##### 



United States Securities and Exchange Commission
 Washington, DC 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For
the transition period
from          to         .
 Commission File Number: 0-21213
 LCC International, Inc.
  
 Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
    
    54-1807038
(I.R.S. Employer Identification Number)7925 Jones Branch Drive, McLean, VA
(Address of Principal Executive Offices)
    
    22102
(Zip Code)
 Registrants telephone number, including area code: (703) 873-2000
 Not Applicable
  o þ
 þ o
 o þ
 
 þ o




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##### 



EXPLANATORY NOTE
(Unaudited)
   2




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##### 



LCC International, Inc. and Subsidiaries
 Quarterly Report on Form 10-Q
For the quarter ended September 30, 2005
 INDEX
 PageNumberPART I:
    
    FINANCIAL INFORMATION
    
    4ITEM 1:
    
    FINANCIAL STATEMENTS
    
    4Condensed consolidated statements of operations for the three
months and nine months ended September 30, 2004 (restated and
unaudited) and 2005 (unaudited)
    
    4Condensed consolidated balance sheets as of December 31, 2004
(restated) and September 30, 2005 (unaudited)
    
    5Condensed consolidated statements of cash flows for the nine
months ended September 30, 2004 (restated and unaudited) and
2005 (unaudited)
    
    6Notes to condensed consolidated financial statements (unaudited)
    
    7ITEM 2:
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    15ITEM 3:
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    26ITEM 4:
    
    CONTROLS AND PROCEDURES
    
    26PART II:
    
    OTHER INFORMATION
    
    28ITEM 1:
    
    Legal proceedings
    
    28ITEM 2:
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    28ITEM 3:
    
    Defaults upon senior securities
    
    28ITEM 4:
    
    Submission of matters to a vote of security holders
    
    28ITEM 5:
    
    Other information
    
    29ITEM 6:
    
    Exhibits and reports on Form 8-K
    
    29
 3




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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)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)REVENUES
    
    $
    50,006
    
    
    $
    49,516
    
    
    $
    147,673
    
    
    $
    137,622COST OF REVENUES (exclusive of depreciation shown separately below)
    
    
    40,605
    
    
    
    37,669
    
    
    
    121,341
    
    
    
    113,984GROSS PROFIT
    
    
    9,401
    
    
    
    11,847
    
    
    
    26,332
    
    
    
    23,638OPERATING (INCOME) EXPENSE:Sales and marketing
    
    
    2,072
    
    
    
    1,857
    
    
    
    5,724
    
    
    
    6,137General and administrative
    
    
    5,929
    
    
    
    6,792
    
    
    
    18,762
    
    
    
    21,755Restructuring charge (recovery)
    
    
    
    
    
    
    
    
    
    
    (924
    )
    
    
    759Depreciation and amortization
    
    
    728
    
    
    
    755
    
    
    
    2,097
    
    
    
    2,1978,729
    
    
    
    9,404
    
    
    
    25,659
    
    
    
    30,848OPERATING INCOME (LOSS)
    
    
    672
    
    
    
    2,443
    
    
    
    673
    
    
    
    (7,210
    )OTHER INCOME (EXPENSE):Interest income
    
    
    23
    
    
    
    39
    
    
    
    134
    
    
    
    114Interest expense
    
    
    (60
    )
    
    
    (34
    )
    
    
    (152
    )
    
    
    (161
    )Other
    
    
    83
    
    
    
    (173
    )
    
    
    604
    
    
    
    (653
    )46
    
    
    
    (168
    )
    
    
    586
    
    
    
    (700
    )INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES
    
    
    718
    
    
    
    2,275
    
    
    
    1,259
    
    
    
    (7,910
    )PROVISION FOR INCOME TAXES
    
    
    79
    
    
    
    1,049
    
    
    
    860
    
    
    
    2,726NET INCOME (LOSS)
    
    $
    639
    
    
    $
    1,226
    
    
    $
    399
    
    
    $
    (10,636
    )NET INCOME (LOSS) PER SHARE:Basic
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    (0.43
    )Diluted
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    (0.43
    )WEIGHTED AVERAGE SHARES USED IN CALCULATION OF NET INCOME (LOSS)
PER SHARE:Basic
    
    
    24,411
    
    
    
    24,424
    
    
    
    24,392
    
    
    
