<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 2)
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994 Commission File Number 0-14972
IDB COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 93-0933098
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 May 5, 1994: 74,116,956
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<PAGE>
IDB COMMUNICATIONS GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
---------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet................................................................. 3
Consolidated Income Statement.............................................................. 4
Consolidated Statement of Cash Flows....................................................... 5
Notes to Consolidated Financial Statements................................................. 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 9
</TABLE>
2
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
---------------- ----------------
<S> <C> <C>
(UNAUDITED,
SEE NOTE 1)
Current assets:
Cash and cash equivalents................................................... $ 54,612,000 $ 41,208,000
Short-term investments...................................................... 12,672,000 12,672,000
Accounts receivable, less allowance for doubtful accounts of $5,751,000 in
1993 and $9,414,000 in 1994................................................ 108,445,000 111,840,000
Unbilled revenues........................................................... 13,900,000 14,820,000
Prepaid expenses and other current assets................................... 23,139,000 26,690,000
---------------- ----------------
Total current assets...................................................... 212,768,000 207,230,000
---------------- ----------------
Property and equipment:
Land........................................................................ 2,489,000 2,489,000
Buildings and improvements.................................................. 6,567,000 6,592,000
Equipment................................................................... 270,410,000 286,328,000
Construction in progress.................................................... 39,850,000 38,503,000
---------------- ----------------
Total property and equipment.............................................. 319,316,000 333,912,000
Less accumulated depreciation and amortization............................ 49,251,000 55,228,000
---------------- ----------------
Net property and equipment................................................ 270,065,000 278,684,000
Intangible assets-net......................................................... 152,786,000 150,567,000
Other assets.................................................................. 23,773,000 30,436,000
Deferred income taxes......................................................... 62,797,000 60,472,000
---------------- ----------------
Total assets.............................................................. $ 722,189,000 $ 727,389,000
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................................... $ 55,095,000 $ 49,522,000
Other accrued liabilities................................................... 119,805,000 104,669,000
---------------- ----------------
Total current liabilities................................................. 174,900,000 154,191,000
Long-term liabilities....................................................... 38,369,000 36,140,000
Convertible subordinated debt............................................... 195,500,000 195,500,000
---------------- ----------------
Total liabilities......................................................... 408,769,000 385,831,000
---------------- ----------------
Commitments and contingencies...............................................
Minority interest........................................................... 23,285,000 24,184,000
---------------- ----------------
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 74,058,783 in 1994................. 717,000 741,000
Additional paid-in capital.................................................. 272,744,000 295,809,000
Retained earnings........................................................... 16,674,000 20,824,000
---------------- ----------------
Total shareholders' equity................................................ 290,135,000 317,374,000
---------------- ----------------
Total liabilities and shareholders' equity................................ $ 722,189,000 $ 727,389,000
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
IDB COMMUNICATIONS GROUP, INC
CONSOLIDATED INCOME STATEMENT
(UNAUDITED, SEE NOTE 1)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------
1993 1994
-------------- ----------------
<S> <C> <C>
Revenues:
Transmission services......................................................... $ 60,759,000 $ 120,563,000
Systems integration and other income.......................................... 5,932,000 3,927,000
Fees earned from TRT.......................................................... 1,800,000 --
-------------- ----------------
Total revenues.............................................................. 68,491,000 124,490,000
-------------- ----------------
Costs and expenses:
Cost of sales................................................................. 45,825,000 91,258,000
Selling, general and administrative........................................... 7,680,000 17,952,000
Depreciation.................................................................. 4,539,000 5,662,000
Amortization.................................................................. 1,059,000 1,429,000
-------------- ----------------
Total costs and expenses.................................................... 59,103,000 116,301,000
-------------- ----------------
Operating income................................................................ 9,388,000 8,189,000
Interest expense................................................................ (2,024,000) (2,477,000)
