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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-27898
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IDT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-3415036
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
520 Broad Street, Newark, New Jersey 07102
(Address of Principal Executive Office) (Zip Code)
(201) 928-1000
(Registrant's Telephone Number, Including Area Code)
190 Main Street, Hackensack, New Jersey 07601
(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 [_]
Common Stock, $.01 par value 24,231,999 shares as of March 15, 2000
Class A Common Stock, $.01 par value 10,019,692 shares as of March 15, 2000
(Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date)
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IDT CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)................................. 3
Condensed Consolidated Balance Sheets as of January 31, 2000 and
July 31, 1999................................................... 3
Condensed Consolidated Statements of Income for the six months
and three months ended January 31, 2000 and 1999 ............... 4
Condensed Consolidated Statements of Cash Flows for the six
months ended January 31, 2000 and 1999.......................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations........................................... 11
PART II. OTHER INFORMATION................................................ 20
Item 1. Legal Proceedings................................................ 20
Item 2. Changes in Securities............................................ 20
Item 3. Defaults Upon Senior Securities.................................. 20
Item 4. Submission of Matters to a Vote of Security Holders.............. 20
Item 5. Other Information................................................ 20
Item 6. Exhibits and Reports on Form 8-K................................. 21
SIGNATURES........................... ........................... 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
IDT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (RESTATED)
January 31, 2000 July 31, 1999
---------------- -------------
(Unaudited) (Note 1)
ASSETS
- ------
Current assets:
Cash and cash equivalents.................... $235,614,129 $ 52,903,479
Marketable securities........................ 80,887,825 77,869,655
Accounts receivable, net..................... 151,107,301 106,146,127
Notes receivable--current portion............ -- 18,967,967
Other current assets......................... 66,071,400 36,311,052
------------ ------------
Total current assets........................ 533,680,655 292,198,280
Property, plant and equipment, at cost, net.... 158,098,605 114,122,923
Trademark, net................................. 4,604,475 4,791,667
Notes receivable--long-term portion............ 3,291,491 2,187,071
Intangibles.................................... 111,324,134 117,366,124
Deferred tax assets, net....................... -- 3,358,500
Other assets................................... 40,914,047 25,846,814
------------ ------------
Total assets................................ $851,913,407 $559,871,379
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable....................... $ 88,826,580 $ 79,475,136
Accrued expenses............................. 6,972,841 5,354,710
Interest payable............................. 15,240 1,564,741
Deferred revenue............................. 19,029,647 13,209,663
Notes payable--current portion............... 3,024,109 4,752,780
Capital lease obligations--current portion... 8,996,016 6,029,273
Other current liabilities.................... 53,103,820 2,397,234
------------ ------------
Total current liabilities................... 179,968,253 112,783,537
Deferred tax liabilities, net................ 47,893,758 --
Notes payable--long-term portion............. 4,128,394 112,973,330
Capital lease obligation--long-term portion.. 33,992,152 15,742,218
------------ ------------
Total liabilities........................... 265,982,557 241,499,085
Minority interests............................. 172,297,671 42,043,131
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized
shares--10,000,000; no shares issued........ -- --
Common stock, $.01 par value; authorized
shares--100,000,000; 24,231,999 and
23,982,854 shares issued and outstanding at
January 31, 2000 and July 31, 1999,
respectively................................ 242,320 239,829
Class A stock, $.01 par value; authorized
shares--35,000,000; 10,019,692 and
10,029,758 shares issued and outstanding at
January 31, 2000 and July 31, 1999,
respectively................................ 100,197 100,298
Loans to stockholders........................ (251,207) (251,207)
Additional paid-in capital................... 320,587,629 317,362,508
Accumulated earnings (deficit)............... 92,954,240 (41,122,265)
------------ ------------
Total stockholders' equity.................. 413,633,179 276,329,163
------------ ------------
Total liabilities and stockholders' equity.. $851,913,407 $559,871,379
============ ============
See notes to condensed consolidated financial statements
3
IDT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (RESTATED)
(Unaudited)
Six Months Ended January Three Months Ended
31, January 31,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenue................. $558,940,131 $294,018,907 $275,519,174 $160,741,076
Costs and expenses:
Direct cost of
revenue.............. 450,983,160 227,665,779 220,784,545 126,591,672
Selling, general and
administrative....... 105,337,521 40,806,085 56,720,025 23,750,521
Depreciation and
amortization......... 20,375,185 16,787,670 10,448,710 8,822,195
------------ ------------ ------------ ------------
Total costs and
expenses........... 576,695,866 285,259,534 287,953,280 159,164,388
------------ ------------ ------------ ------------
Income (loss) from
operations............. (17,755,735) 8,760,373 (12,434,106) 1,576,688
Interest, net........... 817,997 143,501 1,228,498 (62,154)
Other income, net....... 247,460,060 -- 181,887,763 --
------------ ------------ ------------ ------------
Income before income
taxes, minority
interests and
extraordinary item..... 230,522,322 8,903,874 170,682,155 1,514,534
Provision for income
taxes.................. 101,582,271 3,120,780 74,876,771 573,997
Minority interests...... (8,112,647) 2,185,159 (5,516,068) 561,747
------------ ------------ ------------ ------------
Income before
extraordinary item..... 137,052,698 3,597,935 101,321,452 378,790
Extraordinary loss on
retirement of debt, net
of income taxes........ 2,975,846 -- 2,975,846 --
------------ ------------ ------------ ------------
Net income.............. $134,076,852 $ 3,597,935 $ 98,345,606 $ 378,790
============ ============ ============ ============
Income per share:
Income before
extraordinary item:
Basic................. $ 4.02 $ 0.11 $ 2.97 $ 0.01
Diluted............... $ 3.76 $ 0.10 $ 2.78 $ 0.01
Extraordinary loss on
retirement of debt, net
of income taxes:
Basic................. $ (0.09) $ -- $ (0.09) $ --
Diluted............... $ (0.08) $ -- $ (0.08) $ --
Net income:
Basic................. $ 3.93 $ 0.11 $ 2.88 $ 0.01
============ ============ ============ ============
Diluted............... $ 3.68 $ 0.10 $ 2.70 $ 0.01
============ ============ ============ ============
Weighted average number
of shares used in
calculation of earnings
per share--basic....... 34,115,950 33,265,965 34,132,166 33,332,371
============ ============ ============ ============
Weighted average number
of shares used in
calculation of earnings
per share--diluted..... 36,421,864 35,476,587 36,438,725 35,343,627
============ ============ ============ ============
See notes to condensed consolidated financial statements
4
IDT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
(Unaudited)
Six Months Ended January
31,
--------------------------
2000 1999
------------- -----------
Net cash provided by (used in) operating
activities........................................ $ (41,097,096) $ 4,595,693
Investing activities:
Purchases of property, plant and equipment....... (34,629,635) (22,240,140)
Net collection (issuance) of notes receivable.... 17,863,547 (11,253,405)
Net proceeds from sale of Net2Phone common
stock........................................... 115,434,000 --
Purchases of investments, net.................... (27,295,587) --
Net purchases of marketable securities........... (3,018,170) (18,603,200)
------------- -----------
Net cash provided by (used in) investing
activities........................................ 68,354,155 (52,096,745)
Financing activities:
Proceeds from offerings of common stock by
Net2Phone....................................... 263,076,222 --
Proceeds from exercise of stock options for
Net2Phone....................................... 4,296,810 --
Proceeds from exercise of stock options.......... 1,939,528 796,710
Proceeds from exercise of warrants............... -- 738,492
Repayment of borrowings.......................... (110,573,607) (899,735)
Repayment of capital lease obligations........... (1,712,012) (2,491,877)
Distributions to minority shareholder............ (1,573,350) (4,931,359)
------------- -----------
Net cash provided by (used in) financing
activities........................................ 155,453,591 (6,787,769)
------------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 182,710,650 (54,288,821)
Cash and cash equivalents, beginning of period..... 52,903,479 115,283,519
------------- -----------
Cash and cash equivalents, end of period........... $ 235,614,129 $60,994,698
============= ===========
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 7,725,774 $ 5,426,422
Income taxes paid................................ $ 1,050,000 $ --
See notes to condensed consolidated financial statements
5
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
IDT Corporation and subsidiaries (collectively "the Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and six
month periods ended January 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending July 31, 2000. The balance
sheet at July 31, 1999 has been derived from the audited financial statements
at that date but does not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
For further information, please refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K as
amended for the year ended July 31, 1999, as filed with the Securities and
Exchange Commission.
