IDT.C Idt Corp. CL C

IDT Corporation (NYSE: IDT, IDT.C) announces operating results for the second quarter of fiscal 2006, the three months ended January 31, 2006. -- Revenues increased 3.7% to $615.7 million from $593.5 million in the second quarter of fiscal 2005. -- The net loss from continuing operations for the second quarter of fiscal 2006 was $58.7 million, or ($0.61) per share, compared to a net loss of $20.7 million, or ($0.22) per share, in the second quarter of fiscal 2005. -- As of January 31, 2006, cash, cash equivalents, and restricted cash and marketable securities stood at $700.0 million. -- Our financial results for fiscal years 2005 and 2006 now reflect a reclassification of Corbina Telecom as a discontinued operation. The following table summarizes the operating performance of IDT's business segments(1): -0- *T Revenues Income (Loss) from Operations $ millions Q2 '06 Q1 '06 Q2 '05 Q2 '06 Q1 '06 Q2 '05 ------- -------- ------- ------- ------- ------- IDT Retail Telecom $368.2 $363.9 $397.3 ($4.1) $7.7 $12.8 IDT Wholesale Telecom 128.8 138.1 128.3 (7.3) (6.1) (3.7) ------- -------- ------- ------- ------- ------- IDT Telecom Total 497.0 502.0 525.6 (11.4) 1.6 9.1 IDT Entertainment 48.4 48.1 41.1 0.2 0.7 2.0 Voice over IP 25.1 21.6 18.1 (9.4) (8.1) (8.7) IDT Capital 43.4 31.4 7.2 (3.8) (3.6) (3.5) IDT Solutions 1.7 1.4 1.5 (18.4) (6.2) (14.9) Corporate - - (14.3) (16.8) (12.6) ------- -------- ------- ------- ------- Total IDT $615.7 $604.6 $593.5 ($57.1) ($32.4) ($28.6) ======= ======== ======= ======= ======= ======= *T "This was a challenging quarter for our telecom operations, which have faced unrelenting competitive pressures for some time," said Jim Courter, CEO. "In addition, while shedding our unprofitable Winstar operations, and disposing of our Russian telecom operations at a significant gain, we continued to invest in a mix of businesses, both within telecom, using our core competencies and infrastructure, and also in highly promising new areas, particularly in entertainment. We believe this is the right course for the long term." DEVELOPMENTS -- The sale of Corbina, our Russian telecom business, for $145.7 million in cash, which we announced last quarter, closed on March 2. -- On January 26, we announced that GVC Networks, of Detroit, Michigan, acquired the remaining operations and assets of our Winstar business, except for our nationwide spectrum assets. The operations sold consisted mostly of existing contracts to provide telecommunications services to governmental customers. In connection with the transaction, IDT paid Lucent $10 million in settlement of outstanding litigation. -- In the second quarter of fiscal 2006, we repurchased 3.1 million shares of IDT stock for $37.1 million. Beginning with the fourth quarter of fiscal 2005 through January 31, 2006, we have repurchased a cumulative 6.4 million shares for $79.3 million. We have Board authorization to acquire an additional 13.6 million shares. -- On January 27, our tender offer for Net2Phone closed, and we acquired 33.2 million shares of Net2Phone for $68.3 million. On February 17, we executed a merger agreement with Net2Phone. Following the consummation of the merger, Net2Phone will be a privately held, wholly-owned subsidiary of IDT, and shares of Net2Phone common stock will cease to be quoted on the NASDAQ National Market and will be deregistered with the SEC. The estimated additional consideration payable as a result of the merger will be approximately $28.1 million. -0- *T RESULTS OF OPERATIONS IDT Telecom Line of Business Detail(1) Revenues Gross Profit Margin $ millions Q2 '06 Q1 '06 Q2 '05 Q2 '06 Q1 '06 Q2 '05 ------- ------- ------- -------- ----- ----- Calling Cards $301.6 $295.9 $306.5 20.4% 21.9% 22.4% Consumer Phone Services 66.7 68.0 90.8 44.3% 46.7% 49.5% ------- ------- ------- -------- ----- ----- Total Retail 368.2 363.9 397.3 24.7% 26.6% 28.6% Wholesale 128.8 138.1 128.3 8.6% 9.0% 9.3% ------- ------- ------- -------- ----- ----- Total Telecom $497.0 $502.0 $525.6 20.5% 21.7% 23.9% *T Retail Telecom -- Calling card revenues increased 1.9% versus the first quarter of fiscal 2006, and were 1.6% lower when compared to last year's second quarter. Both on a sequential basis as well as year-over-year, U.S. calling card revenues increased, while European calling card revenues declined, reflecting intensifying competition in some of our major European markets. -- Consumer phone services revenues in the second quarter of fiscal 2006 were 26.6% lower than those recorded in the year-ago period and down 2.1% from the first quarter of fiscal 2006, with continuing declines in the United States outweighing the growth achieved in Europe. The customer base for bundled unlimited local and long distance calling within the United States was approximately 188,000 as of January 31, 2006, compared to 202,000 customers as of October 