Interest income................................................................. 135,000 1,280,000
-------------- ----------------
Income before minority interest and income taxes................................ 7,499,000 6,992,000
Minority interest............................................................... (30,000) 102,000
-------------- ----------------
Income before income taxes...................................................... 7,469,000 7,094,000
Provision for income taxes...................................................... 3,025,000 2,944,000
-------------- ----------------
Net income before preferred stock dividend...................................... 4,444,000 4,150,000
Preferred stock dividend........................................................ 378,000 --
-------------- ----------------
Net income available to common shareholders..................................... $ 4,066,000 $ 4,150,000
-------------- ----------------
-------------- ----------------
Earnings per share:
Primary....................................................................... $.08 $.05
Fully diluted................................................................. $.08 $.05
Weighted average common shares outstanding:
Primary....................................................................... 50,306,000 75,766,000
-------------- ----------------
-------------- ----------------
Fully diluted................................................................. 56,637,000 75,766,000
-------------- ----------------
-------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, SEE NOTE 1)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------
1993 1994
--------------- ---------------
<S> <C> <C>
Cash and cash equivalents at beginning of period............................... $ 1,319,000 $ 54,612,000
--------------- ---------------
Cash flows from operating activities:
Net income before preferred stock dividend................................... 4,444,000 4,150,000
--------------- ---------------
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation expense......................................................... 4,539,000 5,662,000
Amortization expense......................................................... 905,000 1,286,000
Amortization of loan fees and discounts...................................... 154,000 143,000
Provision for doubtful accounts receivable................................... 368,000 3,674,000
Deferred income taxes........................................................ 1,758,000 2,944,000
Minority interest............................................................ 30,000 (102,000)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable.......................................................... (10,859,000) (7,069,000)
Unbilled revenues............................................................ 5,523,000 (920,000)
Prepaid expenses and other current assets.................................... (2,032,000) (3,551,000)
Accounts payable and accrued expenses........................................ 2,979,000 (5,573,000)
Other liabilities............................................................ (2,346,000) (16,484,000)
--------------- ---------------
Total adjustments.......................................................... 1,019,000 (19,990,000)
--------------- ---------------
Net cash provided by (used for) operating activities....................... 5,463,000 (15,840,000)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock....................................... 514,000 23,089,000
Borrowings of senior debt.................................................... 5,700,000 --
Repayments of senior debt.................................................... (667,000) --
Increase in advances from minority shareholder of subsidiary................. 130,000 1,001,000
Preferred stock dividend payment............................................. (378,000) --
--------------- ---------------
Net cash provided by financing activities.................................. 5,299,000 24,090,000
--------------- ---------------
Cash flows from investing activities:
Additions to property and equipment.......................................... (9,593,000) (14,781,000)
Increase in other assets..................................................... (1,819,000) (6,873,000)
--------------- ---------------
Net cash used for investing activities..................................... (11,412,000) (21,654,000)
--------------- ---------------
Decrease in cash and cash equivalents........................................ (650,000) (13,404,000)
--------------- ---------------
Cash and cash equivalents at end of period................................. $ 669,000 $ 41,208,000
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 1994 and the
consolidated statements of income and cash flows for the three months ended
March 31, 1994 are unaudited, but in the opinion of management include all
adjustments, all of which are of a normal and recurring nature except as
indicated below, necessary for a fair presentation of the financial position and
the results of operations for the periods presented. Included in selling,
general and administrative expenses is a $2.9 million increase to the allowance
for doubtful accounts receivable for a customer that filed for protection under
Chapter 11 of the U.S. Bankruptcy Code subsequent to March 31, 1994.
Adjustments to results of operations for the quarter ended March 31, 1994
which are not of a normal recurring nature are (a) purchase accounting
adjustments having the effect of reducing cost of sales by $1.3 million, (b) an
allowance for doubtful accounts receivable of $2.9 million (for a customer that
filed for protection under Chapter 11 of the United States Bankruptcy Code
subsequent to March 31, 1994) having the effect of increasing selling, general
and administrative expenses and (c) adjustments to the accounting for
international long distance traffic (see item (c) in the following paragraph and
Note 4).
