SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the Quarterly Period Ended January 31, 2002
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-27898
----------------------
IDT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-3415036
----------------------- -------------------
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
520 Broad Street, Newark, New Jersey 07102
- ---------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(973) 438-1000
----------------------------------------------
(Registrant's telephone number, including area code)
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 |_| No |X|
Common Stock, $.01 par value -- 24,508,079 shares as of March 15, 2002
Class A Common Stock, $.01 par value -- 9,816,988 shares as of March 15, 2002
Class B Common Stock, $.01 par value -- 51,030,050 shares as of March 15, 2002
As of March 15, 2002, 5,419,963 shares of common stock and 4,019,163 shares
of Class B common stock were held by IDT Corporation.
(Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date)
IDT CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION................................................................... 3
Item 1. Financial Statements (Unaudited)..................................................... 3
Condensed Consolidated Balance Sheets as of January 31, 2002 and
July 31, 2001...................................................................... 3
Condensed Consolidated Statements of Operations for the six months
and the three months ended January 31, 2002 and 2001................................. 4
Condensed Consolidated Statements of Cash Flows for the six months
ended January 31, 2002 and 2001.................................................... 5
Notes to Condensed Consolidated Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risks.......................... 23
PART II. OTHER INFORMATION....................................................................... 25
Item 1. Legal Proceedings.................................................................... 25
Item 2. Changes in Securities and Use of Proceeds............................................ 25
Item 3. Defaults Upon Senior Securities...................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders.................................. 25
Item 5. Other Information.................................................................... 26
Item 6. Exhibits and Reports on Form 8-K..................................................... 26
SIGNATURES ........................................................................................ 27
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
IDT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
January 31, 2002 July 31, 2001
---------------- ---------------
Assets (Unaudited) (Note 1)
Current assets:
Cash and cash equivalents .................................................... $ 964,950 $ 1,091,071
Marketable securities ........................................................ 89,769 3,489
Trade accounts receivable, net ............................................... 147,911 116,759
Other current assets ......................................................... 48,876 32,413
--------------- ---------------
Total current assets ...................................................... 1,251,506 1,243,732
Property, plant and equipment, net ........................................... 257,326 224,042
Goodwill and other intangibles, net .......................................... 31,644 197,804
Investments .................................................................. 78,971 60,732
Other assets ................................................................. 145,601 155,279
--------------- ---------------
Total assets .............................................................. $ 1,765,048 $ 1,881,589
=============== ===============
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable ....................................................... $ 131,031 $ 163,313
Accrued expenses ............................................................. 103,048 54,893
Deferred revenue ............................................................. 92,765 71,387
Notes payable - current portion .............................................. 29 2,657
Capital lease obligations - current portion .................................. 24,472 18,270
Other current liabilities .................................................... 19,034 17,819
--------------- ---------------
Total current liabilities ................................................. 370,379 328,339
Deferred tax liabilities, net .................................................. 344,332 390,914
Notes payable - long-term portion ............................................ 380 380
Capital lease obligations - long-term portion ................................ 51,662 49,799
Other liabilities ............................................................ 122 14,502
--------------- ---------------
Total liabilities ......................................................... 766,875 783,934
Minority interests ............................................................. 57,631 21,419
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;
19,057,166 and 22,791,789 shares issued and outstanding at
January, 31, 2002 and July 31, 2001, respectively ........................... 191 228
Class A common stock, $.01 par value; authorized shares - 35,000,000;
9,816,988 shares issued and outstanding at January 31, 2002 and
July 31, 2001 ............................................................... 98 98
Class B common stock, $.01 par value; authorized shares -
100,000,000; 46,971,338 and 39,291,411 shares issued and outstanding
at January 31, 2002 and July 31, 2001, respectively ......................... 470 393
Additional paid-in capital ................................................... 555,393 494,093
Treasury stock, at cost ...................................................... (153,713) (138,087)
Accumulated other comprehensive loss ......................................... (8,456) (2,575)
Retained earnings ............................................................ 546,559 722,086
--------------- ---------------
Total stockholders' equity ................................................ 940,542 1,076,236
--------------- ---------------
Total liabilities and stockholders' equity ................................ $ 1,765,048 $ 1,881,589
=============== ===============
See notes to condensed consolidated financial statements.
3
IDT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Six Months Ended January 31 Three Months Ended January 31,
----------------------------------- -----------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Revenues ......................................... $ 713,234 $ 564,194 $ 374,025 $ 287,597
Costs and expenses:
Direct cost of revenues ........................ 560,605 490,772 293,998 252,153
Selling, general and administrative ............ 160,092 152,670 92,951 69,288
Depreciation and amortization .................. 30,095 29,277 14,850 14,611
Impairment charges ............................. 2,781 -- -- --
--------------- --------------- --------------- ---------------
Total costs and expenses ......................... 753,573 672,719 401,799 336,052
--------------- --------------- --------------- ---------------
Loss from operations ............................. (40,339) (108,525) (27,774) (48,455)
Interest income, net ............................. 11,549 29,591 2,736 16,176
Other income (expense):
Equity in loss of affiliate .................... (16,669) (31,869) (11,419) (31,000)
Gain on sale of subsidiary stock ............... -- 1,037,726 -- --
Investment and other income, net ............... (5,812) 185,170 8,688 (91,577)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes, minority
interests and cumulative effect of accounting
change ......................................... (51,271) 1,112,093 (27,769) (154,856)
Provision for (benefit from) income taxes ........ (33,940) 356,047 (15,718) (40,411)
Minority interest expense ........................ 11,213 3,582 5,161 2,659
--------------- --------------- --------------- ---------------
Income (loss) before cumulative effect of
accounting change .............................. (28,544) 752,464 (17,212) (117,104)
Cumulative effect of accounting change, net of
income taxes of $3,525 ......................... (146,983) -- -- --
--------------- --------------- --------------- ---------------
Net income (loss) ................................ $ (175,527) $ 752,464 $ (17,212) $ (117,104)
=============== =============== =============== ===============
Earnings per share:
Income (loss) before cumulative effect of
accounting change:
Basic .......................................... $ (0.39) $ 11.06 $ (0.23) $ (1.77)
Diluted ........................................ $ (0.39) $ 10.16 $ (0.23) $ (1.77)
Cumulative effect of accounting change, net of
income taxes:
Basic .......................................... $ (2.03) $-- $-- $--
Diluted ........................................ $ (2.03) $-- $-- $--
Net income (loss):
Basic .......................................... $ (2.42) $ 11.06 $ (0.23) $ (1.77)
Diluted ........................................ $ (2.42) $ 10.16 $ (0.23) $ (1.77)
Weighted-average number of shares used in
calculation of earnings per share - basic ...... 72,396 68,060 73,382 66,190
=============== =============== =============== ===============
Weighted-average number of shares used in
calculation of earnings per share - diluted .... 72,396 74,062 73,382 66,190
=============== =============== =============== ===============
See notes to condensed consolidated financial statements.
4
IDT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended January 31,
-----------------------------------
2002 2001
--------------- ---------------
Net cash provided by (used in) operating activities ............................ $ 19,123 $ (82,841)
Investing activities
Purchases of property, plant and equipment ..................................... (16,118) (62,394)
Net issuance of notes receivable ............................................... (1,877) (786)
Net proceeds from sale of equity interest in subsidiary ........................ -- 1,042,113
Acquisitions ................................................................... (32,698) --
Purchases of investments, net .................................................. (31,837) 17,783
Net (purchases) sales of marketable securities ................................. (89,211) 129,202
--------------- ---------------
Net cash (used in) provided by investing activities ............................ (171,741) 1,125,918
Financing activities
Proceeds from exercise of stock options ........................................ 31,318 2,729
Repayment of borrowings ........................................................ (2,606) (42,142)
Repayment of capital lease obligations ......................................... (6,278) 20,115
Common stock repurchases ....................................................... (15,639) (134,189)
Distributions to minority shareholder .......................................... (10,298) (1,160)
Proceeds from sale of subsidiary stock ......................................... 30,000 --
--------------- ---------------
Net cash provided by (used in) financing activities ............................ 26,497 (154,647)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents ........................... (126,121) 888,431
Cash and cash equivalents, beginning of period ................................. 1,091,071 162,879
--------------- ---------------
Cash and cash equivalents, end of period ....................................... $ 964,950 $ 1,051,310
=============== ===============
Supplemental disclosures of cash flow information
Interest paid .................................................................. $ 2,999 $ 4,409
Income taxes paid .............................................................. $ 8,344 $ 1,700
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 its subsidiaries (collectively, the "Company" or "IDT") 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. Certain reclassifications have been made to the prior year's
unaudited condensed consolidated financial statements to conform to the current
year's presentation. Operating results for the six and three month periods ended
January 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending July 31, 2002. The balance sheet at July 31, 2001
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 for the year ended
July 31, 2001, as filed with the Securities and Exchange Commission.
On May 4, 2001, the Company declared a stock dividend of one share of Class
B common stock for every one share of common stock, Class A common stock and
Class B common stock. The Company distributed the dividend shares on May 31,
2001. The stock dividend has been accounted for as a stock split and all
references to the number of common shares and per common share amounts for the
three and six months ended January 31, 2001 have been restated to give
retroactive effect to the stock dividend for all periods presented.
