10-Q/A 1 0001.txt FORM 10-Q AMENDMENT #1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q/A [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2000 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-27898 ---------------- IDT CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 22-3415036 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
520 Broad Street, Newark, New Jersey 07102 (Address of Principal Executive Office) (Zip Code) (201) 928-1000 (Registrant's Telephone Number, Including Area Code) 190 Main Street, Hackensack, New Jersey 07601 (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report) ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Common Stock, $.01 par value 24,231,999 shares as of March 15, 2000 Class A Common Stock, $.01 par value 10,019,692 shares as of March 15, 2000 (Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- IDT CORPORATION TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited)................................. 3 Condensed Consolidated Balance Sheets as of January 31, 2000 and July 31, 1999................................................... 3 Condensed Consolidated Statements of Income for the six months and three months ended January 31, 2000 and 1999 ............... 4 Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2000 and 1999.......................... 5 Notes to Condensed Consolidated Financial Statements............. 6 Management's Discussion and Analysis of Financial Condition and Item 2. Results of Operations........................................... 11 PART II. OTHER INFORMATION................................................ 20 Item 1. Legal Proceedings................................................ 20 Item 2. Changes in Securities............................................ 20 Item 3. Defaults Upon Senior Securities.................................. 20 Item 4. Submission of Matters to a Vote of Security Holders.............. 20 Item 5. Other Information................................................ 20 Item 6. Exhibits and Reports on Form 8-K................................. 21 SIGNATURES........................... ........................... 23
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) IDT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (RESTATED)
January 31, 2000 July 31, 1999 ---------------- ------------- (Unaudited) (Note 1) ASSETS ------ Current assets: Cash and cash equivalents.................... $235,614,129 $ 52,903,479 Marketable securities........................ 80,887,825 77,869,655 Accounts receivable, net..................... 151,107,301 106,146,127 Notes receivable--current portion............ -- 18,967,967 Other current assets......................... 66,071,400 36,311,052 ------------ ------------ Total current assets........................ 533,680,655 292,198,280 Property, plant and equipment, at cost, net.... 158,098,605 114,122,923 Trademark, net................................. 4,604,475 4,791,667 Notes receivable--long-term portion............ 3,291,491 2,187,071 Intangibles.................................... 111,324,134 117,366,124 Deferred tax assets, net....................... -- 3,358,500 Other assets................................... 40,914,047 25,846,814 ------------ ------------ Total assets................................ $851,913,407 $559,871,379 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Trade accounts payable....................... $ 88,826,580 $ 79,475,136 Accrued expenses............................. 6,972,841 5,354,710 Interest payable............................. 15,240 1,564,741 Deferred revenue............................. 19,029,647 13,209,663 Notes payable--current portion............... 3,024,109 4,752,780 Capital lease obligations--current portion... 8,996,016 6,029,273 Other current liabilities.................... 53,103,820 2,397,234 ------------ ------------ Total current liabilities................... 179,968,253 112,783,537 Deferred tax liabilities, net................ 47,893,758 -- Notes payable--long-term portion............. 4,128,394 112,973,330 Capital lease obligation--long-term portion.. 33,992,152 15,742,218 ------------ ------------ Total liabilities........................... 265,982,557 241,499,085 Minority interests............................. 172,297,671 42,043,131 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; authorized shares--10,000,000; no shares issued........ -- -- Common stock, $.01 par value; authorized shares--100,000,000; 24,231,999 and 23,982,854 shares issued and outstanding at January 31, 2000 and July 31, 1999, respectively................................ 242,320 239,829 Class A stock, $.01 par value; authorized shares--35,000,000; 10,019,692 and 10,029,758 shares issued and outstanding at January 31, 2000 and July 31, 1999, respectively................................ 100,197 100,298 Loans to stockholders........................ (251,207) (251,207) Additional paid-in capital................... 320,587,629 317,362,508 Accumulated earnings (deficit)............... 92,954,240 (41,122,265) ------------ ------------ Total stockholders' equity.................. 413,633,179 276,329,163 ------------ ------------ Total liabilities and stockholders' equity.. $851,913,407 $559,871,379 ============ ============
See notes to condensed consolidated financial statements 3 IDT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (RESTATED) (Unaudited)
Six Months Ended January Three Months Ended 31, January 31, -------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenue................. $558,940,131 $294,018,907 $275,519,174 $160,741,076 Costs and expenses: Direct cost of revenue.............. 450,983,160 227,665,779 220,784,545 126,591,672 Selling, general and administrative....... 105,337,521 40,806,085 56,720,025 23,750,521 Depreciation and amortization......... 20,375,185 16,787,670 10,448,710 8,822,195 ------------ ------------ ------------ ------------ Total costs and expenses........... 576,695,866 285,259,534 287,953,280 159,164,388 ------------ ------------ ------------ ------------ Income (loss) from operations............. (17,755,735) 8,760,373 (12,434,106) 1,576,688 Interest, net........... 817,997 143,501 1,228,498 (62,154) Other income, net....... 247,460,060 -- 181,887,763 -- ------------ ------------ ------------ ------------ Income before income taxes, minority interests and extraordinary item..... 230,522,322 8,903,874 170,682,155 1,514,534 Provision for income taxes.................. 101,582,271 3,120,780 74,876,771 573,997 Minority interests...... (8,112,647) 2,185,159 (5,516,068) 561,747 ------------ ------------ ------------ ------------ Income before extraordinary item..... 137,052,698 3,597,935 101,321,452 378,790 Extraordinary loss on retirement of debt, net of income taxes........ 2,975,846 -- 2,975,846 -- ------------ ------------ ------------ ------------ Net income.............. $134,076,852 $ 3,597,935 $ 98,345,606 $ 378,790 ============ ============ ============ ============ Income per share: Income before extraordinary item: Basic................. $ 4.02 $ 0.11 $ 2.97 $ 0.01 Diluted............... $ 3.76 $ 0.10 $ 2.78 $ 0.01 Extraordinary loss on retirement of debt, net of income taxes: Basic................. $ (0.09) $ -- $ (0.09) $ -- Diluted............... $ (0.08) $ -- $ (0.08) $ -- Net income: Basic................. $ 3.93 $ 0.11 $ 2.88 $ 0.01 ============ ============ ============ ============ Diluted............... $ 3.68 $ 0.10 $ 2.70 $ 0.01 ============ ============ ============ ============ Weighted average number of shares used in calculation of earnings per share--basic....... 34,115,950 33,265,965 34,132,166 33,332,371 ============ ============ ============ ============ Weighted average number of shares used in calculation of earnings per share--diluted..... 36,421,864 35,476,587 36,438,725 35,343,627 ============ ============ ============ ============
See notes to condensed consolidated financial statements 4 IDT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) (Unaudited)
