UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
or
[ ] 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 0-21519
International Telecommunication Data Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1295986
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
225 High Ridge Road, Stamford, CT 06905
- -------------------------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 329-3300
--------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 7, 1998
- ------------------------------------ -------------------------------
Common Stock, $.01 par value 13,537,569
International Telecommunication Data Systems, Inc.
and Subsidiaries
Form 10-Q
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (unaudited)
Consolidated balance sheets--March 31, 1998 and December 31, 1997......................1
Consolidated statements of operations--three months ended
March 31, 1998 and 1997..............................................................3
Consolidated statements of cash flows--three months ended
March 31, 1998 and 1997..............................................................4
Notes to consolidated financial statements.............................................5
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations, and Certain Factors That May Affect Future Results.................8
Part II. Other Information
Item 1. Legal Proceedings...............................................................11
Item 2. Changes in Securities and Use of Proceeds.......................................11
Item 4. Submission of Matters to a Vote of Security Holders.............................12
Item 6. Exhibits and Reports on Form 8-K................................................12
Signatures......................................................................13
Part I. Financial Information
Item 1. Financial Statements
International Telecommunication Data Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
March 31 December 31
1998 1997
------------------------------------
(Unaudited) (See Note)
Assets
Current assets:
Cash and cash equivalents $ 7,720 $ 28,967
Accounts receivable, net of allowances for doubtful accounts of
$1,766 and $486, respectively 24,748 5,008
Prepaid expenses, and other current assets 1,016 741
Deferred income taxes 585 220
------------------------------------
Total current assets 34,069 34,936
Property and equipment
Computers, including leased property under capital leases of
$1,105 in 1998 and 1997 7,976 4,844
Furniture and fixtures, including leased property under capital
leases of $33 in 1998 and 1997 1,675 447
Equipment, including leased property under capital leases of $54
in 1998 and 1997 373 373
Leasehold improvements 970 589
------------------------------------
10,994 6,253
Less: accumulated depreciation and amortization 3,143 2,319
------------------------------------
7,851 3,934
Other assets:
Goodwill - net of accumulated amortization of $861 in 1998 48,749 --
Product development costs-at cost, net of accumulated
amortization of $2,066 and $1,105 respectively 20,962 3,698
Deferred taxes 5,394 --
Other 2,604 1,884
------------------------------------
77,709 5,582
------------------------------------
Total assets $ 119,629 $ 44,452
====================================
See notes to financial statements.
Page 1
March 31 December 31
1998 1997
------------------------------------
(Unaudited) (See Note)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,318 $ 1,192
Accrued expenses and income taxes payable 6,057 560
Accrued compensation 2,287 333
Deferred revenue 446 --
Current maturities of capital lease obligations 225 279
------------------------------------
Total current liabilities 12,333 2,364
Long term debt 70,000 --
Capital lease obligations 35 73
Deferred income taxes -- 1,667
Other 19 30
Stockholders' equity
Common Stock, $.01 par value; 40,000,000 shares authorized,
13,426,459 and 12,786,740 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 134 128
Additional paid-in capital 54,754 44,447
Retained deficit (17,530) (4,026)
Unearned compensation (116) (231)
------------------------------------
Total stockholders' equity 37,242 40,318
------------------------------------
Total liabilities and stockholders' equity $119,629 $44,452
====================================
Note: The balance sheet at December 31, 1997 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.
Page 2
International Telecommunication Data Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands except per share amounts)
(Unaudited)
Three months ended
March 31,
1998 1997
-----------------------------------
Revenue $ 26,006 $ 5,270
Costs and expenses:
Operating expenses 10,261 1,321
General, administrative and selling expenses 5,025 1,541
Depreciation and amortization 2,647 346
Systems development and programming costs 3,471 624
In-process R&D & indirect acquisition costs 24,986 --
-----------------------------------
46,390 3,832
Operating income (loss) (20,384) 1,438
Other income 225 414
Interest expense (1,505) (49)
-----------------------------------
Income (loss) before income tax expense (21,664) 1,803
Income tax expense (benefit) (8,159) 741
-----------------------------------
Net income (loss) $(13,505) $ 1,062
===================================
Income (loss) per common share- basic:
Net income (loss) $ (1.01) $ .08
===================================
Shares used in computing basic income (loss) per common share 13,406 12,655
===================================
Income (loss) per common share- diluted:
Net income (loss) $ (1.01) $ .08
===================================
Shares used in computing diluted income (loss) per common share 13,406 12,856
===================================
See notes to financial statements.