The Company has restated its financial statements for the three and six
month periods ended January 31, 1999 and 2000. The restatement resulted from
adjusting i) the timing of a gain recognized on the sale of stock by Net2Phone,
Inc., a majority owned subsidiary, and ii) the allocation of the purchase price
relating to the Company's acquisition of Interexchange, Inc.
The aggregate effect of the aforementioned adjustments on the Company's
financial statements for the three months ended January 31, 1999 and January
31, 2000 is as follows:
Three months ended January 31, 1999
--------------------------------------------------
Previously filed Restated Increase/(Decrease)
---------------- ------------ -------------------
Depreciation and
amortization.............. $ 6,295,720 $ 8,822,195 $ 2,526,475
Income from operations..... 4,103,163 1,576,688 (2,526,475)
Provision for income
taxes..................... 1,426,497 573,997 (852,500)
Net income................. 2,052,765 378,790 (1,673,975)
Basic net income per
share..................... 0.06 0.01 (0.05)
Diluted net income per
share..................... 0.06 0.01 (0.05)
Total assets............... 450,591,001 491,287,076 40,696,075
Stockholders equity........ 247,730,515 288,426,590 40,696,075
Three months ended January 31, 2000
--------------------------------------------------
Previously filed Restated Increase/(Decrease)
---------------- ------------ -------------------
Depreciation and
amortization.............. $ 7,922,235 $ 10,448,710 $ 2,526,475
Loss from operations....... (9,907,631) (12,434,106) (2,526,475)
Provision for income
taxes..................... 75,729,271 74,876,771 (852,500)
Net income................. 100,019,581 98,345,606 (1,673,975)
Basic net loss per share... 2.93 2.88 (0.05)
Diluted net loss per
share..................... 2.75 2.70 (0.05)
Total assets............... 814,480,732 851,913,407 37,432,675
Stockholders equity........ 381,091,004 413,633,179 32,542,175
6
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The aggregate effect of the aforementioned adjustments on the Company's
financial statements for the six months ended January 31, 1999 and January 31,
2000 is as follows:
Six months ended January 31, 1999
-------------------------------------------------
Previously filed Restated Increase/(Decrease)
---------------- ----------- -------------------
Depreciation and
amortization............... $11,735,189 $16,787,670 $5,052,481
Income from operations...... 13,811,854 8,760,373 (5,051,481)
Provision for income taxes.. 4,825,700 3,120,780 (1,704,920)
Net income.................. 6,944,416 3,597,935 (3,346,481)
Basic net income per share.. 0.21 0.11 (0.10)
Diluted net income per
share...................... 0.20 0.10 (0.09)
Six months ended January 31, 2000
-------------------------------------------------
Previously filed Restated Increase/(Decrease)
---------------- ----------- -------------------
Depreciation and
amortization............... $15,322,359 $20,375,185 $5,052,826
Loss from operations........ (12,702,909) (17,755,735) (5,052,826)
Other....................... 225,848,878 247,460,060 21,611,182
Provision for income taxes.. 94,642,069 101,582,271 6,940,202
Net income.................. 124,458,158 134,076,852 9,618,694
Basic net income per share.. 3.65 3.93 0.28
Diluted net income per
share...................... 3.42 3.68 0.26
Note 2--Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in fiscal years
beginning after June 15, 2000. The Company believes that the adoption of this
standard will not have a material effect on the Company's consolidated results
of operations or financial position due to their limited use of derivative
instruments.
7
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Business Segment Information
Operating results and other financial data presented for the principal
business segments of the Company are as follows ($ in thousands):
Wholesale Retail
Telecommunications Telecommunications Internet Internet
Services Services Services Telephony Ventures Total
------------------ ------------------ -------- --------- -------- --------
Three months ended
January 31, 2000
Total segment revenue... $132,348 $136,028 $ 3,348 $ 15,509 $ -- $287,233
Less: revenues between
segments............... 4,687 3,137 300 3,590 -- 11,714
-------- -------- ------- -------- ------- --------
Total unaffiliated
revenue................ 127,661 132,891 3,048 11,919 -- 275,519
Income (loss) from
operations............. 4,146 3,685 (3,585) (13,699) (2,983) (12,434)
======== ======== ======= ======== ======= ========
Three months ended
January 31, 1999
Total segment revenue... 52,673 94,396 4,580 7,466 -- 159,115
Less: revenues between
segments............... (2,200) -- 300 274 -- (1,626)
-------- -------- ------- -------- ------- --------
Total unaffiliated
revenue................ 54,873 94,396 4,280 7,192 -- 160,741
Income (loss) from
operations............. 1,676 4,015 (2,314) (1,800) -- 1,576
======== ======== ======= ======== ======= ========
Six months ended January
31, 2000
Total segment revenue... $273,769 $266,728 $ 6,848 $ 28,609 $ -- $575,954
Less: revenues between
segments............... 8,287 3,137 300 5,290 -- 17,014
-------- -------- ------- -------- ------- --------
Total unaffiliated
revenue................ 265,482 263,591 6,548 23,319 -- 558,940
Income (loss) from
operations............. 8,035 7,376 (7,185) (22,999) (2,983) (17,756)
======== ======== ======= ======== ======= ========
Six months ended January
31, 1999
Total segment revenue... $103,251 $169,696 $ 8,880 $ 13,166 $ -- $294,993
Less: revenues between
segments............... -- -- 300 674 -- 974
-------- -------- ------- -------- ------- --------
Total unaffiliated
revenue................ 103,251 169,696 8,580 12,492 -- 294,019
Income (loss) from
operations............. 7,770 8,804 (4,114) (3,700) -- 8,760
======== ======== ======= ======== ======= ========
Note 4--Property, Plant and Equipment
Property, plant and equipment consists of the following ($ in thousands):
January 31, July 31,
2000 1999
----------- --------
Equipment.............................................. $166,197 $117,547
Computer software...................................... 24,655 21,515
Leasehold improvements................................. 7,239 3,651
Furniture and fixtures................................. 4,613 2,447
Land and building...................................... 6,327 6,312
-------- --------
209,031 151,472
Less: Accumulated depreciation and amortization........ (50,932) (37,349)
-------- --------
$158,099 $114,123
======== ========
Note 5--Gain on Sale of Stock by Subsidiary
On August 3, 1999, Net2Phone, Inc., a majority owned subsidiary, completed
an initial public offering of 6,210,000 shares of its common stock at a price
of $15 per share, resulting in net proceeds of approximately $85.3 million.
