Pinnacle. The Company has deferred $5.2 million of the gain from the tower sales through September, which relate to the maximum lease obligations under the Master Antenna Site Lease. These amounts are included in other long-term obligations. Microcell and Pinnacle have also entered into a Tower Services Agreement pursuant to which Microcell will provide Pinnacle with audit, maintenance, and program management services regarding site improvements and capacity upgrades for an initial 204 sites and additional sites that may be added by mutual agreement. The Services Agreement provides for minimum annual payments to Microcell of

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      On February 15, 2000, Microcell and the Company entered into a Settlement and Release Agreement (“Settlement Agreement”) with the minority shareholders of Microcell. Pursuant to the Settlement Agreement, concurrent with the Pinnacle tower sale, the aggregate 16.25% minority shareholder interests were redeemed and other costs paid and/or reimbursed for $7.2 million. The payment was capitalized as part of the Microcell assets and will be expensed as sites are conveyed to Pinnacle. As part of the settlement, all pending claims of the minority shareholders were settled and dismissed with prejudice (see note 6).

Note 6:  Contingencies

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

      Albert Grimes et al. v. LCC International, Inc. et al., Civil Action No. 16957-NC, in the Court of Chancery of the State of Delaware, Castle County. On February 12, 1999, the minority shareholders of the Company’s majority-owned Microcell subsidiary filed a suit against the Company, the directors appointed by the Company to the Microcell Board and Microcell itself, seeking rescission of the shareholders’ agreement between the Company and the minority shareholders (which concerns management of Microcell, funding commitments and other matters), the appointment of a custodian or receiver, and unspecified monetary damages. In connection with the sale of the Company towers to Pinnacle Towers, Inc., the parties settled all pending litigation, and all claims were dismissed with prejudice on March 7, 2000.

Note 7:  Recent Accounting Pronouncements

      During June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137 and further amended by SFAS No. 138, established accounting and reporting standards for derivative financial instruments and associated hedging activities as well as hedging activities in general. The Company does not have any derivative instruments, and as such does not expect the adoption of SFAS No. 133, as amended, to have a material affect on its consolidated financial statements.

Note 8:  Segment Information

      The Company’s operating segments include Services (Engineering and Design Services, System Deployment Services, and Tower Services and Management) and Tower Ownership and Management. Engineering and Design Services provides engineering and design services for cellular phone system operators, personal communication system (“PCS”) operators and other wireless communication systems providers. System Deployment Services provides program and construction management services related to the build-out of wireless communication systems. Tower Services and Management offers site audit, maintenance and project management services to telecommunications tower owners. Tower Ownership and Management builds, owns and manages telecommunications towers.

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      Segment detail is summarized as follows (in thousands):

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

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LCC International, Inc. and Subsidiaries

Management’s Discussion and Analysis of

For the Three and Nine Months Ended September 30, 1999 and 2000

      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 include, without limitation, forward-looking statements regarding the Company’s ability to pursue and secure new business opportunities, its tower management business and its working capital. A more complete discussion of business risks is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

Overview

      The Company is one of the world’s largest independent providers of Radio Frequency (“RF”) engineering and system deployment services to the wireless telecommunications industry. The Company has provided these services to operators of more than 200 wireless systems in more than 50 countries. In 1996 the Company entered the tower ownership and management business which consists of acquiring, developing and managing telecommunications towers. The telecommunication towers were sold in March 2000, and the Company repositioned this operation to provide telecommunications site audits and operation and management services.

      The Company’s revenues are generated through contracts for RF engineering and system deployment services, and management revenue from its tower ownership and management business. 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 system deployment 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 Company derives a significant portion of its total revenues from its international customers. To date, its tower ownership and management revenues have come exclusively from the leasing of RF transmission towers in the United States.

      Cost of revenues consists of costs associated with engineering design and system deployment services and direct costs related to the tower ownership and management business. 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, office and occupancy, and other costs required for the finance, human resources, information systems and executive office functions.

      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 investments by network system operators over the next few years in design, system deployment and tower services and management.

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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.