Page 3
International Telecommunication Data Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three months ended
March 31,
1998 1997
----------------------------------
Operating activities
Net income loss before extraordinary loss $ (13,505) $ 1,062
Adjustments to reconcile net income before extraordinary loss to
net cash provided by operating activities:
Write off of in-process R&D 20,800 --
Depreciation and amortization 2,704 346
Deferred taxes (7,426) 104
Stock option compensation expense 116 21
Change in operating assets and liabilities:
Accounts receivable (14,030) (302)
Prepaid expenses (72) 334
Accounts payable, accrued expenses and accrued compensation 3,192 887
Customer & employee advances (651) --
Other assets and liabilities, net 6 (170)
----------------------------------
Net cash provided (used) by operating activities (8,866) 2,282
Investing activities
Capital expenditures (1,531) (1,552)
Purchase of Intelicom (77,275) --
Purchase of securities available for sale -- (2,988)
Purchase of investments -- (1)
Proceeds from maturities of investments -- 300
Product development costs (2,426) (285)
----------------------------------
Net cash used for investing activities (81,232) (4,526)
Financing activities
Principal payment on long term debt (92) (129)
Proceeds from sale of common stock 313 6
Financing fees paid (1,370) --
Proceeds from long term debt 70,000 --
----------------------------------
Net cash provided (used) for financing activities 68,851 (123)
----------------------------------
Net decrease in cash and cash equivalents (21,247) (2,367)
Cash and cash equivalents at beginning of period 28,967 4,139
----------------------------------
Cash and cash equivalents at end of period $ 7,720 $ 1,772
==================================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,291 $ 49
Cash paid during the period for taxes 465 154
Supplemental disclosure of noncash investing and
financial activities:
The Company issued 606,673 shares of its common stock, valued at $10 million to
CSC as partial financing of the Intelicom Acquisition.
See notes to financial statements.
Page 4
International Telecommunication Data Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements 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 month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the International Telecommunication
Data Systems, Inc. (the "Company" or "ITDS") Annual Report on Form 10K/A for the
year ended December 31, 1997.
Consolidation
The consolidated financial statement include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
On January 2, 1998, the Company acquired a subsidiary ("Intelicom") of Computer
Sciences Corporation ("CSC"), a provider of billing and customer care software,
by acquiring all of the outstanding Capital Stock of CSC Intelicom Inc. (now
known as ITDS Intelicom Services, Inc.). The purchase price consisted of 606,673
shares of Common Stock of the Company valued at $10 million and $75.8 million in
cash plus a future contingent payout of up to $6 million. A portion of the cash
purchase price for Intelicom was obtained by the Company under a credit
agreement dated January 2, 1998, with certain lenders and Lehman Commercial
Paper, Inc., as Administrative Agent and Arranger (the "Credit Agreement"). The
Company subsequently amended the Credit Agreement with an Amended and Restated
Credit Agreement dated as of March 18, 1998 among the Company, Intelicom, the
Lenders party thereto, First Union National Bank as Administrative Agent, and
Lehman Commercial Paper, Inc. as Arranger (the "Amended Credit Agreement") which
provides for a $70 million term loan and a $30 million line of credit. The
Amended Credit Agreement contains normal covenants which include meeting certain
financial ratios, requires the Company to pay interest at LIBOR plus up to two
and one quarter percent and requires payments of interest only through March 30,
2000, at which time periodic principal payments become due.