Upon
8
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
completion of the initial public offering, 3,140,000 shares of Net2Phone Series
A Preferred Stock were converted into 9,420,000 shares of Net2Phone Class A
Stock. As a result of the initial public offering and concurrent conversion of
Series A Stock to Class A Stock, IDT's ownership percentage in Net2Phone
decreased from 90.0% to approximately 56.2%. This resulted in the Company
recording a gain on the sale of stock by a subsidiary of approximately $65.6
million. Such gain is included in other income, net for the six-months ended
January 31, 2000. Deferred taxes of $26.2 million have been provided on the
gain.
In December 1999 (second quarter of fiscal 2000), the Company recorded a
$76.8 million pre-tax gain in connection with Net2Phone's secondary offering of
6.3 million shares of its common stock, at a price of $55.00 per share for net
proceeds to Net2Phone of approximately $177.4 million. Deferred taxes of
approximately $30.7 million have been provided for this gain.
In addition, a $105.8 million pre-tax gain was recognized in December 1999
(second quarter of fiscal 2000) in connection with IDT's sale of 2,200,000
shares of common stock of Net2Phone in Net2Phone's secondary offering, at a
price of $55.00 per share for net proceeds of approximately $115.4 million.
IDT's ownership interest before and after this transaction and the secondary
(which occurred at the same time) was 56.24% and 47.97%, respectively.
Note 6--Legal Proceedings and Contingencies
In January 1997, six former employees alleging employment discrimination
commenced a suit in New Jersey Superior Court, Bergen County. Howard S. Jonas,
the Chairman and Chief Executive Officer of the Company, has also been named as
a defendant in the action. The action claims that the Company has made hiring
and promotion decisions based upon the religious backgrounds of the relevant
individuals, in violation of federal and state law. The complaint seeks
compensatory and punitive damages in an unspecified amount and also seeks
statutory multiples of damages. All of the claims arising under federal law
were dismissed by the Court in New Jersey Superior Court, Bergen County,
leaving the plaintiffs with only the remedies available under state law.
Further, the Court granted the Company permission to file counterclaims against
all plaintiffs for the alleged unlawful taking of business records. The Company
filed such counterclaims in October 1998. Discovery is continuing and a trial
date has not been scheduled.
In October 1999, Union Telecard Alliance, LLC ("Union"), a subsidiary of the
Company, commenced an action against DigiTEC 2000, Inc. ("DigiTEC") and TecNet,
Inc. ("TecNet") in the Supreme Court of the State of New York, County of New
York, alleging damages of approximately $725,000.00 based upon, among other
things, non-payment for prepaid calling cards. DigiTEC and TecNet have answered
the complaint, and DigiTEC has asserted a third party claim against the Company
seeking damages of $2.5 million dollars based upon the Company's alleged breach
of a settlement agreement between the Company and DigiTEC which had resolved a
prior litigation between those parties.
In February 2000, IDT Europe B.V.B.A., a subsidiary of the Company, filed a
complaint against Tyco Group S.A.R.L. ("Tyco") and Tyco Submarine Systems, Ltd.
("TSSL") in the United States District Court in Newark, New Jersey, alleging
breach of implied covenant of good faith and fair dealing and breach of
contract for breaching a Memorandum of Understanding and Instruction to Proceed
entered into on November 9, 1999. The Company is seeking to enjoin and restrain
Tyco and TSSL from undertaking contrary business activity inconsistent with the
Memorandum of Understanding and Instruction to Proceed and is seeking
compensatory, consequential and punitive damages. The court has set March 24,
2000 as the date in which both Tyco and TSSL must file an answer.
9
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In February 2000, Multi-Tech Systems, Inc. ("Multi-Tech") filed suit against
Net2Phone, Inc. ("Net2Phone"), a subsidiary of the Company, and other companies
in the United States Federal District Court in Minneapolis, Minnesota. In its
press release, Multi-Tech stated that "the defendant companies are infringing
because they are providing the end users with the software necessary to
simultaneously transmit voice and data on their computers in the form of making
a phone call over the Internet." Net2Phone intends to defend the lawsuit
vigorously. Net2Phone believes that the Multi-Tech claims are without merit.
However, should a judge issue an injunction against Net2Phone requiring that
Net2Phone cease distributing its software or providing its software-based
services, such an injunction could have an adverse effect on Net2Phone's
business.
The Company is subject to other legal proceedings and claims, which have
arisen in the ordinary course of its business and have not been finally
adjudicated. Although there can be no assurances in this regard, in the opinion
of the Company's management, such proceedings, as well as the aforementioned
actions, will not have a material adverse effect on results of operations or
the financial condition of the Company.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
accompanying condensed consolidated financial statements and the associated
notes thereto of this Quarterly Report, and the audited consolidated financial
statements and the notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company contained in the
Company's Annual Report on Form 10-K for the year ended July 31, 1999, as filed
with the Securities and Exchange Commission.
Overview
The Company is a leading facilities-based multinational telecommunications
carrier that provides its wholesale and retail customers with integrated and
competitively priced international and domestic long distance
telecommunications service, Internet access and, through its Net2Phone products
and services, Internet telephony services. The Company delivers these services
over a high-quality network consisting of 70 Company owned switches in the U.S.
and Europe, owned and leased capacity on 23 undersea fiber optic cables and
capacity on 7 dedicated satellite transponders. In addition, the Company
obtains additional transmission capacity from other carriers.
The Company delivers its international traffic worldwide pursuant to its
agreements with U.S.-based carriers, foreign carriers, and 23 of the companies
that are primarily responsible for providing telecommunications services in
particular countries (many of which are commonly referred to as "PTTs"). In
addition, the Company maintains a high speed network that carries Internet
traffic in order to support both its Internet access services and Net2Phone's
Internet telephony services.
