-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Fv/EkAjEZniDZohCfYQywhVxZr5Rejv0yhAG4gCXfA9fITIM0pe4I4kr7mNAnQDr hK4cc/HGIgeMxvlCNqfNYg== 0000912057-94-003976.txt : 19941201 0000912057-94-003976.hdr.sgml : 19941201 ACCESSION NUMBER: 0000912057-94-003976 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19941121 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDB COMMUNICATIONS GROUP INC CENTRAL INDEX KEY: 0000799319 STANDARD INDUSTRIAL CLASSIFICATION: 4899 IRS NUMBER: 930933098 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14972 FILM NUMBER: 94561282 BUSINESS ADDRESS: STREET 1: 10525 W WASHINGTON BLVD CITY: CULVER CITY STATE: CA ZIP: 90232 BUSINESS PHONE: 2138709000 10-Q/A 1 10-Q/A - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 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) DELAWARE 93-0933098 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
10525 WEST WASHINGTON BOULEVARD, CULVER CITY, CALIFORNIA 90232 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (213) 870-9000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Number of shares of common stock outstanding as of May 5, 1994: 74,116,956 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- IDB COMMUNICATIONS GROUP, INC. INDEX
PAGE NO. --------------- 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
2 IDB COMMUNICATIONS GROUP, INC. CONSOLIDATED BALANCE SHEET ASSETS
DECEMBER 31, MARCH 31, 1993 1994 ---------------- ---------------- (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 ---------------- ---------------- ---------------- ----------------
See accompanying notes to consolidated financial statements. 3 IDB COMMUNICATIONS GROUP, INC CONSOLIDATED INCOME STATEMENT (UNAUDITED, SEE NOTE 1)
FOR THE THREE MONTHS ENDED MARCH 31, -------------------------------- 1993 1994 -------------- ---------------- 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 -------------- ---------------- -------------- ----------------
See accompanying notes to consolidated financial statements. 4 IDB COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, SEE NOTE 1)
FOR THE THREE MONTHS ENDED MARCH 31, -------------------------------- 1993 1994 --------------- --------------- 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 --------------- --------------- --------------- ---------------
See accompanying notes to consolidated financial statements. 5 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:
INCREASE ORIGINAL (DECREASE) FORM 10-Q/A (NO. FORM 10-Q ADJUSTMENTS 2) ---------------- --------------- ---------------- 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
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 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
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------- 1993 1994 ---------- ---------- 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:
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 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.
FOR THE THREE MONTHS ENDED MARCH 31, 1993 ---------------- 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
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 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.
PERCENTAGE OF REVENUES FOR THE THREE MONTHS ENDED MARCH 31, --------------- 1993 1994 ----- ----- 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% ----- ----- ----- -----
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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----