During the quarter ended March 31, 1998, the Company entered into a hedging
agreement with a third party, expiring in March 2001, to limit exposure to
interest rate volatility on the Amended Credit Agreement (the "Hedge
Agreement"). The transaction has a notional principal amount of $35 million. The
Company pays an interest rate of 5.76% in exchange for the LIBOR portion of the
Amended Credit Agreement. In addition, the Company has granted the counterparty
the option to cancel the Hedge Agreement in March 2000. The Company monitors the
risk of default by the counterparty and does not anticipate non-performance. As
of March 31, 1998, the cost of canceling the Hedge Agreement is estimated to be
$35 thousand.
Operating costs and expenses for the quarter ended March 31, 1998 include
approximately $25 million ($1.15 per share after tax benefit) of non-recurring
in process research and development costs ($20.8 million), hiring, bonus and
other employment related costs associated with the acquisition of Intelicom
($3.4 million) and other indirect costs of the acquisition ($.8 million).
Page 5
International Telecommunication Data Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
1. Basis of Presentation (continued)
The Company's results of operations include Intelicom from January 2, 1998, the
date of acquisition. Pro forma results for the quarter ended March 31, 1997, as
if the acquisition occurred on January 1, 1997, would have been revenues of
$17.8 million and net income of $1.6 million or $.12 per diluted share. The pro
forma financial results are not necessarily indicative of the results which
would have occurred if the acquisition had been in effect on the date indicated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Income Tax
Income tax provisions for interim periods, other than unusual items, are based
on estimated effective annual income tax rates. The Company recognizes deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the tax bases, projected state tax rates and financial
reporting bases of assets and liabilities.
The differences between the effective tax rate and the federal statutory rate is
primarily a result of state income taxes and the tax benefit anticipated in
connection with the nonrecurring costs associated with the Intelicom
acquisition.
3. Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share
"FAS 128", which revises the methodology of calculating earnings per share. The
Company adopted FAS 128 in the fourth quarter of 1997. Earnings per share for
the quarter ended March 31, 1997 did not change as a result of the restatement
to conform with FAS 128. For the quarter ended March 31, 1998 the effects of
common stock equivalents were antidilutive and therefore diluted earnings per
share is the same as basic earnings per share. For the quarter ended March 31,
1997, shares used in computing basic and diluted income (loss) per share differ
by the effect of common stock equivalents (201 thousand shares).
Stock Split
The Company effected a three-for-two stock split, in the form of a 50% stock
dividend, distributed on March 9, 1998 to stockholders of record on February 23,
1998. Accordingly, all share and per share amounts have been adjusted to reflect
this split.
4. Comprehensive Income
As of January 1, 1998, the Company adopted SFAS 130, Reporting Comprehensive
Income ("FAS 130"). FAS 130 establishes new rules for the reporting and display
of comprehensive income and its components.
Page 6
International Telecommunication Data Systems, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. Comprehensive Income (continued)
Other comprehensive income (loss) for the three months ended March 31, 1998 and
1997 is comprised of the following (in thousands):
Three months ended
March 31
1998 1997
--------------------------
Net income (loss) as reported $(13,505) $1,062
Unrealized loss on available for sale securities -- (161)
--------------------------
Other comprehensive income (loss) $(13,505) $ 901
==========================
As of March 31, 1998, the Company had no accumulated other comprehensive income
(loss).
5. Officer, Director and Employee Loans
As of March 31, 1998, prepaid expenses and other current assets and other
long-term assets include approximately $1 million of loans and advances to
certain officers, directors and employees of the Company. As of May 8, 1998, $.5
million has been repaid.
6. Legal Proceedings
The Company and certain of its subsidiaries are defendants in legal proceedings
incidental to its business. Although the ultimate disposition of these
proceedings is not presently determinable, management does not expect the
outcome to have a material adverse impact on the Company's financial position or
results of operations.
Intelicom, a wholly-owned subsidiary of the Company acquired in January 1998
from CSC, is party to litigation and has been threatened with litigation in
connection with the operation of its business prior to its acquisition by the
Company. Pursuant to the terms of the acquisition agreement, CSC and certain of
its affiliates are obligated to defend and indemnify the Company against
obligations arising out of such litigation or threatened litigation.