Six Months Ended January 31, 2000 Compared to Six Months Ended January 31, 1999
Results of Operations
Revenue. Revenue increased 90.1%, from approximately $294.0 million for the
six months ended January 31, 1999 to approximately $558.9 million for the six
months ended January 31, 2000. Telecommunications revenues increased 93.8%,
from approximately $272.9 million for the six months ended January 31, 1999 to
approximately $529.1 million for the six months ended January 31, 2000.
Internet access revenues decreased 23.7%, from approximately $8.6 million for
the six months ended January 31, 1999 to approximately $6.5 million for the six
months ended January 31, 2000. Internet telephony revenues increased 86.7%,
from approximately $12.5 million for the six months ended January 31, 1999 to
approximately $23.3 million for the six months ended January 31, 2000.
Telecommunications revenue increased primarily as a result of an 84.0%
increase in minutes of use from approximately 1.11 billion for the six months
ended January 31, 1999 to approximately 2.04 billion for the six months ended
January 31, 2000. The increase in minutes was primarily due to the addition of
wholesale carrier service clients, increased usage by existing clients, and
increased marketing of the Company's prepaid calling cards. The addition of
wholesale carrier services clients, increased use by existing clients and the
inclusion of $20 million in revenue for the quarter ended October 31, 1999
related to a one-time tariff opportunity resulted in an increase in wholesale
telecommunications revenues of 157.1%, from approximately $103.3 million for
the six months ended January 31, 1999 to approximately $265.5 million for the
six months ended January 31, 2000. As a percentage of telecommunications
revenue, wholesale telecommunications revenue increased from approximately
37.8% to approximately 50.2% period to period. Revenue from retail
telecommunications services increased 55.3%, from approximately $169.7 million
for the six months ended January 31, 1999 to approximately $263.6 million for
the six months ended January 31, 2000 as a result of increased marketing
efforts for the Company's prepaid calling cards. Prepaid calling card sales as
a percentage of retail telecommunication services revenue increased from 90.4%
for the six months ended January 31, 1999 to 94.2% for the six months ended
January 31, 2000. As a percentage of overall telecommunications revenue, retail
telecommunications revenue decreased from approximately 62.2% to approximately
49.8% period to period.
11
As a percentage of total revenue, Internet access revenue decreased from
approximately 2.9% for the six months ended January 31, 1999 to approximately
1.2% for the six months ended January 31, 2000. This was due primarily to
decreased revenue caused by the contribution of the majority of the Company's
dial-up subscribers to the joint venture formed with Terra Networks, S.A.
during the quarter ended October 31, 1999 as well as the substantial increase
in telecommunications revenue during the same period.
Internet telephony revenue as a percentage of total revenue was 4.2% for
the six months ended January 31, 2000, representing a slight decrease from
4.3% for the six months ended January 31, 1999. The increase in Internet
telephony revenue, in dollar terms, was primarily due to an increase in billed
minutes of use resulting from increased marketing of the Company's Internet
telephony products and services.
Direct Cost of Revenue. The Company's direct cost of revenue increased by
98.1%, from approximately $227.7 million for the six months ended January 31,
1999 to approximately $451.0 million for the six months ended January 31,
2000. As a percentage of total revenue, these costs increased from 77.4% for
the six months ended January 31, 1999 to 80.7% for the six months ended
January 31, 2000. The dollar increase is due primarily to increases in
underlying carrier and connectivity costs, as the Company's telecommunications
minutes of use, and associated revenues, grew substantially. As a percentage
of total revenue, the increase in direct costs reflects lower gross margins
associated with wholesale telecommunications services as compared to retail
telecommunications services as well as the lower gross margins related to
telecommunications revenue as compared with Internet access services.
Selling, General and Administrative. Selling, general and administrative
costs increased 158.1%, from approximately $40.8 million for the six months
ended January 31, 1999 to approximately $105.3 million for the six months
ended January 31, 2000. As a percentage of total revenue, these costs
increased from 13.9% for the six months ended January 31, 1999 to 18.9% for
the six months ended January 31, 2000. This increase is due primarily to
increased international debit card distribution costs, increased sales and
marketing efforts for retail services, including prepaid calling cards and
domestic and international long distance and for Net2Phone, as well as
increased salaries, facilities costs and professional fees related to the
expansion of the Company's infrastructure to facilitate its rapid sales
growth. Also included in selling, general and administrative costs for the six
months ended January 31, 2000 is approximately $3.0 million in costs
associated with the Company's IDT Ventures division, which has several
innovative telecommunications and Internet related businesses under various
stages of development, and approximately $5.2 million of non-cash compensation
as a result of option grants made by our Net2Phone subsidiary.
Depreciation and Amortization. Depreciation and amortization increased 22%,
from approximately $16.8 million for the six months ended January 31, 1999 to
approximately $20.4 million for the six months ended January 31, 2000. As a
percentage of revenue, these costs decreased from 5.7% for the six months
ended January 31, 1999 to 3.7% for the six months ended January 31, 2000.
These costs increased, in dollar terms, primarily as a result of amortization
of goodwill and other intangible assets that resulted from the Company's
acquisition of InterExchange Inc. in the fourth quarter of Fiscal 1998 and the
Company's higher fixed asset base during the six months ended January 31, 2000
as compared with the six months ended January 31, 1999, reflecting the
Company's efforts to expand its telecommunications network infrastructure and
other facilities. The Company anticipates that depreciation and amortization
costs will continue to increase as the Company continues to add to its asset
base, allowing it to implement its growth strategy.
Income from Operations. The Company recorded a loss from operations of
approximately $17.8 million for the six months ended January 31, 2000, compared
to income from operations of approximately $8.8 million for the six months
ended January 31, 1999. Income from operations for the Company's
telecommunications business (after the effect of minority interests) declined
to approximately $5.7 million for the six months ended January 31, 2000 from
approximately $14.3 million for the six months ended January 31, 1999. As a
percentage of telecommunication revenue, income from operations for the
telecommunications business decreased to 2.8% for the six months ended January
31, 2000 from 5.9% for the six months ended January 31, 1999 due primarily
12
to decreased margins in the carrier wholesale and retail telecommunications
businesses, and an increase in sales and marketing costs for retail
telecommunications services.
Loss from operations for the Company's Internet access business increased to
approximately $7.2 million for the six months ended January 31, 2000 from
approximately $4.1 million for the six months ended January 31, 1999. The
increased loss is primarily due to the decrease in revenue caused by the
contribution of the majority of the Company's dial up subscribers to the joint
venture formed with Terra Networks, S.A. during the quarter ended October 31,
1999, lower gross margins and an increase in marketing expenses.