    24,496Diluted
    
    
    24,988
    
    
    
    24,578
    
    
    
    25,370
    
    
    
    24,496
  4




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##### 



LCC International, Inc. and Subsidiaries
 Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
 December 31,
    
    
    September 30,2004
    
    
    2005(Restated)ASSETS:Current assets:Cash and cash equivalents
    
    $
    21,930
    
    
    $
    7,414Restricted cash
    
    
    1,162
    
    
    
    1,153Receivables,
net of allowance for doubtful accounts of $620 and $312 at
December 31, 2004 and September 30, 2005, respectively:Trade accounts receivable
    
    
    46,214
    
    
    
    47,008Unbilled receivables
    
    
    28,696
    
    
    
    30,188Due from related parties and affiliates
    
    
    80
    
    
    
    53Deferred income taxes, net
    
    
    290
    
    
    
    471Prepaid expenses and other current assets
    
    
    1,586
    
    
    
    2,150Prepaid tax receivable and prepaid taxes
    
    
    683
    
    
    
    683Total current assets
    
    
    100,641
    
    
    
    89,120Property and equipment, net
    
    
    4,218
    
    
    
    4,296Investments in affiliates
    
    
    677
    
    
    
    636Deferred income taxes, net
    
    
    858
    
    
    
    677Goodwill
    
    
    12,246
    
    
    
    11,084Other intangibles
    
    
    602
    
    
    
    376Other assets
    
    
    1,565
    
    
    
    1,142$
    120,807
    
    
    $
    107,331LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilities:Line of credit
    
    $
    147
    
    
    
    4,000Accounts payable
    
    
    19,790
    
    
    
    19,185Accrued expenses
    
    
    21,840
    
    
    
    17,785Accrued employee compensation and benefits
    
    
    4,850
    
    
    
    4,133Deferred revenue
    
    
    985
    
    
    
    703Income taxes payable
    
    
    1,570
    
    
    
    2,686Accrued restructuring current
    
    
    1,562
    
    
    
    1,471Other current liabilities
    
    
    239
    
    
    
    395Total current liabilities
    
    
    50,983
    
    
    
    50,358Accrued restructuring non-current
    
    
    1,339
    
    
    
    737Other liabilities
    
    
    780
    
    
    
    724Total liabilities
    
    
    53,102
    
    
    
    51,819Shareholders equity:Preferred stock:10,000 shares authorized; 0 shares issued and outstanding
    
    
    
    
    
    
    Class A common stock, $0.01 par value:70,000
shares authorized; 20,209 and 20,427 shares issued and outstanding at
December 31, 2004 and September 30, 2005, respectively
    
    
    202
    
    
    
    204Class B common stock, $0.01 par value:20,000 shares authorized; 4,428 shares issued and outstanding at
December 31, 2004 and September 30, 2005
    
    
    44
    
    
    
    44Paid-in capital
    
    
    107,773
    
    
    
    108,499Accumulated deficit
    
    
    (42,913
    )
    
    
    (53,549
    )Subtotal
    
    
    65,106
    
    
    
    55,198Accumulated other comprehensive income  foreign currency translation adjustments
    
    
    3,481
    
    
    
    1,196Treasury stock (159,209 shares)
    
    
    (882
    )
    
    
    (882
    )Total shareholders equity
    
    
    67,705
    
    
    
    55,512$
    120,807
    
    
    $
    107,331
  5




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##### 



LCC International, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2004
    
    
    2005(Restated)Cash flows from operating activities:Net Profit
(Loss)
    
    $
    399
    
    
    $
    (10,636
    )Adjustments
to reconcile net profit (loss) to net cash used in operating activities:Depreciation and amortization
    
    
    2,097
    
    
    
    2,197Provision for doubtful accounts
    
    
    136
    
    
    
    170Loss on equity method investment
    
    
    466
    
    
    
    308Non-cash compensation
    
    

    
    
    
    
    195Restructuring charge (recovery)
    
    
    (924
    )
    
    
    759Changes in operating assets and liabilities:Trade, unbilled, and other receivables
    
    
    (19,034
    )
    
    
    (2,399
    )Accounts payable and accrued expenses
    
    
    9,232
    
    
    
    (5,377
    )Other current assets and liabilities
    
    
    (1,119
    )
    