Six Months Ended January 31, -------------------------- 2000 1999 ------------- ----------- Net cash provided by (used in) operating activities........................................ $ (41,097,096) $ 4,595,693 Investing activities: Purchases of property, plant and equipment....... (34,629,635) (22,240,140) Net collection (issuance) of notes receivable.... 17,863,547 (11,253,405) Net proceeds from sale of Net2Phone common stock........................................... 115,434,000 -- Purchases of investments, net.................... (27,295,587) -- Net purchases of marketable securities........... (3,018,170) (18,603,200) ------------- ----------- Net cash provided by (used in) investing activities........................................ 68,354,155 (52,096,745) Financing activities: Proceeds from offerings of common stock by Net2Phone....................................... 263,076,222 -- Proceeds from exercise of stock options for Net2Phone....................................... 4,296,810 -- Proceeds from exercise of stock options.......... 1,939,528 796,710 Proceeds from exercise of warrants............... -- 738,492 Repayment of borrowings.......................... (110,573,607) (899,735) Repayment of capital lease obligations........... (1,712,012) (2,491,877) Distributions to minority shareholder............ (1,573,350) (4,931,359) ------------- ----------- Net cash provided by (used in) financing activities........................................ 155,453,591 (6,787,769) ------------- ----------- Net increase (decrease) in cash and cash equivalents....................................... 182,710,650 (54,288,821) Cash and cash equivalents, beginning of period..... 52,903,479 115,283,519 ------------- ----------- Cash and cash equivalents, end of period........... $ 235,614,129 $60,994,698 ============= =========== Supplemental disclosures of cash flow information: Interest paid.................................... $ 7,725,774 $ 5,426,422 Income taxes paid................................ $ 1,050,000 $ --
See notes to condensed consolidated financial statements 5 IDT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1--Basis of Presentation The accompanying unaudited condensed consolidated financial statements of IDT Corporation and subsidiaries (collectively "the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended January 31, 2000 are not necessarily indicative of the results that may be expected for the year ending July 31, 2000. The balance sheet at July 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K as amended for the year ended July 31, 1999, as filed with the Securities and Exchange Commission. The Company has restated its financial statements for the three and six month periods ended January 31, 1999 and 2000. The restatement resulted from adjusting i) the timing of a gain recognized on the sale of stock by Net2Phone, Inc., a majority owned subsidiary, and ii) the allocation of the purchase price relating to the Company's acquisition of Interexchange, Inc. The aggregate effect of the aforementioned adjustments on the Company's financial statements for the three months ended January 31, 1999 and January 31, 2000 is as follows:
Three months ended January 31, 1999 -------------------------------------------------- Previously filed Restated Increase/(Decrease) ---------------- ------------ ------------------- Depreciation and amortization.............. $ 6,295,720 $ 8,822,195 $ 2,526,475 Income from operations..... 4,103,163 1,576,688 (2,526,475) Provision for income taxes..................... 1,426,497 573,997 (852,500) Net income................. 2,052,765 378,790 (1,673,975) Basic net income per share..................... 0.06 0.01 (0.05) Diluted net income per share..................... 0.06 0.01 (0.05) Total assets............... 450,591,001 491,287,076 40,696,075 Stockholders equity........ 247,730,515 288,426,590 40,696,075 Three months ended January 31, 2000 -------------------------------------------------- Previously filed Restated Increase/(Decrease) ---------------- ------------ ------------------- Depreciation and amortization.............. $ 7,922,235 $ 10,448,710 $ 2,526,475 Loss from operations....... (9,907,631) (12,434,106) (2,526,475) Provision for income taxes..................... 75,729,271 74,876,771 (852,500) Net income................. 100,019,581 98,345,606 (1,673,975) Basic net loss per share... 2.93 2.88 (0.05) Diluted net loss per share..................... 2.75 2.70 (0.05) Total assets............... 814,480,732 851,913,407 37,432,675 Stockholders equity........ 381,091,004 413,633,179 32,542,175
6 IDT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) The aggregate effect of the aforementioned adjustments on the Company's financial statements for the six months ended January 31, 1999 and January 31, 2000 is as follows:
Six months ended January 31, 1999 ------------------------------------------------- Previously filed Restated Increase/(Decrease) ---------------- ----------- ------------------- Depreciation and amortization............... $11,735,189 $16,787,670 $5,052,481 Income from operations...... 13,811,854 8,760,373 (5,051,481) Provision for income taxes.. 4,825,700 3,120,780 (1,704,920) Net income.................. 6,944,416 3,597,935 (3,346,481) Basic net income per share.. 0.21 0.11 (0.10) Diluted net income per share...................... 0.20 0.10 (0.09) Six months ended January 31, 2000 ------------------------------------------------- Previously filed Restated Increase/(Decrease) ---------------- ----------- ------------------- Depreciation and amortization............... $15,322,359 $20,375,185 $5,052,826 Loss from operations........ (12,702,909) (17,755,735) (5,052,826) Other....................... 225,848,878 247,460,060 21,611,182 Provision for income taxes.. 94,642,069 101,582,271 6,940,202 Net income.................. 124,458,158 134,076,852 9,618,694 Basic net income per share.. 3.65 3.93 0.28 Diluted net income per share...................... 3.42 3.68 0.26
Note 2--Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in fiscal years beginning after June 15, 2000. The Company believes that the adoption of this standard will not have a material effect on the Company's consolidated results of operations or financial position due to their limited use of derivative instruments. 7 IDT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 3--Business Segment Information Operating results and other financial data presented for the principal business segments of the Company are as follows ($ in thousands):
Wholesale Retail Telecommunications Telecommunications Internet Internet Services Services Services Telephony Ventures Total ------------------ ------------------ -------- --------- -------- -------- Three months ended January 31, 2000 Total segment revenue... $132,348 $136,028 $ 3,348 $ 15,509 $ -- $287,233 Less: revenues between segments............... 4,687 3,137 300 3,590 -- 11,714 -------- -------- ------- -------- ------- -------- Total unaffiliated revenue................ 127,661 132,891 3,048 11,919 -- 275,519 Income (loss) from operations............. 4,146 3,685 (3,585) (13,699) (2,983) (12,434) ======== ======== ======= ======== ======= ======== Three months ended January 31, 1999 Total segment revenue... 52,673 94,396 4,580 7,466 -- 159,115 Less: revenues between segments............... (2,200) -- 300 274 -- (1,626) -------- -------- ------- -------- ------- -------- Total unaffiliated revenue................ 54,873 94,396 4,280 7,192 -- 160,741 Income (loss) from operations............. 1,676 4,015 (2,314) (1,800) -- 1,576 ======== ======== ======= ======== ======= ======== Six months ended January 31, 2000 Total segment revenue... $273,769 $266,728 $ 6,848 $ 28,609 $ -- $575,954 Less: revenues between segments............... 8,287 3,137 300 5,290 -- 17,014 -------- -------- ------- -------- ------- -------- Total unaffiliated revenue................ 265,482 263,591 6,548 23,319 -- 558,940 Income (loss) from operations............. 8,035 7,376 (7,185) (22,999) (2,983) (17,756) ======== ======== ======= ======== ======= ======== Six months ended January 31, 1999 Total segment revenue... $103,251 $169,696 $ 8,880 $ 13,166 $ -- $294,993 Less: revenues between segments............... -- -- 300 674 -- 974 -------- -------- ------- -------- ------- -------- Total unaffiliated revenue................ 103,251 169,696 8,580 12,492 -- 294,019 Income (loss) from operations............. 7,770 8,804 (4,114) (3,700) -- 8,760 ======== ======== ======= ======== ======= ========
Note 4--Property, Plant and Equipment Property, plant and equipment consists of the following ($ in thousands):