Loss from operations of the Net2Phone subsidiary increased to approximately
$23.4 million for the six months ended January 31, 2000, compared to a loss of
approximately $3.7 million for the six months ended January 31, 1999. This
increase is due primarily to a substantial increase in selling, general and
administrative expenses incurred as Net2Phone expanded distribution
relationships, corporate infrastructure and human resources as well as the non-
cash compensation charge of $5.2 million described above.
Other income. Included in other income for the six months ended January 31,
2000 is $142.3 million in gains recognized by the Company under Staff
Accounting Bulletin No. 51 in conjunction with Net2Phone's sale of shares in
its Initial Public Offering and concurrent conversion of Net2Phone's series A
stock to class A stock in August 1999 and its secondary offering in December
1999, and a realized gain of $105.8 million on the Company's sale of 2.2
million Net2Phone shares as part of Net2Phone's Secondary Offering.
Income Taxes. The Company recorded income tax expense of approximately
$101.6 million for the six months ended January 31, 2000, compared to
approximately $3.1 million for the six months ended January 31, 1999. Income
tax benefit of approximately $1.3 million for the six months ended January 31,
2000, and approximately $0.5 million for the six months ended January 31, 1999
related to the tax deduction upon the exercise of stock options was recorded
directly into additional paid-in capital.
Three Months Ended January 31, 2000 Compared to Three Months Ended January 31,
1999
Results of Operations
Revenue. Revenue increased 71.4%, from approximately $160.7 million for the
three months ended January 31, 1999 to approximately $275.5 million for the
three months ended January 31, 2000. Telecommunications revenue increased
74.6%, from approximately $149.2 million for the three months ended January 31,
1999 to approximately $260.6 million for the three months ended January 31,
2000. Internet access revenue decreased 30.4%, from approximately $4.3 million
for the three months ended January 31, 1999 to approximately $3.0 million for
the three months ended January 31, 2000. Internet telephony revenue increased
66.0%, from approximately $7.2 million for the three months ended January 31,
1999 to approximately $11.9 million for the three months ended January 31,
2000.
Telecommunications revenue increased primarily as a result of a 57.8%
increase in minutes of use from approximately 638.2 million for the three
months ended January 31, 1999 to approximately 1.01 billion for the three
months ended January 31, 2000. The increase in minutes was primarily due to the
addition of wholesale carrier service clients, increased usage by existing
clients, and increased marketing of the Company's prepaid calling cards. The
addition of wholesale carrier services clients and increased use by existing
clients resulted in an increase in wholesale telecommunications revenues of
133.0%, from approximately $54.8 million for the three months ended January 31,
1999 to approximately $127.7 million for the three months ended January 31,
2000. As a percentage of telecommunications revenue, wholesale
telecommunications revenue increased from approximately 36.7% to approximately
49.0% period to period. Revenue from retail telecommunications services
increased 40.7%, from approximately $94.4 million for the three months ended
January 31, 1999 to approximately $132.9 million for the three months ended
January 31, 2000 as a result of increased marketing efforts for the Company's
prepaid calling cards. Prepaid calling card sales as a percentage of retail
telecommunication services revenue increased from 91.2% for the three months
ended January 31, 1999 to
13
95.4% for the three months ended January 31, 2000. As a percentage of overall
telecommunications revenue, retail telecommunications revenue decreased from
approximately 63.3% for the three months ended January 31, 1999 to
approximately 51.0% for the three months ended January 31, 2000.
As a percentage of total revenue, Internet access revenue decreased from
approximately 2.7% for the three months ended January 31, 1999 to approximately
1.1% for the three months ended January 31, 2000. This was due primarily to
decreased revenue caused by the contribution of the majority of the Company's
dial-up subscribers to the joint venture formed with Terra Networks, S.A.
during the quarter ended October 31, 1999 as well as the substantial increase
in telecommunications revenues during the same period.
Internet telephony revenue as a percentage of total revenue amounted to 4.3%
for the three months ended January 31, 2000, a slight decrease from 4.5% for
the three months ended January 31, 1999. The increase in Internet telephony
revenue, in dollar terms, was primarily due to an increase in billed minutes of
use resulting from increased marketing of the Company's Internet telephony
products and services.
Direct Cost of Revenue. The Company's direct cost of revenue increased by
74.4% from approximately $126.6 million for the three months ended January 31,
1999 to approximately $220.8 million for the three months ended January 31,
2000. As a percentage of total revenue, these costs increased from 78.8% for
the three months ended January 31, 1999 to 80.1% for the three months ended
January 31, 2000. The dollar increase is due primarily to increases in
underlying carrier and connectivity costs, as the Company's telecommunications
minutes of use, and associated revenues, grew substantially. As a percentage of
total revenue, the increase in direct costs reflects lower gross margins
associated with wholesale telecommunications services as compared to retail
telecommunications services as well as the lower gross margins related to
telecommunications revenue as compared with Internet access services.
Selling, General and Administrative. Selling, general and administrative
costs increased 138.8%, from approximately $23.8 million for the three months
ended January 31, 1999 to approximately $56.7 million for the three months
ended January 31, 2000. As a percentage of total revenue, these costs increased
from 14.8% for the three months ended January 31, 1999 to 20.6% for the three
months ended January 31, 2000. This increase is due primarily to increased
international debit card distribution costs, increased sales and marketing
efforts for retail services, including prepaid calling cards and domestic and
international long distance and for Net2Phone, as well as increased salaries,
facilities costs and professional fees related to the expansion of the
Company's infrastructure to facilitate its rapid sales growth. Also included in
selling, general and administrative costs for the three months ended January
31, 2000 is approximately $3.0 million in costs associated with the Company's
IDT Ventures division, which has several innovative telecommunications and
internet related businesses under various stages of development, and
approximately $2.3 million of non-cash compensation as a result of option
grants made by our Net2Phone subsidiary.
Depreciation and Amortization. Depreciation and amortization increased
18.4%, from approximately $8.8 million for the three months ended January 31,
1999 to approximately $10.5 million for the three months ended January 31,
2000. As a percentage of revenue, these costs decreased from 5.5% for the three
months ended January 31, 1999 to 3.8% for the three months ended January 31,
2000. These costs increased, in dollar terms, primarily as a result of
amortization of goodwill and other intangible assets that resulted from the
Company's acquisition of InterExchange Inc. in the fourth quarter of Fiscal
1998 and the Company's higher fixed asset base during the three months ended
January 31, 2000 as compared with the three months ended January 31, 1999,
reflecting the Company's efforts to expand its telecommunications network
infrastructure and other facilities. The Company anticipates that depreciation
and amortization costs will continue to increase as the Company continues to
add to its asset base, allowing it to implement its growth strategy.
