United States Securities and Exchange Commission
Form 10-Q
(Mark One)
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[X]
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Quarterly report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2003 |
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[ ]
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Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . |
LCC International, Inc.
| Delaware | 54-1807038 | |
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) | |
| 7925 Jones Branch Drive, McLean, VA | 22102 | |
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(Address of Principal Executive Offices)
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(Zip Code) | |
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:
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FINANCIAL INFORMATION
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ITEM 1:
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FINANCIAL STATEMENTS
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Condensed consolidated statements of operations
for the three months ended March 31, 2002 and 2003
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3 | |||||
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Condensed consolidated balance sheets as of
December 31, 2002 and March 31, 2003
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4 | |||||
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Condensed consolidated statements of cash flows
for the three months ended March 31, 2002 and 2003
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5 | |||||
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Notes to condensed consolidated financial
statements
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6 | |||||
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ITEM 2:
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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11 | ||||
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ITEM 3:
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
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18 | ||||
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ITEM 4:
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CONTROLS AND PROCEDURES
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19 | ||||
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PART II:
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OTHER INFORMATION
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ITEM 1:
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Legal Proceedings
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20 | ||||
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ITEM 2:
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Changes in Securities
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20 | ||||
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ITEM 3:
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Defaults Upon Senior Securities
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20 | ||||
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ITEM 4:
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Submission of Matters to a Vote of Security
Holders
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20 | ||||
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ITEM 5:
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Other Information
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20 | ||||
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ITEM 6:
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Exhibits and Reports on Form 8-K
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20 | ||||
2
PART I: FINANCIAL INFORMATION
LCC International, Inc. and Subsidiaries
| Three Months Ended | |||||||||
| March 31, | |||||||||
| 2002 | 2003 | ||||||||
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REVENUES
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$ | 17,398 | $ | 17,140 | |||||
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COST OF REVENUES
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16,270 | 14,599 | |||||||
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GROSS PROFIT
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1,128 | 2,541 | |||||||
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OPERATING EXPENSES:
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Sales and marketing
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2,295 | 1,956 | |||||||
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General and administrative
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5,105 | 4,738 | |||||||
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Restructuring charge
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— | (152 | ) | ||||||
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Depreciation and amortization
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691 | 796 | |||||||
| 8,091 | 7,338 | ||||||||
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OPERATING LOSS
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(6,963 | ) | (4,797 | ) | |||||
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OTHER INCOME (EXPENSE):
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Interest income
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302 | 88 | |||||||
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Other
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2 | 1,249 | |||||||
| 304 | 1,337 | ||||||||
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LOSS FROM OPERATIONS BEFORE INCOME TAXES
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(6,659 | ) | (3,460 | ) | |||||
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BENEFIT FOR INCOME TAXES
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(1,598 | ) | (1,298 | ) | |||||
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NET LOSS
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$ | (5,061 | ) | $ | (2,162 | ) | |||
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NET LOSS PER SHARE:
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Basic
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$ | (0.24 | ) | $ | (0.10 | ) | |||
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Diluted
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$ | (0.24 | ) | $ | (0.10 | ) | |||
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WEIGHTED AVERAGE SHARES USED IN CALCULATION OF NET
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LOSS PER SHARE:
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Basic
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20,833 | 20,958 | |||||||
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Diluted
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20,833 | 20,958 | |||||||
See accompanying notes to condensed consolidated financial statements.
3
LCC International, Inc. and Subsidiaries
| December 31, | March 31, | |||||||||
| 2002 | 2003 | |||||||||
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ASSETS:
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Current assets:
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Cash and cash equivalents
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$ | 37,507 | $ | 33,026 | ||||||
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Restricted cash
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1,308 | 1,537 | ||||||||
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Short-term investments
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514 | 514 | ||||||||
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Receivables, net of allowance for doubtful
accounts of $3,122 and $2,663 at December 31, 2002 and
March 31, 2003, respectively:
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Trade accounts receivable
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13,165 | 11,783 | ||||||||
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Unbilled receivables
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12,369 | 14,763 | ||||||||
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Due from related parties and affiliates
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61 | 159 | ||||||||
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Deferred income taxes, net
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3,932 | 5,249 | ||||||||
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Prepaid expenses and other current assets
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1,835 | 1,690 | ||||||||
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Prepaid tax receivable and prepaid taxes
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8,285 | 7,683 | ||||||||
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Total current assets
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78,976 | 76,404 | ||||||||
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Property and equipment, net
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5,010 | 4,559 | ||||||||
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Deferred income taxes, net
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504 | 81 | ||||||||
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Goodwill and other intangibles
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11,273 | 11,013 | ||||||||
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Other assets
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960 | 1,018 | ||||||||
| $ | 96,723 | $ | 93,075 | |||||||
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LIABILITIES AND SHAREHOLDERS’
EQUITY:
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Current liabilities:
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Accounts payable
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$ | 7,316 | $ | 7,950 | ||||||
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Accrued expenses
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10,543 | 9,760 | ||||||||
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Accrued employee compensation and benefits