    
    (592
    )Other non-current assets and liabilities
    
    
    (298
    )
    
    
    1,168Net cash used in operating activities
    
    
    (9,045
    )
    
    
    (16,543
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,468
    )
    
    
    (2,270
    )Proceeds from disposals of property and equipment
    
    
    30
    
    
    
    61Investments
    
    
    (360
    )
    
    
    (125
    )Net cash used in investing activities
    
    
    (2,798
    )
    
    
    (2,334
    )Cash flows from financing activities:Borrowings on line of credit
    
    
    15,652
    
    
    
    12,724Payments on line of credit
    
    
    (16,197
    )
    
    
    (8,892
    )Proceeds from issuance of common stock, net
    
    
    72
    
    
    
    87Proceeds from exercise of options
    
    
    897
    
    
    
    446Proceeds/purchases of short-term investments
    
    
    520
    
    
    
    Decrease (increase) in restricted cash
    
    
    374
    
    
    
    (4
    )Net cash provided by financing activities
    
    
    1,318
    
    
    
    4,361Net decrease in cash and cash equivalents
    
    
    (10,525
    )
    
    
    (14,516
    )Cash and cash equivalents at beginning of period
    
    
    28,943
    
    
    
    21,930Cash and cash equivalents at end of period
    
    $
    18,418
    
    
    $
    7,414Supplemental disclosures of cash flow information:Cash paid during the period for:Income taxes
    
    $
    222
    
    
    $
    1,422Interest
    
    
    40
    
    
    
    67
  6




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##### 



LCC International, Inc. and Subsidiaries
 Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (1) Description of Operations
   (2) Basis of Presentation
   7




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##### 



(3) Equity-Based Compensation
 Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation. Accounting for Stock-Based Compensation-Transition and Disclosure Amendment of
SFAS Statement No. 123
  Three Months
    
    
    Nine Months EndedEnded September 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Net income (loss):Net income (loss) as reported
    
    $
    639
    
    
    $
    1,226
    
    
    $
    399
    
    
    $
    (10,636
    )Deduct total stock-based
employee compensation
expense determined under
fair value based method
    
    
    (545
    )
    
    
    (295
    )
    
    
    (986
    )
    
    
    (1,032
    )Pro forma net income (loss)
    
    $
    94
    
    
    $
    931
    
    
    $
    (587
    )
    
    $
    (11,668
    )Net income (loss) per share:As reportedBasic
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    (0.43
    )Diluted
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.02
    
    
    $
    (0.43
    )Pro formaBasic
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.02
    
    
    $
    (0.48
    )Diluted
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.02
    
    
    $
    (0.48
    )
 (4) Other Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Net income (loss)
    
    $
    639
    
    
    $
    1,226
    
    
    $
    399
    
    
    $
    (10,636
    )Other comprehensive income (loss), before tax
    
    
    516
    
    
    
    (239
    )
    
    
    111
    
    
    
    (2,285
    )Income tax provision related to items of comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income (loss), net of tax
    
    
    516
    
    
    
    (239
    )
    
    
    111
    
    
    
    (2,285
    )Comprehensive income (loss)
    
    $
    1,155
    
    
    $
    987
    
    
    $
    510
    
    
    $
    (12,921
    )
 (5) Related Party Transactions
  8




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##### 



(6) Restructuring Charge
  9




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##### 



Severance
    
    
    Facilities
    
    
    Total(in thousands)Restructuring charge
    
    $
    1,030
    
    
    $
    12,492
    
    
    $
    13,522Reclassification of deferred rent
    
    
    
    
    
    
    639
    
    
    
    6391,030
    
    
    
    13,131
    
    
    
    14,161Charges against the provision:Payments for excess office space, net of sublease income
    
    
    
    
    
    
    (2,125
    )
    
    
    (2,125
    )Severance and associated costs paid
    
    
    (878
    )
    
    
    
    
    
    
    (878
    )Leasehold improvements and other assets written-off
    
    
    
    
    
    
    (1,461
    )
    
    
    (1,461
    )Other
    
    
    
    
    
    
    53
    
    
    
    53Restructuring payable as of December 31, 2002
    
    $
    152
    
    
    $
    9,571
    
    
    $
    9,723Reversal of excess severance
    
    
    (152
    )
    
    
    
    
    
    
    (152
    )Reversal for reoccupied space
    
    
    