The Company does not believe that any liabilities relating to any of the legal
proceedings to which it is a party are likely to be, individually or in the
aggregate, material to its consolidated financial position or results of
operations.
7. Subsequent Event
During May 1998, the Company filed a registration statement with the Securities
and Exchange Commission for the sale of 3,750,000 shares by the Company. In
addition, the Company has granted the underwriters an option to purchase up to
an aggregate of 562,500 additional shares of common stock. Proceeds from the
proposed sale will be used to repay the term loan under the Amended Credit
Agreement and for working capital and other general corporate purposes.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition, Results of
Operations, and Certain Factors that May Affect Future Results
Overview
The Company is a leading provider of comprehensive billing, customer care and
management information solutions to providers of wireless and satellite
telecommunications services. On January 2, 1998, the Company acquired a
subsidiary ("Intelicom") of Computer Sciences Corporation ("CSC") (the
"Intelicom Acquisition"), for 606,673 shares of the Company's common stock
(valued at $10 million) and $75.8 million in cash, plus a future contingent
payment of up to $6 million. Intelicom provides complete billing and customer
care solutions for the wireless communication industry, including cellular, PCS,
paging and ESMR. The Intelicom Acquisition positions the Company as a provider
of billing service to wireless carriers and resellers in 29 of the top 30
markets in the United States.
The Company derives substantially all of its revenue (i) primarily from service
contracts, which are generally billed monthly, under which a customer contracts
with the Company to operate and maintain such customer's transactional billing
system; and (ii) to a lesser extent, from the development of new software, the
enhancement of existing installed systems and the provision of related customer
maintenance and training, which are largely billed on a time and materials
basis. Service revenue is recognized in the period in which the services are
provided and software development revenue is recognized at the time the services
are performed.
Operating expenses are comprised primarily of the salaries and benefits of
technical service representatives, operations personnel, quality assurance
representatives and consultants as well as costs to produce and distribute
invoices for customers.
General, administrative and selling expenses consist mainly of the salaries and
benefits of management and administrative personnel in addition to general
office administration expenses (rent and occupancy, telephone and other office
supply costs) of the Company.
The Company capitalizes software development costs incurred in the development
of software used in its product and service line only after establishing
commercial and technical viability and ceases capitalizing such costs when the
product is available for general release. The capitalized costs include salaries
and related payroll costs incurred in the development activities. Software
development costs are carried at cost less accumulated amortization.
Amortization is computed by using the greater of the amount that results from
applying the ratio of current revenue for the product over total revenue for the
product or the straight-line method over the remaining useful life of the
product. Generally, such deferred costs are amortized over five years.
Results of Operations
Primarily as a result of the Intelicom Acquisition, the number of subscribers
supported by the Company increased from approximately 735,000 in January 1997 to
approximately 4.6 million in January 1998 and the Company's revenues increased
from $5.3 million for the quarter ended March 31, 1997 to $26.0 million for the
quarter ended March 31, 1998. In addition, during the quarter ended March 31,
1998, the Company incurred non-recurring in process R&D and indirect costs
associated with the Intelicom Acquisition aggregating $25 million and its total
operating costs and expenses (excluding the non-recurring costs) increased from
$3.8 million for the quarter ended March 31, 1997 to $21.4 million for the
quarter ended March 31, 1998. Additionally, interest expense increased from $49
thousand for the quarter ended March 31, 1997 to $1.5 million for the quarter
ended March 31, 1998 as a result of the Company's $70 million term loan obtained
in connection with the Intelicom Acquisition. The Company's effective tax rate
declined to 37.7% for the quarter ended March 31, 1998 from 41.1% for the
quarter ended March 31, 1997 primarily due to the amount of tax benefit
anticipated in connection with the non-recurring costs associated with the
Intelicom Acquisition.