31, 2005 and 300,000 customers as of January 31, 2005. The declines in revenues and subscribers is a direct result of our decision to stop marketing our bundled service early in calendar 2005 in response to the FCC's ruling that incumbent carriers are no longer required to lease elements of their local networks to competing carriers, such as IDT. -- Through Toucan, the brand name under which we provide our consumer phone and data services in the U.K. and the Netherlands, we provided service to approximately 165,000 customers subscribing to more than 191,000 services (which include various residential phone services in addition to Internet and wireless phone services) as of January 31, 2006. -- Retail Telecom gross margins narrowed to 24.7%, compared to 26.6% in the first quarter, and 28.6% in last year's second quarter. This quarter witnessed gross margin declines across all of our major retail lines of business. Gross margins for calling cards in both the United States and Europe were affected by intensified price competition as well as cost increases to several key destinations. Our U.S. consumer phone services business was affected by the higher cost structure called for in our wholesale services agreement with Verizon, which replaced the UNE-P regime, which was in place during the second quarter of last year. -- Operating profits for our Retail Telecom business declined $16.9 million as compared to the year-ago period, pushing the division into its first quarterly operating loss since the fourth quarter of fiscal 2001. Wholesale Telecom -- Wholesale Telecom revenues decreased 6.7% sequentially, and were essentially unchanged from those of a year ago. -- Both on a sequential basis as well as year-over-year, increases in minute volumes were offset by declines in per-minute price realizations, resulting in gross margin declines. -- Internationally originated traffic represented 56% of total wholesale revenues during the second quarter, compared to 50% in the first quarter, and 45% in last year's second quarter, as our wholesale carrier business becomes increasingly global. IDT Entertainment -- IDT Entertainment's revenues increased both on a sequential basis as well as year-over-year, led by the growth in our sales of proprietary productions. -- Proprietary production revenues during the quarter were driven by television and foreign pre-sales of The Happy Elf, Masters of Horror and other direct to TV/DVD productions. -- Our first feature film has been formally named "Everyone's Hero, The Story of Yankee Irving." We have also obtained what we believe will be a more favorable movie release date - the weekend of September 15, 2006. -- On February 2, we announced the appointment of Amorette Jones as EVP of Marketing. Ms. Jones is an award-winning marketing veteran and former head of Worldwide Marketing for Artisan Pictures. She oversaw unique marketing strategies, which have influenced the way the entire industry markets movies, for films such as The Blair Witch Project. -- On February 23, we announced that the ABC Television Network picked up IDT Entertainment's drama series Masters of Science Fiction. The series will feature works from some of the most well known authors of science fiction. IDT CONFERENCE CALL INFORMATION Conference call today, March 8, 2006, at 5:15 PM Eastern Time. -- From the U.S., 1-866-594-2183 passcode #7098806. -- International callers, 1-973-935-8583 passcode #7098806 -- Replay available for one week at -- 1-877-519-4471, passcode #7098806 for domestic callers, -- or 1-973-341-3080, passcode #7098806 for international callers. -- Webcast of the conference call at www.idt.net. A direct link to the call on the website. An archived copy of the call will be available at the IDT Website in the Investor Relations section's Presentations for at least six months after the call. -- Financial and statistical information available on IDT's website at www.idt.net in the "About IDT" Press Releases, and "About IDT" Investor Relations Presentations and Financial sections. ABOUT IDT CORPORATION IDT Corporation is a multinational telecommunications, entertainment and technology company. IDT conducts its business primarily through the following operating divisions: IDT Telecom, our largest division, offers retail and wholesale telecommunications services including calling cards, consumer local, long distance, and wireless services; IDT Entertainment operates our animation and home video entertainment businesses; IDT Capital develops and operates new business ventures; and Voice over IP consists primarily of Net2Phone, a provider of VoIP PacketCable, SIP and wireless solutions around the world. In this press release, all statements that are not purely about historical facts, including, but not limited to, those with the words "believe," "anticipate," "expect," "plan," "intend," "estimate," "target" and similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. While these forward-looking statements represent IDT's current judgment of what may happen in the future, actual results may differ materially from the results expressed or implied by these statements due to numerous important factors. These risks and uncertainties include, but are certainly not limited to the specific risks and uncertainties discussed in our reports filed with the SEC. All forward-looking statements and risk factors included in this document are made as of the date hereof, based on information available to the Company as of the date thereof, and the Company assumes no obligation to update any forward-looking statements or risk factors. Footnotes (1) Columns in tables may not add due to rounding. -0- *T IDT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended January 31, January 31, ------------------- ----------------------- 2006 2005 2006 2005 --------- --------- ----------- ----------- (In thousands, except per share data) Revenues $615,702 $593,496 $1,220,291 $1,209,913 Costs and expenses: Direct cost of revenues (exclusive of depreciation and amortization) 479,252 440,570 939,056 902,839 Selling, general and administrative (1) 166,851 145,867 317,163 288,429 Depreciation and amortization 26,000 26,879 52,059 50,854 Restructuring and impairment charges 729 8,780 1,543 11,415 --------- --------- ----------- ----------- Total costs and expenses 672,832 622,096 1,309,821 1,253,537 --------- --------- ----------- ----------- Loss from operations (57,130) (28,600) (89,530) (43,624) Interest income, net 2,099 5,565 5,277 11,196 Investment and other income, net 2,889 5,404 3,844 6,228 --------- --------- ----------- ----------- Loss from continuing operations before minority interests and income taxes (52,142) (17,631) (80,409) (26,200) Minority interests (6,911) (805) (8,307) (3,488) Benefit from (provision for) income taxes 402 (2,223) (1,856) (4,839) --------- --------- ----------- ----------- Loss from continuing operations (58,651) (20,659) (90,572) (34,527) Income from discontinued operations 3,015 2,935 7,012 5,069 --------- --------- ----------- ----------- Net loss $(55,636) $(17,724) $(83,560) $(29,458) ========= ========= =========== =========== Earnings per share: Basic: Loss from continuing operations $(0.61) $(0.22) $(0.93) $(0.36) Income from discontinued operations $0.03 $0.03 $0.07 $0.05 Net loss $(0.58) $(0.19) $(0.86) $(0.31) Diluted: Loss from continuing operations $(0.61) $(0.22) $(0.93) $(0.36) Income from discontinued operations $0.03 $0.03 $0.07 $0.05 Net loss $(0.58) $(0.19) $(0.86) $(0.31) Weighted-average number of shares used in calculation of earnings per share: Basic 95,858 95,635 97,010 95,412 ========= ========= =========== =========== Diluted 95,858 95,635 97,010 95,412 ========= ========= =========== =========== (1) Stock-based compensation included in selling, general and administrative expense $7,309 $5,059 $14,395 $9,892 ========= ========= =========== =========== IDT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS January 31, July 31, 2006 2005 ----------- ----------- (Unaudited) (in thousands, except share data) Assets Current assets: Cash and cash equivalents $48,978 $171,027 Marketable securities 649,344 780,263 Trade accounts receivable, net 208,053 189,094 Other current assets 128,570 112,263 Assets of discontinued operations 73,618 50,567 ----------- ----------- Total current assets 1,108,563 1,303,214 Property, plant and equipment, net 317,498 335,002 Goodwill 145,688 110,966 Licenses and other intangibles, net 39,593 32,591 Investments 53,968 50,941 Other assets 169,120 144,876 ----------- ----------- Total assets $1,834,430 $1,977,590 =========== =========== Liabilities and stockholders' equity Current liabilities: Trade accounts payable $86,430 $110,282 Accrued expenses 254,257 229,945 Deferred revenue 146,784 144,248 Capital lease obligations--current portion 24,472 32,728 Other current liabilities 37,499 38,043 Liabilities of discontinued operations 31,517 13,962 ----------- ----------- Total current liabilities 580,959 569,208 Deferred tax liabilities, net 105,252 108,237 Capital lease obligations--long-term portion 40,135 42,370 Notes payable--long-term portion 146,469 121,470 Other liabilities 6,068 8,217 ----------- ----------- Total liabilities 878,883 849,502 Minority interests 48,402 89,891 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; 25,074,860 shares issued at January 31, 2006 and July 31, 2005; 15,453,073 and 18,014,723 shares outstanding at January 31, 2006 and July 31, 2005, respectively 251 251 Class A common stock, $.01 par value; authorized shares--35,000,000; 9,816,988 shares issued and outstanding at January 31, 2006 and July 31, 2005 98 98 Class B common stock, $.01 par value; authorized shares--100,000,000; 76,285,346 and 75,917,516 shares issued at