<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission File Number 0-14972
IDB COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-0933098
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10525 WEST WASHINGTON BOULEVARD, CULVER CITY, CALIFORNIA 90232
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (213) 870-9000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding as of November 7, 1994:
74,461,680
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Operations . . . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .13
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
- - --------------------------------------------------------------------------------
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, SEPTEMBER 30,
1993 1994
---- ----
(UNAUDITED,
SEE NOTE 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54,612,000 $22,685,000
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,672,000 3,036,000
Accounts receivable, less allowance for doubtful accounts of $5,751,000 in
1993 and $18,578,000 in 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,445,000 99,256,000
Unbilled revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,900,000 8,073,000
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . 23,139,000 31,773,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,768,000 164,823,000
------------ ------------
Property and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,489,000 2,489,000
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,567,000 6,434,000
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,410,000 276,964,000
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,850,000 29,816,000
------------ ------------
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319,316,000 315,703,000
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . 49,251,000 63,963,000
------------ ------------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,065,000 251,740,000
Investment in and advances to joint venture. . . . . . . . . . . . . . . . . . . . . . . -- 24,929,000
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,786,000 181,177,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,773,000 40,509,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,797,000 --
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $722,189,000 $663,178,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . $55,095,000 $59,262,000
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,805,000 121,735,000
Shareholder litigation reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 76,000,000
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,900,000 256,997,000
Long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,369,000 36,979,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 20,096,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 10,000,000
Convertible subordinated debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,500,000 195,500,000
------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408,769,000 519,572,000
------------ ------------
Commitments and contingencies
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,285,000 --
------------ ------------
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized; 34,000 shares issued and none
outstanding in 1993 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value, 200,000,000 shares authorized; shares issued
and outstanding, 71,713,076 in 1993 and 74,389,516 in 1994 . . . . . . . . . . . . . . 717,000 744,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272,744,000 296,708,000
Retained earnings (accumulated deficit). . . . . . . . . . . . . . . . . . . . . . . . 16,674,000 (153,846,000)
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,135,000 143,606,000
------------ ------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . $722,189,000 $663,178,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, SEE NOTE 1)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Transmission services. . . . . . . . . . . $68,739,000 $125,394,000 $196,542,000 $359,310,000
Systems integration and other income . . . 5,239,000 5,626,000 16,828,000 18,790,000
Fees earned from TRT . . . . . . . . . . . 3,000,000 -- 8,000,000 --
----------- ------------ ------------ ------------
Total revenues . . . . . . . . . . . . . 76,978,000 131,020,000 221,370,000 378,100,000
----------- ------------ ------------ ------------
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . . 51,360,000 122,879,000 148,531,000 324,777,000
Selling, general and administrative. . . . 8,205,000 22,268,000 24,144,000 63,925,000
Depreciation . . . . . . . . . . . . . . . 4,839,000 6,485,000 13,994,000 17,402,000
Amortization . . . . . . . . . . . . . . . 882,000 1,216,000 3,110,000 4,095,000
Provision to reduce the carrying value of
IDB Broadcast assets. . . . . . . . . . -- 35,000,000 -- 35,000,000
----------- ------------ ------------ ------------
Total costs and expenses . . . . . . . . 65,286,000 187,848,000 189,779,000 445,199,000
----------- ------------ ------------ ------------
Operating income (loss). . . . . . . . . . . 11,692,000 (56,828,000) 31,591,000 (67,099,000)
Interest expense . . . . . . . . . . . . . . (1,899,000) (2,838,000) (5,846,000) (8,019,000)
Interest income. . . . . . . . . . . . . . . 665,000 794,000 1,290,000 2,793,000
Provision for shareholder litigation. . . . . -- 76,000,000 -- 76,000,000
----------- ------------ ------------ ------------
Income (loss) before minority interest,
equity in joint venture, income taxes and
extraordinary item. . . . . . . . . . . . 10,458,000 (134,872,000) 27,035,000 (148,325,000)
Equity in loss of joint venture. . . . . . . -- (1,489,000) -- (3,872,000)
Minority interest. . . . . . . . . . . . . . (95,000) -- (197,000) --
----------- ------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item. . . . . . . . . . 10,363,000 (136,361,000) 26,838,000 (152,197,000)
Income tax provision. . . . . . . . . . . . 4,360,000 18,323,000 11,033,000 18,323,000
----------- ------------ ------------ ------------
Net income (loss) before extraordinary item. 6,003,000 (154,684,000) 15,805,000 (170,520,000)
Extraordinary item, net of tax . . . . . . . (7,949,000) -- (7,949,000) --
----------- ------------ ------------ ------------
Net income (loss) before preferred stock
dividend. . . . . . . . . . . . . . . . . (1,946,000) (154,684,000) 7,856,000 (170,520,000)
Preferred stock dividend . . . . . . . . . . 340,000 -- 1,058,000 --
----------- ------------ ------------ ------------
Net income (loss) available to common
shareholders. . . . . . . . . . . . . . . ($2,286,000) ($154,684,000) $6,798,000 ($170,520,000)
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Primary earnings per share:
Net income (loss) available to common
shareholders before extraordinary item . . $0.10 ($2.08) $0.27 ($2.31)
Extraordinary item. . . . . . . . . . . . . (0.14) -- (0.14) --
Net income (loss) available to
common shareholders . . . . . . . . . . . . ($.04) ($2.08) $0.13 ($2.31)
Fully diluted earnings per share:
Net income (loss) before extraordinary item. $0.09 ($2.08) $0.26 ($2.31)
Extraordinary item. . . . . . . . . . . . . ($0.12) -- ($0.13) --
Net income (loss) . . . . . . . . . . . . . ($0.03) ($2.08) $0.13 ($2.31)
Weighted average common shares outstanding:.