January 31, July 31, 2000 1999 ----------- -------- Equipment.............................................. $166,197 $117,547 Computer software...................................... 24,655 21,515 Leasehold improvements................................. 7,239 3,651 Furniture and fixtures................................. 4,613 2,447 Land and building...................................... 6,327 6,312 -------- -------- 209,031 151,472 Less: Accumulated depreciation and amortization........ (50,932) (37,349) -------- -------- $158,099 $114,123 ======== ========
Note 5--Gain on Sale of Stock by Subsidiary On August 3, 1999, Net2Phone, Inc., a majority owned subsidiary, completed an initial public offering of 6,210,000 shares of its common stock at a price of $15 per share, resulting in net proceeds of approximately $85.3 million. Upon 8 IDT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) completion of the initial public offering, 3,140,000 shares of Net2Phone Series A Preferred Stock were converted into 9,420,000 shares of Net2Phone Class A Stock. As a result of the initial public offering and concurrent conversion of Series A Stock to Class A Stock, IDT's ownership percentage in Net2Phone decreased from 90.0% to approximately 56.2%. This resulted in the Company recording a gain on the sale of stock by a subsidiary of approximately $65.6 million. Such gain is included in other income, net for the six-months ended January 31, 2000. Deferred taxes of $26.2 million have been provided on the gain. In December 1999 (second quarter of fiscal 2000), the Company recorded a $76.8 million pre-tax gain in connection with Net2Phone's secondary offering of 6.3 million shares of its common stock, at a price of $55.00 per share for net proceeds to Net2Phone of approximately $177.4 million. Deferred taxes of approximately $30.7 million have been provided for this gain. In addition, a $105.8 million pre-tax gain was recognized in December 1999 (second quarter of fiscal 2000) in connection with IDT's sale of 2,200,000 shares of common stock of Net2Phone in Net2Phone's secondary offering, at a price of $55.00 per share for net proceeds of approximately $115.4 million. IDT's ownership interest before and after this transaction and the secondary (which occurred at the same time) was 56.24% and 47.97%, respectively. Note 6--Legal Proceedings and Contingencies In January 1997, six former employees alleging employment discrimination commenced a suit in New Jersey Superior Court, Bergen County. Howard S. Jonas, the Chairman and Chief Executive Officer of the Company, has also been named as a defendant in the action. The action claims that the Company has made hiring and promotion decisions based upon the religious backgrounds of the relevant individuals, in violation of federal and state law. The complaint seeks compensatory and punitive damages in an unspecified amount and also seeks statutory multiples of damages. All of the claims arising under federal law were dismissed by the Court in New Jersey Superior Court, Bergen County, leaving the plaintiffs with only the remedies available under state law. Further, the Court granted the Company permission to file counterclaims against all plaintiffs for the alleged unlawful taking of business records. The Company filed such counterclaims in October 1998. Discovery is continuing and a trial date has not been scheduled. In October 1999, Union Telecard Alliance, LLC ("Union"), a subsidiary of the Company, commenced an action against DigiTEC 2000, Inc. ("DigiTEC") and TecNet, Inc. ("TecNet") in the Supreme Court of the State of New York, County of New York, alleging damages of approximately $725,000.00 based upon, among other things, non-payment for prepaid calling cards. DigiTEC and TecNet have answered the complaint, and DigiTEC has asserted a third party claim against the Company seeking damages of $2.5 million dollars based upon the Company's alleged breach of a settlement agreement between the Company and DigiTEC which had resolved a prior litigation between those parties. In February 2000, IDT Europe B.V.B.A., a subsidiary of the Company, filed a complaint against Tyco Group S.A.R.L. ("Tyco") and Tyco Submarine Systems, Ltd. ("TSSL") in the United States District Court in Newark, New Jersey, alleging breach of implied covenant of good faith and fair dealing and breach of contract for breaching a Memorandum of Understanding and Instruction to Proceed entered into on November 9, 1999. The Company is seeking to enjoin and restrain Tyco and TSSL from undertaking contrary business activity inconsistent with the Memorandum of Understanding and Instruction to Proceed and is seeking compensatory, consequential and punitive damages. The court has set March 24, 2000 as the date in which both Tyco and TSSL must file an answer. 9 IDT CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In February 2000, Multi-Tech Systems, Inc. ("Multi-Tech") filed suit against Net2Phone, Inc. ("Net2Phone"), a subsidiary of the Company, and other companies in the United States Federal District Court in Minneapolis, Minnesota. In its press release, Multi-Tech stated that "the defendant companies are infringing because they are providing the end users with the software necessary to simultaneously transmit voice and data on their computers in the form of making a phone call over the Internet." Net2Phone intends to defend the lawsuit vigorously. Net2Phone believes that the Multi-Tech claims are without merit. However, should a judge issue an injunction against Net2Phone requiring that Net2Phone cease distributing its software or providing its software-based services, such an injunction could have an adverse effect on Net2Phone's business. The Company is subject to other legal proceedings and claims, which have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurances in this regard, in the opinion of the Company's management, such proceedings, as well as the aforementioned actions, will not have a material adverse effect on results of operations or the financial condition of the Company. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the accompanying condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company contained in the Company's Annual Report on Form 10-K for the year ended July 31, 1999, as filed with the Securities and Exchange Commission. Overview The Company is a leading facilities-based multinational telecommunications carrier that provides its wholesale and retail customers with integrated and competitively priced international and domestic long distance telecommunications service, Internet access and, through its Net2Phone products and services, Internet telephony services. The Company delivers these services over a high-quality network consisting of 70 Company owned switches in the U.S. and Europe, owned and leased capacity on 23 undersea fiber optic cables and capacity on 7 dedicated satellite transponders. In addition, the Company obtains additional transmission capacity from other carriers. The Company delivers its international traffic worldwide pursuant to its agreements with U.S.-based carriers, foreign carriers, and 23 of the companies that are primarily responsible for providing telecommunications services in particular countries (many of which are commonly referred to as "PTTs"). In addition, the Company maintains a high speed network that carries Internet traffic in order to support both its Internet access services and Net2Phone's Internet telephony services. Six Months Ended January 31, 2000 Compared to Six Months Ended January 31, 1999 Results of Operations Revenue. Revenue increased 90.1%, from approximately $294.0 million for the six months ended January 31, 1999 to approximately $558.9 million for the six months ended January 31, 2000. Telecommunications revenues increased 93.8%, from approximately $272.9 million for the six months ended January 31, 1999 to approximately $529.1 million for the six months ended January 31, 2000. Internet access revenues decreased 23.7%, from approximately $8.6 million for the six months ended January 31, 1999 to approximately $6.5 million for the six months ended January 31, 2000. Internet telephony revenues increased 86.7%, from approximately $12.5 million for the six months ended January 31, 1999 to approximately $23.3 million for the six months ended January 31, 2000. Telecommunications revenue increased primarily as a result of an 84.0% increase in minutes of use from approximately 1.11 billion for the six months ended January 31, 1999 to approximately 2.04 billion for the six months ended January 31, 2000. The increase in minutes was primarily due to the addition of wholesale carrier service clients, increased usage by existing clients, and increased marketing of the