United States Securities and Exchange Commission

Form 10-Q

(Mark One)

For the quarterly period ended March 31, 2005
or

For the transition period from             to            .
Commission File Number: 0-21213

LCC International, Inc.

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

Not Applicable

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

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

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 o No o

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 April 29, 2005 the registrant had outstanding 20,304,152 shares of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and 4,427,577 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
For the quarter ended March 31, 2005

INDEX

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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)

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets
(In thousands, except per share data)

See accompanying notes to condensed consolidated financial statements.

4

LCC International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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LCC International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements
(Unaudited)

(1) Description of Operations

     LCC International Inc. a Delaware Corporation (“LCCI”), was formed in 1983. Unless the context indicates otherwise, the terms the “Company”, “we”, “us”, and “our” refer herein to LCCI.

     We provide integrated end-to-end solutions for wireless voice and data communication networks with service offerings to include high level technical consulting, to system design and deployment, to ongoing operations and maintenance services. We operate in a highly competitive environment subject to rapid technological change and emergence of new technologies. Historically, the key drivers of changes in our 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 we believe that our services are transferable to emerging technologies, rapid changes in technology and deployment could have an adverse financial impact on us.

(2) Basis of Presentation

     We have prepared the condensed consolidated financial statements included herein without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and they reflect all adjustments that 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 our Annual Report on Form 10-K for the year ended December 31, 2004. Operating results for the interim periods are not necessarily indicative of results for an entire year.

(3) Equity-Based Compensation

     We account for equity-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations including FASB Interpretation No. 44, and comply with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” The Company has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure Amendment of SFAS Statement No. 123.” All equity-based awards to non-employees are accounted for at their fair value in accordance with 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 our stock and the exercise price.

     Our pro-forma net income (loss) would have been the following had compensation cost for our 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 SFAS No. 123.

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(4) 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). Accumulated other comprehensive income (loss) consists solely of foreign currency translation adjustments at March 31, 2004 and 2005. Comprehensive income (loss) for the three months ended March 31 is as follows (in thousands).

(5) Related Party Transactions

     RF Investors, a subsidiary of Telcom Ventures, 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 69% voting control.

     Prior to our initial public offering, both our employees and the employees of Telcom Ventures were eligible to participate in our life, medical, dental and 401(k) plans. In connection with our initial public offering in 1996, we agreed pursuant to an Overhead and Administrative Services Agreement to allow the employees of Telcom Ventures to continue to participate in our employee benefit plans in exchange for full reimbursement of our cash costs and expenses. We billed Telcom Ventures $77,000 during the year ended December 31, 2004 and $20,000 for the first quarter of 2005 for payments made by us pursuant to this agreement. We received reimbursements from Telcom Ventures of $82,000 during 2004 and $14,000 for the first quarter of 2005. At December 31, 2004 and March 31, 2005, outstanding amounts associated with payments made by us under this agreement were $1,000 and $7,000, respectively, and are included as due from related parties and affiliates within the consolidated balance sheets in the accompanying financial statements.

     During the three months ended March 31, 2005, we provided services to two customers where Telcom Ventures has a minority investment. Dr. Rajendra Singh, a director of Telcom Ventures, is a member of our Board of Directors. Revenues earned from these customers were $156,000 for the quarter ending March 31, 2005. Billed and unbilled receivables outstanding were $211,000 as of December 31, 2004 and $251,000 as of March 31, 2005, and are included in trade accounts receivable and unbilled receivables in the accompanying condensed consolidated balance sheet.

     In July 2002, we acquired 51 percent of the outstanding shares of Detron LCC Network Services B.V. (“Detron”), a newly formed corporation in the Netherlands. We acquired the shares from Westminster Capital B.V. (“Westminster”) which transferred the shares to Detron in January 2003. Detron has certain ongoing transactions with Westminster. Under a five-year lease agreement for office space, Detron recorded approximately $36,000 and $48,000 of rent expense for the quarters ended March 31, 2004 and 2005, respectively. During the first quarters of 2004 and 2005, Detron seconded various idle employees to Detron Telematics, Westminster’s wholly-owned subsidiary and recorded revenue of approximately $46,000 and $18,000, respectively. During the quarters ended March 31, 2004 and 2005, Detron recorded approximately $42,000 and $0, respectively, of management and advisory fees.