Primary. . . . . . . . . . . . . . . . . . 57,519,000 74,285,000 53,928,000 73,859,000
Fully diluted. . . . . . . . . . . . . . . 63,851,000 74,285,000 60,244,000 73,859,000
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, SEE NOTE 1)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1993 1994
---- ----
<S> <C> <C>
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . $1,319,000 $50,415,000
------------ ------------
Cash flows from operating activities:
Net income (loss) before preferred stock dividend. . . . . . . . . . . . . . . . . 7,856,000 (170,520,000)
------------ ------------
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Extraordinary item, net of income tax benefit of $5,639,000. . . . . . . . . . . . 7,949,000 --
Provision for shareholder litigation . . . . . . . . . . . . . . . . . . . . . . . -- 76,000,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,994,000 17,402,000
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,730,000 3,643,000
Amortization of loan fees and discounts. . . . . . . . . . . . . . . . . . . . . . 380,000 452,000
Provision for doubtful accounts receivable . . . . . . . . . . . . . . . . . . . . 1,046,000 10,565,000
Provision to reduce the carrying value of IDB Broadcast assets . . . . . . . . . . -- 35,000,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,707,000 18,323,000
Equity in loss of joint venture. . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,872,000
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,000 --
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,220,000) (20,750,000)
Unbilled revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,974,000 5,487,000
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . (4,665,000) (9,140,000)
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . . 957,000 17,191,000
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,465,000) 2,383,000
------------ ------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,584,000 160,428,000
------------ ------------
Net cash provided by (used for) operating activities . . . . . . . . . . . . . . 9,440,000 (10,092,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . 53,315,000 23,993,000
Borrowings of senior debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,500,000 10,000,000
Borrowings of convertible subordinated debt. . . . . . . . . . . . . . . . . . . . 190,250,000 --
Repayments of senior debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,066,000) --
Repayments of senior subordinated debt . . . . . . . . . . . . . . . . . . . . . . (21,000,000) --
Payment of debt redemption premiums. . . . . . . . . . . . . . . . . . . . . . . . (9,257,000) --
Increase in advances from minority shareholder of subsidiary . . . . . . . . . . . 2,387,000 --
Preferred stock dividend payment . . . . . . . . . . . . . . . . . . . . . . . . . (1,058,000) --
------------ ------------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . 142,071,000 33,993,000
------------ ------------
Cash flows from investing activities:
Additions to property and equipment. . . . . . . . . . . . . . . . . . . . . . . . (33,210,000) (36,254,000)
Investments in and advances to joint venture . . . . . . . . . . . . . . . . . . . -- (5,589,000)
Increase in intangibles, deferred income taxes and other assets. . . . . . . . . . (9,997,000) (19,424,000)
Payments for purchase of TRT, net of acquired cost . . . . . . . . . . . . . . . . (982,000) --
Sale of short term investments . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,636,000
------------ ------------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . (44,189,000) (51,631,000)
------------ ------------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . 107,322,000 (27,730,000)
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $108,641,000 $22,685,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of September 30, 1994 and
the consolidated statements of operations for the three and nine month periods
ended September 30, 1993 and 1994 and the consolidated statement of cash flows
for the nine months ended September 30, 1993 and 1994 are unaudited, but in the
opinion of management include all adjustments, all of which are of a normal
recurring nature except as disclosed in these notes to the consolidated
financial statements, necessary for a fair presentation of the financial
position and the results of operations for the periods presented.
COMMON STOCK SPLIT. All common stock share amounts and earnings (loss) per
share have been adjusted to reflect the 3.15-to-one common stock split in the
form of a common stock dividend paid on February 4, 1994.
TRANSMISSION SERVICES REVENUES. Effective April 1, 1994, the Company
retroactively reclassified payments to foreign telephone companies to complete
calls made from the United States by the Company's customers. These payments,
which previously were classified as direct reductions of transmission services
revenue, are now classified as cost of sales. Operating income (loss), net
income (loss) available to common shareholders and the balance sheet are not
affected.
<TABLE>
<CAPTION>
NEW PRESENTATION
----------------
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME STATEMENT
Total revenues . . . . . . . . . . . . . . . $76,978,000 $131,020,000 $221,370,000 $378,100,000
Cost of sales. . . . . . . . . . . . . . . . 51,360,000 122,879,000 148,531,000 324,777,000
Total costs and expenses . . . . . . . . . . 65,286,000 187,848,000 189,779,000 445,199,000
<CAPTION>
OLD PRESENTATION
----------------
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME STATEMENT
Total revenues . . . . . . . . . . . . . . . $73,357,000 $89,248,000 $209,113,000 $277,846,000
Cost of sales. . . . . . . . . . . . . . . . 47,739,000 81,107,000 136,274,000 224,523,000
Total costs and expenses . . . . . . . . . . 61,665,000 145,076,000 177,522,000 343,945,000
</TABLE>
This change was made to conform with industry reporting practices. All
applicable 1993 financial information presented in the accompanying financial
statements has been restated to conform to the 1994 presentation.