    
    
    
    (385
    )
    
    
    (385
    )Additional charge for reduction of sublease income
    
    
    
    
    
    
    535
    
    
    
    535Restructuring charge
    
    
    (152
    )
    
    
    150
    
    
    
    (2
    )Charges against the provision:Payments for excess office space, net of sublease income
    
    
    
    
    
    
    (2,971
    )
    
    
    (2,971
    )Leasehold improvements and other assets written-off
    
    
    
    
    
    
    (564
    )
    
    
    (564
    )Other
    
    
    
    
    
    
    149
    
    
    
    149Restructuring payable as of December 31, 2003
    
    $
    
    
    
    $
    6,335
    
    
    $
    6,335Reversal for reoccupied space
    
    
    
    
    
    
    (1,166
    )
    
    
    (1,166
    )Charges against the provision:Payments for excess office space, net of sublease income
    
    
    
    
    
    
    (2,131
    )
    
    
    (2,131
    )Leasehold improvements and other assets written-off
    
    
    
    
    
    
    (214
    )
    
    
    (214
    )Other
    
    
    
    
    
    
    77
    
    
    
    77Restructuring payable as of December 31, 2004
    
    $
    
    
    
    $
    2,901
    
    
    $
    2,901Restructuring
charge
    
    
    752
    
    
    
    281
    
    
    
    1,033Reversal for
reoccupied space
    
    
    
    
    
    
    (274
    )
    
    
    (274
    )752
    
    
    
    7
    
    
    
    759Charges against the provision:Payments for excess office space, net of sublease income
    
    
    
    
    
    
    (808
    )
    
    
    (808
    )Severance
and associated costs paid
    
    
    (498
    )
    
    
    
    
    
    
    (498
    )Other
    
    
    
    
    
    
    (146
    )
    
    
    (146
    )Restructuring payable as of September 30, 2005
    
    $
    254
    
    
    $
    1,954
    
    
    $
    2,208
 10




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##### 



December 31,
    
    
    September 30,2004
    
    
    2005(Restated)Accrued restructuring current
    
    $
    1,562
    
    
    $
    1,471Accrued restructuring
    
    
    1,339
    
    
    
    737Accrued restructuring total
    
    $
    2,901
    
    
    $
    2,208
 (7) Investments
   (8) Line of Credit and Assignment and Transfer of Receivables
    11




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##### 



(9) Commitments and Contingencies
  12




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##### 



(10) Segment reporting
 Disclosures about Segments of an Enterprise and Related Information
   Americas
    
    
    EMEA
    
    
    Segment Total2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Restated)Three Months Ended September 30,Revenues:From external customers
    
    $
    28,946
    
    
    $
    19,667
    
    
    $
    19,494
    
    
    $
    29,761
    
    
    $
    48,440
    
    
    $
    49,428Inter-segment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    $
    28,946
    
    
    $
    19,667
    
    
    $
    19,494
    
    
    $
    29,761
    
    
    $
    48,440
    
    
    $
    49,428Income (loss) before taxes
    
    
    3,188
    
    
    
    3,270
    
    
    
    478
    
    
    
    2,919
    
    
    
    3,666
    
    
    
    6,189Total assets
    
    
    44,883
    
    
    
    33,724
    
    
    
    56,291
    
    
    
    63,983
    
    
    
    102,893
    
    
    
    97,707
 Americas
    
    
    EMEA
    
    
    Segment Total2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Restated)Nine Months Ended September 30,Revenues:From external customers
    
    $
    88,683
    
    
    $
    59,174
    
    
    $
    54,549
    
    
    $
    77,123
    
    
    $
    143,232
    
    
    $
    136,297Inter-segment revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    $
    88,683
    
    
    $
    59,174
    
    
    $
    54,549
    
    
    $
    77,123
    
    
    $
    143,232
    
    
    $
    136,297Income (loss) before taxes
    
    
    9,023
    
    
    
    (267
    )
    
    
    (254
    )
    
    
    5,402
    
    
    
    8,769
    
    
    
    5,135
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Revenues:Revenues for reportable segments
    
    $
    48,440
    
    
    $
    49,428
    
    
    $
    143,232
    
    
    $
    136,297Revenues for non-reportable segments
    
    
    1,566
    
    
    
    88
    
    
    