The accompanying financial statements are restated to reflect certain
adjustments to the consolidated financial statements included in the Company's
report on Form 10-Q for the quarter ended March 31, 1994 originally filed on May
23, 1994. The adjustments include (a) $5.0 million decrease to other income
relating to the sale of transponder capacity which was subsequently reversed,
(b) $1.0 million increase in cost of sales relating to purchase accounting
adjustments, (c) $8.3 million decrease to transmission services revenues and
$6.3 million decrease to cost of sales related to the accounting for
international long distance traffic (see Note 4), and (d) approximately $24.5
million increase to transmission services revenue and cost of sales related to
the reclassification of payments to foreign telephone companies (see
Transmission Services Revenues below). The effects of these adjustments on the
accompanying consolidated income statement as compared to the consolidated
income statement included in the Company's original Form 10-Q are as follows:
<TABLE>
<CAPTION>
INCREASE
ORIGINAL (DECREASE) FORM 10-Q/A (NO.
FORM 10-Q ADJUSTMENTS 2)
---------------- --------------- ----------------
<S> <C> <C> <C>
Transmission services revenue................................ $ 104,381,000 $ (8,300,000) $ 120,563,000
24,482,000
Systems integration and other income......................... 8,927,000 (5,000,000) 3,927,000
Total revenues............................................... 113,308,000 11,182,000 124,490,000
Cost of Sales................................................ 72,076,000 (6,300,000) 91,258,000
1,000,000
24,482,000
Total costs and expenses..................................... 97,119,000 19,182,000 116,301,000
Operating income............................................. 16,189,000 (8,000,000) 8,189,000
Income before income taxes................................... 15,094,000 (8,000,000) 7,094,000
Provision for income taxes................................... 6,264,000 (3,320,000) 2,944,000
Net income available to common shareholders.................. 8,830,000 (4,680,000) 4,150,000
Earnings per share:
Primary and fully diluted.................................. .12 (.07) .05
</TABLE>
All common stock share amounts and earnings 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.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's classifications.
6
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- BASIS OF PRESENTATION (CONTINUED)
TRANSMISSION SERVICES REVENUES. 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. This
change was made to conform with industry reporting practices. All applicable
1993 financial information presented in the accompanying consolidated financial
statements has been restated to conform to the 1994 presentation.
NOTE 2 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Cash paid for:
Interest expense....................................... $1,938,000 $4,791,000
Income taxes........................................... $1,267,000 $ 619,000
Supplemental schedule of non-cash investing and financing
activities:
</TABLE>
In January 1993, the Company issued 4,095,000 shares of Common Stock in
exchange for 100% of issued and outstanding common stock of Niles Canyon Earth
Station, Inc. and a binding agreement to acquire all of the capital stock of
TRT. (See Note 3.)
NOTE 3 -- 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
Communications, Inc., a subsidiary of ICHI ("TRT"), 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 $1,800,000 in such fees in the first quarter of 1993.
7
<PAGE>
IDB COMMUNICATIONS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITION (CONTINUED)
The following unaudited proforma 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
MONTHS ENDED
MARCH 31, 1993
----------------
<S> <C>
Revenue..................................................................... $ 110,699,000
Net income before preferred stock dividend.................................. 4,889,000
Net income available to common shareholders................................. 4,511,000
Primary earnings per share.................................................. $ 0.07
Fully diluted earnings per share............................................ $ 0.07
</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 4 -- 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 the FCC's proportional share
policy, it generally must wait up to six months before it actually carries 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 a 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 the return traffic. The amount of cost deferral at
March 31, 1994 was $6,200,000.
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 Income Statement. 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 and systems integration services provided on the Company's
domestic and international communications network.