Page 8
On a pro forma basis, including the Intelicom Acquisition, revenues for the
quarter ended March 31, 1997 were $17.8 million compared to actual revenues for
the quarter ended March 31, 1998 of $26.0 million. This increase of 46.4% is due
primarily to the growth of recurring revenue from existing customers. Total pro
forma operating costs and expenses, including the Intelicom Acquisition, for the
quarter ended March 31, 1997 were $13.8 million compared to actual operating
costs and expenses for the quarter ended March 31, 1998 of $21.4 million
excluding nonrecurring in process R&D and indirect costs associated with the
Intelicom Acquisition. This increase of 54.7% is due primarily to the increased
service and systems support necessary for the growing client base, provided in
part by outside contractors.
Liquidity and Capital Resources
The Company has financed its operations primarily through placements of debt and
equity securities, cash generated from operations and equipment financing
leases.
As of March 31, 1998, the Company had $7.7 million in cash and cash equivalents,
$24.7 million in net trade accounts receivable and $21.7 million in working
capital.
For the quarter ended March 31, 1998, cash and cash equivalents decreased by
$21.2 million. This decrease is primarily a result of the cash payment in
connection with the Intelicom Acquisition and the requirement to fund
Intelicom's accounts receivable which were retained by CSC at the date of
acquisition. The decline in working capital since December 31, 1997 ($10.8
million) is also attributable to the Intelicom Acquisition. These decreases were
partially offset by the proceeds of long-term debt which was used to partially
finance the Intelicom Acquisition.
As discussed above, on January 2, 1998, the Company acquired ITDS Intelicom
Services, Inc. for 606,673 shares of Common Stock of the Company (valued at $10
million) and $75 million in cash plus a future contingent payment of up to $6
million. A portion of the cash purchase price for Intelicom was obtained by the
Company under a Credit Agreement dated January 2, 1998, with certain lenders and
Lehman Commercial Paper, Inc., as Administrative Agent and Arranger (the "Credit
Agreement"). The Company subsequently amended the Credit Agreement with the
Amended and Restated Credit Agreement dated as of March 18, 1998 among the
Company, Intelicom, the Lenders party thereto, First Union National Bank as
Administrative Agent, and Lehman Commercial Paper, Inc. as arranger (the
"Amended Credit Agreement"), that provides for a $70 million term loan and a $30
million line of credit. The Credit Agreement contains normal covenants which
include meeting certain financial ratios, requires the Company to pay interest
at LIBOR plus up to two and one quarter percent and requires payments of
interest only through March 30, 2000, at which time periodic principal payments
become due. In addition, the Company has entered into a hedging agreement with a
third party to limit exposure to interest rate volatility on the Amended Credit
Agreement.
On May 1, 1998, the Company filed a Registration Statement for the sale of
3,750,000 shares of Common Stock by the Company. In addition, the Company has
granted the underwriters an option to purchase up to an aggregate of 562,500
additional shares of Common Stock. Proceeds from the proposed sale will be used
to repay the term loan and for working capital and other general corporate
purposes.
The Company believes that its existing capital resources are adequate to meet
its cash requirements for the foreseeable future. There can be no assurance,
however, that changes in the Company's plans or other events affecting the
Company's operations will not result in accelerated or unexpected expenditures.
The Company may seek additional funding through public or private financing.
There can be no assurance, however, that additional financing will be available
from any of these sources or will be available on terms acceptable to the
Company.
To date, inflation has not had a significant impact on the Company's operations.
Page 9
Year 2000 Disclosure
The Company is preparing all of its software products and internal computer
systems to be Year 2000 compliant. A compliance task force has been established,
and is currently identifying and developing conversion strategies for the
Company's systems. The Company expects to replace some of its systems and to
upgrade others. The Company currently estimates the compliance effort, including
planning, implementation and testing, to cost approximately $2 million to $3
million, and expects that a substantial portion of this expenditure will occur
in 1998. Although the Company does not expect the cost to have a material
adverse effect on its business or future results of operations, there can be no
assurance that the Company will not be required to incur significant
unanticipated costs in relation to its compliance obligations. The Company
currently estimates that compliance will be achieved in early 1999, however,
there can be no assurances that the Company will be able to complete the
conversion in a timely manner or that third party software suppliers will be
able to timely provide Year 2000 compliant products for the Company to install.