January 31, 2006 and July 31, 2005, respectively; 71,142,262 and 73,550,857 shares outstanding at January 31, 2006 and July 31, 2005, respectively 763 759 Additional paid-in capital 903,211 907,223 Treasury stock, at cost, consisting of 9,621,787 and 7,060,137 shares of common stock and 5,143,084 and 2,366,659 shares of Class B common stock at January 31, 2006 and July 31, 2005, respectively (212,410) (147,690) Deferred compensation -- (19,043) Accumulated other comprehensive income (loss) 297 (1,896) Retained earnings 214,935 298,495 ----------- ----------- Total stockholders' equity 907,145 1,038,197 ----------- ----------- Total liabilities and stockholders' equity $1,834,430 $1,977,590 IDT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended January 31, ----------------------- 2006 2005 (In thousands) Net cash used in operating activities $(79,139) $(5,308) Investing activities Capital expenditures (29,410) (35,528) Issuance of notes receivable, net (3,241) (5,650) Investments and acquisitions, net of cash acquired (81,147) (11,674) Proceeds from sales and maturities of marketable securities 1,517,571 2,767,922 Purchases of marketable securities (1,383,304) (2,669,120) ----------- ----------- Net cash provided by investing activities 20,469 45,950 Financing activities Proceeds from exercise of stock options 590 2,809 Proceeds from employee stock purchase plan 1,142 893 Proceeds from borrowings 25,414 -- Repayments of borrowings (1,607) -- Repayments of capital lease obligations (10,492) (13,429) Repurchases of common stock and Class B common stock (65,298) (1,985) Cash and marketable securities restricted against letters of credit -- 2,904 Distributions to minority shareholders of subsidiaries (13,531) (16,630) ----------- ----------- Net cash used in financing activities (63,782) (25,438) Effect of exchange rate changes on cash and cash equivalents 403 3,668 ----------- ----------- Net (decrease) increase in cash and cash equivalents (122,049) 18,872 Cash and cash equivalents, beginning of period 171,027 141,674 ----------- ----------- Cash and cash equivalents, end of period $48,978 $160,546 =========== =========== Supplemental schedule of non-cash investing and financing activities Purchases of property, plant and equipment through capital lease obligations $5,476 $12,853 =========== =========== Net cash from discontinued operations Operating activities $9,662 $4,324 Investing activities (11,897) (4,131) Financing activities 3,005 -- -------- ---------- Total increase in cash of discontinued operations $770 $193 ======== ========== ---------------------------------------------------------------------- IDT CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA THREE MONTHS ENDED JANUARY 31, 2006 (Segment data is shown net of effect of inter-segment transactions) Total IDT (In thousands) Corporation ----------- STATEMENT OF OPERATIONS DATA Revenues $615,702 Costs and expenses: Direct cost of revenues (exclusive of depreciation & amortization) 479,252 Selling, general and administrative 166,851 Depreciation and amortization 26,000 Restructuring and impairment charges 729 ----------- Total costs and expenses 672,832 ----------- Income (loss) from operations (57,130) Interest income, net 2,099 Investment & other income (expense), net 2,889 ----------- Loss from continuing operations before minority interests & income taxes (52,142) Minority interests (6,911) Benefit from income taxes 402 ----------- Loss from continuing operations (58,651) Income from discontinued operations 3,015 ----------- Net loss $(55,636) IDT CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA THREE MONTHS ENDED JANUARY 31, 2006 Retail Wholesale IDT Voice (In thousands) Telecom Telecom Entertainment Over IP --------- --------- -------------- -------- STATEMENT OF OPERATIONS DATA Revenues $368,231 $128,809 $48,445 $25,129 Costs and expenses: Direct cost of revenues (exclusive of depreciation & amortization) 277,259 117,677 31,645 14,426 Selling, general and administrative 81,872 13,457 13,430 17,760 Depreciation and amortization 13,248 4,941 3,196 2,313 Restructuring and impairment charges - - - (5) --------- --------- ---------- -------- Total costs and expenses 372,379 136,075 48,271 34,494 --------- --------- ---------- -------- Income (loss) from operations $(4,148) $(7,266) $174 $(9,365) IDT IDT (In thousands) Capital Solutions Corporate -------- --------- ---------- STATEMENT OF OPERATIONS DATA Revenues $43,406 $1,682 $- Costs and expenses: Direct cost of revenues (exclusive of depreciation & amortization) 35,818 2427 Selling, general and administrative 9,984 16,826 13,522 Depreciation and amortization 1,448 50 804 Restructuring and impairment charges 734 - -------- --------- ---------- Total costs and expenses 47,250 20,037 14,326 -------- --------- ---------- Income (loss) from operations $(3,844) $(18,355) $(14,326) *T