Note 2 - Business Segment Information
During Fiscal Year 2001, the Company concluded a restructuring that
transformed IDT Corporation into a holding company, with operations conducted
through two main subsidiaries: IDT Telecom, Inc. and IDT Ventures, Inc. During
the second quarter of Fiscal Year 2002, IDT Ventures, Inc. (the "Ventures"
segment) was renamed IDT Media, Inc. (the "Media/Ventures" segment), in order to
better reflect the Company's focused initiatives in radio, technology, and print
media. The Company's Wholesale Telecommunications Services and Retail
Telecommunications Services business segments are conducted through IDT Telecom,
Inc. The Company's former Internet Services business segment has been
incorporated into the Media/Ventures business segment. As a result of the
restructuring, the Company also monitors separately its general corporate
expenses which are not allocated to the business segments. On December 19, 2001,
the Company acquired certain of the U.S. voice and data assets of Winstar
Communications, Inc. ("Winstar"), and is managing Winstar as a separate segment.
Operating results presented for the principal business segments of the Company
are as follows (in thousands):
Wholesale Retail
------------ ------------
Telecom- Telecom-
munications munications Media/
------------ ------------ ------------
Services Services Ventures Winstar Corporate Total
------------ ------------ ------------ ------------ ------------ ------------
Three months ended January 31, 2002
Revenues ............................... $ 74,388 $ 274,730 $ 5,732 $ 19,175 $ -- $ 374,025
============ ============ ============ ============ ============ ============
Income (loss) from operations .......... $ (8,019) $ 12,014 $ (5,747) $ (19,133) $ (6,889) $ (27,774)
============ ============ ============ ============ ============ ============
Three months ended January 31, 2001
Revenues ............................... $ 103,295 $ 177,574 $ 6,728 $ -- $ -- $ 287,597
============ ============ ============ ============ ============ ============
Income (loss) from operations .......... $ (11,984) $ (12,639) $ (16,694) $ -- $ (7,138) $ (48,455)
============ ============ ============ ============ ============ ============
6
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Wholesale Retail
------------ ------------
Telecom- Telecom-
munications munications Media/
------------ ------------ ------------
Services Services Ventures Winstar Corporate Total
------------ ------------ ------------ ------------ ------------ ------------
Six months ended January 31, 2002
Revenues................................ $ 142,546 $ 540,067 $ 11,446 $ 19,175 $ -- $ 713,234
============ ============ ============ ============ ============ ============
Income (loss) from operations........... $ (18,809) $ 22,922 $ (12,231) $ (19,133) $ (13,088) $ (40,339)
============ ============ ============ ============ ============ ============
Six months ended January 31, 2001
Revenues................................ $ 214,063 $ 334,616 $ 15,515 $ -- $ -- $ 564,194
============ ============ ============ ============ ============ ============
Income (loss) from operations........... $ (26,875) $ (25,652) $ (41,558) $ -- $ (14,440) $ (108,525)
============ ============ ============ ============ ============ ============
Note 3 - Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
January 31, 2002 July 31, 2001
---------------- ---------------
Equipment ...................................................................... $ 317,687 $ 264,422
Computer software .............................................................. 15,107 10,192
Leasehold improvements ......................................................... 25,422 21,603
Furniture and fixtures ......................................................... 11,638 11,120
Land and building .............................................................. 8,902 8,937
--------------- ---------------
378,756 316,274
Less: Accumulated depreciation and amortization ................................ (121,430) (92,232)
--------------- ---------------
Property, plant and equipment, net ............................................. $ 257,326 $ 224,042
=============== ===============
During the six months ended January 31, 2002, the Company recorded an
impairment charge of $2.8 million, primarily resulting from the write-down of
certain decommissioned European telecommunications switch equipment.
Note 4 -Comprehensive Income (Loss)
The Company's comprehensive income (loss) consists of the following (in
thousands):
Six Months Ended January 31, Three Months Ended January 31,
----------------------------------- -----------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net income (loss) ................................ $ (173,527) $ 752,464 $ (17,212) $ (117,104)
Foreign currency translation adjustments ......... (5,447) (1,390) (3,995) 167
Unrealized gain (losses) in the fair
market value of marketable securities ........... (434) 94,924 (384) 46,193
--------------- --------------- --------------- ---------------
Comprehensive loss ............................... $ (179,408) $ 845,998 $ (21,591) $ (70,744)
=============== =============== =============== ===============
Note 5 - Winstar Acquisition
On December 19, 2001, the Company, through a subsidiary, acquired certain
of the U.S. voice and data assets of Winstar and certain of its subsidiaries
that are debtors and debtors in possession in bankruptcy proceedings pending
before the United States Bankruptcy Court for the District of Delaware. Winstar
operates as a Competitive Local Exchange Carrier ("CLEC") using fixed wireless
technology to provide local and long distance voice services, internet
connectivity and data transmission services.
7
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The purchase price for Winstar was comprised of a $30.0 million cash
payment at the time of closing, $12.5 million in newly issued shares of IDT
Class B common stock and 5% of the common equity interests in the acquiring
subsidiary (the remaining 95% of the common equity interests as well as all of
the preferred equity interests in the acquiring subsidiary are owned by IDT).
The Company also agreed to invest $60.0 million into Winstar to be used as
working capital. The acquisition has been accounted for under the purchase
method of accounting. The preliminary allocation of the purchase price, pending
final determination of certain acquired balances, is as follows (in thousands):
Trade accounts receivable and other current assets...... $ 44,601
Property, plant, equipment and intangible assets........ 30,385
Trade accounts payable, accrued expenses and other
current liabilities................................... (30,249)
Minority interest....................................... (2,237)
---------
Value of assets acquired................................ $ 42,500
=========
The fair value of Winstar assets acquired and liabilities assumed would
have exceeded IDT's acquisition cost. Therefore, in accordance with Financial
Accounting Standards Board Statement No. 141, "Business Combinations", the
excess value over the acquisition cost has been allocated as a pro rata
reduction of the amounts that otherwise would have been assigned to the acquired
assets, except with respect to the following:
o Trade accounts receivable - present values of amounts to be received,
less allowances for uncollectibility and collection costs.
o Other current assets (principally assets to be sold) - fair value less
cost to sell.
o Trade accounts payable, accrued expenses and other current liabilities
(principally relating to contractual agreements to be assumed) -
present values of amounts to be paid.
With regard to the liabilities assumed, IDT has until April 17, 2002 (120
days from the date of the acquisition) to decide, in its sole discretion, which
of the contractual agreements relating to Winstar it wishes to assume. The
amount reflected in the purchase price allocation reflects IDT's current
estimate of liabilities relating to contractual agreements it intends to assume.
Management does not believe the final determination of contractual agreements
assumed will result in a material difference from the amount currently
estimated.
8
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following pro forma financial information presents the combined results
of operations of IDT and Winstar, as if the acquisitions had occurred as of the
beginning of the periods presented, after giving effect to certain adjustments,
including depreciation expense, income taxes and the issuance of IDT Class B
common stock as part of the purchase price. The pro forma financial information
does not necessarily reflect the results of operations that would have occurred
had IDT and Winstar been a single entity during such periods.
Six Months Ended January 31, Three Months Ended January 31,
----------------------------------- -----------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Revenues ......................................... $ 797,371 $ 677,567 $ 396,787 $ 339,733
Income (loss) before cumulative effect of
accounting change ................................ (69,661) 637,026 (31,595) (179,301)
Net income (loss) ................................ $ (216,645) $ 637,026 $ (31,595) $ (179,301)
Earnings per share:
Income (loss) before cumulative effect of
accounting change
Basic ......................................... $ (0.95) $ 9.23 $ (0.43) $ (2.67)
Diluted ....................................... $ (0.95) $ 8.49 $ (0.43) $ (2.67)
Net income (loss)
Basic ......................................... $ (2.96) $ 9.23 $ (0.43) $ (2.67)
Diluted ....................................... $ (2.96) $ 8.49 $ (0.43) $ (2.67)
Note 6 - NTOP Holdings, LLC
On October 23, 2001, IDT entered into an agreement to lead a consortium
that would concentrate ownership of Net2Phone, Inc. ("Net2Phone"). As of January
31, 2002, the consortium's ownership in Net2Phone was approximately 46% (63% of
the voting power). The consortium consists of IDT, Liberty Media Corporation
("Liberty"), and AT&T Corporation ("AT&T"), resulting in significant economic
investments in Net2Phone for all three parties. As part of the agreement, IDT
and AT&T contributed their shares of Net2Phone (approximately 10.0 million and
18.9 million shares, respectively) to a newly formed limited liability company,
NTOP Holdings, LLC ("LLC"). Liberty then acquired a substantial portion of the
LLC's units from AT&T, while IDT increased its stake and AT&T retained a
significant interest. The LLC now holds an aggregate of 28.9 million shares of
Net2Phone's Class A common stock. IDT holds the controlling membership interest
in the LLC and is the managing member of the LLC. The Company accounts for its
investment in the LLC using the equity method since its control of the LLC is
deemed to be temporary due to unilateral liquidation rights held by each of the
LLC members.