Income from Operations. The Company recorded a loss from operations of
approximately $12.4 million for the three months ended January 31, 2000,
compared to income from operations of approximately $1.6 million for the three
months ended January 31, 1999. Income from operations for the Company's
telecommunications business (after the effect of minority interests) increased
from approximately $5.2 million for the three months ended January 31, 1999 to
approximately $6.8 million for the three months ended
14
January 31, 2000. As a percentage of telecommunication revenue, income from
operations for the telecommunications business decreased to 2.2% for the three
months ended January 31, 2000 from 5.3% for the three months ended January 31,
1999, due primarily to decreased margins in the carrier wholesale business, and
an increase in sales and marketing costs for retail telecommunications
services.
Loss from operations for the Company's Internet access business increased to
approximately $3.6 million for the three months ended January 31, 2000 from
approximately $2.4 million for the three months ended January 31, 1999. The
increased loss is primarily due to the decrease in revenue caused by the
contribution of the majority of the Company's dial up subscribers to the joint
venture formed with Terra Networks, S.A. during the quarter ended October 31,
1999 coupled with lower gross margins.
Loss from operations of the Net2Phone subsidiary increased to approximately
$14.1 million for the three months ended January 31, 2000, compared to a loss
of approximately $1.8 million for the three months ended January 31, 1999. This
increase is due primarily to a substantial increase in selling, general and
administrative expenses incurred as Net2Phone expanded distribution
relationships, corporate infrastructure and human resources as well as the non-
cash compensation charge of $2.3 million described above.
Other income. Included in other income for the three months ended January
31, 2000 is $76.8 million in gains recognized by the Company under Staff
Accounting Bulletin No. 51 in conjunction with Net2Phone's sale of shares in
its Secondary Offering in December 1999, and a realized gain of $105.8 million
on the Company's sale of 2.2 million Net2Phone shares as part of Net2Phone's
Secondary Offering.
Income Taxes. The Company recorded income tax expense of approximately $74.9
million for the three months ended January 31, 2000, compared to approximately
$0.6 million for the three months ended January 31, 1999. Income tax benefit of
approximately $0.5 million for the three months ended January 31, 2000, and
approximately $0.2 million for the three months ended January 31, 1999 related
to the tax deduction upon the exercise of stock options was recorded directly
into additional paid-in capital.
Extraordinary Item. The Company recorded an after-tax extraordinary loss of
approximately $3.0 million related to the extinguishment of debt during the
three months ended January 31, 2000.
Liquidity and Capital Resources
General
Historically, the Company has satisfied its cash requirements through a
combination of cash flow from operating activities, sales of equity and debt
securities and borrowings from third parties. Additionally, the Company,
including Net2Phone, received approximately $6.2 million upon the exercise of
stock options in the six months ended January 31, 2000.
In May 1999, the Company entered into a credit agreement with a syndicate of
lenders whereby these institutions committed to provide a $160 million credit
facility that included term loans in an aggregate amount of up to $135 million
and revolving loans in an amount of up to $25 million and an additional
uncommitted amount of up to $100 million. The Company used the proceeds from
the initial borrowings under the credit facility of $108.1 million to purchase
more than 99% of its outstanding 8.75% Senior Notes due 2006, together with
accrued and unpaid interest, in connection with its tender offer for these
securities. During the quarter ended January 31, 2000, the Company paid off the
outstanding indebtedness under the facility of $108.1 million, plus fees and
accrued and unpaid interest.
As of January 31, 2000, the Company had cash, cash equivalents and
marketable securities of approximately $316.5 million and working capital of
approximately $353.7 million. The Company generated negative cash flow from
operating activities of approximately $41.1 million during the six months ended
January 31, 2000, compared with cash flow from operating activities of
approximately $4.6 million during the
15
six months ended January 31, 1999. The Company's cash flow from operations
varies significantly from quarter to quarter, depending upon the timing of
operating cash receipts and payments, especially accounts receivable and
accounts payable. Accounts receivable, accounts payable and accrued expenses
have increased from period to period as the Company's businesses have grown.
The Company's capital expenditures were approximately $34.6 million for the
six months ended January 31, 2000, compared to approximately $22.2 million for
the six months ended January 31, 1999, as the Company expanded its
international and domestic telecommunications network infrastructure. The
Company financed a portion of its capital expenditures through capital leases
and notes payable.
The Company experiences intense competition in its telecommunications
business. The long distance telecommunications industry has been characterized
by declines in both per-minute revenues and per-minute costs. In the past,
these factors have tended to generally offset each other. However, as per-
minute pricing continues to erode, gross margins could come under increasing
pressure. The Company's long term strategy involves terminating a larger
proportion of minutes on the Company's own network, thereby lowering costs and
preserving margins even in a weaker price environment. However, in the short
term, the demand for usage might outpace the rate of deployment of additional
network capacity. As such, there can be no assurance that the Company will be
able to maintain its gross margins at the current level, in the face of lower
per-minute revenues.
IDT's European telecommunications operations continue to account for an
increasing proportion of overall telecommunications revenue. Recognizing the
significant opportunities offered by the rapidly evolving European
telecommunications market, the Company intends to expand its network in Europe
to further develop its operations in that region. Such expansion may initially
have a negative impact on the Company's gross margins over the next two to
three quarters.
The Company will need to make significant capital expenditures in order to
expand its network capacity. If the Company is unable to raise sufficient
capital to meet its spending requirements, the Company's network expansion, and
the associated margin improvement, would be delayed.
Changes in Other Assets, Accounts Receivable, Allowance for Doubtful Accounts
and Deferred Revenue
Other current assets increased from $36 million at July 31, 1999 to $66
million at January 31, 2000, due primarily to increases in contract deposits
and prepaid expenses at Net2Phone. The average age of the Company's accounts
receivable, as measured by number of days sales outstanding has been increasing
due to a significant increase in sales to more credit worthy customers.
Due to the wide range of collection terms, future trends with respect to
days sales outstanding are generally dependent upon the proportion of total
sales made to carriers, who are often offered extended payment terms of up to
90 days, and prepaid calling distributors, who generally receive terms of up to
30 days. Therefore, the trends in days sales outstanding will depend, in large
part, on the mix of (wholesale) carrier versus retail (debit card distributor)
customers. In addition, as the Company is willing to extend longer payments
terms to credit-worthy customers, an increase in customers belonging to the
highest credit class, as a percentage to total customers, could also lead to an
increase in days sales outstanding. However, as the foregoing is difficult to
predict, it is not possible at this time to determine whether or not the recent
trend in days sales outstanding will continue.
The allowance for doubtful accounts as a percentage of accounts receivable
decreased/increased, from 6.7% at July 31, 1999, to 6.1% at January 31, 2000.
Deferred revenue as a percentage of total revenue varies from period to
period dependent upon the mix and the timing of revenue.
16
Net2Phone Financings
In May 1999, a group of strategic investors purchased from Net2Phone, in the
aggregate, 3,140,000 shares of Net2Phone Series A Preferred Stock convertible
into 9,420,000 shares of common stock and warrants to purchase up to 180,000
shares of Net2Phone common stock, for a net aggregate purchase price of
$29.9 million. Additionally, Net2Phone issued a warrant to purchase 92,400
shares of its common stock to Hambrecht & Quist as part of its fee as placement
agent with respect to this transaction.