IDB MOBILE. In the second quarter of 1994, the Company deconsolidated the
results of operations of IDB Mobile Communications, Inc. ("IDB Mobile"), a 50%
owned joint venture with a Canadian company. The Company has included IDB
Mobile's results of operations for the nine months ended September 30, 1994
using the equity method of accounting. (See Note 3.)
INTANGIBLE ASSETS. Intangible assets reflect the valuation of operating
agreements and other intangible assets, including goodwill, arising from the
acquisition of World Communications, Inc. and TRT Communications, Inc. ("TRT").
(See Note 5.) The Company has completed its final determination of the
purchase price allocation related to TRT.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's classifications.
5
<PAGE>
NOTE 2 -- ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC
The Company enters into operating agreements with telecommunication carriers
in foreign countries under which international long distance traffic is both
delivered and received. Under these agreements, the foreign carriers are
obligated to adhere to the policy of the Federal Communications Commission (FCC)
whereby traffic from the foreign country is routed to international carriers, of
which IDB is one, in the same proportion as traffic carried into the foreign
country. Mutually exchanged traffic between IDB and foreign carriers is settled
in cash through a formal settlement policy that generally extends over a six-
month period at an agreed upon tariff rate. Although IDB can estimate the
amount of inbound traffic it will receive, under FCC's proportional share
policy, it generally must wait up to six months before it actually receives the
inbound traffic.
The Company utilizes the net settlement concept that is inherent in the
operating agreements as the basis for its accounting policy for international
long distance traffic. Under this approach, the margin on outbound and inbound
calls (recognizing that the proportionate return of the actual inbound call is
received generally on six month lag), are normalized to reflect the implicit
overall earning rate concept of the contract. Accordingly, a portion of the
outbound call fee due the foreign carrier is deferred and accounted for as a
cost attributable to the revenue associated with the inbound call. All costs
deferred are expensed six months later and offset against the revenues
recognized upon receipt of return traffic. The amount of cost deferral at
September 30, 1994 was $10,500,000.
NOTE 3 -- IDB MOBILE
In the second quarter of 1994, the Company deconsolidated the results of
operations of IDB Mobile. IDB Mobile's results of operations for the nine month
period ended September 30, 1994 have been included in the accompanying
consolidated financial statements using the equity method of accounting. The
Company is currently evaluating its options with respect to its investment in
IDB Mobile, including the possible sale of its 50% equity interest, because the
Company no longer views IDB Mobile as part of its long-term strategy. As a
result, the Company has significantly reduced its involvement in the management
of IDB Mobile while, at the same time, its venture partner has substantially
increased its participation in the operations of the venture. Therefore, the
Company believes that it no longer exercises operating control over
IDB Mobile which previously provided the basis for the consolidation of IDB
Mobile's operating results.
Summary financial information for IDB Mobile is as follows:
<TABLE>
<CAPTION>
OPERATING RESULTS
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . $10,518,000 $10,450,000 $31,525,000 $31,094,000
Net loss . . . . . . . . . . . . . . . . . . $503,000 $2,977,000 $1,535,000 $7,744,000
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION
DECEMBER 31, SEPTEMBER 30,
1993 1994
---- ----
<S> <C> <C>
Assets . . . . . . . . . . . . . . . . . . . $62,039,000 $64,635,000
Liabilities. . . . . . . . . . . . . . . . . $56,407,000 $66,747,000
</TABLE>
NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION
6
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30,
-------------
1993 1994
---- ----
<S> <C> <C>
Cash paid for:
Interest expense . . . . . . . . . . . . . $7,791,000 $10,126,000
Income taxes . . . . . . . . . . . . . . . $1,358,000 $1,714,000
</TABLE>
In 1993, the Company issued 14,175,000 shares of Common Stock to
acquire 100% of the issued and outstanding common stock of TRT. (See Note 5.)
In July 1993, the Company issued 527,625 shares of common stock to repurchase
$5,000,000 of senior subordinated debt.
NOTE 5 -- ACQUISITION
In 1993, the Company entered into an Exchange Agreement (the "Exchange
Agreement") with Pacific Telecom, Inc. ("PTI"), and two of its subsidiaries,
International Communications Holdings, Inc. ("ICHI") and PTI Harbor Bay, Inc.
("Harbor Bay"), to acquire all of the outstanding capital stock of TRT, a
subsidiary of ICHI, and Niles Canyon Earth Station, Inc. ("Niles Canyon"), a
subsidiary of Harbor Bay. Pursuant to the first phase of the Exchange Agreement,
effective January 22, 1993, the Company issued to ICHI and Harbor Bay a total of
4,095,000 shares of Common Stock and acquired all of the outstanding common
stock of Niles Canyon. On September 23, 1993, the Company completed the second
phase of the Exchange Agreement, and issued and paid to ICHI and Harbor Bay a
total of 10,080,000 shares of Common Stock and $1,000,000 in cash in exchange
for all of the outstanding stock of TRT.