In March 2001, the Company exercised an option to sell to AT&T
approximately 2.0 million shares of its Class B common stock for approximately
$75.0 million. In conjunction with the formation of the consortium, IDT
guaranteed to AT&T the value of approximately 1.4 million shares of IDT Class B
common stock still being retained by AT&T. If the value of IDT Class B common
stock is less than $27.5 million on October 19, 2002, and AT&T or an affiliate
retains all the shares through such date, then IDT will be obligated to pay AT&T
the difference with cash, additional shares of IDT Class B common stock or a
combination of both, at the option of IDT. In connection with this obligation,
the Company recorded in "other income (expense)" a charge of $14.0 million
during the first quarter of Fiscal Year 2002, which was reduced by a gain of
$8.1 million during the second quarter of Fiscal Year 2002. The Company is
subject to additional charges through October 19, 2002 based on changes in the
market value of IDT Class B common stock.
9
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 7 - Cumulative Effect of Accounting Change
In June 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets, effective for fiscal
years beginning after December 15, 2001, with early adoption permitted for
companies with fiscal years beginning after March 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statement. Other intangible assets will continue to be amortized over their
useful lives.
The Company has chosen to early adopt the new rules on accounting for
goodwill and other intangible assets and apply them beginning in the first
quarter of Fiscal Year 2002. As such, the Company performed the required
impairment tests of goodwill as of August 1, 2001, and as a result, the Company
recorded an impairment charge of $147.0 million, net of income taxes of $3.5
million. The impairment charge was recorded in the first quarter of Fiscal Year
2002 as a cumulative effect adjustment of a change in accounting principle.
Note 8 - Legal Proceedings and Contingencies
IDT filed a Complaint with the United States District Court for the
District of New Jersey on January 29, 2001, against Telefonica S.A., Terra
Networks, S.A., Terra Networks, U.S.A., Inc. and Lycos, Inc. The Complaint
asserts claims against the defendants for, among other things, breaches of
various contracts, breach of fiduciary duty, securities violations, fraudulent
misrepresentation, negligent misrepresentation, fraudulent concealment and
tortious interference with prospective economic advantage. The defendants have
been served with the Complaint. IDT has filed an Amended Complaint and the
defendants have filed an answer to the Amended Complaint. Terra Networks, S.A.
has filed a Counterclaim for breach of contract alleging that IDT was required
to pay to Terra Networks, S.A. $3.0 million, and that IDT has allegedly failed
to do so. The defendants have filed a Motion to Dismiss the Complaint. On
September 14, 2001, the Court issued an Order: (a) permitting IDT to take
discovery relevant to the subject of whether Telefonica S.A. is subject to
personal jurisdiction, (b) denying Telefonica S.A.'s motion to dismiss for lack
of personal jurisdiction without prejudice to Telefonica S.A.'s right to renew
the motion upon the completion of jurisdictional discovery, and (c) carrying on
the calendar defendants' motion to dismiss on non-jurisdictional grounds pending
the completion of jurisdictional discovery, which is ongoing. Each party has
served the other party with certain requests for discovery relevant to the
subject of whether Telefonica S.A. is subject to personal jurisdiction.
On May 25, 2001, IDT filed a Statement of Claim with the American
Arbitration Association naming Telefonica Internacional, S.A. ("Telefonica") as
the Respondent. The Statement of Claim asserts that IDT and Telefonica entered
into a Memorandum of Understanding ("MOU") that involved, among other things,
the construction and operation of a submarine cable network around South America
("SAm-I"). IDT is claiming, among other things, that Telefonica breached the MOU
by: (1) failing to negotiate SAm-I agreements; (2) refusing to comply with the
equity provisions of the MOU; (3) refusing to sell capacity and back-haul
capacity pursuant to the MOU; and (4) failing to follow through on the joint
venture. Telefonica has responded to IDT's Statement of Claim and has filed a
Statement of Counterclaim which alleges, inter alia: (1) Fraud in the
Inducement; (2) Tortious Interference with Prospective Business Relations; (3)
Breach of the Obligations of Good Faith and Fair Dealing; and (4) Declaratory
and Injunctive Relief. Discovery is in its final stages and both parties have
submitted expert reports. A final arbitration hearing is scheduled to begin on
April 8, 2002.
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
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 9 - Stockholders' Equity
Stock Buyback Program
The Company's Board of Directors has authorized the repurchase of up to 45
million shares of IDT common stock and Class B common stock. The Company
repurchased approximately 1.4 million shares of its common stock, for an
aggregate purchase price of approximately $15.6 million, during the six months
ended January 31, 2002. Through January 31, 2002, the Company has repurchased an
aggregate of 15.6 million shares of its common stock under the authorized stock
buyback program, of which approximately 6.2 million shares have been retired.
Liberty Conversion
Pursuant to a Lock-Up, Registration Rights and Exchange Agreement between
the Company and Liberty, on October 11, 2001 the Company issued to Liberty
3,810,265 shares of IDT Class B common stock in exchange for 3,728,949 shares of
IDT common stock. The exchange rate was based upon the relative average market
prices for the IDT Class B common stock and the IDT common stock during a
specified 30 trading day period.
Liberty Investment in IDT Telecom, Inc.
On January 30, 2002, IDT Telecom, Inc., a subsidiary of IDT, sold 7,500
newly issued shares of its common stock to Liberty at a price of $4,000 per
share, for total aggregate proceeds of $30.0 million. As a result of this
investment, Liberty became the owner of approximately 4.8% of the common equity
of IDT Telecom, Inc. (0.5% of the voting power). The Company owns the remaining
common equity of IDT Telecom, Inc.
Note 10 - Related Party Transactions
The Company has entered into a number of agreements with Net2Phone, Inc.
These agreements include an assignment agreement, a separation agreement, an IDT
services agreement, a Net2Phone services agreement, a tax sharing and
indemnification agreement, a joint marketing agreement and an
internet/telecommunications agreement. Pursuant to these agreements, during the
six months ended January 31, 2002, the Company billed Net2Phone approximately
$20.3 million and Net2Phone billed the Company approximately $12.0 million. The
net balance owed to the Company by Net2Phone was approximately $6.4 million as
of January 31, 2002.
The Company currently leases one of its facilities in Hackensack, New
Jersey from a corporation which is wholly owned by the Company's Chairman.
Aggregate lease payments under such lease was approximately $13,000 for the six
months ended January 31, 2002.
The Company has obtained various insurance policies that have been arranged
through a company affiliated with an individual related to both the Chairman and
the General Counsel of the Company. The aggregate premiums paid by the Company
with respect to such policies was approximately $2.1 million for the six months
ended January 31, 2002.
On December 14, 2001, IDT granted to its Chairman options to purchase 1
million shares of IDT Class B common stock, at an exercise price of $12.06 per
share. The options vest over a period of 5 years, at a rate of 50,000 options
per quarter, commencing on January 1, 2002.
James Courter, the Chief Executive Officer and a Director of the Company,
is a partner in a law firm that has served as counsel to the Company since July
1996. In addition, a Director of the Company is of counsel to a law firm that
has served as counsel to the Company since November 1999. Fees paid to these law
firms by the Company were less than 5% of the law firms' gross revenues for each
fiscal year in which these law firms represented the Company.
In addition, the Company has loans outstanding to officers and employees
aggregating approximately $10.5 million as of January 31, 2002.
11
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 11 - Subsequent Event
The company announced on March 8, 2002 that Winstar has begun implementing
a strategic plan that will result in the growth of its facilities-based
communications business. Under this plan, Winstar will exit its wireless resale
business entirely, exit its fixed wireless business in certain smaller markets
and consolidate certain facilities and functions with the Company. IDT
personnel, principally at the Company's headquarters and engineering center,
will assume responsibility for many overlapping functions. This will result in
the elimination of approximately 65% of Winstar's existing non-sales workforce
and the transfer of Winstar's customer service operations to an alternate
facility.
12
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 our Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in our Annual Report on
Form 10-K for the year ended July 31, 2001, as filed with the Securities and
Exchange Commission.
Overview
General
IDT Corporation ("IDT") is a leading facilities-based emerging
multinational carrier that provides a broad range of telecommunication services
to retail and wholesale customers worldwide. During Fiscal Year 2001, we
concluded a restructuring that transformed IDT Corporation into a holding
company, with operations conducted through two main subsidiaries: IDT Telecom,
Inc. and IDT Ventures, Inc. During the second quarter of Fiscal Year 2002, IDT
Ventures, Inc. (formerly the "Ventures" segment) was renamed IDT Media, Inc.
(the "Media/Ventures" segment), in order to better reflect our focused
initiatives in radio, technology, and print media.