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6,272 | 6,017 | ||||||||
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Deferred revenue
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41 | 863 | ||||||||
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Income taxes payable
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882 | 414 | ||||||||
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Accrued restructuring current
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3,937 | 3,608 | ||||||||
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Other current liabilities
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26 | 154 | ||||||||
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Total current liabilities
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29,017 | 28,766 | ||||||||
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Accrued restructuring
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5,786 | 5,153 | ||||||||
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Other liabilities
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832 | 597 | ||||||||
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Total liabilities
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35,635 | 34,516 | ||||||||
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Shareholders’ equity:
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Preferred stock:
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10,000 shares authorized; 0 shares issued and
outstanding
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— | — | ||||||||
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Class A common stock, $0.01 par value:
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70,000 shares authorized; 14,632 and 14,644
shares issued and outstanding at December 31, 2002 and
March 31, 2003, respectively
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146 | 146 | ||||||||
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Class B common stock, $0.01 par value:
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20,000 shares authorized; 6,319 shares issued and
outstanding at December 31, 2002 and March 31, 2003,
respectively
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63 | 63 | ||||||||
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Paid-in capital
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94,132 | 94,152 | ||||||||
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Accumulated deficit
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(30,079 | ) | (32,241 | ) | ||||||
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Note receivable from shareholder
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(1,625 | ) | (1,625 | ) | ||||||
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Subtotal
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62,637 | 60,495 | ||||||||
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Accumulated other comprehensive loss —
foreign currency translation adjustments
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(1,549 | ) | (1,936 | ) | ||||||
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Total shareholders’ equity
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61,088 | 58,559 | ||||||||
| $ | 96,723 | $ | 93,075 | |||||||
See accompanying notes to condensed consolidated financial statements.
4
LCC International, Inc. and Subsidiaries
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2002 | 2003 | |||||||||||
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Cash flows from operating activities:
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Net loss
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$ | (5,061 | ) | $ | (2,162 | ) | ||||||
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Adjustments to reconcile net loss to net cash
used in operating activities:
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Depreciation and amortization
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691 | 796 | ||||||||||
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Provision (recovery) for doubtful accounts
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678 | (728 | ) | |||||||||
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Restructuring charge (recovery)
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— | (152 | ) | |||||||||
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Changes in operating assets and liabilities:
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Trade, unbilled, and other receivables
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7,679 | (450 | ) | |||||||||
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Accounts payable and accrued expenses
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(5,483 | ) | (404 | ) | ||||||||
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Other current assets and liabilities
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(1,625 | ) | 235 | |||||||||
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Other non-current assets and liabilities
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(706 | ) | (1,189 | ) | ||||||||
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Net cash used in operating activities
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(3,827 | ) | (4,054 | ) | ||||||||
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Cash flows from investing activities:
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Proceeds from sales of short-term investments
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(21 | ) | — | |||||||||
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Purchases of property and equipment
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(406 | ) | (250 | ) | ||||||||
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Proceeds from disposals of property and equipment
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— | 32 | ||||||||||
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Business acquisitions
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(7,146 | ) | — | |||||||||
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Net cash used in investing activities
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(7,573 | ) | (218 | ) | ||||||||
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Cash flows from financing activities:
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Proceeds from issuance of common stock, net
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— | 20 | ||||||||||
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Proceeds from exercise of options
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109 | — | ||||||||||
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Increase in restricted cash
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— | (229 | ) | |||||||||
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Repayment of loan to shareholder
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700 | — | ||||||||||
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Net cash provided by (used in) financing
activities
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809 | (209 | ) | |||||||||
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Net decrease in cash and cash equivalents
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(10,591 | ) | (4,481 | ) | ||||||||
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Cash and cash equivalents at beginning of period
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52,658 | 37,507 | ||||||||||
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Cash and cash equivalents at end of period
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$ | 42,067 | $ | 33,026 | ||||||||
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Supplemental disclosures of cash flow information:
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Cash paid during the quarter for:
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Income taxes
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$ | 1,316 | $ | 3 | ||||||||
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.
5
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
6
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.
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2002 | 2003 | |||||||||
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Net loss:
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As reported
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$ | (5,061 | ) | $ | (2,162 | ) | ||||
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Pro forma
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$ | (5,781 | ) | $ | (2,777 | ) | ||||
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Net loss per share
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As reported:
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Basic
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$ | (0.24 | ) | $ | (0.10 | ) | ||||
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Diluted
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$ | (0.24 | ) | $ | (0.10 | ) | ||||
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Pro forma:
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Basic
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$ | (0.28 | ) | $ | (0.13 | ) | ||||
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Diluted
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$ | (0.28 | ) | $ | (0.13 | ) | ||||
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 $0.2 million.
7
A reconciliation of the restructuring activities is as follows:
| Severance | Facilities | Total | |||||||||||
| (in thousands) | |||||||||||||
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Restructuring charge
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$ | 1,030 | $ | 12,492 | $ | 13,522 | |||||||
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Reclassification of deferred rent
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— | 639 | 639 | ||||||||||
| 1,030 | 13,131 | 14,161 | |||||||||||
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< | |||||||||||||