As part of the Exchange Agreement, the Company agreed to assist in
operations of, and provide certain support services to, TRT and ICHI for
aggregate monthly fees of approximately $1,000,000 per month through the
completion of the second phase of the acquisition. The Company earned
approximately $8,000,000 in such fees in the nine month period ended
September 30, 1993.
The following unaudited pro forma results of continuing operations assume
TRT was acquired as of January 1, 1993 after giving effect to certain
adjustments including the elimination of intercompany revenues and expenses
among the Company and TRT and certain historical operating and selling, general
and administrative expenses representing duplicate costs to be eliminated upon
the integration of TRT.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1993
------------------ -------------------
<S> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,657,000 $339,347,000
Income available to common shareholders before extraordinary item. . . 4,855,000 12,916,000
Net income (loss) before preferred stock dividend. . . . . . . . . . . (2,754,000) 6,025,000
Net income (loss) available to common shareholders . . . . . . . . . . (3,094,000) 4,967,000
Primary earnings per share before extraordinary item $0.07 $0.20
Fully diluted earnings per share before extraordinary item $0.07 $0.20
Primary earnings (loss) per share. . . . . . . . . . . . . . . . . . . ($0.05) $0.08
Fully diluted earnings (loss) per share. . . . . . . . . . . . . . . . ($0.04) $0.09
</TABLE>
The pro forma financial information does not purport to be indicative of
the results of operations that would have occurred had the transaction taken
place at January 1, 1993 or of future results of operations.
NOTE 6 -- BUSINESS COMBINATION
On August 1, 1994, the Company and LDDS Communications, Inc. ("LDDS")
entered into a definitive agreement providing for the acquisition of the Company
by LDDS. The acquisition is structured as a merger of a newly-formed, wholly-
owned subsidiary of LDDS into the Company. The Company will be the surviving
entity upon consummation of the merger and will be a wholly-owned subsidiary of
LDDS. Under the terms of the agreement, the Company's stockholders will receive
in the merger a minimum of .450867 LDDS share for each Company share if LDDS
shares are
7
<PAGE>
valued at $22 or more, or a maximum of .520231 LDDS share for each Company share
if LDDS shares are valued at $16 or less. The exchange ratio decreases by
.001445 LDDS share for every $.125 increase in LDDS share value between $16 and
$22. The transaction will be a tax-free exchange accounted for on a
pooling-of-interests basis. Completion of the merger is subject to, among other
things, customary closing conditions, approval of the stockholders of the
Company and LDDS and certain regulatory approvals. No assurances can be given
that the merger will be completed or, if completed, will be completed on the
terms described herein.
NOTE 7 - PROVISION TO REDUCE THE CARRYING VALUE OF IDB BROADCAST ASSETS
During 1994 several events occurred which caused management to evaluate
the realization of the Company's investment in the assets of IDB Broadcast.
These events included a proposed but never consummated sale of IDB Broadcast
at amounts significantly below book value, the continued emergence of
telecommunications as the core business of the Company (making IDB Broadcast
a non-core operation), and the merger agreement with LDDS in August 1994
(see Note 6). These factors, combined with broad economic factors adversely
impacting broadcast assets in general, have caused a decline in the value of
the Company's investment in these assets.
Management has assessed the impact of these factors on its ability to
recover the recorded values of these assets, and determined that such values
should be reduced. Accordingly, the Company has recorded an adjustment of
$35,000,000, substantially all of which represents intangible assets, to reduce
the carrying value of these assets to management's best estimate of the net
realizable value.
NOTE 8 - INCOME TAXES
The Company has provided a valuation reserve of $18,323,000 against
deferred tax assets related to the tax benefit of net operating losses recorded
in previous periods which the Company no longer believes it can utilize.
NOTE 9 - EXTRAORDINARY ITEM
The extraordinary item in 1993 of $7,949,000, net of $5,639,000
income tax benefit, represents the payment of redemption premiums and the
write-off of the unamortized portion of debt issuance costs associated with the
repayment and defeasance of substantially all of the Company's then existing
debt.
NOTE 10 - SHAREHOLDER LITIGATION AND OTHER CONTINGENCIES
The Company and certain of its current and former directors and officers
are defendants in shareholder class action lawsuits. The class action complaints
allege, among other things, violations of federal securities laws for
disseminating allegedly false and misleading statements concerning the Company's
earnings and accounting practices. The class action complaints seek damages
suffered by the class, the cost of the suits including attorney fees, punitive
damages and injunctive relief.
Shareholder derivative actions have also been filed alleging that certain
of the Company's officers and directors breached their fiduciary duties to the
Company by trading on inside information, accepting bonuses based on false and
inflated Company financial results and exposing the Company to liability under
the securities laws. These actions seek restitution to the Company, injunctive
relief, costs and attorneys' fees.