IDT's telecommunication services, conducted by its IDT Telecom, Inc.
subsidiary, consist of retail services, including prepaid and rechargeable
calling cards and domestic long distance services (the "Retail
Telecommunications Services" segment), as well as wholesale carrier services
(the "Wholesale Telecommunications Services" segment). IDT delivers its
telecommunications services over a high-quality switch network based in the U.S.
and Europe and owned and leased capacity on undersea fiber-optic cables, which
connect our U.S. facilities with our international facilities and with the
facilities of our foreign partners in Europe, Latin America and Asia. We monitor
our network 24 hours a day, seven days a week through an automated network
operations center. In addition, we obtain transmission capacity from other
carriers. We deliver our international traffic worldwide pursuant to our
agreements with U.S.-based carriers, 19 of the top 25 global carriers, and more
than 20 of the companies that are primarily responsible for providing
telecommunication services in particular countries (commonly referred to as
"Post, Telephone and Telegraphs," or "PTTs").
IDT offers retail long distance services to over 370,000 individual and
business customers in the U.S. and worldwide. In addition, we have approximately
185 wholesale customers located in the U.S. and Europe.
On December 19, 2001, one of our subsidiaries acquired certain of the U.S.
voice and data assets of Winstar Communications, Inc. ("Winstar") and certain of
its subsidiaries which are debtors and debtors in possession in bankruptcy
proceedings pending before the United States Bankruptcy Court for the District
of Delaware. Winstar operates as a Competitive Local Exchange Carrier ("CLEC")
using fixed wireless technology to provide local and long distance voice
services, internet connectivity, and data transmission services. Winstar's
wireless technology uses microwave antennas on the roof of the customer's
building to direct voice and data transmission to hub sites that serve as
aggregation points for the reception and distribution of customer traffic. We
seek to deliver a network that will carry bandwidth-intensive traffic from point
of origination to point of termination for a substantial portion of the
companies comprising the business communications market in the United States.
As a result of the acquisition of Winstar on December 19, 2001, our January
31, 2002 Condensed Consolidated Financial Statements include Winstar's operating
results since the acquisition date.
Outlook
In recent years, we have derived the majority of our revenues from our core
telecommunications businesses, consisting primarily of retail prepaid calling
cards and wholesale carrier services. These businesses have accounted for the
bulk of our operating expenses as well.
We are also developing various new telecom, Internet, and media related
businesses. During the three and six months ended January 31, 2002, we incurred
approximately $5.7 million and $12.2 million, respectively, in development and
marketing costs for these business ventures, which provided us with revenues of
approximately $5.7 million and $11.4 million, respectively. We anticipate that
we will continue to incur significant costs related to these and other new
ventures. The timing and magnitude of any revenues and/or operating profits to
be realized from these new businesses remains uncertain.
13
Price competition in the prepaid calling card and wholesale carrier
businesses has led to significant pressures on these businesses' gross margins.
This environment has led some of our competitors to de-emphasize their prepaid
calling card and/or wholesale carrier operations in order to focus on higher
margin telecommunications businesses. This has helped us to gain some market
share, particularly in the retail calling card business, while experiencing a
lower average per-minute price realization. Although our telecom minutes-of-use
have been increasing strongly, due to market share gains in our retail calling
card markets and selected acquisitions of prepaid calling card assets and
businesses, our telecom revenues have increased at a much slower rate.
Historically, our core telecommunications revenues were evenly divided
between our retail calling card and wholesale carrier business lines. However,
in recent quarters, our revenue mix has dramatically shifted toward retail
business lines, reflecting the strong growth of our debit card business and our
domestic long distance business, while wholesale carrier revenues declined due
to a shift in our wholesale customer base. We anticipate that this shift in
revenue mix will continue, with the majority of our telecommunications revenues
being derived from retail products and services.
Six Months Ended January 31, 2002 Compared to Six Months Ended January 31, 2001
Results of Operations
Revenue. Revenues increased 26.4%, from approximately $564.2 million for
the six months ended January 31, 2001 to approximately $713.2 million for the
six months ended January 31, 2002. Excluding Winstar, revenues increased 23.0%,
to approximately $694.1 million for the six months ended January 31, 2002.
Telecommunications revenues increased 24.4%, from approximately $548.7 million
for the six months ended January 31, 2001 to approximately $682.6 million for
the six months ended January 31, 2002. Revenues from Media/Ventures businesses
decreased 26.2%, from approximately $15.5 million for the six months ended
January 31, 2001 to approximately $11.4 million for the six months ended January
31, 2002.
Telecommunications revenues increased primarily as a result of an
approximately 73.0% growth in minutes of use (excluding minutes related to the
domestic long distance business) from approximately 3.00 billion for the six
months ended January 31, 2001 to approximately 5.19 billion for the six months
ended January 31, 2002. The increase in minutes was due to increased marketing
of our calling cards and the February 2001 acquisition of the prepaid calling
card operations of PT-1 Communications, Inc. ("PT-1"), which outweighed the
effects of lower wholesale carrier minutes. Minutes of use grew at a faster rate
than did telecom revenues, reflecting a decline in the average revenue per
minute. The average revenue per minute decreased during the six months ended
January 31, 2002, compared to the six months ended January 31, 2001, despite the
exit of several competitors from our core retail and wholesale markets, due to
the intensified price competition initiated by our remaining competitors, as
they attempt to defend their remaining share of the market. The domestic long
distance business, in which we act as a switchless reseller of another company's
services, also experienced significant growth in minutes of use, fueled by the
large increase in the number of domestic long distance customers. The decline in
wholesale carrier minutes resulted from a reduction in the number of wholesale
carrier services clients, reflecting an ongoing transition of our wholesale
customer base towards a smaller group of larger, more financially stable
customers. The decline in wholesale carrier minutes resulted in a decrease in
wholesale telecommunications revenues of 33.4%, from approximately $214.1
million for the six months ended January 31, 2001 to approximately $142.5
million for the six months ended January 31, 2002. As a percentage of
telecommunications revenues, wholesale telecommunications revenues decreased
from approximately 39.0% for the six months ended January 31, 2001 to
approximately 20.9% for the six months ended January 31, 2002.
14
Revenues from retail telecommunications services increased 61.4%, from
approximately $334.6 million for the six months ended January 31, 2001 to
approximately $540.1 million for the six months ended January 31, 2002, as a
result of increased sales of IDT-branded calling cards, the February 2001
acquisition of the prepaid calling card operations of PT-1, and higher domestic
long distance revenues. As a percentage of overall telecommunications revenue,
retail telecommunications revenue increased from approximately 61.0% for the six
months ended January 31, 2001 to approximately 79.1% for the six months ended
January 31, 2002. Calling card sales increased 58.4%, from approximately $309.5
million for the six months ended January 31, 2001, to approximately $490.2
million for the six months ended January 31, 2002, fueled by the introduction of
several new calling cards in the U.S., the continued strong growth of European
operations, the acquisition of the calling card operations of PT-1, and a
continued expansion of market share. We continued to take market share from
competitors who have scaled back their calling card operations or have left the
market entirely. Calling card sales as a percentage of retail telecommunication
services revenues decreased from 92.5% for the six months ended January 31, 2001
to 90.8% for the six months ended January 31, 2002, as revenues from domestic
long distance services grew at a faster rate than did calling card revenues.
Revenues from domestic long distance services increased 121.2%, from
approximately $21.9 million for the six months ended January 31, 2001, to
approximately $48.5 million for the six months ended January 31, 2002. The
domestic long distance revenue gains are attributable to the continued
aggressive growth of our flat-rate, $0.05 a minute long distance calling plan,
which has been fueled by increased marketing expenditures, resulting in a
significant increase in the number of domestic long distance customers. Revenues
from other retail businesses, consisting primarily of call reorigination
services, amounted to $1.4 million for the six months ended January 31, 2002
versus $3.2 million for the six months ended January 31, 2001.
Revenues from Winstar were $19.2 million for the six months ended January
31, 2002, representing 2.7% of our total revenue.
As a percentage of total revenues, Media/Ventures businesses revenues
decreased to 1.6% for the six months ended January 31, 2002, from 2.8% for the
six months ended January 31, 2001. The decrease in Media/Ventures businesses
revenues reflects our gradual exit from the dial-up and DSL internet access
businesses.
Direct Cost of Revenues. Direct cost of revenues increased by 14.2%, from
approximately $490.8 million for the six months ended January 31, 2001 to
approximately $560.6 million for the six months ended January 31, 2002.
Excluding Winstar, direct cost of revenues increased 10.1% to approximately
$540.2 million for the six months ended January 31, 2002. As a percentage of
total revenues, these costs decreased from 87.0% for the six months ended
January 31, 2001 to 78.6% for the six months ended January 31, 2002. Excluding
Winstar, as a percentage of total revenues, direct costs decreased to 77.8% for
the six months ended January 31, 2002. The dollar increase is due primarily to
increases in underlying carrier and connectivity costs, as our
telecommunications minutes of use grew significantly. Included in direct cost of
revenues for the second quarter of Fiscal Year 2002 is a $4.5 million charge
related to the early termination of a long-term bandwidth contract, as we seek
to take advantage of the currently depressed bandwidth market to replace
existing, above-market price bandwidth, with significantly lower-cost bandwidth.
As a percentage of total revenues, the decrease in direct costs reflects the
higher gross margins experienced across all business lines, reflecting economies
of scale and continued operating efficiency gains, as well as a continued shift
in revenue mix towards higher-margin retail business lines.