<TABLE>
<CAPTION>
PERCENTAGE OF
REVENUES FOR
THE THREE
MONTHS
ENDED MARCH 31,
---------------
1993 1994
----- -----
<S> <C> <C>
Total revenues.............................................. 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales............................................. 66.9 73.3
Selling, general and administrative....................... 11.2 14.4
Depreciation.............................................. 6.6 4.5
Amortization.............................................. 1.5 1.1
----- -----
Total cost and expenses..................................... 86.2 93.3
----- -----
Operating income............................................ 13.8 6.7
Interest, net............................................... 2.8 1.0
----- -----
Income before minority interest and income taxes............ 11.0 5.7
Minority interest........................................... (0.1) 0.1
----- -----
Income before income taxes.................................. 10.9 5.6
Provision for income taxes.................................. 4.4 2.4
----- -----
Income before preferred stock dividend...................... 6.5 3.2
Preferred stock dividend.................................... 0.6 --
----- -----
Net income available to common shareholders................. 5.9% 3.2%
----- -----
----- -----
</TABLE>
RESULTS OF OPERATIONS
Operating results for the first quarter of 1994 resulted in revenues of
$124,490,000 and net income before preferred stock dividend of $4,150,000 versus
revenues of $68,491,000 and net income before preferred stock dividend of
$4,444,000 for the same period in 1993.
REVENUES. Revenues for the three months ended March 31, 1994 increased by
$55,999,000 or 82% from the same period one year ago. The increase is
principally due to increases in international public switched long distance
telephone and private line services resulting from the acquisitions of TRT on
September 30, 1993 and to a lesser extent WorldCom Europe on December 31, 1993
(the "Acquisitions"). These services comprised 74% of revenues in the first
quarter 1994 versus 50% in the first quarter 1993. Broadcast services revenues
remained relatively flat and comprised 15% of revenues in the first quarter 1994
versus 27% in the same period 1993. IDB Mobile's communications services grew by
approximately $2,000,000 in the first quarter 1994 from the same period in 1993,
and comprise 8% of 1994 first quarter revenues versus 12% in 1993. In the first
quarter 1993 the Company earned fees of $1,800,000 from operational assistance
and other consulting services provided to TRT. Such fees ended with the
acquisition of TRT in September 1993.
COST OF SALES. Cost of sales increased by $45,433,000 or 99% in the first
quarter 1994 from the first quarter 1993 due to the higher level of revenues
provided by the Acquisitions. Cost of sales as a percentage of revenue increased
principally due to high margin management fees earned in the first quarter of
1993 which did not recur in 1994.
9
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $17,952,000 for the three months ended March 31, 1994
versus $7,680,000 for the three months ended March 31, 1993 primarily due to the
Acquisitions. Selling, general and administrative costs increased as a
percentage of revenue due to higher selling and marketing costs related to the
Company's efforts to further expand its international private line and long
distance telephone services and an increase to the allowance for doubtful
accounts receivable, including $2.9 million for an accounts receivable from a
customer that filed for protection under Chapter 11 of the U.S. Bankruptcy Code
subsequent to March 31, 1994.
DEPRECIATION. Depreciation expense increased $1,123,000 in the first
quarter 1994 from the first quarter 1993 principally due to the Acquisitions.
Depreciation expense as a percentage of revenues decreased to 4.5% in the first
quarter 1994 from 6.6% for the same period 1993 due to increased utilization of
the Company's network facilities.
AMORTIZATION. Amortization expense increased by $370,000 in the first
quarter 1994 from the first quarter 1993 principally due to the Acquisitions.
STREAMLINING CHARGE. In the fourth quarter 1993 the Company recorded a
streamlining charge primarily for planned termination of certain Broadcast Audio
activities and employee terminations. In the first quarter 1994 the remaining
$982,000 of the 1993 streamlining charge accrual was applied to the loss on an
Audio customer contract and employee severance payments for terminated
employees.
INTEREST, NET. Interest expense net of interest income decreased $692,000
due to a lower effective borrowing rate (5% in 1994 versus 9% in 1993) and to
the Company's ability to invest excess cash in interest earning investments
(interest income increased by $1,145,000 in 1994) partially offset by higher
average outstanding debt ($195,500,000 in 1994 versus $111,400,000 in 1993).