Certain Factors That May Affect Future Results
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information." While the Company is studying the
application of the disclosure provisions, the statement will not affect its
consolidated financial position or results of operations.
This quarterly report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. A number of uncertainties
exist that could affect the Company's future operating results, including,
without limitation, changes in the telecommunications market, the Company's
ability to successfully complete its Year 2000 efforts, the Company's ability to
retain existing customers and attract new customers, the Company's continuing
ability to develop products that are responsive to the evolving needs of its
customers, increased competition, changes in operating expenses, changes in
government regulation of the Company's clients and general economic factors.
The Company's quarterly operating results may fluctuate from quarter to quarter
depending on various factors, including the impact of significant start-up costs
associated with initiating the delivery of contracted services to new clients,
the hiring of additional staff, new product development and other expenses,
introduction of new products by competitors, pricing pressures, the evolving and
unpredictable nature of the markets in which the Company's products and services
are sold and general economic conditions.
The market for the Company's products and services is highly competitive, and
competition is increasing as additional market opportunities arise.
Reference is made to the more detailed discussion of the risks associated with
the Company's business contained under the heading "Risk Factors" in the
Company's Registration Statement on Form S-3, as amended (Registration No.
333-51669), filed with the Securities and Exchange Commission on May 11, 1998.
Page 10
Part II: Other Information
Item 1.
Legal Proceedings
On April 2, 1998, the Company was served with a complaint in Connecticut
Superior Court alleging that the Company had breached the terms of its
employment contract with Alan K. Greene, the Company's former Chief Financial
Officer, and breached other obligations to Mr. Greene. The Company intends to
vigorously defend itself in the action and is currently preparing a response to
the claim and a counterclaim against Mr. Greene.
In addition, Intelicom, a wholly-owned subsidiary of the Company acquired in
January 1998 from CSC is party to litigation and has been threatened with
litigation in connection with the operation of its business prior to its
acquisition by the Company. Pursuant to the terms of the Intelicom Acquisition,
CSC and certain of its affiliates are obligated to defend and indemnify the
Company against obligations arising out of such litigation or threatened
litigation.
The Company does not believe that any liabilities relating to any of the legal
proceedings to which it is a party are likely to be, individually or in the
aggregate, material to its consolidated financial position or results of
operations.
Item 2.
Changes in Securities and Use of Proceeds
On January 2, 1998, the Company issued 606,673 shares of the Company's Common
Stock (the "Acquisition Shares") to CSC Domestic Enterprises, Inc. ("CSC
Domestic") as partial consideration for all of the outstanding shares of capital
stock of CSC Intelicom, Inc., now known at ITDS Intelicom Services, Inc. The
Acquisition Shares were issued pursuant to an exemption from the registration
under Section 4(2) of the Securities Act of 1933, as amended. CSC Domestic has
knowledge and experience in financial and business matters such that it was
capable of evaluating the merits and risks of the investment. CSC Domestic had
adequate opportunity to obtain all relevant information regarding the Company
necessary to evaluate the investment and represented that it was acquiring the
Acquisition Shares for investment. There was no general solicitation or
advertising involved and the Company used reasonable care to assure that CSC
Domestic was not an underwriter.
The Registration Statement on Form S-1 (File No. 333-11045) relating to the
Company's initial public offering (the "Offering") was declared effective on
October 24, 1996. From the effective date of the Registration Statement through
March 31, 1998, the net Offering proceeds of $30.7 million have been used as
follows: $8.6 million for the Intelicom Acquisition $3.3 million for repayment
of indebtedness, $1.8 million for capital expenditures, $3.9 million for product
development and $13.1 million for working capital purposes. All of such payments
were direct or indirect payments to persons other than directors, officers,
general partners of the Company or their associates persons owning ten percent
or more of any class of equity securities of the Company; or affiliates of the
Company.
Page 11
Part II: Other Information (continued)
Item 4.
Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on April 13, 1998, the
following proposals were adopted by the vote specified below:
Against or Broker
Proposal For Withheld Abstain Non-Votes
1. Election of Class II
Directors:
Lewis D. Bakes 7,812,706 -- -- --
Peter P. Bassermann 7,812,706 -- -- --
2. Approve and adopt the 4,180,266 2,344,168 10,531 --
corporations 1998 Stock
Incentive Plan
3. Ratification of Ernst 7,873,083 110 22,000 --
& Young LLP as
independent auditors
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits are listed in the accompanying index to exhibits immediately
following the signature page.
(b) Reports on Form 8-K
On January 13, 1998, the Company filed a Current Report on Form 8-K and
an amendment thereto on Form 8-K/A on March 18, 1998 announcing under
Item 2 (Acquisition or Disposition of Assets) that the Company had
acquired all of the outstanding stock of Intelicom pursuant to a Stock
Purchase Agreement dated as of December 29, 1997.
The Company filed the following financial statements with the Current
Report on Form 8-K and 8-K/A:
Report of Independent Auditors
ITDS Intelicom Services, Inc. Balance Sheets as of March 28, 1997 and
January 2, 1998
ITDS Intelicom Services, Inc. Statements of Operations and
Shareholders' Net Investment for the years ended March 29, 1996,
March 28, 1997 and the 39 week period ended January 2, 1998
ITDS Intelicom Services, Inc. Statements of Cash Flows for the
years ended March 2, 1996, March 28, 1997 and the 39 week period
ended January 2, 1998
ITDS Intelicom Services, Inc. Notes to Financial Statements
Unaudited Pro Forma Consolidated Balance Sheet as of December 31,
1997
Unaudited Pro Forma Consolidated Statement of Income for the year
ended December 31, 1997
Notes to Unaudited Pro Forma Consolidated Financial Statements
Page 12
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.
International Telecommunication
Data Systems, Inc.
---------------------------------------
(Registrant)
By /s/ Paul K. Kothari
---------------------------------------
Paul K. Kothari
(Chief Financial Officer and Duly
Authorized Officer)
Date May 13, 1998
---------------------------------------
Page 13
Exhibits
The exhibits filed as part of this report on Form 10-Q are as follows:
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ---------------------------------------------------------------------------------------------------------
*2 Stock Purchase Agreement, dated as of December 29, 1997 by and among the Registrant,
CSC Intelicom, Inc. and CSC Domestic Enterprises, Inc.
**+10.1 1998 Stock Incentive Plan.
**+10.2 Employment Agreement between the Registrant and Peter P. Bassermann, dated as of September 3, 1997,
and amendment thereto, dated as of January 1, 1998.
**+10.3 Employment Agreement between the Registrant and Lewis D. Bakes, dated as of January 1, 1998.
**+10.4 Employment Agreement between the Registrant and Peter L. Masanotti, dated as of January 1, 1998.
**10.5 Security Agreement, dated as of January 2, 1998 among the Registrant, each of the subsidiaries
of the Registrant, and Lehman Commercial Paper Inc.
**10.6 Guarantee Assumption Agreement, dated as of January 2, 1998 by ITDS Intelicom Services, Inc.
in favor of Lehman Commercial Paper Inc.
10.7 Swap Transaction Confirmation dated March 5, 1998 between the Registrant and First Union
National Bank.
10.8 LCPI Assignment Agreement dated March 18, 1998 between Lehman Commercial Paper Inc.
in its capacity as administrative agent, as assignor, and First Union National Bank, as assignee.
10.9 Amended and Restated Credit Agreement dated March 18, 1998 among the Registrant, the Subsidiary
Guarantors party thereto, the Lenders party thereto, First Union National
Bank, as Administrative Agent, and Lehman Commercial Paper Inc., as Arranger.
27.1 Financial Data Schedule, for the three month period ended March 31, 1998.
- --------------------
* Incorporated by reference to the Registrant's Report on
Form 8-K originally filed with the Commission on January
13, 1998.
** Incorporated by reference to the Registrant's Report on
Form 10-K, originally filed with the Commission on March
10, 1998.
+ Management Contract or Compensatory Plan.
Page 14