Selling, General and Administrative. Selling, general and administrative
costs increased 4.9%, from approximately $152.7 million for the six months ended
January 31, 2001 to approximately $160.1 million for the six months ended
January 31, 2002. Excluding Winstar, selling, general and administrative costs
decreased 6.7% to approximately $142.5 million for the six months ended January
31, 2002. As a percentage of total revenues, these costs decreased from 27.1%
for the six months ended January 31, 2001 to 22.4% for the six months ended
January 31, 2002. Excluding Winstar, as a percentage of total revenues, selling,
general and administrative costs decreased to 20.5% for the six months ended
January 31, 2002. Selling, general and administrative expenses from
telecommunications operations increased 17.6% from $93.7 million for the six
months ended January 31, 2001 to $110.2 million for the six months ended January
31, 2002. The increase in selling, general and administrative expenses for our
telecommunications operations is due to several factors, including increased
international calling card distribution costs, increased sales and marketing
efforts for our retail services, such as prepaid calling cards and domestic long
distance, as well as increased salaries, facilities costs and professional fees
related to the expansion of our infrastructure to facilitate our current and
anticipated future sales growth.
15
Included in selling, general and administrative costs for the six months
ended January 31, 2002 is approximately $20.5 million in selling, general and
administrative costs associated with our Media/Ventures segment, compared to
$44.5 million for the six months ended January 31, 2001. The decrease in
selling, general, and administrative costs in our Media/Ventures businesses
reflects the implementation of stricter management controls over operating
expenses, the gradual exit from the dial-up and DSL Internet access businesses,
as well as the restructuring of our Media/Ventures business portfolio, with a
shift from highly speculative ventures to more stable, entrepreneurial
initiatives in the radio, technology and print media businesses. Selling,
general and administrative costs associated with Winstar were $17.6 million for
the six months ended January 31, 2002. We also recorded approximately $11.8
million in general corporate expenses for the six months ended January 31, 2002,
compared to $14.4 million recorded in the same period last year.
We anticipate that selling, general and administrative expenses will
increase in dollar terms in the future, and will continue to be equivalent to a
significant percentage to total revenues, as we expand both our core
telecommunications businesses and our new Winstar and Media/Ventures businesses.
Over the next few quarters, as we move our different Media/Ventures businesses
through their respective development stages, we anticipate that selling, general
and administrative expenses for our Media/Ventures division could exceed, in
dollar terms, the revenues generated from this division.
Depreciation and Amortization. Depreciation and amortization increased
2.8%, from approximately $29.3 million for the six months ended January 31, 2001
to approximately $30.1 million for the six months ended January 31, 2002.
Excluding Winstar, depreciation and amortization increased 1.6% to approximately
$29.7 million for the six months ended January 31, 2002. As a percentage of
revenues, these costs decreased from 5.2% for the six months ended January 31,
2001 to 4.5% for the six months ended January 31, 2002. Excluding Winstar, as a
percentage of revenues, depreciation and amortization decreased to 4.3% for the
six months ended January 31, 2002. These costs increased, in absolute dollar
terms, primarily as a result of our higher fixed asset base during the six
months ended January 31, 2002 as compared with the six months ended January 31,
2001, reflecting our efforts to expand our telecommunications network
infrastructure and our facilities, and also due to the acquisition of Winstar.
Partially offsetting the increase in depreciation expense is the fact that we no
longer amortize goodwill as a result of the adoption, as of August 1, 2001, of
SFAS No. 142. We anticipate that depreciation expense will continue to increase
as we continue to add to our asset base, particularly in our telecommunications
businesses, allowing us to implement our growth strategy. Depreciation and
amortization declined as a percentage of revenues, as revenues for the six
months ended January 31, 2002 increased at a faster rate than did depreciation
charges.
Impairment Charges. We recorded an impairment charge of $2.8 million during
the three months ended October 31, 2001, primarily resulting from the write-down
of certain decommissioned European telecommunications switch equipment.
Loss from Operations. Loss from operations was $40.3 million for the six
months ended January 31, 2002, compared to a loss from operations of $108.5
million for the six months ended January 31, 2001. Excluding Winstar, loss from
operations was $21.2 million. Our telecommunications businesses recorded income
from operations of approximately $4.1 million for the six months ended January
31, 2002, compared to a loss of approximately $52.5 million for the six months
ended January 31, 2001, due to the higher gross margins resulting from the
revenue growth and the continued operating efficiency gains, as described above.
Loss from operations for our Media/Ventures segment for the six months
ended January 31, 2002 was approximately $12.2 million, compared to an operating
loss of approximately $41.6 million for the six months ended January 31, 2001,
reflecting the implementation of stricter management controls over operating
expenses, as well as the restructuring of our Media/Ventures business portfolio,
as described above.
Interest and other income (expense). Net interest and other income amounted
to an expense of approximately $10.9 million for the six months ended January
31, 2002, compared to income of $1,220.6 million in the same period last year.
Included in interest and other income for the six months ended January 31,
2002 were investment losses including losses of approximately $16.7 million
associated with recording our pro-rata share of Net2Phone's losses through the
equity method, and a charge of $5.9 million related to an obligation to
guarantee to AT&T the value of approximately 1.4 million shares of IDT Class B
common stock being retained by AT&T. Also included were net interest income and
other investment gains totaling $11.6 million.
16
Included in interest and other income for the six months ended January 31,
2001 is a realized gain of $999.6 million on the our sale of 14.9 million shares
of Net2Phone Class A common stock to AT&T, $38.1 million in gains we recognized
in conjunction with Net2Phone's sale of newly issued shares to AT&T and
approximately $313.5 million in gains related to the settlement of our lawsuit
with TyCom Ltd. Partially offsetting this income was a recognized loss of
approximately $130.6 million related primarily to the sale of some of our Terra
Networks shares, and a loss of approximately $31.8 million associated with
recording our pro-rata share of Net2Phone's losses through the equity method.
Also included were net interest income and other investment gains totaling $31.8
million.
Taxes. We recorded an income tax benefit of approximately $33.9 million for
the six months ended January 31, 2002, compared to an income tax expense of
approximately $356.0 million for the six months ended January 31, 2001.
Cumulative Effect of Accounting Change. In June 2001, the FASB issued SFAS
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001, with early adoption permitted for companies
with fiscal years beginning after March 15, 2001. Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statement. Other intangible assets will continue to be amortized over their
useful lives. We chose to early adopt the new rules on accounting for goodwill
and other intangible assets and to apply them effective with the beginning of
the first quarter of Fiscal Year 2002. In accordance with our adoption of these
rules, we performed the required impairment tests of goodwill as of August 1,
2001, and as a result, we recorded an impairment charge of $147.0 million, net
of income taxes of $3.5 million. The impairment charge was recorded as a
cumulative effect adjustment of a change in accounting principle.
Three Months Ended January 31, 2002 Compared to Three Months Ended January 31,
2001
Results of Operations
Revenue. Revenues increased 30.1%, from approximately $287.6 million for
the three months ended January 31, 2001 to approximately $374.0 million for the
three months ended January 31, 2002. Excluding Winstar, revenues increased
23.4%, to approximately $354.9 million for the three months ended January 31,
2002. Telecommunications revenues increased 24.3%, from approximately $280.9
million for the three months ended January 31, 2001 to approximately $349.1
million for the three months ended January 31, 2002. Revenues from
Media/Ventures businesses decreased 14.8%, from approximately $6.7 million for
the three months ended January 31, 2001 to approximately $5.7 million for the
three months ended January 31, 2002.
Telecommunications revenues increased primarily as a result of an
approximately 64.8% growth in minutes of use (excluding minutes related to the
domestic long distance business) from approximately 1.62 billion for the three
months ended January 31, 2001 to approximately 2.67 billion for the three months
ended January 31, 2002. The increase in minutes was due to increased marketing
of our calling cards and the February 2001 acquisition of the prepaid calling
card operations of PT-1, which outweighed the effects of lower wholesale carrier
minutes. Minutes of use grew at a faster rate than did telecom revenues,
reflecting a decline in the average revenue per minute. The average revenue per
minute decreased during the three months ended January 31, 2002, compared to the
three months ended January 31, 2001, despite the exit of several competitors
from our core retail and wholesale markets, due to the intensified price
competition initiated by our remaining competitors, as they attempt to defend
their remaining share of the market. The domestic long distance business, in
which we act as a switchless reseller of another company's services, also
experienced significant growth in minutes of use, fueled by the large increase
in the number of domestic long distance customers. The decline in wholesale
carrier minutes resulted from a reduction in the number of wholesale carrier
services clients, reflecting an ongoing transition of our wholesale customer
base towards a smaller group of larger, more financially stable customers. The
decline in wholesale carrier minutes resulted in a decrease in wholesale
telecommunications revenues of 28.0%, from approximately $103.3 million for the
three months ended January 31, 2001 to approximately $74.4 million for the three
months ended January 31, 2002. As a percentage of telecommunications revenues,
wholesale telecommunications revenues decreased from approximately 36.8% for the
three months ended January 31, 2001 to approximately 21.3% for the three months
ended January 31, 2002.