    4,441
    
    
    
    1,325Total consolidated revenues
    
    $
    50,006
    
    
    $
    49,516
    
    
    $
    147,673
    
    
    $
    137,622Assets:Assets for reportable segments
    
    
    
    
    
    
    
    
    
    $
    102,893
    
    
    $
    97,707Assets not attributable to reportable segments:Cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    13,811
    
    
    
    5,700Restricted cash
    
    
    
    
    
    
    
    
    
    
    222
    
    
    
    37Short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Receivables
    
    
    
    
    
    
    
    
    
    
    2,355
    
    
    
    617Deferred and prepaid taxes
    
    
    
    
    
    
    
    
    
    
    5,085
    
    
    
    1,831Property and equipment
    
    
    
    
    
    
    
    
    
    
    868
    
    
    
    528Investments
    
    
    
    
    
    
    
    
    
    
    643
    
    
    
    623Prepaid and other
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    28823,793
    
    
    
    9,624Total consolidated assets
    
    
    
    
    
    
    
    
    
    $
    129,269
    
    
    $
    107,331
 13




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Income (loss) before income taxes for reportable segments
    
    $
    3,666
    
    
    $
    6,189
    
    
    $
    8,441
    
    
    $
    5,253Restructuring
(charge) recovery
    
    
    
    
    
    
    
    
    
    
    924
    
    
    
    (759
    )Income (loss) before income taxes for non-reportable segments
    
    
    (2,948
    )
    
    
    (3,914
    )
    
    
    (8,106
    )
    
    
    (12,404
    )Income (loss) from operations before income taxes
    
    $
    718
    
    
    $
    2,275
    
    
    $
    1,259
    
    
    $
    (7,910
    )
 (11) Receivables
  14




---



##### 



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
   Americas:
    
    The Americas region provides the
full range of service offerings to
wireless operators and equipment
vendors through a network of project
offices in North America and South
America. In the third quarter of
2005, Americas generated
approximately 39% of our total
revenue. The decision was made to
move the headquarters for the
Americas region from Los Angeles,
California to our headquarters in
McLean, Virginia. This transition
was completed in the second quarter.EMEA:
    
    Based in London, the Europe, Middle
East and Africa region is
responsible for operations in the
U.K., Italy, Netherlands, Algeria,
Germany, Spain, Greece, Pakistan,
Saudi Arabia and the Middle East.
EMEA also undertakes projects
throughout its region and we have
recently established a marketing
office in Dubai. In the third
quarter of 2005, EMEA generated
approximately 60% of our total
revenue.Nonreportable segment:
    
    This includes our operations in
Asia, the Wireless Institute and LCC
Wireline. The decision was made to
wind down and dissolve the Wireline
business. In the third quarter of
2005, these combined operations
generated less than 1% of our total
revenues. We provide training to our
engineers and customers through our
Wireless Institute, which covers the
latest technologies developed and
employed throughout the world.
  15




---



##### 



Trends That Have Affected or May Affect Results of Operations and Financial Condition
  
    
    project related revenues derived from a limited set of customers in each market where we do business;
    
    the acceleration or the delay associated with the introduction of new technologies and services by our customers;
    
    the management and the services composition of our fixed price contracts;
    
    the impact of the percentage of subcontracted work (versus self perform work) on our
large programs and the associated margin degradation;
    
    customers agreeing to exclude construction services from fixed-price contracts; and
    
    increased spending by wireless service providers in the areas of network design, deployment and optimization.
  16




---



##### 



Renegotiation of Contract with a Major Customer
  Results of Operations
  Revenues, Cost of Revenues and Gross Margins
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(in thousands)
    
    
    (in thousands)
    
    
    (in thousands)
    
    
    (in thousands)(Restated)
    
    


    
    

(Restated)Revenues:Americas
    
    $
    28,946
    
    
    $
    19,667
    
    
    $
    88,683
    
    
    $
    59,174EMEA
    
    
    19,494
    
    
    
    29,761
    
    
    
    54,549
    
    
    
    77,123Non-reportable segment
    
    
    1,566
    
    
    
    88
    
    
    
    4,441
    
    
    
    1,325$
    50,006
    
    
    $
    49,516
    
    
    $
    147,673
    
    
    $
    137,622
 17




---



##### 



(% of
    
    
    (% of
    
    
    (% of
    
    
    (% ofrevenue)
    
    
    revenue)
    
    
    revenue)
    
    
    revenue)Cost of revenues:Americas
    
    
    