Company's prepaid calling cards. The addition of wholesale carrier services clients, increased use by existing clients and the inclusion of $20 million in revenue for the quarter ended October 31, 1999 related to a one-time tariff opportunity resulted in an increase in wholesale telecommunications revenues of 157.1%, from approximately $103.3 million for the six months ended January 31, 1999 to approximately $265.5 million for the six months ended January 31, 2000. As a percentage of telecommunications revenue, wholesale telecommunications revenue increased from approximately 37.8% to approximately 50.2% period to period. Revenue from retail telecommunications services increased 55.3%, from approximately $169.7 million for the six months ended January 31, 1999 to approximately $263.6 million for the six months ended January 31, 2000 as a result of increased marketing efforts for the Company's prepaid calling cards. Prepaid calling card sales as a percentage of retail telecommunication services revenue increased from 90.4% for the six months ended January 31, 1999 to 94.2% for the six months ended January 31, 2000. As a percentage of overall telecommunications revenue, retail telecommunications revenue decreased from approximately 62.2% to approximately 49.8% period to period. 11 As a percentage of total revenue, Internet access revenue decreased from approximately 2.9% for the six months ended January 31, 1999 to approximately 1.2% for the six months ended January 31, 2000. This was due primarily to decreased revenue caused by the contribution of the majority of the Company's dial-up subscribers to the joint venture formed with Terra Networks, S.A. during the quarter ended October 31, 1999 as well as the substantial increase in telecommunications revenue during the same period. Internet telephony revenue as a percentage of total revenue was 4.2% for the six months ended January 31, 2000, representing a slight decrease from 4.3% for the six months ended January 31, 1999. The increase in Internet telephony revenue, in dollar terms, was primarily due to an increase in billed minutes of use resulting from increased marketing of the Company's Internet telephony products and services. Direct Cost of Revenue. The Company's direct cost of revenue increased by 98.1%, from approximately $227.7 million for the six months ended January 31, 1999 to approximately $451.0 million for the six months ended January 31, 2000. As a percentage of total revenue, these costs increased from 77.4% for the six months ended January 31, 1999 to 80.7% for the six months ended January 31, 2000. The dollar increase is due primarily to increases in underlying carrier and connectivity costs, as the Company's telecommunications minutes of use, and associated revenues, grew substantially. As a percentage of total revenue, the increase in direct costs reflects lower gross margins associated with wholesale telecommunications services as compared to retail telecommunications services as well as the lower gross margins related to telecommunications revenue as compared with Internet access services. Selling, General and Administrative. Selling, general and administrative costs increased 158.1%, from approximately $40.8 million for the six months ended January 31, 1999 to approximately $105.3 million for the six months ended January 31, 2000. As a percentage of total revenue, these costs increased from 13.9% for the six months ended January 31, 1999 to 18.9% for the six months ended January 31, 2000. This increase is due primarily to increased international debit card distribution costs, increased sales and marketing efforts for retail services, including prepaid calling cards and domestic and international long distance and for Net2Phone, as well as increased salaries, facilities costs and professional fees related to the expansion of the Company's infrastructure to facilitate its rapid sales growth. Also included in selling, general and administrative costs for the six months ended January 31, 2000 is approximately $3.0 million in costs associated with the Company's IDT Ventures division, which has several innovative telecommunications and Internet related businesses under various stages of development, and approximately $5.2 million of non-cash compensation as a result of option grants made by our Net2Phone subsidiary. Depreciation and Amortization. Depreciation and amortization increased 22%, from approximately $16.8 million for the six months ended January 31, 1999 to approximately $20.4 million for the six months ended January 31, 2000. As a percentage of revenue, these costs decreased from 5.7% for the six months ended January 31, 1999 to 3.7% for the six months ended January 31, 2000. These costs increased, in dollar terms, primarily as a result of amortization of goodwill and other intangible assets that resulted from the Company's acquisition of InterExchange Inc. in the fourth quarter of Fiscal 1998 and the Company's higher fixed asset base during the six months ended January 31, 2000 as compared with the six months ended January 31, 1999, reflecting the Company's efforts to expand its telecommunications network infrastructure and other facilities. The Company anticipates that depreciation and amortization costs will continue to increase as the Company continues to add to its asset base, allowing it to implement its growth strategy. Income from Operations. The Company recorded a loss from operations of approximately $17.8 million for the six months ended January 31, 2000, compared to income from operations of approximately $8.8 million for the six months ended January 31, 1999. Income from operations for the Company's telecommunications business (after the effect of minority interests) declined to approximately $5.7 million for the six months ended January 31, 2000 from approximately $14.3 million for the six months ended January 31, 1999. As a percentage of telecommunication revenue, income from operations for the telecommunications business decreased to 2.8% for the six months ended January 31, 2000 from 5.9% for the six months ended January 31, 1999 due primarily 12 to decreased margins in the carrier wholesale and retail telecommunications businesses, and an increase in sales and marketing costs for retail telecommunications services. Loss from operations for the Company's Internet access business increased to approximately $7.2 million for the six months ended January 31, 2000 from approximately $4.1 million for the six months ended January 31, 1999. The increased loss is primarily due to the decrease in revenue caused by the contribution of the majority of the Company's dial up subscribers to the joint venture formed with Terra Networks, S.A. during the quarter ended October 31, 1999, lower gross margins and an increase in marketing expenses. Loss from operations of the Net2Phone subsidiary increased to approximately $23.4 million for the six months ended January 31, 2000, compared to a loss of approximately $3.7 million for the six months ended January 31, 1999. This increase is due primarily to a substantial increase in selling, general and administrative expenses incurred as Net2Phone expanded distribution relationships, corporate infrastructure and human resources as well as the non- cash compensation charge of $5.2 million described above. Other income. Included in other income for the six months ended January 31, 2000 is $142.3 million in gains recognized by the Company under Staff Accounting Bulletin No. 51 in conjunction with Net2Phone's sale of shares in its Initial Public Offering and concurrent conversion of Net2Phone's series A stock to class A stock in August 1999 and its secondary offering in December 1999, and a realized gain of $105.8 million on the Company's sale of 2.2 million Net2Phone shares as part of Net2Phone's Secondary Offering. Income Taxes. The Company recorded income tax expense of approximately $101.6 million for the six months ended January 31, 2000, compared to approximately $3.1 million for the six months ended January 31, 1999. Income tax benefit of approximately $1.3 million for the six months ended January 31, 2000, and approximately $0.5 million for the six months ended January 31, 1999 related to the tax deduction upon the exercise of stock options was recorded directly into additional paid-in capital. Three Months Ended January 31, 2000 Compared to Three Months Ended January 31, 1999 Results of Operations Revenue. Revenue increased 71.4%, from approximately $160.7 million for the three months ended January 31, 1999 to approximately $275.5 million for the three months ended January 31, 2000. Telecommunications revenue increased 74.6%, from approximately $149.2 million for the three months ended January 31, 1999 to approximately $260.6 million for the three months ended January 31, 2000. Internet access revenue decreased 30.4%, from approximately $4.3 million for the three months ended January 31, 1999 to approximately $3.0 million for the three months ended January 31, 2000. Internet telephony revenue increased 66.0%, from approximately $7.2 million for the three months ended January 31, 1999 to approximately $11.9 million for the three months ended January 31, 2000. Telecommunications revenue increased primarily as a result of a 57.8% increase in minutes of use from approximately 638.2 million for the three months ended January 31, 1999 to approximately 1.01 billion for the three months ended January 31, 2000. The increase in minutes was primarily due to the addition of wholesale carrier service clients, increased usage by existing clients, and increased marketing of the Company's prepaid calling cards. The addition of wholesale carrier services clients and increased use by existing clients resulted in an increase in wholesale telecommunications revenues of 133.0%, from approximately $54.8 million for the three months ended January 31, 1999 to approximately $127.7 million for the three months ended January 31, 2000. As a percentage of telecommunications revenue, wholesale telecommunications revenue increased from approximately 36.7% to approximately 49.0% period to period. Revenue from retail telecommunications services increased 40.7%, from approximately $94.4 million for the three months ended January 31, 1999 to approximately $132.9 million for the three months ended January 31, 2000 as a result of increased marketing efforts for the Company's prepaid calling cards. Prepaid calling card sales as a percentage of retail telecommunication services revenue increased from 91.2% for the three months ended January 31, 1999 to 13 95.4% for the three months ended January 31, 2000. As a percentage of overall telecommunications revenue, retail telecommunications revenue decreased from approximately 63.3% for the three months ended January 31, 1999 to approximately 51.0% for the three months ended January 31, 2000. As a percentage of total revenue, Internet access revenue decreased from approximately 2.7% for the three months ended January 31, 1999 to approximately 1.1% for the three months ended January 31, 2000. This was due primarily to decreased revenue caused by the contribution of the majority of the Company's dial-up subscribers to the joint venture formed with Terra Networks, S.A. during the quarter ended October 31, 1999 as well as the substantial increase in telecommunications revenues during the same period. Internet telephony revenue as a percentage of total revenue amounted to 4.3% for the three months ended January 31, 2000, a slight decrease from 4.5% for the three months ended January 31, 1999. The increase in Internet telephony revenue, in dollar terms, was primarily due to an increase in billed minutes of use resulting from increased marketing of the Company's Internet telephony products and services. Direct Cost of Revenue. The Company's direct cost of revenue increased by 74.4% from approximately $126.6 million for the three months ended January 31, 1999 to approximately $220.8 million for the three months ended January 31, 2000. As a percentage of total revenue, these costs increased from 78.8% for the three months ended January 31, 1999 to 80.1% for the three months ended January 31, 2000. The dollar increase is due primarily to increases in underlying carrier and connectivity costs, as the Company's telecommunications minutes of use, and associated revenues, grew substantially. As a percentage of total revenue, the increase in direct costs reflects lower gross margins associated with wholesale telecommunications services as compared to retail telecommunications services as well as the lower gross margins related to telecommunications revenue as compared with Internet access services. Selling, General and Administrative. Selling, general and administrative costs increased 138.8%, from approximately $23.8 million for the three months ended January 31, 1999 to approximately $56.7 million for the three months ended January 31, 2000. As a percentage of total revenue, these costs increased from 14.8% for the three months ended January 31, 1999 to 20.6% for the three months ended January 31, 2000. This increase is due primarily to increased international debit card distribution costs, increased sales and marketing efforts for retail services, including prepaid calling cards and domestic and international long distance and for Net2Phone, as well as increased salaries, facilities costs and professional fees related to the expansion of the Company's infrastructure to facilitate its rapid sales growth. Also included in selling, general and administrative costs for the three months ended January 31, 2000 is approximately $3.0 million in costs associated with the Company's IDT Ventures division, which has several innovative telecommunications and internet related businesses under various stages of development, and approximately $2.3 million of non-cash compensation as a result of option grants made by our Net2Phone subsidiary. Depreciation and Amortization. Depreciation and amortization increased 18.4%, from approximately $8.8 million for the three months ended January 31, 1999 to approximately $10.5 million for the three months ended January 31, 2000. As a percentage of revenue, these costs decreased from 5.5% for the three months ended January 31, 1999 to 3.8% for the three months ended January 31, 2000. These costs increased, in dollar terms, primarily as a result of amortization of goodwill and other intangible assets that resulted from the Company's acquisition of InterExchange Inc. in the fourth quarter of Fiscal 1998 and the Company's higher fixed asset base during the three months ended January 31, 2000 as compared with the three months ended January 31, 1999, reflecting the Company's efforts to expand its telecommunications network infrastructure and other facilities. The Company anticipates that depreciation and amortization costs will continue to increase as the Company continues to add to its asset base, allowing it to implement its growth strategy. Income from Operations. The Company recorded a loss from operations of approximately $12.4 million for the three months ended January 31, 2000, compared to income from operations of approximately $1.6 million for the three months ended January 31, 1999. Income from operations for the Company's telecommunications business (after the effect of minority interests) increased from approximately $5.2 million for the three months ended January 31, 1999 to approximately $6.8 million for the three months ended 14 January 31, 2000. As a percentage of telecommunication revenue, income from operations for the telecommunications business decreased to 2.2% for the three months ended January 31, 2000 from 5.3% for the three months ended January 31, 1999, due primarily to decreased margins in the carrier wholesale business, and an increase in sales and marketing costs for retail telecommunications services. Loss from operations for the Company's Internet access business increased to approximately $3.6 million for the three months ended January 31, 2000 from approximately $2.4 million for the three months ended January 31, 1999. The increased loss is primarily due to the decrease in revenue caused by the contribution of the majority of the Company's dial up subscribers to the joint venture formed with Terra Networks, S.A. during the quarter ended October 31, 1999 coupled with lower gross margins. Loss from operations of the Net2Phone subsidiary increased to approximately $14.1 million for the three months ended January 31, 2000, compared to a loss of approximately $1.8 million for the three months ended January 31, 1999. This increase is due primarily to a substantial increase in selling, general and administrative expenses incurred as Net2Phone expanded distribution relationships, corporate infrastructure and human resources as well as the non- cash compensation charge of $2.3 million described above. Other income. Included in other income for the three months ended January 