17
Revenues from retail telecommunications services increased 54.7%, from
approximately $177.6 million for the three months ended January 31, 2001 to
approximately $274.7 million for the three months ended January 31, 2002, as a
result of increased sales of IDT-branded calling cards, the February 2001
acquisition of the prepaid calling card operations of PT-1, and higher domestic
long distance revenues. As a percentage of overall telecommunications revenue,
retail telecommunications revenue increased from approximately 63.2% for the
three months ended January 31, 2001 to approximately 78.7% for the three months
ended January 31, 2002. Calling card sales increased 52.1%, from approximately
$162.9 million for the three months ended January 31, 2001, to approximately
$247.8 million for the three months ended January 31, 2002, fueled by the
introduction of several new calling cards in the U.S., the continued strong
growth of European operations, the acquisition of the calling card operations of
PT-1, and a continued expansion of market share. We continued to take market
share from competitors who have scaled back their calling card operations or
have left the market entirely. Calling card sales as a percentage of retail
telecommunication services revenues decreased from 91.7% for the three months
ended January 31, 2001 to 90.2% for the three months ended January 31, 2002, as
revenues from domestic long distance services grew at a faster rate than did
calling card revenues. Revenues from domestic long distance services increased
99.0%, from approximately $13.2 million for the three months ended January 31,
2001, to approximately $26.3 million for the three months ended January 31,
2002. The domestic long distance revenue gains are attributable to the continued
aggressive growth of our flat-rate, $0.05 a minute long distance calling plan,
which has been fueled by increased marketing expenditures, resulting in a
significant increase in the number of domestic long distance customers. Revenues
from other retail businesses, consisting primarily of call reorigination
services, amounted to $0.6 million for the three months ended January 31, 2002
versus $1.5 million for the three months ended January 31, 2001.
Revenues from Winstar were $19.2 million for the three months ended January
31, 2002, representing 5.1% of our total revenue.
As a percentage of total revenues, Media/Ventures businesses revenues
decreased to 1.5% for the three months ended January 31, 2002, from 2.3% for the
three months ended January 31, 2001. The decrease in Media/Ventures businesses
revenues reflects our gradual exit from the dial-up and DSL Internet access
businesses.
Direct Cost of Revenues. Direct cost of revenues increased by 16.6%, from
approximately $252.2 million for the three months ended January 31, 2001 to
approximately $294.0 million for the three months ended January 31, 2002.
Excluding Winstar, direct cost of revenues increased 8.5% to approximately
$273.6 million for the three months ended January 31, 2002. As a percentage of
total revenues, these costs decreased from 87.7% for the three months ended
January 31, 2001 to 78.6% for the three months ended January 31, 2002. Excluding
Winstar, as a percentage of total revenues, direct costs decreased to 77.1% for
the three months ended January 31, 2002. The dollar increase is due primarily to
increases in underlying carrier and connectivity costs, as telecommunications
minutes of use grew significantly. Included in direct cost of revenues for the
three months ended January 31, 2002 is a $4.5 million charge related to the
early termination of a long-term bandwidth contract, as we seek to take
advantage of the currently depressed bandwidth market to replace existing,
above-market price bandwidth, with significantly lower-cost bandwidth. As a
percentage of total revenues, the decrease in direct costs reflects the higher
gross margins experienced across all business lines, reflecting economies of
scale and continued operating efficiency gains, as well as a continued shift in
revenue mix towards higher-margin retail business lines.
Selling, General and Administrative. Selling, general and administrative
costs increased 34.2%, from approximately $69.3 million for the three months
ended January 31, 2001 to approximately $93.0 million for the three months ended
January 31, 2002. Excluding Winstar, selling, general and administrative costs
increased 8.8% to approximately $75.4 million for the three months ended January
31, 2002. As a percentage of total revenues, these costs increased from 24.1%
for the three months ended January 31, 2001 to 24.9% for the three months ended
January 31, 2002. Excluding Winstar, as a percentage of total revenues, selling,
general and administrative costs decreased to 21.2% for the three months ended
January 31, 2002. Selling, general and administrative expenses from
telecommunications operations increased 28.1%, from $46.1 million for the three
months ended January 31, 2001 to $59.0 million for the three months ended
January 31, 2002. The increase in selling, general and administrative expenses
for our telecommunications operations is due to several factors, including
increased international calling card distribution costs, increased sales and
marketing efforts for our retail services, such as prepaid calling cards and
domestic long distance, as well as increased salaries, facilities costs and
professional fees related to the expansion of our infrastructure to facilitate
our current and anticipated future sales growth.
18
Included in selling, general and administrative costs for the three months
ended January 31, 2002 is approximately $10.1 million in selling, general and
administrative costs associated with our Media/Ventures segment compared to
$16.1 million for the three months ended January 31, 2001. The decrease in
selling, general and administrative costs in our Media/Ventures businesses
reflects the implementation of stricter management controls over operating
expenses, the gradual exit form the dial-up and DSL Internet access businesses,
as well as the restructuring of our Media/Ventures business portfolio, with a
shift from highly speculative ventures to more stable, entrepreneurial
initiatives in the radio, technology and print media businesses. Selling,
general, and administrative costs associated with Winstar were $17.6 million for
the three months ended January 31, 2002. We also recorded approximately $6.2
million in general corporate expenses for the three months ended January 31,
2002, compared to $7.1 million recorded in the same period last year.
Depreciation and Amortization. Depreciation and amortization increased
1.6%, from approximately $14.6 million for the three months ended January 31,
2001 to approximately $14.8 million for the three months ended January 31, 2002.
Excluding Winstar, depreciation and amortization decreased 0.8% to approximately
$14.5 million for the three months ended January 31, 2002. As a percentage of
revenues, these costs decreased from 5.1% for the three months ended January 31,
2001 to 4.0% for the three months ended January 31, 2002. These costs increased,
in absolute dollar terms, primarily as a result of our higher fixed asset base
during the three months ended January 31, 2002 as compared with the three months
ended January 31, 2001, reflecting our efforts to expand our telecommunications
network infrastructure and our facilities, and also due to the acquisition of
Winstar. Partially offsetting the increase in depreciation expense is the fact
that we no longer amortize goodwill as a result of the adoption, as of August 1,
2001, of SFAS No. 142. We anticipate that depreciation expense will continue to
increase as we continue to add to our asset base, particularly in our
telecommunications businesses, allowing us to implement our growth strategy.
Depreciation and amortization declined as a percentage of revenues, as revenues
for the three months ended January 31, 2002 increased at a faster rate than did
depreciation charges.
Loss from Operations. Loss from operations was $27.8 million for the three
months ended January 31, 2002, compared to a loss from operations of $48.4
million for the three months ended January 31, 2001. Excluding Winstar, loss
from operations was $8.6 million. Our telecommunications businesses recorded
income from operations of approximately $4.0 million for the three months ended
January 31, 2002, compared to a loss of approximately $24.6 million for the
three months ended January 31, 2001, due to higher gross margins resulting from
the revenue growth and the continued operating efficiency gains, as described
above.
Loss from operations for our Media/Ventures segment for the three months
ended January 31, 2002 was approximately $5.7 million, compared to an operating
loss of approximately $16.7 million for the three months ended January 31, 2001,
reflecting the implementation of stricter management controls over operating
expenses, as well as the restructuring of our Media/Ventures business portfolio,
as described above.
Interest and other income (expense). Included in interest and other income
for the three months ended January 31, 2002 were investment losses including
losses of approximately $11.4 million associated with recording our pro-rata
share of Net2Phone's losses through the equity method, and a gain of $8.1
million related to an obligation to guarantee to AT&T the value of approximately
1.4 million shares of IDT Class B common stock being retained by AT&T. Also
included were net interest income and other investment gains totaling $3.3
million.
Included in interest and other income for the three months ended January
31, 2001 were recognized losses of approximately $91.6 million related primarily
to the sale of some of our Terra Networks shares, as well as a loss of
approximately $31.0 million associated with recording our pro-rata share of
Net2Phone's losses through the equity method. Also included were net interest
income totaling $16.2 million.
Taxes. We recorded an income tax benefit of approximately $15.7 million for
the three months ended January 31, 2002, compared to an income tax benefit of
approximately $40.4 million for the three months ended January 31, 2001.
Liquidity and Capital Resources
General
Historically, we have satisfied our cash requirements through a combination
of cash flow from operating activities, sales of equity and debt securities and
borrowings from third parties. Additionally, we received approximately $1.0
billion from the sale of Net2Phone Class A common stock to AT&T in August 2000.
19
As of January 31, 2002, we had cash, cash equivalents and marketable
securities of approximately $1.1 billion. Our working capital as of January 31,
2002 was approximately $881.1 million. We generated positive cash flow from
operating activities of approximately $19.1 million during the six months ended
January 31, 2002, compared with negative cash flow from operating activities of
approximately $82.8 million during the six months ended January 31, 2001. Our
cash flow from operations varies significantly from quarter to quarter and from
year to year, depending on the timing of operating cash receipts and payments,
especially trade accounts receivable and accounts payable. Trade accounts
receivable, accounts payable and accrued expenses have generally increased from
period to period as our businesses have grown.