In August 1999, Net2Phone completed its Initial Public Offering of 6.2
million shares, receiving approximately $85.3 million in net proceeds. At that
time, the Series A Preferred Stock was converted into Class A Common Stock. The
Company recognized pre-tax gains of approximately $65.6 million as a result of
these transactions.
In December 1999, Net2Phone completed a Secondary Offering of 6.3 million
shares, receiving approximately $177.9 million in net proceeds. As part of the
Secondary Offering, the Company sold 2.2 million Net2Phone shares, yielding
approximately $115.4 million in net proceeds. Subsequent to the sale of these
shares, the Company used approximately $108.1 million of the proceeds to pay
off the outstanding balance of its bank credit facility.
In connection with Net2Phone's distribution and marketing agreement with
ICQ, a subsidiary of America Online, Net2Phone issued to America Online a
warrant to purchase up to 3% of Net2Phone's outstanding capital stock on a
fully-diluted basis. This warrant will vest in 1% increments upon the
achievement of each of three incremental thresholds of revenue generated under
the agreement during the first four years that the warrant is outstanding. The
exercise price under the terms of the warrant will be equal to the lesser of
$12.00 per share or $450 million divided by the number of Net2Phone's fully-
diluted shares on the initial exercise date.
The warrants are accounted for in accordance with the provisions of EITF 96-
18, "Accounting for Equity Investments that are Issued to Other than Employees
for Acquiring or in Conjunction with Selling Goods or Services." Due to the
uncertainty of reaching performance measures stipulated in the warrant
agreement, the Company has not recorded any expense relating to the issuance of
the warrant. Upon determination that the achievement of the revenue thresholds
is probable, the Company will value the warrant and expense it over the
remaining period until the performance criteria is met. The three revenue
thresholds are $10 million, $50 million and $75 million and the term of the
distribution and marketing agreement is four years. If the three incremental
thresholds had been met on January 31, 2000, the Company would have expensed
approximately $75.8 million.
In November 1999, the warrant was amended to include the right to purchase
an additional 0.5% of Net2Phone's outstanding capital stock on a fully-diluted
basis at an exercise price of $60.46 per share upon the achievement of $100
million in revenue.
Acquisitions of In-Process Research & Development
The Company's purchase of InterExchange, Inc. in April 1998 involved the
acquisition of two significant in-process research and development projects
relating to switch technology. Neither one of these projects has been/has not
been successfully completed at this time, and both projects have been/have not
been terminated. Currently, the Company is/is not contemplating any additional
acquisitions of in-process research and development.
Other Sources and Uses of Resources
The Company intends to, where appropriate, make strategic acquisitions to
increase its telecommunications customer base. The Company may also make
strategic acquisitions related to its Internet telephony business. From time to
time, the Company evaluates potential acquisitions of companies, technologies,
products and customer accounts that complement its businesses.
17
The Company believes that, based upon its present business plan, the
Company's existing cash resources, expected cash flow from operating activities
and access to credit facilities will be sufficient to meet its currently
anticipated working capital and capital expenditure requirements for at least
the next twelve months. If the Company's growth exceeds current expectations or
if the Company acquires the business or assets of another company, or if the
Company's cash flow from operations after the end of such period is
insufficient to meet its working capital and capital expenditure requirements,
the Company will need to raise additional capital from equity or debt sources.
There can be no assurance that the Company will be able to raise such capital
on favorable terms or at all. If the Company is unable to obtain such
additional capital, the Company may be required to reduce the scope of its
anticipated expansion, which could have a material adverse effect on the
Company's business, financial condition or results of operations.
Year 2000
Prior to January 1, 2000, the Company reviewed and evaluated the possible
effects of the Year 2000 issue upon its installed computer systems, network
systems and software applications. The Year 2000 issue involved the fact that
many computers and applications define dates by the last two digits of the year
and "00" would possibly not be properly recognized by such programs as the year
2000. The Company dedicated the time and resources it deemed appropriate to
address and correct potential Year 2000 problems.
In response to the Year 2000 issue, the Company established a Year 2000
compliance committee (the "Committee") to eliminate any possible disruptions in
services and operations due to the date change in the Year 2000. The Committee
developed a plan to identify and repair any systems that may be affected by the
Year 2000. The plan consisted of (1) identifying and inventorying all systems;
(2) assessing and testing the systems for Year 2000 compliance; (3) modifying,
upgrading or replacing any non compliant systems; and (4) testing the corrected
systems to ensure compliance.
The Committee implemented this plan throughout the company and, in addition
to reviewing its own systems, the Company initiated inquiries and submitted
requests to its third party vendors and service providers to obtain information
regarding their compliance with the Year 2000. Furthermore, as a result of the
Company's focus on the testing and remediation of its switching facilities, its
network operations through which it provides communications services to its
customers, were not disrupted by the Year 2000.
Inventory, assessment, remediation and testing of software applications and
hardware systems, including network systems, was substantially completed. The
Company completed the modification, updating or replacement of any systems that
to its knowledge were not Year 2000 compliant in November 1999. Testing of the
corrected systems has been implemented and will continue on an ongoing basis
through October 2000 due to the date October 10, 2000, being the first
occurrence of a date requiring the use of eight digits to define the date.
The Company is confident that its own network systems are Year 2000
compliant due to the nature and extent of the testing the Company conducted and
continues to implement on such systems.
European Currency Conversion
In January 1999, a new currency called the "euro" was introduced in certain
Economic and Monetary Union ("EMU") countries. The EMU countries adopted the
euro as their common legal currency, and through January 1, 2002, both the
existing national currency of the respective EMU country and the euro will be
accepted as legal currency. Beginning in 2002, all EMU countries are expected
to operate with the euro as their single currency. Uncertainty exists as to the
effect the euro currency will have on the market for international
telecommunications services. Additionally, all of the final rules and
regulations have not yet been defined and finalized by the European Commission
with regard to the euro currency. IDT's management is still evaluating the
effect that the introduction of the euro will have on its business, but it does
not anticipate, based on information currently available, that the euro will
have a material adverse impact on the Company's operations and sales.
18
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including statements that contain the
words "believes," "anticipates," "expects," and similar words and phrases. Such
forward-looking statements include, among other things, the Company's plans to
implement its growth strategy, improve its financial performance, expand its
infrastructure, develop new products and services, expand its customer base and
enter international markets, and the possible outcome of litigation relating to
the Company. Such forward-looking statements also include the Company's
expectations concerning factors affecting the markets for its products, such as
changes in the U.S. and the international regulatory environment and the demand
for long-distance telecommunications, Internet access and Internet telephony
services. Actual results could differ from those projected in any forward-
looking statements. The forward-looking statements are made as of the date of
this Report, and the Company assumes no obligation to update the forward-
looking statements, or to update the reasons why actual results could differ
from those projected in the forward-looking statements. Investors should
consult all of the information set forth herein and the other information set
forth from time to time in the Company's reports filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 and the Securities
Exchange Act of 1934, including the Company's Annual Report on Form 10-K, for
the year ended July 31, 1999.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference from Part I, Item I, Financial Statements, Note 4
captioned "Legal Proceedings and Contingencies."