The Company is in the process of negotiating the settlement of the
foregoing litigation. Current negotiations contemplate that all such litigation
against the Company and its officers and directors would be settled in
exchange for a payment of $75,000,000. The settlement and the $75,000,000
payment would be contingent upon the consummation of the merger of the
Company with LDDS. A stipulation of settlement has not yet been signed
by the parties and will, in any event, be subject to approval by the court.
Consequently, there can be no assurance that the litigation will be settled
on the terms described herein or at all.
In the third quarter of 1994, the Company recorded a $76,000,000 charge,
representing the estimated settlement liability of $75,000,000 plus $1,000,000
in related legal costs.
The Securities and Exchange Commission and the U.S. Attorney's Office
have initiated investigations concerning certain matters, including the
Company's financial position, books and records and internal controls and
trading in the Company's securities. The Company is cooperating with these
investigations.
The Company is unable at this time to predict the outcome of any of the
foregoing matters. However, if determined adversely to the Company, the impact
of such matters on the financial position and results of operations of the
Company could be material.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following
table shows the percentage relationship to total revenues of certain items
included in the Statement of Operations. The Company principally derives
revenues from international public switched long distance telephone and
international private line services, radio and television transmission services
and mobile communications (in 1993) and systems integration services provided on
the Company's domestic and international communications network.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-----------------------
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ------
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.7 93.8 67.1 85.9
Selling, general and administrative. . . . . . . . . . . . . . . . . . . . . . 10.7 17.0 10.9 16.9
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 4.9 6.3 4.6
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 0.9 1.4 1.1
Provision to reduce the carrying value of certain assets . . . . . . . . . . . 0.0 26.7 0.0 9.3
----- ----- ----- ------
Total cost and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.8 143.3 85.7 117.8
----- ----- ----- ------
Operating income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 (43.3) 14.3 (17.8)
Interest, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.6 2.1 1.4
Shareholder litigation settlement. . . . . . . . . . . . . . . . . . . . . . . . -- 58.0 -- 20.1
----- ----- ----- ------
Income (loss) before minority interest, extraordinary item, and income taxes . . 13.6 (102.9) 12.2 (39.3)
Equity in loss of joint venture. . . . . . . . . . . . . . . . . . . . . . . . . (1.1) (1.0)
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) -- (0.1) --
----- ----- ----- ------
Income (loss) before income taxes and extraordinary item . . . . . . . . . . . . 13.5 (104.0) 12.1 (40.3)
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . (5.7) 14.0 (5.0) 4.8
----- ----- ----- ------
Net income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . 7.8 (118.0) 7.1 (45.1)
Extraordinary item, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . (10.3) (3.6)
Net Income (loss) before preferred stock dividend. . . . . . . . . . . . . . . . (2.5) (118.0) 3.5 (45.1)
Preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 -- 0.5 --
----- ----- ----- ------
Net income (loss) available to common shareholders . . . . . . . . . . . . . . . (3.0)% (118.0)% 3.0% (45.1)%
----- ----- ----- ------
----- ----- ----- ------
</TABLE>
RESULTS OF OPERATIONS
Operating results for the third quarter of 1994 resulted in revenues of
$131,020,000 and a net loss of $154,684,000 versus revenues of $76,978,000 and
net loss of $2,286,000 for the same period in 1993. For the nine months ended
September 30, 1994, revenues and net loss were $378,100,000 and $170,520,000,
respectively, as compared to revenues of $221,370,000 and net income of
$6,798,000 for the same period in 1993. Operating results in the third quarter
of 1994 were significantly affected by the shareholder litigation provision of
$76,000,000, the reduction in carrying value of certain IDB Broadcast assets
of $35,000,000 and the valuation reserve of $18,323,000 provided against
deferred tax assets.
9
<PAGE>
The Company also deconsolidated its results of operations with IDB
Mobile, and has reflected those results of operations for IDB Mobile for the
nine months ended September 30, 1994 under the equity method of accounting. For
the same period in 1993, IDB Mobile's results of operations are consolidated
with Company's results of operations. (See Note 3 to the Consolidated Financial
Statements.)
REVENUES. Revenues comprised the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------ -------------------------------
1993 1994 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
IDB WorldCom . . . . . . . . . . . . . . . . $40,238,000 $105,351,000 $111,890,000 $299,209,000
IDB Broadcast. . . . . . . . . . . . . . . . 18,454,000 20,043,000 57,069,000 60,101,000
IDB Mobile . . . . . . . . . . . . . . . . . 10,048,000 -- 27,583,000 --
----------- ------------ ------------ ------------
Transmission services revenues . . . . . . 68,740,000 125,394,000 196,542,000 359,310,000
Systems integration. . . . . . . . . . . . . 4,247,000 5,378,000 11,319,000 14,038,000
Management fee . . . . . . . . . . . . . . . 3,000,000 -- 8,000,000 --
Other. . . . . . . . . . . . . . . . . . . . 991,000 248,000 5,509,000 4,752,000
----------- ------------ ------------ ------------
Total revenues . . . . . . . . . . . . . . $76,978,000 $131,020,000 $221,370,000 $378,100,000
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
Revenues for IDB WorldCom, the Company's division which provides
international switched voice and private line services, grew by $65,113,000 and
$187,319,000 for the three and nine month periods ended September 30, 1994,
respectively, as compared to same periods in 1993. The growth resulted
principally from the acquisition of TRT as of September 30, 1993 and the
Company's continued rapid growth in the international switched voice business,
which represents approximately 64% of IDB WorldCom transmission revenues for the
nine months ended September 30, 1994. Since the TRT acquisition at September 30,
1993, the Company has experienced average monthly growth of approximately 7% in
international telephone minutes.