On December 19, 2001, one of our subsidiaries acquired certain of the U.S.
voice and data assets of Winstar and certain of its subsidiaries which are
debtors and debtors in possession in bankruptcy proceedings pending before the
United States Bankruptcy Court for the District of Delaware. The purchase price
for Winstar was comprised of a $30.0 million cash payment at the time of
closing, $12.5 million in newly issued shares of IDT Class B common stock and 5%
of the common equity interests in the acquiring subsidiary (the remaining 95% of
the common equity interests as well as all of the preferred equity interests in
the acquiring subsidiary are owned by IDT). We also agreed to invest $60.0
million into Winstar to be used as working capital. With regard to the
assumption of liabilities, we have until April 17, 2002 (120 days from the date
of the acquisition) to decide, in our sole discretion, which of the contractual
agreements relating to Winstar we would like to assume.
On January 30, 2002, IDT Telecom, Inc., a subsidiary of IDT, sold 7,500
newly issued shares of its common stock to Liberty at a price of $4,000 per
share, for total aggregate proceeds of $30.0 million. As a result of the
investment, Liberty became the owner of approximately 4.8% of the common equity
of IDT Telecom, Inc. (0.5% of the voting power).
We continue to expand our international and domestic telecommunications
network infrastructure. Our capital expenditures were approximately $16.1
million for the six months ended January 31, 2002, compared to approximately
$62.4 million for the six months ended January 31, 2001. We anticipate making
significant capital expenditures over the remainder of Fiscal 2002 and beyond,
as we expand our telecommunications infrastructure, primarily to accommodate the
anticipated continued increase in calling-card related telecommunications
minutes of use. From time to time, we will finance a portion of our capital
expenditures through capital leases, with the cost of such financing the primary
consideration in determining our financing activity.
We experience intense price competition in our telecommunications
businesses. The long distance telecommunications industry has been characterized
by significant declines in both per-minute revenues and per-minute costs. In the
past, these factors have tended to generally offset each other. However, since
the mid-point of Fiscal Year 2000, as per-minute pricing continued to erode, and
began to outpace the drop in per-minute costs, gross margins have come under
increasing pressure. Our long term strategy involves terminating a larger
proportion of minutes on our own network, thereby lowering costs and preserving
margins even in a weaker price environment. In addition, as our minutes of use
have steadily grown, we have attempted to leverage our burgeoning buying power
as well as our financial stability to negotiate more favorable rates with our
suppliers. However, in the short term, the incremental demand for usage has
outpaced the rate of deployment of additional network capacity, particularly in
light of the significant increase in minutes of use we have experienced as a
result of the growth of IDT's existing calling card business. In fact, it has
become commonplace within the industry for companies to experience delays in
network build-out programs. As such, there can be no assurance that we will be
able to maintain our gross margins at the current level, in the face of lower
per-minute revenues.
We continued to fund our Media/Ventures segment throughout the six months
ended January 31, 2002, incurring significant start-up, development, marketing
and promotional costs. As we move our Media/Ventures businesses through their
respective development stages, we anticipate that selling, general and
administrative expenses for our Media/Ventures segment will exceed, by a
significant amount, the revenues generated by this segment for the foreseeable
future. Due to the start-up nature of many of our Media/Ventures businesses, the
exact timing and magnitude of future revenues remains difficult to predict.
20
Changes in Other Current Assets, Trade Accounts Receivable, Allowance for
Doubtful Accounts and Deferred Revenue
Other current assets increased from $32.4 million at July 31, 2001 to $48.7
million at January 31, 2002 due to an increase in European prepaid distribution
costs as well as the acquisition of Winstar. The average age of our trade
accounts receivable, as measured by number of days sales outstanding, has
continued to decrease over the previous quarters. This decline is due primarily
to the recent growth in revenues, which has served to reduce the number of days
sales outstanding, partially offset by the acquisition of Winstar.
Due to the wide range of collection terms, future trends with respect to
days sales outstanding generally depend on the proportion of total sales made to
carriers versus those made to prepaid calling card distributors, who generally
receive shorter payment terms than do carrier customers. As such, the trends in
days sales outstanding will depend, in large part, on the mix of wholesale
(carrier) versus retail (prepaid calling card distributor) customers. As we
anticipate that in the near term retail revenues will continue to account for an
increasing proportion of overall revenues, we could experience further declines
in the average age of our trade accounts receivable for the remainder of Fiscal
Year 2002. Conversely, as we are willing to extend longer payment terms to more
credit-worthy customers, an increase in customers belonging to the highest
credit classes, as a percentage of total customers, could lead to an increase in
days sales outstanding. Therefore, due to the conflicting nature of the above
factors, future trends in days sales outstanding remain difficult to predict,
and it is not possible at this time to determine whether recent trends in days
sales outstanding will continue.
The allowance for doubtful accounts as a percentage of trade accounts
receivable increased from 16.2% at July 31, 2001, to 17.0% at January 31, 2002.
The increase reflects the increase in the number of domestic long distance
customers, who have traditionally required a larger reserve than do wholesale
and retail calling card customers. Although we anticipate that our customer base
across all business lines will continue its transition towards a more
credit-worthy group, some of our existing trade accounts receivable are still
related to sales made to less credit-worthy customers.
Deferred revenue as a percentage of total revenues vary from period to
period depending on the mix and the timing of revenues. During the six months
ended January 31, 2002, we experienced a steady increase in the sale of our
prepaid calling cards due to the introduction of several new calling cards in
the U.S., the continued growth of European operations, the acquisition of the
prepaid calling card operations of PT-1, and increased marketing efforts for
existing IDT prepaid calling cards. This resulted in a continued increase in
actual deferred revenue.
Significant Transactions
On December 19, 2001, one of our subsidiaries acquired certain of the U.S.
voice and data assets of Winstar. Winstar operates as a CLEC using fixed
wireless technology to provide local and long distance voice services, Internet
connectivity, and data transmission services.
On October 23, 2001, we entered into an agreement to lead a consortium that
would concentrate ownership of Net2Phone. As of January 31, 2002, the
consortium's ownership in Net2Phone was approximately 46% (63% of the voting
power). The consortium consists of IDT, Liberty, and AT&T, resulting in
significant economic investments in Net2Phone for all three parties. As part of
the agreement, IDT and AT&T contributed their shares of Net2Phone (approximately
10.0 million and 18.9 million shares, respectively) to a newly formed limited
liability company, NTOP Holdings, LLC ("LLC"). Liberty then acquired a
substantial portion of the LLC's units from AT&T, while IDT increased its stake
and AT&T retained a significant interest. The LLC now holds an aggregate of 28.9
million shares of Net2Phone's Class A common stock. We hold the controlling
membership interest in the LLC and we are the managing member of the LLC. We
account for our investment in the LLC using the equity method, since our control
of the LLC is deemed to be temporary due to unilateral liquidation rights held
by each of the LLC members.
On October 11, 2001 we issued to Liberty 3,810,265 shares of IDT Class B
common stock in exchange for 3,728,949 shares of IDT common stock. The exchange
rate was based upon the relative average market prices for the IDT Class B
common stock and the IDT common stock during a specified 30 trading day period.
21
In March 2001, we exercised an option to sell to AT&T approximately 2.0
million shares of our Class B common stock for approximately $75.0 million. In
conjunction with the formation of the consortium, we guaranteed to AT&T the
value of approximately 1.4 million shares of IDT Class B common stock still
being retained by AT&T. If the value of IDT Class B common stock is less than
$27.5 million on October 19, 2002, and AT&T or an affiliate retains all the
shares through such date, then we will be obligated to pay AT&T the difference
with cash, additional shares of IDT Class B common stock or a combination of
both, at the option of IDT. In connection with this obligation, we recorded in
"other income (expense)" a charge of $14.0 million during the first quarter of
Fiscal Year 2002, which was reduced by a gain of $8.1 million during the second
quarter of Fiscal Year 2002. We are subject to additional charges through
October 19, 2002, based on changes in the market value of IDT Class B common
stock.
Stock Buyback Program
Our Board of Directors has authorized the repurchase of up to 45 million
shares of our common stock and Class B common stock. We repurchased
approximately 1.4 million shares of our common stock, for an aggregate purchase
price of approximately $15.6 million, during the six months ended January 31,
2002. Through January 31, 2002, we have repurchased approximately 15.6 million
shares of our common stock under the authorized stock buyback program, of which
approximately 6.2 million shares have been retired.
Other Sources and Uses of Resources
We intend to, where appropriate, make strategic acquisitions to expand our
telecommunications businesses. These acquisitions could include, but are not
limited to, acquisitions of telecommunications equipment, telecommunications
network capacity, customer bases or other assets. We may also make strategic
acquisitions related to any of our new Media/Ventures businesses. From time to
time, we evaluate potential acquisitions of companies, technologies, products
and customer accounts that complement our businesses, particularly in light of
the financial distress currently being encountered by many telecommunications
firms. These conditions have resulted in the availability for sale of numerous
strategic assets and businesses.