    
    
    $
    24,243
    
    
    
    83.8
    %
    
    $
    15,143
    
    
    
    77.0
    %
    
    $
    75,139
    
    
    
    84.7
    %
    
    $
    54,847
    
    
    
    92.7
    %EMEA
    
    
    
    
    
    
    15,109
    
    
    
    77.5
    
    
    
    22,542
    
    
    
    75.7
    
    
    
    42,943
    
    
    
    78.7
    
    
    
    58,200
    
    
    
    75.5Non-reportable segment
    
    
    
    
    
    
    1,253
    
    
    
    80.0
    
    
    
    (16
    )
    
    
    -18.2
    
    
    
    3,259
    
    
    
    73.4
    
    
    
    937
    
    
    
    70.7$
    40,605
    
    
    
    81.2
    %
    
    $
    37,669
    
    
    
    76.1
    %
    
    $
    121,341
    
    
    
    82.2
    %
    
    $
    113,984
    
    
    
    82.8
    %Gross margins:Americas
    
     
    
    
    
   $
    4,703
     
    
    
    16.2
    %
    
    $
    4,524
    
    
    
    23.0
    %
    
    $
    13,544
    
    
    
    15.3
    %
    
    $
    4,327
    
    
    
    7.3
    %EMEA
     
    
    
    
    
    
    4,385
    
    
    
    22.5
    
    
    
    7,219
    
    
    
    24.3
    
    
    
    11,606
    
    
    
    21.3
    
    
    
    18,923
    
    
    
    24.5Non-reportable segment
    
    
    
    
    
    
    313
    
    
    
    20.0
    
    
    
    104
    
    
    
    118.2
    
    
    
    1,182
    
    
    
    26.6
    
    
    
    388
    
    
    
    29.3$
    9,401
    
    
    
    18.8
    %
    
    $
    11,847
    
    
    
    23.9
    %
    
    $
    26,332
    
    
    
    17.8
    %
    
    $
    23,638
    
    
    
    17.2
    %
 Americas
     18




---



##### 



EMEA
     Non-reportable segments
   Operating Expense
 Three Months Ended
    
    
    Nine-Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    

    
    
    
    
(Restated)(in thousands)
    
    
    (in thousands)Sales and marketingAmericas
    
    $
    945
    
    
    $
    472
    
    
    $
    2,600
    
    
    $
    1,736EMEA
    
    
    905
    
    
    
    1,336
    
    
    
    2,430
    
    
    
    4,123Nonreportable segments
    
    
    222
    
    
    
    49
    
    
    
    694
    
    
    
    2782,072
    
    
    
    1,857
    
    
    
    5,724
    
    
    
    6,137Bad debt expense (recovery)Americas
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    60EMEA
    
    
    35
    
    
    
    31
    
    
    
    35
    
    
    
    35
 19




---



##### 



Three Months Ended
    
    
    Nine-Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    

    
    
    (Restated)(in thousands)
    
    
    (in thousands)Nonreportable segments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7535
    
    
    
    31
    
    
    
    135
    
    
    
    170General and administrativeAmericas
    
    
    437
    
    
    
    542
    
    
    
    1,448
    
    
    
    2,301EMEA
    
    
    2,486
    
    
    
    2,468
    
    
    
    8,021
    
    
    
    7,812Nonreportable segments
    
    
    2,971
    
    
    
    3,751
    
    
    
    9,158
    
    
    
    11,4725,894
    
    
    
    6,761
    
    
    
    18,627
    
    
    
    21,585Restructuring
charge (recovery)Americas
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    641EMEA
    
    
    
    
    
    
    
    
    
    
    (567
    )
    
    
    Nonreportable segments
    
    
    
    
    
    
    
    
    
    
    (328
    )
    
    
    118
    
    
    
    
    
    
    
    (924
    )
    
    
    759Depreciation and amortizationAmericas
    
    
    128
    
    
    
    177
    
    
    
    363
    
    
    
    447EMEA
    
    
    504
    
    
    
    503
    
    
    
    1,425
    
    
    
    1,495Nonreportable segments
    
    
    96
    
    
    
    75
    
    
    
    309
    
    
    