31, 2000 is $76.8 million in gains recognized by the Company under Staff Accounting Bulletin No. 51 in conjunction with Net2Phone's sale of shares in its Secondary Offering in December 1999, and a realized gain of $105.8 million on the Company's sale of 2.2 million Net2Phone shares as part of Net2Phone's Secondary Offering. Income Taxes. The Company recorded income tax expense of approximately $74.9 million for the three months ended January 31, 2000, compared to approximately $0.6 million for the three months ended January 31, 1999. Income tax benefit of approximately $0.5 million for the three months ended January 31, 2000, and approximately $0.2 million for the three months ended January 31, 1999 related to the tax deduction upon the exercise of stock options was recorded directly into additional paid-in capital. Extraordinary Item. The Company recorded an after-tax extraordinary loss of approximately $3.0 million related to the extinguishment of debt during the three months ended January 31, 2000. Liquidity and Capital Resources General Historically, the Company has satisfied its cash requirements through a combination of cash flow from operating activities, sales of equity and debt securities and borrowings from third parties. Additionally, the Company, including Net2Phone, received approximately $6.2 million upon the exercise of stock options in the six months ended January 31, 2000. In May 1999, the Company entered into a credit agreement with a syndicate of lenders whereby these institutions committed to provide a $160 million credit facility that included term loans in an aggregate amount of up to $135 million and revolving loans in an amount of up to $25 million and an additional uncommitted amount of up to $100 million. The Company used the proceeds from the initial borrowings under the credit facility of $108.1 million to purchase more than 99% of its outstanding 8.75% Senior Notes due 2006, together with accrued and unpaid interest, in connection with its tender offer for these securities. During the quarter ended January 31, 2000, the Company paid off the outstanding indebtedness under the facility of $108.1 million, plus fees and accrued and unpaid interest. As of January 31, 2000, the Company had cash, cash equivalents and marketable securities of approximately $316.5 million and working capital of approximately $353.7 million. The Company generated negative cash flow from operating activities of approximately $41.1 million during the six months ended January 31, 2000, compared with cash flow from operating activities of approximately $4.6 million during the 15 six months ended January 31, 1999. The Company's cash flow from operations varies significantly from quarter to quarter, depending upon the timing of operating cash receipts and payments, especially accounts receivable and accounts payable. Accounts receivable, accounts payable and accrued expenses have increased from period to period as the Company's businesses have grown. The Company's capital expenditures were approximately $34.6 million for the six months ended January 31, 2000, compared to approximately $22.2 million for the six months ended January 31, 1999, as the Company expanded its international and domestic telecommunications network infrastructure. The Company financed a portion of its capital expenditures through capital leases and notes payable. The Company experiences intense competition in its telecommunications business. The long distance telecommunications industry has been characterized by declines in both per-minute revenues and per-minute costs. In the past, these factors have tended to generally offset each other. However, as per- minute pricing continues to erode, gross margins could come under increasing pressure. The Company's long term strategy involves terminating a larger proportion of minutes on the Company's own network, thereby lowering costs and preserving margins even in a weaker price environment. However, in the short term, the demand for usage might outpace the rate of deployment of additional network capacity. As such, there can be no assurance that the Company will be able to maintain its gross margins at the current level, in the face of lower per-minute revenues. IDT's European telecommunications operations continue to account for an increasing proportion of overall telecommunications revenue. Recognizing the significant opportunities offered by the rapidly evolving European telecommunications market, the Company intends to expand its network in Europe to further develop its operations in that region. Such expansion may initially have a negative impact on the Company's gross margins over the next two to three quarters. The Company will need to make significant capital expenditures in order to expand its network capacity. If the Company is unable to raise sufficient capital to meet its spending requirements, the Company's network expansion, and the associated margin improvement, would be delayed. Changes in Other Assets, Accounts Receivable, Allowance for Doubtful Accounts and Deferred Revenue Other current assets increased from $36 million at July 31, 1999 to $66 million at January 31, 2000, due primarily to increases in contract deposits and prepaid expenses at Net2Phone. The average age of the Company's accounts receivable, as measured by number of days sales outstanding has been increasing due to a significant increase in sales to more credit worthy customers. Due to the wide range of collection terms, future trends with respect to days sales outstanding are generally dependent upon the proportion of total sales made to carriers, who are often offered extended payment terms of up to 90 days, and prepaid calling distributors, who generally receive terms of up to 30 days. Therefore, the trends in days sales outstanding will depend, in large part, on the mix of (wholesale) carrier versus retail (debit card distributor) customers. In addition, as the Company is willing to extend longer payments terms to credit-worthy customers, an increase in customers belonging to the highest credit class, as a percentage to total customers, could also lead to an increase in days sales outstanding. However, as the foregoing is difficult to predict, it is not possible at this time to determine whether or not the recent trend in days sales outstanding will continue. The allowance for doubtful accounts as a percentage of accounts receivable decreased/increased, from 6.7% at July 31, 1999, to 6.1% at January 31, 2000. Deferred revenue as a percentage of total revenue varies from period to period dependent upon the mix and the timing of revenue. 16 Net2Phone Financings In May 1999, a group of strategic investors purchased from Net2Phone, in the aggregate, 3,140,000 shares of Net2Phone Series A Preferred Stock convertible into 9,420,000 shares of common stock and warrants to purchase up to 180,000 shares of Net2Phone common stock, for a net aggregate purchase price of $29.9 million. Additionally, Net2Phone issued a warrant to purchase 92,400 shares of its common stock to Hambrecht & Quist as part of its fee as placement agent with respect to this transaction. In August 1999, Net2Phone completed its Initial Public Offering of 6.2 million shares, receiving approximately $85.3 million in net proceeds. At that time, the Series A Preferred Stock was converted into Class A Common Stock. The Company recognized pre-tax gains of approximately $65.6 million as a result of these transactions. In December 1999, Net2Phone completed a Secondary Offering of 6.3 million shares, receiving approximately $177.9 million in net proceeds. As part of the Secondary Offering, the Company sold 2.2 million Net2Phone shares, yielding approximately $115.4 million in net proceeds. Subsequent to the sale of these shares, the Company used approximately $108.1 million of the proceeds to pay off the outstanding balance of its bank credit facility. In connection with Net2Phone's distribution and marketing agreement with ICQ, a subsidiary of America Online, Net2Phone issued to America Online a warrant to purchase up to 3% of Net2Phone's outstanding capital stock on a fully-diluted basis. This warrant will vest in 1% increments upon the achievement of each of three incremental thresholds of revenue generated under the agreement during the first four years that the warrant is outstanding. The exercise price under the terms of the warrant will be equal to the lesser of $12.00 per share or $450 million divided by