The growth in international minutes has principally been fueled by the
Company's efforts, since its acquisition of TRT, to provide its international
telephone services to other long distance carriers who do not have the direct
operating agreements the Company has obtained. The Company currently derives
approximately 90% of its international telephone revenues from such carrier
customers, as compared to approximately 75% in late 1993. The remaining 10% are
derived from commercial accounts.
In the three months ended September 30, 1994, the Company recorded an
increase of approximately $7,500,000 in its sales credit reserve to reflect a
revision in the estimate of the collectibility of certain accounts receivable
balances. This charge has been deducted from IDB WorldCom revenues for the third
quarter of 1994.
IDB Broadcast revenues for the three months and nine months ended
September 30, 1994 increased by $1,588,000 and $3,032,000 respectively, as
compared to the same periods in 1993. The increase resulted principally from
additional full time program distribution services provided to IDB Broadcast
customers. For the three month period ended September 30, 1994, the Company
lost approximately $3,500,000 in IDB Broadcast revenues as a result of the
major league baseball strike. The Company has historically provided broadcast
related services to virtually all baseball broadcast rights holders. IDB Mobile
revenues were consolidated in 1993 and are being reflected under the equity
method of accounting in 1994.
For the three months and nine months ended September 30, 1993, the Company
recorded $3,000,000 and $8,000,000 respectively, for fees earned in connection
with agreements to provide management assistance to TRT prior to its acquisition
by the Company. These agreements expired upon the acquisition of TRT and,
consequently, no such fees were recorded in 1994.
COST OF SALES. Cost of sales as a percentage of revenues increased to 93.8%
and 85.9% for the three and nine month periods ended September 30, 1994,
respectively, compared to 66.7% and 67.1% for the same periods in 1993. The
increase
10
<PAGE>
is principally due to the Company's changing revenue mix. International
telephone services which comprised approximately 51% of total revenues for the
nine months ended September 30, 1994 compared to 15% of total revenues for the
same period in 1993 carry a higher cost of sales than other transmission
services provided by the Company. Additionally, throughout 1994, average revenue
per minute for outbound traffic has decreased as a result of increasing
carrier revenue as a proportion of total international telephone revenue.
Carrier rates are approximately 20-25% lower than rates charged to commercial
customers. Thus, the changing mix has resulted in a lower average revenue per
minute trend. In addition, the Company decreased rates to carrier customers
resulting in continued market share gains but lower margins because termination
costs per minute remained relatively stable during the first nine months of
1994.
The Company has implemented a number of steps to improve margins. IDB
WorldCom has hired a number of additional commercial sales management personnel
to focus on obtaining new commercial accounts to increase margins. The Company
has also begun to revise its least cost routing network scheme for delivery of
off-net traffic to take advantage of lower rates offered by various carriers. In
addition, the Company is in the process of increasing its facilities to several
countries with whom it has operating agreements but where, because of the rapid
minute growth it has experienced, the Company is currently unable to deliver all
of its outbound traffic over existing facilities. As a result, the Company
currently must use other carriers at a higher cost to deliver this overflow
traffic. These steps, designed to reduce the termination costs per minute, began
to take effect late in the third quarter of 1994. In addition, in the third
quarter of 1994, cost of sales for IDB Broadcast were adversly affected by the
major league baseball strike. The majority of the costs related to providing
services for baseball broadcast rights holders are fixed in nature. The Company
estimates that it lost approximately $3,500,000 in revenue as a result of the
cancellation of the remainder of the baseball season.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses increased to $22,268,000 and $63,925,000 for the three and
nine month period ended September 30, 1994, respectively, from $8,205,000 and
$24,144,000 for the same periods in 1993 primarily as a result of the
acquisition of TRT. Also, the provision for doubtful accounts receivable for
the nine month period ended September 30, 1994 increased by 9,539,000 from the
same period in 1993. Additionally, the Company has incurred in 1994 significant
one time expenses of approximately $2,000,000 related to the LDDS transaction
(see Note 6 to the Consolidated Financial Statements), and approximately
$2,500,000 in accounting and legal expenses incurred in connection with the
resignation of its prior auditors in May 1994 and ensuing litigation. In the
third quarter of 1994, the Company also accrued approximately $2,400,000 for
various non-income tax and related matters.
DEPRECIATION. Depreciation expense increased $1,646,000 and $3,408,000 for the
three and nine month periods ended September 30, 1994, respectively, from the
same periods in 1993 principally as a result of the acquisition of TRT.
AMORTIZATION. Amortization expense for the three and nine month periods ended
September 30, 1994 increased by $334,000 and $985,000, respectively, from the
same periods in 1993 principally due to the acquisition of TRT.