(6) Restructuring Charge

     During the second quarter of 2002, we adopted a restructuring plan and recorded a restructuring charge of $10.0 million. During the fourth quarter of 2002, we recorded an additional $3.5 million 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, we 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 for our employees while performing their services. The charge for the excess office space was approximately $12.5 million, which included $2.0 million in written-off leasehold improvements and other assets related to the excess space. The facility charge equals 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. As of March 31, 2005, the restructuring charge calculation assumes we will receive $10.6 million in sublease income, of which $8.3 million is committed.

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     During the first quarter of 2003, we reversed excess severance payable of approximately $0.2 million. During the third quarter of 2003, we reoccupied a portion of our office space in McLean, Virginia and reversed $0.4 million of the payable and recorded an increase in the restructuring payable of $0.5 million related to an estimated increase in the time period expected to sublease space in our London office. During the second quarter of 2004, we reversed $0.9 million of the payable due to reoccupied office space in McLean, Virginia and a decrease in the estimated time period expected to sublease space in our McLean and London offices. During the fourth quarter of 2004 we reversed an additional $0.2 million of the payable due to reoccupied office space in McLean, Virginia.

     A reconciliation of the restructuring activities is as follows:

     At December 31, 2004 and March 31, 2005, the restructuring payable was classified as follows:

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(7) Investments

     We held 1,666,666 shares of Class B Common Stock of NextWave Telecom, Inc. (“NextWave Telecom”) which is the parent corporation of NextWave Personal Communications Inc. We acquired the shares of NextWave Telecom in May 1996 for a purchase price of $5.0 million in connection with a series of transactions entered into between NextWave Telecom and us under an agreement dated March 12, 1996 (the “March Agreement”). We also acquired warrants to purchase an additional 123,356 shares of Class B Common Stock of NextWave Telecom at $3.00 per share. Under the March Agreement, NextWave Telecom agreed to engage us to provide not less than (a) $14.0 million of radio frequency engineering services and (b) $35.0 million of system deployment services. These services were to be provided in increments of twenty-percent (20%) each year during the five-year period following the execution of the March Agreement. NextWave Telecom filed for bankruptcy protection on December 23, 1998. The March Agreement was rejected by NextWave Telecom upon confirmation of its bankruptcy plan on March 2, 2005. On March 23, 2005, we agreed to settle our rejection damages claims against Nextwave Telecom by executing a Network Deployment Agreement whereby Nextwave Telecom agreed to engage us to perform $30.0 million of radio frequency engineering and system deployment services over three years in future markets commencing with Las Vegas.

     On August 4, 2003 we, through our wholly owned subsidiary LCC China Services, L.L.C., closed an investment in a newly created entity based in China, Beijing LCC Bright Oceans Communication Consulting Co. Ltd. (“LCC/BOCO”). We contributed approximately $1.1 million for a 49.0% share of LCC/BOCO’s registered capital. Bright Oceans Inter-Telecom Corporation, a Chinese publicly traded network management and systems integrator (“BOCO”), contributed approximately $1.1 million to hold the remaining 51.0% of LCC/BOCO’s registered capital. We account for the investment in LCC/ BOCO using the equity method of accounting. BOCO has advised us that it has made a strategic decision to exit the wireless telecommunications infrastructure services business and we have agreed to dissolve the joint venture. We have undertaken to transfer selected projects and joint venture employees to our wholly-owned Chinese subsidiary, which continues to pursue projects independently with customers in China. We expect to liquidate this investment in the third quarter of 2005.

(8) Line of Credit

     In 2003, Detron established a line of credit with NMB-Heller N.V. (“NMB”). The line of credit provides that NMB will provide credit to Detron in the form of advance payments collateralized by Detron’s outstanding receivables. The agreement provides for NMB to advance up to 75% of the receivable balance. There is no maximum on the amount of receivables Detron can assign to NMB. Detron must repay the advances from NMB within 90 days or upon customer payment whichever occurs first. Interest on the advance payments will be calculated at a rate equal to NMB’s overdraft base rate plus 2% subject to a minimum of 5.75% per year. The agreement had an initial term of two years and was terminated on January 26, 2005 under mutual agreement. As of December 31, 2004, Detron had $0.1 million outstanding under the credit facility.

(9) Commitments and Contingencies

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

(10) Segment reporting

     SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information established standards for reporting information about the operating segments in interim and annual financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. Our chief operating decision-making group is the Executive Committee, which comprises the Chief Executive Officer and our Senior Vice Presidents.

     Our operating segments are defined geographically by region (see Overview), namely the Americas region and the EMEA region. Both regions provide design and deployment services, operations and maintenance services and technical consulting services.

     Segment detail is summarized as follows (in thousands):

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     A reconciliation of totals reported for the operating segments to the applicable line items in the consolidated financial statements is as follows (in thousands):