the number of Net2Phone's fully- diluted shares on the initial exercise date. The warrants are accounted for in accordance with the provisions of EITF 96- 18, "Accounting for Equity Investments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling Goods or Services." Due to the uncertainty of reaching performance measures stipulated in the warrant agreement, the Company has not recorded any expense relating to the issuance of the warrant. Upon determination that the achievement of the revenue thresholds is probable, the Company will value the warrant and expense it over the remaining period until the performance criteria is met. The three revenue thresholds are $10 million, $50 million and $75 million and the term of the distribution and marketing agreement is four years. If the three incremental thresholds had been met on January 31, 2000, the Company would have expensed approximately $75.8 million. In November 1999, the warrant was amended to include the right to purchase an additional 0.5% of Net2Phone's outstanding capital stock on a fully-diluted basis at an exercise price of $60.46 per share upon the achievement of $100 million in revenue. Acquisitions of In-Process Research & Development The Company's purchase of InterExchange, Inc. in April 1998 involved the acquisition of two significant in-process research and development projects relating to switch technology. Neither one of these projects has been/has not been successfully completed at this time, and both projects have been/have not been terminated. Currently, the Company is/is not contemplating any additional acquisitions of in-process research and development. Other Sources and Uses of Resources The Company intends to, where appropriate, make strategic acquisitions to increase its telecommunications customer base. The Company may also make strategic acquisitions related to its Internet telephony business. From time to time, the Company evaluates potential acquisitions of companies, technologies, products and customer accounts that complement its businesses. 17 The Company believes that, based upon its present business plan, the Company's existing cash resources, expected cash flow from operating activities and access to credit facilities will be sufficient to meet its currently anticipated working capital and capital expenditure requirements for at least the next twelve months. If the Company's growth exceeds current expectations or if the Company acquires the business or assets of another company, or if the Company's cash flow from operations after the end of such period is insufficient to meet its working capital and capital expenditure requirements, the Company will need to raise additional capital from equity or debt sources. There can be no assurance that the Company will be able to raise such capital on favorable terms or at all. If the Company is unable to obtain such additional capital, the Company may be required to reduce the scope of its anticipated expansion, which could have a material adverse effect on the Company's business, financial condition or results of operations. Year 2000 Prior to January 1, 2000, the Company reviewed and evaluated the possible effects of the Year 2000 issue upon its installed computer systems, network systems and software applications. The Year 2000 issue involved the fact that many computers and applications define dates by the last two digits of the year and "00" would possibly not be properly recognized by such programs as the year 2000. The Company dedicated the time and resources it deemed appropriate to address and correct potential Year 2000 problems. In response to the Year 2000 issue, the Company established a Year 2000 compliance committee (the "Committee") to eliminate any possible disruptions in services and operations due to the date change in the Year 2000. The Committee developed a plan to identify and repair any systems that may be affected by the Year 2000. The plan consisted of (1) identifying and inventorying all systems; (2) assessing and testing the systems for Year 2000 compliance; (3) modifying, upgrading or replacing any non compliant systems; and (4) testing the corrected systems to ensure compliance. The Committee implemented this plan throughout the company and, in addition to reviewing its own systems, the Company initiated inquiries and submitted requests to its third party vendors and service providers to obtain information regarding their compliance with the Year 2000. Furthermore, as a result of the Company's focus on the testing and remediation of its switching facilities, its network operations through which it provides communications services to its customers, were not disrupted by the Year 2000. Inventory, assessment, remediation and testing of software applications and hardware systems, including network systems, was substantially completed. The Company completed the modification, updating or replacement of any systems that to its knowledge were not Year 2000 compliant in November 1999. Testing of the corrected systems has been implemented and will continue on an ongoing basis through October 2000 due to the date October 10, 2000, being the first occurrence of a date requiring the use of eight digits to define the date. The Company is confident that its own network systems are Year 2000 compliant due to the nature and extent of the testing the Company conducted and continues to implement on such systems. European Currency Conversion In January 1999, a new currency called the "euro" was introduced in certain Economic and Monetary Union ("EMU") countries. The EMU countries adopted the euro as their common legal currency, and through January 1, 2002, both the existing national currency of the respective EMU country and the euro will be accepted as legal currency. Beginning in 2002, all EMU countries are expected to operate with the euro as their single currency. Uncertainty exists as to the effect the euro currency will have on the market for international telecommunications services. Additionally, all of the final rules and regulations have not yet been defined and finalized by the European Commission with regard to the euro currency. IDT's management is still evaluating the effect that the introduction of the euro will have on its business, but it does not anticipate, based on information currently available, that the euro will have a material adverse impact on the Company's operations and sales. 18 CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words "believes," "anticipates," "expects," and similar words and phrases. Such forward-looking statements include, among other things, the Company's plans to implement its growth strategy, improve its financial performance, expand its infrastructure, develop new products and services, expand its customer base and enter international markets, and the possible outcome of litigation relating to the Company. Such forward-looking statements also include the Company's expectations concerning factors affecting the markets for its products, such as changes in the U.S. and the international regulatory environment and the demand for long-distance telecommunications, Internet access and Internet telephony services. Actual results could differ from those projected in any forward- looking statements. The forward-looking statements are made as of the date of this Report, and the Company assumes no obligation to update the forward- looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth herein and the other information set forth from time to time in the Company's reports filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including the Company's Annual Report on Form 10-K, for the year ended July 31, 1999. 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Incorporated by reference from Part I, Item I, Financial Statements, Note 4 captioned "Legal Proceedings and Contingencies." ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders (the "Meeting") was held on December 9, 1999. The following matters were submitted to the Company's stockholders for their vote, and the results of the vote taken at the Meeting were as follows: 1. Four of the Company's Class I Directors were reelected for a term of three years. (a) James A. Courter: 50,668,704 votes for; 438,404 votes against; (b) J. Warren Blaker: 50,667,745 votes for; 438,363 votes against; (c) Marc E. Knoller: 50,668,745 votes for; 438,363 votes against; and (d) Elmo R. Zumwalt, Jr.: 50,668,704 votes for; 438,404 votes against.