We believe that, based upon our present business plan, and as a result of
the cash proceeds generated by the sale of the majority of our Net2Phone shares
to AT&T in August 2000, our existing cash resources will be sufficient to meet
our currently anticipated working capital and capital expenditure requirements,
and to fund any potential operating cash flow deficits for at least the next
twelve months. If our growth exceeds current expectations or if we acquire the
business or assets of another company, or if our operating cash flow deficit
exceeds our expectations to the point that we cannot meet our working capital
and capital expenditure requirements, we will need to raise additional capital
from equity or debt sources. There can be no assurance that we will be able to
raise such capital on favorable terms or at all. If we are unable to obtain such
additional capital, we may be required to reduce the scope of our anticipated
expansion, which could have a material effect on our business, financial
condition, or results of operations.
The following tables quantify our future contractual obligations and
commercial commitments, which consist primarily of capital and operating lease
obligations (in millions).
Contractual Obligations
Payments Due by Period
Less than After
Total 1 year 1 - 3 years 4 - 5 years 5 years
---------- ---------- ----------- ----------- ----------
Long term debt ......................... $ 0.4 $ -- $ -- $ 0.4 $ --
Capital lease obligations .............. 84.7 29.5 41.2 14.0 --
Operating leases ....................... 150.6 19.6 33.0 15.9 82.1
---------- ---------- ---------- ---------- ----------
Total contractual cash
obligations .......................... $ 235.7 $ 49.1 $ 74.2 $ 30.3 $ 82.1
========== ========== ========== ========== ==========
22
Other Commercial Commitments
Payments Due by Period
Less than After
Total 1 year 1 - 3 years 4 - 5 years 5 years
---------- ---------- ----------- ----------- ----------
Standby letters of credit .............. $ 8.5 $ 0.5 $ 6.1 $ 0.4 $ 1.5
Guarantees ............................. 3.1 -- -- -- 3.1
---------- ---------- ----------- ----------- ----------
Total commercial
commitments .......................... $ 11.6 $ 0.5 $ 6.1 $ 0.4 $ 4.6
========== ========== ========== ========== ==========
In addition, with regard to the assumption of liabilities as a result of
the Winstar acquisition, we have until April 17, 2002 (120 days from the date of
the acquisition) to decide, in our sole discretion, which of the contractual
agreements relating to Winstar we would like to assume.
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 were
accepted as legal currency. Beginning in 2002, all EMU countries began 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. We do not anticipate, based on currently available
information, that the euro will have a material adverse impact on our operations
and sales.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses from
market risk sensitive instruments attributable to reasonably possible market
changes. Market risk sensitive instruments include all financial or commodity
instruments and other financial instruments (such as investments and debt) that
are sensitive to future changes in interest rates, currency exchange rates,
commodity prices or other market factors. We are not exposed to market risks
from changes in commodity prices, and we do not consider the market risk
exposure relating to foreign currency exchange to be material. We do not hold
derivative financial instruments nor do we hold securities for trading or
speculative purposes. We are exposed to changes in interest rates primarily from
our investments in cash equivalents and marketable securities. Under our current
policies, we do not use interest rate derivative instruments to manage our
exposure to interest rate changes.
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," "plans," "intends," and similar
words and phrases. Such forward-looking statements include, among other things,
our plans to implement our growth strategy, improve our financial performance,
expand our infrastructure, develop new products and services, expand our sales
force, expand our customer base and enter international markets, and the
possible outcome of our litigation. Such forward-looking statements also include
our expectations concerning factors affecting the markets for our products, such
as changes in the U.S. and the international regulatory environment and the
demand for long-distance telecommunications. These forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from the results projected in any forward-looking statements. These
risks and uncertainties include, but are not limited to, those risks discussed
in this report. In addition to the factors specifically noted in the
forward-looking statements, other important factors that could result in those
differences include (a) general economic conditions in the telecommunications
and Internet markets, including inflation, recession, interest rates, and other
economic factors; (b) casualty to or other disruption of our facilities and
operations; (c) those discussed in our Annual Report on Form 10K for the year
ended July 31, 2001; and (d) other factors that generally affect the business of
telecommunications, Internet and other communications companies. The
forward-looking statements are made as of the date of this Report, and we assume
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 our reports filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933 and
the Securities Exchange Act of 1934, including our Annual Report on Form 10-K
for the year ended July 31, 2001 and Quarterly Report on Form 10-Q for the three
months ended October 31, 2001.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Incorporated by reference from Part I, Item I, Financial Statements
(Unaudited), Note 8, captioned "Legal Proceedings and Contingencies."
Item 2. Changes in Securities and Use of Proceeds
Pursuant to an Asset Purchase Agreement dated as of January 7, 2002, among
Horizon Global Trading, LLC, Horizon Real Time Systems, Inc. and IDT Horizon GT,
Inc., a wholly-owned subsidiary of the Company, the Company acquired assets
related to the development and licensing of Internet-based financial trading
systems and related software in exchange for 348,190 shares of the Company's
Class B common stock. The exchange rate was based upon the relative average
market prices for the Class B common stock during a specified 20 trading day
period.
Pursuant to an Asset Purchase Agreement dated as of December 18, 2001,
among IDT Winstar Acquisition, Inc. ("IDT Winstar"), Winstar Communications,
Inc. and certain of its subsidiaries (collectively "Winstar"), and pursuant to
an order of the United States Bankruptcy Court for the District of Delaware, the
Company issued 990,267 shares of Class B common stock to WCI Capital Corp. as a
portion of the consideration paid by IDT Winstar for certain of the U.S. voice
and data assets of Winstar. The number of shares issued was based on the average
closing price for such shares during the seven-day period ended December 14,
2001.
Each of these issuances was made under the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, being a transaction not
involving any public offering. No underwriters were involved in the issuances of
the above-described securities.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Stockholders (the "Meeting") was held on December 13,
2001. The following matters were submitted to our stockholders for their vote,
and the results of the vote taken at the Meeting were as follows:
1. Five of our Class III Directors were elected for a term of three years.
(a) Howard S. Jonas: 45,767,845 votes for; 0 votes against; 395,891 abstentions;
(b) Joyce J. Mason: 44,108,483 votes for; 0 votes against; 2,055,254 abstentions;
(c) Geoffrey Rochwarger: 44,108,365 votes for; 0 votes against; 2,055,372 abstentions;
(d) Dr. Saul K. Fenster: 45,808,164 votes for; 0 votes against; 355,572 abstentions;
(e) Michael J. Levitt: 45,808,076 votes for; 0 votes against; 355,660 abstentions; and
0 broker held non-voted shares.
2. An Amendment to the Company's 1996 Stock Option and Incentive Plan, as
Amended and Restated (the "Plan") was ratified. The Company's
stockholders approved an amendment to the Plan that increased the
number of shares of the Company's Class B common stock available for
the grant of awards thereunder by an additional 3,000,000 shares.
34,134,631 votes for; 3,881,105 votes against; 0 abstentions; and
0 broker held non-voted shares.
24
3. The appointment of Ernst & Young LLP as our independent auditors for
the fiscal year ending July 31, 2002 was ratified.
46,045,127 votes for; 75,590 votes against; 0 abstentions; and
0 broker held non-voted shares.
Item 5. Other Information
None
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.
3.03(2) Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant.
10.42(3) Asset Purchase Agreement, dated December 18, 2001, between
IDT Winstar Acquisition, Inc., Winstar Communications, Inc.
and the subsidiaries of Winstar Communications, Inc. listed
on Appendix 1 thereto.
- -----------
(1) Incorporated by reference to Form S-1 filed February 21, 1996 file no.
333-00204.
(2) Incorporated by reference to Form 10-Q for the fiscal quarter ended April
30, 2000, filed June 14, 2000.
(3) Incorporated by reference to Form 8-K filed January 3, 2002.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on January 3, 2002,
announcing that on December 19, 2001, the Company, through a subsidiary,
acquired certain of the U.S. voice and data assets of Winstar Communications,
Inc. ("Winstar"). The acquisition was made pursuant to an Asset Purchase
Agreement (the "Agreement"), dated December 18, 2001, between IDT Winstar
Acquisition, Inc., Winstar and certain of its subsidiaries. The purchase price
was $42.5 million, $30 million of which was paid in cash (from IDT's cash
reserves) and $12.5 million of which was paid in newly issued shares of IDT
Class B common stock, plus 5% of the common equity interests in the acquiring
entity (the remaining 95% of the common equity interests as well as all of the
preferred equity interests in the acquiring entity are owned by IDT).
25
IDT CORPORATION
FORM 10-Q
JANUARY 31, 2002
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
March 15, 2002 By: /s/ Howard S. Jonas
- -------------- ------------------------------------
Date Howard S. Jonas
Chairman of the Board and Treasurer
(Principal Executive Officer)
March 15, 2002 By: /s/ Stephen R. Brown
- -------------- ------------------------------------
Date Stephen R. Brown
Chief Financial Officer
(Principal Financial Officer)
26
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.01 Restated Certificate of Incorporation of the Registrant.
3.02 By-laws of the Registrant.
3.03 Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant.
10.42 Asset Purchase Agreement, dated December 18, 2001, between
IDT Winstar Acquisition, Inc., Winstar Communications, Inc.
and the subsidiaries of Winstar Communications, Inc. listed
on Appendix 1 thereto.
27