    255728
    
    
    
    755
    
    
    
    2,097
    
    
    
    2,197TotalAmericas
    
    
    1,510
    
    
    
    1,191
    
    
    
    4,482
    
    
    
    5,185EMEA
    
    
    3,930
    
    
    
    4,338
    
    
    
    11,344
    
    
    
    13,465Nonreportable segments
    
    
    3,289
    
    
    
    3,875
    
    
    
    9,833
    
    
    
    12,198$
    8,729
    
    
    $
    9,404
    
    
    $
    25,659
    
    
    $
    30,848
    Other Income and Expense
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    

    
    
    (Restated)(in thousands)
    
    
    (in thousands)Interest
income:Americas
    
    $
    3
    
    
    $
    22
    
    
    $
    22
    
    
    $
    41EMEA
    
    
    6
    
    
    
    3
    
    
    
    19
    
    
    
    14Nonreportable
segments
    
    
    14
    
    
    
    14
    
    
    
    93
    
    
    
    5923
    
    
    
    39
    
    
    
    134
    
    
    
    114Interest
expense:Americas
    
    
    (2
    )
    
    
    (83
    )
    
    
    (3
    )
    
    
    (86
    )EMEA
    
    
    (54
    )
    
    
    89
    
    
    
    (144
    )
    
    
    (16
    )Nonreportable
segments
    
    
    (4
    )
    
    
    (40
    )
    
    
    (5
    )
    
    
    (59
    )(60
    )
    
    
    (34
    )
    
    
    (152
    )
    
    
    (161
    )Other:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (loss) on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Americas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )EMEA
    
    
    
    
    
    
    
    
    
    
    766
    
    
    
    591Nonreportable
segments
    
    
    
    
    
    
    
    
    
    
    766
    
    
    
    488
 20




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    (Restated)(in thousands)
    
    
    (in thousands)Impairment of assetsAmericas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EMEA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonreportable
segments
    
    
    
    
    
    
    
    
    
    
    (181
    )
    
    
    
    
    
    
    
    
    
    
    (181
    )
    
    
    OtherAmericas
    
    
    (6
    )
    
    
    (2
    )
    
    
    (29
    )
    
    
    (5
    )EMEA
    
    
    71
    
    
    
    (54
    )
    
    
    176
    
    
    
    49Nonreportable
segments
    
    
    18
    
    
    
    (117
    )
    
    
    (128
    )
    
    
    (1,185
    )83
    
    
    
    (173
    )
    
    
    19
    
    
    
    (1,141
    )Total otherAmericas
    
    
    (6
    )
    
    
    (2
    )
    
    
    (29
    )
    
    
    (5
    )EMEA
    
    
    71
    
    
    
    (54
    )
    
    
    176
    
    
    
    (54
    )Nonreportable
segments
    
    
    18
    
    
    
    (117
    )
    
    
    457
    
    
    
    (594
    )83
    
    
    
    (173
    )
    
    
    604
    
    
    
    (653
    )Total other income (expense):Americas
    
    
    (5
    )
    
    
    (63
    )
    
    
    (10
    )
    
    
    (50
    )EMEA
    
    
    23
    
    
    
    38
    
    
    
    51
    
    
    
    (56
    )Nonreportable
segments
    
    
    28
    
    
    
    (143
    )
    
    
    545
    
    
    
    (594
    )$
    46
    
    
    $
    (168
    )
    
    $
    586
    
    
    $
    (700
    )
    Income
(Loss) Before Taxes
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    

September 30,2004
    
    
    2005
    
    
    2004
    
    
    2005(Restated)
    
    
    
    
    
    (Restated)(in thousands)
    
    
    (in thousands)Segment Income Before TaxesAmericas
    
    $
    3,188
    
    
    $
    3,270
    
    
    $
    9,023
    
    
    $
    (267
    )EMEA
    
    
    478
    
    
    
    2,919
    
    
    
    (254
    )
    
    
    5,402Nonreportable
segments
    
    
    (2,948
    )
    
    
    (3,914
    )
    
    
    (8,434
    )
    
    
    (12,286
    )718
    
    
    
    2,275
    
    
    
    335
    
    
    
    (7,151
    )Restructuring
charge (recovery)Americas
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    641EMEA
    
    
    
    
    
    
    
    
    