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders (the "Meeting") was held on
December 9, 1999. The following matters were submitted to the Company's
stockholders for their vote, and the results of the vote taken at the Meeting
were as follows:
1. Four of the Company's Class I Directors were reelected for a term of three
years.
(a) James A. Courter: 50,668,704 votes for; 438,404 votes against;
(b) J. Warren Blaker: 50,667,745 votes for; 438,363 votes against;
(c) Marc E. Knoller: 50,668,745 votes for; 438,363 votes against; and
(d) Elmo R. Zumwalt, Jr.: 50,668,704 votes for; 438,404 votes against.
2. An amendment to the Company's 1996 Stock Option and Incentive Plan, as
amended and restated (the "Plan") were ratified. The amendment authorized an
additional 1,500,000 shares of the Company's Common Stock for grants under
the Plan.
48,753,835 votes for; 2,276,289 votes against; 76,984 abstentions.
3. The appointment of Ernst & Young LLP as the Company's independent auditors
for the fiscal year ending July 31, 2000 was ratified.
50,865,223 votes for; 209,131 votes against; 32,754 abstentions.
ITEM 5. OTHER INFORMATION
None
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------- -----------
3.01(1) Restated Certificate of Incorporation of the Registrant.
3.02(1) By-laws of the Registrant.
10.01(2) Employment Agreement between the Registrant and Howard S. Jonas.
10.02(10) 1996 Stock Option and Incentive Plan, as amended and restated, of
the Registrant.
10.03(3) Form of Stock Option Agreement under the 1996 Stock Option and
Incentive Plan.
10.04(4) Form of Registration Rights Agreement between certain stockholders
and the Registrant.
10.05(1) Lease of 294 State Street.
10.06(5) Lease of 190 Main Street.
10.7(6) Form of Registration Rights Agreement between Howard S. Jonas and
the Registrant.
10.8(11) Employment Agreement between the Registrant and James Courter.
10.9(7) Agreement between Cliff Sobel and the Registrant.
10.10(11) Employment Agreement between the Registrant and Hal Brecher.
10.11(11) Employment Agreement between the Registrant and Howard S. Jonas.
10.12(8) Agreement and Plan of Merger, dated April 7, 1998, by and among the
Registrant, ADM Corp., InterExchange, Inc., David Turock, Eric
Hecht, Richard Robbins, Bradley Turock, Wai Nam Tam, Mary Jo Altom
and Lisa Mikulynec.
10.13(9) Securities Purchase Agreement between the Registrant, Carlos Gomez
and Union Telecard Alliance, LLC.
10.14(11) Credit Agreement, dated as of May 10, 1999, by and among the
Registrant, various lenders party thereto, Lehman Commercial Paper
Inc., CIBC World Markets Corp. and Bankers Trust Company.
10.15(11) Pledge Agreement, dated as of May 10, 1999, by and among the
Registrant, certain subsidiaries of the Registrant and Bankers
Trust Company, as Collateral Agent.
10.16(11) Security Agreement, dated as of May 10, 1999, by and among the
Registrant, certain subsidiaries of the Registrant and Bankers
Trust Company, as Collateral Agent.
10.17(11) Subsidiaries Guaranty, dated as of May 10, 1999, by and among the
Registrant, certain subsidiaries of the Registrant and Bankers
Trust Company, as Collateral Agent.
10.18(11) Loan Agreement between the Registrant and Stephen Brown.
10.19(12) Internet/Telecommunications Agreement, dated as of May 7, 1999, by
and between Registrant and Net2Phone, Inc.
10.20(12) Joint Marketing Agreement, dated as of May 7, 1999, by and between
Registrant and Net2Phone, Inc.
10.21(12) IDT Services Agreement, dated as of May 7, 1999, by and between
Registrant and Net2Phone, Inc.
10.22(12) Net2Phone Services Agreement, dated as of May 7, 1999, by and
between Registrant and Net2Phone, Inc.
10.23(12) Assignment Agreement, dated as of May 7, 1999, by and between
Registrant and Net2Phone, Inc.
10.24(12) Tax Sharing and Indemnification Agreement, dated as of May 7, 1999,
by and between Registrant and Net2Phone, Inc.
21
Exhibit
Number Description
------- -----------
10.25(12) Separation Agreement, dated as of May 7, 1999, by and between
Registrant and Net2Phone, Inc.
10.26(12) Co-location and Facilities Management Services Agreement, dated as
of May 20, 1999, by and between Registrant and Net2Phone, Inc.
10.27+ Lease of 520 Broad Street, Newark, New Jersey.
10.28+ Amendment to Lease of 520 Broad Street, Newark, New Jersey.
27.01* Financial Data Schedule.
- --------
* filed herewith
+ Previously filed
(1) Incorporated by reference to Form S-1 filed February 21, 1996 file no.
333-00204.
(2) Incorporated by reference to Form S-1 filed January 9, 1996 file no. 333-
00204.
(3) Incorporated by reference to Form S-8 filed January 14, 1996 file no. 333-
19727.
(4) Incorporated by reference to Form S-1 filed March 8, 1996 file no. 333-
00204.
(5) Incorporated by reference to Form 10-K for the fiscal year ended July 31,
1997, filed October 29, 1997.
(6) Incorporated by reference to Form S-1 filed March 14, 1996 file no. 333-
00204.
(7) Incorporated by reference to Form 10-K/A for the fiscal year ended July
31, 1997, filed February 2, 1998.
(8) Incorporated by reference to Form 8-K filed April 22, 1998.
(9) Incorporated by reference to Form 10-K/A for the fiscal year ended July
31, 1998, filed December 4, 1998.
(10) Incorporated by reference to Form 10-Q for the fiscal quarter ended
January 31, 1999, filed March 17, 1999.
(11) Incorporated by reference to Form 10-Q for the fiscal quarter ended April
30, 1999, filed June 14, 1999.
(12) Incorporated by reference to Form 10-K for the fiscal year ended July 31,
1999, filed November 4, 1999.
(b) Reports on Form 8-K.
None.
22
IDT CORPORATION
FORM 10-Q/A
January 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IDT CORPORATION
Dated: August 11, 2000 /s/ Howard S. Jonas [/R]
By: _________________________________
Howard S. Jonas
Chairman of the Board and Chief
Executive Officer (Principal
Executive Officer)
Dated: August 11, 2000 /s/ Stephen R. Brown [/R]
By: _________________________________
Stephen R. Brown
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23