INTEREST, NET. Interest, net for the three and nine months ended September 30,
1994 increased by $810,000 and $670,000, respectively, principally due to
interest expense incurred in connection with liabilities assumed in connection
with the acquisition of TRT.
PROVISION TO REDUCE CARRYING VALUE OF CERTAIN ASSETS. During the third quarter
of 1994, the Company determined that adjustments to certain IDB Broadcast
assets were appropriate to properly reflect estimated net realizable values.
These adjustments consisted primarily of the write-off of intangibles assets
totaling $35,000,000 (See Note 7 to the Consolidated Financial Statements).
EXTRAORDINARY ITEM. The extraordinary item in 1993 of $7,949,000, net of
$5,639,000 income tax benefit, represents the payment of redemption premiums
and the write-off of the unamortized portion of debt issuance costs associated
with the repayment and defeasance of substantially all of the Company's then
existing debt.
11
<PAGE>
INFLATION
Since its inception, the Company's results of operations have not been
significantly affected by inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed growth through borrowings, cash generated from
operations and sales of shares of its Common Stock and 5% Convertible
Subordinated Notes due 2003 (the "Subordinated Notes").
The Subordinated Notes issued in August 1993 are convertible at any time
prior to maturity, unless previously redeemed, into Common Stock of the Company
at a conversion price of $18.15 per share, as adjusted to reflect the
3.15-to-one Common Stock split in the form of a 215% Common Stock dividend paid
on February 1994 and subject to further adjustment in certain events. The
Subordinated Notes bear interest at a rate of 5% per annum and interest is
payable on February 15 and August 15 of each year. The Subordinated Notes are
redeemable at any time after August 15, 1996, in whole or in part, at the option
of the Company, at declining redemption prices plus accrued interest. The
Subordinated Notes are unsecured and subordinated to all existing and future
senior indebtedness of the Company and are effectively subordinated to all
indebtedness and other liabilities of subsidiaries of the Company. The
Subordinated Notes contain no limitation on the incurrence of additional
indebtedness by the Company and its subsidiaries.
In November 1993, Bank of America National Trust and Savings Association
agreed to make a $15,000,000 line of credit available to the Company (the "Line
of Credit"). Advances made pursuant to the Line of Credit bear interest at a
floating rate based, at the option of the Company, on a domestic index or an
offshore index. All advances and letters of credit made under the Line of Credit
mature on October 31, 1995 and the Line of Credit expires on such date. The
Company may at any time terminate the Line of Credit by payment of all
outstanding advances and other obligations under the Line of Credit and cash
collateralization of all letters of credit existing at that time. As of
September 30, 1994, $10,000,000 under the Line of Credit was outstanding and
approximately $3,100,000 was committed to back letters of credit. Subsequent to
September 30, 1994, the Company was advanced an additional $1,800,000 under
the Line of Credit, for a total outstanding of approximately $14,900,000.
During the nine month period ended September 30, 1994, the Company's
capital expenditures, including improvements, replacements and additions of
communications equipment and facilities, were approximately $36,254,000. The
Company historically has invested significantly to build its communications
network.
Net cash used by operating activities in the nine months ended
September 30, 1994 was $10,092,000 compared to net cash provided by operating
activities of $9,440,000 in the same period in 1993 principally due to a loss
from continuing operations, increases in accounts receivable as a result of the
acquisition of TRT and the rapid growth of international telephone long distance
revenue. Cash provided by financing activities in the nine month period ended
September 30, 1994 was $33,993,000 compared to $142,071,000 in the same period
in 1993, primarily due to the issuance of the Subordinated Notes debt in 1993.
Net cash used in investing activities in the nine month period ended
September 30, 1994 was $51,631,000 compared to $44,189,000 in the same period in
1993. The increase related principally to an increase of $3,000,000 in capital
spending and $11,400,000 of costs deferred in connection with the Company's
accounting policy for international long distance revenues partially offset by
the sale of short-term investments.
The Company's capital commitments, as of November 7, 1994, consisted
primarily of outstanding purchase orders (some of which are cancelable at the
Company's option) to acquire approximately $29,300,000 of equipment, including
long term commitments on undersea fiber optic cables of $11,850,000. The
Company expects that its current holdings of cash and marketable securities
will satisfy its projected working capital and capital expenditure requirements
through fiscal 1994. Thereafter, should the merger not be completed, the Company
will need to seek additional debt or equity financing to supplement current
cash position and to finance future growth opportunities. Failure to secure
such financing would have a material adverse effect on the liquidity of the
Company.
The Company is a defendant in certain shareholder and other lawsuits
and is the subject of governmental investigations. (See Note 10 to the
Consolidated Financial Statements.) If these matters are determined adversely
to the Company, their impact and the costs associated therewith could have a
material adverse effect on the liquidity of the Company.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
STOCKHOLDER LITIGATION. As described in the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, between June 1, 1994 and June 6,
1994, 22 shareholder class action lawsuits were filed in the U.S. District Court
for the Central District of California against the Company and certain of its
current and former directors and officers. On June 7, 1994, a shareholder
derivative lawsuit was filed in the U.S. District Court for the Central District
of California against certain officers and directors of the Company, including
Messrs. Sudikoff and Cheramy. The Company is a nominal defendant in this
derivative lawsuit.