    
    (567
    )
    
    
    Nonreportable
segments
    
    
    
    
    
    
    
    
    
    
    (328
    )
    
    
    118
    
    
    
    
    
    
    
    (924
    )
    
    
    759Income
(Loss) Before TaxesAmericas
    
    
    3,188
    
    
    
    3,270
    
    
    
    9,052
    
    
    
    (908
    )EMEA
    
    
    478
    
    
    
    2,919
    
    
    
    313
    
    
    
    5,402Nonreportable
segments
    
    
    (2,948
    )
    
    
    (3,914
    )
    
    
    (8,106
    )
    
    
    (12,404
    )$
718
    
    
    $
2,275
    
    
    $
1,259
    
    
    $
(7,910
    )
 21




---



##### 



Tax Expense
  Net Income (Loss)
   22




---



##### 



Liquidity and Capital Resources
  Sources and Uses of Cash
 Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2005(in thousands)(Restated)Net cash used in operating activities
    
    $
    (9,045
    )
    
    $
    (12,483
    )Net cash used in investing activities
    
    
    (2,798
    )
    
    
    (2,391
    )Net cash provided by (used in) financing activities
    
    
    1,318
    
    
    
    361Net decrease in cash and cash equivalents
    
    $
    (10,525
    )
    
    $
    (14,513
    )
   23




---



##### 



Cash Requirements
 December 31, 2004
    
    
    September 30, 2005(thousands)Cash and cash equivalents
    
    $
    21,930
    
    
    $
    7,414Restricted cash
    
    
    1,162
    
    
    
    1,153Total cash and short-term investments
    
    $
    23,092
    
    
    $
    8,567Line of credit
    
    $
    147
    
    
    $
    4,000Working capital
    
    $
    49,658
    
    
    $
    38,762
    Critical Accounting Policies
  
    
    revenue recognition;
    
    allowance for doubtful accounts;
    
    accounting for income taxes; and
    
    restructuring charge.
 Revenue recognition
  24




---



##### 



Allowance for doubtful accounts
  Accounting for income taxes
   Restructuring charge
   Related Party Transactions
  Subsequent Events
  25




---



##### 



Item 3: Quantitative and Qualitative Disclosures about Market Risk
      Item 4: Controls and Procedures
 (a) Evaluation of disclosures controls and procedures
  26




---



##### 



(b) Changes in internal controls
  
    
    We have instituted a requirement that Company personnel responsible for preparing an
estimate of the percentage-of-completion of the Companys fixed price contracts for
financial reporting purposes confirm in writing to the Chief Financial Officer on a
monthly basis that such personnel has confirmed the accuracy of such estimate with the
project managers with firsthand knowledge of the performance status of the contracts.
    
    We have reassigned responsibility within the accounting department for preparation
and review of the calculation of the percentage of completion for large fixed price
contracts. The person to whom the responsibility has now been assigned is more
experienced in accounting for large fixed price contracts. This person will be
supervised by the new VP Finance for the Americas who will review the calculations
monthly with the preparer and with the project manager responsible for the project.
    
    We have consolidated all contract administration functions under the Chief Financial
Officer.
    
    We have increased the required scrutiny of revenue and cost recognition calculations
made with respect to all customer contracts. Monthly contract reviews for the Americas
region will be attended by the CEO, the CFO and the senior executive responsible for the
Americas. More detailed contract reporting is being developed which will allow for more
detailed review.
    
    We realigned the reporting relationships of all regional financial management such
that they now report directly to the Chief Financial Officer.
 27




---



##### 



PART II: OTHER INFORMATION
 Item 1: Legal Proceedings
  Item 2: Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
  Item 3: Defaults Upon Senior Securities
  Item 4: Submission of Matters to a Vote of Security Holders
  28




---



##### 



Item 5: Other Information
  Item 6: Exhibits and Reports on Form 8-K
  11
    
    
    
    
    Calculation of Net Income Per Share31.1
    
    
    
    
    Certification of Chief Executive Officer pursuant
to Exchange Act Rules 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    
    
    Certification of Chief Financial Officer pursuant
to Exchange Act Rules 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    
    Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
       29




---



##### 



Signature
  December 5, 2005
    
    /s/ Charles R. Waldron
Charles R. Waldron
Senior Vice President, Chief Financial Officer and
Treasurer
 30