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 and sales of shares of
its Common Stock and 5% Convertible Subordinated Notes due 2003 (the
"Subordinated Notes"). Prior to August 20, 1993, the Company borrowed funds
under a $25,000,000 revolving credit facility (the "Revolver"), issued
$50,000,000 of senior secured notes (the "Senior Notes") and $26,000,000
principal amount of 13% Senior Subordinated Notes due 1998 (the "1998 Notes").
On December 21, 1992, the Company also assumed a $15,000,000 loan payable by
WorldCom to TeleColumbus U.S.A., Inc (the "Assumed Loan"). Substantially all
outstanding borrowings of the Company were repaid and defeased by September
1993, using a portion of the proceeds of the public offering of $195,500,000 in
aggregate principal amount of Subordinated Notes in August 1993 and the public
offering of an aggregate of 4,724,997 shares of Common Stock in May 1993. The
Assumed Loan was repaid by the Company upon the consummation of the acquisition
of WorldCom Europe in December 1993.
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 will be 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.
10
<PAGE>
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 of Company under the Line of Credit
and cash collateralization of all letters of credit existing at that time. As of
March 31, 1994, there were no amounts outstanding under the Line of Credit. In
addition, the Company has ongoing discussions with several financial
institutions regarding credit facilities, committed and uncommitted.
CAPITAL EXPENDITURES, INVESTMENTS AND COMMITMENTS.
During the first quarter of 1994, the Company's capital expenditures,
including improvements, replacements and additions of communications equipment
and facilities, were approximately $14,781,000. The Company historically has
invested significantly to build its communications network.
Net cash used by operating activities in the first quarter of 1994 was
$15,840,000 compared to net cash provided by operating activities of $5,463,000
in the first quarter of 1993 principally due to increases in accounts receivable
associated with the Acquisitions and to decreases in current liabilities. Cash
provided by financing activities in the first quarter of 1994 was $24,090,000 as
compared to $5,299,000 for the same period in 1993 principally due to the
issuance of common stock. Net cash used in investing activities of $21,654,000
in the first quarter of 1994 increased from the $11,412,000 in the first quarter
of 1993 principally due to property and equipment expenditures.
In May 1990, the Company entered into an agreement with Comsat, Inc.
("Comsat") under which it may obtain satellite transponder capacity for maritime
and aeronautical services offered or to be offered by IDB Mobile, at long-term
fixed rates over a five-year period that commenced in September 1991. As of
March 31, 1994, the Company's minimum remaining total commitment under the
agreement was to purchase 7.1 million minutes of transponder capacity
(representing aggregate costs of approximately $18,200,000, calculated at the
rate set forth in the agreement, which the Company would pay in 1996 to satisfy
any remaining volume commitment under the agreement that the Company did not
purchase by that time). Based on current and projected usage, the Company
believes that it will meet the minimum purchase commitment under the agreement.
If the Company were to materially breach the agreement (including provisions
relating to interference with the operation of the satellites), the Company
would not be entitled to the rates set forth in the agreement, but would be
required, from the date of such material breach, to pay higher rates for
satellite transponder capacity for maritime and aeronautical services.
The Company's capital commitments, as of May 10, 1994, consisted primarily
of outstanding purchase orders (some of which are cancelable at the Company's
option) to acquire approximately $33,000,000 of equipment, including long term
commitments on undersea fiber optic cables of $18,000,000, which will be
financed by cash from operations and bank borrowings. It is anticipated that the
Company's 1994 expenditures will exceed that amount. The Company expects that
cash flow from operations, its current holdings of cash and marketable
securities and its borrowing capabilities under its current credit facility will
satisfy its projected working capital and capital expenditure requirements
through fiscal 1994. The Company may seek additional debt or equity financing
from time to time to supplement cash generated from operations and finance
future growth opportunities.
11
<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 21, 1994.
IDB COMMUNICATIONS GROUP, INC.
By: /s/ RUDY WANN
-----------------------------------
RUDY WANN
VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
12