2. An amendment to the Company's 1996 Stock Option and Incentive Plan, as amended and restated (the "Plan") were ratified. The amendment authorized an additional 1,500,000 shares of the Company's Common Stock for grants under the Plan. 48,753,835 votes for; 2,276,289 votes against; 76,984 abstentions.
3. The appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending July 31, 2000 was ratified. 50,865,223 votes for; 209,131 votes against; 32,754 abstentions.
ITEM 5. OTHER INFORMATION None 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
Exhibit Number Description ------- ----------- 3.01(1) Restated Certificate of Incorporation of the Registrant. 3.02(1) By-laws of the Registrant. 10.01(2) Employment Agreement between the Registrant and Howard S. Jonas. 10.02(10) 1996 Stock Option and Incentive Plan, as amended and restated, of the Registrant. 10.03(3) Form of Stock Option Agreement under the 1996 Stock Option and Incentive Plan. 10.04(4) Form of Registration Rights Agreement between certain stockholders and the Registrant. 10.05(1) Lease of 294 State Street. 10.06(5) Lease of 190 Main Street. 10.7(6) Form of Registration Rights Agreement between Howard S. Jonas and the Registrant. 10.8(11) Employment Agreement between the Registrant and James Courter. 10.9(7) Agreement between Cliff Sobel and the Registrant. 10.10(11) Employment Agreement between the Registrant and Hal Brecher. 10.11(11) Employment Agreement between the Registrant and Howard S. Jonas. 10.12(8) Agreement and Plan of Merger, dated April 7, 1998, by and among the Registrant, ADM Corp., InterExchange, Inc., David Turock, Eric Hecht, Richard Robbins, Bradley Turock, Wai Nam Tam, Mary Jo Altom and Lisa Mikulynec. 10.13(9) Securities Purchase Agreement between the Registrant, Carlos Gomez and Union Telecard Alliance, LLC. 10.14(11) Credit Agreement, dated as of May 10, 1999, by and among the Registrant, various lenders party thereto, Lehman Commercial Paper Inc., CIBC World Markets Corp. and Bankers Trust Company. 10.15(11) Pledge Agreement, dated as of May 10, 1999, by and among the Registrant, certain subsidiaries of the Registrant and Bankers Trust Company, as Collateral Agent. 10.16(11) Security Agreement, dated as of May 10, 1999, by and among the Registrant, certain subsidiaries of the Registrant and Bankers Trust Company, as Collateral Agent. 10.17(11) Subsidiaries Guaranty, dated as of May 10, 1999, by and among the Registrant, certain subsidiaries of the Registrant and Bankers Trust Company, as Collateral Agent. 10.18(11) Loan Agreement between the Registrant and Stephen Brown. 10.19(12) Internet/Telecommunications Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc. 10.20(12) Joint Marketing Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc. 10.21(12) IDT Services Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc. 10.22(12) Net2Phone Services Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc. 10.23(12) Assignment Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc. 10.24(12) Tax Sharing and Indemnification Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
21
Exhibit Number Description ------- ----------- 10.25(12) Separation Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc. 10.26(12) Co-location and Facilities Management Services Agreement, dated as of May 20, 1999, by and between Registrant and Net2Phone, Inc. 10.27+ Lease of 520 Broad Street, Newark, New Jersey. 10.28+ Amendment to Lease of 520 Broad Street, Newark, New Jersey. 27.01* Financial Data Schedule.
-------- * filed herewith + Previously filed (1) Incorporated by reference to Form S-1 filed February 21, 1996 file no. 333-00204. (2) Incorporated by reference to Form S-1 filed January 9, 1996 file no. 333- 00204. (3) Incorporated by reference to Form S-8 filed January 14, 1996 file no. 333- 19727. (4) Incorporated by reference to Form S-1 filed March 8, 1996 file no. 333- 00204. (5) Incorporated by reference to Form 10-K for the fiscal year ended July 31, 1997, filed October 29, 1997. (6) Incorporated by reference to Form S-1 filed March 14, 1996 file no. 333- 00204. (7) Incorporated by reference to Form 10-K/A for the fiscal year ended July 31, 1997, filed February 2, 1998. (8) Incorporated by reference to Form 8-K filed April 22, 1998. (9) Incorporated by reference to Form 10-K/A for the fiscal year ended July 31, 1998, filed December 4, 1998. (10) Incorporated by reference to Form 10-Q for the fiscal quarter ended January 31, 1999, filed March 17, 1999. (11) Incorporated by reference to Form 10-Q for the fiscal quarter ended April 30, 1999, filed June 14, 1999. (12) Incorporated by reference to Form 10-K for the fiscal year ended July 31, 1999, filed November 4, 1999. (b) Reports on Form 8-K. None. 22 IDT CORPORATION FORM 10-Q/A January 31, 2000 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IDT CORPORATION Dated: August 11, 2000 /s/ Howard S. Jonas [/R] By: _________________________________ Howard S. Jonas Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Dated: August 11, 2000 /s/ Stephen R. Brown [/R] By: _________________________________ Stephen R. Brown Chief Financial Officer (Principal Financial and Accounting Officer) 23