The class action complaints allege violations of the federal securities
laws for disseminating allegedly false and misleading statements concerning the
Company's earnings and accounting practices. These claims are asserted under one
or more of the following provisions of the federal securities laws:
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and
Sections 11, 12(2) and 15 of the Securities Act of 1933. In addition, one of the
class action complaints also alleges similar claims under the California
Corporations Code, and the California derivative lawsuit pleads claims for
breach of fiduciary duty and gross negligence.
The class action complaints each seek damages suffered by the class and the
costs of the suit, including attorneys' fees. In addition, certain of the class
action complaints also seek punitive damages and injunctive relief. The
California derivative action seeks recovery of all damages suffered by the
Company, with interest thereon, as well as the derivative plaintiff's costs and
attorneys' fees.
On July 17, 1994, the District Court ordered the 22 class action complaints
and the California derivative action consolidated as one action captioned IN RE
IDB COMMUNICATIONS GROUP, INC. SECURITIES LITIGATION (Case No. CV-94-3618-
RG(JGx)). Under the court's order and a stipulation entered by the parties, the
plaintiffs must file a consolidated and amended complaint in November 1994.
Defendants have 60 days after the filing of the consolidated amended complaint
to respond.
A second shareholder derivative action (STEELE V. SUDIKOFF, ET. AL., Civ.
Action No. 13595) was filed in Delaware Chancery court on July 1, 1994, alleging
that certain of the Company's officers and directors breached their fiduciary
duties to the Company by trading on inside information, accepting bonuses based
on false and inflated Company financial results and exposing the Company to
liability under the securities laws. Plaintiff seeks restitution to the Company,
injunctive relief, costs and attorneys' fees.
On September 21, 1994, a class action lawsuit was filed in the Superior
Court of the State of California, County of Los Angeles, against the Company,
its current directors and certain executive officers and Deloitte & Touche (Civ.
No. BC 112906), alleging violations of the California Corporations Code,
breaches of fiduciary duty and abuse of control. The complaint seeks
compensatory, special and punitive damages, prejudgment interest and the costs
of the suit, including attorneys' fees on behalf of the Company's stockholders.
The Company is a party to indemnification agreements with certain of the
other defendants in the actions described above, including the Company's
officers and directors, certain selling shareholders and certain underwriters.
The Company's officers and directors are not covered by any applicable liability
insurance.
The Company is in the process of negotiating the settlement of the
foregoing litigation. Current negotiations contemplate that all such litigation
against the Company and its officers and directors would be settled in
exchange for a payment of $75,000,000. The settlement and the $75,000,000
payment would be contingent upon the consummation of the merger of the
Company with LDDS. A stipulation of settlement has not yet been signed
by the parties and will, in any event, be subject to approval by the court.
Consequently, there can be no assurance that the litigation will be settled
on the terms described herein or at all.
INVESTIGATIONS AND OTHER PROCEEDINGS. On June 9, 1994, the Securities and
Exchange Commission (the "Commission") issued a formal order of investigation
concerning certain matters, including the Company's financial position, books
and records and internal controls, and trading in the Company's securities on
the basis of non-public information by certain persons and entities. The
Commission has issued subpoenas in connection with its investigation. The NASD
and other self-regulatory bodies have also made inquiries concerning similar
matters. The Company is
13
<PAGE>
cooperating with the Commission's investigation and the other inquiries and is
in the process of complying with the subpoenas it has received.
In October 1994, the U.S. Attorney's Office for the Central District of
California issued grand jury subpoenas to the Company seeking documents relating
to the Company's first quarter results and the Deloitte & Touche resignation.
The Company has been informed that a criminal investigation has commenced and is
cooperating with the U.S. Attorney's Office.
OTHER LITIGATION. On August 20, 1994, Synergistic Technologies, Inc.
("SynTech") filed a complaint in U.S. District Court for the District of
Columbia alleging that IDB Mobile is infringing upon SynTech's copyrights in
certain computer software. On September 7, 1994, IDB Mobile filed counterclaims
against SynTech for, among other things, breach of contract and interference
with IDB Mobile's contracts with its customers. Both parties have filed motions
for summary judgment, which are set for hearing on November 16, 1994.
___________
The Company is unable at this time to predict the outcome of any of the
foregoing matters. However, if determined adversely to the Company, the impact
of such matters on the financial position and results of operations of the
Company could be material.
ITEM 2. CHANGES IN SECURITIES.
This item is inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
This item is inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
This item is inapplicable.
ITEM 5. OTHER INFORMATION.
This item is inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
None
(b) The Registrant filed the following Current Reports on Form 8-K in
the third quarter of 1994:
File Date Event Date Reporting On:
--------- ---------- -------------
July 15, 1994 July 14, 1994 Item 7 event
August 3, 1994 August 1, 1994 Item 5 event
14
<PAGE>
SIGNATURE
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 in the City of Culver City, State of
California, on November 14, 1994.
IDB COMMUNICATIONS GROUP, INC.
_
By: /s/ RUDY WANN
--------------------
Rudy Wann
Vice President, Finance and
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
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0
0
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</TABLE>
